Our revenue by major category for our reportable segments is set forth in the tables below. As further described in note 2,
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(a) | Except as otherwise noted, the amounts presented for each C&W jurisdiction include revenue from residential and B2B operations. |
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(b) | The amounts represent wholesale services revenue from various jurisdictions across the Caribbean and Latin America, primarily related to the sale and lease of telecom capacity on C&W’s sub-sea and terrestrial networks. |
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(c) | The amounts relate to a number of countries in which C&W has less significant operations, all but one of which are located in Latin America and the Caribbean. In addition, these amounts include C&W intercompany eliminations. |
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Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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:
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• | •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. • This section provides a description of certain factors that could cause actual results or events to differ materially from anticipated results or events. |
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• | Overview. This section provides a general description of our business and recent events.
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• | Material Changes in Results of Operations. This section provides an analysis of our results of operations for the three months ended March 31, 2018 and 2017.
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• | 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;
•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;
certain factors outside of our control that may impact the timing and extent of the restoration of our networks and services in Puerto Rico and certain of our C&W markets following Hurricanes Irma and Maria;
•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;
•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
As described below, Hurricanes Irma and Maria caused significant damage toC&W owns less than 100% of certain of its consolidated subsidiaries, including C&W Bahamas (a 49.0%-owned entity that owns all of our operations in the Impacted Markets, as defined below, resultingBahamas), C&W Jamaica (a 92.3%-owned entity that owns the majority of our operations in disruptions toJamaica), and C&W Panama (a 49.0%-owned entity that owns most of our telecommunications services. Asoperations in Panama). In addition, we are still in the processown Cabletica through our 80.0% ownership of assessing the operational impacts of the hurricanes in the Impacted Markets, we are unable to accurately estimate our homes passed and subscriber numbers as of March 31, 2018. Accordingly, the March 31, 2018 subscriber numbers for the Impacted Markets reflect subscriber amounts as of August 31, 2017 as adjusted through March 31, 2018 for (i) net voluntary disconnects and (ii) disconnects related to customers whose accounts are delinquent. The Liberty Puerto Rico homes passed reflect the August 31, 2017 levels adjusted for approximately 30,000 homes in geographic areas we may not rebuild.its parent, LBT CT Communications, S.A..
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.
Hurricane Impact UpdateCOVID-19
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;
•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.
We maintain an integrated group property and business interruption insurance program covering all Impacted Markets up to a limit of $75 million per occurrence, which is generally subject to $15 million per occurrence of self-insurance. Althoughclose, we are continuingrequired to assess the alternatives underdispose of, among other assets, a small B2B business in our insurance policy,existing Puerto Rico operations.
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.
During the three months ended March 31, 2018, we received a net advance payment from our third-party insurance provider of $30 million associated with the initial insurance claims filed in connection with damages sustained from the hurricanes. Until such claims are legally settled, the advance is included in other accrued and current liabilities in our condensed consolidated balance sheet.
Liberty Puerto Rico. In Puerto Rico, the damage caused by Hurricane Maria and, to a lesser extent Hurricane Irma, was extensive and widespread. Individuals and businesses across Puerto Rico continue to deal with significant challenges caused by the severe damage to essential infrastructure, including damage to Puerto Rico’s power supply and transmission system. Similarly, Liberty Puerto Rico’s broadband communications network suffered extensive damage. As of March 31, 2018, we have been able to restore service to approximately 560,000 RGUs of our total estimated 723,100 RGUs at Liberty Puerto Rico. Additionally, we estimate that approximately $130 millionof property and equipment additions will be required to restore nearly all of Liberty Puerto Rico’s broadband communications network, of which approximately $112 million has been incurred following the hurricanesthrough March 31, 2018.
