Commission file numbernumber: 001-38335
Liberty Latin America Ltd.
(Exact name of Registrant as specified in its charter)
| Bermuda | 98-1386359 | |||||||
| (State or | (I.R.S. Employer Identification No.) | |||||||
| 2 Church Street, | ||||||||
| Hamilton | HM 11 | |||||||
| (Address of | (Zip Code) | |||||||
Registrant’s telephone number, including area code: (441) 295-5950 or (303) 925-6000
| Title of Each Class | Trading Symbols | Name of Each Exchange on Which Registered | ||||||
| Class A Common Shares, par value $0.01 per share | LILA | The NASDAQ Stock Market LLC | ||||||
| Class C Common Shares, par value $0.01 per share | LILAK | The NASDAQ Stock Market LLC | ||||||
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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Check one:
Large Accelerated Filer | ☑ | Accelerated Filer | ☐ | Non-Accelerated Filer | |||||||||||||
Smaller Reporting Company | ☐ | Emerging Growth Company | ☐ | ||||||||||||||
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨
| Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | Yes | ☐ | |||||||||
The number of outstanding common shares of Liberty Latin America Ltd. as of April 30, 2018October 31, 2020 was: 48,441,02348,992,012 Class A; 1,936,0351,933,386 Class B; and 120,859,778181,081,015 Class C.
LIBERTY LATIN AMERICA LTD.
TABLE OF CONTENTS
Page Number | ||||||||
| PART I - FINANCIAL INFORMATION | ||||||||
| Item 1. | FINANCIAL STATEMENTS | |||||||
| Condensed Consolidated Balance Sheets as of | ||||||||
| Condensed Consolidated Statements of Operations for the Three and Nine Months Ended | ||||||||
| Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended | ||||||||
| Condensed Consolidated | ||||||||
| Condensed Consolidated Statements of Cash Flows for the | ||||||||
| Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||||
| Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |||||||
| Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | |||||||
| Item 4. | CONTROLS AND PROCEDURES | |||||||
| PART II - OTHER INFORMATION | ||||||||
| Item 1. | LEGAL PROCEEDINGS | |||||||
| Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | |||||||
| Item 6. | EXHIBITS | |||||||
LIBERTY LATIN AMERICA LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
| March 31, 2018 | December 31, 2017 | |||||||
| in millions | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 510.6 | $ | 529.9 | ||||
| Trade receivables, net of allowances of $142.4 million and $142.2 million, respectively | 581.2 | 556.5 | ||||||
| Prepaid expenses | 64.8 | 65.5 | ||||||
| Other current assets | 245.7 | 222.9 | ||||||
| Total current assets | 1,402.3 | 1,374.8 | ||||||
| Goodwill | 5,663.6 | 5,673.6 | ||||||
| Property and equipment, net | 4,236.2 | 4,169.2 | ||||||
| Intangible assets subject to amortization, net | 1,251.6 | 1,316.2 | ||||||
| Intangible assets not subject to amortization | 565.9 | 565.4 | ||||||
| Other assets, net | 579.4 | 517.7 | ||||||
| Total assets | $ | 13,699.0 | $ | 13,616.9 | ||||
| September 30, 2020 | December 31, 2019 | ||||||||||
| in millions | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 1,611.9 | $ | 1,183.8 | |||||||
| Trade receivables, net of allowances of $96.8 million and $87.3 million, respectively | 505.9 | 585.2 | |||||||||
| Prepaid expenses | 62.2 | 58.9 | |||||||||
| Other current assets, net | 225.6 | 227.3 | |||||||||
| Total current assets | 2,405.6 | 2,055.2 | |||||||||
| Goodwill | 4,503.7 | 4,906.4 | |||||||||
| Property and equipment, net | 4,149.8 | 4,301.1 | |||||||||
| Restricted cash | 1,369.9 | 1,272.2 | |||||||||
| Intangible assets subject to amortization, net | 825.5 | 969.2 | |||||||||
| Intangible assets not subject to amortization | 561.3 | 560.8 | |||||||||
| Other assets, net | 782.1 | 872.6 | |||||||||
| Total assets | $ | 14,597.9 | $ | 14,937.5 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
LIBERTY LATIN AMERICA LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS – (Continued)
(unaudited)
| September 30, 2020 | December 31, 2019 | ||||||||||
| in millions | |||||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 269.6 | $ | 346.6 | |||||||
| Current portion of deferred revenue | 138.0 | 160.9 | |||||||||
| Current portion of debt and finance lease obligations | 284.4 | 180.2 | |||||||||
| Accrued capital expenditures | 47.9 | 72.1 | |||||||||
| Accrued interest | 118.9 | 132.6 | |||||||||
| Accrued payroll and employee benefits | 80.8 | 88.9 | |||||||||
| Other accrued and current liabilities | 645.5 | 594.7 | |||||||||
| Total current liabilities | 1,585.1 | 1,576.0 | |||||||||
| Long-term debt and finance lease obligations | 8,175.4 | 8,189.8 | |||||||||
| Deferred tax liabilities | 361.5 | 401.8 | |||||||||
| Deferred revenue | 187.0 | 210.9 | |||||||||
| Other long-term liabilities | 761.2 | 579.1 | |||||||||
| Total liabilities | 11,070.2 | 10,957.6 | |||||||||
| Commitments and contingencies | |||||||||||
| Equity: | |||||||||||
| Liberty Latin America shareholders: | |||||||||||
| Class A, $0.01 par value; 500,000,000 shares authorized; 49,186,678 and 48,892,862 shares issued and outstanding, respectively, at September 30, 2020 and 48,795,552 shares issued and outstanding at December, 31, 2019 | 0.5 | 0.5 | |||||||||
| Class B, $0.01 par value; 50,000,000 shares authorized; 1,933,414 shares issued and outstanding at September 30, 2020 and 1,934,686 shares issued and outstanding at December 31, 2019 | 0 | 0 | |||||||||
| Class C, $0.01 par value; 500,000,000 shares authorized; 181,099,655 and 180,426,497 shares issued and outstanding, respectively, at September 30, 2020 and 131,181,371 shares issued and outstanding at December 31, 2019 | 1.8 | 1.3 | |||||||||
| Undesignated preference shares, $0.01 par value; 50,000,000 shares authorized; NaN shares issued and outstanding at each period | 0 | 0 | |||||||||
| Treasury shares, at cost; 966,974 and NaN shares, respectively | (9.5) | 0 | |||||||||
| Additional paid-in capital | 4,972.4 | 4,569.9 | |||||||||
| Accumulated deficit | (2,105.6) | (1,447.1) | |||||||||
| Accumulated other comprehensive loss, net of taxes | (83.2) | (14.8) | |||||||||
| Total Liberty Latin America shareholders | 2,776.4 | 3,109.8 | |||||||||
| Noncontrolling interests | 751.3 | 870.1 | |||||||||
| Total equity | 3,527.7 | 3,979.9 | |||||||||
| Total liabilities and equity | $ | 14,597.9 | $ | 14,937.5 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
| March 31, 2018 | December 31, 2017 | |||||||
| in millions | ||||||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 276.7 | $ | 286.8 | ||||
| Deferred revenue | 159.3 | 143.4 | ||||||
| Current portion of debt and capital lease obligations | 212.3 | 263.3 | ||||||
| Accrued capital expenditures | 108.3 | 128.6 | ||||||
| Accrued interest | 58.8 | 115.6 | ||||||
| Accrued income taxes | 88.7 | 91.5 | ||||||
| Other accrued and current liabilities | 691.2 | 557.7 | ||||||
| Total current liabilities | 1,595.3 | 1,586.9 | ||||||
| Long-term debt and capital lease obligations | 6,207.1 | 6,108.2 | ||||||
| Deferred tax liabilities | 516.6 | 533.4 | ||||||
| Other long-term liabilities | 783.1 | 697.8 | ||||||
| Total liabilities | 9,102.1 | 8,926.3 | ||||||
| Commitments and contingencies | ||||||||
| Equity: | ||||||||
| Liberty Latin America shareholders: | ||||||||
| Class A, $0.01 par value; 500,000,000 shares authorized; 48,438,433 and 48,428,841 shares issued and outstanding, respectively | 0.5 | 0.5 | ||||||
| Class B, $0.01 par value; 50,000,000 shares authorized; 1,938,625 and 1,940,193 shares issued and outstanding, respectively | — | — | ||||||
| Class C, $0.01 par value; 500,000,000 shares authorized; 120,859,778 and 120,843,539 shares issued and outstanding, respectively | 1.2 | 1.2 | ||||||
| Undesignated preference shares, $0.01 par value; 50,000,000 shares authorized; nil shares issued and outstanding at each period | — | — | ||||||
| Additional paid-in capital | 4,397.5 | 4,402.8 | ||||||
| Accumulated deficit | (1,066.3 | ) | (1,010.7 | ) | ||||
| Accumulated other comprehensive loss, net of taxes | (86.2 | ) | (64.2 | ) | ||||
| Total Liberty Latin America shareholders | 3,246.7 | 3,329.6 | ||||||
| Noncontrolling interests | 1,350.2 | 1,361.0 | ||||||
| Total equity | 4,596.9 | 4,690.6 | ||||||
| Total liabilities and equity | $ | 13,699.0 | $ | 13,616.9 | ||||
LIBERTY LATIN AMERICA LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| in millions, except share and per share amounts | |||||||||||||||||||||||
| Revenue | $ | 887.5 | $ | 966.8 | $ | 2,667.4 | $ | 2,892.4 | |||||||||||||||
| Operating costs and expenses (exclusive of depreciation and amortization, shown separately below): | |||||||||||||||||||||||
| Programming and other direct costs of services | 189.7 | 215.7 | 580.2 | 664.1 | |||||||||||||||||||
| Other operating costs and expenses | 365.6 | 386.5 | 1,105.8 | 1,140.6 | |||||||||||||||||||
| Depreciation and amortization | 231.6 | 226.0 | 661.5 | 665.3 | |||||||||||||||||||
| Impairment, restructuring and other operating items, net | 14.0 | 208.3 | 331.5 | 235.3 | |||||||||||||||||||
| 800.9 | 1,036.5 | 2,679.0 | 2,705.3 | ||||||||||||||||||||
Operating income (loss) | 86.6 | (69.7) | (11.6) | 187.1 | |||||||||||||||||||
| Non-operating income (expense): | |||||||||||||||||||||||
| Interest expense | (129.9) | (123.9) | (408.5) | (359.4) | |||||||||||||||||||
Realized and unrealized gains (losses) on derivative instruments, net | (78.1) | 51.4 | (239.7) | (96.6) | |||||||||||||||||||
| Foreign currency transaction gains (losses), net | 30.1 | (110.8) | (115.1) | (98.1) | |||||||||||||||||||
Losses on debt modification and extinguishment | (41.7) | (3.5) | (45.1) | (13.0) | |||||||||||||||||||
| Other income, net | 0.2 | 4.4 | 11.8 | 9.4 | |||||||||||||||||||
| (219.4) | (182.4) | (796.6) | (557.7) | ||||||||||||||||||||
| Loss before income taxes | (132.8) | (252.1) | (808.2) | (370.6) | |||||||||||||||||||
Income tax benefit | 42.8 | 182.4 | 33.4 | 148.5 | |||||||||||||||||||
Net loss | (90.0) | (69.7) | (774.8) | (222.1) | |||||||||||||||||||
Net loss attributable to noncontrolling interests | 5.4 | 105.0 | 116.5 | 99.7 | |||||||||||||||||||
| Net earnings (loss) attributable to Liberty Latin America shareholders | $ | (84.6) | $ | 35.3 | $ | (658.3) | $ | (122.4) | |||||||||||||||
Basic and diluted net earnings (loss) per share attributable to Liberty Latin America shareholders | $ | (0.46) | $ | 0.19 | $ | (3.59) | $ | (0.66) | |||||||||||||||
| Weighted average shares outstanding - basic | 185,380,797 | 184,452,387 | 183,286,840 | 184,238,994 | |||||||||||||||||||
| Weighted average shares outstanding - diluted | 185,380,797 | 184,807,225 | 183,286,840 | 184,238,994 | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
| Three months ended March 31, | |||||||
| 2018 | 2017 | ||||||
| in millions | |||||||
| Revenue | $ | 909.9 | $ | 910.9 | |||
| Operating costs and expenses (exclusive of depreciation and amortization, shown separately below): | |||||||
| Programming and other direct costs of services | 215.8 | 221.9 | |||||
| Other operating | 166.5 | 170.5 | |||||
Selling, general and administrative (SG&A) | 193.3 | 176.4 | |||||
| Depreciation and amortization | 202.3 | 193.9 | |||||
| Impairment, restructuring and other operating items, net | 33.7 | 13.4 | |||||
| 811.6 | 776.1 | ||||||
| Operating income | 98.3 | 134.8 | |||||
| Non-operating income (expense): | |||||||
| Interest expense | (102.5 | ) | (94.3 | ) | |||
| Realized and unrealized losses on derivative instruments, net | (41.5 | ) | (27.3 | ) | |||
| Foreign currency transaction gains, net | 15.9 | 14.5 | |||||
| Loss on debt modification and extinguishment | (13.0 | ) | — | ||||
| Other income, net | 5.3 | 6.0 | |||||
| (135.8 | ) | (101.1 | ) | ||||
| Earnings (loss) before income taxes | (37.5 | ) | 33.7 | ||||
| Income tax expense | (16.8 | ) | (23.1 | ) | |||
| Net earnings (loss) | (54.3 | ) | 10.6 | ||||
| Net loss (earnings) attributable to noncontrolling interests | 9.8 | (16.4 | ) | ||||
| Net loss attributable to Liberty Latin America shareholders | $ | (44.5 | ) | $ | (5.8 | ) | |
| Basic and diluted net loss per share attributable to Liberty Latin America shareholders | $ | (0.26 | ) | $ | (0.03 | ) | |
LIBERTY LATIN AMERICA LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| in millions | |||||||||||||||||||||||
Net loss | $ | (90.0) | $ | (69.7) | $ | (774.8) | $ | (222.1) | |||||||||||||||
Other comprehensive earnings (loss), net of taxes: | |||||||||||||||||||||||
| Foreign currency translation adjustments | (27.4) | (6.8) | (67.8) | (32.5) | |||||||||||||||||||
Reclassification adjustments included in net earnings (loss) | 0.6 | (0.8) | (2.5) | (4.3) | |||||||||||||||||||
| Pension-related adjustments and other, net | (0.5) | 3.2 | 1.1 | 1.3 | |||||||||||||||||||
| Other comprehensive loss | (27.3) | (4.4) | (69.2) | (35.5) | |||||||||||||||||||
| Comprehensive loss | (117.3) | (74.1) | (844.0) | (257.6) | |||||||||||||||||||
Comprehensive loss attributable to noncontrolling interests | 5.5 | 105.3 | 117.3 | 100.2 | |||||||||||||||||||
| Comprehensive earnings (loss) attributable to Liberty Latin America shareholders | $ | (111.8) | $ | 31.2 | $ | (726.7) | $ | (157.4) | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
| Three months ended March 31, | |||||||
| 2018 | 2017 | ||||||
| in millions | |||||||
| Net earnings (loss) | $ | (54.3 | ) | $ | 10.6 | ||
| Other comprehensive loss, net of taxes: | |||||||
| Foreign currency translation adjustments | (31.8 | ) | (10.6 | ) | |||
Reclassification adjustments included in net earnings (loss) | 1.6 | 1.0 | |||||
| Pension-related adjustments and other, net | 0.9 | (3.5 | ) | ||||
| Other comprehensive loss | (29.3 | ) | (13.1 | ) | |||
Comprehensive loss | (83.6 | ) | (2.5 | ) | |||
Comprehensive loss (earnings) attributable to noncontrolling interests | 10.3 | (15.9 | ) | ||||
Comprehensive loss attributable to Liberty Latin America shareholders | $ | (73.3 | ) | $ | (18.4 | ) | |
LIBERTY LATIN AMERICA LTD.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF EQUITY
(unaudited)
| Liberty Latin America shareholders | Non-controlling interests | Total equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common shares | Treasury Stock | Additional paid-in capital | Accumulated deficit | Accumulated other comprehensive loss, net of taxes | Total Liberty Latin America shareholders | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | Class C | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at July 1, 2019 | $ | 0.5 | $ | 0 | $ | 1.3 | $ | 0 | $ | 4,549.3 | $ | (1,524.7) | $ | (47.2) | $ | 2,979.2 | $ | 1,024.7 | $ | 4,003.9 | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | 35.3 | — | 35.3 | (105.0) | (69.7) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | (4.1) | (4.1) | (0.3) | (4.4) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Distribution to noncontrolling interest owners | — | — | — | — | — | — | — | — | (0.1) | (0.1) | |||||||||||||||||||||||||||||||||||||||||||||||||
| UTS NCI Acquisition | — | — | — | — | 0.1 | — | — | 0.1 | (11.7) | (11.6) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shared-based compensation | — | — | — | — | 12.9 | — | — | 12.9 | — | 12.9 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | 0.7 | — | — | 0.7 | — | 0.7 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2019 | $ | 0.5 | $ | 0 | $ | 1.3 | $ | 0 | $ | 4,563.0 | $ | (1,489.4) | $ | (51.3) | $ | 3,024.1 | $ | 907.6 | $ | 3,931.7 | |||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2019 | $ | 0.5 | $ | 0 | $ | 1.3 | $ | 0 | $ | 4,494.1 | $ | (1,367.0) | $ | (16.3) | $ | 3,112.6 | $ | 1,010.8 | $ | 4,123.4 | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (122.4) | — | (122.4) | (99.7) | (222.1) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | (35.0) | (35.0) | (0.5) | (35.5) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Impact of the UTS Acquisition | — | — | — | — | — | — | — | — | 11.6 | 11.6 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Distribution to noncontrolling interest owners | — | — | — | — | — | — | — | — | (2.6) | (2.6) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion Option, net | — | — | — | — | 77.3 | — | — | 77.3 | — | 77.3 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Capped Calls | — | — | — | — | (45.6) | — | — | (45.6) | — | (45.6) | |||||||||||||||||||||||||||||||||||||||||||||||||
| UTS NCI Acquisition | — | — | — | — | 0.1 | — | — | 0.1 | (11.7) | (11.6) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shared-based compensation | — | — | — | — | 37.1 | — | — | 37.1 | — | 37.1 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | — | — | — | — | (0.3) | (0.3) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2019 | $ | 0.5 | $ | 0 | $ | 1.3 | $ | 0 | $ | 4,563.0 | $ | (1,489.4) | $ | (51.3) | $ | 3,024.1 | $ | 907.6 | $ | 3,931.7 | |||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
| Liberty Latin America shareholders | Non-controlling interests | Total equity | |||||||||||||||||||||||||||||||||
| Common shares | Additional paid-in capital | Accumulated deficit | Accumulated other comprehensive loss, net of taxes | Total Liberty Latin America shareholders | |||||||||||||||||||||||||||||||
| Class A | Class B | Class C | |||||||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||||||
| Balance at January 1, 2018, before effect of accounting change | $ | 0.5 | $ | — | $ | 1.2 | $ | 4,402.8 | $ | (1,010.7 | ) | $ | (64.2 | ) | $ | 3,329.6 | $ | 1,361.0 | $ | 4,690.6 | |||||||||||||||
| Accounting change (note 2) | — | — | — | — | (11.1 | ) | — | (11.1 | ) | 3.6 | (7.5 | ) | |||||||||||||||||||||||
| Balance at January 1, 2018, as adjusted for accounting change | 0.5 | — | 1.2 | 4,402.8 | (1,021.8 | ) | (64.2 | ) | 3,318.5 | 1,364.6 | 4,683.1 | ||||||||||||||||||||||||
| Net loss | — | — | — | — | (44.5 | ) | — | (44.5 | ) | (9.8 | ) | (54.3 | ) | ||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | (28.8 | ) | (28.8 | ) | (0.5 | ) | (29.3 | ) | ||||||||||||||||||||||
| C&W Jamaica NCI Acquisition | — | — | — | (12.0 | ) | — | 6.8 | (5.2 | ) | (14.9 | ) | (20.1 | ) | ||||||||||||||||||||||
| Capital contribution from noncontrolling interest owner | — | — | — | — | — | — | — | 10.0 | 10.0 | ||||||||||||||||||||||||||
| Shared-based compensation | — | — | — | 7.4 | — | — | 7.4 | — | 7.4 | ||||||||||||||||||||||||||
| Other | — | — | — | (0.7 | ) | — | — | (0.7 | ) | 0.8 | 0.1 | ||||||||||||||||||||||||
| Balance at March 31, 2018 | $ | 0.5 | $ | — | $ | 1.2 | $ | 4,397.5 | $ | (1,066.3 | ) | $ | (86.2 | ) | $ | 3,246.7 | $ | 1,350.2 | $ | 4,596.9 | |||||||||||||||
| Liberty Latin America shareholders | Non-controlling interests | Total equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common shares | Treasury Stock | Additional paid-in capital | Accumulated deficit | Accumulated other comprehensive loss, net of taxes | Total Liberty Latin America shareholders | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | Class C | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at July 1, 2020 | $ | 0.5 | $ | 0 | $ | 1.3 | $ | (9.5) | $ | 4,606.2 | $ | (2,021.0) | $ | (56.0) | $ | 2,521.5 | $ | 758.4 | $ | 3,279.9 | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (84.6) | — | (84.6) | (5.4) | (90.0) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | (27.2) | (27.2) | (0.1) | (27.3) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Liberty Latin America common shares, net | — | — | 0.5 | — | 347.2 | — | — | 347.7 | — | 347.7 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shared-based compensation | — | — | — | — | 19.0 | — | — | 19.0 | — | 19.0 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | — | — | — | — | (1.6) | (1.6) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | 0.5 | $ | 0 | $ | 1.8 | $ | (9.5) | $ | 4,972.4 | $ | (2,105.6) | $ | (83.2) | $ | 2,776.4 | $ | 751.3 | $ | 3,527.7 | |||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2020 | $ | 0.5 | $ | 0 | $ | 1.3 | $ | 0 | $ | 4,569.9 | $ | (1,447.1) | $ | (14.8) | $ | 3,109.8 | $ | 870.1 | $ | 3,979.9 | |||||||||||||||||||||||||||||||||||||||
| Accounting change (note 2) | — | — | — | — | — | (0.2) | — | (0.2) | 0.2 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2020, as adjusted for accounting change | 0.5 | 0 | 1.3 | 0 | 4,569.9 | (1,447.3) | (14.8) | 3,109.6 | 870.3 | 3,979.9 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (658.3) | — | (658.3) | (116.5) | (774.8) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | (68.4) | (68.4) | (0.8) | (69.2) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of Liberty Latin America common shares | — | — | — | (9.5) | — | — | — | (9.5) | — | (9.5) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Liberty Latin America common shares, net | — | — | 0.5 | — | 347.2 | — | — | 347.7 | — | 347.7 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shared-based compensation | — | — | — | — | 54.4 | — | — | 54.4 | — | 54.4 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | 0.9 | — | — | 0.9 | (1.7) | (0.8) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | 0.5 | $ | 0 | $ | 1.8 | $ | (9.5) | $ | 4,972.4 | $ | (2,105.6) | $ | (83.2) | $ | 2,776.4 | $ | 751.3 | $ | 3,527.7 | |||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
LIBERTY LATIN AMERICA LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Nine months ended September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| in millions | |||||||||||
| Cash flows from operating activities: | |||||||||||
Net loss | $ | (774.8) | $ | (222.1) | |||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||
| Share-based compensation expense | 75.3 | 45.2 | |||||||||
| Depreciation and amortization | 661.5 | 665.3 | |||||||||
| Impairment | 279.9 | 196.3 | |||||||||
| Amortization of debt financing costs, premiums and discounts, net | 22.0 | 8.8 | |||||||||
| Realized and unrealized losses on derivative instruments, net | 239.7 | 96.6 | |||||||||
| Foreign currency transaction losses, net | 115.1 | 98.1 | |||||||||
| Loss on debt modification and extinguishment | 45.1 | 13.0 | |||||||||
Deferred income tax benefit | (69.5) | (81.5) | |||||||||
| Changes in operating assets and liabilities, net of the effect of acquisitions | (103.3) | (229.3) | |||||||||
Net cash provided by operating activities | 491.0 | 590.4 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | (418.3) | (432.0) | |||||||||
| Cash paid in connection with acquisitions, net of cash acquired | (0.1) | (160.4) | |||||||||
| Recovery on damaged or destroyed property and equipment | 0 | 33.9 | |||||||||
| Other investing activities, net | (0.5) | 1.6 | |||||||||
Net cash used by investing activities | (418.9) | (556.9) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings of debt | 1,289.0 | 1,641.2 | |||||||||
| Payments of principal amounts of debt and finance lease obligations | (1,259.5) | (1,197.4) | |||||||||
| Issuance of Liberty Latin America common shares, net | 349.6 | 0 | |||||||||
Net cash received (paid) related to derivative instruments | 180.6 | (0.3) | |||||||||
| Capped Calls | 0 | (45.6) | |||||||||
| Payment of financing costs and debt premiums | (75.4) | (35.4) | |||||||||
| Repurchase of Liberty Latin America common shares | (9.5) | 0 | |||||||||
| Distributions to noncontrolling interest owners | (2.3) | (2.6) | |||||||||
| Other financing activities, net | (7.6) | (9.5) | |||||||||
Net cash provided by financing activities | 464.9 | 350.4 | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (11.1) | (5.4) | |||||||||
| Net increase in cash, cash equivalents and restricted cash | 525.9 | 378.5 | |||||||||
| Cash, cash equivalents and restricted cash: | |||||||||||
| Beginning of period | 2,457.0 | 642.0 | |||||||||
| End of period | $ | 2,982.9 | $ | 1,020.5 | |||||||
Cash paid for interest | $ | 384.6 | $ | 371.3 | |||||||
Net cash paid for taxes | $ | 42.3 | $ | 100.2 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
| Three months ended March 31, | |||||||
| 2018 | 2017 | ||||||
| in millions | |||||||
| Cash flows from operating activities: | |||||||
| Net earnings (loss) | $ | (54.3 | ) | $ | 10.6 | ||
| Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | |||||||
| Share-based compensation expense | 6.5 | 5.6 | |||||
| Depreciation and amortization | 202.3 | 193.9 | |||||
| Impairment, restructuring and other operating items, net | 33.7 | 13.4 | |||||
| Amortization of debt financing costs, premiums and discounts, net | (0.5 | ) | (3.8 | ) | |||
Realized and unrealized losses on derivative instruments, net | 41.5 | 27.3 | |||||
Foreign currency transaction gains, net | (15.9 | ) | (14.5 | ) | |||
Loss on debt modification and extinguishment | 13.0 | — | |||||
| Deferred income tax benefit | (7.5 | ) | (17.3 | ) | |||
| Changes in operating assets and liabilities, net of the effect of an acquisition | (55.6 | ) | (140.2 | ) | |||
| Net cash provided by operating activities | 163.2 | 75.0 | |||||
| Cash flows from investing activities: | |||||||
| Capital expenditures | (188.2 | ) | (124.4 | ) | |||
| Other investing activities, net | 0.4 | (2.6 | ) | ||||
| Net cash used by investing activities | (187.8 | ) | (127.0 | ) | |||
| Cash flows from financing activities: | |||||||
| Borrowings of debt | 190.0 | 136.5 | |||||
| Repayments of debt and capital lease obligations | (190.4 | ) | (73.9 | ) | |||
| Distributions to noncontrolling interest owners | — | (14.6 | ) | ||||
| Capital contribution from noncontrolling interest owner | 10.0 | — | |||||
| Distributions to Liberty Global | — | (18.8 | ) | ||||
| Cash payment related to the C&W Jamaica NCI Acquisition | (18.6 | ) | — | ||||
| Other financing activities, net | (2.8 | ) | 5.3 | ||||
| Net cash provided (used) by financing activities | (11.8 | ) | 34.5 | ||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 0.1 | (0.5 | ) | ||||
Net decrease in cash, cash equivalents and restricted cash | (36.3 | ) | (18.0 | ) | |||
| Cash, cash equivalents and restricted cash: | |||||||
| Beginning of period | 568.2 | 580.8 | |||||
| End of period | $ | 531.9 | $ | 562.8 | |||
| Cash paid for interest | $ | 156.3 | $ | 168.2 | |||
| Net cash paid for taxes | $ | 29.1 | $ | 34.6 | |||
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Liberty Latin America Ltd. (Liberty Latin America) is a registered company in Bermuda that primarily includes (i) Cable & Wireless Communications Limited and its subsidiaries (C&W) and its subsidiaries, (ii) VTR Finance N.V., (ii)formerly known as VTR Finance B.V. (VTR Finance) and its subsidiaries, which includesinclude VTR.com SpA (VTR), and (iii) LiLACLiberty Communications Inc.PR Holding LP (Liberty PR), formerly known as Leo Cable LP, and its subsidiaries, which includesinclude Liberty Communications of Puerto Rico LLC (LCPR), formerly known as Liberty Cablevision of Puerto Rico LLC, and (iv) LBT CT Communications, S.A. (a less than wholly-owned entity) and its subsidiary, Cabletica S.A. (Cabletica). Liberty PR and LCPR are collectively referred to herein as “Liberty Puerto Rico), an entity in which Liberty Latin America owns a 60.0% interest. .”C&W owns less than 100% of certain of its consolidated subsidiaries, including Cable & Wireless Panama, SA (C&W Panama) (a 49.0%-owned entity that owns most of our operations in Panama), The Bahamas Telecommunications Company Limited (a 49.0%-owned entity that owns all of our operations in the Bahamas) and(C&W Bahamas), Cable & Wireless Jamaica Limited (C&W Jamaica) (a 91.7%-owned entity that owns, and Cable & Wireless Panama, S.A. (C&W Panama). For information regarding the majoritypercentages of certain of our operationsless than wholly-owned consolidated subsidiaries, see Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview.
We are an international provider of fixed, mobile and subsea telecommunications services. We provide residential and business-to-business (B2B) services in Jamaica).(i) over 20 countries, primarily in Latin America and the Caribbean, through C&W, (ii) Chile and Costa Rica, through “VTR/Cabletica”, and (iii) Puerto Rico, through Liberty Puerto Rico. Through our “Networks & LatAm” business, C&W also provides (i) B2B services in certain other countries in Latin America and the Caribbean and (ii) wholesale communication services over its subsea and terrestrial fiber optic cable networks that connect over 40 markets in that region.
In these notes, the terms “we,” “our,” “our company” and “us” may refer, as the context requires, to Liberty Latin America or collectively to Liberty Latin America and its subsidiaries. Unless otherwise indicated, ownership percentages and convenience translations into United States (U.S.) dollars are calculated as of September 30, 2020.
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) and with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these financial statements do not include all of the information required by U.S. GAAP or Securities and Exchange Commission rules and regulations for complete financial statements. In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results of operations for the interim periods presented. The results of operations for any interim period are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our 20172019 Annual Report on Form 10-K ((the 20172019 Form 10-K).
Certain prior period amounts have been reclassified to conform to the current period presentation.
8
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)
(2) Accounting Changes and Recent Accounting Pronouncements
Accounting Changes
ASU 2014-092018-15
In May 2014,August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,2018-15, Revenue from Contracts with Customers Intangibles—Goodwill and Other—Internal-Use Software—Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (ASU 2014-092018-15),. ASU 2018-15 provides additional guidance on ASU No. 2015-05, Intangibles—Goodwill and Other—Internal-Use Software—Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, which was issued to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The guidance (i) provides criteria for determining which implementation costs to capitalize as an asset related to the service contract and which costs to expense, (ii) requires an entity (customer) to recognizeexpense the amountcapitalized implementation costs of revenue to which it expects to be entitleda hosting arrangement that is a service contract over the term of the hosting arrangement and (iii) clarifies the presentation requirements for reporting such costs in the transfer of promised goods or services to customers.entity’s financial statements. We adopted ASU 2014-092018-15 effective January 1, 20182020 on a prospective basis for all implementation costs incurred after the date of adoption and it did not have a material impact on our condensed consolidated financial statements.
ASU 2016-13
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses—Measurement of Credit Losses on Financial Instruments (ASU 2016-13), as amended by recording(i) ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which amended certain effective dates, and (ii) ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which clarifies guidance around how to report expected recoveries. ASU 2016-13 replaces the cumulative effectincurred loss impairment methodology for recognizing credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to the opening balance ofinform credit loss estimates. We are required to use a forward-looking expected credit loss model for accounts receivables, loans and other financial instruments. We adopted ASU 2016-13 effective January 1, 2020 using a modified retrospective approach through a cumulative-effect adjustment to retained earnings to align our accumulated deficit. We appliedcredit loss methodology with the new standard to contracts that were not complete as of January 1, 2018.standard. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.that period.
The most significant impactscumulative effect of ASU 2014-09 onthe changes to our revenue recognition policies relatecondensed consolidated balance sheet as of January 1, 2020 was not material.
For information regarding changes to our accounting policies following the adoption of ASU 2016-13, see note 3.
Recent Accounting Pronouncements
ASU 2018-14
In August 2018, the FASB issued ASU No. 2018-14, Disclosure Framework-Changes to the Disclosure Requirements for (i) long-term capacity contracts, (ii) subsidized handset plansDefined Benefit Plans (ASU 2018-14), which removes and (iii)modifies certain installationexisting disclosure requirements and other upfront fees, each as set forth below:
9
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)
ASU 2020-04
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04), which provides optional guidance for a limited time to ease the potential accounting policiesburden associated with transitioning away from reference rates, such as the London Inter-Bank Offered Rate (LIBOR), which regulators in the United Kingdom (U.K.) have announced will be phased out by the end of 2021. The expedients and exceptions provided by ASU 2020-04 are for the application of U.S. GAAP to contracts, hedging relationships and other transactions affected by the rate reform, and will not be available after December 31, 2022, other than for certain hedging relationships entered into before December 31, 2022. We do not currently expect that the phase out of LIBOR will have a material impact on our consolidated financial statements.
ASU 2020-06
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options and Derivatives and Hedging—Contracts in Entity’s Own Equity: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which (i) reduces the number of accounting models for convertible instruments and allows more contracts to qualify for equity classification and (ii) makes targeted improvements to convertible instruments and earnings-per-share disclosure requirements. ASU 2020-06 is effective for annual reporting periods after December 15, 2021, including interim periods within those fiscal years, with early adoption permitted, but no earlier than annual and interim periods in fiscal years beginning after December 15, 2020. While we are still evaluating the impact of ASU 2020-06, we do not currently expect it will have a material impact on our consolidated financial statements.
