LIBERTY GLOBAL PLC
10-Ks and 10-Qs
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
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March 31, 2018
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OR
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
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(Exact name of Registrant as specified in its charter)
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England and Wales
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98-1112770
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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Griffin House, 161 Hammersmith Rd, London, United Kingdom
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W6 8BS
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code:
+44.208.483.6449 or 303.220.6600
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) and (2) has been subject to such filing requirements for the past 90 days.
Yes
þ
No
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
þ
No
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Smaller Reporting Company
¨
Emerging Growth Company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
¨
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes
¨
No
þ
The number of outstanding ordinary shares of Liberty Global plc as of April 30, 2018
was:
216,973,376
class A ordinary shares,
11,102,619
class B ordinary shares and
570,148,328
class C ordinary shares.
LIBERTY GLOBAL PLC
TABLE OF CONTENTS
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Page
Number
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PART I — FINANCIAL INFORMATION
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ITEM 1.
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FINANCIAL STATEMENTS
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ITEM 2.
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ITEM 3.
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ITEM 4.
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PART II — OTHER INFORMATION
|
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ITEM 2.
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ITEM 6.
|
||
LIBERTY GLOBAL PLC
(unaudited)
|
March 31,
2018 |
December 31,
2017 |
||||||
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in millions
|
||||||
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ASSETS
|
|||||||
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Current assets:
|
|||||||
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Cash and cash equivalents
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$
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|
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$
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|
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Trade receivables, net
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|||
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Derivative instruments (note 6)
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Prepaid expenses
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Current assets held for sale (note 4)
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Other current assets (notes 3 and 5)
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Total current assets
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Investments and related note receivables (including $2,288.8 million and $2,315.3 million, respectively, measured at fair value on a recurring basis) (note 5)
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Property and equipment, net (note 8)
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Goodwill (note 8)
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Deferred tax assets (note 10)
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Long-term assets held for sale (note 4)
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Other assets, net (notes 3, 6 and 8)
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|
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|||
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Total assets
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$
|
|
|
$
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
LIBERTY GLOBAL PLC
CONDENSED CONSOLIDATED BALANCE SHEETS — (Continued)
(unaudited)
|
March 31,
2018 |
December 31,
2017 |
||||||
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in millions
|
||||||
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LIABILITIES AND EQUITY
|
|||||||
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Current liabilities:
|
|||||||
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Accounts payable
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$
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$
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Deferred revenue
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Current portion of debt and capital lease obligations (note 9)
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Accrued capital expenditures
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Accrued interest
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Accrued income taxes
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Current liabilities held for sale (note 4)
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Other accrued and current liabilities (notes 6 and 13)
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Total current liabilities
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Long-term debt and capital lease obligations (note 9)
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Long-term liabilities held for sale (note 4)
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Other long-term liabilities (notes 6, 10, and 13)
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Total liabilities
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Commitments and contingencies (notes 6, 9, 10 and 15)
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|||||
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Equity (note 11):
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|||||||
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Liberty Global shareholders:
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|||||||
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Class A ordinary shares, $0.01 nominal value. Issued and outstanding 217,547,694 and 219,668,579 shares, respectively
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Class B ordinary shares, $0.01 nominal value. Issued and outstanding 11,102,619 shares at each date
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Class C ordinary shares, $0.01 nominal value. Issued and outstanding 572,061,952 and 584,332,055 shares, respectively
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Additional paid-in capital
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Accumulated deficit
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(
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)
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(
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)
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|||
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Accumulated other comprehensive earnings, net of taxes
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|||
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Treasury shares, at cost
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(
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)
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(
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)
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|||
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Total Liberty Global shareholders
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|
|||
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Noncontrolling interests
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(
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)
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(
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)
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|||
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Total equity
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|||
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Total liabilities and equity
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$
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$
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|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
LIBERTY GLOBAL PLC
(unaudited)
|
Three months ended
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|||||||
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March 31,
|
|||||||
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2018
|
2017
|
|||||
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in millions, except share and per share amounts
|
||||||
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Revenue (notes 3, 5 and 16)
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$
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$
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Operating costs and expenses (exclusive of depreciation and amortization, shown separately below):
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|||||||
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Programming and other direct costs of services
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Other operating (note 12)
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Selling, general and administrative (
SG&A
) (note 12)
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Depreciation and amortization
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Impairment, restructuring and other operating items, net (note 13)
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Operating income
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Non-operating income (expense):
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|||||||
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Interest expense
|
(
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)
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(
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)
|
|||
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Realized and unrealized
losses
on derivative instruments, net (note 6)
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(
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)
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(
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)
|
|||
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Foreign currency transaction gains (losses), net
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(
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)
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|
|||
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Realized and unrealized gains (
losses)
due to changes in fair values of certain investments and debt, net (notes 5, 7 and 9)
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(
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)
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|||
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Losses on debt modification and extinguishment, net (note 9)
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(
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)
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(
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)
|
|||
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Share of losses of affiliates, net (note 5)
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(
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)
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(
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)
|
|||
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Other income, net
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|
|||
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(
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)
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(
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)
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||||
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Loss
from continuing operations before income taxes
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(
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)
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(
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)
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Income tax expense
(note 10)
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(
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)
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(
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)
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Loss from continuing operations
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(
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)
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(
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)
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|||
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Loss from discontinued operations, net of taxes (note 4)
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(
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)
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Net loss
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(
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)
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(
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)
|
|||
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Net earnings attributable to noncontrolling interests
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(
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)
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(
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)
|
|||
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Net
loss
attributable to Liberty Global shareholders
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$
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(
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)
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$
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(
|
)
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|
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Basic and diluted loss
from continuing operations
attributable to Liberty Global shareholders per share (note 14)
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$
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(
|
)
|
$
|
(
|
)
|
|
|
Weighted average ordinary shares outstanding - basic and diluted (note 14)
|
|
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|
|||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
LIBERTY GLOBAL PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
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2018
|
2017
|
||||||
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in millions
|
||||||
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Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
|
|
Other comprehensive earnings, net of taxes:
|
|||||||
|
Continuing operations:
|
|||||||
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Foreign currency translation adjustments
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|
|||
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Pension-related adjustments and other
|
(
|
)
|
(
|
)
|
|||
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Other comprehensive earnings from continuing operations
|
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|
|||
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Other comprehensive loss from discontinued operations
|
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(
|
)
|
|||
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Other comprehensive earnings
|
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|
|||
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Comprehensive loss
|
(
|
)
|
|
(
|
)
|
||
|
Comprehensive earnings attributable to noncontrolling interests
|
(
|
)
|
(
|
)
|
|||
|
Comprehensive
loss
attributable to Liberty Global shareholders
|
$
|
(
|
)
|
$
|
(
|
)
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
LIBERTY GLOBAL PLC
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(unaudited)
|
|
Liberty Global shareholders
|
Non-controlling
interests
|
Total
equity
|
||||||||||||||||||||||||||||||||||||
|
Ordinary shares
|
Additional
paid-in
capital
|
Accumulated
deficit
|
Accumulated
other
comprehensive
earnings, net of taxes
|
Treasury shares, at cost
|
Total Liberty Global
shareholders
|
||||||||||||||||||||||||||||||||||
|
|
Class A
|
Class B
|
Class C
|
||||||||||||||||||||||||||||||||||||
|
|
in millions
|
||||||||||||||||||||||||||||||||||||||
|
Balance at January 1, 2018, before effect of accounting change
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
(
|
)
|
$
|
|
|
$
|
(
|
)
|
$
|
|
|
$
|
(
|
)
|
$
|
|
|
|||||||||
|
Accounting change (note 2)
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Balance at January 1, 2018, as adjusted for accounting change
|
|
|
|
|
|
|
|
|
(
|
)
|
|
|
(
|
)
|
|
|
(
|
)
|
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|
|||||||||||||||||||
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Net loss
|
—
|
|
—
|
|
—
|
|
—
|
|
(
|
)
|
—
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|
—
|
|
(
|
)
|
|
|
(
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)
|
|||||||||||||||||||
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Other comprehensive earnings, net of taxes
|
—
|
|
—
|
|
—
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—
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—
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|
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|
—
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|
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|
|||||||||||||||||||
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Repurchase and cancellation of Liberty Global ordinary shares (note 11)
|
—
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|
—
|
|
(
|
)
|
(
|
)
|
—
|
|
—
|
|
—
|
|
(
|
)
|
—
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|
(
|
)
|
|||||||||||||||||||
|
Share-based compensation (note 12)
|
—
|
|
—
|
|
—
|
|
|
|
—
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|
—
|
|
—
|
|
|
|
—
|
|
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|
|||||||||||||||||||
|
Adjustments due to changes in subsidiaries’ equity and other, net
|
—
|
|
—
|
|
—
|
|
(
|
)
|
—
|
|
—
|
|
—
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||
|
Balance at March 31, 2018
|
$
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(
|
)
|
|
$
|
|
|
|
$
|
(
|
)
|
|
$
|
|
|
|
$
|
(
|
)
|
|
$
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
LIBERTY GLOBAL PLC
(unaudited)
|
Three months ended
|
|||||||
|
|
March 31,
|
||||||
|
|
2018
|
2017
|
|||||
|
|
in millions
|
||||||
|
Cash flows from operating activities:
|
|||||||
|
Net
loss
|
$
|
(
|
)
|
$
|
(
|
)
|
|
|
Loss from discontinued operations
|
|
|
(
|
)
|
|||
|
Loss from continuing operations
|
(
|
)
|
(
|
)
|
|||
|
Adjustments to reconcile loss from continuing operations to net cash provided by operating activities from continuing operations:
|
|||||||
|
Share-based compensation expense
|
|
|
|
|
|||
|
Depreciation and amortization
|
|
|
|
|
|||
|
Impairment, restructuring and other operating items, net
|
|
|
|
|
|||
|
Amortization of deferred financing costs and non-cash interest
|
|
|
|
|
|||
|
Realized and unrealized losses on derivative instruments, net
|
|
|
|
|
|||
|
Foreign currency transaction losses (gains), net
|
|
|
(
|
)
|
|||
|
Realized and unrealized losses
(gains)
due to changes in fair values of certain investments and debt, net
|
|
|
(
|
)
|
|||
|
Losses on debt modification and extinguishment, net
|
|
|
|
|
|||
|
Share of losses of affiliates, net
|
|
|
|
|
|||
|
Deferred income tax benefit
|
(
|
)
|
(
|
)
|
|||
|
Changes in operating assets and liabilities, net of the effects of acquisitions and dispositions
|
|
|
(
|
)
|
|||
|
Net cash provided by operating activities of continuing operations
|
|
|
|
|
|||
|
Net cash provided by operating activities of discontinued operations
|
|
|
|
|
|||
|
Net cash provided by operating activities
|
|
|
|
|
|
||
|
Cash flows from investing activities:
|
|||||||
|
Capital expenditures
|
(
|
)
|
(
|
)
|
|||
|
Investments in and loans to affiliates and others
|
(
|
)
|
(
|
)
|
|||
|
Distributions received from affiliates
|
|
|
|
|
|||
|
Equalization payment related to the VodafoneZiggo JV Transaction
|
|
|
|
|
|||
|
Other investing activities, net
|
(
|
)
|
|
|
|||
|
Net cash provided (used) by investing activities of continuing operations
|
(
|
)
|
|
|
|||
|
Net cash used by investing activities of discontinued operations
|
|
|
(
|
)
|
|||
|
Net cash provided (used) by investing activities
|
$
|
(
|
)
|
|
$
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
LIBERTY GLOBAL PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (continued)
(unaudited)
|
Three months ended
|
|||||||
|
|
March 31,
|
||||||
|
|
2018
|
2017
|
|||||
|
|
in millions
|
||||||
|
Cash flows from financing activities:
|
|||||||
|
Repayments and repurchases of debt and capital lease obligations
|
$
|
(
|
)
|
$
|
(
|
)
|
|
|
Borrowings of debt
|
|
|
|
|
|||
|
Repurchase of Liberty Global ordinary shares
|
(
|
)
|
(
|
)
|
|||
|
Payment of financing costs and debt premiums
|
(
|
)
|
(
|
)
|
|||
|
Net cash received (paid) related to derivative instruments
|
|
|
(
|
)
|
|||
|
Value-added taxes (
VAT
) paid on behalf of the VodafoneZiggo JV
|
|
|
(
|
)
|
|||
|
Other financing activities, net
|
(
|
)
|
(
|
)
|
|||
|
Net cash used by financing activities of continuing operations
|
(
|
)
|
(
|
)
|
|||
|
Net cash provided by financing activities of discontinued operations
|
|
|
|
|
|||
|
Net cash used by financing activities
|
(
|
)
|
(
|
)
|
|||
|
Effect of exchange rate changes on cash and cash equivalents and restricted cash:
|
|||||||
|
Continuing operations
|
|
|
|
|
|||
|
Discontinued operations
|
|
|
(
|
)
|
|||
|
Total
|
|
|
|
|
|||
|
|
|
|
|
||||
|
Net increase (decrease) in cash and cash equivalents and restricted cash:
|
|||||||
|
Continuing operations
|
(
|
)
|
|
|
|||
|
Discontinued operations
|
|
|
(
|
)
|
|||
|
Total
|
(
|
)
|
|
|
|||
|
Cash and cash equivalents and restricted cash
—
continuing operations:
|
|||||||
|
Beginning of period
|
|
|
|
|
|||
|
End of period
|
$
|
|
|
$
|
|
|
|
|
Cash paid for interest:
|
|||||||
|
Continuing operations
|
$
|
|
|
$
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|||
|
Total
|
$
|
|
|
$
|
|
|
|
|
Net cash paid for taxes:
|
|||||||
|
Continuing operations
|
$
|
|
|
$
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|||
|
Total
|
$
|
|
|
$
|
|
|
|
|
Reconciliation of end of period cash and cash equivalents and restricted cash — continuing operations:
|
|||||||
|
Cash and cash equivalents
|
$
|
|
|
$
|
|
|
|
|
Restricted cash included in other current assets
|
|
|
|
|
|||
|
Restricted cash included in other assets, net
|
|
|
|
|
|||
|
Total cash and cash equivalents and restricted cash
|
$
|
|
|
$
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements
March 31, 2018
(unaudited)
(
1
)
Basis of Presentation
Liberty Global plc (
Liberty Global
) is a public limited company organized under the laws of England and Wales. In these notes, the terms “we,” “our,” “our company” and “us” may refer, as the context requires, to
Liberty Global
or collectively to
Liberty Global
and its subsidiaries. We are an international provider of video, broadband internet, fixed-line telephony, mobile and other communications services to residential customers and businesses, with consolidated operations at
March 31, 2018
in
11
European countries.
We provide residential and business-to-business (
B2B
) communication services in (i) the United Kingdom (
U.K.
) and Ireland through Virgin Media Inc. (
Virgin Media
), (ii) Germany through Unitymedia GmbH (
Unitymedia
), (iii) Belgium through Telenet Group Holding N.V. (
Telenet
), a
57.6
%
-owned subsidiary, and (iv)
seven
other European countries through UPC Holding B.V. and UPC Broadband Slovakia s.r.o (collectively,
UPC Holding
).
Virgin Media
,
Unitymedia
and
UPC Holding
are each wholly-owned subsidiaries of
Liberty Global
. In addition, we own a
50
%
noncontrolling interest in the
VodafoneZiggo JV
(as defined in note
5
), which provides video, broadband internet, fixed-line telephony, mobile and
B2B
services in the Netherlands.
Prior to the completion of the
Split-off Transaction
(as defined and described in note
4
), we also provided residential and
B2B
services in (i)
18
countries, predominantly in Latin America and the Caribbean, through Cable &Wireless Communications Limited (
C&W
), (ii) Chile through VTR.com SpA (
VTR
) and (iii) Puerto Rico through Liberty Cablevision of Puerto Rico LLC (
Liberty Puerto Rico
).
C&W
and
VTR
were wholly-owned subsidiaries, and Liberty Puerto Rico was an entity in which we held a
60.0
%
ownership interest.
C&W
also provided (a)
B2B
services in certain other countries in Latin America and the Caribbean and (b) wholesale services over its sub-sea and terrestrial networks that connected over
40
markets in that region. The operations of
C&W
,
VTR
,
Liberty Puerto Rico
and certain other entities that were associated with our businesses in Latin America and the Caribbean are collectively referred to here as the “
LiLAC Group
.” As a result of the
Split-off Transaction
, the entities attributed to the
LiLAC Group
are reflected as discontinued operations in our condensed consolidated statements of operations and cash flows for the
three months ended March 31, 2017
. Unless otherwise noted, the amounts presented in these notes relate only to our continuing operations.
Our unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (
U.S. GAAP
) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these financial statements do not include all of the information required by
U.S. GAAP
or Securities and Exchange Commission rules and regulations for complete financial statements. In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results of operations for the interim periods presented. The results of operations for any interim period are not necessarily indicative of results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with our
2017
consolidated financial statements and notes thereto included in our
2017
Annual Report on Form 10-K (our
10-K
).
The preparation of financial statements in conformity with
U.S. GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates and assumptions are used in accounting for, among other things, the valuation of acquisition-related assets and liabilities, allowances for uncollectible accounts, certain components of revenue, programming and copyright costs, deferred income taxes and related valuation allowances, loss contingencies, fair value measurements, impairment assessments, capitalization of internal costs associated with construction and installation activities, useful lives of long-lived assets, share-based compensation and actuarial liabilities associated with certain benefit plans. Actual results could differ from those estimates.
Unless otherwise indicated, ownership percentages and convenience translations into United States (
U.S.
) dollars are calculated as of
March 31, 2018
.
8
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
(
2
)
Accounting Changes and Recent Accounting Pronouncements
ASU 2014-09
In May 2014, the Financial Accounting Standards Board (
FASB
) issued Accounting Standards Update (
ASU
) No. 2014-09,
Revenue from Contracts with Customers
(
ASU 2014-09
), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of goods or services to customers. We adopted
ASU 2014-09
effective January 1, 2018 by recording the cumulative effect of the adoption to our accumulated deficit. We applied the new standard to contracts that were not complete at January 1, 2018. The comparative information for the three months ended March 31, 2017 contained within these condensed consolidated financial statements and notes has not been restated and continues to be reported under the accounting standards in effect for such period. The implementation of
ASU 2014-09
did not have a material impact on our consolidated financial statements.
The principal impacts of
ASU 2014-09
on our revenue recognition policies relate to our accounting for (i) time-limited discounts and free service periods provided to our customers and (ii) certain upfront fees charged to our customers, as follows:
|
•
|
When we enter into contracts to provide services to our customers, we often provide time-limited discounts or free service periods. Under previous accounting rules, we recognized revenue, net of discounts, during the promotional periods and did not recognize any revenue during free service periods. Under
ASU 2014-09
, revenue recognition for those contracts that contain substantive termination penalties is accelerated, as the impact of the discounts or free service periods is recognized uniformly over the contractual period. For contracts that do not have substantive termination penalties, we continue to record the impacts of partial or full discounts during the applicable promotional periods.
|
|
•
|
When we enter into contracts to provide services to our customers, we often charge installation or other upfront fees. Under previous accounting rules, installation fees related to services provided over our cable networks were recognized as revenue during the period in which the installation occurred to the extent these fees were equal to or less than direct selling costs. Under
ASU 2014-09
, these fees are generally deferred and recognized as revenue over the contractual period, or longer if the upfront fee results in a material renewal right.
|
ASU 2014-09
also impacted our accounting for certain upfront costs directly associated with obtaining and fulfilling customer contracts. Under our previous policy, these costs were expensed as incurred unless the costs were in the scope of another accounting topic that allowed for capitalization. Under
ASU 2014-09
, the upfront costs associated with contracts that have substantive termination penalties and a term of one year or more are recognized as assets and amortized to operating costs and expenses over the applicable period benefited.
We did not make any significant changes to our internal control environment as a result of adopting
ASU 2014-09
.
For additional information regarding our adoption of
ASU 2014-09
, see note
3
.
9
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
|
Balance at December 31, 2017
|
ASU 2014-09 Adjustments
|
Balance at January 1, 2018
|
||||||||
|
in millions
|
||||||||||
|
Assets:
|
||||||||||
|
Trade receivables, net
|
$
|
|
|
(
|
)
|
$
|
|
|
||
|
Other current assets
|
$
|
|
|
|
|
$
|
|
|
||
|
Investments and related note receivables (a)
|
$
|
|
|
|
|
$
|
|
|
||
|
Deferred tax assets
|
$
|
|
|
(
|
)
|
$
|
|
|
||
|
Other assets, net
|
$
|
|
|
|
|
$
|
|
|
||
|
Liabilities:
|
||||||||||
|
Deferred revenue
|
$
|
|
|
|
|
$
|
|
|
||
|
Other accrued and current liabilities
|
$
|
|
|
|
|
$
|
|
|
||
|
Other long-term liabilities
|
$
|
|
|
|
|
$
|
|
|
||
|
Equity:
|
||||||||||
|
Accumulated deficit (a)
|
$
|
(
|
)
|
|
|
$
|
(
|
)
|
||
|
Noncontrolling interests
|
$
|
(
|
)
|
|
|
$
|
(
|
)
|
||
_______________
|
(a)
|
|
The impact of our adoption of
ASU 2014-09
on our condensed consolidated balance sheet as of March 31, 2018 was not materially different from the impacts set forth in the above January 1, 2018 summary balance sheet information. Similarly, the adoption of
ASU 2014-09
did not have a material impact on our condensed consolidated statement of operations for the three months ended March 31, 2018.