While the negative impacts from the hurricanes are declining as the network is restored and customers are reconnected, we expect that the adverse impacts of the hurricanes on Liberty Puerto Rico’s revenue and Adjusted OIBDA will continue through 2018and beyond. The severity of the hurricanes’ impact on Liberty Puerto Rico’s future revenue and Adjusted OIBDA will be influenced in part by the following uncertainties:
the length of time that it will take to restore Puerto Rico’s power and transmission system and to fully restore our network;
the number of people that will choose to leave Puerto Rico for an extended period or permanently; and
the ability of the Puerto Rico and U.S. governments to effectively oversee the recovery process in Puerto Rico.
In terms of liquidity for Liberty Puerto Rico, the cash provided by its operations was a significant source of pre-hurricane liquidity. As a result of the hurricane impacts, we do not expect Liberty Puerto Rico will generate positive cash from operations, inclusive of capital expenditures, until at least the latterfirst half of 2018. In this regard, Liberty Puerto Rico’s liquidity needs are being funded by the up to $60 million LCPR Equity Commitment from Liberty Latin America and Searchlight, $45 million of which has been provided during 2018, including $20 million subsequent to March 31, 2018, and an insurance advance of $35 million ($30 million through a third-party insurance provider and the remainder through a captive insurance subsidiary). Future liquidity sources are expected to include further insurance proceeds, the remaining portion of the LCPR Equity Commitment, as applicable, through December 31, 2018 of up to $15 million and, cash from operations. For additional information regarding the LCPR Equity Commitment, see 2021.
Material Changes in Financial Condition below. While there are still uncertainties with respect to Liberty Puerto Rico’s recovery from the hurricanes, and no assurance can be given as to the ultimate amount or timing of liquidity to be received from cash from operations or insurance proceeds, we expect these existing and potential sources of liquidity will be sufficient to satisfy Liberty Puerto Rico’s liquidity requirements over the next twelve months.
C&W. C&W offers services over fixed and mobile networks, and portions of these networks in C&W’s Impacted Markets were significantly damaged as a result of the hurricanes. The most notable markets that continue to be impacted are the British Virgin Islands and Dominica. Services to most of our fixed-line customers in these markets have not yet been restored. While mobile services have been largely restored in C&W’s Impacted Markets, we are still in the process of completing the restoration of our mobile network infrastructure. In addition to network damage, these markets are also dealing with extensive damage to homes, businesses and essential infrastructure.
We currently estimate that approximately $50 million of property and equipment additions will be required to restorenearly all of the damaged networks in C&W’s Impacted Markets, of which approximately $21 millionhas been incurred following the hurricanesthrough March 31, 2018. The negative impacts of the hurricanes are declining as the networks are restored and customers are reconnected, and we do not expect there to be a material impact from hurricanes on C&W’s revenue and Adjusted OIBDA during 2018.
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.
PriorOn April 1, 2019, certain B2B operations in Puerto Rico were transferred from our C&W segment to the Split-Off,our Liberty Global allocatedPuerto Rico segment, and on January 1, 2020, our captive insurance operation was transferred from our C&W segment to our corporate operations. These transfers did not have a portion of their corporate function costs to us, based primarilysignificant impact on the estimated percentagefinancial results of time spent by corporate personnel providing services to us. Such costs were not intended to reflect the costs of operating as a standalone public company. Accordingly, our corporate-related SG&A costs have increased significantly during 2018, as compared with 2017, as a result of operating as a standalone company and incurring certain public company-related costs. These costs include executive employee and board of directors expenses; insurance; costs related to the compliance with federal securities laws (including compliance with the Sarbanes-Oxley Act of 2002); and costs for financial reporting, tax administration, human resources functions and centralization of certain other corporate functions. These increases in costs are inclusive of costs
thatC&W or Liberty Global charges us in connection with certain of the Split-Off Agreements, as further described in note 11 to our condensed consolidated financial statements.Puerto Rico segments.
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 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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.
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.
As further described in notes 2 and 3 to our condensed consolidated financial statements, we adopted ASU 2014-09 effective January 1, 2018 using the cumulative effect transition method. The impact to revenue during three months ended March 31, 2018 was not material.