(3) Summary of Significant Accounting Policies
The following accounting policy reflects an update to the Summary of Significant Accounting Policies included in our 2019 Form 10-K resulting from the adoption of ASU 2014-092016-13:
Trade Receivables
Our trade receivables are reported net of an allowance for credit losses. The allowance is established using our best estimates of current expected credit losses based upon, among other things, actual credit loss experience over the prior 12-month period, recent collection trends, prevailing and our contract assetsanticipated economic conditions and deferred revenue balances, see note 3.specific customer credit risk. Receivables outstanding greater than 30 days are considered past due and we generally write-off receivables after they become past due for 365 days, with the exception of certain amounts due from a single government. 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, with the exception of certain amounts due from a single government.
| Balance at December 31, 2017 | Cumulative catch up adjustments upon adoption | Balance at January 1, 2018 | |||||||||
| in millions | |||||||||||
| Assets: | |||||||||||
| Other current assets | $ | 222.9 | $ | 15.8 | $ | 238.7 | |||||
| Other assets, net | $ | 517.7 | $ | 15.6 | $ | 533.3 | |||||
| Liabilities: | |||||||||||
| Deferred revenue | $ | 143.4 | $ | 13.3 | $ | 156.7 | |||||
| Other long-term liabilities | $ | 697.8 | $ | 25.6 | $ | 723.4 | |||||
| Equity: | |||||||||||
| Accumulated deficit | $ | (1,010.7 | ) | $ | (11.1 | ) | $ | (1,021.8 | ) | ||
| Noncontrolling interests | $ | 1,361.0 | $ | 3.6 | $ | 1,364.6 | |||||
| Before adoption of ASU 2014-09 | Impact of ASU 2014-09 Increase (decrease) | As reported | |||||||||
| in millions | |||||||||||
| Revenue | $ | 909.0 | $ | 0.9 | $ | 909.9 | |||||
| Operating costs and expenses – selling, general and administrative | $ | 193.6 | $ | (0.3 | ) | $ | 193.3 | ||||
| Non-operating expense – interest expense | $ | 98.3 | $ | 4.2 | $ | 102.5 | |||||
| Income tax expense | $ | 17.3 | $ | (0.5 | ) | $ | 16.8 | ||||
| Net loss | $ | 51.8 | $ | 2.5 | $ | 54.3 | |||||
| Balance at January 1, 2020 | $ | 87.3 | |||
| Provision for expected losses | 50.3 | ||||
| Write-offs | (45.3) | ||||
| Foreign currency translation adjustments and other | 4.5 | ||||
| Balance at September 30, 2020 | $ | 96.8 | |||
10
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)
Pending Acquisition
AT&T. On October 9, 2019, Liberty PR and Liberty Latin America entered into a stock purchase agreement with certain subsidiaries of AT&T Inc. (AT&T) to acquire AT&T’s wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands (the AT&T Acquisition) in an all-cash transaction. The AT&T Acquisition closed October 31, 2020.The operations acquired in the AT&T Acquisition provide consumer mobile and B2B services in Puerto Rico and the U.S. Virgin Islands, excluding DirecTV customers. In March 2017,connection with the FASB issued ASU No. 2017-07,AT&T Acquisition we paid $1.9 billion, which includes the impact of preliminary working capital adjustments that we expect will be finalized during the first half of 2021. We financed this acquisition, including related fees and expenses, through a combination of net proceeds from the 2027 LPR Senior Secured Notes, the 2026 SPV Credit Facility and available liquidity. For further information about our debt and available liquidity, see note 9.
As a regulatory condition to close, we are required to dispose of, among other assets, certain B2B assets in our existing Puerto Rico operations.
AT&T will provide ongoing support to the companies associated with the AT&T Acquisition under a transition services agreement (the Compensation -AT&T TSARetirement Benefits—Improving) for a period up to 36 months following the Presentationclosing date of the Net Periodic Pension Costacquisition. Services under the AT&T TSA include, but are not limited to, (i) wireless core, (ii) technology development, (iii) global technology operations, (iv) wireless engineering, (v) network infrastructure, (vi) supply chain and Net Periodic Postretirement Benefit Cost(vii) finance and sales operations. We may terminate any services under the AT&T TSA upon sixty business days’ notice to AT&T in accordance with the terms and conditions of the AT&T TSA.
Pro forma financial information for the three and nine months ended September 30, 2020 and 2019 have not been provided as (i) recent financial statements of the acquired entities are not currently available and (ii) we have not had sufficient time to complete our initial valuation assessment.
2019 Acquisition
UTS. Effective March 31, 2019, we completed the acquisition of an 87.5% interest in United Telecommunication Services N.V. (ASU 2017-07UTS), for an initial cash purchase price of $162 million, which includes changeswas subject to certain potential post-closing adjustments, based on an enterprise value of $189 million (the UTS Acquisition). As noted below, during the first quarter of 2020, the purchase price was reduced by $6 million due to certain post-closing working capital adjustments. During the third quarter of 2019, we increased our ownership interest in UTS from 87.5% to 100%. UTS provides fixed and mobile services to the presentationisland nations of periodic benefit cost components. Under ASU 2017-07, we will continue to present the service component of our net benefit cost asCuraçao, St. Maarten, St. Martin, Bonaire, St. Barths, St. Eustatius and Saba. The UTS Acquisition was funded through a component of operating income but present the other components of our net benefit cost computation, which can include credits, within non-operating income (expense) in our consolidated statements of operations. We adopted ASU 2017-07 on January 1, 2018. The change in presentation to our condensed consolidated statements of operations from ASU 2017-07 was applied on a retrospective basis. As a result of the adoption of ASU 2017-07, we have presented $3$170 million of pension-related credits in other income, netin our condensed consolidated statements of operations for each of the three months ended March 31, 2018 and 2017.
11
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)
| Cash | $ | 2.7 | |||
| Trade receivables | 19.0 | ||||
| Other current assets | 6.7 | ||||
| Property and equipment | 158.4 | ||||
| Goodwill (a) | 17.1 | ||||
| Intangible assets subject to amortization | 24.0 | ||||
| Other assets | 18.2 | ||||
| Accounts payable | (27.9) | ||||
| Other accrued and current liabilities | (31.9) | ||||
| Other long-term liabilities | (18.8) | ||||
| Noncontrolling interest (b) | (11.6) | ||||
| Total purchase price (c) (d) | $ | 155.9 | |||
(b)Amount represents the estimated aggregate current and long-term deferred revenuefair value of the noncontrolling interest in UTS as of March 31, 20182019.
(c)Excludes $3 million of direct acquisition costs incurred during 2019 and December 31, 2017, was $417 million and$397 million, respectively. Long-term deferred revenue is2018. Direct acquisition costs are included in impairment, restructuring and other long-term liabilitiesoperating items, net, in our condensed consolidated balance sheets. We recorded an aggregatestatements of $19operations.
(d)Pursuant to the purchase agreement, which permits certain post-closing working capital adjustments, the UTS Acquisition purchase price was reduced by $6 million of current and long-term deferred revenue on January 1, 2018 upon the adoption of ASU 2014-09. The remaining change in the current portion and long-term deferred revenue balances during the three months ended March 31, 2018 were not material.
In general, we seek to enter into derivative instruments to protect against (i) increases in the interest rates on our variable-rate debt and (ii) foreign currency movements, particularly with respect to borrowings that are denominated in a currency other than the functional currency of the borrowing entity. In this regard, through our subsidiaries, we have entered into various derivative instruments to manage interest rate exposure and foreign currency exposure with respect to the U.S. dollar ($), the British pound sterling (£), the Chilean peso (CLP), the Colombian peso (COP) and the Jamaican dollar (JMD) and the Colombian peso (COP). With the exception of certain foreign currency forward contracts, we 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 in our condensed consolidated statements of operations.
12
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
September 30, 2020
(unaudited)
The following table provides details of the fair values of our derivative instrument assets and liabilities:
| September 30, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||||||||
| Current (a) | Long-term (a) | Total | Current (a) | Long-term (a) | Total | ||||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
| Cross-currency and interest rate derivative contracts (b) | $ | 3.4 | $ | 12.2 | $ | 15.6 | $ | 23.4 | $ | 126.9 | $ | 150.3 | |||||||||||||||||||||||
| Foreign currency forward contracts | 2.9 | 0.6 | 3.5 | 9.8 | 0 | 9.8 | |||||||||||||||||||||||||||||
| Total | $ | 6.3 | $ | 12.8 | $ | 19.1 | $ | 33.2 | $ | 126.9 | $ | 160.1 | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||
| Cross-currency and interest rate derivative contracts (b) | $ | 72.1 | $ | 320.5 | $ | 392.6 | $ | 34.9 | $ | 99.6 | $ | 134.5 | |||||||||||||||||||||||
| Foreign currency forward contracts | 1.7 | 0.3 | 2.0 | 0.5 | 0 | 0.5 | |||||||||||||||||||||||||||||
| Total | $ | 73.8 | $ | 320.8 | $ | 394.6 | $ | 35.4 | $ | 99.6 | $ | 135.0 | |||||||||||||||||||||||
(a)Our current derivative assets, current derivative liabilities, long-term derivative assets and long-term derivative liabilities are included in other current assets, net, other accrued and current liabilities, other assets, net, and other long-term liabilities, respectively, in our condensed consolidated balance sheets.
(b)We consider credit risk relating to our and our counterparties’ nonperformance in the fair value assessment of our derivative instruments. In all cases, the adjustments take into account offsetting liability or asset positions within each of our primary borrowing groups (see note 9). The changes in the credit risk valuation adjustments associated with our cross-currency and interest rate derivative contracts resulted in net gains of $1 million during each of the three months ended September 30, 2020 and 2019, and $41 million and $7 million during the nine months ended September 30, 2020 and 2019, respectively. The gains during the 2020 periods are primarily due to increased credit risk stemming from market reaction to the COVID-19 outbreak, as further described and defined in note 8.These amounts are included in realized and unrealized gains (losses) on derivative instruments, net, in our condensed consolidated statements of operations. For further information regarding our fair value measurements, see note 6.
The derivative assets set forth in the table above exclude our Weather Derivatives, as defined below, as they are not accounted for at fair value. The Weather Derivatives are included in other current assets, net, in our condensed consolidated balance sheets.
The details of our realized and unrealized gains (losses) on derivative instruments, net, are as follows:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| in millions | |||||||||||||||||||||||
| Cross-currency and interest rate derivative contracts (a) | $ | (70.7) | $ | 46.6 | $ | (234.7) | $ | (99.2) | |||||||||||||||
| Foreign currency forward contracts and other (b) | (7.4) | 4.8 | (5.0) | 2.6 | |||||||||||||||||||
| Total | $ | (78.1) | $ | 51.4 | $ | (239.7) | $ | (96.6) | |||||||||||||||
(a)The losses for the nine months ended September 30, 2020 include a realizedgain of $71 million associated with the settlement of certain cross-currency interest rate swaps at VTR Finance in June 2020 that were unwound in connection with the July 2020 refinancing of certain VTR Finance debt. For additional information regarding the refinancing, see note 9.
13
| March 31, 2018 | December 31, 2017 | ||||||||||||||||||||||
| Current (a) | Long-term (a) | Total | Current (a) | Long-term (a) | Total | ||||||||||||||||||
| in millions | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cross-currency and interest rate derivative contracts (b) | $ | 16.5 | $ | 100.6 | $ | 117.1 | $ | 2.9 | $ | 38.4 | $ | 41.3 | |||||||||||
| Foreign currency forward contracts | — | 0.4 | 0.4 | — | — | — | |||||||||||||||||
| Total | $ | 16.5 | $ | 101.0 | $ | 117.5 | $ | 2.9 | $ | 38.4 | $ | 41.3 | |||||||||||
| Liabilities: | |||||||||||||||||||||||
| Cross-currency and interest rate derivative contracts (b) | $ | 62.1 | $ | 125.2 | $ | 187.3 | $ | 29.4 | $ | 51.9 | $ | 81.3 | |||||||||||
| Foreign currency forward contracts | 13.4 | — | 13.4 | 12.8 | — | 12.8 | |||||||||||||||||
| Total | $ | 75.5 | $ | 125.2 | $ | 200.7 | $ | 42.2 | $ | 51.9 | $ | 94.1 | |||||||||||
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)
| Three months ended March 31, | |||||||
| 2018 | 2017 | ||||||
| in millions | |||||||
| Cross-currency and interest rate derivative contracts | $ | (38.9 | ) | $ | (25.5 | ) | |
| Foreign currency forward contracts | (2.6 | ) | (1.8 | ) | |||
| Total | $ | (41.5 | ) | $ | (27.3 | ) | |
The following table sets forth the classification of the net cash outflowsinflows of our derivative instruments:
| Nine months ended September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| in millions | |||||||||||
| Operating activities | $ | (32.1) | $ | 7.6 | |||||||
| Investing activities | 7.4 | 4.5 | |||||||||
| Financing activities (a) | 180.6 | (0.3) | |||||||||
| Total | $ | 155.9 | $ | 11.8 | |||||||
| Three months ended March 31, | |||||||
| 2018 | 2017 | ||||||
| in millions | |||||||
| Operating activities | $ | (11.7 | ) | $ | (10.7 | ) | |
| Investing activities | (1.7 | ) | (1.2 | ) | |||
| Total | $ | (13.4 | ) | $ | (11.9 | ) | |
Counterparty Credit Risk
We are exposed to the risk that the counterparties to the derivative instruments of our 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 has not been posted by either party under the derivative instruments of our borrowing groups. At March 31, 2018,September 30, 2020, our exposure to counterparty credit risk included derivative assets with an aggregate fair value of $542 million.
Each of our borrowing groups has entered into derivative instruments under 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.
14
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)
Details of our Derivative Instruments
Cross-currency Derivative Contracts
As noted above, we are exposed to foreign currency exchange rate risk 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 service, repay or refinance such debt. Although we generally seek to match the denomination of 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). Our policy is generally to provide for an economic hedge against foreign currency exchange rate movements, whenever possible and when cost effective to do so, by using derivative instruments to synthetically convert unmatched debt into the applicable underlying currency. The following table sets forth the total notional amounts and the related weighted average remaining contractual lives of our cross-currency swap contracts at March 31, 2018:September 30, 2020:
| Borrowing group | Notional amount due from counterparty | Notional amount due to counterparty | Weighted average remaining life | |||||||
| in millions | in years | |||||||||
| C&W | $ | 108.3 | JMD | 13,817.5 | 4.8 | |||||
| $ | 35.4 | COP | 106,000.0 | 4.3 | ||||||
| £ | 146.7 | $ | 194.3 | 1.0 | ||||||
| VTR Finance | $ | 1,400.0 | CLP | 951,390.0 | 4.2 | |||||
| Borrowing group | Notional amount due from counterparty | Notional amount due to counterparty | Weighted average remaining life | |||||||||||||||||||||||
| in millions | in years | |||||||||||||||||||||||||
| C&W | $ | 108.3 | JMD | 13,817.5 | 6.3 | |||||||||||||||||||||
| $ | 56.3 | COP | 180,000.0 | 5.8 | ||||||||||||||||||||||
| VTR Finance | $ | 1,150.0 | CLP | 933,800.0 | 5.8 | |||||||||||||||||||||
Interest Rate Derivative Contracts
Interest Rate Swaps
As noted above, we enter into interest rate swaps to protect against increases in the interest rates on our variable-rate debt. Pursuant to these derivative instruments, we typically pay fixed interest rates and receive variable interest rates on specified notional amounts. The following table sets forth the total U.S. dollar equivalents of the notional amounts and the related weighted average remaining contractual lives of our interest rate swap contracts at March 31, 2018:September 30, 2020:
| Borrowing group | Notional amount due from counterparty | Weighted average remaining life | ||||||||||||
| in millions | in years | |||||||||||||
C&W (a) | $ | 2,350.0 | 6.7 | |||||||||||
| VTR Finance | $ | 179.6 | 2.4 | |||||||||||
| Liberty Puerto Rico | $ | 1,000.0 | 5.8 | |||||||||||
| Cabletica | $ | 53.5 | 2.8 | |||||||||||
(a)Includes forward-starting derivative instruments.
15
| Borrowing group | Notional amount due from counterparty | Weighted average remaining life | ||||
| in millions | in years | |||||
| C&W (a) | $ | 2,975.0 | 6.1 | |||
| Liberty Puerto Rico | $ | 675.0 | 3.0 | |||
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
September 30, 2020
(unaudited)
Basis Swaps
Basis swaps involve the exchange of attributes used to calculate our floating interest rates, including (i) the benchmark rate, (ii) the underlying currency and/or (iii) the borrowing period. We typically enter into these swaps to optimize our interest rate profile based on our current evaluations of yield curves, our risk management policies and other factors. At March 31, 2018,The following table sets forth the total U.S. dollar equivalentequivalents of the notional amounts of these derivative instruments was $3,750 million and the related weighted average remaining contractual lifelives of our basis swap contracts was 1.2 years. At March 31, 2018, our basis swaps were all held by subsidiaries of our C&W borrowing group.at September 30, 2020:
| Borrowing group | Notional amount due from counterparty | Weighted average remaining life | ||||||||||||
| in millions | in years | |||||||||||||
| C&W | $ | 1,510.0 | 0.3 | |||||||||||
| Liberty Puerto Rico | $ | 1,000.0 | 0.3 | |||||||||||
Foreign Currency Forwards Contracts
We enter into foreign currency forward contracts with respect to non-functional currency exposure. As of March 31, 2018, the total U.S. dollar equivalent of the notional amount ofAt September 30, 2020, our foreign currency forward contracts was$228had total notional amounts due from and to counterparties of $247 million alland CLP 192 billion, respectively, with a weighted average remaining contractual life of which0.7 years. All of our foreign currency forward contracts are held by subsidiaries of our VTR Finance borrowing group.
(6) Fair Value Measurements
We use the fair value method to account for most of our derivative instruments and the available-for-sale method to account for our investment in the United Kingdom (U.K.) Government Gilts. The reported fair values of our derivative instruments as of March 31, 2018September 30, 2020 likely will not represent the value that will be paid or received upon the ultimate settlement or disposition of these assets and liabilities, as 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.
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 into or out of Levels 1, 2 or 3 at the beginning of the quarter during which the transfer occurred. During the three months ended March 31, 2018, no such transfers were made.
Recurring Fair Value Measurements
Derivatives
In order to manage our interest rate and foreign currency exchange risk, we have entered into various derivative instruments, as further described in note 5. 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 mostly includes 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 these instruments. AsNotwithstanding the impact of COVID-19 on our credit risk, we generally would not expect changes in our or our counterparties’ credit spreads to have a significant impact on the valuations of these instruments,instruments. As a result, we have determined that these valuations continue to fall under Level 2 of the fair value hierarchy.Our credit risk valuation adjustments with respect to our interest rate and cross-currency derivative contracts are quantified and further explained in note 5. Due to the
16
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
September 30, 2020
(unaudited)
lack of Level 2 inputs for the valuation of the U.SU.S. dollar to the Jamaican dollar cross-currency swaps (the Sable Currency Swaps) held by Sable International Finance Limited (Sable), a wholly-owned subsidiary of C&W, we believe this valuation falls under Level 3 of the fair value hierarchy. The Sable Currency Swaps are our only Level 3 financial instruments. The fair values of the Sable Currency Swaps at March 31, 2018September 30, 2020 and December 31, 20172019 were $27$14 millionand $22$30 million, respectively, which are included in other
long-term liabilitiesin our condensed consolidated balance sheets. The change in the fair values of the Sable Currency Swaps resulted in net lossesgains of $5$3 million and $4$7 million during the three months ended March 31, 2018September 30, 2020 and 2017,2019, respectively, and $16 million and $12 million during the nine months ended September 30, 2020 and 2019, respectively, which are reflected in realized and unrealized lossesgains (losses) on derivative instruments, net, in our condensed consolidated statements of operations. Our credit risk valuation adjustments with respect to our cross-currency and interest rate swaps are quantified and further explained in note 5.
Available-for-sale Investments
Our investment in the U.K. Government Gilts falls under Level 1 of the fair value hierarchy. At March 31, 2018September 30, 2020 and December 31, 2017,2019, the carrying valuesvalue of our investment in the U.K. Government Gilts, which areis included in other assets, net, in our condensed consolidated balance sheets, was $37 million.
Nonrecurring Fair Value Measurements
Fair value measurements are also used for purposes of nonrecurring valuations performed in connection with acquisition accounting and impairment assessments.
Impairment Assessments
During the second quarter of 2020, primarily due to the ongoing economic impacts associated with COVID-19 and organizational restructuring of certain of our smaller C&W markets, we performed goodwill impairment analyses of several reporting units within our C&W segment. We used an income approach to determine the estimated fair values of these reporting units. Under this approach, we utilized a discounted cash flow model as the valuation technique to estimate the fair values of the reporting units from a market participant’s perspective. This approach uses certain inputs and assumptions that require estimates and judgments, including forecasted cash flows and appropriate discount rates. Forecasts of future cash flows are largely based on our assumptions using Level 3 inputs, which we consider to be consistent with a market participant’s approach. We used the weighted-average cost of capital for each reporting unit as the basis for the discount rate to establish the present value of the expected cash flows for the respective reporting unit. The inputs for our weighted average cost of capital calculations include Level 2 and Level 3 inputs, generally derived from third-party pricing services. We used discount rates ranging from 8.9% to 10.3% in the valuation of the various reporting units within our C&W segment.
For additional information regarding impairment charges resulting from this impairment analysis, see note 8.
Acquisition Accounting
The nonrecurring valuations associated with acquisition accounting, which use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy, primarily include the valuation of customer relationships and property and equipment, as further described below:
•Customer relationships. 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 for customer relationship intangible assets requires us to estimate the specific cash flows expected from the acquired customer relationships, considering such factors as estimated customer life, the revenue expected to be generated over the life of the customer relationships, contributory asset charges and other factors.
•Property and equipment. Property and equipment is 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.
In March 2020, we performed a nonrecurring valuation related to final acquisition accounting for the UTS Acquisition. The weighted average discount rate used in the valuation of the customer relationships acquired was approximately 13.5%.
17
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
September 30, 2020
(unaudited)
(7) Insurance Recoveries
In September 2017, Hurricanes Irma and Maria impacted a number of our markets in the Caribbean, resulting in varying degrees of damage to homes, businesses and infrastructure in these markets. In October 2016, our operations in the Bahamas, which is part of our C&W segment, were significantly impacted by Hurricane Matthew.
In December 2018, we settled our insurance claims for Hurricanes Irma, Maria and Matthew, as follows: (i) $109 million for Hurricanes Maria and Irma, after deducting $30 million of self-insurance, and (ii) $12 million for Hurricane Matthew, after deducting $15 million of self-insurance. During the first quarter of 2019, we received the then outstanding insurance settlement amount of $67 million, of which $33 million and $34 million have been presented as operating and investing activities, respectively, in our condensed consolidated statement of cash flows. With respect to the cash received, $37 million, $27 million and $3 million was provided to C&W, Liberty Puerto Rico and our Corporate operations, respectively.
(8) Long-lived Assets |
Goodwill
Changes in the carrying amount of our goodwill during the three months ended March 31, 2018 are set forth below:
| January 1, 2020 | Acquisitions and related adjustments | Impairments (a) | Foreign currency translation adjustments and other | September 30, 2020 | |||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||
| C&W | $ | 4,110.8 | $ | (12.0) | $ | (276.0) | $ | (90.2) | $ | 3,732.6 | |||||||||||||||||||
| VTR/Cabletica | 517.9 | 0 | 0 | (24.5) | 493.4 | ||||||||||||||||||||||||
| Liberty Puerto Rico | 277.7 | 0 | 0 | 0 | 277.7 | ||||||||||||||||||||||||
| Total | $ | 4,906.4 | $ | (12.0) | $ | (276.0) | $ | (114.7) | $ | 4,503.7 | |||||||||||||||||||
| January 1, 2018 | Foreign currency translation adjustments | March 31, 2018 | |||||||||
| in millions | |||||||||||
| C&W | $ | 4,962.5 | $ | (18.3 | ) | $ | 4,944.2 | ||||
| VTR | 433.4 | 8.3 | 441.7 | ||||||||
| Liberty Puerto Rico | 277.7 | — | 277.7 | ||||||||
| Total | $ | 5,673.6 | $ | (10.0 | ) | $ | 5,663.6 | ||||
During the first quarter of 2020, the World Health Organization declared the outbreak of a novel strain of Coronavirus (COVID-19) a “pandemic,” pointing to the sustained risk of further global spread. As a result of the impact of COVID-19 on our results of our October 1, 2017 goodwill impairment test, a hypothetical decline of 20% or more inoperations, we evaluated whether the fair value of C&W reporting units that carry a goodwill balance or the Liberty Puerto Rico reporting unit could resultfacts and circumstances and available information resulted in the need for an impairment assessment for any of our long-lived assets, including goodwill, and during the second quarter of 2020 concluded assessments were required with respect to record additionalour goodwill, which resulted in goodwill impairments in our C&W segment. We did not identify any indicators of impairment charges.in our assessment during the third quarter of 2020. COVID-19 has negatively impacted our results of operations and resulted in systemic disruption of the worldwide equity markets, and the market values of our publicly-traded equity declined significantly beginning in late February. If, among other factors, (i) our equity values were to remain at these declined levels for a sustained period or were to decline significantlyfurther or (ii) the adverse impacts ofstemming from COVID-19, competition, economic, competitive, regulatory or other factors, including macro-economic and demographic trends, were to cause C&W’s or Liberty Puerto Rico’sour results of operations or cash flows to be worse than currently anticipated, we could conclude in future periods that additional impairment charges are required in order to further reduce the carrying values of thegoodwill. Any such impairment charges could be significant.
Our accumulated goodwill cable television franchise rightsimpairments were $1,624 million and $1,348 millionat September 30, 2020and December 31, 2019, respectively.
18
Liberty Latin America Ltd.
Notes to a lesser extent, other long-lived assets of these entities.Condensed Consolidated Financial Statements – (Continued)
September 30, 2020
(unaudited)
Property and Equipment, Net
The details of our property and equipment and the related accumulated depreciation are set forth below:
| March 31, 2018 | December 31, 2017 | ||||||
| in millions | |||||||
| Distribution systems | $ | 4,047.2 | $ | 3,878.4 | |||
| Customer premises equipment | 1,438.8 | 1,382.8 | |||||
| Support equipment, buildings and land | 1,338.6 | 1,306.3 | |||||
| 6,824.6 | 6,567.5 | ||||||
| Accumulated depreciation | (2,588.4 | ) | (2,398.3 | ) | |||
| Total | $ | 4,236.2 | $ | 4,169.2 | |||
| September 30, 2020 | December 31, 2019 | ||||||||||
| in millions | |||||||||||
| Distribution systems | $ | 4,420.4 | $ | 4,299.6 | |||||||
Customer premises equipment (CPE) | 1,864.0 | 1,763.8 | |||||||||
| Support equipment, buildings and land | 1,573.2 | 1,530.9 | |||||||||
| 7,857.6 | 7,594.3 | ||||||||||
| Accumulated depreciation | (3,707.8) | (3,293.2) | |||||||||
| Total | $ | 4,149.8 | $ | 4,301.1 | |||||||
During the threenine months ended March 31, 2018September 30, 2020 and 2017,2019, we recorded non-cash increases to our property and equipment related to vendor financing arrangements aggregating $21$81 million and $14$59 million, respectively.
Intangible Assets Subject to Amortization, Net
The details of our intangible assets subject to amortization are set forth below:
| September 30, 2020 | December 31, 2019 | ||||||||||
| in millions | |||||||||||
| Gross carrying amount: | |||||||||||
| Customer relationships | $ | 1,473.2 | $ | 1,482.9 | |||||||
| Licenses and other | 160.3 | 170.1 | |||||||||
| Total gross carrying amount | 1,633.5 | 1,653.0 | |||||||||
| Accumulated amortization: | |||||||||||
| Customer relationships | (768.4) | (645.5) | |||||||||
| Licenses and other | (39.6) | (38.3) | |||||||||
| Total accumulated amortization | (808.0) | (683.8) | |||||||||
| Net carrying amount | $ | 825.5 | $ | 969.2 | |||||||
| March 31, 2018 | December 31, 2017 | ||||||
| in millions | |||||||
| Gross carrying amount: | |||||||
| Customer relationships | $ | 1,459.3 | $ | 1,415.1 | |||
| Licenses and other | 184.2 | 199.8 | |||||
| Total gross carrying amount | 1,643.5 | 1,614.9 | |||||
| Accumulated amortization: | |||||||
| Customer relationships | (374.6 | ) | (284.2 | ) | |||
| Licenses and other | (17.3 | ) | (14.5 | ) | |||
| Total accumulated amortization | (391.9 | ) | (298.7 | ) | |||
| Net carrying amount | $ | 1,251.6 | $ | 1,316.2 | |||
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
September 30, 2020
(unaudited)
(9) Debt and Finance Lease Obligations
The U.S. dollar equivalents of the components of our debt are as follows:
| September 30, 2020 | Estimated fair value (c) | Principal amount | |||||||||||||||||||||||||||||||||||||||
| Weighted average interest rate (a) | Unused borrowing capacity (b) | ||||||||||||||||||||||||||||||||||||||||
| Borrowing currency | US $ equivalent | September 30, 2020 | December 31, 2019 | September 30, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||||||||||||
| Convertible Notes (d) | 2.00 | % | 0 | $ | 0 | $ | 329.3 | $ | 430.1 | $ | 402.5 | $ | 402.5 | ||||||||||||||||||||||||||||
| C&W Notes | 6.74 | % | 0 | 0 | 2,362.7 | 2,270.9 | 2,270.0 | 2,120.0 | |||||||||||||||||||||||||||||||||
| C&W Credit Facilities | 2.84 | % | $ | 665.8 | 665.8 | 1,904.6 | 2,017.1 | 1,961.3 | 2,006.1 | ||||||||||||||||||||||||||||||||
| VTR Finance Notes | 5.72 | % | 0 | 0 | 1,195.5 | 1,290.9 | 1,150.0 | 1,260.0 | |||||||||||||||||||||||||||||||||
| VTR Credit Facilities | 4.80 | % | (e) | 257.4 | 217.5 | 229.7 | 221.8 | 231.4 | |||||||||||||||||||||||||||||||||
| LPR Senior Secured Notes | 6.75 | % | 0 | 0 | 1,347.4 | 1,278.3 | 1,290.0 | 1,200.0 | |||||||||||||||||||||||||||||||||
| LPR Credit Facilities | 5.15 | % | $ | 125.0 | 125.0 | 1,001.3 | 1,012.1 | 1,000.0 | 1,000.0 | ||||||||||||||||||||||||||||||||
| Cabletica Credit Facilities (f) | 7.73 | % | $ | 15.0 | 15.0 | 117.9 | 123.8 | 120.3 | 124.8 | ||||||||||||||||||||||||||||||||
| Vendor financing (g) | 3.14 | % | 0 | 0 | 183.4 | 167.7 | 183.4 | 167.7 | |||||||||||||||||||||||||||||||||
| Total debt before premiums, discounts and deferred financing costs | 5.20 | % | $ | 1,063.2 | $ | 8,659.6 | $ | 8,820.6 | $ | 8,599.3 | $ | 8,512.5 | |||||||||||||||||||||||||||||
| March 31, 2018 | Estimated fair value (c) | Principal Amount | |||||||||||||||||||||||||
| Weighted average interest rate (a) | Unused borrowing capacity (b) | ||||||||||||||||||||||||||
| Borrowing currency | US $ equivalent | March 31, 2018 | December 31, 2017 | March 31, 2018 | December 31, 2017 | ||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||
| C&W Credit Facilities | 4.95 | % | $ | 746.5 | $ | 746.5 | $ | 2,243.7 | $ | 2,216.4 | $ | 2,235.9 | $ | 2,212.2 | |||||||||||||
| C&W Notes | 7.09 | % | — | — | 1,712.3 | 1,749.7 | 1,655.9 | 1,648.4 | |||||||||||||||||||
| VTR Finance Senior Secured Notes | 6.88 | % | — | — | 1,452.3 | 1,479.6 | 1,400.0 | 1,400.0 | |||||||||||||||||||
| VTR Credit Facility | — | % | (d) | 232.9 | — | — | — | — | |||||||||||||||||||
| LPR Bank Facility | 5.52 | % | — | — | 951.1 | 951.8 | 982.5 | 982.5 | |||||||||||||||||||
| Vendor financing (e) | 4.43 | % | — | — | 149.1 | 137.4 | 149.1 | 137.4 | |||||||||||||||||||
| Total debt before premiums, discounts and deferred financing costs | 6.00 | % | $ | 979.4 | $ | 6,508.5 | $ | 6,534.9 | $ | 6,423.4 | $ | 6,380.5 | |||||||||||||||
The following table provides a reconciliation of total debt before premiums, discounts and deferred financing costs to total debt and capitalfinance lease obligations:
| September 30, 2020 | December 31, 2019 | ||||||||||
| in millions | |||||||||||
| Total debt before premiums, discounts and deferred financing costs | $ | 8,599.3 | $ | 8,512.5 | |||||||
| Premiums, discounts and deferred financing costs, net | (141.3) | (146.1) | |||||||||
| Total carrying amount of debt | 8,458.0 | 8,366.4 | |||||||||
| Finance lease obligations | 1.8 | 3.6 | |||||||||
| Total debt and finance lease obligations | 8,459.8 | 8,370.0 | |||||||||
| Less: Current maturities of debt and finance lease obligations | (284.4) | (180.2) | |||||||||
| Long-term debt and finance lease obligations | $ | 8,175.4 | $ | 8,189.8 | |||||||
| March 31, 2018 | December 31, 2017 | ||||||
| in millions | |||||||
| Total debt before premiums, discounts and deferred financing costs | $ | 6,423.4 | $ | 6,380.5 | |||
| Premiums, discounts and deferred financing costs, net | (20.8 | ) | (26.5 | ) | |||
| Total carrying amount of debt | 6,402.6 | 6,354.0 | |||||
| Capital lease obligations | 16.8 | 17.5 | |||||
| Total debt and capital lease obligations | 6,419.4 | 6,371.5 | |||||
| Less: Current maturities of debt and capital lease obligations | (212.3 | ) | (263.3 | ) | |||
| Long-term debt and capital lease obligations | $ | 6,207.1 | $ | 6,108.2 | |||
20
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)
(e)The VTR Credit Facilities comprise certain CLP term loans and U.S. dollar and CLP revolving credit facilities, including unused borrowing capacity.