ASU 2017-07
In March 2017, the
FASB
issued
ASU
No. 2017-07,
Improving the Presentation of the Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
(
ASU 2017-07
), which changes the presentation of periodic benefit cost components. Under
ASU 2017-07
, we continue to present the service component of our net benefit cost as a component of operating income but present the other components of our net benefit cost, which can include credits, within non-operating income (expense) in our consolidated statements of operations. We adopted
ASU 2017-07
on January 1, 2018 on a retrospective basis, which resulted in the reclassification to other income, net, of credits within our SG&A expenses and operating expenses of
$
3.2
million
and
$
0.9
million
, respectively, in our condensed consolidated statement of operations for the three months ended March 31, 2017.
ASU 2016-01
In January 2016, the
FASB
issued
ASU
No. 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities
(
ASU 2016-01
), which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments.
ASU 2016-01
primarily impacts our accounting for certain equity investments that were previously accounted for under the cost method. Under
ASU 2016-01
, these investments, which do not have readily determinable fair values, are accounted for at cost minus impairment, adjusted for any observable price changes of similar investments of the same issuer. We adopted the amendments of
ASU 2016-01
related to equity securities without readily determinable fair values on January 1, 2018 on a prospective basis.
10
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
ASU 2016-18
In November 2016, the
FASB
issued
ASU
No. 2016-18,
Restricted Cash
(
ASU 2016-18
), which requires the change in restricted cash to be included together with the change in cash and cash equivalents in our consolidated statement of cash flows. We adopted
ASU 2016-18
on January 1, 2018 on a retrospective basis.
Recent Accounting Pronouncements
ASU 2016-02
(
3
)
Revenue Recognition and Related Costs
Our revenue recognition and certain other accounting polices, as revised to reflect the impacts of our adoption of
ASU 2014-09
, are set forth below.
Service Revenue — Cable Networks.
We recognize revenue from the provision of video, broadband internet and fixed-line telephony services over our cable network to customers in the periods the related services are provided, with the exception of revenue recognized pursuant to certain contracts that contain promotional discounts, as described below. Installation fees related to services provided over our cable network are generally deferred and recognized as revenue over the contractual period, or longer if the upfront fee results in a material renewal right.
Sale of Multiple Products and Services.
We sell video, broadband internet, fixed-line telephony and, in most of our markets, mobile services to our customers in bundled packages at a rate lower than if the customer purchased each product on a standalone basis. Revenue from bundled packages generally is allocated proportionally to the individual products or services based on the relative standalone selling price for each respective product or service.
Mobile Revenue — General.
Consideration from mobile contracts is allocated to the airtime service component and the handset component based on the relative standalone selling prices of each component. In markets where we offer handsets and airtime services in separate contracts entered into at the same time, we account for these contracts as a single contract.
Mobile Revenue — Airtime Services.
We recognize revenue from mobile services in the periods in which the related services are provided. Revenue from pre-pay customers is deferred prior to the commencement of services and recognized as the services are rendered or usage rights expire.
Mobile Revenue — Handset Revenue.
Revenue from the sale of handsets is recognized at the point in which the goods have been transferred to the customer. Some of our mobile handset contracts that permit the customer to take control of the handset upfront and pay for the handset in installments over a contractual period may contain a significant financing component. For contracts with terms of one year or more, we recognize any significant financing component as revenue over the contractual period using the effective interest method. We do not record the effect of a significant financing component if the contractual period is less than one year.
11
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
B2B Revenue.
We defer upfront installation and certain nonrecurring fees received on B2B contracts where we maintain ownership of the installed equipment. The deferred fees are amortized into revenue on a straight-line basis, generally over the longer of the term of the arrangement or the expected period of performance.
Contract Costs.
Incremental costs to obtain a contract with a customer, such as incremental sales commissions, are generally recognized as assets and amortized to SG&A expenses over the applicable period benefited, which generally is the contract life. If, however, the amortization period is less than one year, we expense such costs in the period incurred.
Contract fulfillment costs, such as porting costs, are recognized as assets and amortized to other operating costs over the applicable period benefited, which is generally the substantive contract term for the related service contract.
Promotional Discounts.
For subscriber promotions, such as discounted or free services during an introductory period, revenue is recognized uniformly over the contractual period if the contract has substantive termination penalties. If a contract does not have substantive termination penalties, revenue is recognized only to the extent of the discounted monthly fees charged to the subscriber, if any.
Subscriber Advance Payments.
Payments received in advance for the services we provide are deferred and recognized as revenue when the associated services are provided.
Sales, Use and Other Value-Added Taxes.
Revenue is recorded net of applicable sales, use and other value-added taxes.
For a disaggregation of our revenue by major category and by reportable and geographic segment, see note
16
.
Contract Balances
The timing of revenue recognition may differ from the timing of invoicing our customers. We record a trade receivable when we have transferred goods or services to a customer but have not yet received payment. Our trade receivables are reported net of an allowance for doubtful accounts. Such allowance aggregated
$
107.4
million
and
$
108.0
million
at
March 31, 2018
and January 1, 2018, respectively.
If we transfer goods or services to a customer but do not have an unconditional right to payment, we record a contract asset. Contract assets typically arise from the uniform recognition of introductory promotional discounts over the contract period. Our contract assets were
$
46.8
million
and
$
42.0
million
as of
March 31, 2018
and January 1, 2018, respectively. The current- and long-term portions of our contract asset balance at March 31, 2018 are included within other current assets and other assets, net, respectively, in our condensed consolidated balance sheet.
We record deferred revenue when we receive payment prior to transferring goods or services to a customer. We primarily defer revenue for (i) installation and other upfront services and (ii) other services that are invoiced prior to when services are provided. Our deferred revenue balances were
$
1,306.3
million
and
$
1,160.6
million
as of
March 31, 2018
and January 1, 2018, respectively. The increase in deferred revenue for the
three months ended March 31, 2018
is primarily due to increased advanced billings in certain markets, partially offset by
$
719.3
million
of revenue recognized that was included in our deferred revenue balance at January 1, 2018. The current- and long-term portions of our deferred revenue balance at March 31, 2018 are included within deferred revenue and other long-term liabilities, respectively, in our condensed consolidated balance sheet.
Contract Costs
Our aggregate assets associated with incremental costs to obtain a contract and contract fulfillment costs were
$
186.1
million
and
$
182.1
million
at
March 31, 2018
and January 1, 2018, respectively. The current and long-term portions of our assets related to contract costs at March 31, 2018 are included within other current assets and other assets, net, respectively, in our condensed consolidated balance sheet. We recorded amortization of
$
54.1
million
during the
three months ended March 31, 2018
related to these assets.
12
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
Unsatisfied Performance Obligations
(
4
)
Acquisitions, Disposals and Discontinued Operations
2017 Acquisitions
SFR BeLux
. On
June 19, 2017
,
Telenet
acquired Coditel Brabant sprl, operating under the SFR brand (
SFR BeLux
), for a cash and debt free purchase price of
€
369.0
million
(
$
410.3
million
at the applicable rates) (the
SFR BeLux Acquisition
) after post-closing adjustments.
SFR BeLux
provides cable services to households and businesses in Belgium (Brussels and Wallonia regions) and Luxembourg and offers mobile services in Belgium through a mobile virtual network operator (
MVNO
) agreement with Telenet Group BVBA (
BASE
).
Pending Disposal
On December 22, 2017, we reached an agreement to sell our Austrian operations, “
UPC Austria
,” to a third party for a total enterprise value of approximately
€
1.9
billion
(
$
2.3
billion
), subject to customary debt and working capital adjustments at completion. Closing of the transaction is subject to regulatory approval, which is not expected until the second half of 2018. The proceeds from the sale are expected to be used for general corporate purposes, which may include leverage reduction for the remaining
UPC Holding
borrowing group, re-investment into our business and support for our share repurchase program. In our segment presentation,
UPC Austria
is included in our Switzerland/Austria segment.
In addition, we have agreed to provide certain transitional services for a period of up to
four years
. These services principally comprise network and information technology-related functions. The annual charges will depend on the actual level of services required by the purchaser.
Liberty Global
will also allow the use of the UPC brand for a transitional period of up to
three years
as part of the transaction.
Effective with the signing of the agreement, we began accounting for
UPC Austria
as held for sale. Accordingly, we no longer depreciate or amortize the long-lived assets of
UPC Austria
. Long-lived assets classified as held for sale are measured at the lower of carrying amount or fair value less cost to sell. Since the aggregate carrying value of
UPC Austria
is less than the estimated fair value less cost to sell, no adjustment to the carrying value was necessary.
The carrying amounts of
UPC Austria
’s major classes of assets and liabilities, which are are classified as held for sale, are summarized below:
|
March 31,
2018 |
December 31,
2017 |
||||||
|
in millions
|
|||||||
|
Assets:
|
|||||||
|
Current assets other than cash
|
$
|
|
|
$
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|||
|
Goodwill
|
|
|
|
|
|||
|
Other assets, net
|
|
|
|
|
|||
|
Total assets
|
$
|
|
|
$
|
|
|
|
|
Liabilities:
|
|||||||
|
Current portion of debt and capital lease obligations
|
$
|
|
|
$
|
|
|
|
|
Other accrued and current liabilities
|
|
|
|
|
|||
|
Other long-term liabilities
|
|
|
|
|
|||
|
Total liabilities
|
$
|
|
|
$
|
|
|
|
13
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
Our condensed consolidated statements of operations include aggregate earnings before income taxes attributable to
UPC Austria
of
$
55.5
million
and
$
30.2
million
during the
three months ended March 31, 2018
and
2017
, respectively, and aggregate earnings before income taxes attributable to
Liberty Global
shareholders of
$
53.2
million
and
$
28.5
million
,
respectively.
Discontinued Operations
On December 29, 2017, in order to effect the split-off of the
LiLAC Group
(the
Split-off Transaction
), we distributed
100
%
of the common shares (the
Distribution
) of Liberty Latin America Ltd. (
Liberty Latin America
) to the holders of our then outstanding LiLAC Class A, Class B and Class C ordinary shares (collectively, the
LiLAC Shares
). Just prior to the completion of the
Split-off Transaction
, all of the businesses, assets and liabilities of the
LiLAC Group
were transferred to
Liberty Latin America
, which was then a wholly-owned subsidiary of
Liberty Global
. Following the
Distribution
, the
LiLAC Shares
were redesignated as deferred shares (with virtually no economic rights) and
Liberty Latin America
became an independent publicly-traded company that is no longer consolidated by
Liberty Global
. Accordingly, the entities comprising the
LiLAC Group
are reflected as discontinued operations in our condensed consolidated statements of operations and cash flows for the three months ended March 31, 2017.
No
gain or loss was recognized in connection with the
Split-off Transaction
.
In connection with the
Split-off Transaction
, we entered into several agreements that govern certain transactions and other matters between our company and
Liberty Latin America
(the
Split-off Agreements
). During the
three months ended March 31, 2018
, the impacts of the
Split-off Agreements
and other normal recurring transactions between our company and
Liberty Latin America
were not material.
The operating results of the
LiLAC Group
for the three months ended March 31, 2017, which are classified as discontinued operations in our condensed consolidated statement of operations, are summarized in the following table (in millions, except share and per share amount).
These amounts exclude the
LiLAC Group
’s intercompany revenue and expenses that are eliminated within our condensed consolidated statement of operations.
|
Revenue
|
$
|
|
|
|
Operating income
|
$
|
|
|
|
Earnings before income taxes and noncontrolling interests
|
$
|
|
|
|
Income tax expense
|
$
|
(
|
)
|
|
Net earnings attributable to noncontrolling interests
|
$
|
(
|
)
|
|
Loss from discontinued operations attributable to Liberty Global shareholders, net of taxes
|
$
|
(
|
)
|
|
Basic and diluted loss from discontinued operations attributable to Liberty Global shareholders per LiLAC Share
|
$
|
(
|
)
|
|
Weighted average ordinary shares outstanding - basic and diluted
|
|
|
|
We reported a loss from discontinued operations attributable to
Liberty Global
shareholders during the three months ended March 31, 2017. Therefore, the potentially dilutive effect of certain share-based incentive awards with respect to
LiLAC Shares
was not included in the computation of diluted loss from discontinued operations attributable to
Liberty Global
shareholders per LiLAC Share because their inclusion would have been anti-dilutive to the computation or, in the case of certain performance-based restricted share units (
PSU
s
), because such awards had not yet met the applicable performance criteria.
Other
14
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
(
5
)
Investments
|
Accounting Method
|
March 31,
2018 |
December 31,
2017 |
||||||
|
|
in millions
|
|||||||
|
Equity (a):
|
||||||||
|
VodafoneZiggo JV (b)
|
$
|
|
|
$
|
|
|
||
|
Other
|
|
|
|
|
||||
|
Total — equity
|
|
|
|
|
||||
|
Fair value:
|
||||||||
|
ITV plc (
ITV
) — subject to re-use rights
|
|
|
|
|
||||
|
Sumitomo Corporation (
Sumitomo
)
|
|
|
|
|
||||
|
ITI Neovision S.A. (
ITI Neovision
)
|
|
|
|
|
||||
|
Casa Systems, Inc. (
Casa
)
|
|
|
|
|
||||
|
Lions Gate Entertainment Corp (
Lionsgate
)
|
|
|
|
|
||||
|
Other
|
|
|
|
|
||||
|
Total — fair value
|
|
|
|
|
||||
|
Cost (c)
|
|
|
|
|
||||
|
Total
|
$
|
|
|
$
|
|
|
||
_______________
|
(a)
|
At
March 31, 2018
and
December 31, 2017
, the aggregate carrying amounts of our equity method investments did not materially exceed our proportionate share of the respective investees’ net assets.
|
|
(b)
|
Amounts include a related-party note receivable (the
VodafoneZiggo JV Receivable
) with a principal amount of
$
|
|
(c)
|
|
For information regarding the impact of the adoption of
ASU 2014-09
on our accumulated deficit and our investment in the
VodafoneZiggo JV
, see note
2
.
15
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
Equity Method Investments
|
|
Three months ended
March 31, |
||||||
|
|
2018
|
2017
|
|||||
|
|
in millions
|
||||||
|
VodafoneZiggo JV (a)
|
$
|
|
|
$
|
|
|
|
|
Other
|
|
|
|
|
|||
|
Total
|
$
|
|
|
$
|
|
|
|
_______________
|
(a)
|
|
VodafoneZiggo JV
.
On December 31, 2016, one of our wholly-owned subsidiaries contributed VodafoneZiggo Holding B.V. and its subsidiaries (
VodafoneZiggo Holding
) to VodafoneZiggo Group Holding B.V., an entity that was formed as a
50
:
50
joint venture (the “
VodafoneZiggo JV
”) between Vodafone Group plc (
Vodafone
) and Liberty Global (the
VodafoneZiggo JV Transaction
).
On January 4, 2017, in connection with the completion of the
VodafoneZiggo JV Transaction
, we received cash of
€
2.2
billion
(
$
2.4
billion
at the transaction date) comprising (i) a distribution reflecting our
50
%
share of the
€
2.8
billion
(
$
2.9
billion
at the transaction date) of net proceeds from the various debt financing arrangements entered into by certain subsidiaries of
VodafoneZiggo Holding
during the third quarter of 2016 and (ii) an equalization payment from
Vodafone
of
€
802.9
million
(
$
840.8
million
at the transaction date) that was subject to post-closing adjustments. During the second quarter of 2017, the equalization amount was finalized, resulting in the receipt of an additional
€
3.9
million
(
$
4.5
million
at the transaction date) from
Vodafone
.
During the first quarter of 2017, we paid
$
162.6
million
of
VAT
on behalf of the
VodafoneZiggo JV
associated with the termination of a services agreement with Ziggo Group Holding B.V. that was in effect prior to the closing of the
VodafoneZiggo JV Transaction
. This advance was repaid during the first quarter of 2017.
Pursuant to an agreement entered into in connection with the formation of the
VodafoneZiggo JV
(the
Framework Agreement
),
Liberty Global
provides certain services to the
VodafoneZiggo JV
on a transitional or ongoing basis (collectively, the
JV Services
). The
JV Services
provided by
Liberty Global
consist primarily of (i) technology and other services and (ii) capital-related expenditures for assets that will be used by, or will otherwise benefit, the
VodafoneZiggo JV
.
Liberty Global
charges both fixed and usage-based fees to the
VodafoneZiggo JV
for the
JV Services
provided during the term of the
Framework Agreement
. During the
three months ended March 31, 2018
and
2017
, we recorded revenue of
$
34.5
million
and $
31.5
million
, respectively, related to the
JV Services
. In addition, at
March 31, 2018
and
December 31, 2017
,
$
65.9
million
and $
33.3
million
,
respectively,
was due from the
VodafoneZiggo JV
primarily related to (a) services performed under the
Framework Agreement
and (b) amounts incurred by
Liberty Global
for certain equipment and licenses purchased on behalf of the
VodafoneZiggo JV
. Amounts due from the
VodafoneZiggo JV
, which are periodically cash settled, are included in other current assets in our condensed consolidated balance sheet.
16
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
The VodafoneZiggo JV is experiencing significant competition. In particular, the mobile operations of the VodafoneZiggo JV continue to experience competitive pressure on pricing, characterized by aggressive promotion campaigns, heavy marketing efforts and increasing or unlimited data bundles. If the adverse impacts of economic, competitive, regulatory or other factors were to cause significant deterioration of the results of operations or cash flows of the VodafoneZiggo JV, we could conclude in future periods that our investment in the VodafoneZiggo JV is impaired or management of the VodafoneZiggo JV could conclude that an impairment of the VodafoneZiggo JV goodwill and, to a lesser extent, long-lived assets, is required. Any such impairment of the VodafoneZiggo JV’s goodwill or our investment in the VodafoneZiggo JV would be reflected as a component of share of results of affiliates, net, in our condensed consolidated statement of operations. Our share of any such impairment charges could be significant.
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
2018
|
2017
|
||||||
|
in millions
|
|||||||
|
Revenue
|
$
|
|
|
$
|
|
|
|
|
Loss before income taxes
|
$
|
(
|
)
|
$
|
(
|
)
|
|
|
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
|
(
6
)
Derivative Instruments
In general, we seek to enter into derivative instruments to protect against (i) increases in the interest rates on our variable-rate debt, (ii) foreign currency movements, particularly with respect to borrowings that are denominated in a currency other than the functional currency of the borrowing entity, and (iii) decreases in the market prices of certain publicly traded securities that we own. In this regard, through our subsidiaries, we have entered into various derivative instruments to manage interest rate exposure and foreign currency exposure primarily with respect to the
U.S.
dollar (
$
), the euro (
€
), the British pound sterling (
£
), the Swiss franc (
CHF
), the Czech koruna (
CZK
), the Hungarian forint (
HUF
), the Polish zloty (
PLN
) and the Romanian lei (
RON
). With the exception of a limited number of our foreign currency forward contracts, we do not apply hedge accounting to our derivative instruments. Accordingly, changes in the fair values of most of our derivative instruments are recorded in realized and unrealized gains or losses on derivative instruments, net, in our condensed consolidated statements of operations.
17
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
|
|
March 31, 2018
|
December 31, 2017
|
|||||||||||||||||||||
|
|
Current (a)
|
Long-term (a)
|
Total
|
Current (a)
|
Long-term (a)
|
Total
|
|||||||||||||||||
|
|
in millions
|
||||||||||||||||||||||
|
Assets:
|
|||||||||||||||||||||||
|
Cross-currency and interest rate derivative contracts (b)
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||||
|
Equity-related derivative instruments (c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Foreign currency forward and option contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Total
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
March 31, 2018
|
December 31, 2017
|
|||||||||||||||||||||
|
|
Current (a)
|
Long-term (a)
|
Total
|
Current (a)
|
Long-term (a)
|
Total
|
|||||||||||||||||
|
|
in millions
|
||||||||||||||||||||||
|
Liabilities:
|
|||||||||||||||||||||||
|
Cross-currency and interest rate derivative contracts (b)
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||||
|
Equity-related derivative instruments (c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Foreign currency forward and option contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Total
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
_______________
|
(a)
|
Our current derivative liabilities, long-term derivative assets and long-term derivative liabilities are included in other current and accrued liabilities, other assets, net, and other long-term liabilities, respectively, in our condensed consolidated balance sheets.
|
|
(b)
|
We consider credit risk relating to our and our counterparties’ nonperformance in the fair value assessment of our derivative instruments. In all cases, the adjustments take into account offsetting liability or asset positions within each of our subsidiary borrowing groups (as defined and described in note
9
). The changes in the credit risk valuation adjustments associated with our cross-currency and interest rate derivative contracts resulted in a net
gain of
$
|
|
(c)
|
|
|
Three months ended
|
|||||||
|
|
March 31,
|
||||||
|
|
2018
|
2017
|
|||||
|
|
in millions
|
||||||
|
Cross-currency and interest rate derivative contracts
|
$
|
(
|
)
|
$
|
(
|
)
|
|
|
Equity-related derivative instruments:
|
|
||||||
|
ITV Collar
|
|
|
(
|
)
|
|||
|
Sumitomo Collar
|
|
|
(
|
)
|
|||
|
Lionsgate Forward
|
|
|
|
|
|||
|
Other
|
|
|
(
|
)
|
|||
|
Total equity-related derivative instruments
|
|
|
|
(
|
)
|
||
|
Foreign currency forward and option contracts
|
|
|
(
|
)
|
|||
|
Other
|
(
|
)
|
|
|
|||
|
Total
|
$
|
(
|
)
|
|
$
|
(
|
)
|
18
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
|
Three months ended
|
|||||||
|
|
March 31,
|
||||||
|
|
2018
|
2017
|
|||||
|
|
in millions
|
||||||
|
Operating activities
|
$
|
|
|
$
|
|
|
|
|
Financing activities
|
|
|
(
|
)
|
|||
|
Total
|
$
|
|
|
$
|
(
|
)
|
|
Counterparty Credit Risk
We are exposed to the risk that the counterparties to the derivative instruments of our subsidiary borrowing groups will default on their obligations to us. We manage these credit risks through the evaluation and monitoring of the creditworthiness of, and concentration of risk with, the respective counterparties. In this regard, credit risk associated with our derivative instruments is spread across a relatively broad counterparty base of banks and financial institutions. With the exception of a limited number of instances where we have required a counterparty to post collateral, neither party has posted collateral under the derivative instruments of our subsidiary borrowing groups. At
March 31, 2018
, our exposure to counterparty credit risk included derivative assets with an aggregate fair value of
$
205.3
million
.