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.
| | | 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.
|
| | | | | | | | | | | |
| 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 |
|
| |
(a) | The increase is primarily attributable to higher broadband internet RGUs. |
| |
(b) | The decrease is primarily attributable to the net effect of (i) lower ARPU from fixed-line telephony and broadband internet services and (ii) higher ARPU from video services. |
| |
(c) | The decrease is primarily attributable to lower advertising revenue and late fees. |
| |
(d) | The decrease in mobile subscription revenue is primarily attributable to the net effect of (i) lower revenue in (a) the Bahamas(c)The decreases are primarily attributable to lower volumes of interconnect revenue across our markets.associated with a decrease in the average number of subscribers and lower ARPU, primarily driven by the commercial launch of mobile services by a competitor during the fourth quarter of 2016, and (b) Panama due primarily to a decrease in the average number of subscribers and (ii) higher revenue in Jamaica mostly due to higher ARPU. The increase in mobile non-subscription revenue is primarily attributable to an increase in revenue from handset sales.
|
| |
(e) | The increase is primarily attributable to (i) project-related revenue in managed services, driven by increases in Jamaica that were partially offset by decreases in Panama and (ii) individually insignificant changes across the markets of C&W. |
| |
(f) | The increase is primarily due to increased capacity sales on C&W’s sub-sea network to new and existing customers. |
VTR. (d)VTR’sThe decreases are primarily attributable to (i) lower ARPU from mobile services, as COVID-19 lockdowns and travel restrictions negatively impacted customers’ ability to recharge handset devices, and(ii) lower average mobile subscribers,primarily due todeclines in Panama and the Bahamas, as a result of COVID-19 impacts, as further discussed in the Overview above. The decreases in average mobile subscribers in the Bahamas are also attributable to the impact of Hurricane Dorian during the third quarter of 2019.
(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) | |
|
| | | | | | | | | | | | | |
| 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.
|
| | | | | | | | | | | |
| 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.
| |
(a) | The increase is attributable to the net effect of (i) higher broadband internet and video RGUs and (ii) lower fixed-line telephony RGUs. |
| |
(b) | The increase is primarily due to higher ARPU from video services and an improvement in RGU mix. |
| |
(c) | The increase in mobile subscription revenue is primarily due to a higher average number of mobile subscribers. |
| |
(d) | The increase in B2B subscription revenue is primarily attributable to higher average numbers of broadband internet, video and fixed-line telephony SOHO RGUs. A portion of this increase is attributable to the conversion of certain residential subscribers to SOHO customers. |
(f)The increases are primarily attributable to higher broadband internet and fixed-line telephony services at VTR.
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 | |
|
| | | | | | | | | | | |
| 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 |
|
| |
(a) | The increase is attributable to increases in broadband internet, video and fixed-line telephony RGUs, primarily due to the reconnection of subscribers associated with the recovery in Puerto Rico following the hurricanes. |
| |
(b) | The increase is primarily attributable to reconnecting higher ARPU customers during the first quarter of 2018. |
| |
(c) | The increase is primarily due to higher late fees, advertising revenue and reconnect fees resulting from Liberty Puerto Rico’s ongoing recovery from the hurricanes. |
| |
(d) | The increase in subscription revenue is primarily attributable to increases in broadband internet, fixed-line telephony and video SOHO RGUs, primarily due to the reconnection of subscribers associated with the recovery in Puerto Rico following the hurricanes. The increase in non-subscription revenue is primarily attributable to higher revenue from broadband internet services, resulting from the restoration of fiber circuits to Liberty Puerto Rico’s B2B customers. |
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 | ) |
N.M. — Not Meaningful.
Consolidated. The decreasenon-organic changes in programming and other direct costs of services duringon a consolidated basis for the three months ended March 31, 2018, as compared toperiods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | 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) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | 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) | |
C&W.•Programming and copyright: The decrease in C&W’s programming and other direct costs of services includes an increase of $4 million attributable to the impact of the C&W Carve-out Acquisition and an increase of $1 million due to FX. Excluding the effects of the C&W Carve-out Acquisition and FX, C&W’s programming and other direct costs of services decreased $8 million or 6.0%. This decrease includes the following factors:
A decrease in mobile handset costs of $5 million or 20.7%, primarily due to lower mobile handset sales;
A decrease in mobile access and interconnect costs of $1 million or 2.0%, primarily due to lower call volumes; and
A net decrease resulting from other individually insignificant changes in other direct cost categories.