(f)The Cabletica Credit Facilities comprise certain Costa Rican colón and U.S. dollar term loans and a U.S. dollar revolving credit facility.
(g)Represents amounts owed pursuant to interest-bearing vendor financing arrangements that are used to finance certain of our operating expenses and property and equipment additions. These obligations are generally due within one year and include value-added taxes (VAT) that were paid on our behalf by the vendor. Our operating expenses include $78 million and $93 million for the nine months ended September 30, 2020 and 2019, respectively, that were financed by an intermediary and are reflected on the borrowing date as a hypothetical cash outflow within net cash provided by operating activities and a hypothetical cash inflow within net cash provided by financing activities in our condensed consolidated statements of cash flows. Repayments of vendor financing obligations are included in payments of principal amounts of debt and finance lease obligations in our condensed consolidated statements of cash flows.
Revolving Credit Facilities
The following table sets forth amounts related to the revolving credit facilities of each of our borrowing groups as further described above.
| US $ equivalent | ||||||||||||||||||||
| Credit Facility | Aggregate facility amount | Unused borrowing capacity | Outstanding principal amount | |||||||||||||||||
| in millions | ||||||||||||||||||||
| C&W Revolving Credit Facility (a) | $ | 625.0 | $ | 525.0 | $ | 100.0 | ||||||||||||||
| C&W Regional Facilities – Revolving credit facilities | 144.6 | 140.8 | 3.8 | |||||||||||||||||
| VTR – Revolving credit facilities | 257.4 | 257.4 | 0 | |||||||||||||||||
| 2019 LPR Revolving Credit Facility | 125.0 | 125.0 | 0 | |||||||||||||||||
| Cabletica Revolving Credit Facility | 15.0 | 15.0 | 0 | |||||||||||||||||
| Total | $ | 1,167.0 | $ | 1,063.2 | $ | 103.8 | ||||||||||||||
(a)Subsequent to September 30, 2020, the $100 million of outstanding principal was repaid.
Liberty Latin America - Convertible Notes
In June 2019, Liberty Latin America issued $403 million principal amount of 2.0% convertible senior notes (the Convertible Notes) due July 15, 2024. Subject to certain conditions, and adjustments if certain events occur (as specified in the indenture governing the Convertible Notes), the Convertible Notes may be converted at a conversion rate initially equal to 44.9767 Class C common shares per $1,000 principal amount of the Convertible Notes (equivalent to an initial conversion price of approximately $22.23 per Class C common share), the “Conversion Option”. We account for the Conversion Option as a separate financial instrument that qualifies for equity classification. Accordingly, the Conversion Option was bifurcated from the Convertible Notes and recorded as additional paid-in capital and debt discount based on its initial estimated fair value of $78 million. Any conversions of the Convertible Notes may be settled, at the election of the Company, in cash, Class C common shares or a combination thereof.
21
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
September 30, 2020
(unaudited)
In September 2020, we completed a Rights Offering, as defined and further described in note 18, whereby we issued 49,049,073 of our Class C common shares. In connection with the Rights Offering, subject to certain anti-dilution provisions in the indenture governing the Convertible Notes, the conversion rate for the Convertible Notes was adjusted to 48.4315 Class C common shares per $1,000 principal amount of the Convertible Notes.
At September 30, 2020, the carrying value of the Convertible Notes was $338 million and the unamortized debt discount on the Convertible Notes was $61 million.
2020 Financing and Refinancing Transactions
C&W
C&W Term Loan B-5 Facility.In January 2020, Coral-US Co-Borrower LLC, a wholly-owned subsidiary of C&W, entered into a $1,875LIBOR plus 2.25% $1,510 million principal amount term loan facility (the C&W Term Loan B-4B-5 Facility), issued at par, due January 31, 2028. Interest is payable monthly beginning on February 28, 2020.
2027 C&W Senior Secured Notes Add-on. In January 2020, Sable issued an additional $150 million aggregate principal amount, at 106.0% of par, under the London Interbank Offered Rate (existing 2027 C&W Senior Secured Notes indenture (the LIBOR2027 C&W Senior Secured Notes Add-on) plus 3.25%, subject to a LIBOR floor. The terms and conditions of 0.0%. the 2027 C&W Senior Secured Notes Add-on are consistent with the original indenture.
The net proceeds from the C&W Term Loan B-4B-5 Facility was issued at 99.875% of par with a maturity date of January 31, 2026. General terms associated withand the 2027 C&W Senior Secured Notes Add-on were primarily used to repay in full the $1,640 million outstanding principal amount under the C&W Term Loan B-4 Facility, including accrued and unpaid interest. In connection with these transactions, we recognized a loss on debt modification and extinguishment of $3 million, which primarily includes the write-off of unamortized discounts and deferred financing costs.
C&W Borrowing Group Refinancing Transactions. In January 2020, C&W completed a series of transactions contemplated by and permitted under its existing debt agreements (the C&W Borrowing Group Refinancing Transactions) that ultimately resulted in the 2026 C&W Senior Notes and the 2027 C&W Senior Notes (previously issued by C&W Senior Financing Designated Activity Company) instead being directly issued by a wholly-owned subsidiary of C&W, C&W Senior Finance Limited. In connection with the C&W Borrowing Group Refinancing Transactions, the loans previously made by C&W Senior Financing Designated Activity Companyare substantiallyno longer outstanding. The terms and conditions applicable to the same as those included in “2026 C&W Senior Notes and the 2027 C&W Senior Notes otherwise remain substantively unchanged.
C&W Revolving Credit FacilityGeneral Information.” in note 9 to our 2017 Form 10-K. The net proceeds In January 2020, the maturity date associated with $575 million of the existing $625 million C&W Term Loan B-4Revolving Credit Facility were usedwas extended to repay in full the $1,825 million outstanding principal amountJanuary 30, 2026. All other terms and conditions of the C&W Term Loan B-3 Facility and repay $40revolving credit facility remain unchanged.
In March 2020, we borrowed $313 million drawn under the C&W Revolving Credit Facility. We repaid $213 million of this drawdown in the third quarter of 2020. The exchangeremaining balance is included in cash and cash equivalents on our condensed consolidated balance sheet as of September 30, 2020. Subsequent to September 30, 2020, the $100 million remaining balance was repaid.
C&W Regional Facilities. In June 2020, C&W Panama refinanced a $100 million principal amountsamount term loan facility to extend the maturity to March 17, 2025. All other terms and conditions of $1,825this facility remain unchanged.
22
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
September 30, 2020
(unaudited)
VTR Finance
2028 VTR Senior Secured Notes. In July 2020, VTR Comunicaciones SpA, a wholly-owned subsidiary of VTR Finance, issued $600 million aggregate principal amount of 5.125% senior secured notes (the 2028 VTR Senior Secured Notes) due January 15, 2028. Interest on the 2028 VTR Senior Secured Notes is payable semi-annually on January 15 and July 15, commencing on January 15, 2021.
The net proceeds of $1,133 million from the 2028 VTR Senior Secured Notes and the 2028 VTR Finance Senior Notes (as defined and described further below), together with $187 million of proceeds from the unwinding of certain derivative instruments, were used to redeem $1,260 million of outstanding principal amount under the VTR Finance Senior Notes, including accrued and unpaid interest and a $29 million redemption premium. In connection with these transactions, (i) $550 million was treated as a non-cash transaction in our condensed consolidated statement of cash flows. In connection with this transaction, C&Wflows and (ii) we recognized a loss on debt modification and extinguishment of $13$42 million, which representsprimarily includes the payment of the aforementioned redemption premium and the write-off of unamortized discounts and deferred financing costs.
| Redemption Price | |||||
| 12-month period commencing July 15: | |||||
| 2023 | 102.563% | ||||
| 2024 | 101.281% | ||||
| 2025 and thereafter | 100.000% | ||||
In addition, at any time prior to July 15, 2023, subject to certain conditions specified in the 2028 VTR Senior Secured Notes indenture, we may redeem up to 40% of the aggregate principal amount of the 2028 VTR Senior Secured Notes with the net proceeds of one or more specified equity offerings at a redemption price equal to 105.125% of the principal amount of the notes redeemed, plus accrued and unpaid interest and additional amounts, if any, to the applicable redemption date. Prior to July 15, 2023, during each 12-month period commencing on the July 1, 2020, we may redeem up to 10% of the aggregate principal amount of the 2028 VTR Senior Secured Notes at a redemption price equal to 103% of the principal amount of the notes redeemed, plus accrued and unpaid interest to (but excluding) the redemption date.
The details2028 VTR Senior Secured Notes are guaranteed by VTR, and are the senior obligations of our borrowings underVTR Comunicaciones SpA and VTR. The 2028 VTR Senior Secured Notes are secured by first-ranking pledges over (i) all of the C&W Credit Facilities ascapital stock of March 31, 2018 are summarized in the following table:VTR Comunicaciones SpA and VTR and (ii) certain subordinated shareholder loans.
23
| C&W Credit Facilities | Maturity | Interest rate | Facility amount (in borrowing currency) | Outstanding principal amount | Unused borrowing capacity | Carrying value (a) | ||||||||||||||
| in millions | ||||||||||||||||||||
| C&W Term Loan B-4 Facility | January 31, 2026 | LIBOR + 3.25% | $ | 1,875.0 | $ | 1,875.0 | $ | — | $ | 1,869.2 | ||||||||||
| C&W Revolving Credit Facility | June 30, 2023 | LIBOR + 3.25% | $ | 625.0 | 10.0 | 615.0 | 10.0 | |||||||||||||
| C&W Regional Facilities | various dates ranging from 2018 to 2038 | 4.00% (b) | $ | 482.4 | 350.9 | 131.5 | 349.9 | |||||||||||||
| Total | $ | 2,235.9 | $ | 746.5 | $ | 2,229.1 | ||||||||||||||
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)
| Redemption Price | |||||
| 12-month period commencing July 15: | |||||
| 2023 | 103.188% | ||||
| 2024 | 101.594% | ||||
| 2025 and thereafter | 100.000% | ||||
In addition, at any time prior to July 15, 2023, subject to certain conditions specified in the 2028 VTR Finance Senior Notes indenture, we may redeem up to 40% of the aggregate principal amount of the 2028 VTR Finance Senior Notes with the net proceeds of one or more specified equity offerings at a redemption price equal to 106.375% of the principal amount of the notes redeemed, plus accrued and unpaid interest and additional amounts, if any, to the applicable redemption date.
The 2028 VTR Finance Senior Notes are the senior obligations of VTR Finance and are secured by a pledge over all the shares of VTR Finance.
The details of our debt and capital lease obligationsoutstanding VTR Finance Notes as of September 30, 2020 are summarized in the following table:
| Maturity | Interest Rate | Outstanding principal amount | Estimated fair value | Carrying value (a) | ||||||||||||||||||||||||||||
| in millions | ||||||||||||||||||||||||||||||||
| 2028 VTR Senior Secured Notes | January 15, 2028 | 5.125 | % | $ | 600.0 | $ | 618.2 | $ | 596.9 | |||||||||||||||||||||||
| 2028 VTR Finance Senior Notes | July 15, 2028 | 6.375 | % | $ | 550.0 | 577.3 | 533.5 | |||||||||||||||||||||||||
| $ | 1,150.0 | $ | 1,195.5 | $ | 1,130.4 | |||||||||||||||||||||||||||
(a)Amounts are net of deferred financing costs.
VTR RCF – B. In March 31, 20182020, we borrowed $92 million under the VTR RCF – B. In June 2020, (i) the drawdown was fully repaid and (ii) the commitment under the VTR RCF – B was increased to $200 million and the term was extended to June 15, 2026.
Liberty Puerto Rico
2027 LPR Senior Secured Notes Add-on. In May 2020, LCPR Senior Secured Financing Designated Activity Company (LCPR Senior Secured Financing) issued an additional $90 million aggregate principal amount, at 102.5% of par, under the existing 2027 LPR Senior Secured Notes indenture (the 2027 LPR Senior Secured Notes Add-on). LCPR Senior Secured Financing is a special purpose financing entity, created for the primary purpose of facilitating the issuance of certain debt offerings. A subsidiary of Liberty PR is required to consolidate LCPR Senior Secured Financing as a result of certain variable interests in LCPR Senior Secured Financing, of which the subsidiary is considered the primary beneficiary. The terms and conditions of the 2027 LPR Senior Secured Notes Add-on are presented below. Amounts presented below represent U.S. dollar equivalents based on March 31, 2018 exchange rates:consistent with the original indenture.
| C&W | VTR | Liberty Puerto Rico | Consolidated | ||||||||||||
| in millions | |||||||||||||||
| Years ending December 31: | |||||||||||||||
| 2018 (remainder of year) | $ | 94.6 | $ | 78.6 | $ | — | $ | 173.2 | |||||||
| 2019 | 234.9 | 22.9 | — | 257.8 | |||||||||||
| 2020 | 24.9 | — | 40.0 | 64.9 | |||||||||||
| 2021 | 125.0 | — | — | 125.0 | |||||||||||
| 2022 | 765.2 | — | 850.0 | 1,615.2 | |||||||||||
| 2023 | 113.8 | — | 92.5 | 206.3 | |||||||||||
| Thereafter | 2,581.0 | 1,400.0 | — | 3,981.0 | |||||||||||
| Total debt maturities | 3,939.4 | 1,501.5 | 982.5 | 6,423.4 | |||||||||||
| Premiums, discounts and deferred financing costs, net | 11.2 | (21.3 | ) | (10.7 | ) | (20.8 | ) | ||||||||
| Total debt | $ | 3,950.6 | $ | 1,480.2 | $ | 971.8 | $ | 6,402.6 | |||||||
| Current portion | $ | 98.6 | $ | 101.6 | $ | — | $ | 200.2 | |||||||
| Noncurrent portion | $ | 3,852.0 | $ | 1,378.6 | $ | 971.8 | $ | 6,202.4 | |||||||
24
| C&W | VTR | Liberty Puerto Rico | Consolidated | ||||||||||||
| in millions | |||||||||||||||
| Year ending December 31: | |||||||||||||||
| 2018 (remainder of year) | $ | 12.1 | $ | 0.2 | $ | — | $ | 12.3 | |||||||
| 2019 | 3.1 | 0.4 | — | 3.5 | |||||||||||
| 2020 | 1.4 | 0.1 | — | 1.5 | |||||||||||
| 2021 | 0.1 | — | — | 0.1 | |||||||||||
| Total principal and interest payments | 16.7 | 0.7 | — | 17.4 | |||||||||||
| Amounts representing interest | (0.6 | ) | — | — | (0.6 | ) | |||||||||
| Present value of net minimum lease payments | $ | 16.1 | $ | 0.7 | $ | — | $ | 16.8 | |||||||
| Current portion | $ | 11.8 | $ | 0.3 | $ | — | $ | 12.1 | |||||||
| Noncurrent portion | $ | 4.3 | $ | 0.4 | $ | — | $ | 4.7 | |||||||
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)
Liberty Latin America were used to finance the AT&T Acquisition and to pay related fees and expenses. As of September 30, 2020, the proceeds of this loan were in escrow and are included in restricted cash in our condensed consolidated balance sheet. For additional information regarding the AT&T Acquisition, see note 4.
2019 LPR Revolving Credit Facility. In March 2020, we borrowed $63 million under the 2019 LPR Revolving Credit Facility. This drawdown was fully repaid in the third quarter of 2020.
Maturities of Debt
Maturities of our debt as of September 30, 2020 are presented below. Amounts presented below represent U.S. dollar equivalents based on September 30, 2020 exchange rates:
| C&W | VTR Finance | Liberty Puerto Rico | Cabletica | Liberty Latin America | Consolidated | ||||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||||||
| Years ending December 31: | |||||||||||||||||||||||||||||||||||
| 2020 (remainder of year) | $ | 136.8 | $ | 24.9 | $ | 0 | $ | 0 | $ | 0.1 | $ | 161.8 | |||||||||||||||||||||||
| 2021 | 67.4 | 64.8 | 0 | 0 | 0.5 | 132.7 | |||||||||||||||||||||||||||||
| 2022 | 26.8 | 89.8 | 0 | 0 | 0.7 | 117.3 | |||||||||||||||||||||||||||||
| 2023 | 135.4 | 132.0 | 0 | 120.3 | 0.8 | 388.5 | |||||||||||||||||||||||||||||
| 2024 | 70.6 | 0 | 0 | 0 | 402.9 | 473.5 | |||||||||||||||||||||||||||||
| 2025 | 103.2 | 0 | 0 | 0 | 0 | 103.2 | |||||||||||||||||||||||||||||
| Thereafter | 3,782.3 | 1,150.0 | 2,290.0 | 0 | 0 | 7,222.3 | |||||||||||||||||||||||||||||
| Total debt maturities | 4,322.5 | 1,461.5 | 2,290.0 | 120.3 | 405.0 | 8,599.3 | |||||||||||||||||||||||||||||
| Premiums, discounts and deferred financing costs, net | (29.5) | (22.7) | (22.0) | (2.8) | (64.3) | (141.3) | |||||||||||||||||||||||||||||
| Total debt | $ | 4,293.0 | $ | 1,438.8 | $ | 2,268.0 | $ | 117.5 | $ | 340.7 | $ | 8,458.0 | |||||||||||||||||||||||
| Current portion | $ | 193.6 | $ | 89.7 | $ | 0 | $ | 0 | $ | 0.2 | $ | 283.5 | |||||||||||||||||||||||
| Noncurrent portion | $ | 4,099.4 | $ | 1,349.1 | $ | 2,268.0 | $ | 117.5 | $ | 340.5 | $ | 8,174.5 | |||||||||||||||||||||||
(10) Leases
The following table provides details of our operating lease expense:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| in millions | |||||||||||||||||||||||
| Operating lease expense: | |||||||||||||||||||||||
| Operating lease cost | $ | 10.3 | $ | 11.0 | $ | 32.9 | $ | 32.2 | |||||||||||||||
| Short-term lease cost | 3.5 | 3.6 | 9.7 | 7.6 | |||||||||||||||||||
| Total operating lease expense | $ | 13.8 | $ | 14.6 | $ | 42.6 | $ | 39.8 | |||||||||||||||
25
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
September 30, 2020
(unaudited)
The following table provides certain other details of our operating leases at September 30, 2020:
| For the nine months ended September 30, 2020 (in millions): | |||||
| Operating cash outflows from operating leases | $ | 29.1 | |||
| Right-of-use assets obtained in exchange for new operating lease liabilities (a) | $ | 23.0 | |||
| Operating lease right-of-use assets (b) | 143.4 | ||||
| Operating lease liabilities: | |||||
| Current (b) | $ | 31.6 | |||
| Noncurrent (b) | 111.6 | ||||
| Total operating lease liabilities | $ | 143.2 | |||
| Weighted-average remaining lease term | 6.4 years | ||||
| Weighted-average discount rate | 6.5 | % | |||
(a) Represents non-cash transactions associated with operating leases entered into during the nine months ended September 30, 2020.
(b) Our operating lease right-of-use assets are included in other assets, net, and our current and noncurrent operating lease liabilities are included in other accrued and current liabilities and other long-term liabilities, respectively, in our condensed consolidated balance sheets.
Maturities of Operating Leases
Maturities of our operating lease liabilities on an undiscounted basis as of September 30, 2020 are presented below along with the current and noncurrent operating lease liabilities on a discounted basis. Such amounts represent U.S. dollar equivalents (in millions) based on September 30, 2020 exchange rates.
| Years ending December 31: | |||||
| 2020 (remainder of year) | $ | 12.2 | |||
| 2021 | 35.4 | ||||
| 2022 | 29.4 | ||||
| 2023 | 23.4 | ||||
| 2024 | 19.8 | ||||
| 2025 | 13.5 | ||||
| Thereafter | 43.1 | ||||
| Total operating lease liabilities on an undiscounted basis | 176.8 | ||||
| Amount representing interest | (33.6) | ||||
| Present value of operating lease liabilities | $ | 143.2 | |||
(11) Unfulfilled Performance Obligations
We enter into certain long-term capacity contracts with customers where the customer either pays a fixed fee over time or prepays for the capacity upfront and pays a portion related to operating and maintenance of the network over time. We assess whether prepaid capacity contracts contain a significant financing component. If the financing component is significant, interest expense is accreted over the life of the contract using the effective interest method. The revenue associated with prepaid capacity contracts is deferred and generally recognized on a straight-line basis over the life of the contract. As of September 30, 2020, we haveapproximately $415 million of unfulfilled performance obligations relating to our long-term capacity contracts, primarily subsea contracts, that generally will be recognized as revenue over an average remaining life of six years.
26
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
September 30, 2020
(unaudited)
(12) Restructuring Liabilities
A summary of changes in our restructuring liability is set forth in the table below:
| Employee severance and termination | Contract termination and other | Total | |||||||||||||||
| in millions | |||||||||||||||||
| Restructuring liability as of January 1, 2020 | $ | 19.0 | $ | 13.3 | $ | 32.3 | |||||||||||
| Restructuring charges | 4.7 | 7.2 | 11.9 | ||||||||||||||
| UTS liabilities at acquisition date (a) | 2.1 | 0 | 2.1 | ||||||||||||||
| Cash paid | (11.9) | (7.4) | (19.3) | ||||||||||||||
| Foreign currency translation adjustments and other | (5.2) | 1.1 | (4.1) | ||||||||||||||
| Restructuring liability as of September 30, 2020 | $ | 8.7 | $ | 14.2 | $ | 22.9 | |||||||||||
| Current portion | $ | 6.9 | $ | 12.7 | $ | 19.6 | |||||||||||
| Noncurrent portion | 1.8 | 1.5 | 3.3 | ||||||||||||||
| Total | $ | 8.7 | $ | 14.2 | $ | 22.9 | |||||||||||
(a) Represents an adjustment related to the completion of our purchase price accounting for the UTS Acquisition, as further discussed in note 4.
Our restructuring charges during the nine months ended September 30, 2020 primarily relate to reorganization programs at C&W and VTR. Current and noncurrent restructuring liabilities are included in other accrued and current liabilities and other long-term liabilities, respectively, in our condensed consolidated balance sheets.
In addition to the restructuring charges set forth in the table above, we also incurred $2 million during the nine months ended September 30, 2020 in restructuring charges related to employee severance and termination costs at C&W, which impacted our net pension liability.
(13) Programming and Other Direct Costs of Services
General. Programming and other direct costs of services include programming and copyright costs, interconnect and access costs, commissions, costs of mobile handsets and other devices, and other direct costs related to our operations. Programming and copyright costs represent a significant portion of our operating costs.
Our programming and other direct costs of services by major category are set forth below.
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| in millions | |||||||||||||||||||||||
| Programming and copyright | $ | 96.0 | $ | 102.8 | $ | 289.5 | $ | 319.6 | |||||||||||||||
| Interconnect and commissions | 58.2 | 69.3 | 183.3 | 213.8 | |||||||||||||||||||
| Equipment and other | 35.5 | 43.6 | 107.4 | 130.7 | |||||||||||||||||||
| Total programming and other direct costs | $ | 189.7 | $ | 215.7 | $ | 580.2 | $ | 664.1 | |||||||||||||||
27
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
September 30, 2020
(unaudited)
(14) Other Operating Costs and Expenses
General. Other operating costs and expenses set forth in the table below comprise the following cost categories:
•Personnel and contract labor-related costs, which primarily include salary-related and cash bonus expenses, net of capitalizable labor costs, and temporary contract labor costs;
•Network-related expenses, which primarily include costs related to network access, system power, core network, and CPE repair, maintenance and test costs;
•Service-related costs, which primarily include professional services, information technology-related services, audit, legal and other services;
•Commercial, which primarily includes sales and marketing costs, such as advertising, commissions and other sales and marketing-related costs, and customer care costs related to outsourced call centers;
•Facility, provision, franchise and other, which primarily includes facility-related costs, provision for bad debt expense, franchise-related fees, bank fees, insurance, travel and entertainment and other operating-related costs; and
•Share-based compensation costs that relate to SARs, RSUs and PSUs issued to our employees and Directors, each as defined in note 16.
Our other operating costs and expenses by major category are set forth below.
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| in millions | |||||||||||||||||||||||
| Personnel and contract labor | $ | 113.9 | $ | 126.4 | $ | 351.6 | $ | 374.4 | |||||||||||||||
| Network-related | 66.4 | 65.5 | 193.2 | 195.3 | |||||||||||||||||||
| Service-related | 35.2 | 41.6 | 110.0 | 116.1 | |||||||||||||||||||
| Commercial | 38.8 | 41.1 | 120.3 | 130.5 | |||||||||||||||||||
| Facility, provision, franchise and other | 83.3 | 96.8 | 255.4 | 279.1 | |||||||||||||||||||
| Share-based compensation expense | 28.0 | 15.1 | 75.3 | 45.2 | |||||||||||||||||||
| Total other operating costs and expenses | $ | 365.6 | $ | 386.5 | $ | 1,105.8 | $ | 1,140.6 | |||||||||||||||
(15) Income Taxes
We evaluate and update our estimated annual effective income tax rate on a quarterly basis based on current and forecasted operating results and tax laws. For interim tax reporting, we estimate an annual effective tax rate whichthat is applied to year-to-date ordinary income or loss. The tax effecteffects of significant unusual or infrequently occurring items are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur.
Our interim estimate of our annual effective tax rate and our interim tax provision are subject to volatility due to factors such as jurisdictions in which our deferred taxes and/or tax attributes are subject to a full valuation allowance, relative changes in unrecognized tax benefits and changes in tax laws. Based upon the mix and timing of our actual annual earnings or loss compared to annual projections, as well as changes in the factors noted above, our effective tax rate may vary quarterly and may make quarterly comparisons not meaningful.
Income tax expensebenefit was approximately $17$43 million and $23$182 million during the three months ended March 31, 2018September 30, 2020 and 2017,2019, respectively, and $33 million and $149 million during the nine months ended September 30, 2020 and 2019, respectively. This represents an effective income tax rate of (44.8)(32.2)% and68.5% (72.4)% for the three months ended March 31, 2018September 30, 2020 and 2017,2019, respectively, and (4.1)% and (40.1)% for the nine months ended September 30, 2020 and 2019, respectively, including items treated discretely. For the three months ended March 31, 2018, the income tax expense attributable to our loss before income taxes differs from the amount computed using the statutory tax rate primarily due to the detrimental effects of international rate differences, increases in the valuation allowance, and negative effects of non-deductible expenses. These negative impacts to our effective tax rate were partially offset by the beneficial effects of non-taxable income and price level restatements. For the three months ended March 31, 2017, the income tax expense attributable to our earnings before income taxes differs from the amount computed using the statutory tax rate primarily due to the detrimental effects of international rate differences, non-deductible expenses and changes in valuation allowances, partially offset by the beneficial effects of enacted tax law and rate changes.
28
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)
For the Split-Off,three and nine months ended September 30, 2020, we satisfied requirements imposed under recent tax reforms and, as a result, reduced our uncertain tax positions by $20 million. Additionally, during the nine months ended September 30, 2020, we closed certain feestax audits and, allocated costs and expensesas a result, reduced our uncertain tax positions by $18 million. These amounts have been replaced by fees pursuantreflected as discrete tax benefits in our condensed consolidated statement of operations.
For the three and nine months ended September 30, 2019, the income tax benefit attributable to our loss before income taxes differs from the amounts computed using the statutory tax rate, primarily due to the Split-Off Agreements,beneficial effects of net favorable changes in uncertain tax positions, international rate differences, and permanent items, such as further described below.non-taxable income. These beneficial impacts to our effective tax rate were partially offset by the negative effects of increases in valuation allowances and permanent items, such as non-deductible goodwill impairment and other non-deductible expenses. Additionally, for the nine months ended September 30, 2019, our effective tax rate reflects the beneficial effects of a change in the Barbados and Grenada statutory tax rates.
(16) Share-based Compensation
Share-based Incentive Awards
The following table provides details of our significant related-party balances:
| March 31, 2018 | December 31, 2017 | ||||||
| in millions | |||||||
| Assets: | |||||||
| Current assets – related-party receivables (a) | $ | 3.8 | $ | 4.2 | |||
| Income tax receivable (b) | 3.8 | — | |||||
| Total assets | $ | 7.6 | $ | 4.2 | |||
| Liabilities – accounts payable and other accrued and current liabilities (c) | $ | 5.3 | $ | 1.4 | |||
| Number of shares | Weighted average exercise price | Weighted average remaining contractual term | |||||||||||||||
| Share-based incentive award type | in years | ||||||||||||||||
Stock appreciation rights (SARs): | |||||||||||||||||
| Class A common shares: | |||||||||||||||||
| Outstanding | 5,344,204 | $ | 17.19 | 5.3 | |||||||||||||
| Exercisable | 1,867,282 | $ | 22.97 | 4.1 | |||||||||||||
| Class C common shares: | |||||||||||||||||
| Outstanding | 10,688,103 | $ | 17.21 | 5.3 | |||||||||||||
| Exercisable | 3,734,614 | $ | 22.99 | 4.1 | |||||||||||||
| Number of shares | Weighted average remaining contractual term | ||||||||||
| Share-based incentive award type | in years | ||||||||||
Restricted stock units (RSUs) outstanding: | |||||||||||
| Class A common shares | 485,752 | 2.1 | |||||||||
| Class C common shares | 971,247 | 2.1 | |||||||||
Performance-based restricted stock units (PSUs) outstanding: | |||||||||||
| Class A common shares | 497,015 | 0.7 | |||||||||
| Class C common shares | 994,047 | 0.7 | |||||||||
29
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)
| Revenue | $ | 4.0 | |
| Allocated share-based compensation expense | (3.3 | ) | |
| Charges from Liberty Global | (3.0 | ) | |
| Included in operating income | (2.3 | ) | |
| Interest income | 1.5 | ||
| Allocated tax expense | (1.8 | ) | |
| Included in net loss | $ | (2.6 | ) |
| Employee severance and termination | Contract termination and other | Total | |||||||||
| in millions | |||||||||||
| Restructuring liability as of January 1, 2018 | $ | 6.2 | $ | 25.4 | $ | 31.6 | |||||
| Restructuring charges | 24.1 | 1.6 | 25.7 | ||||||||
| Cash paid | (5.5 | ) | (1.3 | ) | (6.8 | ) | |||||
| Foreign currency translation adjustments | — | 0.4 | 0.4 | ||||||||
| Restructuring liability as of March 31, 2018 | $ | 24.8 | $ | 26.1 | $ | 50.9 | |||||
| Current portion | $ | 24.3 | $ | 12.4 | $ | 36.7 | |||||
| Noncurrent portion | 0.5 | 13.7 | 14.2 | ||||||||
| Total | $ | 24.8 | $ | 26.1 | $ | 50.9 | |||||
| Three months ended March 31, | |||||||
| 2018 | 2017 | ||||||
| in millions | |||||||
| Included in: | |||||||
| Other operating expense | $ | 0.1 | $ | 0.5 | |||
| SG&A expense | 6.4 | 5.1 | |||||
| Total | $ | 6.5 | $ | 5.6 | |||
| Number of shares | Weighted average base price | Weighted average remaining contractual term | ||||||
| Share-based incentive award type | in years | |||||||
Stock appreciation rights (SARs): | ||||||||
| Class A common shares: | ||||||||
| Outstanding | 1,274,964 | $ | 26.50 | 5.7 | ||||
| Exercisable | 336,956 | $ | 30.95 | 4.5 | ||||
| Class C common shares: | ||||||||
| Outstanding | 2,603,506 | $ | 26.84 | 5.6 | ||||
| Exercisable | 737,051 | $ | 31.17 | 4.3 | ||||
| Number of shares | Weighted average remaining contractual term | |||
| Share-based incentive award type | in years | |||
Restricted stock units (RSUs) outstanding: | ||||
| Class A common shares | 139,657 | 2.4 | ||
| Class C common shares | 288,522 | 2.3 | ||
Performance-based restricted stock units (PSUs) outstanding : | ||||
| Class A common shares | 173,849 | 1.5 | ||
| Class C common shares | 340,291 | 1.5 | ||
During the threenine months ended March 31, 2018,September 30, 2020, we granted SARs with respect to 594,2672,121,070 Class A common shares and 1,188,5334,242,140 Class C common shares, which have baseweighted average exercise prices of $21.58$10.42 and $21.39,$10.47, respectively, and weighted average grant-date fair values of $7.11 and $4.39, respectively. We also granted RSUs during the nine months ended September 30, 2020 with respect to 665,569 Class A common shares and 1,331,138 Class C common shares, which have weighted average grant-date fair values of $10.17 and $10.23, respectively.
Our share-based compensation expense during 2020 includes estimated bonus-related expenses for the 2020 year that will be paid in the form of equity. Accordingly, such expenses have been included in share-based compensation expense effective January 1, 2020 and are being accounted for using the liability-based method. Modification During the three months ended September 30, 2020, the expiration period for certain awards related to Liberty Global plc (Liberty Global) shares held by our employees was extended from 7 years to 10 years. This resulted in incremental expense of $7 million, all of which was recorded during the third quarter. (17) Earnings or Loss per Share |
Basicearnings (loss) per share (EPS) is computed by dividing netearnings (loss) attributable to Liberty Latin America shareholders by the weighted average number of Class A, Class B and Class C common shares of Liberty Latin America (collectively, Liberty Latin America Shares or LiLAC Shares) outstanding during the periods presented, as further described below. Diluted EPS presents the dilutive effect, if any, on a per share basis of potential shares (e.g., SARs and RSUs) as if they had been exercised, vested or vestedconverted at the beginning of the periods presented.
The details of our net earnings (loss) attributable to Liberty Latin America shareholders are set forth below:
| Three months ended March 31, | |||||
| 2018 (a) | 2017 (b) | ||||
| Weighted average shares outstanding - basic and dilutive | 171,231,111 | 172,743,854 | |||
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| in millions | |||||||||||||||||||||||
| Net loss | $ | (90.0) | $ | (69.7) | $ | (774.8) | $ | (222.1) | |||||||||||||||
Net loss attributable to noncontrolling interests | 5.4 | 105.0 | 116.5 | 99.7 | |||||||||||||||||||
| Net earnings (loss) attributable to Liberty Latin America shareholders | $ | (84.6) | $ | 35.3 | $ | (658.3) | $ | (122.4) | |||||||||||||||
The details of our weighted average shares outstanding are set forth below:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic | 185,380,797 | 184,452,387 | 183,286,840 | 184,238,994 | |||||||||||||||||||
| Diluted | 185,380,797 | 184,807,225 | 183,286,840 | 184,238,994 | |||||||||||||||||||
We reported a losslosses attributable to Liberty Latin America shareholders during the three and nine months ended March 31, 2018 . Therefore,September 30, 2020 and the nine months ended September 30, 2019. As a result, the potentially dilutive effect at March 31, 2018September 30, 2020 and 2019 of the following items was not included in the computation of diluted loss per share for such periods because their inclusion would have been anti-dilutive to the computation or, in the case of certain PSUs, because such awards had not yet met the applicable performance criteria: (i) using the if-converted method, the aggregate number of shares potentially issuable under our 2.0% convertible senior notes due July 15, 2024 (the Convertible Notes) of approximately 19.5 million, (ii) the aggregate number of shares issuable pursuant to outstanding options, SARs and RSUs of approximately 10.519.4 million and (ii)15.9 million, respectively, and (iii) the aggregate number of shares issuable pursuant to outstanding PSUs of approximately 1.2 million.