19
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
Details of our Derivative Instruments
Cross-currency Derivative Contracts
As noted above, we are exposed to foreign currency exchange rate risk in situations where our debt is denominated in a currency other than the functional currency of the operations whose cash flows support our ability to repay or refinance such debt. Although we generally seek to match the denomination of our subsidiaries’ borrowings with the functional currency of the operations that are supporting the respective borrowings, market conditions or other factors may cause us to enter into borrowing arrangements that are not denominated in the functional currency of the underlying operations (unmatched debt). Our policy is generally to provide for an economic hedge against foreign currency exchange rate movements by using derivative instruments to synthetically convert unmatched debt into the applicable underlying currency. At
March 31, 2018
, substantially all of our debt was either directly or synthetically matched to the applicable functional currencies of the underlying operations.
The following table sets forth the total notional amounts and the related weighted average remaining contractual lives of our cross-currency swap contracts at
March 31, 2018
:
|
Borrowing group
|
Notional amount due from counterparty
|
Notional amount due to counterparty
|
Weighted average remaining life
|
||||||||
|
|
in millions
|
in years
|
|||||||||
|
Virgin Media
|
$
|
|
|
€
|
|
|
|
||||
|
$
|
|
|
£
|
|
|
(a) (b)
|
|
||||
|
£
|
|
|
$
|
|
|
(a)
|
|
||||
|
UPC Holding
|
$
|
|
|
€
|
|
|
|
||||
|
$
|
|
|
CHF
|
|
|
(b)
|
|
||||
|
€
|
|
|
CHF
|
|
|
(b)
|
|
||||
|
€
|
|
|
CZK
|
|
|
|
|||||
|
€
|
|
|
HUF
|
|
|
|
|||||
|
€
|
|
|
PLN
|
|
|
|
|||||
|
€
|
|
|
RON
|
|
|
|
|||||
|
Unitymedia
|
$
|
|
|
€
|
|
|
|
||||
|
Telenet
|
$
|
|
|
€
|
|
|
(b)
|
|
|||
_______________
|
(a)
|
Includes certain derivative instruments that do not involve the exchange of notional amounts at the inception and maturity of the instruments. Accordingly, the only cash flows associated with these derivative instruments are coupon-related payments and receipts. At
March 31, 2018
, the total
U.S.
dollar equivalents of the notional amount of these derivative instruments
was
$
|
|
(b)
|
|
20
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
Interest Rate Swap Contracts
As noted above, we enter into interest rate swaps to protect against increases in the interest rates on our variable-rate debt.
The following table sets forth the total
U.S.
dollar equivalents of the notional amounts and the related weighted average remaining contractual lives of our interest rate swap contracts at
March 31, 2018
:
|
Borrowing group pays fixed rate (a)
|
Borrowing group receives fixed rate
|
|||||||||||
|
Borrowing group
|
Notional amount
|
Weighted average remaining life
|
Notional amount
|
Weighted average remaining life
|
||||||||
|
|
in millions
|
in years
|
in millions
|
in years
|
||||||||
|
Virgin Media
|
$
|
|
|
|
$
|
|
|
|
||||
|
UPC Holding
|
$
|
|
|
|
$
|
|
|
|
||||
|
Unitymedia
|
$
|
|
|
|
$
|
|
|
|
||||
|
Telenet
|
$
|
|
|
|
$
|
|
|
|
||||
_______________
|
(a)
|
|
Interest Rate Swap Options
We have entered into various interest rate swap options (
swaption
s
), which give us the right, but not the obligation, to enter into certain interest rate swap contracts at set dates in the future, with each such contract having a life of no more than three years. At the transaction date, the strike rate of each of these contracts was above the corresponding market rate.
The following table sets forth certain information regarding our
swaption
s at
March 31, 2018
:
|
Borrowing group
|
Notional amount
|
Underlying swap currency
|
Weighted average option expiration period (a)
|
Weighted average strike rate (b)
|
||||||
|
|
in millions
|
in years
|
||||||||
|
Virgin Media
|
$
|
|
|
£
|
|
|
||||
|
$
|
|
|
€
|
|
|
|||||
|
UPC Holding
|
$
|
|
|
CHF
|
|
|
||||
|
Unitymedia
|
$
|
|
|
€
|
|
|
||||
______________
|
(a)
|
Represents the weighted average period until the date on which we have the option to enter into the interest rate swap contracts.
|
|
(b)
|
|
Basis Swaps
Our basis swaps involve the exchange of attributes used to calculate our floating interest rates, including (i) the benchmark rate, (ii) the underlying currency and/or (iii) the borrowing period. We typically enter into these swaps to optimize our interest rate profile based on our current evaluations of yield curves, our risk management policies and other factors.
The following table se
21
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
ts forth the total
U.S.
dollar equivalents of the notional amounts and related weighted average remaining contractual lives of our basis swap contracts at
March 31, 2018
:
|
Borrowing group
|
Notional amount due from counterparty
|
Weighted average remaining life
|
||||
|
|
in millions
|
in years
|
||||
|
Virgin Media
|
$
|
|
|
|
||
|
UPC Holding
|
$
|
|
|
|
||
|
Unitymedia
|
$
|
|
|
|
||
|
Telenet (a)
|
$
|
|
|
|
||
_______________
|
(a)
|
|
Interest Rate Caps and Collars
We enter into interest rate cap and collar agreements that lock in a maximum interest rate if variable rates rise, but also allow our company to benefit, to a limited extent in the case of collars, from declines in market rates. At
March 31, 2018
, the total
U.S.
dollar equivalents of the notional amounts of our interest rate caps and collars were
$
175.2
million
and
$
697.5
million
, respectively.
Impact of Derivative Instruments on Borrowing Costs
|
Increase (decrease) to borrowing costs at March 31, 2018 (a)
|
|||
|
|
|||
|
Virgin Media
|
(
|
)%
|
|
|
UPC Holding
|
|
%
|
|
|
Unitymedia
|
(
|
)%
|
|
|
Telenet
|
(
|
)%
|
|
|
Total decrease to borrowing costs
|
(
|
)%
|
|
_______________
|
(a)
|
|
Foreign Currency Forwards and Options
22
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
(
7
)
Fair Value Measurements
We use the fair value method to account for (i) certain of our investments, (ii) our derivative instruments, (iii) certain instruments that we classify as debt and (iv) the borrowed shares of
Sumitomo
pursuant to a securities lending arrangement (the
Sumitomo Share Loan
). The reported fair values of these investments and instruments as of
March 31, 2018
likely will not represent the value that will be paid or received upon the ultimate settlement or disposition of these assets and liabilities.
U.S. GAAP
provides for a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.
We incorporate a credit risk valuation adjustment in our fair value measurements to estimate the impact of both our own nonperformance risk and the nonperformance risk of our counterparties. Our credit risk valuation adjustments with respect to our cross-currency and interest rate swaps are quantified and further explained in note
6
.
Fair value measurements are also used in connection with nonrecurring valuations performed in connection with acquisition accounting and impairment assessments. The nonrecurring valuations associated with acquisition accounting primarily include the valuation of reporting units, customer relationship and other intangible assets and property and equipment. Unless a reporting unit has a readily determinable fair value, the valuation of reporting units is based at least in part on discounted cash flow analyses. With the exception of certain inputs for our weighted average cost of capital and discount rate calculations that are derived from pricing services, the inputs used in our discounted cash flow analyses, such as forecasts of future cash flows, are based on our assumptions. The valuation of customer relationships is primarily based on an excess earnings methodology, which is a form of a discounted cash flow analysis. The excess earnings methodology requires us to estimate the specific cash flows expected from the customer relationship, considering such factors as estimated customer life, the revenue expected to be generated over the life of the customer relationship, contributory asset charges and other factors. Tangible assets are typically valued using a replacement or reproduction cost approach, considering factors such as current prices of the same or similar equipment, the age of the equipment and economic obsolescence. Most of our nonrecurring valuations use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy. During the
three months ended March 31, 2018
and
2017
, we did not perform significant nonrecurring fair value measurements.
For additional information concerning our fair value measurements, see note 8 to the consolidated financial statements included in our
10-K
.
23
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
|
|
|
Fair value measurements at
March 31, 2018 using:
|
|||||||||||||
|
Description
|
March 31,
2018 |
Quoted prices
in active
markets for
identical assets
(Level 1)
|
Significant
other
observable
inputs
(Level 2)
|
Significant
unobservable
inputs
(Level 3)
|
|||||||||||
|
|
in millions
|
||||||||||||||
|
Assets:
|
|||||||||||||||
|
Derivative instruments:
|
|||||||||||||||
|
Cross-currency and interest rate derivative contracts
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
|
Equity-related derivative instruments
|
|
|
|
|
|
|
|
|
|||||||
|
Foreign currency forward and option contracts
|
|
|
|
|
|
|
|
|
|||||||
|
Other
|
|
|
|
|
|
|
|
|
|||||||
|
Total derivative instruments
|
|
|
|
|
|
|
|
|
|||||||
|
Investments
|
|
|
|
|
|
|
|
|
|||||||
|
Total assets
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
|
Liabilities:
|
|||||||||||||||
|
Derivative instruments:
|
|||||||||||||||
|
Cross-currency and interest rate derivative contracts
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
|
Equity-related derivative instruments
|
|
|
|
|
|
|
|
|
|||||||
|
Foreign currency forward and option contracts
|
|
|
|
|
|
|
|
|
|||||||
|
Total derivative liabilities
|
|
|
|
|
|
|
|
|
|||||||
|
Debt
|
|
|
|
|
|
|
|
|
|||||||
|
Total liabilities
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
24
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
|
|
|
Fair value measurements at
December 31, 2017 using:
|
|||||||||||||
|
Description
|
December 31, 2017
|
Quoted prices
in active
markets for
identical assets
(Level 1)
|
Significant
other
observable
inputs
(Level 2)
|
Significant
unobservable
inputs
(Level 3)
|
|||||||||||
|
|
in millions
|
||||||||||||||
|
Assets:
|
|||||||||||||||
|
Derivative instruments:
|
|||||||||||||||
|
Cross-currency and interest rate derivative contracts
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
|
Equity-related derivative instruments
|
|
|
|
|
|
|
|
|
|||||||
|
Foreign currency forward and option contracts
|
|
|
|
|
|
|
|
|
|||||||
|
Other
|
|
|
|
|
|
|
|
|
|||||||
|
Total derivative instruments
|
|
|
|
|
|
|
|
|
|||||||
|
Investments
|
|
|
|
|
|
|
|
|
|||||||
|
Total assets
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
|
Liabilities:
|
|||||||||||||||
|
Derivative instruments:
|
|||||||||||||||
|
Cross-currency and interest rate derivative contracts
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
|
Equity-related derivative instruments
|
|
|
|
|
|
|
|
|
|||||||
|
Foreign currency forward and option contracts
|
|
|
|
|
|
|
|
|
|||||||
|
Total derivative instruments
|
|
|
|
|
|
|
|
|
|||||||
|
Debt
|
|
|
|
|
|
|
|
|
|||||||
|
Total liabilities
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
|
Investments
|
Cross-currency and interest rate derivative contracts
|
Equity-related
derivative
instruments
|
Total
|
||||||||||||
|
|
in millions
|
||||||||||||||
|
Balance of net assets at January 1, 2018
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
|
Gains included in net loss (a):
|
|
|
|||||||||||||
|
Realized and unrealized gains on derivative instruments, net
|
—
|
|
|
|
|
|
|
|
|||||||
|
Realized and unrealized gains due to changes in fair values of certain investments and debt, net
|
|
|
—
|
|
—
|
|
|
|
|||||||
|
Additions
|
|
|
|
|
|
|
|
|
|||||||
|
Impact of ASU 2016-01
|
|
|
|
|
|
|
|
|
|||||||
|
Foreign currency translation adjustments and other, net
|
|
|
|
|
(
|
)
|
|
|
|||||||
|
Balance of net assets
at March 31, 2018
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
25
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
_______________
|
(a)
|
|
(
8
)
Long-lived Assets
Property and Equipment, Net
|
March 31,
2018 |
December 31,
2017 |
||||||
|
|
in millions
|
||||||
|
Distribution systems
|
$
|
|
|
$
|
|
|
|
|
Customer premises equipment
|
|
|
|
|
|||
|
Support equipment, buildings and land
|
|
|
|
|
|||
|
Total property and equipment, gross
|
|
|
|
|
|||
|
Accumulated depreciation
|
(
|
)
|
(
|
)
|
|||
|
Total property and equipment, net
|
$
|
|
|
$
|
|
|
|
During the
three months ended March 31, 2018
and
2017
, we recorded non-cash increases to our property and equipment related to vendor financing arrangements of
$
743.4
million
and
$
614.4
million
, respectively, which exclude related
VAT
of
$
107.1
million
and
$
97.7
million
, respectively, that was also financed by our vendors under these arrangements. In addition, during the
three months ended March 31, 2018
and
2017
, we recorded non-cash increases to our property and equipment related to assets acquired under capital leases of
$
29.5
million
and
$
31.4
million
, respectively.
Goodwill
|
January 1, 2018
|
Acquisitions
and related
adjustments
|
Foreign
currency
translation
adjustments
|
March 31,
2018 |
||||||||||||
|
|
in millions
|
||||||||||||||
|
U.K./Ireland
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
|
Belgium
|
|
|
(
|
)
|
|
|
|
|
|||||||
|
Germany
|
|
|
|
|
|
|
|
|
|||||||
|
Switzerland/Austria
|
|
|
|
|
|
|
|
|
|||||||
|
Central and Eastern Europe
|
|
|
|
|
|
|
|
|
|||||||
|
Central and Corporate
|
|
|
|
|
|
|
|
|
|||||||
|
Total
|
$
|
|
|
|
$
|
(
|
)
|
|
$
|
|
|
|
$
|
|
|
If among other factors, (i) our equity values were to decline or (ii) the adverse impacts of economic, competitive, regulatory or other factors were to cause our results of operations or cash flows to be worse than anticipated, we could conclude in future periods that impairment charges are required in order to reduce the carrying values of our goodwill and, to a lesser extent, other long-lived assets. Any such impairment charges could be significant.
26
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
Intangible Assets Subject to Amortization, Net
|
March 31, 2018
|
December 31, 2017
|
||||||||||||||||||||||
|
Gross carrying amount
|
Accumulated amortization
|
Net carrying amount
|
Gross carrying amount
|
Accumulated amortization
|
Net carrying amount
|
||||||||||||||||||
|
|
in millions
|
||||||||||||||||||||||
|
Customer relationships
|
$
|
|
|
$
|
(
|
)
|
$
|
|
|
$
|
|
|
$
|
(
|
)
|
$
|
|
|
|||||
|
Other
|
|
|
(
|
)
|
|
|
|
|
(
|
)
|
|
|
|||||||||||
|
Total
|
$
|
|
|
$
|
(
|
)
|
$
|
|
|
$
|
|
|
$
|
(
|
)
|
$
|
|
|
|||||
27
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
(
9
)
Debt and Capital Lease Obligations
|
|
March 31, 2018
|
Principal amount
|
||||||||||||||||||||||||
|
Weighted
average
interest
rate (a)
|
Unused borrowing capacity (b)
|
Estimated fair value (c)
|
||||||||||||||||||||||||
|
Borrowing currency
|
U.S. $
equivalent
|
March 31, 2018
|
December 31, 2017
|
March 31, 2018
|
December 31, 2017
|
|||||||||||||||||||||
|
|
|
in millions
|
||||||||||||||||||||||||
|
VM Notes
|
|
%
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||||||
|
VM Credit Facilities
|
|
%
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Unitymedia Notes
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Unitymedia Credit Facilities
|
|
%
|
€
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
UPCB SPE Notes
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
UPC Holding Bank Facility
|
|
%
|
€
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
UPC Holding Senior Notes
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Telenet Credit Facility
|
|
%
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Telenet Senior Secured Notes
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Telenet SPE Notes
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Vendor financing (f)
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
ITV Collar Loan
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Sumitomo Share Loan (g)
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Derivative-related debt instruments (h)
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Sumitomo Collar Loan
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Other (i)
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Total debt before deferred financing costs, discounts and premiums
|
|
%
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||||||||
The following table provides a reconciliation of total debt before deferred financing costs, discounts and premiums to total debt and capital lease obligations:
|
March 31, 2018
|
December 31, 2017
|
|||||||||||||||
|
in millions
|
||||||||||||||||
|
Total debt before deferred financing costs, discounts and premiums
|
$
|
|
|
$
|
|
|
||||||||||
|
Deferred financing costs, discounts and premiums, net
|
(
|
)
|
(
|
)
|
||||||||||||
|
Total carrying amount of debt
|
|
|
|
|
||||||||||||
|
Capital lease obligations (j)
|
|
|
|
|
||||||||||||
|
Total debt and capital lease obligations
|
|
|
|
|
||||||||||||
|
Current maturities of debt and capital lease obligations
|
(
|
)
|
(
|
)
|
||||||||||||
|
Long-term debt and capital lease obligations
|
$
|
|
|
$
|
|
|
||||||||||
_______________
|
(a)
|
Represents the weighted average interest rate in effect at
March 31, 2018
for all borrowings outstanding pursuant to each debt instrument, including any applicable margin. The interest rates presented represent stated rates and do not include the
|
28
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
impact of derivative instruments, deferred financing costs, original issue premiums or discounts and commitment fees, all of which affect our overall cost of borrowing. Including the effects of derivative instruments, original issue premiums or discounts and commitment fees, but excluding the impact of deferred financing costs, our weighted average interest rate on our aggregate variable- and fixed-rate indebtedness was
4.20
%
at
March 31, 2018
. For information regarding our derivative instruments, see note
6
.
|
(b)
|
Unused borrowing capacity represents the maximum availability under the applicable facility at
March 31, 2018
without regard to covenant compliance calculations or other conditions precedent to borrowing. At
March 31, 2018
, based on the applicable leverage covenants, the full amount of unused borrowing capacity was available to be borrowed under each of the respective subsidiary facilities, and based on the applicable leverage-based restricted payment tests, there were no restrictions on the respective subsidiary's ability to make loans or distributions from this availability to
Liberty Global
or its subsidiaries or other equity holders. Upon completion of the relevant
March 31, 2018
compliance reporting requirements, we expect that the full amount of unused borrowing capacity will continue to be available and that there will be no restrictions with respect to loans or distributions.
|
|
(c)
|
The estimated fair values of our debt instruments are generally determined using the average of applicable bid and ask prices (mostly Level 1 of the fair value hierarchy) or, when quoted market prices are unavailable or not considered indicative of fair value, discounted cash flow models (mostly Level 2 of the fair value hierarchy). The discount rates used in the cash flow models are based on the market interest rates and estimated credit spreads of the applicable entity, to the extent available, and other relevant factors. For additional information regarding fair value hierarchies, see note
7
.
|
|
(d)
|
Unused borrowing capacity under the
VM Credit Facilities
relates to multi-currency revolving facilities with an aggregate maximum borrowing capacity equivalent to
£
|
|
(e)
|
Unused borrowing capacity under the
Telenet Credit Facility
comprises (i)
€
|
|
(f)
|
Represents amounts owed pursuant to interest-bearing vendor financing arrangements that are used to finance certain of our property and equipment additions and, to a lesser extent, certain of our operating expenses. These obligations are generally due within
|
|
(g)
|
The
Sumitomo Share Loan
is carried at fair value. For information regarding fair value hierarchies, see note
7
.
|
|
(h)
|
Represents amounts associated with certain derivative-related borrowing instruments, including
$
|
|
(i)
|
Amounts include
$
|
29
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
|
(j)
|
The
U.S.
dollar equivalents of our consolidated capital lease obligations are as follows:
|
|
March 31, 2018
|
December 31, 2017
|
||||||||||||||||
|
in millions
|
|||||||||||||||||
|
Unitymedia
|
$
|
|
|
$
|
|
|
|||||||||||
|
Telenet
|
|
|
|
|
|||||||||||||
|
UPC Holding
|
|
|
|
|
|||||||||||||
|
Virgin Media
|
|
|
|
|
|||||||||||||
|
Other subsidiaries
|
|
|
|
|
|||||||||||||
|
Total
|
$
|
|
|
$
|
|
|
|||||||||||
Refinancing Transactions - General Information
At
March 31, 2018
, most of our outstanding debt had been incurred by one of our
four
subsidiary “borrowing groups.” References to these borrowing groups, which comprise
Virgin Media
,
Unitymedia
,
UPC Holding
and
Telenet
, include their respective restricted parent and subsidiary entities. Below we provide summary descriptions of any financing transactions completed during the first
three
months of
2018
. Unless otherwise noted, the terms and conditions of any new notes and/or credit facilities are largely consistent with those of existing notes and credit facilities of the corresponding borrowing group with regard to covenants, events of default and change of control provisions, among other items. For information regarding the general terms and conditions of our debt and capitalized terms not defined herein, see note 10 to the consolidated financial statements included in our
10-K
.