VTR. The increase in VTR’s programming and other direct costs of servicesincludes an increase of $6 milliondue to FX. Excluding the effect of FX, VTR’s programming and other direct costs of services increased $3 million or 5.2%. This increase includes the following factors:
An increase in programming and copyright costs of $1 million or 3.5%,decreases are primarily due to the net effect of (i) an increaselower sports content costs, (ii) decreases in certain premium and basic content costs and (iii) for the nine-month comparison, the negative impact resulting from the reassessment and releases of accruals in certain of our markets during the first half of 2019.
•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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | 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;
An increase in mobile access and interconnect costs of $1 million or 8.2%, primarily due to (i)declines associated with the renegotiation of a programming contract that governs content rates for live soccer matches that were cancelled as a result of COVID-19, which were partially offset by increased rates on other premium and basic content costs.
•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 | |
| | | | | | | | | | | | | | | | | |
| 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.
The following table sets forth other operating expenses by reportable segment:
|
| | | | | | | | | | | | | | |
| 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 | ) |
N.M. — Not Meaningful.
Consolidated. The decrease in other operating expenses during the three months ended March 31, 2018, as compared to the corresponding period in 2017, includes increases of $3 millionnetwork access, system power, core network, and $4 million attributable to the impact of the C&W Carve-out AcquisitionCPE repair, maintenance and FX, respectively. Our other operating expenses include share-based compensation expense. 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 and share-based compensation expense, our other operating expenses decreased $10 million or 5.8%. The organic decrease includes declines of $12 million and $1 million at C&W and Liberty Puerto Rico, respectively, and an increase of $3 million at VTR, as further discussed below.test costs;
C&W. The decrease in C&W’s other operating expenses includes an increase of $3 million attributable to the impact of the C&W Carve-out Acquisition. Excluding the effect of the C&W Carve-out Acquisition, C&W’s other operating expenses (exclusive of share-based compensation expense) decreased $12 million or 9.8%. This decrease includes the following factors:
A decrease in bad debt and collection expenses of $7 million or 50.5%, primarily due to (i) better than expected collections in 2018, including a $3 million recovery related to provisions established following the impacts of Hurricanes Irma and Maria, and (ii) a decrease resulting from provisions recorded during the first quarter of 2017 in connection with Hurricane Matthew; and
| |
• | A decrease in network-related expenses of$6 million or 14.0%, primarily due to network restoration costs incurred in the first quarter of 2017 associated with sustained damages from Hurricane Matthew.
|
VTR. The increase in VTR’s other operating expenses includes an increase of $4 million due to FX. Excluding the effect of FX, VTR’s other operating expenses (exclusive of share-based compensation expenses) increased $3 million or 6.8%. This change is primarily the result of an increase in network-related expenses of $3 million or 21.1% due to higher maintenance costs.
Liberty Puerto Rico. •The decrease in Liberty Puerto Rico’sService-related costs, which primarily include professional services, information technology-related services, audit, legal and other operating expenses is primarily due to lower various indirect expenses of approximately $2 million, predominantly related to bad debt and franchise fees that decreased as a result of the hurricanes. This decrease was partially offset by higher personnel costs of $1 million resulting from hurricane recovery efforts.services;
SG&A Expenses
General. •SG&A expenses include human resources, information technology, general services, management, finance, legal, externalCommercial, which primarily includes sales and marketing costs, share-based compensationsuch as advertising, commissions and other general expenses.sales and marketing-related costs, and customer care costs related to outsourced call centers;
The following table sets forth SG&A by reportable segment
•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.
category:
|
| | | | | | | | | | | | | |
| 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 |
N.M. — Not Meaningful.