30
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)
The details of the calculations of our basic and diluted EPS for the three months ended September 30, 2019 are set forth below:
| Numerator: | |||||
| Net earnings attributable to holders of Liberty Latin America Shares (basic and diluted EPS computation, in millions) | $ | 35.3 | |||
| Weighted average shares (basic EPS computation) | 184,452,387 | ||||
| Incremental shares attributable to the release of PSUs and | 354,838 | ||||
| Weighted average shares (diluted EPS computation) | 184,807,225 | ||||
The potentially dilutive effect at September 30, 2019 of the following items was not included in the computation of diluted EPS set forth in the table above because their inclusion would have been anti-dilutive to the computation or, in the case of certain PSUs, because such awards had not yet met the applicable performance criteria: (i) using the if-converted method, the aggregate number of shares potentially issuable under our Convertible Notes of approximately 18.1 million (ii) the aggregate number of shares issuable pursuant to outstanding options, SARs and RSUs of approximately 15.8 million and (iii) the aggregate number of shares issuable pursuant to outstanding PSUs of approximately 0.5 million. A portion of these amounts relate to Liberty Latin America Shares held by employees of Liberty Global.
(18) Equity
Share Repurchase Program
On March 16, 2020, our Directors approved a share repurchase program (the Share Repurchase Program), which authorizes us to repurchase from time to time up to $100 million of our Class A common shares and/or Class C common shares through March 2022, subject to certain limitations and conditions. The Share Repurchase Program does not obligate us to repurchase any of our Class A or C common shares. Under the Share Repurchase Program, we may repurchase our common shares from time to time in open market purchases at prevailing market prices, in privately negotiated transactions, in block trades, derivative transactions and/or through other legally permissible means.
During the nine months ended September 30, 2020, we repurchased293,816 and 673,158 Class A and Class C common shares, respectively. At September 30, 2020, the remaining amount authorized for share repurchases was $91 million.
Rights Offering
On August 5, 2020, our Directors authorized the distribution (the Rights Distribution) of pro rata subscription rights to holders of our Class A, Class B and Class C common shares (the "Class C Rights") to acquire Class C common shares ("LILAK" or “Class C”), in a rights offering (the "Rights Offering"). In the Rights Distribution, we distributed 0.269 of a Class C Right for each share of Class A, Class B or Class C common shares held as of September 8, 2020, which was the record date for the Rights Distribution. Fractional Class C Rights were rounded up to the nearest whole right. Each whole Class C Right entitled the holder to purchase, pursuant to the basic subscription privilege, 1 share of LILAK at a subscription price of $7.14, which was equal to an approximate 25% discount to the volume weighted average trading price of LILAK for the 3-day trading period ending on and including September 2, 2020. Each Class C Right also entitled the holder to subscribe for additional shares of LILAK that were unsubscribed for in the Rights Offering pursuant to an over-subscription privilege. The Rights Offering commenced on September 11, 2020, which was also the ex-dividend date for the Rights Distribution. The Rights Offering expired in accordance with its terms on September 25, 2020 and was fully subscribed with 49,049,073 shares of LILAK issued to those rights holders exercising basic and, if applicable, over-subscription privileges. The proceeds from the Rights Offering, which aggregated $350 million before expenses, are expected to be used to finance acquisitions, including our recently announced Telefónica-Costa Rica Acquisition, and for other general corporate purposes.
31
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
September 30, 2020
(unaudited)
Capped Calls
In connection with the issuance of our Convertible Notes, Liberty Latin America entered into capped call option contracts (the Capped Calls). The Capped Calls are used as an economic hedge to reduce or offset potential dilution to our Class C common shares upon any conversion of the Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of such converted notes, as the case may be, with such reduction and/or offset subject to a cap. Collectively, the Capped Calls cover the number of the Company’s Class C common shares underlying the Convertible Notes, or 19.5 million of Class C common shares, as adjusted for the impact of the Rights Offering as described below. The Capped Calls had an initial strike price of $22.2337 per Class C common share and an initial cap price of $31.7625 per Class C common share, subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the Convertible Notes, and expire on July 15, 2024. Following the completion of the Rights Offering, the strike price of the Capped Calls is $20.65 per Class C common share and the cap price per Class C common share ranges from $28.00 to $29.50. The Capped Calls are not considered a derivative instrument under ASC 815, Derivatives and Hedging, as the contracts are indexed to our Class C common shares and therefore classified within shareholders’ equity. The aggregate premiums paid for the Capped Calls of $46 million are included in additional paid-in capital in our condensed consolidated statement of equity for the three and nine months ended September 30, 2019.
Conversion Option – Convertible Notes
In connection with the issuance of the Convertible Notes, we recorded $77 million in additional paid-in capital in our condensed consolidated statement of equity for the Conversion Option for the three and nine months ended September 30, 2019, which represents the fair value of the Conversion Option at issuance less $1 million of allocated transaction fees and costs. For additional information see note 9.
(19) 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 and services non-cancellable operating leases and other items. The following table sets forth the U.S. dollar equivalents of such commitments as of March 31, 2018:September 30, 2020:
| Payments due during: | |||||||||||||||||||||||||||||||
| Remainder of 2018 | |||||||||||||||||||||||||||||||
| 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | Total | |||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||
| Programming commitments | $ | 120.3 | $ | 58.3 | $ | 24.4 | $ | 18.0 | $ | 2.2 | $ | 1.5 | $ | 0.7 | $ | 225.4 | |||||||||||||||
| Network and connectivity commitments | 82.2 | 74.2 | 25.9 | 18.5 | 14.6 | 13.9 | 24.3 | 253.6 | |||||||||||||||||||||||
| Purchase commitments | 110.7 | 27.6 | 9.6 | 1.1 | 1.1 | 0.6 | — | 150.7 | |||||||||||||||||||||||
| Operating leases (a) | 22.5 | 20.6 | 16.9 | 13.4 | 11.4 | 9.1 | 17.3 | 111.2 | |||||||||||||||||||||||
| Other commitments (a) | 8.9 | 2.8 | 1.6 | 1.4 | 1.3 | 1.3 | 10.0 | 27.3 | |||||||||||||||||||||||
| Total (b) | $ | 344.6 | $ | 183.5 | $ | 78.4 | $ | 52.4 | $ | 30.6 | $ | 26.4 | $ | 52.3 | $ | 768.2 | |||||||||||||||
| Payments due during: | |||||||||||||||||||||||||||||||||||||||||||||||
| Remainder of 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | |||||||||||||||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||||||||||||||||||
| Programming commitments | $ | 47.8 | $ | 114.4 | $ | 81.8 | $ | 48.1 | $ | 38.7 | $ | 0.5 | $ | 0 | $ | 331.3 | |||||||||||||||||||||||||||||||
| Network and connectivity commitments | 23.1 | 40.3 | 8.3 | 5.6 | 4.8 | 2.5 | 9.2 | 93.8 | |||||||||||||||||||||||||||||||||||||||
| Purchase commitments | 133.1 | 21.4 | 6.7 | 1.4 | 0 | 0 | 0 | 162.6 | |||||||||||||||||||||||||||||||||||||||
| Other commitments | 6.2 | 2.1 | 1.7 | 1.5 | 1.4 | 1.4 | 8.3 | 22.6 | |||||||||||||||||||||||||||||||||||||||
| Total (a) | $ | 210.2 | $ | 178.2 | $ | 98.5 | $ | 56.6 | $ | 44.9 | $ | 4.4 | $ | 17.5 | $ | 610.3 | |||||||||||||||||||||||||||||||
Programming commitments consist of obligations associated with certain programming, studio output and sports rights contracts that are enforceable and legally binding on us, as 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 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. Historically, payments to programming vendors have represented a significant portion of our operating costs, and we expect that this will continue to be the case in future periods. In
32
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
September 30, 2020
(unaudited)
this regard, our total programming and copyright costs aggregated $96$290 million and $102$320 million during the threenine months ended March 31, 2018,September 30, 2020 and 2017,2019, respectively.
Network and connectivity commitments relate largely toinclude (i) VTR’s domestic network service agreements with certain other telecommunications companies and (ii) VTR’s mobile virtual network operator (MVNO) agreement. The amounts reflected in the above table with respect to certain of our MVNO commitmentscommitment represent fixed minimum amounts payable under these agreementsthis agreement and, therefore, may be significantly less than the actual amounts VTR ultimately pays in these periods.
Purchase commitments include unconditional and legally-binding obligations related to (i) the purchase of customer premises and other equipment and (ii) certain service-related commitments, including call center, information technology and maintenance services.
In addition to the commitments set forth in the table above, we have 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 our derivative instruments, including the net cash paid or received in connection with these instruments during the threenine months ended March 31, 2018,September 30, 2020 and 2017,2019, see note 5.
Guarantees and Other Credit Enhancements
In the ordinary course of business, we may provide (i) indemnifications to our lenders, our vendors and certain other parties and (ii) 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. In addition, C&W has provided indemnifications of (i) up to $300 million with respect to any potential tax-related claims related to the disposal in April 2013 of C&W’s interests in certain businesses and (ii) an unlimited amount of qualifying claims associated with the disposal of another business in May 2014. The first indemnification expires in April 2020 and the second expires in May 2020. We do not expect that either of these arrangements will require us to make material payments to the indemnified parties.
Legal and Regulatory Proceedings and Other Contingencies
VTR Class Action. On August 25, 2020, VTR was notified that the Chilean National Consumer Authority (“SERNAC”, the Spanish acronym for Servicio Nacional del Consumidor) had filed a class action complaint against VTR in the 14th Civil Court of Santiago. The complaint relates to consumer complaints regarding VTR’s broadband service and capacity during the pandemic and raises claims regarding, among other things, VTR’s disclosure of its broadband speeds and aggregate capacity availability and VTR’s response to address the causes of service instability during the pandemic. VTR was also notified in August about 2 additional class action complaints filed by two Chilean consumer associations (ODECU and AGRECU) making similar claims and allegations. The class action complaint of ODECU was filed in the 21st Civil Court of Santiago, and the class action complaint of AGRECU was filed in the 26th Civil Court of Santiago. The complaint of SERNAC and ODECU seeks (i) the Court declare that VTR has infringed the rules of the Consumer Protection Law; (ii) the responsibility of VTR for such infractions and, if so, establish the corresponding fines; and (iii) compensatory damages. In the case of AGRECU, the complaint only seeks compensatory damages. On October 22, 2020, VTR was notified of a fourth class action complaint filed by Conadecus in the 16th Civil Court of Santiago alleging that VTR did not adhere to certain call center, technical visit and service level requirements under applicable law. We believe that the allegations contained in the complaints are without merit, in particular as it relates to VTR’s service and response during the pandemic and intend to defend the complaints vigorously. We cannot predict at this point the length of time that these actions will be ongoing. Additionally, a liability, if any, or a reasonable range of loss is not currently determinable based upon the current facts and circumstances of these claims.
Regulatory Issues. 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. 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.
33
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
September 30, 2020
(unaudited)
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 wage, property, withholding and other tax issues and (iii) disputes over interconnection, programming and copyright 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.
We generally identify our reportable segments as those operating segments that represent 10% or more of our revenue, Adjusted OIBDA (as defined below) or total assets. We evaluate performance and make decisions about allocating resources to our reportable segments based on financial measures such as revenue and Adjusted OIBDA. In addition, we review non-financial measures such as subscriber growth, as appropriate.growth.
Adjusted OIBDA is the primary measure used by our chief operating decision maker to evaluate segment operating performance. Adjusted OIBDA 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, “Adjusted OIBDA” is defined as operatingincome or loss before share-based compensation, depreciation and amortization, share-based compensation, provisions and provision releases related to significant litigation and impairment, restructuring and other operating items. Other operating items include (i) gains and losses on the disposition of long-lived assets, (ii) third-party costs directly associated with successful and unsuccessful acquisitions and dispositions, including legal, advisory and due diligence fees, as applicable, and (iii) other acquisition-related items, such as gains and losses on the settlement of contingent consideration. Our internal decision makers believe Adjusted OIBDA is a meaningful measure because it represents a transparent view of our recurring operating performance that is unaffected by our capital structure and allows management to (i) readily view operating trends, (ii) perform analytical comparisons and benchmarking between segments and (iii) identify strategies to improve operating performance in the different countries in which we operate. As further described in note 2, effective January 1, 2018, we adopted ASU 2017-07, which resulted in the reclassification of certain pension-related credits from SG&A to non-operating income (expense) in our condensed consolidated statements of operations. As a result of the adoption, we have presented $3 million of pension-related credits in other income, net in our condensed consolidated statement of operations during each of the three months ended March 31, 2018 and 2017. Effective December 31, 2017, we include certain charges previously allocated to us by Liberty Global in the calculation of Adjusted OIBDA. These charges represent fees for certain services provided to us and totaled $3 million for the three months ended March 31, 2017. We believe changing the definition of Adjusted OIBDA to include these charges is meaningful
As of March 31, 2018,September 30, 2020, our reportable segments are as follows:
•C&W
•VTRVTR/Cabletica
•Liberty Puerto Rico
Our reportable segments derive their revenue primarily from residential and B2B services, including video, broadband internet and fixed-line telephony services and, with the exception of Liberty Puerto Rico, mobile services. We provide residential and B2B services in (i) 18over 20 countries, primarily in Latin America and the Caribbean, through C&W, (ii) Chile and Costa Rica, through VTRVTR/Cabletica, and (iii) Puerto Rico, through Liberty Puerto Rico. C&W also provides (i) B2B communication services in certain other countries in Latin America and the Caribbean and (ii) wholesale communication services over its sub-seasubsea and terrestrial fiber optic cable networks that connect over 40 markets in that region. Our corporate category includes our corporate operations.
34
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
September 30, 2020
(unaudited)
Performance Measures of our Reportable Segments
The amounts presented below represent 100% of the revenue and Adjusted OIBDA of each of our reportable segment’s revenuesegments and Adjusted OIBDA.our corporate operations. As we have the ability to control Liberty Puerto RicoCabletica and certain subsidiaries of C&W that are not wholly-owned, we include 100% of the revenue and expenses of these entities in our condensed consolidated statements of operations despite the fact that third parties own significant interests in these entities. The noncontrolling owners’ interests in the operating results of Liberty Puerto Rico and(i) certain subsidiaries of C&W and (ii) Cabletica are reflected in net earnings or loss attributable to noncontrolling interests in our condensed consolidated statements of operations.
| Revenue | |||||||||||||||||||||||
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| in millions | |||||||||||||||||||||||
| C&W (a) | $ | 538.9 | $ | 595.9 | $ | 1,642.8 | $ | 1,772.3 | |||||||||||||||
| VTR/Cabletica | 236.9 | 268.4 | 704.7 | 819.4 | |||||||||||||||||||
| Liberty Puerto Rico | 114.4 | 104.3 | 328.1 | 306.7 | |||||||||||||||||||
| Intersegment eliminations | (2.7) | (1.8) | (8.2) | (6.0) | |||||||||||||||||||
| Total | $ | 887.5 | $ | 966.8 | $ | 2,667.4 | $ | 2,892.4 | |||||||||||||||
| Revenue | Adjusted OIBDA | ||||||||||||||
| Three months ended March 31, | Three months ended March 31, | ||||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||
| in millions | |||||||||||||||
| C&W | $ | 585.5 | $ | 575.6 | $ | 229.1 | $ | 209.9 | |||||||
| VTR | 263.8 | 229.3 | 105.0 | 91.6 | |||||||||||
| Liberty Puerto Rico | 61.8 | 106.7 | 18.0 | 51.3 | |||||||||||
| Corporate | — | — | (11.3 | ) | (5.1 | ) | |||||||||
| Intersegment eliminations | (1.2 | ) | (0.7 | ) | — | — | |||||||||
| Total | $ | 909.9 | $ | 910.9 | $ | 340.8 | $ | 347.7 | |||||||
| Adjusted OIBDA | |||||||||||||||||||||||
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| in millions | |||||||||||||||||||||||
| C&W (a) | $ | 220.4 | $ | 236.2 | $ | 656.8 | $ | 694.1 | |||||||||||||||
| VTR/Cabletica | 92.9 | 108.5 | 272.6 | 327.7 | |||||||||||||||||||
| Liberty Puerto Rico | 58.1 | 50.8 | 161.0 | 150.3 | |||||||||||||||||||
| Corporate | (11.2) | (15.8) | (33.7) | (39.2) | |||||||||||||||||||
| Total | $ | 360.2 | $ | 379.7 | $ | 1,056.7 | $ | 1,132.9 | |||||||||||||||
(a)The amount presented for the nine months ended September 30, 2019 excludes the pre-acquisition Adjusted OIBDA of UTS, which was acquired effective March 31, 2019.
35
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)
The following table provides a reconciliation of total Adjusted OIBDA to earnings (loss)operating income and to loss before income taxes:
| Three months ended March 31, | |||||||
| 2018 | 2017 | ||||||
| in millions | |||||||
| Total Adjusted OIBDA | $ | 340.8 | $ | 347.7 | |||
| Share-based compensation | (6.5 | ) | (5.6 | ) | |||
| Depreciation and amortization | (202.3 | ) | (193.9 | ) | |||
| Impairment, restructuring and other operating items, net | (33.7 | ) | (13.4 | ) | |||
| Operating income | 98.3 | 134.8 | |||||
| Interest expense | (102.5 | ) | (94.3 | ) | |||
| Realized and unrealized losses on derivative instruments, net | (41.5 | ) | (27.3 | ) | |||
| Foreign currency transaction gains, net | 15.9 | 14.5 | |||||
| Loss on debt modification and extinguishment | (13.0 | ) | — | ||||
| Other income, net | 5.3 | 6.0 | |||||
| Earnings (loss) before income taxes | $ | (37.5 | ) | $ | 33.7 | ||
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| in millions | |||||||||||||||||||||||
| Total Adjusted OIBDA | $ | 360.2 | $ | 379.7 | $ | 1,056.7 | $ | 1,132.9 | |||||||||||||||
| Share-based compensation expense | (28.0) | (15.1) | (75.3) | (45.2) | |||||||||||||||||||
| Depreciation and amortization | (231.6) | (226.0) | (661.5) | (665.3) | |||||||||||||||||||
| Impairment, restructuring and other operating items, net | (14.0) | (208.3) | (331.5) | (235.3) | |||||||||||||||||||
| Operating income (loss) | 86.6 | (69.7) | (11.6) | 187.1 | |||||||||||||||||||
| Interest expense | (129.9) | (123.9) | (408.5) | (359.4) | |||||||||||||||||||
| Realized and unrealized gains (losses) on derivative instruments, net | (78.1) | 51.4 | (239.7) | (96.6) | |||||||||||||||||||
| Foreign currency transaction gains (losses), net | 30.1 | (110.8) | (115.1) | (98.1) | |||||||||||||||||||
| Losses on debt modification and extinguishment | (41.7) | (3.5) | (45.1) | (13.0) | |||||||||||||||||||
| Other income, net | 0.2 | 4.4 | 11.8 | 9.4 | |||||||||||||||||||
| Loss before income taxes | $ | (132.8) | $ | (252.1) | $ | (808.2) | $ | (370.6) | |||||||||||||||
Property and Equipment Additions of our Reportable Segments
The property and equipment additions of our reportable segments and our corporate operations (including capital additions financed under vendor financing or capitalfinance lease arrangements) are presented below and reconciled to the capital expenditure amounts included in our condensed consolidated statements of cash flows. For additional information concerning capital additions financed under vendor financing, see note 8.
| Nine months ended September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| in millions | |||||||||||
| C&W (a) | $ | 234.1 | $ | 264.9 | |||||||
| VTR/Cabletica | 144.4 | 166.2 | |||||||||
| Liberty Puerto Rico | 52.3 | 56.0 | |||||||||
| Corporate | 12.3 | 5.0 | |||||||||
| Total property and equipment additions | 443.1 | 492.1 | |||||||||
| Assets acquired under capital-related vendor financing arrangements | (80.5) | (58.7) | |||||||||
| Assets acquired under finance leases | 0 | (0.2) | |||||||||
| Changes in current liabilities related to capital expenditures | 55.7 | (1.2) | |||||||||
| Total capital expenditures | $ | 418.3 | $ | 432.0 | |||||||
(a)The amount presented for the nine months ended September 30, 2019 excludes the pre-acquisition property and equipment additions of UTS, which was acquired effective March 31, 2019.
36
| Three months ended March 31, | |||||||
| 2018 | 2017 | ||||||
| in millions | |||||||
| C&W | $ | 67.2 | $ | 60.5 | |||
| VTR | 57.0 | 55.4 | |||||
| Liberty Puerto Rico | 69.8 | 23.3 | |||||
| Total property and equipment additions | 194.0 | 139.2 | |||||
| Assets acquired under capital-related vendor financing arrangements | (20.7 | ) | (14.1 | ) | |||
| Assets acquired under capital leases | (0.6 | ) | (0.9 | ) | |||
| Changes in current liabilities related to capital expenditures | 15.5 | 0.2 | |||||
| Total capital expenditures | $ | 188.2 | $ | 124.4 | |||
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)
Revenue by Major Category
Our revenue by major category for our reportable segments is set forth in the tables below. As further described in note 2,
| Three months ended September 30, 2020 | |||||||||||||||||||||||||||||
| C&W | VTR/Cabletica | Liberty Puerto Rico | Intersegment Eliminations (a) | Total | |||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||
| Residential revenue: | |||||||||||||||||||||||||||||
| Residential fixed revenue: | |||||||||||||||||||||||||||||
| Subscription revenue (b): | |||||||||||||||||||||||||||||
| Video | $ | 40.8 | $ | 91.9 | $ | 37.1 | $ | 0 | $ | 169.8 | |||||||||||||||||||
| Broadband internet | 72.2 | 97.5 | 52.5 | 0 | 222.2 | ||||||||||||||||||||||||
| Fixed-line telephony | 22.6 | 19.0 | 6.5 | 0 | 48.1 | ||||||||||||||||||||||||
| Total subscription revenue | 135.6 | 208.4 | 96.1 | 0 | 440.1 | ||||||||||||||||||||||||
| Non-subscription revenue (c) | 13.1 | 5.4 | 4.2 | 0 | 22.7 | ||||||||||||||||||||||||
| Total residential fixed revenue | 148.7 | 213.8 | 100.3 | 0 | 462.8 | ||||||||||||||||||||||||
| Residential mobile revenue: | |||||||||||||||||||||||||||||
| Service revenue (b) | 110.7 | 13.8 | 0 | 0 | 124.5 | ||||||||||||||||||||||||
| Interconnect, inbound roaming, equipment sales and other (d) (e) | 20.8 | 2.0 | 0 | 0 | 22.8 | ||||||||||||||||||||||||
| Total residential mobile revenue | 131.5 | 15.8 | 0 | 0 | 147.3 | ||||||||||||||||||||||||
| Total residential revenue | 280.2 | 229.6 | 100.3 | 0 | 610.1 | ||||||||||||||||||||||||
| B2B revenue: | |||||||||||||||||||||||||||||
| Service revenue (f) | 198.0 | 7.3 | 14.1 | (0.3) | 219.1 | ||||||||||||||||||||||||
| Subsea network revenue (g) | 60.7 | 0 | 0 | (2.4) | 58.3 | ||||||||||||||||||||||||
| Total B2B revenue | 258.7 | 7.3 | 14.1 | (2.7) | 277.4 | ||||||||||||||||||||||||
| Total | $ | 538.9 | $ | 236.9 | $ | 114.4 | $ | (2.7) | $ | 887.5 | |||||||||||||||||||
(a)Represents intersegment transactions between (i) C&W and Liberty Puerto Rico and (ii) C&W and VTR/Cabletica.
(b)Residential fixed subscription and residential mobile services revenue include amounts received from subscribers for ongoing fixed and airtime services, respectively.
(c)Residential fixed non-subscription revenue primarily includes interconnect and advertising revenue.
(d)During the third quarter of 2020, we adopted ASU 2014-09 effective January 1, 2018 usingbegan classifying revenue from inbound roaming from “mobile services revenue” to “mobile interconnect, inbound roaming, equipment sales and other” to better align with how management evaluates the cumulative effect transition method. business. Revenue from inbound roaming, which relates to the C&W segment, was $3 million during the three months ended September 30, 2020.
(e)The comparative information has not been restatedtotal amount includes $7 millionof revenue from sales of mobile handsets and continuesother devices.
(f)B2B service revenue primarily includes broadband internet, video, fixed-line telephony, mobile and managed services (including equipment installation contracts) offered to be reported undersmall (including small or home office), medium and large enterprises and, on a wholesale basis, other telecommunication operators. The total amount also includes $2 million of revenue from sales of mobile handsets and other devices to B2B mobile customers.
(g)B2B subsea network revenue includes long-term capacity contracts with customers where the accounting standards in effectcustomer either pays a fee over time or prepays for those periods. The adoptionthe capacity upfront and pays a portion related to operating and maintenance of ASU 2014-09 did not have a material impact on our revenue by category.the network over time.
37
| Three months ended March 31, 2018 | |||||||||||||||||||
| C&W | VTR | Liberty Puerto Rico | Intersegment Eliminations | Total | |||||||||||||||
| in millions | |||||||||||||||||||
| Residential revenue: | |||||||||||||||||||
| Residential fixed revenue: | |||||||||||||||||||
| Subscription revenue (a): | |||||||||||||||||||
| Video | $ | 42.7 | $ | 99.7 | $ | 23.3 | $ | — | $ | 165.7 | |||||||||
| Broadband internet | 53.7 | 96.6 | 25.3 | — | 175.6 | ||||||||||||||
| Fixed-line telephony | 26.9 | 34.6 | 3.5 | — | 65.0 | ||||||||||||||
| Total subscription revenue | 123.3 | 230.9 | 52.1 | — | 406.3 | ||||||||||||||
| Non-subscription revenue (b) | 21.5 | 7.5 | 1.7 | — | 30.7 | ||||||||||||||
| Total residential fixed revenue | 144.8 | 238.4 | 53.8 | — | 437.0 | ||||||||||||||
| Residential mobile revenue: | |||||||||||||||||||
| Subscription revenue (a) | 155.1 | 16.3 | — | — | 171.4 | ||||||||||||||
| Non-subscription revenue (c) | 22.1 | 3.2 | — | — | 25.3 | ||||||||||||||
| Total residential mobile revenue | 177.2 | 19.5 | — | — | 196.7 | ||||||||||||||
| Total residential revenue | 322.0 | 257.9 | 53.8 | — | 633.7 | ||||||||||||||
| B2B revenue: | |||||||||||||||||||
| Subscription revenue | — | 5.6 | 4.3 | — | 9.9 | ||||||||||||||
| Non-subscription revenue (d) | 203.9 | 0.3 | 3.0 | (1.2 | ) | 206.0 | |||||||||||||
| Sub-sea network revenue (e) | 59.6 | — | — | — | 59.6 | ||||||||||||||
| Total B2B revenue | 263.5 | 5.9 | 7.3 | (1.2 | ) | 275.5 | |||||||||||||
| Other revenue | — | — | 0.7 | — | 0.7 | ||||||||||||||
| Total | $ | 585.5 | $ | 263.8 | $ | 61.8 | $ | (1.2 | ) | $ | 909.9 | ||||||||
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)
| Three months ended March 31, 2017 | |||||||||||||||||||
| C&W | VTR | Liberty Puerto Rico | Intersegment Eliminations | Total | |||||||||||||||
| in millions | |||||||||||||||||||
| Residential revenue: | |||||||||||||||||||
| Residential fixed revenue: | |||||||||||||||||||
| Subscription revenue: | |||||||||||||||||||
| Video | $ | 40.5 | $ | 87.4 | $ | 42.7 | $ | — | $ | 170.6 | |||||||||
| Broadband internet | 52.8 | 82.3 | 40.4 | — | 175.5 | ||||||||||||||
| Fixed-line telephony | 29.3 | 34.3 | 6.4 | — | 70.0 | ||||||||||||||
| Total subscription revenue | 122.6 | 204.0 | 89.5 | — | 416.1 | ||||||||||||||
| Non-subscription revenue | 23.5 | 7.4 | 5.9 | — | 36.8 | ||||||||||||||
| Total residential fixed revenue | 146.1 | 211.4 | 95.4 | — | 452.9 | ||||||||||||||
| Residential mobile revenue: | |||||||||||||||||||
| Subscription revenue | 161.8 | 12.6 | — | — | 174.4 | ||||||||||||||
| Non-subscription revenue | 19.9 | 2.3 | — | — | 22.2 | ||||||||||||||
| Total residential mobile revenue | 181.7 | 14.9 | — | — | 196.6 | ||||||||||||||
| Total residential revenue | 327.8 | 226.3 | 95.4 | — | 649.5 | ||||||||||||||
| B2B revenue: | |||||||||||||||||||
| Subscription revenue | — | 2.7 | 6.7 | — | 9.4 | ||||||||||||||
| Non-subscription revenue | 201.4 | 0.3 | 3.3 | (0.7 | ) | 204.3 | |||||||||||||
| Sub-sea network revenue | 46.4 | — | — | — | 46.4 | ||||||||||||||
| Total B2B revenue | 247.8 | 3.0 | 10.0 | (0.7 | ) | 260.1 | |||||||||||||
| Other revenue | — | — | 1.3 | — | 1.3 | ||||||||||||||
| Total | $ | 575.6 | $ | 229.3 | $ | 106.7 | $ | (0.7 | ) | $ | 910.9 | ||||||||
| Three months ended September 30, 2019 | |||||||||||||||||||||||||||||
| C&W | VTR/Cabletica | Liberty Puerto Rico | Intersegment Eliminations (a) | Total | |||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||
| Residential revenue: | |||||||||||||||||||||||||||||
| Residential fixed revenue: | |||||||||||||||||||||||||||||
| Subscription revenue (b): | |||||||||||||||||||||||||||||
| Video | $ | 45.3 | $ | 105.9 | $ | 35.3 | $ | 0 | $ | 186.5 | |||||||||||||||||||
| Broadband internet | 66.9 | 103.4 | 44.4 | 0 | 214.7 | ||||||||||||||||||||||||
| Fixed-line telephony | 26.0 | 24.9 | 5.9 | 0 | 56.8 | ||||||||||||||||||||||||
| Total subscription revenue | 138.2 | 234.2 | 85.6 | 0 | 458.0 | ||||||||||||||||||||||||
| Non-subscription revenue (c) | 16.7 | 8.2 | 5.3 | 0 | 30.2 | ||||||||||||||||||||||||
| Total residential fixed revenue | 154.9 | 242.4 | 90.9 | 0 | 488.2 | ||||||||||||||||||||||||
| Residential mobile revenue: | |||||||||||||||||||||||||||||
| Service revenue (b) | 131.1 | 15.9 | 0 | 0 | 147.0 | ||||||||||||||||||||||||
| Interconnect, inbound roaming, equipment sales and other (d) (e) | 29.5 | 2.6 | 0 | 0 | 32.1 | ||||||||||||||||||||||||
| Total residential mobile revenue | 160.6 | 18.5 | 0 | 0 | 179.1 | ||||||||||||||||||||||||
| Total residential revenue | 315.5 | 260.9 | 90.9 | 0 | 667.3 | ||||||||||||||||||||||||
| B2B revenue: | |||||||||||||||||||||||||||||
| Service revenue (f) | 218.8 | 7.5 | 13.4 | (0.3) | 239.4 | ||||||||||||||||||||||||
| Subsea network revenue (g) | 61.6 | 0 | 0 | (1.5) | 60.1 | ||||||||||||||||||||||||
| Total B2B revenue | 280.4 | 7.5 | 13.4 | (1.8) | 299.5 | ||||||||||||||||||||||||
| Total | $ | 595.9 | $ | 268.4 | $ | 104.3 | $ | (1.8) | $ | 966.8 | |||||||||||||||||||
(a)Represents intersegment transactions between (i) C&W and Liberty Puerto Rico and (ii) C&W and VTR/Cabletica.
(b)Residential fixed subscription and residential mobile services revenue include amounts received from subscribers for ongoing fixed and airtime services, respectively.
(c)Residential fixed non-subscription revenue primarily includes interconnect and advertising revenue.
(d)During the third quarter of 2020, we reclassified $10 million of inbound roaming revenue from “mobile services revenue” to “interconnect, inbound roaming, equipment sales and other.”
(e)The total amount includes $10 million of revenue from sales of mobile handsets and other devices.
(f)The total amount includes $7 million of revenue from sales of mobile handsets and other devices to B2B mobile customers.
(g)B2B subsea network revenue includes long-term capacity contracts with customers where the customer either pays a fee over time or prepays for the capacity upfront and pays a portion related to operating and maintenance of the network over time.