Telenet
Refinancing Transactions
In March 2018, Telenet used existing cash to prepay
10
%
of the original principal amount of Telenet Funded Facility AB, together with accrued and unpaid interest and the related prepayment premiums, which was owed to Telenet Finance VI and, in turn, Telenet Finance VI used such proceeds to redeem
10
%
of the original principal amount of the Telenet Finance VI Notes. In connection with this transaction, Telenet recognized a loss on debt modification and extinguishment, net, of
$
2.6
million
related to (i) the payment of
$
2.0
million
of redemption premiums and (ii) the write-off of
$
0.6
million
of unamortized deferred financing costs and discounts.
In March 2018, commitments under
Telenet Facility AL
were increased by
$
300.0
million
(the
Telenet Facility AL Add-on
). The terms of the
Telenet Facility AL Add-on
are consistent with those of
Telenet Facility AL
. In April 2018, Telenet drew the full
$
300.0
million
of the
Telenet Facility AL Add-on
and used the net proceeds, together with existing cash, to prepay in full the
€
250.0
million
(
$
307.3
million
) outstanding principal amount under
Telenet Facility V
, together with accrued and unpaid interest and the related prepayment premiums, which was owed to Telenet Finance V and, in turn, Telenet Finance V used such proceeds to redeem in full the
€
250.0
million
outstanding principal amount of the Telenet Finance V Notes.
30
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
Maturities of Debt and Capital Lease Obligations
Maturities of our debt and capital lease obligations as of
March 31, 2018
are presented below for the named entity and its subsidiaries, unless otherwise noted. Amounts presented below represent
U.S.
dollar equivalents based on
March 31, 2018
exchange rates:
|
Virgin Media
|
Unitymedia
|
UPC
Holding (a) |
Telenet (b)
|
Other
|
Total
|
||||||||||||||||||
|
|
in millions
|
||||||||||||||||||||||
|
Year ending December 31:
|
|||||||||||||||||||||||
|
2018 (remainder of year)
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||||
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Total debt maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Deferred financing costs, discounts and premiums, net
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||||
|
Total debt
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||||
|
Current portion
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||||
|
Noncurrent portion
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||||
_______________
|
(a)
|
Amounts include certain senior secured notes issued by special purpose financing entities that are consolidated by
UPC Holding
and
Liberty Global
.
|
|
(b)
|
Amounts include certain senior secured notes issued by special purpose financing entities that are consolidated by
Telenet
and
Liberty Global
.
|
31
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
Capital lease obligations:
|
Unitymedia
|
Telenet
|
UPC
Holding |
Virgin Media
|
Other
|
Total
|
||||||||||||||||||
|
|
in millions
|
||||||||||||||||||||||
|
Year ending December 31:
|
|||||||||||||||||||||||
|
2018 (remainder of year)
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||||
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Total principal and interest payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Amounts representing interest
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||||
|
Present value of net minimum lease payments
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||||
|
Current portion
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||||
|
Noncurrent portion
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||||
Non-cash Refinancing Transactions
32
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
(
10
)
Income Taxes
|
Three months ended
|
|||||||
|
|
March 31,
|
||||||
|
|
2018
|
2017
|
|||||
|
|
in millions
|
||||||
|
Computed “expected” tax benefit (a)
|
$
|
|
|
$
|
|
|
|
|
Mandatory Repatriation Tax (b)
|
(
|
)
|
|
|
|||
|
Change in valuation allowances (b) (c):
|
|||||||
|
Benefit
|
|
|
|
|
|||
|
Expense
|
(
|
)
|
(
|
)
|
|||
|
Non-deductible or non-taxable foreign currency exchange results (c):
|
|||||||
|
Expense
|
(
|
)
|
(
|
)
|
|||
|
Benefit
|
|
|
|
|
|||
|
Non-deductible or non-taxable interest and other items (c):
|
|||||||
|
Expense
|
(
|
)
|
(
|
)
|
|||
|
Benefit
|
|
|
|
|
|||
|
Basis and other differences in the treatment of items associated with investments in subsidiaries and affiliates (c):
|
|||||||
|
Expense
|
(
|
)
|
(
|
)
|
|||
|
Benefit
|
|
|
|
|
|||
|
International rate differences (c) (d):
|
|||||||
|
Expense
|
(
|
)
|
(
|
)
|
|||
|
Benefit
|
|
|
|
|
|||
|
Recognition of previously unrecognized tax benefits
|
|
|
|
|
|||
|
Other, net
|
(
|
)
|
|
|
|||
|
Total income tax expense
|
$
|
(
|
)
|
$
|
(
|
)
|
|
_______________
|
(a)
|
The statutory or “expected” tax rates are
U.K.
rates of
|
|
(b)
|
As further discussed below, the liability we have recorded for the
Mandatory Repatriation Tax
(as defined and described below) is significantly lower than the amount included in our income tax expense due primarily to the expected use of carryforward tax attributes in the U.S., all of which were subject to valuation allowances prior to the recognition of the
Mandatory Repatriation Tax
during the first quarter of 2018.
|
|
(c)
|
Country jurisdictions giving rise to income tax benefits are grouped together and shown separately from country jurisdictions giving rise to income tax expenses.
|
|
(d)
|
|
33
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
The Tax Cuts and Jobs Act (the
2017 U.S. Tax Act
) was signed into law on December 22, 2017. In addition to lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018, the
2017 U.S. Tax Act
contains significant changes to the U.S. income tax regime, including (i) changes to the formation and use of net operating losses incurred after December 31, 2017, (ii) changes to the income tax deductibility of certain business expenses, including interest expense and compensation paid to certain executive officers, (iii) the imposition of taxes on a one-time deemed mandatory repatriation of earnings and profits of foreign corporations (the
Mandatory Repatriation Tax
) and (iv) a new tax on global intangible low-taxed income.
The
Mandatory Repatriation Tax
requires that the aggregate post-1986 earnings and profits of our foreign corporations be included in our U.S. taxable income. The one-time repatriation of undistributed foreign earnings and profits is then taxed at a rate of 15.5% for cash earnings and 8% for non-cash earnings, both as defined in the
2017 U.S. Tax Act
, and is payable, interest free, over an eight year period according to a prescribed payment schedule with 45% of the tax due in the last two years. At
March 31, 2018
, we have recorded an estimate of our liability for the
Mandatory Repatriation Tax
of
$
417.9
million
after considering the expected use of carryforward tax attributes and other filing positions. As the calculations and application of the tax laws underlying the Mandatory Repatriation Tax are complex and given we are continuing to evaluate various historical transactions and analyze substantial information that supports our ownership structure and the operating history of our foreign subsidiaries, our estimate is subject to change during the remaining quarters of 2018.
At
March 31, 2018
, our unrecognized tax benefits of
$
790.5
million
included
$
573.7
million
of tax benefits that would have a favorable impact on our effective income tax rate if ultimately recognized, after considering amounts that we would expect to be offset by valuation allowances and other factors.
During the next 12 months, it is reasonably possible that the resolution of ongoing examinations by tax authorities, as well as the expiration of statutes of limitation, could result in reductions to our unrecognized tax benefits related to tax positions taken as of
March 31, 2018
. The amount of any such reductions could range up to
$
125.0
million
, all of which would have a positive impact on our effective tax rate. Other than the potential impacts of these ongoing examinations and the expected expiration of certain statutes of limitation, we do not expect any material changes to our unrecognized tax benefits during the next 12 months. No assurance can be given as to the nature or impact of any changes in our unrecognized tax positions during the next 12 months.
(
11
)
Equity
34
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
(
12
)
Share-based Compensation
Our share-based compensation expense primarily relates to the share-based incentive awards issued by
Liberty Global
to its employees and employees of its subsidiaries.
A summary of our aggregate share-based compensation expense is set forth below:
|
|
Three months ended
March 31, |
||||||
|
|
2018
|
2017
|
|||||
|
|
in millions
|
||||||
|
Liberty Global:
|
|||||||
|
Performance-based incentive awards (a)
|
$
|
|
|
$
|
|
|
|
|
Non-performance based share-based incentive awards
|
|
|
|
|
|||
|
Other (b)
|
|
|
|
|
|||
|
Total Liberty Global
|
|
|
|
|
|||
|
Telenet share-based incentive awards
|
|
|
|
|
|||
|
Other
|
|
|
|
|
|||
|
Total
|
$
|
|
|
$
|
|
|
|
|
Included in:
|
|||||||
|
Other operating expense
|
$
|
|
|
$
|
|
|
|
|
SG&A expense
|
|
|
|
|
|||
|
Total
|
$
|
|
|
$
|
|
|
|
_______________
|
(a)
|
Includes share-based compensation expense related to (i)
PSU
s and (ii) through March 31, 2017,
performance grant units (
PGUs
)
held by our Chief Executive Officer.
|
|
(b)
|
Represents annual incentive compensation and defined contribution plan liabilities that have been or are expected to be settled with
Liberty Global
ordinary shares. In the case of the annual incentive compensation, shares will be issued to senior management and key employees pursuant to a shareholding incentive program that was implemented in 2018. The shareholding incentive program allows these employees to elect to receive up to
|
|
Class A
|
Class C
|
||||||||||||
|
Number of shares underlying awards
|
Weighted Average exercise or base price
|
Number of shares underlying awards
|
Weighted Average exercise or base price
|
||||||||||
|
Held by Liberty Global employees:
|
|||||||||||||
|
Outstanding
|
|
|
$
|
|
|
|
|
$
|
|
|
|||
|
Exercisable
|
|
|
$
|
|
|
|
|
$
|
|
|
|||
|
Held by former Liberty Global employees:
|
|||||||||||||
|
Outstanding
|
|
|
$
|
|
|
|
|
$
|
|
|
|||
|
Exercisable
|
|
|
$
|
|
|
|
|
$
|
|
|
|||
35
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
|
Class A
|
Class C
|
||||
|
Held by Liberty Global employees:
|
|||||
|
RSUs
|
|
|
|
|
|
|
PSUs
|
|
|
|
|
|
|
Held by former Liberty Global employees:
|
|||||
|
RSUs
|
|
|
|
|
|
|
PSUs
|
|
|
|
|
|
2018 PSUs
(
13
)
Restructuring Liability
|
Employee
severance
and
termination
|
Office
closures
|
Contract termination and other
|
Total
|
||||||||||||
|
|
in millions
|
||||||||||||||
|
Restructuring liability as of January 1, 2018
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
|
Restructuring charges
|
|
|
|
|
|
|
|
|
|||||||
|
Cash paid
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||
|
Foreign currency translation adjustments and other
|
|
|
|
|
|
|
|
|
|||||||
|
Restructuring liability as of March, 31, 2018
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
|
Current portion
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
|
Noncurrent portion
|
|
|
|
|
|
|
|
|
|||||||
|
Total
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
(
14
)
Earnings or Loss per Share
Basic earnings or loss per share (
EPS
) is computed by dividing net earnings or loss by the weighted average number of shares outstanding for the period. Diluted
EPS
presents the dilutive effect, if any, on a per share basis of potential shares (e.g., options,
SAR
s,
RSU
s and
PSU
s) as if they had been exercised, vested or converted at the beginning of the periods presented.
36
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
(
15
)
Commitments and Contingencies
Commitments
In the normal course of business, we have entered into agreements that commit our company to make cash payments in future periods with respect to programming commitments, network and connectivity commitments, purchases of customer premises and other equipment and services, non-cancellable operating leases and other items.
The following table sets forth the
U.S.
dollar equivalents of such commitments as of
March 31, 2018
. The commitments included in this table do not reflect liabilities that are included in our
March 31, 2018
condensed consolidated balance sheet.
|
|
Payments due during:
|
|
|||||||||||||||||||||||||||||
|
|
Remainder
of 2018 |
|
|
||||||||||||||||||||||||||||
|
|
2019
|
2020
|
2021
|
2022
|
2023
|
Thereafter
|
Total
|
||||||||||||||||||||||||
|
|
in millions
|
||||||||||||||||||||||||||||||
|
Programming commitments
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||||||
|
Network and connectivity commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Purchase commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Operating leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Other commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Total
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Programming commitments consist of obligations associated with certain of our programming, studio output and sports rights contracts that are enforceable and legally binding on us as we have agreed to pay minimum fees without regard to (i) the actual number of subscribers to the programming services, (ii) whether we terminate service to a portion of our subscribers or dispose of a portion of our distribution systems or (iii) whether we discontinue our premium sports services. Programming commitments do not include increases in future periods associated with contractual inflation or other price adjustments that are not fixed. Accordingly, the amounts reflected in the above table with respect to these contracts are significantly less than the amounts we expect to pay in these periods under these contracts. Historically, payments to programming vendors have represented a significant portion of our operating costs, and we expect that this will continue to be the case in future periods.
In this regard, our total programming and copyright costs aggregated
$
508.2
million
and
$
438.6
million
during the
three
months ended
March 31, 2018
and
2017
, respectively.
Network and connectivity commitments include (i)
Telenet
’s commitments for certain operating costs associated with its leased network, (ii) commitments associated with our
MVNO
agreements and (iii) service commitments associated with our network extension projects, primarily in the
U.K.
Telenet
’s commitments for certain operating costs are subject to adjustment based on changes in the network operating costs incurred by
Telenet
with respect to its own networks. These potential adjustments are not subject to reasonable estimation and, therefore, are not included in the above table. The amounts reflected in the above table with respect to certain of our
MVNO
commitments represent fixed minimum amounts payable under these agreements and, therefore, may be significantly less than the actual amounts we ultimately pay in these periods.
Purchase commitments include unconditional and legally binding obligations related to (i) the purchase of customer premises and other equipment and (ii) certain service-related commitments, including call center, information technology and maintenance services.
37
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
In addition to the commitments set forth in the table above, we have significant commitments under (i) derivative instruments and (ii) defined benefit plans and similar agreements, pursuant to which we expect to make payments in future periods. For information regarding our derivative instruments, including the net cash paid or received in connection with these instruments during the
three
months ended
March 31, 2018
and
2017
, see note
6
.
We also have commitments pursuant to agreements with, and obligations imposed by, franchise authorities and municipalities, which may include obligations in certain markets to move aerial cable to underground ducts or to upgrade, rebuild or extend portions of our broadband communication systems. Such amounts are not included in the above table because they are not fixed or determinable.
Guarantees and Other Credit Enhancements
In the ordinary course of business, we may provide (i) indemnifications to our lenders, our vendors and certain other parties and (ii) performance and/or financial guarantees to local municipalities, our customers and vendors. Historically, these arrangements have not resulted in our company making any material payments and we do not believe that they will result in material payments in the future.
Legal and Regulatory Proceedings and Other Contingencies
Interkabel Acquisition.
On
November 26, 2007
,
Telenet
and
four
associations of municipalities in Belgium, which we refer to as the pure intercommunales or the “
PICs
,” announced a non-binding agreement-in-principle to transfer the analog and digital television activities of the
PICs
, including all existing subscribers, to
Telenet
. Subsequently,
Telenet
and the
PICs
entered into a binding agreement (the
2008 PICs Agreement
), which closed effective
October 1, 2008
. Beginning in December
2007
, Proximus NV/SA (
Proximus
), the incumbent telecommunications operator in Belgium, instituted several proceedings seeking to block implementation of these agreements.
Proximus
lodged summary proceedings with the President of the Court of First Instance of Antwerp to obtain a provisional injunction preventing the
PICs
from effecting the agreement-in-principle and initiated a civil procedure on the merits claiming the annulment of the agreement-in-principle. In March
2008
, the President of the Court of First Instance of Antwerp ruled in favor of
Proximus
in the summary proceedings, which ruling was overturned by the Court of Appeal of Antwerp in June
2008
.
Proximus
brought this appeal judgment before the Cour de Cassation (the
Belgian Supreme Court
), which confirmed the appeal judgment in September 2010. On
April 6, 2009
, the Court of First Instance of Antwerp ruled in favor of the
PICs
and
Telenet
in the civil procedure on the merits, dismissing
Proximus
’s request for the rescission of the agreement-in-principle and the
2008 PICs Agreement
. On
June 12, 2009
,
Proximus
appealed this judgment with the Court of Appeal of Antwerp. In this appeal,
Proximus
is now also seeking compensation for damages. While these proceedings were suspended indefinitely, other proceedings were initiated, which resulted in a ruling by the Belgian Council of State in May 2014 annulling (i) the decision of the
PICs
not to organize a public market consultation and (ii) the decision from the
PICs
’ board of directors to approve the
2008 PICs Agreement
. In December 2015,
Proximus
resumed the civil proceedings pending with the Court of Appeal of Antwerp seeking to have the
2008 PICs Agreement
annulled and claiming damages of
€
1.4
billion
(
$
1.7
billion
).
In December 2017, the Court of Appeals of Antwerp issued a judgment rejecting Proximus’ claims. Proximus has the right to appeal the Court of Appeals of Antwerp’s judgment with the
Belgian Supreme Court
, however Proximus has not done so to date. No assurance can be given as to the outcome of these or other proceedings. However, an unfavorable outcome of existing or future proceedings could potentially lead to the annulment of the
2008 PICs Agreement
and/or to an obligation of
Telenet
to pay compensation for damages, subject to the relevant provisions of the
2008 PICs Agreement
, which stipulate that
Telenet
is responsible for damages in excess of
€
20.0
million
(
$
24.6
million
). We do not expect the ultimate resolution of this matter to have a material impact on our results of operations, cash flows or financial position.
No
amounts have been accrued by us with respect to this matter as the likelihood of loss is not considered to be probable.
Telekom Deutschland
Litigation.
On December 28, 2012,
Unitymedia
filed a lawsuit against Telekom Deutschland GmbH (
Telekom Deutschland
), in which
Unitymedia
asserts that it pays excessive prices for the co-use of
Telekom Deutschland
’s cable ducts in
Unitymedia
’s footprint. The Federal Network Agency approved rates for the co-use of certain ducts of
Telekom Deutschland
in March 2011. Based in part on these approved rates,
Unitymedia
is seeking a reduction of the annual lease fees (approximately
€
76
million
(
$
93
million
) for 2017) by approximately
two-thirds
and the return of similarly calculated overpayments from 2009 through the ultimate settlement date, plus accrued interest. In October 2016, the first instance court dismissed this action.
Unitymedia
has appealed this decision, however, the resolution of this matter may take several years and no assurance can be given that
38
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
Unitymedia
’s claims will be successful. Any recovery by
Unitymedia
will not be reflected in our consolidated financial statements until such time as the final disposition of this matter has been reached.
Belgium Regulatory Developments.
In 2011, the Belgisch Instituut voor Post en Telecommunicatie and the regional regulators for the media sectors (together, the
Belgium Regulatory Authorities
) found
Telenet
to have significant market power in the broadcasting market (the
2011 Decision
). The
2011 Decision
imposed on
Telenet
an obligation to provide third-party operators, at specified tariff rates, with (i) a resale offer of an analog television package, (ii) access to digital television platforms and (iii) a resale offer of broadband internet access in combination with the digital television access obligation. We refer to the tariff portion of the
2011 Decision
as the “
Retail Minus Rules
”. On November 12, 2014, the
2011 Decision
was upheld by the Court of Appeal, and the Court of Appeal also accepted
Proximus
’ claim that
Proximus
should be allowed access to the digital television platforms of other operators, including
Telenet
, for the purpose of reselling bundles of digital video and broadband internet services. On November 30, 2015,
Telenet
filed an appeal of the Court of Appeal’s ruling with the
Belgian Supreme Court
. As required by the
2011 Decision
,
Telenet
has implemented the access obligations at the rates specified by the
Retail Minus Rules
, and on March 1, 2016, Orange Belgium NV launched a commercial offer combining a cable television package with broadband internet access for certain of their mobile customers. On October 2, 2017, in a separate action, the Court of Appeal annulled the
Retail Minus Rules
, but maintained the effects of the
Retail Minus Rules
until April 30, 2018. Accordingly, as of May 1, 2018, the tariff rates for
Telenet
’s resale obligations will be unregulated until a new decision from the
Belgium Regulatory Authorities
is adopted.
On July 7, 2017, the Belgium Regulatory Authorities published a draft market review decision (the
2017 Draft Decision
) that, once adopted, will replace the
2011 Decision
. The
2017 Draft Decision
proposed a finding of significant market power of
Telenet
in the wholesale broadband market. Proposed obligations include (i) providing third-party operators with access to the digital television platform (including basic digital video and analog video) and (ii) making available to third-party operators a bitstream offer of broadband internet access (including fixed voice as an option). The
2017 Draft Decision
was notified to the European Commission on April 27, 2018. The European Commission must review the
2017 Draft Decision
within one month of its notification, which timeframe can be extended by another two months if the European Commission determines that the
2017 Draft Decision
creates a barrier to the European single market or is incompatible with European Union (
E.U.
) law.
Telenet
considers the
2017 Draft Decision
to be inconsistent with the principle of technology-neutral regulation and the European Single Market Strategy to stimulate further investments in broadband networks.
The
2011 Decision
and the
2017 Draft Decision
aim to, and in their application, may strengthen
Telenet
’s competitors by granting them resale access to
Telenet
’s network to offer competing products and services notwithstanding
Telenet
’s substantial historical financial outlays in developing the infrastructure. In addition, any resale access granted to competitors could (i) limit the bandwidth available to
Telenet
to provide new or expanded products and services to the customers served by its network and (ii) adversely impact
Telenet
’s ability to maintain or increase its revenue and cash flows. The extent of any such adverse impacts ultimately will be dependent on the extent that competitors take advantage of the resale access afforded to
Telenet
’s network, the rates that
Telenet
receives for such access and other competitive factors or market developments.