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
million or 6.2%. The organic increase primarily includes increasesResults of $6 million, $3 millionOperations (below Adjusted OIBDA) discussion and $1 million at Corporate, VTRanalysis below and C&W, respectively, as further discussed below.
C&W. The increasein C&W’s SG&A expenses includes an increase of $1 million attributable to the impact of the C&W Carve-out Acquisition. Excluding the effect of the C&W Carve-out Acquisition, C&W’s SG&A expenses (exclusive of share-based compensation expense) increased $1 million or 1.2%. This increase includes the following factors:
A decrease in outsourced labor and professional fees of $3 million or 28.6%, primarily due to higher contract costs in 2017;
An increase in personnel costs of $3 million or 5.0%, primarily due to higher incentive compensation costs; and
A net increase resulting from other individually insignificant changes in other SG&A expense categories.
VTR. The increase in VTR’s SG&A expenses includes an increase of $4 million due to FX. Excluding the effect of FX, VTR’s SG&A expenses (exclusive of share-based compensation expense) increased $3 million or 6.4%. This change is primarily the result of an increase in sales, marketing and advertising expenses of $3 million or 19.3%, due to higher (i) sales commissions to third-party dealers and (ii) costs associated with advertising campaigns.
Liberty Puerto Rico. Liberty Puerto Rico’s SG&A expenses (exclusive of share-based compensation expense) remained relatively unchanged during the three months ended March 31, 2018, as compared to the corresponding period in 2017.
Corporate. The increase is primarily attributable to added costs associated with being a separate public company, including increases in personnel costs and professional services. The increase in costs is inclusive of costs that Liberty Global charges us in connection with certain of the Split-Off Agreements, as further described in note 11 to our condensed consolidated financial statements.
Adjusted OIBDA
Adjusted OIBDA is the primary measure used by our chief operating decision maker to evaluate segment operating performance. For the definition of this performance measure and for a reconciliation of total Adjusted OIBDA to our earnings (loss) before income taxes, see note 16 to our condensed consolidated financial statements.
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
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.
|
| | | | | | | | | | | | | | |
| 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 | ) |
Adjusted OIBDA Margin
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 |
Adjusted OIBDA margin is impacted by organic changes in revenue, programmingoperating costs and other direct costsexpenses for our Liberty Puerto Rico segment for the periods indicated.
| | | | | | | | | | | | | | | | | | | | | |
| 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.
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)
We recognized share-basedShare-based compensation expense of $7increased $13 million and $6$30 million during the three and nine months ended March 31, 2018 and 2017, respectively.This increase isSeptember 30, 2020, respectively, as compared to the corresponding periods in 2019. These increases are primarily due to equity(i) an increase of $7 million related to the extension of the expiration period for certain Liberty Global awards granted during 2018.held by our employees and (ii) increases of $5million and $14 million, respectively, related to estimated bonus-related expenses that will be paid in the form of equity. Accordingly, such expenses have been included in share-based compensation expense effective January 1, 2020.
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.
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 | ) |
(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.
| |
(a) | The loss during 2018 is attributable to the net effect of (i) losses from changes in FX rates, primarily resulting from an increase in the value of the Chilean peso relative to the U.S. dollar, and (ii) gains resulting from changes in interest rates. In addition, the loss during 2018 includes a net loss of $12 million resulting from changes in our credit risk valuation adjustments. The loss during 2017 is primarily attributable to the net effect of (i) gains resulting from changes in interest rates and (ii) losses from changes in FX rates, primarily resulting from an increase in the value of the Chilean peso relative to the U.S. dollar. In addition, the loss during 2017 includes a net gain of $7 million 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 |
|
LossLosses on debt modification and extinguishment
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.
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 additional information regarding the adoption of ASU 2017-07, see note 2 to our condensed consolidated financial statements.
Income tax expense
We recognized income tax expense of $17$33 million and $23$149 million during the threenine months ended March 31, 2018September 30, 2020 and 2017,2019, respectively.