38
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
(unaudited)
| Nine months ended September 30, 2020 | |||||||||||||||||||||||||||||
| C&W | VTR/Cabletica | Liberty Puerto Rico | Intersegment Eliminations (a) | Total | |||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||
| Residential revenue: | |||||||||||||||||||||||||||||
| Residential fixed revenue: | |||||||||||||||||||||||||||||
| Subscription revenue: | |||||||||||||||||||||||||||||
| Video | $ | 128.4 | $ | 274.4 | $ | 109.1 | $ | 0 | $ | 511.9 | |||||||||||||||||||
| Broadband internet | 213.7 | 285.2 | 147.2 | 0 | 646.1 | ||||||||||||||||||||||||
| Fixed-line telephony | 71.1 | 57.8 | 18.6 | 0 | 147.5 | ||||||||||||||||||||||||
| Total subscription revenue | 413.2 | 617.4 | 274.9 | 0 | 1,305.5 | ||||||||||||||||||||||||
| Non-subscription revenue | 41.3 | 16.8 | 12.6 | 0 | 70.7 | ||||||||||||||||||||||||
| Total residential fixed revenue | 454.5 | 634.2 | 287.5 | 0 | 1,376.2 | ||||||||||||||||||||||||
| Residential mobile revenue: | |||||||||||||||||||||||||||||
| Service revenue | 338.1 | 42.2 | 0 | 0 | 380.3 | ||||||||||||||||||||||||
| Interconnect, inbound roaming, equipment sales and other (b) (c) | 64.6 | 5.6 | 0 | 0 | 70.2 | ||||||||||||||||||||||||
| Total residential mobile revenue | 402.7 | 47.8 | 0 | 0 | 450.5 | ||||||||||||||||||||||||
| Total residential revenue | 857.2 | 682.0 | 287.5 | 0 | 1,826.7 | ||||||||||||||||||||||||
| B2B revenue: | |||||||||||||||||||||||||||||
| Service revenue (d) | 594.9 | 22.7 | 40.6 | (1.1) | 657.1 | ||||||||||||||||||||||||
| Subsea network revenue | 190.7 | 0 | 0 | (7.1) | 183.6 | ||||||||||||||||||||||||
| Total B2B revenue | 785.6 | 22.7 | 40.6 | (8.2) | 840.7 | ||||||||||||||||||||||||
| Total | $ | 1,642.8 | $ | 704.7 | $ | 328.1 | $ | (8.2) | $ | 2,667.4 | |||||||||||||||||||
(a)Represents intersegment transactions between (i) C&W and Liberty Puerto Rico and (ii) C&W and VTR/Cabletica.
(b)During the third quarter of 2020, we began classifying revenue from inbound roaming from “mobile services revenue” to “mobile interconnect, inbound roaming, equipment sales and other” to better align with how management evaluates the business. Revenue from inbound roaming, which relates to the C&W segment, was $12 million during the nine months ended September 30, 2020.
(c)The total amount includes $23 million of revenue from sales of mobile handsets and other devices.
(d)The total amount includes $8 million of revenue from sales of mobile handsets and other devices to B2B mobile customers.
39
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
September 30, 2020
(unaudited)
| Nine months ended September 30, 2019 | |||||||||||||||||||||||||||||
| C&W (a) | VTR/Cabletica | Liberty Puerto Rico | Intersegment Eliminations (b) | Total | |||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||
| Residential revenue: | |||||||||||||||||||||||||||||
| Residential fixed revenue: | |||||||||||||||||||||||||||||
| Subscription revenue: | |||||||||||||||||||||||||||||
| Video | $ | 136.0 | $ | 323.0 | $ | 105.6 | $ | 0 | $ | 564.6 | |||||||||||||||||||
| Broadband internet | 192.6 | 313.6 | 129.8 | 0 | 636.0 | ||||||||||||||||||||||||
| Fixed-line telephony | 77.0 | 78.3 | 17.5 | 0 | 172.8 | ||||||||||||||||||||||||
| Total subscription revenue | 405.6 | 714.9 | 252.9 | 0 | 1,373.4 | ||||||||||||||||||||||||
| Non-subscription revenue | 46.6 | 25.2 | 16.2 | 0 | 88.0 | ||||||||||||||||||||||||
| Total residential fixed revenue | 452.2 | 740.1 | 269.1 | 0 | 1,461.4 | ||||||||||||||||||||||||
| Residential mobile revenue: | |||||||||||||||||||||||||||||
| Service revenue | 391.4 | 47.5 | 0 | 0 | 438.9 | ||||||||||||||||||||||||
| Interconnect, inbound roaming, equipment sales and other (c) (d) | 87.5 | 9.5 | 0 | 0 | 97.0 | ||||||||||||||||||||||||
| Total residential mobile revenue | 478.9 | 57.0 | 0 | 0 | 535.9 | ||||||||||||||||||||||||
| Total residential revenue | 931.1 | 797.1 | 269.1 | 0 | 1,997.3 | ||||||||||||||||||||||||
| B2B revenue: | |||||||||||||||||||||||||||||
| Service revenue (e) | 658.1 | 22.3 | 37.6 | (1.3) | 716.7 | ||||||||||||||||||||||||
| Subsea network revenue | 183.1 | 0 | 0 | (4.7) | 178.4 | ||||||||||||||||||||||||
| Total B2B revenue | 841.2 | 22.3 | 37.6 | (6.0) | 895.1 | ||||||||||||||||||||||||
| Total | $ | 1,772.3 | $ | 819.4 | $ | 306.7 | $ | (6.0) | $ | 2,892.4 | |||||||||||||||||||
(a)The amounts presented exclude the pre-acquisition revenue of UTS, which was acquired effective March 31, 2019.
(b)Represents intersegment transactions between (i) C&W and Liberty Puerto Rico and (ii) C&W and VTR/Cabletica.
(c)During the third quarter of 2020, we reclassified $27 million of inbound roaming revenue from “mobile services revenue” to “interconnect, inbound roaming, equipment sales and other.”
(d)The total amount includes $30 million of revenue from sales of mobile handsets and other devices.
(e)The total amount includes $20 million of revenue from sales of mobile handsets and other devices to B2B mobile customers.
40
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
September 30, 2020
(unaudited)
Geographic SegmentsMarkets
The revenue offrom third-party customers for our geographic segmentsmarkets is set forth below:in the table below. Except as otherwise noted, the amounts presented include revenue from residential and B2B operations.
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| in millions | |||||||||||||||||||||||
| Panama | $ | 118.3 | $ | 136.8 | $ | 367.6 | $ | 419.7 | |||||||||||||||
| Networks & LatAm (a) | 84.9 | 88.3 | 265.4 | 264.5 | |||||||||||||||||||
| Jamaica | 93.8 | 95.3 | 277.5 | 287.6 | |||||||||||||||||||
| The Bahamas | 44.6 | 50.1 | 134.9 | 156.2 | |||||||||||||||||||
| Barbados | 34.9 | 37.4 | 105.2 | 112.3 | |||||||||||||||||||
| Curacao (b) | 34.8 | 37.4 | 106.9 | 81.9 | |||||||||||||||||||
| Trinidad and Tobago | 40.1 | 40.5 | 120.8 | 120.6 | |||||||||||||||||||
| Chile | 201.8 | 235.2 | 601.3 | 721.1 | |||||||||||||||||||
| Costa Rica | 35.1 | 33.3 | 103.4 | 98.3 | |||||||||||||||||||
| Puerto Rico | 114.0 | 104.0 | 327.0 | 305.4 | |||||||||||||||||||
| Other (c) | 85.2 | 108.5 | 257.4 | 324.8 | |||||||||||||||||||
| Total | $ | 887.5 | $ | 966.8 | $ | 2,667.4 | $ | 2,892.4 | |||||||||||||||
(a)The amounts represent managed services and wholesale revenue from various jurisdictions across Latin America and the Caribbean, primarily related to the sale and lease of telecommunications capacity on C&W’s subsea and terrestrial fiber optic cable networks.
(b)The amount presented for the nine months ended September 30, 2019 excludes the pre-acquisition revenue of UTS, which was acquired effective March 31, 2019.
(c)The amounts relate to a number of countries in which C&W has less significant operations, all of which are located in Latin America and the Caribbean.
| Three months ended March 31, | |||||||
| 2018 | 2017 | ||||||
| in millions | |||||||
| C&W (a): | |||||||
| Panama | $ | 149.2 | $ | 153.7 | |||
| Jamaica | 92.5 | 83.6 | |||||
| Networks & LatAm (b) | 94.1 | 76.9 | |||||
| The Bahamas | 64.1 | 72.0 | |||||
| Barbados | 39.4 | 40.2 | |||||
| Trinidad and Tobago | 40.7 | 42.8 | |||||
| Other (c) | 105.5 | 106.4 | |||||
| Total C&W | 585.5 | 575.6 | |||||
| Chile | 263.8 | 229.3 | |||||
| Puerto Rico | 61.8 | 106.7 | |||||
| Intersegment eliminations | (1.2 | ) | (0.7 | ) | |||
| Total | $ | 909.9 | $ | 910.9 | |||
41
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis, which should be read in conjunction with our 2019 Form 10-K and the condensed consolidated financial statements and the discussion and analysisaccompanying notes included in our 2017Part I, Item 1 of this Form 10-K,10-Q, is intended to assist in providing an understanding of our financial condition, changes in financial condition and results of operations and is organized as follows:
•Forward-looking Statements. This section provides a description of certain factors that could cause actual results or events to differ materially from anticipated results or events. •Overview. This section provides a general description of our business and recent events. •Material Changes in Results of Operations. This section provides an analysis of our results of operations for the three and nine months ended September 30, 2020 and 2019. • |
Material Changes in Financial Condition. This section provides an analysis of our corporate and subsidiary liquidity, condensed consolidated statements of cash flows and contractual commitments. |
The capitalized terms used below have been defined in the notes to our condensed consolidated financial statements. In the following text, the terms “we,” “our,” “our company” and “us” may refer, as the context requires, to Liberty Latin America or collectively to Liberty Latin America and its subsidiaries.
Unless otherwise indicated, convenience translations into U.S. dollars are calculated as of March 31, 2018.September 30, 2020.
Forward-looking Statements
Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. To the extent that statements in this Quarterly Report on Form 10-Q 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 Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 3. Quantitative and Qualitative Disclosures About Market Risk,and Item 4. Controls and Procedures, and Part II, Item 1. Legal Proceedings, may contain forward-looking statements, including statements regarding: our business, product, foreign currency and finance strategies in 2018; the anticipated rate and cost of our recovery in certain markets from the impact of Hurricanes Maria and Irma; our property and equipment additions in 2018;strategies; subscriber growth and retention rates; changes in competitive, regulatory and economic factors; the timing and impacts of proposed transactions; anticipated changes in our revenue, costsexpenses, or growth rates; debt levels; our liquidity;liquidity and our ability to access the liquidity of our subsidiaries; credit risks; internal control over financial reporting; foreign currency risks; target leverage levels;interest rate risks; compliance with debt, financial and other covenants; our future projected contractual commitments and cash flows; the AT&T Acquisition, including integration costs; the Telefónica-Costa Rica Acquisition, including the expected closing date; the effects and potential impacts of COVID-19 on our business and results of operations; reductions in operating and capital costs; the remediation of material weaknesses; our share repurchase plan; the outcome and impact of pending litigation; 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 consideraddition to the risksrisk factors described in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and uncertainties discussedPart I, Item 1A in our 20172019 Form 10-K, as well as the following list ofare some but not all of the factors that could cause actual results or events to differ materially from anticipated results or events:
•economic and business conditions and industry trends in the countries in which we operate;
•the competitive environment in the industries in the countries in which we operate, including competitor responses to our products and services;
•fluctuations in currency exchange rates, inflation rates and interest rates;
•instability in global financial markets, including sovereign debt issues and related fiscal reforms;
•consumer disposable income and spending levels, including the availability and amount of individual consumer debt;
•changes in consumer television viewing preferences and habits;habits, including on mobile devices that function on various operating systems and specifications, limited bandwidth, and different processing power and screen sizes;
42
•customer acceptance of our existing service offerings, including our 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;
•our ability to manage rapid technological changes;
•the impact of 5G and wireless technologies on broadband internet;
•our ability to maintain or increase the number of subscriptions to our video, broadband internet, fixed-line telephony and mobile service offerings and our average revenue per household;
•our ability to provide satisfactory customer service, including support for new and evolving products and services;
•our ability to maintain or increase rates to our subscribers or to pass through increased costs to our subscribers;
•the impact of our future financial performance, or market conditions generally, on the availability, terms and deployment of capital;
•changes in, or failure or inability to comply with, government regulations in the countries in which we or our affiliates operate and adverse outcomes from regulatory proceedings;
•government intervention that requires opening our broadband distribution networks to competitors;
•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;acquisitions, such as the AT&T Acquisition and the Telefónica-Costa Rica Acquisition;
•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 acquired or that we expect to acquire;acquire, such as with respect to the AT&T Acquisition and the Telefónica-Costa Rica Acquisition;
•changes in laws or treaties relating to taxation, or the interpretation thereof, in the U.S. or in other countries in which we or our affiliates operate;
•changes in laws and government regulations that may impact the availability and cost of capital and the derivative instruments that hedge certain of our financial risks;
•the ability of suppliers and vendors, including third-party channel providers and broadcasters (including our third-party wireless network providersprovider under our MVNO arrangement), to timely deliver quality products, equipment, software, services and access;
•the availability of attractive programming for our video services and the costs associated with such programming, including retransmission and copyright fees payable to public and private broadcasters;
•uncertainties inherent in the development and integration of new business lines and business strategies;
•our ability to adequately forecast and plan future network requirements, including the costs and benefits associated with our network extension and upgrade programs;
•the availability of capital for the acquisition and/or development of telecommunications networks and services;services, including property and equipment additions;
•problems we may discover post-closing with the operations, including the internal controls and financial reporting process, of businesses we acquire;acquire, such as with respect to the AT&T Acquisition and the Telefónica-Costa Rica Acquisition;
•piracy, targeted vandalism against our networks, and cybersecurity threats or other security breaches, including the leakage of sensitive customer data;data, which could harm our business or reputation;
•the outcome of any pending or threatened litigation;
•the loss of key employees and the availability of qualified personnel;
•changes in the nature of key strategic relationships with partners and joint venturers;
•our equity capital structure;
•changes in and compliance with applicable data privacy laws, rules, and regulations;
•our ability to recoup insurance reimbursements and settlements from third-party providers;
43
•our ability to comply with economic and trade sanctions laws, such as the U.S. Treasury Department’s Office of Foreign Assets Control; and
•events that are outside of our control, such as political conditions and unrest in international markets, terrorist attacks, malicious human acts, hurricanes and other natural disasters, pandemics, including the COVID-19 pandemic, 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 Quarterly Report on Form 10-Q are subject to a significant degree of risk. These forward-looking statements and the above described risks, uncertainties and other factors speak only as of the date of this Quarterly Report on Form 10-Q,, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based. Readers are cautioned not to place undue reliance on any forward-looking statement.
Overview
General
We are an international provider of video, broadband internet, fixed-line telephonyfixed, mobile and mobilesubsea telecommunications services. We provide residential and B2B communications services in (i) 18over 20 countries, primarily in Latin America and the Caribbean, through C&W, (ii) Chile and Costa Rica, through VTRVTR/Cabletica, and (iii) Puerto Rico, through Liberty Puerto Rico. C&W also provides (i) B2B communication services in certain other countries in Latin America and the Caribbean and (ii) wholesale communication services over its sub-seasubsea and terrestrial fiber optic cable networks that connect over 40 markets in that region.
Operations
At March 31, 2018,September 30, 2020, we (i) owned and operated fixed networks that passed 6,457,9007,699,200 homes and served 5,231,0006,144,200 revenue generating units (RGUs), comprising 2,146,8002,735,600 broadband internet subscribers, 1,691,7001,960,200 video subscribers and 1,392,5001,448,400 fixed-line telephony subscribers and (ii) served 3,620,4003,378,500 mobile subscribers.
In September 2017, Hurricanes IrmaDecember 2019, COVID-19 was reported in Wuhan, China. On March 11, 2020, the World Health Organization declared the outbreak a “pandemic,” pointing to the sustained risk of further global spread. To date, confirmed cases of COVID-19 have been experienced in each of the markets in which we operate. During the first nine months of 2020, COVID-19 has negatively impacted our operations, primarily within our C&W and Maria impactedVTR/Cabletica segments, due to resulting lockdowns, moratoriums, cancellation of live sporting events, and mobility, travel and tourism restrictions across many of the markets in which we operate. The implications of these restrictions have been (i) the issuance of discounts to customers, (ii) the pause in certain managed service projects, particularly with government agencies, (iii) at VTR, customers experiencing network connection-related issues stemming from the significant increase, over a short period of time, in the capacity usage by our customers, and (iv) delayed or deferred customer payments and increased customer churn. In VTR, our most competitive consumer fixed market, we have experienced increased RGU churn during the third quarter following network challenges related to the increased bandwidth demand earlier in the year. We have carried out a number of operational actions to improve the experience for our customers. Within our mobile operations, the lockdowns negatively impacted, primarily at C&W during the second quarter of 2020, our customers’ ability to recharge their prepaid mobile devices. During the third quarter of 2020, we witnessed partial recovery on a sequential basis. In addition, we experienced declines in inbound roaming activity as a result of travel restrictions and reduced tourism activities in the markets in which we operate. These factors collectively resulted in declines in revenue within our B2B and mobile operations and lower ARPU (as defined below) associated with our residential fixed subscription services. The extent to which COVID-19 continues to impact our operational and financial performance will depend on certain developments, which include, among other factors:
•the duration and spread of the outbreak;
•the ability of governments and medical professionals in our markets to respond further to the outbreak;
•the actions by governments to require the extension of services for individuals regardless of payment status;
44
•the impact of changes to, or new, government regulations imposed in response to the pandemic, including laws and moratoriums;
•the impact on our customers and our sales cycles;
•the impact on actual and expected customer receivable collection patterns, including the impact of such patterns on our allowance for bad debt provisions following the adoption of ASU 2016-13 on January 1, 2020;
•the impact on our employees, including that from labor shortages or work from home initiatives;
•the impacts on foreign currency and interest rate fluctuations; and
•the effect on our vendors, as COVID-19 could have adverse impacts on our supply chain thereby impacting our customers’ ability to use our services.
Given the impacts of COVID-19 continue to rapidly evolve, the extent to which COVID-19 may further impact our financial condition or results of operations continues to be uncertain and cannot be predicted at this time. The heightened volatility of global markets resulting from COVID-19 further expose us to risks and uncertainties.
As COVID-19 continues to spread, we have, and expect to continue to take, a variety of measures to promote the safety and security of our employees, and ensure the availability of our communication services. To this end, we upgraded our network in an effort to handle peak traffic, accelerated our digital transformation efforts, including self-installations for as many of our services and customers as possible, developed innovative pricing plans that meet customers’ needs across our products and services, and changed our cost structure. In this regard, during the first quarter of 2020, in an effort to mitigate potential revenue challenges that may arise from COVID-19, we identified and began to take actions to reduce certain Adjusted OIBDA-related fixed operating costs and capital costs by approximately $150 million. Through September 30, 2020, we were on track to achieve our identified savings. Given increased confidence in our overall recovery from COVID-19 (as compared to the spring) and our positive adjusted free cash flow profile, we have decided to enhance customer service levels and in some cases, accelerate investments, with a view to build momentum into 2021. As a result, we have, and expect to continue to, reinvest a portion of these savings back into our business and therefore expect to realize, on a net basis, less than $150 million in total savings.
Rights Offering
On August 5, 2020, our Directors authorized the Rights Distribution of Class C Rights to holders of Liberty Latin America Shares to acquire Class C common shares in the Caribbean, resultingRights Offering. In the Rights Distribution, we distributed 0.269 of a Class C Right for each share of Class A, Class B or Class C common shares held as of September 8, 2020, which was the record date for the Rights Distribution. Fractional Class C Rights were rounded up to the nearest whole right. Each whole Class C Right entitled the holder to purchase, pursuant to the basic subscription privilege, one share of LILAK at a subscription price of $7.14, which was equal to an approximate 25% discount to the volume weighted average trading price of LILAK for the 3-day trading period ending on and including September 2, 2020. Each Class C Right also entitled the holder to subscribe for additional shares of LILAK that were unsubscribed for in varying degreesthe Rights Offering pursuant to an over-subscription privilege. The Rights Offering commenced on September 11, 2020, which was also the ex-dividend date for the Rights Distribution. The Rights Offering expired in accordance with its terms on September 25, 2020 and was fully subscribed with 49,049,073 shares of damageLILAK issued to homes, businessesthose rights holders exercising basic and, infrastructure in these markets.if applicable, over-subscription privileges. The most extensive damage occurredproceeds from the Rights Offering, which aggregated $350 million before expenses, are expected to be used to finance acquisitions, including our recently announced Telefónica-Costa Rica Acquisition, and for other general corporate purposes.
AT&T Acquisition
On October 9, 2019, Liberty Latin America’s wholly-owned subsidiary, Liberty PR, agreed to acquire AT&T’s wireless and wireline operations in Puerto Rico and certain markets withinthe U.S. Virgin Islands in an all-cash transaction. The AT&T Acquisition closed October 31, 2020. In connection with the AT&T Acquisition we paid $1.9 billion, which includes the impact of preliminary working capital adjustments that we expect will be finalized during the first half of 2021. We financed this acquisition through a combination of net proceeds from the 2026 SPV Credit Facility, the 2027 LPR Senior Secured Notes and available liquidity. In connection with the AT&T Acquisition, we expect to incur significant operating and capital costs to integrate the businesses of AT&T with our C&W reportable segment (collectively, the Impacted Markets). We continueexisting operations in Puerto Rico. As a regulatory condition to remain uncertain as to the extent and ultimate completion of our restoration and reconnection efforts in the Impacted Markets.
Telefónica-Costa Rica Acquisition
On July 30, 2020, we currently believe that the hurricanes will resultentered into a definitive agreement to acquire Telefónica S.A.’s wireless operations in at least two occurrences. This policyCosta Rica in an all-cash transaction based upon an enterprise value of $500 million on a cash- and debt-free basis. The transaction is subject to certain customary closing conditions, including regulatory approvals, and is expected to close in the normal terms and conditions applicable to this type of insurance. We expect that the insurance recovery will only cover a portion of the incurred losses of each of our impacted businesses.
45
Material Changes in Results of Operations
The comparability of our operating results during the three and nine months ended September 30, 2020 and 2019 is affected by acquisitions, a disposal and foreign currency translation effects (FX). As we use the term, “organic” changes exclude FX and the impacts of acquisitions and disposals, each as further discussed below.
In the following discussion, we quantify the estimated impact of acquisitions (the Acquisition Impact) 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. Accordingly,acquisitions and disposals. We acquired UTS effective March 31, 2019 and a small B2B operation in the following discussion, (i)Cayman Islands in July 2020 and disposed of our operations in the Seychelles in November 2019. With respect to acquisitions, organic increaseschanges, and the calculations of our organic change percentages, exclude the operating results of an acquired entity during the first 12 months following the date of acquisitionacquisition. With respect to disposals, the prior-year period operating results of disposed entities are excluded from organic changes, and (ii) the calculationcalculations of our organic change percentages, excludeto the Acquisition Impact of such entity.same extent that those operations are not included in the current-year period.
Changes in foreign currency exchange rates may have a significant impact on our operating results, as VTR, Cabletica and certain entities within C&W have functional currencies other than the U.S. dollar. Our primary exposure to foreign currency translation effects (FX) risk during 2018 wasis to the Chilean peso, as 29.0%a significant portion of our revenue duringis derived from VTR. For example, the average FX rate for the U.S. dollar per one Chilean peso appreciated by 10% and 17% for the three and nine months ended March 31, 2018 was derived from VTR, whose functional currency isSeptember 30, 2020, respectively, as compared to the Chilean peso. In addition, our operating results are impacted by changescorresponding periods in the exchange rates for other local currencies inLatin America and the Caribbean.2019. The impacts to the various components of our results of operations that are attributable to changes in FX are highlighted below. For information concerning our foreign currency risks and applicable foreign currency exchange rates, see Item 3. Quantitative and Qualitative Disclosures About Market Risk—Foreign Currency Exchange Rates below.
The amounts presented and discussed below represent 100% of the revenue and Adjusted OIBDAexpenses of each reportable segment and our corporate operations, as further discussed in note 16 to our condensed consolidated financial statements.operations. As we have the ability to control Liberty Puerto Rico and certain subsidiaries of C&W that are not wholly-owned, we include 100% of the revenue and expenses of these entities in our condensed consolidated statements of operations despite the fact that third parties own significant interests in these entities. The noncontrolling owners’ interests in the operating results of Liberty Puerto Rico and certain subsidiaries of C&W and Cabletica are reflected in net earnings or loss attributable to noncontrolling interests in our condensed consolidated statements of operations.
We are subject to inflationary pressures with respect to certain 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 reportable segments. Any cost increases that we are not able to pass on to our subscribers would result in increased pressure on our operating margins.
Adjusted OIBDA
On a consolidated basis, Adjusted OIBDA is a non-GAAP measure. Adjusted OIBDA is the primary measure used by our chief operating decision maker to evaluate segment operating performance. Adjusted OIBDA 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 incentive compensation plans. As we use the term, Adjusted OIBDA is defined as operating income or loss before 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 (i) gains and losses on the disposition of long-lived assets, (ii) third-party costs directly associated with successful and unsuccessful acquisitions and dispositions, including legal, advisory and due diligence fees, as applicable, and (iii) other acquisition-related items, such as gains and losses on the settlement of contingent consideration. Our internal decision makers believe Adjusted OIBDA is a meaningful measure because it represents a transparent view of our recurring operating performance that is unaffected by our capital structure and allows management to (i) readily view operating trends, (ii) perform analytical comparisons and benchmarking between segments and (iii) identify strategies to improve operating performance in the different countries in which we operate. We believe our Adjusted OIBDA 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 measures may not be directly comparable to similar measures used by other public companies. Adjusted OIBDA should be viewed as a measure of operating performance that is a supplement to, and not a substitute for, operating income or loss, net earnings or loss and other U.S. GAAP measures of income (loss). A reconciliation of total operating income (loss), the nearest U.S. GAAP measure, to Adjusted OIBDA on a consolidated basis, is presented below.
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| in millions | |||||||||||||||||||||||
| Operating income (loss) | $ | 86.6 | $ | (69.7) | $ | (11.6) | $ | 187.1 | |||||||||||||||
| Share-based compensation expense | 28.0 | 15.1 | 75.3 | 45.2 | |||||||||||||||||||
| Depreciation and amortization | 231.6 | 226.0 | 661.5 | 665.3 | |||||||||||||||||||
| Impairment, restructuring and other operating items, net | 14.0 | 208.3 | 331.5 | 235.3 | |||||||||||||||||||
| Consolidated Adjusted OIBDA | $ | 360.2 | $ | 379.7 | $ | 1,056.7 | $ | 1,132.9 | |||||||||||||||
The following tables set forth organic and non-organic changes in Adjusted OIBDA for the periods indicated:
| C&W | VTR/Cabletica | Liberty Puerto Rico | Corporate | Intersegment eliminations | Consolidated | ||||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||||||
| Adjusted OIBDA for the three months ending: | |||||||||||||||||||||||||||||||||||
| September 30, 2019 | $ | 236.2 | $ | 108.5 | $ | 50.8 | $ | (15.8) | $ | — | $ | 379.7 | |||||||||||||||||||||||
| Organic changes related to: | |||||||||||||||||||||||||||||||||||
| Revenue | (34.2) | (9.2) | 10.1 | — | (0.9) | (34.2) | |||||||||||||||||||||||||||||
| Programming and other direct costs | 11.1 | 3.9 | (1.5) | — | 0.9 | 14.4 | |||||||||||||||||||||||||||||
| Other operating costs and expenses | 15.3 | (1.7) | (1.3) | 4.6 | — | 16.9 | |||||||||||||||||||||||||||||
| Non-organic increases (decreases): | |||||||||||||||||||||||||||||||||||
| FX | (3.5) | (8.6) | — | — | — | (12.1) | |||||||||||||||||||||||||||||
| Acquisition/disposition, net | (4.5) | — | — | — | — | (4.5) | |||||||||||||||||||||||||||||
| September 30, 2020 | $ | 220.4 | $ | 92.9 | $ | 58.1 | $ | (11.2) | $ | — | $ | 360.2 | |||||||||||||||||||||||
47
| C&W | VTR/Cabletica | Liberty Puerto Rico | Corporate | Intersegment eliminations | Consolidated | ||||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||||||
| Adjusted OIBDA for the nine months ending: | |||||||||||||||||||||||||||||||||||
| September 30, 2019 | $ | 694.1 | $ | 327.7 | $ | 150.3 | $ | (39.2) | $ | — | $ | 1,132.9 | |||||||||||||||||||||||
| Organic changes related to: | |||||||||||||||||||||||||||||||||||
| Revenue | (93.4) | (14.5) | 21.4 | — | (2.2) | (88.7) | |||||||||||||||||||||||||||||
| Programming and other direct costs | 40.7 | 5.7 | (5.0) | — | 2.2 | 43.6 | |||||||||||||||||||||||||||||
| Other operating costs and expenses | 28.7 | (7.9) | (5.7) | 5.5 | — | 20.6 | |||||||||||||||||||||||||||||
| Non-organic increases (decreases): | |||||||||||||||||||||||||||||||||||
| FX | (8.8) | (38.4) | — | — | — | (47.2) | |||||||||||||||||||||||||||||
| Acquisitions/disposition, net | (4.5) | — | — | — | — | (4.5) | |||||||||||||||||||||||||||||
| September 30, 2020 | $ | 656.8 | $ | 272.6 | $ | 161.0 | $ | (33.7) | $ | — | $ | 1,056.7 | |||||||||||||||||||||||
Adjusted OIBDA Margin
The following table sets forth the Adjusted OIBDA margins (Adjusted OIBDA divided by revenue) of each of our reportable segments:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| % | |||||||||||||||||||||||
| C&W | 40.9 | 39.6 | 40.0 | 39.2 | |||||||||||||||||||
| VTR/Cabletica | 39.2 | 40.4 | 38.7 | 40.0 | |||||||||||||||||||
| Liberty Puerto Rico | 50.8 | 48.7 | 49.1 | 49.0 | |||||||||||||||||||
Adjusted OIBDA margin is impacted by organic changes in revenue, programming and other direct costs of services and other operating costs and expenses, as further discussed below, which include the impacts relating to COVID-19. The organic changes in Adjusted OIBDA for the VTR market of our VTR/Cabletica segment, was negatively impacted by $5 million and $18 million, respectively, from foreign currency impact of contracts denominated in U.S. dollars during the three and nine months ended September 30, 2020, respectively, of which $4 million and $12 million, respectively, related to programming and the remaining in various other cost categories. For additional information regarding the impacts of COVID-19, see discussion in Overview above.
Revenue
All of our reportable segments derive their revenue primarily from (i) residential broadband communicationsfixed services, including video, broadband internet and fixed-line telephony, services, (ii) with the exception of Liberty Puerto Rico, residential mobile services, and (iii) B2B communications services. For detailed information regarding the composition of our reportable segments, see note 16 to our condensed consolidated financial statements.C&W also provides wholesale communication services over its subsea and terrestrial fiber optic cable networks.
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 markets. This competition has an adverse impact on our ability to increase or maintain our RGUs and/or average monthly subscription revenue per average fixed RGU or mobile subscriber, as applicable, (ARPU).
Variances in the subscription revenue that we receive from our customers are a function of (i) changes in the number of RGUs or mobile subscribers during the period and (ii) changes in ARPU. Changes in ARPU can be attributable to (i) changes in prices, (ii) changes in bundling or promotional discounts, (iii) changes in the tier of services selected, (iv) variances in subscriber usage patterns, and (v) the overall mix of fixed and mobile products within a segment during the period. In the following discussion, we discuss ARPU changes in terms of the net impact of the above factors on the ARPU that is derived from our video, broadband internet, fixed-line telephony and mobile products. At Liberty Puerto Rico,For the comparisons below, revenue variances, including changes in revenue duringARPU, were also influenced by the three months ended March 31, 2018,impacts of COVID-19, as compared to the corresponding periodfurther discussed below and in 2017, were significantly impacted by Hurricanes Maria and Irma.Overview above.
48
The following table sets forth revenue by reportable segment:
| Three months ended September 30, | Increase (decrease) | ||||||||||||||||||||||
| 2020 | 2019 | $ | % | ||||||||||||||||||||
| in millions, except percentages | |||||||||||||||||||||||
| C&W | $ | 538.9 | $ | 595.9 | $ | (57.0) | (9.6) | ||||||||||||||||
| VTR/Cabletica | 236.9 | 268.4 | (31.5) | (11.7) | |||||||||||||||||||
| Liberty Puerto Rico | 114.4 | 104.3 | 10.1 | 9.7 | |||||||||||||||||||
| Intersegment eliminations | (2.7) | (1.8) | (0.9) | N.M. | |||||||||||||||||||
| Total | $ | 887.5 | $ | 966.8 | $ | (79.3) | (8.2) | ||||||||||||||||
| Three months ended March 31, | Increase (decrease) | Nine months ended September 30, | Increase (decrease) | ||||||||||||||||||||||||||||||||||
| 2018 | 2017 | $ | % | 2020 | 2019 | $ | % | ||||||||||||||||||||||||||||||
| in millions, except percentages | in millions, except percentages | ||||||||||||||||||||||||||||||||||||
| C&W | $ | 585.5 | $ | 575.6 | $ | 9.9 | 1.7 | C&W | $ | 1,642.8 | $ | 1,772.3 | $ | (129.5) | (7.3) | ||||||||||||||||||||||
| VTR | 263.8 | 229.3 | 34.5 | 15.0 | |||||||||||||||||||||||||||||||||
| VTR/Cabletica | VTR/Cabletica | 704.7 | 819.4 | (114.7) | (14.0) | ||||||||||||||||||||||||||||||||
| Liberty Puerto Rico | 61.8 | 106.7 | (44.9 | ) | (42.1 | ) | Liberty Puerto Rico | 328.1 | 306.7 | 21.4 | 7.0 | ||||||||||||||||||||||||||
| Intersegment eliminations | (1.2 | ) | (0.7 | ) | (0.5 | ) | N.M. | Intersegment eliminations | (8.2) | (6.0) | (2.2) | N.M. | |||||||||||||||||||||||||
| Total | $ | 909.9 | $ | 910.9 | $ | (1.0 | ) | (0.1 | ) | Total | $ | 2,667.4 | $ | 2,892.4 | $ | (225.0) | (7.8) | ||||||||||||||||||||
N.M. — Not Meaningful.meaningful.
Consolidated. The decreasedecreases during the three and nine months ended March 31, 2018,September 30, 2020, as compared to the corresponding periodperiods in 2017, includes2019, include (i)increases of $1 million and $33 million, respectively, associated with the impact of acquisitions, (ii) decreases of $15 million and $44 million, respectively, associated with the impact of a decrease disposal and (iii) decreasesof $45$32 million at Liberty Puerto Rico primarilyand $126 million, respectively, attributable to the hurricanes, and increasesimpact of $10 million and $23 million attributable to the impacts of the C&W Carve-out Acquisition and FX, respectively.FX. Excluding the effects of the C&W Carve-out Acquisitionacquisitions, a disposal and FX, revenue decreased $34 million or 3.7%.3.5% and $89 million or 3.1%, respectively. The organic decrease for the three-month comparison primarily includes declinesincreases (decreases) of $45 million($34 million), ($9 million) and $1$10 million at C&W, VTR/Cabletica and Liberty Puerto Rico, respectively, as further discussed below. The organic decrease for the nine-month comparison primarily includes increases (decreases) of ($93 million), ($15 million) and $21 million at C&W, respectively,VTR/Cabletica and an increase of $13 million at VTR,Liberty Puerto Rico, respectively, as further discussed below.