Virgin Media VAT
Matters.
Virgin Media
’s application of
VAT
with respect to certain revenue generating activities has been challenged by the
U.K.
tax authorities.
Virgin Media
has estimated its maximum exposure in the event of an unfavorable outcome to be
£
47
million
(
$
66
million
) as of
March 31, 2018
.
No
portion of this exposure has been accrued by
Virgin Media
as the likelihood of loss is not considered to be probable. A court hearing was held at the end of September 2014 in relation to the
U.K.
tax authorities’ challenge and the timing of the court’s decision is uncertain.
On March 19, 2014, the
U.K.
government announced a change in legislation with respect to the charging of
VAT
in connection with prompt payment discounts such as those that we offer to our fixed-line telephony customers. This change, which took effect on May 1, 2014, impacted our company and some of our competitors. The
U.K.
tax authority issued a decision in the fourth quarter of 2015 challenging our application of the prompt payment discount rules prior to the May 1, 2014 change in legislation. We have appealed this decision. As part of the appeal process, we were required to make aggregate payments of
£
67.0
million
(
$
99.1
million
at the respective transaction dates), which included the challenged amount of
£
63.7
million
and related interest of
£
3.3
million
. The aggregate amount paid does not include penalties, which could be significant in the unlikely event that penalties were to be assessed. This matter will likely be subject to court proceedings that could delay the ultimate resolution for an extended period of time.
No
portion of this potential exposure has been accrued by our company as the likelihood of loss is not considered to be probable.
39
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
Ziggo Acquisition Matter.
In July 2015, KPN N.V. appealed the
European Commission
’s 2014 approval of the acquisition by
Liberty Global
of Ziggo Holding B.V. (
Ziggo
). We were not a party to that case. In October 2017, the
E.U.
General Court annulled the
European Commission
’s approval on procedural grounds in that it found that the
European Commission
had failed to adequately explain the reasons for elements of its decision. This annulment has no impact on the day-to-day operations of the
VodafoneZiggo JV
. We are in the process of renotifying our acquisition of
Ziggo
to the
European Commission
for a new merger clearance and expect to complete this process during 2018. The 2014 merger clearance was based on certain remedies, and our expectation is that these remedies will continue. However, there can be no assurance that other remedies will not be required as a result of the renotification and any such additional remedies may have an operational impact for the
VodafoneZiggo JV
.
Other Regulatory Issues.
Video distribution, broadband internet, fixed-line telephony, mobile and content businesses are regulated in each of the countries in which we or our affiliates operate. The scope of regulation varies from country to country, although in some significant respects regulation in European markets is harmonized under the regulatory structure of the
E.U.
Adverse regulatory developments could subject our businesses to a number of risks. Regulation, including conditions imposed on us by competition or other authorities as a requirement to close acquisitions or dispositions, could limit growth, revenue and the number and types of services offered and could lead to increased operating costs and property and equipment additions. In addition, regulation may restrict our operations and subject them to further competitive pressure, including pricing restrictions, interconnect and other access obligations, and restrictions or controls on content, including content provided by third parties. Failure to comply with current or future regulation could expose our businesses to various penalties.
Effective April 1, 2017, the rateable value of our existing network and other assets in the
U.K.
increased significantly. This increase affects the amount we pay for network infrastructure charges as the annual amount payable to the
U.K.
government is calculated by applying a percentage multiplier to the rateable value of assets. This change, together with a similar change in Ireland, has and will continue to significantly increase our network infrastructure charges. We expect the full year 2018 impact of this increase will be approximately
£
20
million
(
$
27
million
), as compared to 2017, and the impact will build to an aggregate increase of up to
£
110
million
(
$
154
million
) in 2021, as compared to the 12 months ended March 31, 2017. We continue to believe that these increases are excessive and retain the right of appeal should more favorable agreements be reached with other operators. The rateable value of network and other assets constructed under our network extension program in the
U.K.
remains subject to review by the
U.K.
government.
(
16
)
Segment Reporting
We generally identify our
reportable segments
as (i) those consolidated subsidiaries that represent
10
%
or more of our revenue,
Adjusted OIBDA
(as defined below) or total assets or (ii) those equity method affiliates where our investment or share of revenue or
Adjusted OIBDA
represents
10
%
or more of our total assets, revenue or
Adjusted OIBDA
, respectively. In certain cases, we may elect to include an operating segment in our segment disclosure that does not meet the above-described criteria for a reportable segment. We evaluate performance and make decisions about allocating resources to our operating segments based on financial measures such as revenue and
Adjusted OIBDA
. In addition, we review non-financial measures such as subscriber growth, as appropriate.
Adjusted OIBDA
is the primary measure used by our chief operating decision maker to evaluate segment operating performance and is also a key factor that is used by our internal decision makers to (i) determine how to allocate resources to segments and (ii) evaluate the effectiveness of our management for purposes of annual and other incentive compensation plans. As we use the term,
Adjusted OIBDA
is defined as operating income before depreciation and amortization, share-based compensation, provisions and provision releases related to significant litigation and impairment, restructuring and other operating items. Other operating items include (a) gains and losses on the disposition of long-lived assets, (b) third-party costs directly associated with successful and unsuccessful acquisitions and dispositions, including legal, advisory and due diligence fees, as applicable, and (c) other
40
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
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 (1) readily view operating trends, (2) perform analytical comparisons and benchmarking between segments and (3) identify strategies to improve operating performance in the different countries in which we operate. A reconciliation of total segment
Adjusted OIBDA
to our earnings (loss) from continuing operations before income taxes is presented below.
As of
March 31, 2018
, our
reportable segments
are as follows:
Consolidated:
•
U.K./Ireland
•
Belgium
•
Germany
•
Switzerland/Austria
•
Central and Eastern Europe
Nonconsolidated:
•
VodafoneZiggo JV
All of the
reportable segments
set forth above derive their revenue primarily from residential and
B2B
communications services, including video, broadband internet, fixed-line telephony and mobile services. At
March 31, 2018
, we provided residential and
B2B
communications services in
11
European countries, including direct-to-home satellite (
DTH
) services to customers in the Czech Republic, Hungary, Romania and Slovakia through a Luxembourg-based organization that we refer to as “
UPC DTH
.” In addition to
UPC DTH
, our
Central and Eastern Europe
segment includes our broadband communications operations in the Czech Republic, Hungary, Poland, Romania and Slovakia. Our central and corporate functions are included in an operating segment that we refer to as “
Central and Corporate
,” which primarily includes (i) revenue earned from services provided to the
VodafoneZiggo JV
and
Liberty Latin America
and (ii) costs associated with certain centralized functions, including billing systems, network operations, technology, marketing, facilities, finance and other administrative functions.
41
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
Performance Measures of Our Reportable Segments
The amounts presented below represent
100
%
of each of our reportable segment’s revenue and
Adjusted OIBDA
. As we have the ability to control
Telenet
, we consolidate
100
%
of
Telenet
’s revenue and expenses in our condensed consolidated statements of operations despite the fact that third parties own a significant interest. The noncontrolling owners’ interests in the operating results of
Telenet
and other less significant majority-owned subsidiaries are reflected in net earnings or loss attributable to noncontrolling interests in our condensed consolidated statements of operations. Similarly, despite only holding a
50
%
noncontrolling interest in the
VodafoneZiggo JV
, we present
100
%
of its revenue and
Adjusted OIBDA
in the tables below. Our share of the
VodafoneZiggo JV
's operating results is included in share of losses of affiliates, net, in our condensed consolidated statements of operations.
|
Revenue
|
|||||||
|
|
Three months ended
March 31, |
||||||
|
|
2018
|
2017
|
|||||
|
|
in millions
|
||||||
|
U.K./Ireland
|
$
|
|
|
$
|
|
|
|
|
Belgium
|
|
|
|
|
|||
|
Germany
|
|
|
|
|
|||
|
Switzerland/Austria
|
|
|
|
|
|||
|
Central and Eastern Europe
|
|
|
|
|
|||
|
Central and Corporate
|
|
|
|
|
|||
|
Intersegment eliminations
|
(
|
)
|
(
|
)
|
|||
|
Total
|
$
|
|
|
|
$
|
|
|
|
VodafoneZiggo JV
|
$
|
|
|
$
|
|
|
|
|
Adjusted OIBDA
|
||||||||
|
|
Three months ended
March 31, |
|||||||
|
|
2018
|
2017
|
||||||
|
|
in millions
|
|||||||
|
U.K./Ireland
|
$
|
|
|
—
|
|
$
|
|
|
|
Belgium
|
|
|
—
|
|
|
|
||
|
Germany
|
|
|
—
|
|
|
|
||
|
Switzerland/Austria
|
|
|
—
|
|
|
|
||
|
Central and Eastern Europe
|
|
|
—
|
|
|
|
||
|
Central and Corporate
|
(
|
)
|
—
|
|
(
|
)
|
||
|
Total
|
$
|
|
|
|
|
$
|
|
|
|
VodafoneZiggo JV
|
$
|
|
|
$
|
|
|
||
42
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
|
|
Three months ended
March 31, |
||||||
|
|
2018
|
2017
|
|||||
|
|
in millions
|
||||||
|
Total segment Adjusted OIBDA from continuing operations
|
$
|
|
|
$
|
|
|
|
|
Share-based compensation expense
|
(
|
)
|
(
|
)
|
|||
|
Depreciation and amortization
|
(
|
)
|
(
|
)
|
|||
|
Impairment, restructuring and other operating items, net
|
(
|
)
|
(
|
)
|
|||
|
Operating income
|
|
|
|
|
|||
|
Interest expense
|
(
|
)
|
(
|
)
|
|||
|
Realized and unrealized losses on derivative instruments, net
|
(
|
)
|
(
|
)
|
|||
|
Foreign currency transaction gains (losses), net
|
(
|
)
|
|
|
|||
|
Realized and unrealized gains (losses) due to changes in fair values of certain investments and debt, net
|
(
|
)
|
|
|
|||
|
Losses on debt modification and extinguishment, net
|
(
|
)
|
(
|
)
|
|||
|
Share of losses of affiliates, net
|
(
|
)
|
(
|
)
|
|||
|
Other income, net
|
|
|
|
|
|||
|
Loss from continuing operations before income taxes
|
$
|
(
|
)
|
$
|
(
|
)
|
|
43
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
Property and Equipment Additions of our Reportable Segments
|
|
Three months ended
March 31, |
||||||
|
|
2018
|
2017
|
|||||
|
|
in millions
|
||||||
|
U.K./Ireland
|
$
|
|
|
$
|
|
|
|
|
Belgium
|
|
|
|
|
|||
|
Germany
|
|
|
|
|
|||
|
Switzerland/Austria
|
|
|
|
|
|||
|
Central and Eastern Europe
|
|
|
|
|
|||
|
Central and Corporate (a)
|
|
|
|
|
|||
|
Total property and equipment additions
|
|
|
|
|
|||
|
Assets acquired under capital-related vendor financing arrangements
|
(
|
)
|
(
|
)
|
|||
|
Assets acquired under capital leases
|
(
|
)
|
(
|
)
|
|||
|
Changes in current liabilities related to capital expenditures
|
|
|
|
|
|||
|
Total capital expenditures
|
$
|
|
|
$
|
|
|
|
|
Property and equipment additions - VodafoneZiggo JV
|
$
|
|
|
$
|
|
|
|
_______________
|
(a)
|
|
44
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
Revenue by Major Category
|
|
Three months ended
March 31, |
||||||
|
|
2018
|
2017
|
|||||
|
|
in millions
|
||||||
|
Residential revenue:
|
|||||||
|
Residential cable revenue (a):
|
|||||||
|
Subscription revenue (b):
|
|||||||
|
Video
|
$
|
|
|
$
|
|
|
|
|
Broadband internet
|
|
|
|
|
|||
|
Fixed-line telephony
|
|
|
|
|
|||
|
Total subscription revenue
|
|
|
|
|
|||
|
Non-subscription revenue
|
|
|
|
|
|||
|
Total residential cable revenue
|
|
|
|
|
|||
|
Residential mobile revenue (c):
|
|||||||
|
Subscription revenue (b)
|
|
|
|
|
|||
|
Non-subscription revenue
|
|
|
|
|
|||
|
Total residential mobile revenue
|
|
|
|
|
|||
|
Total residential revenue
|
|
|
|
|
|||
|
B2B revenue (d):
|
|||||||
|
Subscription revenue
|
|
|
|
|
|||
|
Non-subscription revenue
|
|
|
|
|
|||
|
Total B2B revenue
|
|
|
|
|
|||
|
Other revenue (e)
|
|
|
|
|
|||
|
Total
|
$
|
|
|
$
|
|
|
|
_______________
|
(a)
|
Residential cable subscription revenue includes amounts received from subscribers for ongoing services. Residential cable non-subscription revenue includes, among other items, channel carriage fees, late fees and revenue from the sale of equipment. As described in note
2
, we adopted
ASU 2014-09
on January 1, 2018 using the cumulative effect transition method. For periods subsequent to our adoption of
ASU 2014-09
, installation revenue is generally deferred and recognized over the contractual period as residential cable subscription revenue. For periods prior to the adoption of
ASU 2014-09
, installation revenue is included in residential cable non-subscription revenue.
|
|
(b)
|
Residential subscription revenue from subscribers who purchase bundled services at a discounted rate is generally allocated proportionally to each service based on the standalone price for each individual service. As a result, changes in the standalone pricing of our cable and mobile products or the composition of bundles can contribute to changes in our product revenue categories from period to period.
|
|
(c)
|
Residential mobile subscription revenue includes amounts received from subscribers for ongoing services. Residential mobile non-subscription revenue includes, among other items, interconnect revenue and revenue from sales of mobile handsets and other devices.
|
45
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
March 31, 2018
(unaudited)
|
(d)
|
B2B
subscription revenue represents revenue from services to certain small or home office (
SOHO
) subscribers.
SOHO
subscribers pay a premium price to receive expanded service levels along with video, broadband internet, fixed-line telephony or mobile services that are the same or similar to the mass marketed products offered to our residential subscribers.
B2B
non-subscription revenue includes business broadband internet, video, fixed-line telephony, mobile and data services offered to medium to large enterprises and, on a wholesale basis, to other operators.
|
|
(e)
|
Other revenue includes, among other items,
revenue earned from services provided to the VodafoneZiggo JV
and, during the
2018
period,
Liberty Latin America
.
|
Geographic Segments
|
|
Three months ended
March 31, |
||||||
|
|
2018
|
2017
|
|||||
|
|
in millions
|
||||||
|
U.K.
|
$
|
|
|
$
|
|
|
|
|
Germany
|
|
|
|
|
|||
|
Belgium
|
|
|
|
|
|||
|
Switzerland
|
|
|
|
|
|||
|
Ireland
|
|
|
|
|
|||
|
Poland
|
|
|
|
|
|||
|
Austria
|
|
|
|
|
|||
|
Hungary
|
|
|
|
|
|||
|
The Czech Republic
|
|
|
|
|
|||
|
Romania
|
|
|
|
|
|||
|
Slovakia
|
|
|
|
|
|||
|
Other, including intersegment eliminations
|
|
|
|
|
|||
|
Total
|
$
|
|
|
|
$
|
|
|
|
VodafoneZiggo JV (the Netherlands)
|
$
|
|
|
$
|
|
|
|
|
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 condensed consolidated financial statements and the discussion and analysis included in our
10-K
, is intended to assist in providing an understanding of our financial condition, changes in financial condition and results of operations and is organized as follows:
|
•
|
Forward-looking Statements.
This section provides a description of certain factors that could cause actual results or events to differ materially from anticipated results or events.
|
|
•
|
Overview.
This section provides a general description of our business and recent events.
|
|
•
|
Material Changes in Results of Operations.
This section provides an analysis of our results of operations for the
three months ended March 31, 2018
and
2017
.
|
|
•
|
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.
|
46
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 Global
or collectively to
Liberty Global
and its subsidiaries.
Unless otherwise indicated, convenience translations into
U.S.
dollars are calculated as of
March 31, 2018
.
Forward-looking Statements
Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. To the extent that statements in this Quarterly Report are not recitations of historical fact, such statements constitute forward-looking statements, which, by definition, involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. In particular, statements under
Management’s Discussion and Analysis of Financial Condition and Results of Operations
and
Quantitative and Qualitative Disclosures About Market Risk
may
contain forward-looking statements, including statements regarding our business, product, foreign currency and finance strategies, our property and equipment additions (including with respect to the
Network Extensions
), subscriber growth and retention rates, competitive, regulatory and economic factors, the timing and impacts of proposed transactions, the maturity of our markets, the anticipated impacts of new legislation (or changes to existing rules and regulations), anticipated changes in our revenue, costs or growth rates, our liquidity, credit risks, foreign currency risks, target leverage levels, our future projected contractual commitments and cash flows and other information and statements that are not historical fact. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. In evaluating these statements, you should consider the risks and uncertainties discussed in our
10-K
, as well as the following list of some but not all of the factors that could cause actual results or events to differ materially from anticipated results or events:
|
•
|
economic and business conditions and industry trends in the countries in which we or our affiliates operate;
|
|
•
|
the competitive environment in the industries in the countries in which we or our affiliates operate, including competitor responses to our products and services;
|
|
•
|
fluctuations in currency exchange rates and interest rates;
|
|
•
|
instability in global financial markets, including sovereign debt issues 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;
|
|
•
|
consumer acceptance of our existing service offerings, including our cable television, 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;
|
|
•
|
our ability to maintain or increase the number of subscriptions to our cable television, 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, such as the obligations imposed in Belgium;
|
|
•
|
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;
|
|
•
|
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;
|
47
|
•
|
changes in laws or treaties relating to taxation, or the interpretation thereof, in the
U.K.
, 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 our third-party wireless network providers under our
MVNO
arrangements) 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 the
Network Extensions
;
|
|
•
|
the availability of capital for the acquisition and/or development of telecommunications networks and services;
|
|
•
|
problems we may discover post-closing with the operations, including the internal controls and financial reporting process, of businesses we acquire;
|
|
•
|
the leakage of sensitive customer data;
|
|
•
|
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; and
|
|
•
|
events that are outside of our control, such as political unrest in international markets, terrorist attacks, malicious human acts, natural disasters, pandemics and other similar events.
|
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 are subject to a significant degree of risk. These forward-looking statements and the above-described risks, uncertainties and other factors speak only as of the date of this Quarterly Report, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based. Readers are cautioned not to place undue reliance on any forward-looking statement.
Overview
General
We are an international provider of video, broadband internet, fixed-line telephony, mobile and other communications services to residential customers and businesses, with consolidated operations at
March 31, 2018
in
11
European countries. We provide residential and
B2B
communication services in (i) the
U.K.
and Ireland through
Virgin Media
, (ii) Germany through
Unitymedia
, (iii) Belgium through
Telenet
and (iv)
seven
other European countries through
UPC Holding
. In addition, we own a 50% noncontrolling interest in the
VodafoneZiggo JV
, which provides video, broadband internet, fixed-line telephony, mobile and
B2B
communications services in the Netherlands.
As further described in note
4
to our condensed consolidated financial statements, we completed the
Split-off Transaction
on December 29, 2017. Accordingly, the entities comprising the
LiLAC Group
are reflected as discontinued operations in our condensed consolidated statements of operations and cash flows the three months ended March 31, 2017. In the following discussion and analysis, the operating statistics, results of operations, cash flows and financial condition that we present and discuss are those of our continuing operations unless otherwise indicated.
48
Operations
At
March 31, 2018
, we owned and operated networks that passed
45,450,700
homes and served
45,852,900
revenue generating units (
RGU
s
), consisting of
18,392,200
video subscribers,
14,997,800
broadband internet subscribers and
12,462,900
fixed-line telephony subscribers. In addition, at
March 31, 2018
, we served
6,500,100
mobile subscribers.
We currently are engaged in certain network extension programs across our footprint, which we collectively refer to as the “
Network Extensions
.”
During the first three months of 2018, pursuant to the
Network Extensions
, we connected approximately 204,000 additional residential and commercial premises (excluding upgrades) to our two-way networks, including approximately 111,000 residential and commercial premises
connected by Virgin Media in the
U.K.
and Ireland.
Depending on a variety of factors, including the financial and operational results of the programs, the
Network Extensions
may be continued, modified or cancelled at our discretion.
Competition and Other External Factors
We are experiencing significant competition from incumbent telecommunications operators,
DTH
operators and/or other providers in all of our markets, particularly in Switzerland and the
U.K.
The significant competition we are experiencing, together with macroeconomic factors, has adversely impacted our revenue,
RGU
s and/or average monthly subscription revenue per average cable
RGU
or mobile subscriber, as applicable (
ARPU
), particularly in Switzerland. In addition, the
VodafoneZiggo JV
is facing significant competition in the Netherlands, particularly with respect to its mobile operations. For additional information regarding the revenue impact of changes in the
RGU
s and
ARPU
of our consolidated reportable segments, see
Discussion and Analysis of our Reportable Segments
below
.
In addition to competition, our operations are subject to macroeconomic, political and other risks that are outside of our control. For example, on June 23, 2016, the
U.K.
held a referendum in which
U.K.
citizens voted in favor of, on an advisory basis, an exit from the
E.U.
commonly referred to as “
Brexit
.”
Brexit
is currently scheduled to occur on March 29, 2019. The potential impacts, if any, of the uncertainty relating to
Brexit
or the resulting terms of
Brexit
on the free movement of goods, services, people and capital between the
U.K.
and the
E.U.