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
During the three months ended March 31, 2018 and 2017, we reportedThe following table sets forth selected summary financial information of our net earnings (loss) of ($54 million) and $11 million, respectively, including (i) operating income of $98 million and $135 million, respectively, (ii) net non-operating expenses of $136 million and $101 million, respectively, and (iii) income taxexpense of $17 million and $23 million, respectively.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.
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
During the three months ended March 31, 2018 and 2017, weWe reported net earnings (loss)loss attributable to noncontrolling interests of ($10 million) and $16$5 million respectively. and $117 million during the three and nine months ended September 30, 2020, respectively, and $105 million and $100 million during each of the three and nine months ended September 30, 2019, respectively. The 2018net decrease during the three-month comparison is primarily due to impairment charges recognized by C&W Panama during the 2019 period. The increase during the nine-month comparison period is primarily includes losses attributable to net increases in losses incurred by our noncontrolling interests in certainless-than-wholly-owned subsidiaries at C&W entities, as compared to the 2017 period, which primarily comprises earnings attributable to noncontrolling interests in certain C&W entities.&W.
During the first quarter of 2018, we increased our ownership in C&W Jamaica from 82.0% to 91.7%. For additional information, see note 10 to our condensed consolidated financial statements.
Material Changes in Financial Condition
Sources and Uses of Cash
EachAs of our reportable segments is separately financed within one of our threeSeptember 30, 2020, we have four primary “borrowing groups.groups,” These borrowing groupswhich include the respective restricted parent and subsidiary entities withinof C&W, VTR Finance, and Liberty Puerto Rico.Rico and Cabletica. Our borrowing groups, which typically generate cash from operating activities, accounted forheld a significant portion of our consolidated cash and cash equivalents at March 31, 2018.September 30, 2020. Our ability to access the liquidity of these and other subsidiaries may be limited by tax and legal considerations, the presence of noncontrolling interests, foreign currency exchange restrictions with respect to certain C&W subsidiaries and other factors.
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 | |
| |
(a)Restricted cash (d) | Represents the amount held by Liberty Latin America on a standalone basis.$ |
(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.
| |
(c) | Represents the aggregate amounts held by the parent entity of the applicable borrowing group and their restricted subsidiaries. |
| |
(d) | C&W’s subsidiaries hold the majority of C&W’s consolidated cash. Due to the restrictions as noted above, a significant portion of the cash held by C&W subsidiaries is not considered to be an immediate source of corporate liquidity for C&W. |
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.
On December 20, 2017, in connection with challenging circumstances that Liberty Puerto Rico continues to experience as a result of the damage caused by Hurricanes Irma and Maria, the LPR Credit Agreements were amended to (i) provide Liberty Puerto Rico with relief from complying with leverage covenants through December 31, 2018, (ii) increase the consolidated first lien net leverage ratio covenant from 4.5:1 to 5.0:1 beginning with the March 31, 2019 quarterly test date, (iii) restrict Liberty Puerto Rico’s ability to make certain types of payments to its shareholders through December 31, 2018 and (iv) include an equity commitment of up to $60 million from Liberty Puerto Rico’s shareholders through December 31, 2018 to fund any potential liquidity shortfalls. Based on our 60% ownership in Liberty Puerto Rico, we are obligated for up to $36 million of the LCPR Equity Commitment. During the first quarter of 2018, a $25 million capital contribution was provided to Liberty Puerto Rico consisting of $15 million from us and $10 million from Searchlight. Subsequent to March 31, 2018, an additional $20 million was contributed to Liberty Puerto Rico, consisting of $12 million from us and $8 million from Searchlight. Accordingly, Liberty Puerto Rico has up to an additional $15 million available under the LCPR Equity Commitment, of which we are obligated for up to $9 million.
Hurricanes Irma and Maria are expected to continue to have an adverse impact on Liberty Puerto Rico’s cash flows and liquidity. For additional information, see the discussion under Overview above.
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.
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.