49
C&W. C&W’s revenue by major category is set forth below:
| Three months ended September 30, | Increase (decrease) | ||||||||||||||||||||||
| 2020 | 2019 | $ | % | ||||||||||||||||||||
| in millions, except percentages | |||||||||||||||||||||||
| Residential revenue: | |||||||||||||||||||||||
| Residential fixed revenue: | |||||||||||||||||||||||
| Subscription revenue: | |||||||||||||||||||||||
| Video | $ | 40.8 | $ | 45.3 | $ | (4.5) | (9.9) | ||||||||||||||||
| Broadband internet | 72.2 | 66.9 | 5.3 | 7.9 | |||||||||||||||||||
| Fixed-line telephony | 22.6 | 26.0 | (3.4) | (13.1) | |||||||||||||||||||
| Total subscription revenue | 135.6 | 138.2 | (2.6) | (1.9) | |||||||||||||||||||
| Non-subscription revenue | 13.1 | 16.7 | (3.6) | (21.6) | |||||||||||||||||||
| Total residential fixed revenue | 148.7 | 154.9 | (6.2) | (4.0) | |||||||||||||||||||
| Residential mobile revenue: | |||||||||||||||||||||||
| Service revenue | 110.7 | 131.1 | (20.4) | (15.6) | |||||||||||||||||||
| Interconnect, inbound roaming, equipment sales and other (a) | 20.8 | 29.5 | (8.7) | (29.5) | |||||||||||||||||||
| Total residential mobile revenue | 131.5 | 160.6 | (29.1) | (18.1) | |||||||||||||||||||
| Total residential revenue | 280.2 | 315.5 | (35.3) | (11.2) | |||||||||||||||||||
| B2B revenue: | |||||||||||||||||||||||
| Service revenue | 198.0 | 218.8 | (20.8) | (9.5) | |||||||||||||||||||
| Subsea network revenue | 60.7 | 61.6 | (0.9) | (1.5) | |||||||||||||||||||
| Total B2B revenue | 258.7 | 280.4 | (21.7) | (7.7) | |||||||||||||||||||
| Total | $ | 538.9 | $ | 595.9 | $ | (57.0) | (9.6) | ||||||||||||||||
(a) Revenue from inbound roaming was $3 million and $10 million, respectively. For additional information regarding a change in presentation of revenue by product, see note 20 to the condensed consolidated financial statements.
50
| Three months ended March 31, | Increase (decrease) | Nine months ended September 30, | Increase (decrease) | ||||||||||||||||||||||||||||||||||
| 2018 | 2017 | $ | % | 2020 | 2019 | $ | % | ||||||||||||||||||||||||||||||
| in millions, except percentages | in millions, except percentages | ||||||||||||||||||||||||||||||||||||
| Residential revenue: | Residential revenue: | ||||||||||||||||||||||||||||||||||||
| Residential fixed revenue: | Residential fixed revenue: | ||||||||||||||||||||||||||||||||||||
| Subscription revenue: | Subscription revenue: | ||||||||||||||||||||||||||||||||||||
| Video | $ | 42.7 | $ | 40.5 | $ | 2.2 | 5.4 | Video | $ | 128.4 | $ | 136.0 | $ | (7.6) | (5.6) | ||||||||||||||||||||||
| Broadband internet | 53.7 | 52.8 | 0.9 | 1.7 | Broadband internet | 213.7 | 192.6 | 21.1 | 11.0 | ||||||||||||||||||||||||||||
| Fixed-line telephony | 26.9 | 29.3 | (2.4 | ) | (8.2 | ) | Fixed-line telephony | 71.1 | 77.0 | (5.9) | (7.7) | ||||||||||||||||||||||||||
| Total subscription revenue | 123.3 | 122.6 | 0.7 | 0.6 | Total subscription revenue | 413.2 | 405.6 | 7.6 | 1.9 | ||||||||||||||||||||||||||||
| Non-subscription revenue | 21.5 | 23.5 | (2.0 | ) | (8.5 | ) | Non-subscription revenue | 41.3 | 46.6 | (5.3) | (11.4) | ||||||||||||||||||||||||||
| Total residential fixed revenue | 144.8 | 146.1 | (1.3 | ) | (0.9 | ) | Total residential fixed revenue | 454.5 | 452.2 | 2.3 | 0.5 | ||||||||||||||||||||||||||
| Residential mobile revenue: | Residential mobile revenue: | ||||||||||||||||||||||||||||||||||||
| Subscription revenue | 155.1 | 161.8 | (6.7 | ) | (4.1 | ) | |||||||||||||||||||||||||||||||
| Non-subscription revenue | 22.1 | 19.9 | 2.2 | 11.1 | |||||||||||||||||||||||||||||||||
| Service revenue | Service revenue | 338.1 | 391.4 | (53.3) | (13.6) | ||||||||||||||||||||||||||||||||
| Interconnect, inbound roaming, equipment sales and other (a) | Interconnect, inbound roaming, equipment sales and other (a) | 64.6 | 87.5 | (22.9) | (26.2) | ||||||||||||||||||||||||||||||||
| Total residential mobile revenue | 177.2 | 181.7 | (4.5 | ) | (2.5 | ) | Total residential mobile revenue | 402.7 | 478.9 | (76.2) | (15.9) | ||||||||||||||||||||||||||
| Total residential revenue | 322.0 | 327.8 | (5.8 | ) | (1.8 | ) | Total residential revenue | 857.2 | 931.1 | (73.9) | (7.9) | ||||||||||||||||||||||||||
| B2B revenue: | B2B revenue: | ||||||||||||||||||||||||||||||||||||
| Non-subscription revenue | 203.9 | 201.4 | 2.5 | 1.2 | |||||||||||||||||||||||||||||||||
| Sub-sea network revenue | 59.6 | 46.4 | 13.2 | 28.4 | |||||||||||||||||||||||||||||||||
| Service revenue | Service revenue | 594.9 | 658.1 | (63.2) | (9.6) | ||||||||||||||||||||||||||||||||
| Subsea network revenue | Subsea network revenue | 190.7 | 183.1 | 7.6 | 4.2 | ||||||||||||||||||||||||||||||||
| Total B2B revenue | 263.5 | 247.8 | 15.7 | 6.3 | Total B2B revenue | 785.6 | 841.2 | (55.6) | (6.6) | ||||||||||||||||||||||||||||
| Total | $ | 585.5 | $ | 575.6 | $ | 9.9 | 1.7 | Total | $ | 1,642.8 | $ | 1,772.3 | $ | (129.5) | (7.3) | ||||||||||||||||||||||
(a) Revenue from inbound roaming was $12 million and $27 million, respectively. For additional information regarding a change in presentation of revenue by product, see note 20 to the condensed consolidated financial statements.
The details of the changes in C&W’s revenue during the three and nine months ended March 31, 2018,September 30, 2020, as compared to the corresponding periodperiods in 2017,2019, are set forth below:below (in millions):
| Three-month comparison | Nine-month comparison | ||||||||||
| Increase (decrease) in residential fixed subscription revenue due to change in: | |||||||||||
| Average number of RGUs (a) | $ | 7.5 | $ | 26.6 | |||||||
| ARPU (b) | (5.6) | (17.4) | |||||||||
Decrease in residential fixed non-subscription revenue (c) | (2.8) | (3.8) | |||||||||
Total increase (decrease) in residential fixed revenue | (0.9) | 5.4 | |||||||||
| Decrease in residential mobile service revenue (d) | (13.8) | (40.9) | |||||||||
Decrease in residential mobile interconnect, inbound roaming, equipment sales and other (e) | (7.9) | (23.2) | |||||||||
| Decrease in B2B service revenue (f) | (11.8) | (46.3) | |||||||||
| Increase in B2B subsea network revenue (g) | 0.2 | 11.6 | |||||||||
| Total organic decrease | (34.2) | (93.4) | |||||||||
| Impact of acquisitions and a disposal, net | (13.3) | (10.4) | |||||||||
| Impact of FX | (9.5) | (25.7) | |||||||||
| Total | $ | (57.0) | $ | (129.5) | |||||||
(a)The increases are attributable to higher average broadband internet, video and fixed-line telephony RGUs.
(b)The decreases are primarily due to lower ARPU from video and fixed-line telephony services.
51
Subscription revenue | Non-subscription revenue | Total | |||||||||
| in millions | |||||||||||
| Increase (decrease) in residential fixed subscription revenue due to change in: | |||||||||||
| Average number of RGUs (a) | $ | 4.0 | $ | — | $ | 4.0 | |||||
| ARPU (b) | (3.7 | ) | — | (3.7 | ) | ||||||
| Decrease in residential fixed non-subscription revenue (c) | — | (2.0 | ) | (2.0 | ) | ||||||
| Total increase (decrease) in residential fixed revenue | 0.3 | (2.0 | ) | (1.7 | ) | ||||||
| Increase (decrease) in residential mobile revenue (d) | (7.1 | ) | 2.2 | (4.9 | ) | ||||||
| Increase in B2B revenue (e) | — | 0.1 | 0.1 | ||||||||
| Increase in B2B sub-sea network revenue (f) | — | 5.1 | 5.1 | ||||||||
| Total organic increase (decrease) | (6.8 | ) | 5.4 | (1.4 | ) | ||||||
| Impact of the C&W Carve-out Acquisition | — | 9.5 | 9.5 | ||||||||
| Impact of FX | 0.8 | 1.0 | 1.8 | ||||||||
| Total | $ | (6.0 | ) | $ | 15.9 | $ | 9.9 | ||||
(e)The decreases are primarily attributable to (i) decreases of $6 million and $14 million, respectively, in inbound roaming fees, primarily related to travel restrictions associated with COVID-19, (ii) lower sales of handsets, primarily driven by volumes in Panama as COVID-19 related lockdowns negatively impacted customers’ ability to purchase handsets, and (iii) during the nine-month comparison, lower interconnect volumes, primarily in Panama.
(f)The decreases are primarily due to (i) lower revenues from mobile and fixed services mostly due to discounts and credits related to reduced or suspended service across our markets as a result of the COVID-19 lockdowns, (ii) during the nine-month comparison, lower revenues from managed services, primarily driven by certain non-recurring projects in Panama that have been put on hold due to the economic uncertainty of the impact of COVID-19, and (iii) lower wholesale interconnect revenues.
(g)The increase during the nine-month comparison is primarily attributable to an increase of $7 million associated with revenue recognized on a cash basis for services provided to a significant customer.
VTR/Cabletica. VTR/Cabletica’s revenue by major category is set forth below:
| Three months ended September 30, | Decrease | ||||||||||||||||||||||
| 2020 | 2019 | $ | % | ||||||||||||||||||||
| in millions, except percentages | |||||||||||||||||||||||
| Residential revenue: | |||||||||||||||||||||||
| Residential fixed revenue: | |||||||||||||||||||||||
| Subscription revenue: | |||||||||||||||||||||||
| Video | $ | 91.9 | $ | 105.9 | $ | (14.0) | (13.2) | ||||||||||||||||
| Broadband internet | 97.5 | 103.4 | (5.9) | (5.7) | |||||||||||||||||||
| Fixed-line telephony | 19.0 | 24.9 | (5.9) | (23.7) | |||||||||||||||||||
| Total subscription revenue | 208.4 | 234.2 | (25.8) | (11.0) | |||||||||||||||||||
| Non-subscription revenue | 5.4 | 8.2 | (2.8) | (34.1) | |||||||||||||||||||
| Total residential fixed revenue | 213.8 | 242.4 | (28.6) | (11.8) | |||||||||||||||||||
| Residential mobile revenue: | |||||||||||||||||||||||
| Service revenue | 13.8 | 15.9 | (2.1) | (13.2) | |||||||||||||||||||
| Interconnect, inbound roaming, equipment sales and other | 2.0 | 2.6 | (0.6) | (23.1) | |||||||||||||||||||
| Total residential mobile revenue | 15.8 | 18.5 | (2.7) | (14.6) | |||||||||||||||||||
| Total residential revenue | 229.6 | 260.9 | (31.3) | (12.0) | |||||||||||||||||||
| B2B service revenue | 7.3 | 7.5 | (0.2) | (2.7) | |||||||||||||||||||
| Total | $ | 236.9 | $ | 268.4 | $ | (31.5) | (11.7) | ||||||||||||||||
52
| Three months ended March 31, | Increase | ||||||||||||
| 2018 | 2017 | $ | % | ||||||||||
| in millions, except percentages | |||||||||||||
| Residential revenue: | |||||||||||||
| Residential fixed revenue: | |||||||||||||
| Subscription revenue: | |||||||||||||
| Video | $ | 99.7 | $ | 87.4 | $ | 12.3 | 14.1 | ||||||
| Broadband internet | 96.6 | 82.3 | 14.3 | 17.4 | |||||||||
| Fixed-line telephony | 34.6 | 34.3 | 0.3 | 0.9 | |||||||||
| Total subscription revenue | 230.9 | 204.0 | 26.9 | 13.2 | |||||||||
| Non-subscription revenue | 7.5 | 7.4 | 0.1 | 1.4 | |||||||||
| Total residential fixed revenue | 238.4 | 211.4 | 27.0 | 12.8 | |||||||||
| Residential mobile revenue: | |||||||||||||
| Subscription revenue | 16.3 | 12.6 | 3.7 | 29.4 | |||||||||
| Non-subscription revenue | 3.2 | 2.3 | 0.9 | 39.1 | |||||||||
| Total residential mobile revenue | 19.5 | 14.9 | 4.6 | 30.9 | |||||||||
| Total residential revenue | 257.9 | 226.3 | 31.6 | 14.0 | |||||||||
| B2B revenue: | |||||||||||||
| Subscription revenue | 5.6 | 2.7 | 2.9 | 107.4 | |||||||||
| Non-subscription revenue | 0.3 | 0.3 | — | — | |||||||||
| Total B2B revenue | 5.9 | 3.0 | 2.9 | 96.7 | |||||||||
| Total | $ | 263.8 | $ | 229.3 | $ | 34.5 | 15.0 | ||||||
| Nine months ended September 30, | Increase (decrease) | ||||||||||||||||||||||
| 2020 | 2019 | $ | % | ||||||||||||||||||||
| in millions, except percentages | |||||||||||||||||||||||
| Residential revenue: | |||||||||||||||||||||||
| Residential fixed revenue: | |||||||||||||||||||||||
| Subscription revenue: | |||||||||||||||||||||||
| Video | $ | 274.4 | $ | 323.0 | $ | (48.6) | (15.0) | ||||||||||||||||
| Broadband internet | 285.2 | 313.6 | (28.4) | (9.1) | |||||||||||||||||||
| Fixed-line telephony | 57.8 | 78.3 | (20.5) | (26.2) | |||||||||||||||||||
| Total subscription revenue | 617.4 | 714.9 | (97.5) | (13.6) | |||||||||||||||||||
| Non-subscription revenue | 16.8 | 25.2 | (8.4) | (33.3) | |||||||||||||||||||
| Total residential fixed revenue | 634.2 | 740.1 | (105.9) | (14.3) | |||||||||||||||||||
| Residential mobile revenue: | |||||||||||||||||||||||
| Service revenue | 42.2 | 47.5 | (5.3) | (11.2) | |||||||||||||||||||
| Interconnect, inbound roaming, equipment sales and other | 5.6 | 9.5 | (3.9) | (41.1) | |||||||||||||||||||
| Total residential mobile revenue | 47.8 | 57.0 | (9.2) | (16.1) | |||||||||||||||||||
| Total residential revenue | 682.0 | 797.1 | (115.1) | (14.4) | |||||||||||||||||||
| B2B service revenue | 22.7 | 22.3 | 0.4 | 1.8 | |||||||||||||||||||
| Total | $ | 704.7 | $ | 819.4 | $ | (114.7) | (14.0) | ||||||||||||||||
The details of the changes in VTR’sVTR/Cabletica’s revenue during the three and nine months ended March 31, 2018,September 30, 2020, as compared to the corresponding periodperiods in 2017,2019, are set forth below:below (in millions):
| Three-month comparison | Nine-month comparison | ||||||||||
Increase (decrease) in residential fixed subscription revenue due to change in: | |||||||||||
| Average number of RGUs (a) | $ | 0.7 | $ | 9.0 | |||||||
| ARPU (b) | (7.2) | (20.6) | |||||||||
Decrease in residential fixed non-subscription revenue (c) | (2.3) | (6.1) | |||||||||
Total decrease in residential fixed revenue | (8.8) | (17.7) | |||||||||
Increase (decrease) in residential mobile service revenue (d) | (0.6) | 1.9 | |||||||||
| Decrease in residential mobile interconnect, inbound roaming, equipment sales and other (e) | (0.4) | (3.0) | |||||||||
| Increase in B2B service revenue (f) | 0.6 | 4.3 | |||||||||
| Total organic decrease | (9.2) | (14.5) | |||||||||
| Impact of FX | (22.3) | (100.2) | |||||||||
| Total | $ | (31.5) | $ | (114.7) | |||||||
(a)The increases are primarily attributable to the net effect of (i) higher average broadband internet RGUs, partially attributable to an increase in telecommuting during COVID-19 due to work-from-home mandates and (ii) lower average fixed-line telephony RGUs at VTR.
(b)The decreases, which relate to VTR, are primarily due to the net effect of (i) lower ARPU from (a) video, primarily attributable to declines associated with the cancellation of live soccer matches broadcast on our premium programming and (b) fixed-line telephony, and (ii) improvements resulting from changes in product mix.
(c)The decreases are primarily attributable to (i) lower equipment sales at Cabletica and (ii) lower activations and installations at VTR as a result of COVID-19.
(d)The increase during the nine-month comparison, which relates to VTR, is due to the net effect of (i) higher average numbers of mobile subscribers and (ii) lower ARPU from mobile services.
53
Subscription revenue | Non-subscription revenue | Total | |||||||||
| in millions | |||||||||||
| Increase in residential fixed subscription revenue due to change in: | |||||||||||
| Average number of RGUs (a) | $ | 4.1 | $ | — | $ | 4.1 | |||||
| ARPU (b) | 4.1 | — | 4.1 | ||||||||
| Decrease in residential fixed non-subscription revenue | — | (0.5 | ) | (0.5 | ) | ||||||
| Total increase (decrease) in residential fixed revenue | 8.2 | (0.5 | ) | 7.7 | |||||||
| Increase in residential mobile revenue (c) | 2.4 | 0.6 | 3.0 | ||||||||
| Increase in B2B revenue (d) | 2.4 | 0.1 | 2.5 | ||||||||
| Total organic increase | 13.0 | 0.2 | 13.2 | ||||||||
| Impact of FX | 20.5 | 0.8 | 21.3 | ||||||||
| Total | $ | 33.5 | $ | 1.0 | $ | 34.5 | |||||
(e)The decrease during the nine-month comparison, which relates to VTR, is primarily attributable to declines in (i) interconnect revenue due to decreased rates, partially offset by higher traffic and (ii) handset sales due to the temporary closure of physical stores, as a result of COVID-19-related lockdowns.
Liberty Puerto Rico. Due to the significant impact of the hurricanes on the operations of our Liberty Puerto Rico segment, we have provided supplementary sequential information in order to provide a meaningful analysis of Liberty Puerto Rico’s business, including recovery after the hurricanes. Accordingly, Liberty Puerto Rico’s revenue by major category during each of the three months ended March 31, 2018, December 31, 2017 and March 31, 2017 is set forth below:
| Three months ended September 30, | Increase (decrease) | ||||||||||||||||||||||
| 2020 | 2019 | $ | % | ||||||||||||||||||||
| in millions, except percentages | |||||||||||||||||||||||
| Residential fixed revenue: | |||||||||||||||||||||||
| Subscription revenue: | |||||||||||||||||||||||
| Video | $ | 37.1 | $ | 35.3 | $ | 1.8 | 5.1 | ||||||||||||||||
| Broadband internet | 52.5 | 44.4 | 8.1 | 18.2 | |||||||||||||||||||
| Fixed-line telephony | 6.5 | 5.9 | 0.6 | 10.2 | |||||||||||||||||||
| Total subscription revenue | 96.1 | 85.6 | 10.5 | 12.3 | |||||||||||||||||||
| Non-subscription revenue | 4.2 | 5.3 | (1.1) | (20.8) | |||||||||||||||||||
| Total residential fixed revenue | 100.3 | 90.9 | 9.4 | 10.3 | |||||||||||||||||||
| B2B service revenue | 14.1 | 13.4 | 0.7 | 5.2 | |||||||||||||||||||
| Total | $ | 114.4 | $ | 104.3 | $ | 10.1 | 9.7 | ||||||||||||||||
| Nine months ended September 30, | Increase (decrease) | ||||||||||||||||||||||
| 2020 | 2019 | $ | % | ||||||||||||||||||||
| in millions, except percentages | |||||||||||||||||||||||
| Residential fixed revenue: | |||||||||||||||||||||||
| Subscription revenue: | |||||||||||||||||||||||
| Video | $ | 109.1 | $ | 105.6 | $ | 3.5 | 3.3 | ||||||||||||||||
| Broadband internet | 147.2 | 129.8 | 17.4 | 13.4 | |||||||||||||||||||
| Fixed-line telephony | 18.6 | 17.5 | 1.1 | 6.3 | |||||||||||||||||||
| Total subscription revenue | 274.9 | 252.9 | 22.0 | 8.7 | |||||||||||||||||||
| Non-subscription revenue | 12.6 | 16.2 | (3.6) | (22.2) | |||||||||||||||||||
| Total residential fixed revenue | 287.5 | 269.1 | 18.4 | 6.8 | |||||||||||||||||||
| B2B service revenue | 40.6 | 37.6 | 3.0 | 8.0 | |||||||||||||||||||
| Total | $ | 328.1 | $ | 306.7 | $ | 21.4 | 7.0 | ||||||||||||||||
54
| Three months ended | |||||||||||
| March 31, 2018 | December 31, 2017 | March 31, 2017 | |||||||||
| in millions | |||||||||||
| Residential fixed revenue: | |||||||||||
| Subscription revenue: | |||||||||||
| Video | $ | 23.3 | $ | 5.3 | $ | 42.7 | |||||
| Broadband internet | 25.3 | 7.8 | 40.4 | ||||||||
| Fixed-line telephony | 3.5 | 1.2 | 6.4 | ||||||||
| Total subscription revenue | 52.1 | 14.3 | 89.5 | ||||||||
| Non-subscription revenue | 1.7 | 0.5 | 5.9 | ||||||||
| Total residential fixed revenue | 53.8 | 14.8 | 95.4 | ||||||||
| B2B revenue: | |||||||||||
| Subscription revenue | 4.3 | 1.3 | 6.7 | ||||||||
| Non-subscription revenue | 3.0 | 0.7 | 3.3 | ||||||||
| Total B2B revenue | 7.3 | 2.0 | 10.0 | ||||||||
| Other revenue | 0.7 | 0.1 | 1.3 | ||||||||
| Total | $ | 61.8 | $ | 16.9 | $ | 106.7 | |||||
The decreasedetails of the changes in Liberty Puerto Rico’s revenue during the three and nine months ended March 31, 2018,September 30, 2020, as compared to the three months ended March 31, 2017, iscorresponding periods in 2019, are set forth below (in millions):
| Three-month comparison | Nine-month comparison | ||||||||||
| Increase in residential fixed subscription revenue due to change in: | |||||||||||
| Average number of RGUs (a) | $ | 9.4 | $ | 20.5 | |||||||
| ARPU (b) | 1.1 | 1.5 | |||||||||
| Decrease in residential fixed non-subscription revenue (c) | (1.1) | (3.6) | |||||||||
| Total increase in residential fixed revenue | 9.4 | 18.4 | |||||||||
| Increase in B2B service (d) | 0.7 | 3.0 | |||||||||
| Total organic increase | $ | 10.1 | $ | 21.4 | |||||||
(a)The increases are primarily attributable to Hurricanes Mariahigher average broadband internet RGUs, as we experienced increased demand due in part to the impact of COVID-19 work-from-home mandates.
(b)The increases are primarily attributable to the net effect of(i) higher ARPU from broadband internet and Irma.video services,(ii) declines resulting from a change in product mix and(iii) for the nine-month comparison, $2 million of credits issued to customers in connection with the earthquakes that impacted Puerto Rico in January 2020.
(c)The table below presents changes in (i) residential fixed subscription revenuedecreases are primarily due to changes in the average number of RGUsreconnect and ARPU, (ii) residential fixed non-subscription revenue, (iii) B2B revenue and (iv) other revenue, each reflective of changeslate fee revenues, as such fees were generally waived during the three months ended March 31, 2018, as comparedsecond and third quarters in response to impacts of COVID-19.
(d)The increase during the nine-month comparison primarily relates to the three months ended December 31, 2017.transfer of certain B2B operations in Puerto Rico from our C&W segment to our Liberty Puerto Rico segment, partially offset by credits issued to customers as a result of suspended service due to COVID-19.
Subscription revenue | Non-subscription revenue | Total | |||||||||
| in millions | |||||||||||
| Increase in residential fixed subscription revenue due to change in: | |||||||||||
| Average number of RGUs (a) | $ | 35.5 | $ | — | $ | 35.5 | |||||
| ARPU (b) | 2.3 | — | 2.3 | ||||||||
| Increase in residential fixed non-subscription revenue (c) | — | 1.2 | 1.2 | ||||||||
| Total increase in residential fixed revenue | 37.8 | 1.2 | 39.0 | ||||||||
| Increase in B2B revenue (d) | 3.0 | 2.3 | 5.3 | ||||||||
| Increase in other revenue | — | 0.6 | 0.6 | ||||||||
| Total | $ | 40.8 | $ | 4.1 | $ | 44.9 | |||||
Programming and Other Direct Costsother direct costs of Servicesservices
General. Programming and other direct costs of services include programming and copyright costs, mobileinterconnect and access and interconnect costs, commissions, costs of mobile handsets and other devices, and other direct costs related to our operations. Notwithstanding the impact of the hurricanes, programmingProgramming and copyright costs, which represent a significant portion of our operating costs, are expected to risemay increase in future periods as a result of (i) 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, (ii) rate increases andor (iii) growth in the number of our enhanced video subscribers.
The following table setstables set forth programmingthe organic and other direct costs of services by reportable segment:
| Three months ended March 31, | Increase (decrease) | |||||||||||||
| 2018 | 2017 | $ | % | |||||||||||
| in millions, except percentages | ||||||||||||||
| C&W | $ | 130.2 | $ | 133.4 | $ | (3.2 | ) | (2.4 | ) | |||||
| VTR | 70.5 | 61.6 | 8.9 | 14.4 | ||||||||||
| Liberty Puerto Rico | 16.5 | 27.6 | (11.1 | ) | (40.2 | ) | ||||||||
| Intersegment eliminations | (1.4 | ) | (0.7 | ) | (0.7 | ) | N.M. | |||||||
| Total | $ | 215.8 | $ | 221.9 | $ | (6.1 | ) | (2.7 | ) | |||||
| Decrease from: | |||||||||||||||||||||||||||||||||||
| Three months ended September 30, | Decrease | Acquisition (disposition), net | Organic | ||||||||||||||||||||||||||||||||
| 2020 | 2019 | FX | |||||||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||||||
| Programming and copyright | $ | 96.0 | $ | 102.8 | $ | (6.8) | $ | (4.7) | $ | (1.1) | $ | (1.0) | |||||||||||||||||||||||
| Interconnect and commissions | 58.2 | 69.3 | (11.1) | (3.0) | (1.2) | (6.9) | |||||||||||||||||||||||||||||
| Equipment and other | 35.5 | 43.6 | (8.1) | (0.8) | (0.8) | (6.5) | |||||||||||||||||||||||||||||
| Total programming and other direct costs | $ | 189.7 | $ | 215.7 | $ | (26.0) | $ | (8.5) | $ | (3.1) | $ | (14.4) | |||||||||||||||||||||||
55
| Decrease from: | |||||||||||||||||||||||||||||||||||
| Nine months ended September 30, | Decrease | FX | Acquisition (disposition), net | Organic | |||||||||||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||||||
| Programming and copyright | $ | 289.5 | $ | 319.6 | $ | (30.1) | $ | (20.5) | $ | (2.4) | $ | (7.2) | |||||||||||||||||||||||
| Interconnect and commissions | 183.3 | 213.8 | (30.5) | (10.5) | (2.4) | (17.6) | |||||||||||||||||||||||||||||
| Equipment and other | 107.4 | 130.7 | (23.3) | (2.4) | (2.1) | (18.8) | |||||||||||||||||||||||||||||
| Total programming and other direct costs | $ | 580.2 | $ | 664.1 | $ | (83.9) | $ | (33.4) | $ | (6.9) | $ | (43.6) | |||||||||||||||||||||||
C&W. The following tables set forth the corresponding periodorganic and non-organic changes in 2017, includes a decrease of $11 million at Liberty Puerto Rico primarily attributable to the hurricanes, an increase of $4 million attributable to the impact of the C&W Carve-out Acquisition and an increase of $6 million due to FX. Excluding the effects of the C&W Carve-out Acquisition and FX, our programming and other direct costs of services decreased $17 million or 7.5%. The organic decrease includes declines of $8 million and $11 million atfor our C&W and Liberty Puerto Rico, respectively, and an increase of $3 million at VTR, as further discussed below.segment for the periods indicated.
| Decrease from: | |||||||||||||||||||||||||||||||||||
| Three months ended September 30, | Decrease | Acquisition (disposition), net | Organic | ||||||||||||||||||||||||||||||||
| 2020 | 2019 | FX | |||||||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||||||
| Programming and copyright | $ | 26.1 | $ | 30.6 | $ | (4.5) | $ | (0.4) | $ | (1.1) | $ | (3.0) | |||||||||||||||||||||||
| Interconnect and commissions | 48.3 | 55.7 | (7.4) | (1.9) | (1.2) | (4.3) | |||||||||||||||||||||||||||||
| Equipment and other | 31.4 | 36.4 | (5.0) | (0.4) | (0.8) | (3.8) | |||||||||||||||||||||||||||||
| Total programming and other direct costs | $ | 105.8 | $ | 122.7 | $ | (16.9) | $ | (2.7) | $ | (3.1) | $ | (11.1) | |||||||||||||||||||||||
| Decrease from: | |||||||||||||||||||||||||||||||||||
| Nine months ended September 30, | Decrease | FX | Acquisition (disposition), net | Organic | |||||||||||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||||||
| Programming and copyright | $ | 80.8 | $ | 101.3 | $ | (20.5) | $ | (1.0) | $ | (2.4) | $ | (17.1) | |||||||||||||||||||||||
| Interconnect and commissions | 150.5 | 169.4 | (18.9) | (5.2) | (2.4) | (11.3) | |||||||||||||||||||||||||||||
| Equipment and other | 95.3 | 110.3 | (15.0) | (0.6) | (2.1) | (12.3) | |||||||||||||||||||||||||||||
| Total programming and other direct costs | $ | 326.6 | $ | 381.0 | $ | (54.4) | $ | (6.8) | $ | (6.9) | $ | (40.7) | |||||||||||||||||||||||
•Interconnect and commission: The decreases are primarily due to ratethe net effect of (i) lower wholesale call volumes and (ii) for the nine-month comparison, the negative impact resulting from the reassessment and release of an accrual during the second quarter of 2019.
•Equipment and other: The decreases are primarily due to lower volume of mobile handset sales.
VTR/Cabletica. The following tables set forth the organic and non-organic changes in programming and other direct costs of services for our VTR/Cabletica segment for the periods indicated.
56
| Increase (decrease) from: | |||||||||||||||||||||||||||||
| Three months ended September 30, | Increase (decrease) | Organic | |||||||||||||||||||||||||||
| 2020 | 2019 | FX | |||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||
| Programming and copyright | $ | 47.8 | $ | 51.2 | $ | (3.4) | $ | (4.3) | $ | 0.9 | |||||||||||||||||||
| Interconnect and commissions | 10.9 | 13.8 | (2.9) | (1.0) | (1.9) | ||||||||||||||||||||||||
| Equipment and other | 3.8 | 7.1 | (3.3) | (0.4) | (2.9) | ||||||||||||||||||||||||
| Total programming and other direct costs | $ | 62.5 | $ | 72.1 | $ | (9.6) | $ | (5.7) | $ | (3.9) | |||||||||||||||||||
| Increase (decrease) from: | |||||||||||||||||||||||||||||
| Nine months ended September 30, | Increase (decrease) | FX | Organic | ||||||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||
| Programming and copyright | $ | 141.1 | $ | 154.4 | $ | (13.3) | $ | (19.5) | $ | 6.2 | |||||||||||||||||||
| Interconnect and commissions | 35.0 | 45.4 | (10.4) | (5.2) | (5.2) | ||||||||||||||||||||||||
| Equipment and other | 11.7 | 20.2 | (8.5) | (1.8) | (6.7) | ||||||||||||||||||||||||
| Total programming and other direct costs | $ | 187.8 | $ | 220.0 | $ | (32.2) | $ | (26.5) | $ | (5.7) | |||||||||||||||||||
•Programming and copyright: The organic increases, (ii) a decreasewhich relate to the VTR market, are primarily due to the net effect of (i) increases of $4 million and $12 million, respectively, in the foreign currency impact of programming contracts denominated in U.S. dollars, and (ii) highernet decreases in certain premium and basic content costs, associated with video-on-demand;
•Interconnect and commissions: Theorganic decreases, which relate to the VTR market, are primarily due to lower rates that were partially offset by higher MVNO chargesvolumes.
•Equipment and (ii) a net increaseother: The organic decreases, primarily in interconnect costs from higher callthe VTR market, are due to lower volumes and lower interconnect rates.of equipment sales, as customers have not been visiting physical stores as frequently due to COVID-19-related restrictions.