, customer behavior, economic conditions, interest rates, currency exchange rates, availability of capital or other matters are unclear. The effects of
Brexit
could adversely affect our business, results of operations, financial condition and liquidity.
In addition, high levels of sovereign debt in the
U.S.
and several countries in which we or our affiliates operate, combined with weak growth and high unemployment, could potentially lead to fiscal reforms (including austerity measures), tax increases, sovereign debt restructurings, currency instability, increased counterparty credit risk, high levels of volatility and disruptions in the credit and equity markets, as well as other outcomes that might adversely impact our company. The occurrence of any of these events, especially within the eurozone countries given our significant exposure to the euro and pound sterling, could have an adverse impact on, among other matters, our liquidity and cash flows.
Material Changes in Results of Operations
We have completed a number of transactions that impact the comparability of our results of operations, the most notable of which is the
SFR BeLux Acquisition
on June 19, 2017. For further information regarding our pending and completed acquisitions and dispositions, see note
4
to our condensed consolidated financial statements.
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. In general, we base our estimate of the
Acquisition Impact
on an acquired entity’s operating results during the first three to twelve months following the acquisition date, as adjusted to remove integration costs and any other material unusual or nonoperational items, such that changes from those operating results in subsequent periods are considered to be organic changes. Accordingly, in the following discussion, (i) organic variances attributed to an acquired entity during the first 12 months following the acquisition date represent differences between the
Acquisition Impact
and the actual results and (ii) the calculation of our organic change percentages includes the organic activity of an acquired entity relative to the
Acquisition Impact
of such entity.
Changes in foreign currency exchange rates have a significant impact on our reported operating results as all of our operating segments have functional currencies other than the
U.S.
dollar. Our primary exposure to foreign exchange (
FX
) risk during the
three months ended March 31, 2018
was to the euro and British pound sterling as 45.1% and 39.6%
of our reported revenue during the period was derived from subsidiaries whose functional currencies are the euro and British pound sterling, respectively.
49
In addition, our reported operating results are impacted by changes in the exchange rates for other local currencies in Europe. The portions of the changes
in the various components of our results of operations that are attributable to changes in
FX
are highlighted under
Discussion and Analysis of our Reportable Segments
and
Discussion and Analysis of our Consolidated Operating Results
below. For information regarding the applicable foreign currency exchange rates in effect for the periods covered by this Quarterly Report, see
Quantitative and Qualitative Disclosures about Market Risk — Foreign Currency Exchange Rates
below.
The amounts presented and discussed below represent 100% of each of our consolidated reportable segment’s revenue and
Adjusted OIBDA
. As we have the ability to control
Telenet
, we consolidate 100% of its revenue and expenses in our condensed consolidated statements of operations despite the fact that third parties own a significant interest. The noncontrolling owners’ interests in the operating results of
Telenet
and other less significant majority-owned subsidiaries are reflected in net earnings or loss attributable to noncontrolling interests in our condensed consolidated statements of operations.
As further described in note
2
to our condensed consolidated financial statements, we adopted
ASU 2014-09
on January 1, 2018 using the cumulative effect transition method. As such, the comparative information for the three months ended March 31, 2017 contained within our condensed consolidated financial statements and notes thereto has not been restated and continues to be reported under the accounting standards in effect for such period. In order to provide a more meaningful comparison, in the following discussion and analysis of our results of operations, we present our revenue, other operating expenses, SG&A expenses and
Adjusted OIBDA
for the three months ended March 31, 2017 on a pro forma basis that gives effect to the adoption of
ASU 2014-09
as if such adoption had occurred on January 1, 2017.
The following table presents (i) the impact of the adoption of
ASU 2014-09
on the revenue and
Adjusted OIBDA
of our reportable segments for the three months ended March 31, 2018 and (ii) the pro forma impact of the adoption of
ASU 2014-09
on the revenue and
Adjusted OIBDA
of our consolidated reportable segments for the three months ended March 31, 2017 as if the adoption of
ASU 2014-09
had occurred on January 1, 2017.
|
|
Three months ended March 31,
|
||||||
|
|
2018
|
2017 (a)
|
|||||
|
|
in millions
|
||||||
|
Increase (decrease) to revenue:
|
|||||||
|
U.K./Ireland
|
$
|
5.6
|
|
$
|
(1.9
|
)
|
|
|
Belgium
|
(1.5
|
)
|
(1.4
|
)
|
|||
|
Germany
|
(1.1
|
)
|
(5.0
|
)
|
|||
|
Switzerland/Austria
|
(0.5
|
)
|
(0.9
|
)
|
|||
|
Central and Eastern Europe
|
(0.1
|
)
|
(0.6
|
)
|
|||
|
Total increase (decrease) to revenue
|
$
|
2.4
|
|
$
|
(9.8
|
)
|
|
|
Increase (decrease) to Adjusted OIBDA:
|
|||||||
|
U.K./Ireland
|
$
|
—
|
|
$
|
(3.1
|
)
|
|
|
Belgium
|
(1.5
|
)
|
(1.4
|
)
|
|||
|
Germany
|
1.5
|
|
(1.9
|
)
|
|||
|
Switzerland/Austria
|
(0.6
|
)
|
(1.1
|
)
|
|||
|
Central and Eastern Europe
|
—
|
|
(0.1
|
)
|
|||
|
Total decrease to Adjusted OIBDA
|
$
|
(0.6
|
)
|
$
|
(7.6
|
)
|
|
_______________
|
(a)
|
Amounts are presented on a pro forma basis that gives effect to the adoption of
ASU 2014-09
as if such adoption had occurred on January 1, 2017.
|
50
Discussion and Analysis of our Consolidated Reportable Segments
General
All of the
reportable segments
set forth below derive their revenue primarily from residential and
B2B
communications services, including video, broadband internet, fixed-line telephony and mobile services. For detailed information regarding the composition of our
reportable segments
and how we define and categorize our revenue components, see note
16
to our condensed consolidated financial statements. For more information regarding the results of operations of the
VodafoneZiggo JV
, refer to
Discussion and Analysis of our Consolidated Operating Results — Share of losses of affiliates
below.
The tables presented below in this section provide the details of the revenue and
Adjusted OIBDA
of our
consolidated reportable segments
for the
three months ended
March 31, 2018
and
2017
. As discussed above, the amounts for the three months ended March 31, 2017 are presented on a pro forma basis that gives effect to the adoption of
ASU 2014-09
as if such adoption had occurred on January 1, 2017. These tables present (i) the amounts reported for the current and comparative periods, (ii) the reported
U.S.
dollar change and percentage change from period to period and (iii) the organic
U.S.
dollar change and percentage change from period to period. The comparisons that exclude
FX
assume that exchange rates remained constant at the prior-year rate during the comparative period that is included in each table. We also provide a table showing the
Adjusted OIBDA
margins of our
consolidated reportable segments
for the
three months ended March 31, 2018
and
2017
at the end of this section.
Revenue of our Consolidated Reportable Segments
General.
While not specifically discussed in the below explanations of the changes in the revenue of our
consolidated 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
RGU
s and/or
ARPU
.
Variances in the subscription revenue that we receive from our customers are a function of (i) changes in the number of
RGU
s or mobile subscribers outstanding during the period and (ii) changes in
ARPU
. Changes in
ARPU
can be attributable to (a) changes in prices, (b) changes in bundling or promotional discounts, (c) changes in the tier of services selected, (d) variances in subscriber usage patterns and (e) the overall mix of cable 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.
Revenue
|
|
Three months ended
March 31, |
Increase
|
Organic increase (decrease)
|
|||||||||||||||||
|
|
2018
|
2017
|
$
|
%
|
$
|
%
|
||||||||||||||
|
pro forma
|
||||||||||||||||||||
|
|
in millions, except percentages
|
|||||||||||||||||||
|
U.K./Ireland
|
$
|
1,778.2
|
|
$
|
1,502.5
|
|
$
|
275.7
|
|
18.3
|
$
|
77.5
|
|
5.2
|
|
|||||
|
Belgium
|
759.6
|
|
660.0
|
|
99.6
|
|
15.1
|
(12.0
|
)
|
(1.8
|
)
|
|||||||||
|
Germany
|
782.8
|
|
624.1
|
|
158.7
|
|
25.4
|
54.0
|
|
8.7
|
|
|||||||||
|
Switzerland/Austria
|
454.6
|
|
422.8
|
|
31.8
|
|
7.5
|
(2.1
|
)
|
(0.4
|
)
|
|||||||||
|
Central and Eastern Europe
|
330.8
|
|
270.7
|
|
60.1
|
|
22.2
|
11.3
|
|
4.3
|
|
|||||||||
|
Central and Corporate (a)
|
51.7
|
|
32.8
|
|
18.9
|
|
57.6
|
10.0
|
|
41.1
|
|
|||||||||
|
Intersegment eliminations
|
(1.6
|
)
|
(3.7
|
)
|
2.1
|
|
N.M.
|
2.1
|
|
N.M.
|
|
|||||||||
|
Total Liberty Global
|
$
|
4,156.1
|
|
$
|
3,509.2
|
|
$
|
646.9
|
|
18.4
|
$
|
140.8
|
|
4.0
|
|
|||||
_______________
|
(a)
|
Amounts primarily include the revenue earned from services provided to the
VodafoneZiggo JV
and, during the
2018
period,
Liberty Latin America
. For additional information, see note
5
to our condensed consolidated financial statements.
|
N.M. — Not Meaningful.
51
U.K./Ireland
.
The details of the pro forma increase in
U.K./Ireland
’s revenue during
the
three months ended March 31, 2018
,
as compared to the corresponding period in
2017
, are set f
orth below:
|
Subscription
revenue
|
Non-subscription
revenue
|
Total
|
|||||||||
|
in millions
|
|||||||||||
|
Increase in residential cable subscription revenue due to change in:
|
|||||||||||
|
Average number of RGUs (a)
|
$
|
15.0
|
|
$
|
—
|
|
$
|
15.0
|
|
||
|
ARPU (b)
|
17.3
|
|
—
|
|
17.3
|
|
|||||
|
Increase in residential cable non-subscription revenue
|
—
|
|
0.8
|
|
0.8
|
|
|||||
|
Total increase in residential cable revenue
|
32.3
|
|
0.8
|
|
33.1
|
|
|||||
|
Increase (decrease) in residential mobile revenue (c)
|
(3.0
|
)
|
32.7
|
|
29.7
|
|
|||||
|
Increase in B2B revenue (d)
|
7.1
|
|
2.8
|
|
9.9
|
|
|||||
|
Increase in other revenue (e)
|
—
|
|
4.8
|
|
4.8
|
|
|||||
|
Total organic increase
|
36.4
|
|
41.1
|
|
77.5
|
|
|||||
|
Impact of FX
|
154.3
|
|
43.9
|
|
198.2
|
|
|||||
|
Total
|
$
|
190.7
|
|
$
|
85.0
|
|
$
|
275.7
|
|
||
_______________
|
(a)
|
The increase in residential cable subscription revenue related to a change in the average number of
RGU
s is attributable to an increase in the average number of broadband internet, video and fixed-line telephony
RGU
s.
|
|
(b)
|
The increase in cable subscription revenue related to a change in
ARPU
is primarily attributable to (i) a net increase due to (a) higher
ARPU
from broadband internet services and (b) lower
ARPU
from fixed-line telephony services and (ii) an improvement in
RGU
mix.
|
|
(c)
|
The decrease in residential mobile subscription revenue relates to the net effect of (i) a decrease in the
U.K.
, due primarily to lower
ARPU
, and (ii) an increase in Ireland, mainly due to an increase in the average number of mobile subscribers.
The increase in residential mobile non-subscription revenue is primarily due to an increase in revenue from mobile handset sales in the
U.K.
, which typically generate relatively low margins.
|
|
(d)
|
The increase in
B2B
subscription revenue is primarily due to an increase in the average number of broadband internet
SOHO
subscribers in the
U.K.
The increase in
B2B
non-subscription revenue is primarily due to the net effect of (i) higher revenue from the sale and installation of equipment related to business network services in the
U.K.
and (ii) lower revenue from data services.
|
|
(e)
|
The increase in other revenue is largely due to an increase in broadcasting revenue in Ireland.
|
For information regarding certain regulatory developments that could have an adverse impact on our revenue in the
U.K.
, see “
Virgin Media VAT
Matters”
in note
15
to our condensed consolidated financial statements.
52
Belgium.
The details of the pro forma increase in Belgium’s revenue during the
three months ended March 31, 2018
, as compared to the corresponding period in
2017
, are set f
orth below:
|
Subscription
revenue
|
Non-subscription
revenue
|
Total
|
|||||||||
|
in millions
|
|||||||||||
|
Decrease
in residential cable subscription revenue due to change in:
|
|||||||||||
|
Average number of RGUs (a)
|
$
|
(5.2
|
)
|
$
|
—
|
|
$
|
(5.2
|
)
|
||
|
ARPU (b)
|
(8.1
|
)
|
—
|
|
(8.1
|
)
|
|||||
|
Decrease
in residential cable non-subscription revenue (c)
|
—
|
|
(2.1
|
)
|
(2.1
|
)
|
|||||
|
Total decrease in residential cable revenue
|
(13.3
|
)
|
(2.1
|
)
|
(15.4
|
)
|
|||||
|
Decrease in residential mobile revenue (d)
|
(8.5
|
)
|
(1.4
|
)
|
(9.9
|
)
|
|||||
|
Increase in B2B revenue (e)
|
8.3
|
|
5.0
|
|
13.3
|
|
|||||
|
Total organic increase
(
decrease)
|
(13.5
|
)
|
1.5
|
|
(12.0
|
)
|
|||||
|
Impact of acquisitions
|
15.9
|
|
2.2
|
|
18.1
|
|
|||||
|
Impact of disposals
|
(7.3
|
)
|
(0.5
|
)
|
(7.8
|
)
|
|||||
|
Impact of FX
|
78.2
|
|
23.1
|
|
101.3
|
|
|||||
|
Total
|
$
|
73.3
|
|
$
|
26.3
|
|
$
|
99.6
|
|
||
_______________
|
(a)
|
The decrease in residential cable subscription revenue related to a change in the average number of
RGU
s is primarily attributable to decreases in the average number of video and broadband internet
RGU
s.
|
|
(b)
|
The decrease in residential cable subscription revenue related to a change in
ARPU
is attributable to the net effect of (i)
lower
ARPU
from fixed-line telephony, broadband internet and video services and (ii) a slight improvement in
RGU
mix.
|
|
(c)
|
The decrease in residential cable non-subscription revenue is primarily attributable to the net effect of (i) a $5.3 million decrease related to adjustments recorded during the 2017 period to reflect the expected recovery of certain prior-period
VAT
payments and (ii) an increase in equipment sales.
|
|
(d)
|
The decrease in residential mobile subscription revenue is primarily due to the net effect of
(i) a decline in the average number of mobile subscribers and (ii) higher
ARPU
. The decrease in residential mobile non-subscription revenue is primarily driven by a decrease in revenue from sales of mobile handsets and other devices.
|
|
(e)
|
The increase
in
B2B
subscription revenue is primarily attributable to an increase in the average number of broadband internet and video
SOHO
subscribers. The increase in
B2B
non-subscription revenue is primarily due to the net effect of (i) higher revenue from wholesale services, (ii) a decrease in interconnect revenue primarily due to lower volumes and (iii) a decrease in revenue from hosting services.
|
For information concerning certain regulatory developments that could have an adverse impact on our revenue in Belgium, see “
Belgium Regulatory Developments”
in note
15
to our condensed consolidated financial statements.
53
Germany.
The details of the pro forma increase in Germany’s revenue during the
three months ended March 31, 2018
, as compared to the corresponding period in
2017
, are set forth below:
|
Subscription
revenue (a)
|
Non-subscription
revenue
|
Total
|
|||||||||
|
in millions
|
|||||||||||
|
Increase in residential cable subscription revenue due to change in:
|
|||||||||||
|
Average number of RGUs (b)
|
$
|
5.8
|
|
$
|
—
|
|
$
|
5.8
|
|
||
|
ARPU (c)
|
5.5
|
|
—
|
|
5.5
|
|
|||||
|
Increase in residential cable non-subscription revenue (d)
|
—
|
|
34.7
|
|
34.7
|
|
|||||
|
Total increase in residential cable revenue
|
11.3
|
|
34.7
|
|
46.0
|
|
|||||
|
Decrease in residential mobile revenue (e)
|
(0.6
|
)
|
(8.1
|
)
|
(8.7
|
)
|
|||||
|
Increase in B2B revenue (f)
|
4.7
|
|
12.4
|
|
17.1
|
|
|||||
|
Decrease in other revenue
|
—
|
|
(0.4
|
)
|
(0.4
|
)
|
|||||
|
Total organic increase
|
15.4
|
|
38.6
|
|
54.0
|
|
|||||
|
Impact of FX
|
91.6
|
|
13.1
|
|
104.7
|
|
|||||
|
Total
|
$
|
107.0
|
|
$
|
51.7
|
|
$
|
158.7
|
|
||
_______________
|
(a)
|
Residential cable subscription revenue includes revenue from multi-year bulk agreements with landlords or housing associations or with third parties that operate and administer the in-building networks on behalf of housing associations. These bulk agreements, which generally allow for the procurement of the basic video signals at volume-based discounts, provide access to approximately two-thirds of Germany’s video subscribers. Germany’s bulk agreements are, to a significant extent, medium- and long-term contracts. As of
March 31, 2018
, bulk agreements covering approximately 35% of the video subscribers that Germany serves expire by the end of 2019 or are terminable on 30-days notice. During the three months ended
March 31, 2018
, Germany’s 20 largest bulk agreement accounts generated approximately 8% of its total revenue (including estimated amounts billed directly to the building occupants for digital video, broadband internet and fixed-line telephony services). No assurance can be given that Germany’s bulk agreements will be renewed or extended on financially equivalent terms, or at all.
|
|
(b)
|
The increase in residential cable subscription revenue related to a change in the average number of
RGU
s is attributable to the net effect of (i) increases in the average number of broadband internet and fixed-line telephony
RGU
s and (ii) a decrease in the average number of video
RGU
s.
|
|
(c)
|
The increase in residential cable subscription revenue related to a change in
ARPU
is attributable to (i) an improvement in
RGU
mix and (ii) a net increase due to (a) higher
ARPU
from broadband internet and video services and (b) lower
ARPU
from fixed-line telephony services.
|
|
(d)
|
The increase in residential cable non-subscription revenue is primarily due to an increase in carriage fee revenue, including (i) a $33.2 million benefit related to the settlement of prior-year fees in connection with the execution of a new carriage fee contract during the first quarter of 2018 and (ii) a $7.3 million decrease attributable to the June 2017 discontinuation of analog video services in Germany. Channel carriage revenue relates to fees received for the carriage of certain channels included in Germany’s basic and enhanced video offerings. This channel carriage fee revenue is subject to contracts that expire or are otherwise terminable by either party on various dates ranging from 2018 through 2028. Excluding the impact of the settlement mentioned above, the aggregate amount of revenue related to these channel carriage contracts represented approximately 4% of Germany’s total revenue during the three months ended
March 31, 2018
. No assurance can be given that these contracts will be renewed or extended on financially equivalent terms, or at all.
|
|
(e)
|
The
decrease in residential mobile non-subscription revenue is primarily due to a decrease in mobile handset sales as Germany’s wholesale handset program was transferred to another Liberty Global subsidiary within
Central and Corporate
effective January 1, 2018.
|
54
|
(f)
|
The increase in
B2B
subscription revenue is primarily attributable to an increase in the average number of broadband internet and fixed-line telephony
SOHO
subscribers. The increase in
B2B
non-subscription revenue is largely due to an increase in interconnect revenue related to wholesale telephony services, which typically generate relatively low margins.
|
Switzerland/Austria
.
The details of the pro forma increase in
Switzerland/Austria
’s revenue during the
three months ended March 31, 2018
, as compared to the corresponding period in
2017
, are set forth below:
|
Subscription
revenue
|
Non-subscription
revenue
|
Total
|
|||||||||
|
in millions
|
|||||||||||
|
Decrease in residential cable subscription revenue due to change in:
|
|||||||||||
|
Average number of RGUs (a)
|
$
|
(3.0
|
)
|
$
|
—
|
|
$
|
(3.0
|
)
|
||
|
ARPU (b)
|
(17.3
|
)
|
—
|
|
(17.3
|
)
|
|||||
|
Increase in residential cable non-subscription revenue (c)
|
—
|
|
7.9
|
|
7.9
|
|
|||||
|
Total increase (decrease) in residential cable revenue
|
(20.3
|
)
|
7.9
|
|
(12.4
|
)
|
|||||
|
Increase
in residential mobile revenue (d)
|
4.5
|
|
0.6
|
|
5.1
|
|
|||||
|
Increase in B2B revenue (e)
|
0.8
|
|
4.1
|
|
4.9
|
|
|||||
|
Increase
in other revenue
|
—
|
|
0.3
|
|
0.3
|
|
|||||
|
Total organic
increase (decrease)
|
(15.0
|
)
|
12.9
|
|
(2.1
|
)
|
|||||
|
Impact of FX
|
27.5
|
|
6.4
|
|
33.9
|
|
|||||
|
Total
|
$
|
12.5
|
|
$
|
19.3
|
|
$
|
31.8
|
|
||
_______________
|
(a)
|
The decrease in residential cable subscription revenue related to a change in the average number of
RGU
s is attributable to the net effect of (i) a decline in the average number of video
RGU
s and (ii) increases in the average number of fixed-line telephony and broadband internet
RGU
s.
|
|
(b)
|
The decrease in residential cable subscription revenue related to a change in
ARPU
is attributable to (i) a decrease due to lower
ARPU
from fixed-line telephony, broadband internet and video services, including the reversal during the first quarter of 2018 of $3.9 million of revenue in Switzerland that was recognized during prior-year periods, and (ii) an adverse change in
RGU
mix.
|
|
(c)
|
The increase in residential cable non-subscription revenue is primarily attributable to the net effect of (i) an $11.8 million increase in distribution revenue associated with the September 2017 launch of our Swiss sports channels and (ii) a $3.7 million decrease due to the unfavorable impact of the release of unclaimed customer credits in Switzerland during the 2017 period.
|
|
(d)
|
The increase in residential mobile subscription revenue is primarily due to an increase in the average number of mobile subscribers.
|
|
(e)
|
The increase in
B2B
non-subscription revenue is primarily due to (i) higher revenue from fixed-line telephony and data services in Switzerland and (ii) an increase in interconnect revenue in Switzerland.
|
55
Central and Eastern Europe.