NotwithstandingThe weighted average interest rate in effect at September 30, 2020 for all borrowings outstanding pursuant to each debt instrument, including any applicable margin, was 5.2%. The interest rate is based on stated rates and does not include the impact of derivative instruments, deferred financing costs, original issue premiums or discounts and commitment fees, all of which affect our negative working capital positionoverall cost of borrowing. The weighted average impact of the derivative instruments, excluding forward-starting derivative instruments, on our borrowing costs at September 30, 2020 was as follows:
| | | | | | | | |
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.
March 31, 2018, wWe believe that we have sufficient resources to repay or refinance the current portion of our debt and capitalfinance lease obligations and to fund our foreseeable liquidity requirements during the next 12 months. However, as our debt maturities grow in later years, we anticipate that we will seek to refinance or otherwise extend our debt maturities. No assurance can be given that we will be able to complete refinancing transactions or otherwise extend our debt maturities. In this regard, it is difficult to predict how political, economic and economicsocial conditions, sovereign debt concerns or any adverse regulatory developments will impact the credit and equity markets we access and our future financial position. Our ability to access debt financing on favorable terms, or at all, could be adversely impacted by (i) the financial failure of any of our counterparties, which could (a) reduce amounts available under committed credit facilities and (b) adversely impact our ability to access cash deposited with any failed financial institution, and (ii) tightening of the credit markets and (iii) in the case of Liberty Puerto Rico, by the adverse impacts of the hurricanes on its operations. For additional information regarding the impacts of the hurricanes, see the related discussion under Overview above.markets. In addition, any weakness in the equity markets could make it less attractive to use our shares to satisfy contingent or other obligations, and sustained or increased competition, particularly in combination with adverse economic or regulatory developments, could have an unfavorable impact on our cash flows and liquidity.
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.
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 | |
|
| | | | | | | |
| 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 |
|
OurThe decrease in our property and equipment additions increased during the threenine months ended March 31, 2018,September 30, 2020, as compared to the corresponding period in 2017, largely2019, is primarily due to the net effect ofa decrease in (i) an increase in expenditures by Liberty Puerto Rico and C&W, primarily related to $62 million and $8 million, respectively, in connection with network restoration activities following Hurricanes Irma and Maria,customer premises equipment, and (ii) a decrease due to FX.support-related equipment. During the threenine months ended March 31, 2018September 30, 2020 and 2017,2019, our property and equipment additions represented 21.3%16.6% and 15.3%17.0% of revenue, respectively. This increase in property and equipment additions as a percentage of revenue is primarily a function of the significant increase in property and equipment additions during the first quarter of 2018 as a result of the restoration activities at Liberty Puerto Rico and, to a lesser extent at C&W, following the hurricanes.
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
|
| | | | | | | |
| 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 | ) |
cash outflows when these financed expenses are incurred and deduct the financing cash outflows when we pay the financing intermediary. | |
(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 we pay the financing intermediary, we record financing cash outflows in our condensed consolidated statements of cash flows. For purposes of our adjusted free cash flow definition, we add back the hypothetical operating cash outflow when these financed expenses are incurred and deduct the financing cash outflows when we pay the financing intermediary. |
(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 |
|
| |
(a) | The commitments included in this table do not reflect any liabilities that are included in our March 31, 2018 condensed consolidated balance sheet other than debt and capital lease obligations. Our liability for uncertain tax positions in the various jurisdictions in which we operate ($318 millionat March 31, 2018)(a)The commitments included in this table do not reflect any liabilities that are included in our September 30, 2020 condensed consolidated balance sheet other than (i) debt and (ii) finance and operating lease obligations. Our liability for uncertain tax positions, including accrued interest, in the various jurisdictions in which we operate ($42 million at September 30, 2020) has been excluded from the table as the amount and timing of any related payments are not subject to reasonable estimation.
(b)Amounts are based on interest rates, interest payment dates, 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. |
| |
(b) | Amounts are based on interest rates, interest payment dates, commitment fees and contractual maturities in effect as of March 31, 2018. 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 |
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 | |
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.
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.
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.