Liberty Puerto Rico.Rico. The decreasefollowing tables set forth the organic changes in Liberty Puerto Rico’s programming and other direct costs of services for our Liberty Puerto Rico segment for the periods indicated.
| Three months ended September 30, | Organic increase | ||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| in millions | |||||||||||||||||
| Programming and copyright | $ | 22.1 | $ | 21.0 | $ | 1.1 | |||||||||||
| Interconnect and commissions | 2.0 | 1.8 | 0.2 | ||||||||||||||
| Equipment and other | 0.3 | 0.1 | 0.2 | ||||||||||||||
| Total programming and other direct costs | $ | 24.4 | $ | 22.9 | $ | 1.5 | |||||||||||
57
| Nine months ended September 30, | Organic increase | ||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| in millions | |||||||||||||||||
| Programming and copyright | $ | 67.6 | $ | 63.9 | $ | 3.7 | |||||||||||
| Interconnect and commissions | 6.3 | 5.2 | 1.1 | ||||||||||||||
| Equipment and other | 0.4 | 0.2 | 0.2 | ||||||||||||||
| Total programming and other direct costs | $ | 74.3 | $ | 69.3 | $ | 5.0 | |||||||||||
•Programming and copyright: The organic increase during the three-month comparison is primarily attributable to higher programming rates. The organic increase during the nine-month comparison is primarily due to (i) an accrual recorded in the second quarter of 2020 related to an audit of programming services provided in 2018 and 2019, (ii) a decline in programming and copyright costshigher average number of $10 million or 42.7% mostly attributable to (i) $7 million of credits from vendors stemming from Hurricanes Irma and Maria and (ii) lower costs of $4 million resulting from disconnects of enhanced video subscribers and (iii) higher programming rates.
•Interconnect and commissions: The organic increase during the nine-month comparison is primarily due to the impacttransfer of certain B2B operations in Puerto Rico from our C&W segment to our Liberty Puerto Rico segment during the hurricanes.first quarter of 2019.
Other Operating Expensesoperating costs and expenses
General. Other operating costs and expenses set forth in the tables below comprise the following cost categories:
•Personnel and contract labor-related costs, which primarily include network operations, customer operations, customer care, share-based compensationsalary-related and othercash bonus expenses, net of capitalizable labor costs, and temporary contract labor costs;
•Network-related expenses, which primarily include costs related to our operations.
| Three months ended March 31, | Increase (decrease) | |||||||||||||
| 2018 | 2017 | $ | % | |||||||||||
| in millions, except percentages | ||||||||||||||
| C&W | $ | 109.0 | $ | 117.8 | $ | (8.8 | ) | (7.5 | ) | |||||
| VTR | 42.9 | 36.9 | 6.0 | 16.3 | ||||||||||
| Liberty Puerto Rico | 14.6 | 15.4 | (0.8 | ) | (5.2 | ) | ||||||||
| Intersegment eliminations | (0.1 | ) | (0.1 | ) | — | N.M. | ||||||||
| Total other operating expenses excluding share-based compensation expense | 166.4 | 170.0 | (3.6 | ) | (2.1 | ) | ||||||||
| Share-based compensation expense | 0.1 | 0.5 | (0.4 | ) | (80.0 | ) | ||||||||
| Total | $ | 166.5 | $ | 170.5 | $ | (4.0 | ) | (2.3 | ) | |||||
•Facility, provision, franchise and our corporateother, which primarily includes facility-related costs, provision for bad debt expense, franchise-related fees, bank fees, insurance, travel and entertainment and other operating-related costs; and
•Share-based compensation costs that relate to SARs, RSUs and PSUs issued to our employees and Directors.
58
| Three months ended March 31, | Increase | ||||||||||||
| 2018 | 2017 | $ | % | ||||||||||
| in millions, except percentages | |||||||||||||
| C&W | $ | 117.2 | $ | 114.5 | $ | 2.7 | 2.4 | ||||||
| VTR | 45.4 | 39.2 | 6.2 | 15.8 | |||||||||
| Liberty Puerto Rico | 12.7 | 12.4 | 0.3 | 2.4 | |||||||||
| Corporate | 11.3 | 5.1 | 6.2 | 121.6 | |||||||||
| Intersegment eliminations | 0.3 | 0.1 | 0.2 | N.M. | |||||||||
| Total SG&A expenses excluding share-based compensation expense | 186.9 | 171.3 | 15.6 | 9.1 | |||||||||
| Share-based compensation expense | 6.4 | 5.1 | 1.3 | 25.5 | |||||||||
| Total | $ | 193.3 | $ | 176.4 | $ | 16.9 | 9.6 | ||||||
Consolidated.The increasefollowing tables set forth the organic and non-organic changes in SG&Aoperating costs and expenses duringon a consolidated basis for the three months ended March 31, 2018, as compared toperiods indicated.
| Increase (decrease) from: | |||||||||||||||||||||||||||||||||||
| Three months ended September 30, | Increase (decrease) | Acquisition (disposition), net | Organic | ||||||||||||||||||||||||||||||||
| 2020 | 2019 | FX | |||||||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||||||
| Personnel and contract labor | $ | 113.9 | $ | 126.4 | $ | (12.5) | $ | (3.1) | $ | (2.0) | $ | (7.4) | |||||||||||||||||||||||
| Network-related | 66.4 | 65.5 | 0.9 | (2.7) | (1.5) | 5.1 | |||||||||||||||||||||||||||||
| Service-related | 35.2 | 41.6 | (6.4) | (1.0) | (0.2) | (5.2) | |||||||||||||||||||||||||||||
| Commercial | 38.8 | 41.1 | (2.3) | (2.3) | (0.1) | 0.1 | |||||||||||||||||||||||||||||
| Facility, provision, franchise and other | 83.3 | 96.8 | (13.5) | (2.2) | (1.8) | (9.5) | |||||||||||||||||||||||||||||
| Share-based compensation expense | 28.0 | 15.1 | 12.9 | (0.2) | 0.4 | 12.7 | |||||||||||||||||||||||||||||
| Total other operating costs and expenses | $ | 365.6 | $ | 386.5 | $ | (20.9) | $ | (11.5) | $ | (5.2) | $ | (4.2) | |||||||||||||||||||||||
| Increase (decrease) from: | |||||||||||||||||||||||||||||||||||
| Nine months ended September 30, | Increase (decrease) | Acquisition (disposition), net | Organic | ||||||||||||||||||||||||||||||||
| 2020 | 2019 | FX | |||||||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||||||
| Personnel and contract labor | $ | 351.6 | $ | 374.4 | $ | (22.8) | $ | (11.7) | $ | 0.6 | $ | (11.7) | |||||||||||||||||||||||
| Network-related | 193.2 | 195.3 | (2.1) | (10.4) | (0.9) | 9.2 | |||||||||||||||||||||||||||||
| Service-related | 110.0 | 116.1 | (6.1) | (4.9) | 1.8 | (3.0) | |||||||||||||||||||||||||||||
| Commercial | 120.3 | 130.5 | (10.2) | (10.7) | (0.2) | 0.7 | |||||||||||||||||||||||||||||
| Facility, provision, franchise and other | 255.4 | 279.1 | (23.7) | (7.6) | (0.3) | (15.8) | |||||||||||||||||||||||||||||
| Share-based compensation expense | 75.3 | 45.2 | 30.1 | (1.1) | 0.3 | 30.9 | |||||||||||||||||||||||||||||
| Total other operating costs and expenses | $ | 1,105.8 | $ | 1,140.6 | $ | (34.8) | $ | (46.4) | $ | 1.3 | $ | 10.3 | |||||||||||||||||||||||
In the corresponding period in 2017, includes increases of $1 millionfollowing section, we provide a discussion and $4 million attributable to the impactsanalysis of the C&W Carve-out Acquisitionorganic changes of other operating costs and expenses, which excludes, where applicable, the impact of acquisitions, dispositions and FX respectively. Our SG&A expenses include share-based compensation expense.for each of our reportable segments and our Corporate operations. For additional information see the discussion under Share-based compensation expense (included in other operating and SG&A expenses) below. Excluding the effects of the C&W Carve-out Acquisition, FX andregarding our share-based compensation, expense, our SG&A expenses increased $11see
59
C&W. The following table setstables set forth Adjusted OIBDAthe organic and non-organic changes in operating costs and expenses for our C&W segment for the periods indicated.
| Increase (decrease) from: | |||||||||||||||||||||||||||||||||||
| Three months ended September 30, | Increase (decrease) | Acquisition (disposition), net | Organic | ||||||||||||||||||||||||||||||||
| 2020 | 2019 | FX | |||||||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||||||
| Personnel and contract labor | $ | 78.6 | $ | 86.8 | $ | (8.2) | $ | (1.3) | $ | (2.0) | $ | (4.9) | |||||||||||||||||||||||
| Network-related | 43.9 | 46.0 | (2.1) | (0.7) | (1.5) | 0.1 | |||||||||||||||||||||||||||||
| Service-related | 18.9 | 21.7 | (2.8) | (0.2) | (0.2) | (2.4) | |||||||||||||||||||||||||||||
| Commercial | 15.3 | 19.7 | (4.4) | (0.3) | (0.1) | (4.0) | |||||||||||||||||||||||||||||
| Facility, provision, franchise and other | 56.0 | 62.8 | (6.8) | (0.9) | (1.8) | (4.1) | |||||||||||||||||||||||||||||
| Share-based compensation expense | 8.1 | 4.7 | 3.4 | — | 0.4 | 3.0 | |||||||||||||||||||||||||||||
| Total other operating costs and expenses | $ | 220.8 | $ | 241.7 | $ | (20.9) | $ | (3.4) | $ | (5.2) | $ | (12.3) | |||||||||||||||||||||||
| Increase (decrease) from: | |||||||||||||||||||||||||||||||||||
| Nine months ended September 30, | Increase (decrease) | Acquisition (disposition), net | Organic | ||||||||||||||||||||||||||||||||
| 2020 | 2019 | FX | |||||||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||||||
| Personnel and contract labor | $ | 243.8 | $ | 255.5 | $ | (11.7) | $ | (4.1) | $ | 0.6 | $ | (8.2) | |||||||||||||||||||||||
| Network-related | 133.6 | 137.3 | (3.7) | (2.4) | (0.9) | (0.4) | |||||||||||||||||||||||||||||
| Service-related | 62.4 | 67.7 | (5.3) | (0.5) | 1.8 | (6.6) | |||||||||||||||||||||||||||||
| Commercial | 49.6 | 58.6 | (9.0) | (0.9) | (0.2) | (7.9) | |||||||||||||||||||||||||||||
| Facility, provision, franchise and other | 170.0 | 178.1 | (8.1) | (2.2) | (0.3) | (5.6) | |||||||||||||||||||||||||||||
| Share-based compensation expense | 23.4 | 13.6 | 9.8 | (0.1) | 0.3 | 9.6 | |||||||||||||||||||||||||||||
| Total other operating costs and expenses | $ | 682.8 | $ | 710.8 | $ | (28.0) | $ | (10.2) | $ | 1.3 | $ | (19.1) | |||||||||||||||||||||||
•Personnel and contract labor: The organic decreases are primarily due to (i) lower salaries and other personnel costs, primarily associated with the benefit of certain ongoing restructuring activities, and (ii) $2 million and $6 million of estimated bonus-related expenses, respectively, that have been recognized as share-based compensation expense, as certain 2020 bonuses will be paid in the form of equity, as further discussed below under Share-based compensation expense.
•Service-related: The organic decreases are primarily due to lower professional services costs associated with a reduction in (i) consulting services and (ii) legal and advisory-related services, which have decreased in part due to court closures and case deferrals resulting from the COVID-19 pandemic.
•Commercial: The organic decreases are primarily due to the net effect of (i) lower marketing and sales costs, primarily due to reductions in promotional and sponsorship costs, as a result of certain adverse economic impacts caused by reportablethe COVID-19 pandemic across our markets, and (ii) increases in outsourced call center costs.
•Facility, provision, franchise and other costs: The organic decreases are primarily due to the net effect of (i) higher bad debt expense, as the impacts of COVID-19 have generally resulted in (a) delays in collections, (b) higher expected credit losses associated with certain B2B customers and (c) changes in our general expectations related to our customers’ ability to pay, (ii) lower travel and entertainment costs due to curtailment of such costs as a result of the impact of COVID-19, (iii) lower insurance costs of $3 million for the nine-month period due in large part to the impact of premiums associated with our Weather Derivatives, as further described in note 5 to our condensed consolidated
60
financial statements, and (iv) lower office supplies expenses, due largely to the impact of COVID-19. In addition, the decreases include the beneficial impact resulting from a $2 million bad debt provision recorded in the third quarter of 2019 related to the impact of Hurricane Dorian.
VTR/Cabletica. The following tables set forth the organic and non-organic changes in operating costs and expenses for our VTR/Cabletica segment for the periods indicated.
| Increase (decrease) from: | |||||||||||||||||||||||||||||||||||
| Three months ended September 30, | Increase (decrease) | FX | Organic | ||||||||||||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||||||
| Personnel and contract labor | $ | 19.0 | $ | 22.3 | $ | (3.3) | $ | (1.8) | $ | (1.5) | |||||||||||||||||||||||||
| Network-related | 20.4 | 18.5 | 1.9 | (2.0) | 3.9 | ||||||||||||||||||||||||||||||
| Service-related | 8.4 | 11.8 | (3.4) | (0.8) | (2.6) | ||||||||||||||||||||||||||||||
| Commercial | 19.9 | 18.5 | 1.4 | (2.0) | 3.4 | ||||||||||||||||||||||||||||||
| Facility, provision, franchise and other | 13.9 | 16.7 | (2.8) | (1.3) | (1.5) | ||||||||||||||||||||||||||||||
| Share-based compensation expense | 2.3 | 1.3 | 1.0 | (0.2) | 1.2 | ||||||||||||||||||||||||||||||
| Total other operating costs and expenses | $ | 83.9 | $ | 89.1 | $ | (5.2) | $ | (8.1) | $ | 2.9 | |||||||||||||||||||||||||
| Increase (decrease) from: | |||||||||||||||||||||||||||||||||||
| Nine months ended September 30, | Increase (decrease) | FX | Organic | ||||||||||||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||||||
| Personnel and contract labor | $ | 57.8 | $ | 69.1 | $ | (11.3) | $ | (7.6) | $ | (3.7) | |||||||||||||||||||||||||
| Network-related | 55.0 | 54.7 | 0.3 | (8.0) | 8.3 | ||||||||||||||||||||||||||||||
| Service-related | 27.1 | 30.5 | (3.4) | (4.4) | 1.0 | ||||||||||||||||||||||||||||||
| Commercial | 61.7 | 63.7 | (2.0) | (9.8) | 7.8 | ||||||||||||||||||||||||||||||
| Facility, provision, franchise and other | 42.8 | 53.7 | (10.9) | (5.4) | (5.5) | ||||||||||||||||||||||||||||||
| Share-based compensation expense | 6.6 | 4.0 | 2.6 | (1.0) | 3.6 | ||||||||||||||||||||||||||||||
| Total other operating costs and expenses | $ | 251.0 | $ | 275.7 | $ | (24.7) | $ | (36.2) | $ | 11.5 | |||||||||||||||||||||||||
•Personnel and our corporatecontract labor: The organic decreases, most related to the VTR market, are primarily due to category:(i) $1 million and $2 millionof estimated bonus-related expenses, respectively, that have been recognized as share-based compensation expense, as certain 2020 bonuses will be paid in the form of equity, as further discussed below under Share-based compensation expense,and (ii) higher capitalized labor costs associated with certain development-related projects.
•Network-related: The organic increases, most related to the VTR market, are primarily due to(i) higher volumes of network access-related contracted labor and (ii) higher costs related to CPE refurbishment activity.
•Service-related: The organic decrease for the three-month comparison, which relates to the VTR market, is primarily due to lower professional consultancy services.
•Commercial: The organic increases are primarily due to the net effect of (i) increased call center volumes as a result of the impacts from COVID-19, (ii) decreases in marketing and advertising expenses and (iii) higher sales commissions to third-party dealers.
•Facility, provision, franchise and other costs: The organic decreases are primarily due to (i) lower travel and entertainment costs due to curtailment of such costs as a result of the impact of COVID-19and(ii) lower bank-related fees.
61
| Three months ended March 31, | Increase (decrease) | |||||||||||||
| 2018 | 2017 | $ | % | |||||||||||
| in millions, except percentages | ||||||||||||||
| C&W | $ | 229.1 | $ | 209.9 | $ | 19.2 | 9.1 | |||||||
| VTR | 105.0 | 91.6 | 13.4 | 14.6 | ||||||||||
| Liberty Puerto Rico | 18.0 | 51.3 | (33.3 | ) | (64.9 | ) | ||||||||
| Corporate | (11.3 | ) | (5.1 | ) | (6.2 | ) | 121.6 | |||||||
| Total | $ | 340.8 | $ | 347.7 | $ | (6.9 | ) | (2.0 | ) | |||||
Liberty Puerto Rico. The following table setstables set forth the Adjusted OIBDA margins (Adjusted OIBDA divided by revenue) of each of our reportable segments:
| Three months ended March 31, | |||
| 2018 | 2017 | ||
| % | |||
| C&W | 39.1 | 36.5 | |
| VTR | 39.8 | 39.9 | |
| Liberty Puerto Rico | 29.1 | 48.1 | |
| Three months ended September 30, | Organic increase (decrease) | ||||||||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||
| Personnel and contract labor | $ | 11.7 | $ | 10.0 | $ | 1.7 | |||||||||||||||||||||||
| Network-related | 1.0 | 1.0 | — | ||||||||||||||||||||||||||
| Service-related | 4.5 | 3.3 | 1.2 | ||||||||||||||||||||||||||
| Commercial | 3.6 | 2.9 | 0.7 | ||||||||||||||||||||||||||
| Facility, provision, franchise and other | 11.1 | 13.4 | (2.3) | ||||||||||||||||||||||||||
| Share-based compensation expense | 1.1 | 0.7 | 0.4 | ||||||||||||||||||||||||||
| Total other operating costs and expenses | $ | 33.0 | $ | 31.3 | $ | 1.7 | |||||||||||||||||||||||
| Nine months ended September 30, | Organic increase (decrease) | ||||||||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||
| Personnel and contract labor | $ | 34.5 | $ | 29.9 | $ | 4.6 | |||||||||||||||||||||||
| Network-related | 3.2 | 3.3 | (0.1) | ||||||||||||||||||||||||||
| Service-related | 11.3 | 8.3 | 3.0 | ||||||||||||||||||||||||||
| Commercial | 9.0 | 8.2 | 0.8 | ||||||||||||||||||||||||||
| Facility, provision, franchise and other | 34.8 | 37.4 | (2.6) | ||||||||||||||||||||||||||
| Share-based compensation expense | 3.7 | 1.8 | 1.9 | ||||||||||||||||||||||||||
| Total other operating costs and expenses | $ | 96.5 | $ | 88.9 | $ | 7.6 | |||||||||||||||||||||||
•Personnel and contract labor: The organic increases are primarily due to the net effect of services, other operating expenses(i) annual salary increases, (ii) higher sales commissions and SG&A expenses(iii) $1 million of estimated bonus-related expense for the nine-month comparison that has been recognized as share-based compensation expense, as certain bonuses will be paid in the form of equity, as further discussed above. Duringbelow under Share-based compensation expense;
•Service-related: The organic increases are primarily due to integration costs of $2 million and $4 million, respectively, associated with the three months ended March 31, 2018,AT&T Acquisition.
•Facility, provision, franchise and other: The organic decreases are primarily due to lower bad debt expense driven by improved collections.
62
Corporate. The following tables set forth the Adjusted OIBDA of Liberty Puerto Rico was adversely impacted by Hurricanes Irmaorganic changes in operating costs and Maria, as more fully described in expenses for our corporate operations for the periods indicated.
| Three months ended September 30, | Organic increase (decrease) | ||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| in millions | |||||||||||||||||
| Personnel and contract labor | $ | 4.6 | $ | 7.3 | $ | (2.7) | |||||||||||
| Network-related | 1.1 | — | 1.1 | ||||||||||||||
| Service-related | 3.4 | 4.8 | (1.4) | ||||||||||||||
| Facility, provision, franchise and other | 2.3 | 3.9 | (1.6) | ||||||||||||||
| Share-based compensation expense | 16.5 | 8.4 | 8.1 | ||||||||||||||
| Total other operating costs and expenses | $ | 27.9 | $ | 24.4 | $ | 3.5 | |||||||||||
| Nine months ended September 30, | Organic increase (decrease) | ||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| in millions | |||||||||||||||||
| Personnel and contract labor | $ | 15.5 | $ | 19.9 | $ | (4.4) | |||||||||||
| Network-related | 1.4 | — | 1.4 | ||||||||||||||
| Service-related | 9.2 | 9.6 | (0.4) | ||||||||||||||
| Facility, provision, franchise and other | 7.8 | 9.9 | (2.1) | ||||||||||||||
| Share-based compensation expense | 41.6 | 25.8 | 15.8 | ||||||||||||||
| Total other operating costs and expenses | $ | 75.5 | $ | 65.2 | $ | 10.3 | |||||||||||
•OverviewPersonnel and contract labor: above. With regardsThe organic decreases are primarily attributable to Puerto Rico,estimated bonus-related expenses that will be paid in the form of equity, as further discussed below under Share-based compensation expense.
•Facility, provision, franchise and other: The organic decreases are primarily attributable to lower travel and entertainment costs due to curtailment of such costs as a result of the impact of COVID-19.
Results of Operations (below Adjusted OIBDA margin during the first quarter of 2018 improved significantly from (71.6)% during the three months ended December 31, 2017 as we recover from Hurricanes Maria and Irma.
Share-based compensation expense (included in other operating costs and SG&A expenses)
For additional information regarding our share-based compensation, see note 1316 to our condensed consolidated financial statements.
Depreciation and amortization expense
Our depreciation and amortization expense increased $8(decreased) $6 million or 4.3%2.5% and ($4 million) or (0.6%) during the three and nine months ended March 31, 2018,September 30, 2020, respectively, as compared to the corresponding periodperiods in 2017.2019. Excluding the effectnet impacts of FX, acquisitions and a disposition, depreciation and amortization expense increased $6$14 million or 3.0% 6.0% and $18 million or 2.7%during the three and nine months ended March 31, 2018, as compared to the corresponding period in 2017. This increase isSeptember 30, 2020, respectively.The organic increases are primarily due to the net effect of (i) an increase associated withincreases in property and equipment additions, related toprimarily associated with the installation of customer premises equipment,CPE, the expansion and upgrade of our networks and other capital initiatives, and baseline related additions, and (ii) a decreasedecreases associated with certain assets becoming fully depreciated, primarily at VTR and Liberty Puerto Rico.depreciated.
63
Impairment, restructuring and other operating items, net
We recognized impairment, restructuring and other operating items, net, of $34$14 million and $13$332 million during the three and nine months ended March 31, 2018September 30, 2020, respectively, and 2017,$208 million and $235 million during the three and nine months ended September 30, 2019, respectively.
During 2018,the three and nine months ended September 30, 2020, we incurred $26(i) impairment charges of $1 million and $280 million, respectively, (ii) restructuring charges of $2 million and $14 million, respectively, and (iii) direct acquisition costs of $12 million and $37 million, respectively. The impairment charges in the nine month comparison primarily relate to the impairment of goodwill at various reporting units within our C&W segment based primarily on the economic impacts associated with COVID-19. The restructuring charges, which are related to C&W and VTR, include $24(i) employee severance and termination costs related to certain reorganization activities and (ii) contract termination and other related charges. The direct acquisition costs are primarily related to the AT&T Acquisition.
During the three and nine months ended September 30, 2019, we incurred (i) impairment charges of $196 million for each period, (ii) restructuring charges of $8 million and $30 million, respectively, and (iii) direct acquisition and disposition costs of $4 million and $8 million, respectively. The impairment charges primarily include (i) $182 million related to an impairment of goodwill of the Panamanian reporting unit of our C&W segment and (ii) $14 million related to charges at C&W primarily to reduce the carrying value of property and equipment as a result of the impact of Hurricane Dorian. The restructuring charges, which are primarily at C&W and VTR, include (i) $3 million and $19 million, respectively, of employee severance and termination costs related to certain reorganization activities primarily at C&W. During 2017, we incurred $11and (ii) $2 million and $8 million, respectively, of restructuring charges, which include $9 million of employee severancecontract termination and terminationother related charges. The direct acquisition and disposition costs primarily related to certain reorganization activities, primarily at C&W.the UTS Acquisition and disposition of our Seychelles operations.
For additional information regarding our impairment charges, see notes 6 and 8 to our condensed consolidated financial statements. For additional information regarding our restructuring charges, see note 12 to our condensed consolidated financial statements.
Interest expense
Our interest expense increased $8$6 million and $49 million during 2018,the three and nine months ended September 30, 2020, respectively, as compared to 2017. This increase isthe corresponding periods in 2019, primarily attributabledue to (i) the net effect of (i) an increase resulting from the adoption of ASU 2014-09, as further described in notes 2(a) higher average outstanding debt balances and 3 to our condensed consolidated financial statements,(b) lower weighted-average interest rates and (ii) aduring the nine-month comparison, higher amortization of (a) discounts and premiums, net, decrease of accretion expense associated with premiums and discounts.(b) deferred financing costs.
For additional information regarding our outstanding indebtedness, see note 89 to our condensed consolidated financial statements.
It is possible that the interest rates on (i) any new borrowings could be higher than the current interest rates on our existing indebtedness and (ii) our variable-rate indebtedness could increase in future periods. As further discussed in note 5 to our condensed consolidated financial statements, we use derivative instruments to manage our interest rate risks.
Realized and unrealized lossesgains (losses) on derivative instruments, net
Our realized and unrealized gains or losses on derivative instruments primarily 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 lossesgains (losses) on derivative instruments, net, are as follows:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| in millions | |||||||||||||||||||||||
| Cross-currency and interest rate derivative contracts (a) (b) | $ | (70.7) | $ | 46.6 | $ | (234.7) | $ | (99.2) | |||||||||||||||
| Foreign currency forward contracts and other (c) | (7.4) | 4.8 | (5.0) | 2.6 | |||||||||||||||||||
| Total | $ | (78.1) | $ | 51.4 | $ | (239.7) | $ | (96.6) | |||||||||||||||
| Three months ended March 31, | |||||||
| 2018 | 2017 | ||||||
| in millions | |||||||
| Cross-currency and interest rate derivative contracts (a) | $ | (38.9 | ) | $ | (25.5 | ) | |
| Foreign currency forward contracts | (2.6 | ) | (1.8 | ) | |||
| Total | $ | (41.5 | ) | $ | (27.3 | ) | |
64
(a)The loss for the nine months ended September 30, 2020 includes a realized gain of $71 million associated with the settlement of certain cross-currency interest rate swaps at VTR Finance in June 2020 that were unwound in connection with the July 2020 refinancing of certain VTR Finance debt. For additional information regarding the refinancing, see note 9 to our condensed consolidated financial statements.
(b)The loss during the three months ended September 30, 2020 is primarily attributable to the net effect of (i) changes in FX rates, predominantly due to changes in the value of the Chilean peso relative to the U.S. dollar, and (ii) changes in interest rates. The loss during the nine months ended September 30, 2020 is primarily attributable to the net effect of (i) changes in interest rates and (ii) changes in FX rates, predominantly due to changes in the value of the Chilean peso relative to the U.S. dollar. In addition, the losses during the 2020 periods include net gains of $1 million and $41 million, respectively, resulting from changes in our credit risk valuation adjustments, which are primarily due to increased credit risk stemming from market reaction to the COVID-19 outbreak. The gains (losses) during the 2019 periods are primarily attributable to (i) changes in interest rates and (ii) changes in FX rates, predominantly due to changes in the value of the Chilean peso relative to the U.S. dollar. In addition, the losses during the 2019 periods include net gains of $1 million and $7 million, respectively, resulting from changes in our credit risk valuation adjustments.
(c)Amounts include charges of $5 million and $11 million for the three and nine months ended September 30, 2020, respectively, and $2 million and $3 million during the three and nine months ended September 30, 2019, respectively, related to the amortization of premiums associated with our Weather Derivatives, which we initially entered into during the second quarter of 2019.
For additional information concerning our derivative instruments, see notes 5 and 6 to our condensed consolidated financial statements and Item 3. QualitativeQuantitative and QuantitativeQualitative Disclosures about Market Risk below.
Foreign currency transaction gains (losses), net
Our foreign currency transaction gains or losses primarily result from the remeasurement of monetary assets and liabilities that are denominated in currencies other than the underlying functional currency of the applicable entity. Unrealized foreign currency transaction gains or losses are computed based on period-end exchange rates and are non-cash in nature until such time as the amounts are settled. The details of our foreign currency transaction gains (losses), net, are as follows:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| in millions | |||||||||||||||||||||||
| U.S. dollar-denominated debt issued by a Chilean peso functional currency entity | $ | 55.5 | $ | (88.9) | $ | (50.9) | $ | (60.5) | |||||||||||||||
| Intercompany payables and receivables denominated in a currency other than the entity’s functional currency | (16.7) | (14.8) | (47.6) | (23.5) | |||||||||||||||||||
| British pound sterling-denominated debt issued by a U.S. dollar functional currency entity | — | — | — | (3.7) | |||||||||||||||||||
| Other | (8.7) | (7.1) | (16.6) | (10.4) | |||||||||||||||||||
| Total | $ | 30.1 | $ | (110.8) | $ | (115.1) | $ | (98.1) | |||||||||||||||
| Three months ended March 31, | |||||||
| 2018 | 2017 | ||||||
| in millions | |||||||
| U.S. dollar-denominated debt issued by a Chilean peso functional currency entity | $ | 26.8 | $ | 20.5 | |||
| British pound sterling-denominated debt issued by a U.S. dollar functional currency entity | (10.5 | ) | (3.7 | ) | |||
| Other | (0.4 | ) | (2.3 | ) | |||
| Total | $ | 15.9 | $ | 14.5 | |||
We recognized a losslosses on debt modification and extinguishment of $13$42 million and nil$45 million during the three and nine months ended March 31, 2018September 30, 2020, respectively, and 2017,$4 million and $13 million during the three and nine months ended September 30, 2019, respectively. The 2018 amount representslosses during 2020 are associated with (i) the payment of call premiums and the write-off of unamortized deferred financing costs related to the repayment of the VTR Finance Senior Notes during the third quarter and (ii) the write-off of unamortized discounts and deferred financing costs associated withrelated to the repayment of the C&W Term Loan B-3 Facility.B-4 Facility during the first quarter. The losses during 2019 primarily relate to the early redemption of certain C&W senior secured notes.
For additional information concerning our losslosses on debt modification and extinguishment, see note 89 to our condensed consolidated financial statements.
65
Other income, net
We recognized other income, net, of $5nil and $12 million during the three and nine months ended September 30, 2020, respectively, and $4 million and $6$9 million during the three and nine months ended September 30, 2019, respectively, that primarily relates to interest income. The increase for the nine-month comparison is mostly due to interest on the AT&T Acquisition Restricted Cash, as defined and described under Material Changes in Financial Condition—Sources and Uses of Cash below.
Income tax benefit
We recognized income tax benefit of $43 million and $182 million during the three months ended March 31, 2018September 30, 2020 and 2017, respectively. The amount for each period includes $3 million of interest2019, respectively, and dividend income and $3 million in pension-related credits following the adoption of ASU 2017-07.
For the three and nine months ended March 31, 2018,September 30, 2020, the income tax expensebenefit attributable to our loss before income taxes differs from the amountamounts computed using the statutory tax rate (based on Bermuda statutory tax rate of 0%), primarily due to the detrimentalbeneficial effects of international rate differences, increasesnet favorable changes in the valuation allowance,uncertain tax positions, and negative effects of non-deductible expenses.permanent items, such as non-taxable income. These negativebeneficial impacts to our effective tax rate were partially offset by the beneficialnegative effects of non-taxable incomeincreases in valuation allowances, permanent items, such as non-deductible goodwill impairment and price level restatements. other non-deductible expenses, as well as the inclusion of withholding taxes on cross-border payments.
For the three and nine months ended March 31, 2017,September 30, 2020, we satisfied requirements imposed under recent tax reforms and, as a result, reduced our uncertain tax positions by $20 million. Additionally, during the nine months ended September 30, 2020, we closed certain tax audits and, as a result, reduced our uncertain tax positions by $18 million. These amounts have been reflected as discrete tax benefits in our condensed consolidated statement of operations.
For the three and nine months ended September 30, 2019, the income tax expensebenefit attributable to our earningsloss before income taxes differs from the amountamounts computed using the statutory tax rate, primarily due to the detrimentalbeneficial effects of net favorable changes in uncertain tax positions, international rate differences, non-deductible expenses and changes in valuation allowances,permanent items, such as non-taxable income. These beneficial impacts to our effective tax rate were partially offset by the negative effects of increases in valuation allowances and permanent items, such as non-deductible goodwill impairment and other non-deductible expenses. Additionally, for the nine months ended September 30, 2019, our effective tax rate reflects the beneficial effects of enacteda change in the Barbados and Grenada statutory tax lawrates.
During the third quarter of 2019, we closed certain tax assessments, and, rate changes.as a result, reduced our uncertain tax positions by $244 million. Of this amount, $185 million has been reflected as a discrete tax benefit in our condensed consolidated statements of operations.
For additional information regarding our income taxes, see note 915 to our condensed consolidated financial statements.
Net earnings (loss)loss
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| in millions | |||||||||||||||||||||||
Operating income (loss) | $ | 86.6 | $ | (69.7) | $ | (11.6) | $ | 187.1 | |||||||||||||||
| Net non-operating expenses | $ | (219.4) | $ | (182.4) | $ | (796.6) | $ | (557.7) | |||||||||||||||
Income tax benefit | $ | 42.8 | $ | 182.4 | $ | 33.4 | $ | 148.5 | |||||||||||||||
Net loss | $ | (90.0) | $ | (69.7) | $ | (774.8) | $ | (222.1) | |||||||||||||||
Gains or losses associated with (i) changes in the fair values of derivative instruments and (ii) movements in foreign currency exchange rates 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 is largely dependent on our ability to increase our aggregate Adjusted OIBDA to a level that more than offsets the aggregate amount of our (i) share-based compensation expense, (ii) depreciation and amortization, (iii) impairment, restructuring and other operating items, (iv) interest expense, (v) other non-operating expenses and (vi) income tax expenses.
66
Due largely to the fact that we seek to maintain our debt at levels that provide for attractive equity returns, as discussed under Material Changes in Financial Condition—Capitalization below, we expect that we will continue to report significant levels of interest expense for the foreseeable future. For information 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.