The details of the pro forma increase in Central and Eastern Europe’s revenue during the
three months ended March 31, 2018
, as compared to the corresponding period in
2017
, are set forth below:
|
Subscription
revenue
|
Non-subscription
revenue
|
Total
|
|||||||||
|
in millions
|
|||||||||||
|
Increase (decrease) in residential cable subscription revenue due to change in:
|
|||||||||||
|
Average number of RGUs (a)
|
$
|
6.4
|
|
$
|
—
|
|
$
|
6.4
|
|
||
|
ARPU (b)
|
(4.1
|
)
|
—
|
|
(4.1
|
)
|
|||||
|
Decrease in residential cable non-subscription revenue
|
—
|
|
(0.6
|
)
|
(0.6
|
)
|
|||||
|
Total increase (decrease) in residential cable revenue
|
2.3
|
|
(0.6
|
)
|
1.7
|
|
|||||
|
Increase in residential mobile revenue
|
0.7
|
|
0.1
|
|
0.8
|
|
|||||
|
Increase
in B2B revenue (c)
|
3.0
|
|
5.8
|
|
8.8
|
|
|||||
|
Total organic increase
|
6.0
|
|
5.3
|
|
11.3
|
|
|||||
|
Impact of FX
|
42.5
|
|
6.3
|
|
48.8
|
|
|||||
|
Total
|
$
|
48.5
|
|
$
|
11.6
|
|
$
|
60.1
|
|
||
_______________
|
(a)
|
The increase in residential cable subscription revenue related to a change in the average number of
RGU
s is attributable to (i) an increase in the average number of broadband internet
RGU
s, due primarily to increases in Hungary, the Czech Republic and Romania, (ii) an increase in the average number of fixed-line telephony
RGU
s, primarily in Hungary, and (iii) an increase in the average number of video
RGU
s, as increases in the Czech Republic, Romania and Hungary were only partially offset by decreases in UPC DTH and Poland.
|
|
(b)
|
The decrease in residential cable subscription revenue related to a change in
ARPU
is primarily attributable to (i) a net decrease due to (a) lower
ARPU
from fixed-line telephony, due primarily to decreases in Poland and Hungary, (b) lower
ARPU
from broadband internet services, primarily driven by decreases in Poland and Hungary that were only partially offset by an increase in Romania, and (c) higher
ARPU
from video services, as increases in Poland and
UPC DTH
were only partially offset by a decrease in the Czech Republic, and (ii) a slight adverse change in
RGU
mix.
|
|
(c)
|
The
increase in
B2B
subscription revenue is largely attributable to an increase in the average number of broadband internet
SOHO
subscribers. The increase in
B2B
non-subscription revenue is primarily due to (i) higher
revenue from fixed-line telephony services, primarily in the Czech Republic, and (ii)
higher interconnect revenue, primarily due to
higher volumes.
|
56
Programming and Other Direct Costs of Services, Other Operating Expenses and SG&A Expenses of our Consolidated Reportable Segments
For information regarding the changes in our (i) programming and other direct costs of services, (ii) other operating expenses and (iii) SG&A expenses
,
see
Discussion and Analysis of our Consolidated Operating Results
below.
Adjusted OIBDA
of our Consolidated Reportable Segments
General.
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
of our
consolidated reportable segments
to our loss from continuing operations before income taxes, see note
16
to our condensed consolidated financial statements.
|
|
Three months ended
March 31, |
Increase (decrease)
|
Organic increase (decrease)
|
||||||||||||||||||
|
|
2018
|
2017
|
$
|
%
|
$
|
%
|
|||||||||||||||
|
pro forma
|
|||||||||||||||||||||
|
in millions, except percentages
|
|||||||||||||||||||||
|
U.K./Ireland
|
$
|
762.6
|
|
$
|
642.9
|
|
$
|
119.7
|
|
18.6
|
|
$
|
35.1
|
|
5.5
|
|
|||||
|
Belgium
|
357.6
|
|
296.5
|
|
61.1
|
|
20.6
|
|
6.5
|
|
2.1
|
|
|||||||||
|
Germany
|
492.1
|
|
381.3
|
|
110.8
|
|
29.1
|
|
45.0
|
|
11.8
|
|
|||||||||
|
Switzerland/Austria
|
243.5
|
|
252.0
|
|
(8.5
|
)
|
(3.4
|
)
|
(26.7
|
)
|
(10.4
|
)
|
|||||||||
|
Central and Eastern Europe
|
139.1
|
|
110.9
|
|
28.2
|
|
25.4
|
|
7.1
|
|
6.3
|
|
|||||||||
|
Central and Corporate
|
(96.0
|
)
|
(90.6
|
)
|
(5.4
|
)
|
(6.0
|
)
|
4.9
|
|
4.7
|
|
|||||||||
|
Total
|
$
|
1,898.9
|
|
$
|
1,593.0
|
|
$
|
305.9
|
|
19.2
|
|
$
|
71.9
|
|
4.5
|
|
|||||
Adjusted OIBDA
Margin
The following table sets forth the
Adjusted OIBDA
margins (
Adjusted OIBDA
divided by revenue) of each of our
consolidated reportable segments
:
|
|
Three months ended
March 31, |
||||
|
|
2018
|
2017
|
|||
|
pro forma
|
|||||
|
U.K./Ireland
|
42.9
|
%
|
42.8
|
%
|
|
|
Belgium
|
47.1
|
%
|
44.9
|
%
|
|
|
Germany
|
62.9
|
%
|
61.1
|
%
|
|
|
Switzerland/Austria
|
53.6
|
%
|
59.6
|
%
|
|
|
Central and Eastern Europe
|
42.0
|
%
|
41.0
|
%
|
|
In addition to organic changes in the revenue, operating and SG&A expenses of our
consolidated reportable segments
, the
Adjusted OIBDA
margins presented above include the impact of acquisitions. For discussion of the factors contributing to the changes in the
Adjusted OIBDA
margins of our reportable segments, see the analysis of our revenue included in
Discussion and Analysis of our Reportable Segments
above and the analysis of our expenses included in
Discussion and Analysis of our Consolidated Operating Results
below.
57
Discussion and Analysis of our Consolidated Operating Results
Revenue
Our revenue by major category is set forth below:
|
|
|
|
Three months ended
March 31, |
Increase
|
Organic increase (decrease)
|
||||||||||||||||||
|
|
2018
|
2017
|
$
|
%
|
$
|
%
|
|||||||||||||||
|
pro forma
|
|||||||||||||||||||||
|
|
in millions, except percentages
|
||||||||||||||||||||
|
Residential revenue:
|
|||||||||||||||||||||
|
Residential cable revenue (a):
|
|||||||||||||||||||||
|
Subscription revenue (b):
|
|||||||||||||||||||||
|
Video
|
$
|
1,198.5
|
|
$
|
1,063.6
|
|
$
|
134.9
|
|
12.7
|
|
$
|
(16.9
|
)
|
(1.6
|
)
|
|||||
|
Broadband internet
|
1,138.8
|
|
952.7
|
|
186.1
|
|
19.5
|
|
47.8
|
|
5.0
|
|
|||||||||
|
Fixed-line telephony
|
579.8
|
|
528.1
|
|
51.7
|
|
9.8
|
|
(18.7
|
)
|
(3.5
|
)
|
|||||||||
|
Total subscription revenue
|
2,917.1
|
|
2,544.4
|
|
372.7
|
|
14.6
|
|
12.2
|
|
0.5
|
|
|||||||||
|
Non-subscription revenue
|
169.2
|
|
99.2
|
|
70.0
|
|
70.6
|
|
40.5
|
|
41.5
|
|
|||||||||
|
Total residential cable revenue
|
3,086.3
|
|
2,643.6
|
|
442.7
|
|
16.7
|
|
52.7
|
|
2.0
|
|
|||||||||
|
Residential mobile revenue (c):
|
|||||||||||||||||||||
|
Subscription revenue (b)
|
254.0
|
|
237.5
|
|
16.5
|
|
6.9
|
|
(6.8
|
)
|
(2.9
|
)
|
|||||||||
|
Non-subscription revenue
|
181.5
|
|
139.7
|
|
41.8
|
|
29.9
|
|
24.0
|
|
17.6
|
|
|||||||||
|
Total residential mobile revenue
|
435.5
|
|
377.2
|
|
58.3
|
|
15.5
|
|
17.2
|
|
4.7
|
|
|||||||||
|
Total residential revenue
|
3,521.8
|
|
3,020.8
|
|
501.0
|
|
16.6
|
|
69.9
|
|
2.3
|
|
|||||||||
|
B2B revenue (d):
|
|||||||||||||||||||||
|
Subscription revenue
|
148.5
|
|
105.7
|
|
42.8
|
|
40.5
|
|
24.0
|
|
22.7
|
|
|||||||||
|
Non-subscription revenue
|
422.9
|
|
333.9
|
|
89.0
|
|
26.7
|
|
42.0
|
|
12.3
|
|
|||||||||
|
Total B2B revenue
|
571.4
|
|
439.6
|
|
131.8
|
|
30.0
|
|
66.0
|
|
12.7
|
|
|||||||||
|
Other revenue (e)
|
62.9
|
|
48.8
|
|
14.1
|
|
28.9
|
|
4.9
|
|
10.0
|
|
|||||||||
|
Total
|
$
|
4,156.1
|
|
$
|
3,509.2
|
|
$
|
646.9
|
|
18.4
|
|
$
|
140.8
|
|
4.0
|
|
|||||
_______________
|
(a)
|
Residential cable subscription revenue includes amounts received from subscribers for ongoing services and the recognition of deferred installation revenue over the associated contract period. Residential cable non-subscription revenue includes, among other items, channel carriage fees, late fees and revenue from the sale of equipment.
|
|
(b)
|
Residential subscription revenue from subscribers who purchase bundled services at a discounted rate is generally allocated proportionally to each service based on the standalone price for each individual service. As a result, changes in the standalone pricing of our cable and mobile products or the composition of bundles can contribute to changes in our product revenue categories from period to period.
|
|
(c)
|
Residential mobile subscription revenue includes amounts received from subscribers for ongoing services. Residential mobile non-subscription revenue includes, among other items, interconnect revenue and revenue from sales of mobile handsets and other devices. Residential mobile interconnect revenue was
$70.7 million
and
$64.0 million
during the
three months ended March 31, 2018
and
2017
, respectively.
|
58
|
(d)
|
B2B
subscription revenue represents revenue from
SOHO
subscribers.
SOHO
subscribers pay a premium price to receive expanded service levels along with video, broadband internet, fixed-line telephony or mobile services that are the same or similar to the mass marketed products offered to our residential subscribers.
A portion of the increases in our
B2B
subscription revenue is attributable to the conversion of certain residential subscribers to
SOHO
subscribers.
B2B
non-subscription revenue includes revenue from business broadband internet, video, fixed-line telephony, mobile and data services offered to medium to large enterprises and, on a wholesale basis, to other operators.
|
|
(e)
|
Other revenue includes, among other items,
revenue earned from services provided to the VodafoneZiggo JV
and, during the
2018
period,
Liberty Latin America
.
|
Total revenue.
Our consolidated revenue
increased
$646.9 million
during the
three months ended March 31, 2018
, as compared to the corresponding period in
2017
. This increase includes (i) an increase of
$18.1 million
attributable to the impact of acquisitions and (ii) a decrease of
$7.8 million
attributable to the impact of dispositions. On an organic basis, our consolidated revenue increased
$140.8 million
or
4.0%
.
Residential revenue.
The details of the pro forma increase in our consolidated residential revenue for the
three months ended March 31, 2018
, as compared to the corresponding period in
2017
, are as follows (in millions):
|
Increase (decrease)
in residential cable subscription revenue due to change in:
|
|||
|
Average number of RGUs
|
$
|
27.3
|
|
|
ARPU
|
(15.1
|
)
|
|
|
Increase in residential cable non-subscription revenue
|
40.5
|
|
|
|
Total increase in residential cable revenue
|
52.7
|
|
|
|
Decrease in residential mobile subscription revenue
|
(6.8
|
)
|
|
|
Increase in residential mobile non-subscription revenue
|
24.0
|
|
|
|
Total organic increase in residential revenue
|
69.9
|
|
|
|
Net impact of acquisitions and disposals
|
3.6
|
|
|
|
Impact of FX
|
427.5
|
|
|
|
Total increase in residential revenue
|
$
|
501.0
|
|
On an organic basis, our consolidated residential cable subscription revenue increased
$12.2 million
or
0.5%
during the
three months ended March 31, 2018
, as compared to the corresponding period in
2017
. This increase is attributable to the net effect of (i)
an increase
from broadband internet services of
$47.8 million
or
5.0%
, attributable to an increase in the average number of
RGU
s and higher
ARPU
, (ii) a decrease from fixed-line telephony services of
$18.7 million
or
3.5%
, attributable to the net effect of lower
ARPU
and an increase in the average number of
RGU
s, and (iii) a decrease
from video services of
$16.9 million
or
1.6%
, attributable to a decrease in the average number of
RGU
s and lower
ARPU
.
On an organic basis, our consolidated residential cable non-subscription revenue
increased
$40.5 million
or
41.5%
during the
three months ended March 31, 2018
, as compared to the corresponding period in
2017
. This increase is primarily attributable to increases in Germany and Switzerland.
On an organic basis, our consolidated residential mobile subscription revenue decreased
$6.8 million
or
2.9%
during the
three months ended March 31, 2018
, as compared to the corresponding period in
2017
. This decrease is primarily due to the net effect of declines in Belgium and the
U.K.
that were only partially offset by an increase in Switzerland.
On an organic basis, our consolidated residential mobile non-subscription revenue increased
$24.0 million
or
17.6%
during the
three months ended March 31, 2018
, as compared to the corresponding period in
2017
. This increase is primarily due to the net effect of increases
in the
U.K.
and
Central and Corporate
that were only partially offset by a decrease in Germany.
B2B
revenue.
On an organic basis, our consolidated
B2B
subscription revenue increased
$24.0 million
or
22.7%
during the
three months ended March 31, 2018
, as compared to the corresponding period in
2017
. This increase is primarily due to increases
in
SOHO
revenue in Belgium, the
U.K.
and Germany.
59
On an organic basis, our consolidated
B2B
non-subscription revenue increased
$42.0 million
or
12.3%
during the
three months ended March 31, 2018
, as compared to the corresponding period in
2017
. This increase is primarily due to increases
in Germany, Belgium, the Czech Republic and Switzerland.
For additional information concerning the changes in our residential,
B2B
and other revenue, see
Discussion and Analysis of our Reportable Segments
above.
Programming and other direct costs of services
Programming and other direct costs of services include programming and copyright costs, interconnect and access costs, costs of mobile handsets and other devices and other direct costs related to our operations. Programming and copyright costs, which represent a significant portion of our operating costs, are expected to rise in future periods as a result of (i) 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 and (iii) growth in the number of our enhanced video subscribers.
|
|
|
Three months ended
March 31, |
Increase
|
Organic increase (decrease)
|
||||||||||||||||||
|
|
2018
|
2017
|
$
|
%
|
$
|
%
|
||||||||||||||
|
|
in millions, except percentages
|
|||||||||||||||||||
|
U.K./Ireland
|
$
|
553.2
|
|
$
|
448.4
|
|
$
|
104.8
|
|
23.4
|
$
|
42.7
|
|
9.5
|
|
|||||
|
Belgium
|
180.6
|
|
178.5
|
|
2.1
|
|
1.2
|
(20.7
|
)
|
(11.7
|
)
|
|||||||||
|
Germany
|
81.2
|
|
58.3
|
|
22.9
|
|
39.3
|
12.0
|
|
20.6
|
|
|||||||||
|
Switzerland/Austria
|
87.7
|
|
56.4
|
|
31.3
|
|
55.5
|
25.3
|
|
44.9
|
|
|||||||||
|
Central and Eastern Europe
|
87.3
|
|
69.3
|
|
18.0
|
|
26.0
|
5.2
|
|
7.5
|
|
|||||||||
|
Central and Corporate
|
12.7
|
|
1.1
|
|
11.6
|
|
1,054.5
|
9.1
|
|
827.3
|
|
|||||||||
|
Intersegment eliminations
|
(0.1
|
)
|
—
|
|
(0.1
|
)
|
N.M.
|
—
|
|
N.M.
|
|
|||||||||
|
Total
|
$
|
1,002.6
|
|
$
|
812.0
|
|
$
|
190.6
|
|
23.5
|
$
|
73.6
|
|
9.1
|
|
|||||
_______________
N.M. — Not Meaningful.
Our programming and other direct costs of services increased
$190.6 million
or
23.5%
during the
three months ended March 31, 2018
, respectively, as compared to the corresponding period in
2017
. This increase includes (i) an increase of
$2.7 million
attributable to the impact of acquisitions and (ii) a decrease of
$3.9 million
attributable to the impact of dispositions. On an organic basis, our programming and other direct costs of services increased
$73.6 million
or
9.1%
. This increase includes the following factors:
|
•
|
An increase in programming and copyright costs of $40.0 million or 8.9%, primarily due to increases in
Switzerland/Austria
,
U.K./Ireland
and
Germany. These increases are primarily due to (i) higher costs for certain premium and/or basic content, including (a) higher costs for sports rights in Switzerland and (b) higher costs associated with our broadcasting rights in Ireland, and (ii) an
$8.8 million
increase associated with the settlement of prior-year amounts in connection with the execution of a new programming agreement in Germany. The cost for sports rights increased by
$19.2 million
in Switzerland due to the acquisition of the rights to carry live sporting events in connection with the September 2017 launch of our Swiss sports channels. Approximately half of the annual programming costs and the operating and capital costs associated with the production of the related Swiss sports channels are recovered from the revenue earned from the distribution of these sports channels to other cable operators;
|
|
•
|
An increase in mobile handset and other device costs of $32.3 million or 46.6%, primarily due to
(i) a higher average cost per handset sold in
U.K./Ireland
and (ii) higher mobile handset and other device sales volumes, as increases in
Central and Corporate
and
U.K./Ireland
were only partially offset by a decrease in Germany;
|
60
|
•
|
A decrease of $3.6
million in the
U.K.
associated with the fourth quarter 2017 modification of a software agreement that resulted in the acquisition of a perpetual license and related conversion of the operating costs to capitalized costs; and
|
|
•
|
An increase in interconnect and access costs of $0.3 million or 0.1%, primarily due to the net effect of (i) higher interconnect and roaming costs, as increases in Germany, the Czech Republic,
U.K./Ireland
and
Switzerland/Austria
were only partially offset by a decrease in Belgium, and
(ii) lower
MVNO
costs, as a
$13.6 million
decrease in Belgium was only partially offset by increases in
U.K./Ireland
and
Switzerland/Austria
. The decrease in Belgium’s
MVNO
costs is primarily attributable to the impact of the continued migration of mobile subscribers from Telenet’s
MVNO
arrangement to Telenet’s mobile network, which was completed during the three months ended March 31, 2018. For additional information, see note
13
to our condensed consolidated financial statements.
|
Other operating expenses
Other operating expenses include network operations, customer operations, customer care, share-based compensation and other costs related to our operations. We do not include share-based compensation in the following discussion and analysis of the other operating expenses of our
reportable segments
as share-based compensation expense is not included in the performance measures of our
reportable segments
. Share-based compensation expense is discussed below.
|
|
|
|
Three months ended
March 31, |
Increase
|
Organic increase (decrease)
|
|||||||||||||||||
|
|
2018
|
2017
|
$
|
%
|
$
|
%
|
||||||||||||||
|
pro forma
|
||||||||||||||||||||
|
|
in millions, except percentages
|
|||||||||||||||||||
|
U.K./Ireland
|
$
|
232.0
|
|
$
|
195.9
|
|
$
|
36.1
|
|
18.4
|
$
|
10.7
|
|
5.5
|
|
|||||
|
Belgium
|
113.3
|
|
92.5
|
|
20.8
|
|
22.5
|
3.1
|
|
3.3
|
|
|||||||||
|
Germany
|
100.9
|
|
90.0
|
|
10.9
|
|
12.1
|
(2.5
|
)
|
(2.8
|
)
|
|||||||||
|
Switzerland/Austria
|
60.6
|
|
56.9
|
|
3.7
|
|
6.5
|
(1.1
|
)
|
(1.9
|
)
|
|||||||||
|
Central and Eastern Europe
|
56.3
|
|
49.3
|
|
7.0
|
|
14.2
|
(1.2
|
)
|
(2.4
|
)
|
|||||||||
|
Central and Corporate
|
41.3
|
|
36.8
|
|
4.5
|
|
12.2
|
(2.1
|
)
|
(5.0
|
)
|
|||||||||
|
Intersegment eliminations
|
3.1
|
|
(1.0
|
)
|
4.1
|
|
N.M.
|
3.6
|
|
N.M.
|
|
|||||||||
|
Total Liberty Global
|
607.5
|
|
520.4
|
|
87.1
|
|
16.7
|
$
|
10.5
|
|
2.0
|
|
||||||||
|
Share-based compensation expense
|
1.0
|
|
0.9
|
|
0.1
|
|
11.1
|
|||||||||||||
|
Total
|
$
|
608.5
|
|
$
|
521.3
|
|
$
|
87.2
|
|
16.7
|
||||||||||
_______________
N.M. — Not Meaningful.