Net earnings (loss)loss attributable to noncontrolling interests
Material Changes in Financial Condition
Sources and Uses of Cash
Cash and cash equivalents
The details of the U.S. dollar equivalent balances of our cash and cash equivalents at March 31, 2018September 30, 2020 are set forth in the following table (in millions):
| Cash and cash equivalents held by: | |||
| Liberty Latin America and unrestricted subsidiaries: | |||
| Liberty Latin America (a) | $ | 70.6 | |
| Unrestricted subsidiaries (b) | 38.9 | ||
| Total Liberty Latin America and unrestricted subsidiaries | 109.5 | ||
| Borrowing groups (c): | |||
| C&W (d) | 291.6 | ||
| VTR Finance | 69.0 | ||
| Liberty Puerto Rico | 40.5 | ||
| Total borrowing groups | 401.1 | ||
| Total cash and cash equivalents | $ | 510.6 | |
| Cash and cash equivalents held by: | |||||
| Liberty Latin America and unrestricted subsidiaries: | |||||
| Liberty Latin America (a) | $ | 5.3 | |||
| Unrestricted subsidiaries (b) | 828.0 | ||||
| Total Liberty Latin America and unrestricted subsidiaries | 833.3 | ||||
| Borrowing groups (c): | |||||
| C&W | 568.7 | ||||
| VTR Finance | 162.1 | ||||
| Liberty Puerto Rico | 32.2 | ||||
| Cabletica | 15.6 | ||||
| Total borrowing groups | 778.6 | ||||
| Total cash and cash equivalents | $ | 1,611.9 | |||
| 1,371.0 | |
(a)Represents the amount held by Liberty Latin America on a standalone basis.
(b)Represents the aggregate amount held by subsidiaries of Liberty Latin America that are outside of our borrowing groups. All of these companies rely on funds provided by our borrowing groups to satisfy their liquidity needs.
(c)Represents the aggregate amounts held by the parent entity of the applicable borrowing group and their restricted subsidiaries. The C&W balance includes cash proceeds of $100 million that was borrowed in March 2020 on the C&W Revolving Credit Facility, as further described below, which was repaid subsequent to September 30, 2020.
(d)Includes $1,353 million of restricted cash held in escrow that was used to fund a portion of the AT&T Acquisition (the AT&T Acquisition Restricted Cash), as further described below.
67
Liquidity of Liberty Latin America and its unrestricted subsidiaries
Our current sources of corporate liquidity include (i) cash and cash equivalents held by Liberty Latin America and, subject to certain tax and legal considerations, Liberty Latin America’s unrestricted subsidiaries and (ii) 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 Latin America and its unrestricted subsidiaries may also receive (i) proceeds in the form of distributions or loan repayments from Liberty Latin America’s borrowing groups or affiliates, upon (a) the completion of recapitalizations, refinancings, asset sales or similar transactions by these entities or (b) the accumulation of excess cash from operations or other means, (ii) proceeds upon the disposition of investments and other assets of Liberty Latin America and its unrestricted subsidiaries and (iii) proceeds in connection with the incurrence of debt by Liberty Latin America or its unrestricted subsidiaries or the issuance of equity securities by Liberty Latin America. No assurance can be given that any external funding would be available to Liberty Latin America or its unrestricted subsidiaries on favorable terms, or at all. As noted above, various factors may limit our ability to access the cash of our borrowing groups.
Our corporate liquidity requirements include (i) corporate general and administrative expenses and (ii) other liquidity needs that may arise from time to time. In addition, Liberty Latin America and its unrestricted subsidiaries may require cash in connection with (i) the repayment of third-party and intercompany debt, (ii) the satisfaction of contingent liabilities, (iii) acquisitions and other investment opportunities, (iv) the repurchase of debt securities, (v) tax payments or (vi) any funding requirements of our consolidated subsidiaries, including our commitmentsubsidiaries.
Our liquidity requirements related to fund ouracquisitions include funding the AT&T Acquisition. The AT&T Acquisition was structured as an all-cash transaction with a purchase price of $1.9 billion, subject to adjustment as provided in the related stock purchase agreement. We financed this acquisition through a combination of a portion of any potential liquidity shortfallsthe net proceeds from the 2026 SPV Credit Facility and the 2027 LPR Senior Secured Notes ($1,353 million of Liberty Puerto Rico through December 31, 2018,which was restricted cash held in escrow as further describedof September 30, 2020) and available liquidity. For additional information regarding the AT&T Acquisition and our debt, see notes 4 and 9, respectively, to our condensed consolidated financial statements.
In March 2020, our Directors approved a $100 million Share Repurchase Program. During the nine months ended September 30, 2020, the aggregate amount of our share repurchases was $9 million. For additional information regarding our Share Repurchase Program, see note 18 to our condensed consolidated financial statements and Part II—Item 2 Unregistered Sales of Equity Securities and Use of Proceeds below.
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 instrumentsinstruments. As of September 30, 2020, $100 million remained outstanding under the C&W Revolving Credit Facility, which was originally drawn as a precautionary measure in order to provide flexibility with our liquidity due to economic uncertainty caused by COVID-19, the proceeds of which are included in cash and with respect to Liberty Puerto Rico, the remaining portion of the LCPR Equity Commitment (as described below) and insurance proceeds. For the details of the borrowing availability of such subsidiaries at March 31, 2018, see note 8tocash equivalents in our condensed consolidated financial statements.balance sheet as of September 30, 2020. Subsequent to September 30, 2020, the $100 million outstanding balance on the C&W Revolving Credit Facility was repaid. The aforementioned sources of liquidity may be supplemented in certain cases by contributions and/or loans from Liberty Latin America and its unrestricted subsidiaries. The liquidity of our borrowing groups generally is used to fund property and equipment additions, debt service requirements and income tax payments. From time to time, our borrowing groups may also require liquidity in connection with (i) acquisitions and other investment opportunities, (ii) loans to Liberty Latin America, (iii) capital distributions to Liberty Latin America and other equity owners or (iv) the satisfaction of contingent liabilities. 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 borrowing groups’ commitments and contingencies, see note 1519 to our condensed consolidated financial statements.
For additional information regarding our cash flows, see the discussion under Condensed 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 debt balance (measured using subsidiary debt figures at swapped foreign currency exchange rates, consistent with the covenant calculation requirements of our subsidiary debt agreements) that is typically between four and five times our consolidated Adjusted OIBDA, although the timing of our acquisitions and financing transactions and the interplay of foreign currency average and spot rates may impact this ratio. The ratio of our March 31, 2018 consolidated debt to our annualized consolidated Adjusted OIBDA for the quarter ended March 31, 2018 was 4.8x. In addition, the ratio of our March 31, 2018 consolidated net debt (debt, as defined above, less cash and cash equivalents) to our annualized consolidated Adjusted OIBDA for the quarter ended March 31, 2018 was4.5x. Beginning in the fourth quarter of 2017, these ratios increased due to the adverse impacts of the hurricanes on our Adjusted OIBDA. However, assuming our debt levels remain relatively consistent, we expect these ratios to decrease in future periods as we continue to recover from the adverse impacts of the hurricanes.
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 support the respective borrowings. As further discussed under Item 3. Quantitative and Qualitative Disclosures about Market Risk and in note 5 to our condensed consolidated financial statements, we also use derivative instruments to mitigate foreign currency and interest rate risks associated with our debt instruments.
68
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 covenant EBITDA of our operating subsidiaries, as specified by our subsidiaries’ debt agreements (Covenant EBITDA), 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 incurrence-based leverage covenants contained in the various debt instruments of our borrowing groups. For example, if the Covenant EBITDA of C&W were to decline, our ability to obtain additional debt could be limited. 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. At March 31, 2018,September 30, 2020, each of our borrowing groups was in compliance with its debt covenants. 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 March 31, 2018,September 30, 2020, the outstanding principal amount of our debt, together with our capitalfinance lease obligations, aggregated $6,440$8,601 million, including $212$284 million that is classified as current in our condensed consolidated balance sheet and $5,803$7,800 million that is not due until 20222024 or thereafter. AllAt September 30, 2020, $8,195 million of our debt and capitalfinance lease obligations have been borrowed or incurred by our subsidiariessubsidiaries. Included in the outstanding principal amount of our debt at March 31, 2018.September 30, 2020 is $183 million of vendor financing, which we use to finance certain of our operating expenses and property and equipment additions. These obligations are generally due within one year, other than for certain licensing arrangements that generally are due over the term of the related license. For additional information concerning our debt, and capital lease obligations, including our debt maturities, see note 89 to our condensed consolidated financial statements.
| Borrowing group | Increase to borrowing costs | |||||||
| C&W | 0.80 | % | ||||||
| VTR Finance | 0.20 | % | ||||||
| Liberty Puerto Rico | 0.86 | % | ||||||
| Cabletica | 1.23 | % | ||||||
| Liberty Latin America borrowing groups | 0.68 | % | ||||||
Including the effects of derivative instruments, original issue premiums or discounts, including the discount on the Convertible Notes associated with the instrument’s conversion option, and commitment fees, but excluding the impact of financing costs, the weighted average interest rate on our indebtedness was 6.2% at September 30, 2020.
As of September 30, 2020, our covenant compliance under the indentures of our borrowing groups or liquidity needs, which includes access to borrowing available under our various revolving credit facilities, have not been materially impacted as a result of COVID-19.
69
Condensed Consolidated Statements of Cash Flows
General. Our cash flows are subject to variations due to FX.
Summary. Our condensed consolidated statements of cash flows for the threenine months ended March 31, 2018September 30, 2020 and 20172019 are summarized as follows:
| Three months ended March 31, | Nine months ended September 30, | |||||||||||||||||||||||||||
| 2018 | 2017 | Change | 2020 | 2019 | Change | |||||||||||||||||||||||
| in millions | in millions | |||||||||||||||||||||||||||
| Net cash provided by operating activities | $ | 163.2 | $ | 75.0 | $ | 88.2 | Net cash provided by operating activities | $ | 491.0 | $ | 590.4 | $ | (99.4) | |||||||||||||||
| Net cash used by investing activities | (187.8 | ) | (127.0 | ) | (60.8 | ) | Net cash used by investing activities | (418.9) | (556.9) | 138.0 | ||||||||||||||||||
| Net cash provided (used) by financing activities | (11.8 | ) | 34.5 | (46.3 | ) | |||||||||||||||||||||||
Net cash provided by financing activities | Net cash provided by financing activities | 464.9 | 350.4 | 114.5 | ||||||||||||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 0.1 | (0.5 | ) | 0.6 | Effect of exchange rate changes on cash, cash equivalents and restricted cash | (11.1) | (5.4) | (5.7) | ||||||||||||||||||||
| Net decrease in cash, cash equivalents and restricted cash | $ | (36.3 | ) | $ | (18.0 | ) | $ | (18.3 | ) | |||||||||||||||||||
Net increase in cash, cash equivalents and restricted cash | Net increase in cash, cash equivalents and restricted cash | $ | 525.9 | $ | 378.5 | $ | 147.4 | |||||||||||||||||||||
Operating Activities.The increasedecrease in net cash provided by our operating activities is primarily attributabledue to the net impact of (i) an increasea combined $92 milliondecline in the Adjusted OIBDA of our C&W and VTR/Cabletica segments, (ii) lower tax payments of $58 million, (iii) the negative impact for the comparative period resulting from working capital items, inclusive$33 million of a net advance paymentthe cash received from our third-party insurance provider of $30 millionduring the nine months ended September 30, 2019 associated with the initialfinal insurance claims filedsettlement for hurricanes Irma, Maria, and Matthew that was reflected as an operating cash inflow, and (iv) a decrease of $40 million related to derivative activities. Additionally, the working capital changes in connection with damages sustained fromour condensed consolidated statement of cash flows for the hurricanes,2020 and (ii) lower interest payments.2019 periods include the negative impacts of a $38 million and $185 million release of an uncertain tax position liability, respectively, that have been reflected as a tax benefit in our consolidated statement of operations, as further described in note 15 to our condensed consolidated financial statements.
Investing Activities. The increasedecrease in net cash used by our investing activities is primarily attributable to higherthe net effect of (i) $160 million of cash used for the UTS Acquisition in March 2019, (ii) a decrease in cash used for capital expenditures, as further discussed below.below, and (iii) the impact of $34 million of cash we received during the first quarter of 2019 related to the recovery on damaged or destroyed property and equipment resulting from hurricanes Maria, Irma and Matthew. For additional information regarding the settlement of our insurance claims associated with these hurricanes, see note 7 to our condensed consolidated financial statements.
The capital expenditures that we report in our condensed consolidated statements of cash flows do not include amounts that are financed under capital-related vendor financing or capitalfinance 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 this discussion, we refer to (i) our capital expenditures, as reported in our condensed 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 capitalfinance lease arrangements. For further details regarding our property and equipment additions, see note 1620 to our condensed consolidated financial statements.
A reconciliation of our property and equipment additions to our capital expenditures, as reported in our condensed consolidated statements of cash flows, is set forth below:
| Nine months ended September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| in millions | |||||||||||
| Property and equipment additions | $ | 443.1 | $ | 492.1 | |||||||
| Assets acquired under capital-related vendor financing arrangements | (80.5) | (58.7) | |||||||||
| Assets acquired under finance leases | — | (0.2) | |||||||||
| Changes in current liabilities related to capital expenditures | 55.7 | (1.2) | |||||||||
| Capital expenditures | $ | 418.3 | $ | 432.0 | |||||||
70
| Three months ended March 31, | |||||||
| 2018 | 2017 | ||||||
| in millions | |||||||
| Property and equipment additions | $ | 194.0 | $ | 139.2 | |||
| Assets acquired under capital-related vendor financing arrangements | (20.7 | ) | (14.1 | ) | |||
| Assets acquired under capital leases | (0.6 | ) | (0.9 | ) | |||
| Changes in current liabilities related to capital expenditures | 15.5 | 0.2 | |||||
| Capital expenditures | $ | 188.2 | $ | 124.4 | |||
Financing Activities. During the threenine months ended March 31, 2018,September 30, 2020, we used $12generated $465 million of cash from financing activities primarily due to (i) $350 million related to the Rights Offering,(ii) $181 million million of net cash related to derivative instruments and (iii) $30 million of net borrowings of debt. These items were slightly offset by $75 million related to payments of financing costs and debt premiums. The net cash received related to derivative instruments is primarily due to the unwinding of cross-currency swaps held at our VTR Finance borrowing group as further described in note 5 to the condensed consolidated financial statements. During the nine months ended September 30, 2019, we received $350 million in net cash from financing activities, primarily relatingdue to $19$444 million of net borrowings of debt, which was slightly offset by $46 million of cash used in connection withrelated to the C&W Jamaica NCI Acquisition, which was partially offset by a $10 million capital contribution from Searchlight indirectlypurchase of capped calls related to Liberty Puerto Rico for purposes of funding liquidity shortfalls following the impact of the hurricanes. For additional information see note 10 to our condensed consolidated financial statements. During the three months ended March 31, 2017, we receivedConvertible Notes and $35 million in net cash fromrelated to payments of financing activities, which includes $63 million in net borrowings ofcosts and debt partially offset by distributions to Liberty Global and noncontrolling interest owners of $19 million and $15 million, respectively.premiums.
Adjusted Free Cash Flow
We define adjusted free cash flow, a non-GAAP measure, as net cash provided by our operating activities, plus (i) cash payments for third-party costs directly associated with successful and unsuccessful acquisitions and dispositions, and (ii) expenses financed by an intermediary, (iii) insurance recoveries related to damaged and destroyed property and equipment, and (iv) certain net interest payments (receipts) incurred or received, including associated derivative instrument payments and receipts, in advance of a significant acquisition, less (a) capital expenditures, (b) distributions to noncontrolling interest owners, (c) principal payments on amounts financed by vendors and intermediaries and (d) principal payments on capitalfinance leases. WeAs a result of the then pending AT&T Acquisition, we changed the way we define adjusted free cash flow effective December 31, 20172019 to deduct distributionsadjust (i) for pre-acquisition interest incurred on the incremental debt issued in advance of the AT&T Acquisition, (ii) to noncontrollingexclude pre-acquisition interest owners. This changeearned related to the AT&T Acquisition Restricted Cash that was given effect for all periods presented. Additionally, on January 1, 2018, we retroactively adopted ASU 2016-18, which resulted in an immaterial decrease in cash from operating activities forused to fund a portion of the three months ended March 31, 2017. For additional information regardingAT&T Acquisition and (iii) the impact of adopting ASU 2016-18, see note 2 to our condensed consolidated financial statements.associated pre-acquisition derivative contracts. As the debt was incurred directly as a result of the then pending acquisition and will be supported by cash flows of the acquisition from the date of the closing, we believe this results in the most meaningful presentation of adjusted free cash flow. We believe that our presentation of adjusted 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. Adjusted 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 adjusted free cash flow as a supplement to, and not a substitute for, U.S. GAAP measures of liquidity included in our condensed consolidated statements of cash flows.
The following table provides the details of our adjusted free cash flow:
| Nine months ended September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| in millions | |||||||||||
| Net cash provided by operating activities | $ | 491.0 | $ | 590.4 | |||||||
| Cash payments for direct acquisition and disposition costs | 21.7 | 1.3 | |||||||||
| Expenses financed by an intermediary (a) | 78.1 | 93.1 | |||||||||
| Capital expenditures | (418.3) | (432.0) | |||||||||
| Recovery on damaged or destroyed property and equipment | — | 33.9 | |||||||||
| Distributions to noncontrolling interest owners | (2.3) | (2.6) | |||||||||
| Principal payments on amounts financed by vendors and intermediaries | (143.4) | (156.4) | |||||||||
| Pre-acquisition net interest payments, net (b) | 34.1 | — | |||||||||
| Principal payments on finance leases | (1.7) | (7.7) | |||||||||
| Adjusted free cash flow | $ | 59.2 | $ | 120.0 | |||||||
(a)For purposes of our condensed consolidated statements of cash flows, expenses, including VAT, financed by an intermediary are treated as hypothetical operating cash outflows and hypothetical financing cash inflows when the expenses are incurred. When we pay the financing intermediary, we record financing cash outflows in our consolidated statements of cash flows. For purposes of our adjusted free cash flow definition, we add back the hypothetical operating
71
| Three months ended March 31, | |||||||
| 2018 | 2017 | ||||||
| in millions | |||||||
| Net cash provided by operating activities | $ | 163.2 | $ | 75.0 | |||
| Cash payments for direct acquisition and disposition costs | 0.1 | 0.9 | |||||
| Expenses financed by an intermediary (a) | 32.3 | 10.3 | |||||
| Capital expenditures | (188.2 | ) | (124.4 | ) | |||
| Distribution to noncontrolling interest owners | — | (14.6 | ) | ||||
| Principal payments on amounts financed by vendors and intermediaries | (51.1 | ) | (18.8 | ) | |||
| Principal payments on capital leases | (2.0 | ) | (1.9 | ) | |||
| Adjusted free cash flow | $ | (45.7 | ) | $ | (73.5 | ) | |
(b)Amount primarily represents interest paid on pre-acquisition debt related to the AT&T Acquisition, net of interest received on the AT&T Acquisition Restricted Cash.
Off Balance Sheet Arrangements
In the ordinary course of business, we may provide (i) indemnifications to our lenders, our vendors and certain other parties and (ii) 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. For information concerning certain indemnifications provided by C&W, see note 15 to our condensed consolidated financial statements.
Contractual Commitments
The following table sets forth the U.S. dollar equivalents of our commitments as of March 31, 2018:September 30, 2020:
| Payments due during | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| Remainder of 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | |||||||||||||||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||||||||||||||||||
| Debt (excluding interest) | $ | 161.8 | $ | 132.7 | $ | 117.3 | $ | 388.5 | $ | 473.5 | $ | 103.2 | $ | 7,222.3 | $ | 8,599.3 | |||||||||||||||||||||||||||||||
| Finance leases (excluding interest) | 0.5 | 0.3 | 0.2 | 0.2 | 0.2 | 0.1 | 0.3 | 1.8 | |||||||||||||||||||||||||||||||||||||||
| Operating leases | 12.2 | 35.4 | 29.4 | 23.4 | 19.8 | 13.5 | 43.1 | 176.8 | |||||||||||||||||||||||||||||||||||||||
| Programming commitments | 47.8 | 114.4 | 81.8 | 48.1 | 38.7 | 0.5 | — | 331.3 | |||||||||||||||||||||||||||||||||||||||
| Network and connectivity commitments | 23.1 | 40.3 | 8.3 | 5.6 | 4.8 | 2.5 | 9.2 | 93.8 | |||||||||||||||||||||||||||||||||||||||
| Purchase commitments | 133.1 | 21.4 | 6.7 | 1.4 | — | — | — | 162.6 | |||||||||||||||||||||||||||||||||||||||
| Other commitments | 6.2 | 2.1 | 1.7 | 1.5 | 1.4 | 1.4 | 8.3 | 22.6 | |||||||||||||||||||||||||||||||||||||||
| Total (a) | $ | 384.7 | $ | 346.6 | $ | 245.4 | $ | 468.7 | $ | 538.4 | $ | 121.2 | $ | 7,283.2 | $ | 9,388.2 | |||||||||||||||||||||||||||||||
| Projected cash interest payments on debt and finance lease obligations (b) | $ | 97.6 | $ | 446.8 | $ | 445.0 | $ | 429.4 | $ | 416.7 | $ | 402.5 | $ | 766.7 | $ | 3,004.7 | |||||||||||||||||||||||||||||||
| Payments due during | Total | ||||||||||||||||||||||||||||||
| Remainder of 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | |||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||
| Debt (excluding interest) | $ | 173.2 | $ | 257.8 | $ | 64.9 | $ | 125.0 | $ | 1,615.2 | $ | 206.3 | $ | 3,981.0 | $ | 6,423.4 | |||||||||||||||
| Capital leases (excluding interest) | 11.9 | 3.3 | 1.5 | 0.1 | — | — | — | 16.8 | |||||||||||||||||||||||
| Programming commitments | 120.3 | 58.3 | 24.4 | 18.0 | 2.2 | 1.5 | 0.7 | 225.4 | |||||||||||||||||||||||
| Network and connectivity commitments | 82.2 | 74.2 | 25.9 | 18.5 | 14.6 | 13.9 | 24.3 | 253.6 | |||||||||||||||||||||||
| Purchase commitments | 110.7 | 27.6 | 9.6 | 1.1 | 1.1 | 0.6 | — | 150.7 | |||||||||||||||||||||||
| Operating leases | 22.5 | 20.6 | 16.9 | 13.4 | 11.4 | 9.1 | 17.3 | 111.2 | |||||||||||||||||||||||
| Other commitments | 8.9 | 2.8 | 1.6 | 1.4 | 1.3 | 1.3 | 10.0 | 27.3 | |||||||||||||||||||||||
| Total (a) | $ | 529.7 | $ | 444.6 | $ | 144.8 | $ | 177.5 | $ | 1,645.8 | $ | 232.7 | $ | 4,033.3 | $ | 7,208.4 | |||||||||||||||
| Projected cash interest payments on debt and capital lease obligations (b) | $ | 218.9 | $ | 373.7 | $ | 352.8 | $ | 349.1 | $ | 300.0 | $ | 237.6 | $ | 411.7 | $ | 2,243.8 | |||||||||||||||
(b)Amounts are based on interest rates, interest payment dates, commitment fees and contractual maturities in effect as of September 30, 2020. 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 derivative contracts. |
For information concerning our debt, and capitaloperating lease obligations see note 8 to our condensed consolidated financial statements. For information concerning ourand commitments, see note 15notes 9, 10 and 19, respectively, to our condensed consolidated financial statements.
In addition to the commitments set forth in the table above, we have 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 our derivative instruments, see Item 3. Quantitative and Qualitative Disclosures About Market Risk—Projected Cash Flows Associated with Derivative Instruments below. For information regarding our derivative instruments, including the net cash paid or received in connection with these instruments during the threenine months ended March 31, 2018September 30, 2020 and 2017,2019, see note 5 to our condensed consolidated financial statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information in this section should be read in conjunction with the more complete discussion that appears under Quantitative and Qualitative Disclosures About Market Risk in our 20172019 Form 10-K. The following discussion updates selected numerical information to March 31, 2018.September 30, 2020.
We are exposed to market risk in the normal course of our business operations due to our investments in various 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 Liberty Latin America’s short-term liquidity requirements. In order to mitigate this risk, we actively manage the denominations of our cash balances in consideration of Liberty Latin America’s forecasted liquidity requirements. At March 31, 2018, a significant proportionSeptember 30, 2020, $64 million or 4.0% of our cash balance was denominated in U.S. dollars or denominated in a currency that is indexed to the U.S. dollar.Chilean pesos.
Foreign Currency Exchange Rates
The relationship between (i) the British pound sterling, the Chilean peso and the Jamaican dollar and (ii) the U.S. dollar, which is our reporting currency, is shown below, per one U.S. dollar:
| March 31, 2018 | December 31, 2017 | ||||
| Spot rates: | |||||
| British pound sterling | 0.71 | 0.74 | |||
| Chilean peso | 603.90 | 615.40 | |||
| Jamaican dollar | 126.22 | 124.58 | |||
| September 30, 2020 | December 31, 2019 | ||||||||||
| Spot rates: | |||||||||||
| Chilean peso | 784.33 | 751.85 | |||||||||
| Jamaican dollar | 141.46 | 132.28 | |||||||||
| Three months ended March 31, | Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||
| 2018 | 2017 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||
| Average rates: | Average rates: | |||||||||||||||||||||||||||
| British pound sterling | 0.72 | 0.81 | ||||||||||||||||||||||||||
| Chilean peso | 602.37 | 655.13 | Chilean peso | 780.71 | 706.58 | 802.36 | 686.21 | |||||||||||||||||||||
| Jamaican dollar | 125.80 | 128.58 | Jamaican dollar | 145.52 | 134.91 | 141.08 | 132.61 | |||||||||||||||||||||
Interest Rate Risks
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 agreements that lock in a maximum interest rate if variable rates rise, but also allow our company to benefit from declines in market rates. At March 31, 2018,September 30, 2020, we effectively paid a fixed rate of interest rate on 97% of our total debt.debt, which includes the impact of our interest rate derivative contracts. 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 impacts of these interest rate derivative instruments, see note 5 to our condensed consolidated financial statements.
73
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 5 and 6 to our condensed consolidated financial statements.
VTR Finance Cross-currency Derivative Contracts
Holding all other factors constant, at March 31, 2018, September 30, 2020:
i.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 Finance cross-currency derivative contracts by approximately CLP 107.5129 billion ($178 million).or $164 million.
ii. an instantaneous increase (decrease) in the relevant base rate of 100 basis points (1.0%) would have increased (decreased) the aggregate fair value of the VTR Finance cross-currency and interest rate derivative contracts by approximatelyCLP12 billion or $15 million.
C&W Cross-currency and Interest Rate Derivative Contracts
Holding all other factors constant, at September 30, 2020, an instantaneous increase (decrease) in the relevant base rate of 100 basis points (1.0%) would have increased (decreased) the aggregate fair value of the C&W cross-currency and interest rate derivative contracts by approximately$150 million.
Liberty Puerto Rico Interest Rate Derivative Contracts
Holding all other factors constant, at March 31, 2018:September 30, 2020, an instantaneous increase (decrease) in the relevant base rate of 100 basis points (1.0%) would have increased (decreased) the aggregate fair value of the Liberty Puerto Rico interest rate derivative contracts by approximately $61 million.
Projected Cash Flows Associated with Derivative Instruments
The following table provides information regarding the projected cash flows 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 March 31, 2018.September 30, 2020. 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 5 to our condensed consolidated financial statements.
| Payments (receipts) due during: | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| Remainder of 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | |||||||||||||||||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||||||||||||||||||
| Projected derivative cash payments (receipts), net: | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest-related (a) | $ | 15.1 | $ | 68.2 | $ | 82.7 | $ | 80.9 | $ | 76.7 | $ | 76.7 | $ | 156.2 | $ | 556.5 | |||||||||||||||||||||||||||||||
| Principal-related (b) | — | — | (1.4) | — | — | — | 22.0 | 20.6 | |||||||||||||||||||||||||||||||||||||||
| Other (c) | — | (2.0) | — | — | — | — | — | (2.0) | |||||||||||||||||||||||||||||||||||||||
| Total | $ | 15.1 | $ | 66.2 | $ | 81.3 | $ | 80.9 | $ | 76.7 | $ | 76.7 | $ | 178.2 | $ | 575.1 | |||||||||||||||||||||||||||||||
(a)Includes the interest-related cash flows of our cross-currency and interest rate derivative contracts.
(b)Includes the principal-related cash flows of our cross-currency derivative contracts.
(c)Includes amounts related to our foreign currency forward contracts.
74
| Payments (receipts) due during: | Total | ||||||||||||||||||||||||||||||
| Remainder of 2018 | |||||||||||||||||||||||||||||||
| 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | ||||||||||||||||||||||||||
| in millions | |||||||||||||||||||||||||||||||
| Projected derivative cash payments, net: | |||||||||||||||||||||||||||||||
| Interest-related (a) | $ | 20.4 | $ | 16.2 | $ | 9.3 | $ | 9.3 | $ | 11.9 | $ | 13.5 | $ | 7.5 | $ | 88.1 | |||||||||||||||
| Principal-related (b) | — | (11.6 | ) | — | — | 150.9 | — | 28.5 | 167.8 | ||||||||||||||||||||||
| Other (c) | 13.4 | — | — | — | — | — | — | 13.4 | |||||||||||||||||||||||
| Total | $ | 33.8 | $ | 4.6 | $ | 9.3 | $ | 9.3 | $ | 162.8 | $ | 13.5 | $ | 36.0 | $ | 269.3 | |||||||||||||||
Item 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our PrinciplePrincipal Executive Officer and our Principal Financial Officer (the Executives), as appropriate to allow timely decisions regarding required disclosure. 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 required to apply judgment in evaluating the cost-benefit relationship of possible controls and objectives.
As disclosed in our Annual Report on Form 10-K for our fiscal year ended December 31, 2019, we identified material weaknesses in our internal control over financial reporting. The material weaknesses will not be considered remediated until the applicable new or enhanced controls operate for a sufficient period of time and management has concluded, through testing, that these controls are designed and operating effectively. Our management, with the participation of the Executives, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2018. Based on that evaluation,September 30, 2020. As remediation is not completed, the Executives concluded that our disclosure controls and procedures are effective at the reasonable assurance levelcontinue to be ineffective as of MarchSeptember 30, 2020.
Management’s Remediation Plans
Management, with oversight from the Audit Committee of the Board of Directors, is continuing to implement the remediation plans as disclosed in our Annual Report on Form 10-K for our fiscal year ended December 31, 2018.2019. We believe that these actions and the improvements we expect to achieve, when fully implemented, will strengthen our internal control over financial reporting and remediate the material weaknesses identified.
Changes in Internal Control over Financial Reporting
Except as listed below, there have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
•the remediation efforts regarding the material weaknesses that existed as of December 31, 2019,
•we are continuing to update our internal controls over financial reporting, as necessary, to accommodate modifications to our order-to-cash process related to VTR’s implementation of a new customer relationship management software,
•we initiated the process of updating our internal controls over financial reporting for certain C&W subsidiaries, as necessary to accommodate modification to our procure-to-pay, long-lived assets and other financial reporting processes related to the implementation of a new enterprise resource planning software; and,
•we initiated the process of updating our internal controls over financial reporting for a certain C&W subsidiary, as necessary to accommodate modification to our order-to-cash process related to an online charging system upgrade.
75
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
VTR Class Action
On August 25, 2020, VTR was notified that the Chilean National Consumer Authority (“SERNAC”, the Spanish acronym for Servicio Nacional del Consumidor) had filed a class action complaint against VTR in the 14th Civil Court of Santiago. The complaint relates to consumer complaints regarding VTR’s broadband service and capacity during the pandemic and raises claims regarding, among other things, VTR’s disclosure of its broadband speeds and aggregate capacity availability and VTR’s response to address the causes of service instability during the pandemic. VTR was also notified in August about two additional class action complaints filed by consumer associations (ODECU and AGRECU) making similar claims and allegations. The class action complaint of ODECU was filed in the 21st Civil Court of Santiago, and the class action complaint of AGRECU was filed in the 26th Civil Court of Santiago. The complaint of SERNAC and ODECU seeks (i) the Court declare that VTR has infringed the rules of the Consumer Protection Law; (ii) the responsibility of VTR for such infractions and if so, establish the corresponding fines; and (iii) compensatory damages. In the case of AGRECU, the complaint only seeks compensatory damages. On October 22, 2020, VTR was notified of a fourth class action complaint filed by Conadecus in the 16th Civil Court of Santiago alleging that VTR did not adhere to certain call center, technical visit and service level requirements under applicable law. We believe that the allegations contained in the complaints are without merit, in particular as it relates to VTR’s service and response during the pandemic and intend to defend the complaints vigorously. We cannot predict at this point the length of time that these actions will be ongoing.
Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c)Issuer Purchases of Equity Securities
On March 17, 2020, we announced that our Directors authorized the Share Repurchase Program, which authorizes us to repurchase from time to time up to $100 million of our Class A common shares and/or Class C common shares, as the case may be, over two years. The Share Repurchase Program does not obligate us to repurchase any of our Class A or C common shares. Under the Share Repurchase Program, we may repurchase our common shares from time to time in open market purchases at prevailing market prices, in privately negotiated transactions, in block trades, derivative transactions and/or through other legally permissible means.
There were no repurchases of our Class A or C common shares during the three months ended September 30, 2020. At September 30, 2020, the remaining amount authorized for repurchases of Liberty Latin America Shares was $91 million.
76
Item 6. EXHIBITS
Listed below are the exhibits filed as part of this Quarterly Report on Form 10-Q (according to the number assigned to them in Item 601 of Regulation S-K):
| 4.2 | ||||||
| 31.2 | ||||||
| 101.SCH | ||||||
| XBRL | ||||||
| 101.CAL | XBRL Inline Taxonomy Extension Calculation Linkbase Document.* | |||||
| 101.DEF | XBRL Inline Taxonomy Extension Definition Linkbase.* | |||||
| 101.LAB | XBRL Inline Taxonomy Extension Label Linkbase Document.* | |||||
| 101.PRE | XBRL Inline Taxonomy Extension Presentation Linkbase Document.* | |||||
| 104 | Cover Page Interactive Data File.* (formatted as Inline XBRL and contained in Exhibit 101) | |||||
* Filed herewith
** Furnished herewith
SIGNATURES
Pursuant to the requirements 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 LATIN AMERICA LTD. | |||||||||||
| Dated: | /s/ BALAN NAIR | ||||||||||
Balan Nair President and Chief Executive Officer | |||||||||||
| Dated: | /s/ CHRISTOPHER NOYES | ||||||||||
Christopher Noyes Senior Vice President and Chief Financial Officer | |||||||||||
78