Our other operating expenses (exclusive of share-based compensation expense) increased
$87.1 million
or
16.7%
during the
three months ended March 31, 2018
as compared to the corresponding period in
2017
. This increase includes an increase of
$2.8 million
attributable to the impact of acquisitions. On an organic basis, our other operating expenses
increased
$10.5 million
or
2.0%
. This increase includes the following factors:
|
•
|
An increase in network infrastructure charges in
U.K./Ireland
of $8.4 million following an increase in the rateable value of existing assets. For additional information, including our estimate of the full year 2018 impact of this rate increase, see “
Other Regulatory Issues”
in note
15
to our condensed consolidated financial statements;
|
|
•
|
An increase in personnel costs of $3.6 million or 2.3%, primarily due to the net effect of (i) a higher average cost per employee, primarily due to increases in Belgium,
U.K./Ireland
and
Switzerland/Austria
, (ii) decreased staffing levels, as decreases in
U.K./Ireland
and Belgium were only partially offset by an increase in
Switzerland/Austria
, (iii) a decrease in temporary personnel costs, as decreases in Germany and
Central and Corporate
were only partially offset by an increase in
U.K./Ireland
, and (iv) higher incentive compensation costs, primarily in
U.K./Ireland
;
|
61
|
•
|
An increase in customer service costs of $3.0 million or 3.3%, primarily due to the net effect of (i) an increase in customer premises equipment refurbishment costs, primarily in Germany and
U.K./Ireland
,
and (ii) lower call center costs, primarily due to a decrease in
U.K./Ireland
that was only partially offset by an increase in Belgium;
|
|
•
|
An increase in mobile service delivery platform costs of $2.7 million or 18.4%, largely due to higher mobile network maintenance costs in Belgium; and
|
|
•
|
A decrease in outsourced labor costs of $2.7 million or 6.9%, primarily associated with customer-facing activities in
U.K./Ireland
and Germany.
|
SG&A expenses
SG&A expenses include human resources, information technology, general services, management, finance, legal, sales and marketing, share-based compensation and other general expenses. We do not include share-based compensation in the following discussion and analysis of the SG&A expenses of our reportable segments as share-based compensation expense is not included in the performance measures of our reportable segments. Share-based compensation expense is discussed below.
|
|
|
|
Three months ended
March 31, |
Increase
|
Organic increase (decrease)
|
|||||||||||||||||
|
|
2018
|
2017
|
$
|
%
|
$
|
%
|
||||||||||||||
|
pro forma
|
||||||||||||||||||||
|
|
in millions, except percentages
|
|||||||||||||||||||
|
U.K./Ireland
|
$
|
230.4
|
|
$
|
215.3
|
|
$
|
15.1
|
|
7.0
|
$
|
(11.0
|
)
|
(5.1
|
)
|
|||||
|
Belgium
|
108.1
|
|
92.5
|
|
15.6
|
|
16.9
|
(0.9
|
)
|
(1.0
|
)
|
|||||||||
|
Germany
|
108.6
|
|
94.5
|
|
14.1
|
|
14.9
|
(0.5
|
)
|
(0.5
|
)
|
|||||||||
|
Switzerland/Austria
|
62.8
|
|
57.5
|
|
5.3
|
|
9.2
|
0.4
|
|
0.7
|
|
|||||||||
|
Central and Eastern Europe
|
48.1
|
|
41.2
|
|
6.9
|
|
16.7
|
0.2
|
|
0.5
|
|
|||||||||
|
Central and Corporate
|
93.7
|
|
85.5
|
|
8.2
|
|
9.6
|
(1.9
|
)
|
(2.2
|
)
|
|||||||||
|
Intersegment eliminations
|
(4.6
|
)
|
(2.7
|
)
|
(1.9
|
)
|
N.M.
|
(1.5
|
)
|
N.M.
|
|
|||||||||
|
Total SG&A expenses excluding share-based compensation expense
|
647.1
|
|
583.8
|
|
63.3
|
|
10.8
|
$
|
(15.2
|
)
|
(2.6
|
)
|
||||||||
|
Share-based compensation expense
|
44.8
|
|
32.5
|
|
12.3
|
|
37.8
|
|||||||||||||
|
Total
|
$
|
691.9
|
|
$
|
616.3
|
|
$
|
75.6
|
|
12.3
|
||||||||||
N.M. — Not Meaningful.
Supplemental SG&A expense information:
|
|
|
|
Three months ended
March 31, |
Increase
|
Organic decrease
|
|||||||||||||||||
|
|
2018
|
2017
|
$
|
%
|
$
|
%
|
||||||||||||||
|
pro forma
|
||||||||||||||||||||
|
|
in millions, except percentages
|
|||||||||||||||||||
|
General and administrative (a)
|
$
|
455.2
|
|
$
|
402.9
|
|
$
|
52.3
|
|
13.0
|
$
|
(2.4
|
)
|
(0.6
|
)
|
|||||
|
External sales and marketing
|
191.9
|
|
180.9
|
|
11.0
|
|
6.1
|
(12.8
|
)
|
(7.1
|
)
|
|||||||||
|
Total
|
$
|
647.1
|
|
$
|
583.8
|
|
$
|
63.3
|
|
10.8
|
$
|
(15.2
|
)
|
(2.6
|
)
|
|||||
62
_______________
|
(a)
|
General and administrative expenses include all personnel-related costs within our SG&A expenses, including personnel-related costs associated with our sales and marketing function.
|
Our SG&A expenses (exclusive of share-based compensation expense)
increased
$63.3 million
or
10.8%
during the
three months ended March 31, 2018
as compared to the corresponding period in
2017
. This increase includes an increase of
$2.0 million
attributable to the impact of acquisitions. On an organic basis, our SG&A expenses decreased
$15.2 million
or
2.6%
. This decrease includes the following factors:
|
•
|
A decrease in external sales and marketing costs of $12.8 million or 7.1%, primarily due to lower costs associated with advertising campaigns, as a decrease in
U.K./Ireland
was only partially offset by increases in
Switzerland/Austria
and Belgium;
|
|
•
|
An increase in core network and information technology-related costs of $7.8 million or 19.7%, primarily due to an increase in information technology-related expenses in
U.K./Ireland
and
Central and Corporate
;
|
|
•
|
A decrease in personnel costs of $7.3 million or 3.0%,
primarily due to the net effect of (i) lower incentive compensation costs, primarily due to decreases in
Central and Corporate
and
Switzerland/Austria
, (ii) a higher average cost per employee
in
U.K./Ireland
and (iii) a decrease in temporary personnel costs, primarily due to decreases in
Central and Corporate
and Germany. The lower incentive compensation costs include a decrease of $6.7 million,
primarily in
Central and Corporate
, attributable to the expected settlement of a portion of our 2018 annual incentive compensation with
Liberty Global
ordinary shares through a shareholding incentive program that was implemented in 2018. For additional information, see note
12
to our condensed consolidated financial statements; and
|
|
•
|
A decrease in business service costs
of $4.5 million or 7.7%, primarily due to (i) decreases in travel and entertainment expenses in
Central and Corporate
,
U.K./Ireland
and
Switzerland/Austria
and (ii) lower consulting costs, as decreases in Belgium,
U.K./Ireland
and Germany were only partially offset by an increase in
Central and Corporate
.
|
Share-based compensation expense (included in other operating and SG&A expenses)
Our share-based compensation expense primarily relates to the share-based incentive awards issued by
Liberty Global
to its employees and employees of its subsidiaries. A summary of our aggregate share-based compensation expense is set forth below:
|
|
Three months ended
March 31, |
||||||
|
|
2018
|
2017
|
|||||
|
|
in millions
|
||||||
|
Liberty Global:
|
|||||||
|
Performance-based incentive awards (a)
|
$
|
9.7
|
|
$
|
3.8
|
|
|
|
Non-performance based share-based incentive awards
|
24.5
|
|
25.5
|
|
|||
|
Other (b)
|
7.1
|
|
—
|
|
|||
|
Total Liberty Global
|
41.3
|
|
29.3
|
|
|||
|
Telenet share-based incentive awards
|
4.3
|
|
4.0
|
|
|||
|
Other
|
0.2
|
|
0.1
|
|
|||
|
Total
|
$
|
45.8
|
|
$
|
33.4
|
|
|
|
Included in:
|
|||||||
|
Other operating expense
|
$
|
1.0
|
|
$
|
0.9
|
|
|
|
SG&A expense
|
44.8
|
|
32.5
|
|
|||
|
Total
|
$
|
45.8
|
|
$
|
33.4
|
|
|
_______________
|
(a)
|
Includes share-based compensation expense related to (i)
PSU
s and (ii) through March 31, 2017,
PGUs
held by our Chief Executive Officer.
|
63
|
(b)
|
Represents annual incentive compensation and defined contribution plan liabilities that have been or are expected to be settled with
Liberty Global
ordinary shares. In the case of the annual incentive compensation, shares will be issued to senior management and key employees pursuant to a shareholding incentive program that was implemented in 2018. The shareholding incentive program allows these employees to elect to receive up to 100% of their annual incentive compensation in ordinary shares of
Liberty Global
in lieu of cash.
|
For additional information regarding our share-based compensation expense, see note
12
to our condensed consolidated financial statements.
Depreciation and amortization expense
Our depreciation and amortization expense was
$1,296.4 million
and
$1,128.3 million
for the
three months ended
March 31, 2018
and
2017
, respectively. Excluding the effects of
FX
, depreciation and amortization expense increased
$13.8 million
or
1.2%
during the
three months ended March 31, 2018
, as compared to the corresponding period in
2017
. This increase is primarily due to the net effect of
(i) an increase associated with property and equipment additions related to the installation of customer premises equipment, the expansion and upgrade of our networks and other capital initiatives and
(ii) a decrease associated with certain assets becoming fully depreciated, primarily in
U.K./Ireland
,
Central and Corporate
, Germany and
Switzerland/Austria
.
Impairment, restructuring and other operating items, net
We recognized impairment, restructuring and other operating items, net, of
$63.6 million
and
$11.8 million
during the
three months ended March 31, 2018
and
2017
, respectively.
The total for the
2018
period primarily includes restructuring charges of
$58.3 million
, including
$39.2 million
of costs in Belgium related to the migration of
Telenet
’s mobile subscribers from an
MVNO
arrangement to
Telenet
’s mobile network, as further described in note
13
to our condensed consolidated financial statements.
The total for the
2017
period includes restructuring charges of
$15.1 million
, including
$13.8 million
of employee severance and termination costs related to certain reorganization activities, primarily in Germany and
Central and Corporate
.
If, among other factors, (i) our equity values were to decline significantly or (ii) the adverse impacts of economic, competitive, regulatory or other factors were to cause our results of operations or cash flows to be worse than anticipated, we could conclude in future periods that impairment charges are required in order to reduce the carrying values of our goodwill and, to a lesser extent, other long-lived assets. Any such impairment charges could be significant.
For additional information regarding our restructuring charges, see note
13
to our condensed consolidated financial statements.
Interest expense
We recognized interest expense of
$487.8 million
and
$453.2 million
during the
three months ended March 31, 2018
and
2017
, respectively. Excluding the effects of
FX
, interest expense decreased $24.1 million or 5.3% during the
three months ended March 31, 2018
, as compared to the corresponding period in
2017
. This decrease is primarily attributable to the net effect of (i) a lower weighted average interest rate related to the completion of certain refinancing transactions that resulted in extended maturities and decreases to certain of our interest rates and (ii) a higher average outstanding debt balance. For additional information regarding our outstanding indebtedness, see note
9
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
6
to our condensed consolidated financial statements and under
Qualitative and Quantitative Disclosures about Market Risk
below, we use derivative instruments to manage our interest rate risks.
64
Realized and unrealized losses on derivative instruments, net
Our realized and unrealized losses on derivative instruments include (i) unrealized changes in the fair values of our derivative instruments that are non-cash in nature until such time as the derivative contracts are fully or partially settled and (ii) realized gains or losses upon the full or partial settlement of the derivative contracts. The details of our realized and unrealized losses on derivative instruments, net, are as follows:
|
|
Three months ended
March 31, |
||||||
|
|
2018
|
2017
|
|||||
|
|
in millions
|
||||||
|
Cross-currency and interest rate derivative contracts (a)
|
$
|
(451.0
|
)
|
$
|
(154.3
|
)
|
|
|
Equity-related derivative instruments:
|
|||||||
|
ITV Collar
|
123.6
|
|
(53.2
|
)
|
|||
|
Sumitomo Collar
|
11.4
|
|
(23.5
|
)
|
|||
|
Lionsgate Forward
|
9.0
|
|
0.5
|
|
|||
|
Other
|
1.2
|
|
(5.8
|
)
|
|||
|
Total equity-related derivative instruments (b)
|
145.2
|
|
(82.0
|
)
|
|||
|
Foreign currency forward and option contracts
|
6.4
|
|
(6.0
|
)
|
|||
|
Other
|
(0.9
|
)
|
0.5
|
|
|||
|
Total
|
$
|
(300.3
|
)
|
$
|
(241.8
|
)
|
|
|
(a)
|
The losses during the
2018
and
2017
periods are primarily attributable to (i) net losses associated with changes in the relative value of certain currencies and (ii) net losses associated with changes in certain market interest rates. In addition, the losses during the
2018
and
2017
periods include net gains of $
47.2 million
and
$65.9 million
, respectively, resulting from changes in our credit risk valuation adjustments.
|
|
(b)
|
The recurring fair value measurements of our equity-related derivative instruments are based on binomial pricing models.
|
For additional information concerning our derivative instruments, see notes
6
and
7
to our condensed consolidated financial statements and
Quantitative and Qualitative Disclosures about Market Risk
below.
65
Foreign currency transaction gains (losses), net
Our foreign currency transaction gains or losses primarily result from the remeasurement of monetary assets and liabilities that are denominated in currencies other than the underlying functional currency of the applicable entity. Unrealized foreign currency transaction gains or losses are computed based on period-end exchange rates and are non-cash in nature until such time as the amounts are settled. The details of our foreign currency transaction gains (losses), net, are as follows:
|
|
Three months ended
March 31, |
||||||
|
|
2018
|
2017
|
|||||
|
|
in millions
|
||||||
|
Intercompany payables and receivables denominated in a currency other than the entity’s functional currency (a)
|
$
|
(292.0
|
)
|
$
|
(1.8
|
)
|
|
|
U.S. dollar-denominated debt issued by euro functional currency entities
|
172.1
|
|
69.6
|
|
|||
|
U.S. dollar-denominated debt issued by British pound sterling functional currency entities
|
165.5
|
|
80.3
|
|
|||
|
British pound sterling-denominated debt issued by a U.S. dollar functional currency entity
|
(52.6
|
)
|
(20.9
|
)
|
|||
|
Cash and restricted cash denominated in a currency other than the entity’s functional currency
|
(18.6
|
)
|
(39.8
|
)
|
|||
|
Other
|
(4.9
|
)
|
(23.0
|
)
|
|||
|
Total
|
$
|
(30.5
|
)
|
$
|
64.4
|
|
|
_______________
|
(a)
|
Amounts primarily relate to (i) loans between certain of our non-operating subsidiaries in the
U.S.
and Europe and (ii) loans between certain of our non-operating and operating subsidiaries in Europe, which generally are denominated in the currency of the applicable operating subsidiary.
|
Realized and unrealized gains (losses)
due to changes in fair values of certain investments and debt, net
Our realized and unrealized gains or losses due to changes in fair values of certain investments and debt include unrealized gains or losses associated with changes in fair values that are non-cash in nature until such time as these gains or losses are realized through cash transactions. For additional information regarding our investments, fair value measurements and debt, see notes
5
,
7
and
9
, respectively, to our condensed consolidated financial statements. The details of our realized and unrealized gains (losses) due to changes in fair values of certain investments and debt, net, are as follows:
|
|
Three months ended
March 31, |
||||||
|
|
2018
|
2017
|
|||||
|
|
in millions
|
||||||
|
Investments:
|
|||||||
|
ITV
|
$
|
(86.8
|
)
|
$
|
78.7
|
|
|
|
Casa
|
52.2
|
|
1.7
|
|
|||
|
Lionsgate
|
(39.1
|
)
|
(1.3
|
)
|
|||
|
Sumitomo
|
(8.3
|
)
|
75.8
|
|
|||
|
Other, net
|
3.0
|
|
8.1
|
|
|||
|
Total investments
|
(79.0
|
)
|
163.0
|
|
|||
|
Debt
|
21.8
|
|
(68.6
|
)
|
|||
|
Total
|
$
|
(57.2
|
)
|
$
|
94.4
|
|
|
Losses on debt modification and extinguishment, net
We recognized net losses on debt modification and extinguishment of
$2.6 million
and
$45.3 million
during the
three months ended March 31, 2018
and
2017
, respectively.
66
The loss during the
three months ended March 31, 2018
is attributable to (i) the payment of
$2.0 million
of redemption premiums and (ii) the write-off of
$0.6 million
of net unamortized deferred financing costs and discounts.
The loss during the
three months ended March 31, 2017
is primarily attributable to (i) the payment of
$32.6 million
of redemption premiums and (ii) the write-off of
$11.4 million
of net unamortized deferred financing costs, discounts and premiums.
For additional information concerning our losses on debt modification and extinguishment, net, see note
9
to our condensed consolidated financial statements.
Share of losses of affiliates, net
The following table sets forth the details of our share of losses of affiliates, net:
|
|
Three months ended
March 31, |
||||||
|
|
2018
|
2017
|
|||||
|
|
in millions
|
||||||
|
VodafoneZiggo JV (a)
|
$
|
26.8
|
|
$
|
1.3
|
|
|
|
Other
|
9.7
|
|
14.4
|
|
|||
|
Total
|
$
|
36.5
|
|
$
|
15.7
|
|
|
_______________
|
(a)
|
Amounts in
2018
and
2017
include the net effect of
(i)
$15.2 million
and
$14.8 million
, respectively, representing
100%
of the interest income earned on the
VodafoneZiggo JV Receivable
, (ii)
100%
of the share-based compensation expense associated with
Liberty Global
awards held by
VodafoneZiggo JV
employees who were formerly employees of
Liberty Global
, as these awards remain our responsibility, and (iii) our
50%
share of the remaining results of operations of the
VodafoneZiggo JV
.
During the
three months ended March 31, 2018
and
2017
, the
VodafoneZiggo JV
generated (a) revenue of
$1,195.0 million
and
$1,078.6 million
, respectively, (b)
Adjusted OIBDA
of
$516.6 million
and
$460.3 million
, respectively, (c) operating income of
$38.4 million
and
$57.5 million
, respectively, (d) net non-operating expenses of
$142.4 million
and
$100.2 million
, respectively, (including
$169.4 million
and
$153.4 million
of interest expense) and (e) net losses of
$76.7 million
and
$29.7 million
, respectively. The preceding amounts for the 2017 period have been presented on a pro forma basis that gives effect to the adoption of
ASU 2014-09
as if such adoption had occurred on January 1, 2017.
|
The VodafoneZiggo JV is experiencing significant competition. In particular, the mobile operations of the VodafoneZiggo JV continue to experience competitive pressure on pricing, characterized by aggressive promotion campaigns, heavy marketing efforts and increasing or unlimited data bundles. If the adverse impacts of economic, competitive, regulatory or other factors were to cause significant deterioration of the results of operations or cash flows of the VodafoneZiggo JV, we could conclude in future periods that our investment in the VodafoneZiggo JV is impaired or management of the VodafoneZiggo JV could conclude that an impairment of the VodafoneZiggo JV goodwill and, to a lesser extent, long-lived assets, is required. Any such impairment of the VodafoneZiggo JV’s goodwill or our investment in the VodafoneZiggo JV would be reflected as a component of share of results of affiliates, net, in our condensed consolidated statement of operations. Our share of any such impairment charges could be significant.
Other income, net
We recognized other
income, net, of
$9.3 million
and
$16.0 million
for the
three months ended
March 31, 2018
and
2017
, respectively. These amounts include interest and dividend income of
$4.4 million
and
$13.6 million
, respectively.
Income tax
expense
We recognized income tax expense of
$766.1 million
and
$102.2 million
during the
three months ended
March 31, 2018
and
2017
, respectively.
The income tax expense during the
three
months ended
March 31, 2018
differs from the expected income tax benefit of
$78.4 million
(based on the
U.K.
statutory income tax rate of
19.0%
) primarily due to the net negative impact of (i) the
Mandatory
67
Repatriation Tax
and (ii) non-deductible or non-taxable foreign currency exchange results. The net negative impact of these items was partially offset by the net positive impact of a decrease in valuation allowances.
The income tax expense during the
three
months ended
March 31, 2017
differs from the expected income tax benefit of
$29.7 million
(based on the
U.K.
blended income tax rate of
19.25%
) primarily due to the net negative impact of (i) an increase in valuation allowances, (ii) certain permanent differences between the financial and tax accounting treatment of interest and other items and (iii) non-deductible or non-taxable foreign currency exchange results.
For additional information concerning our income taxes, see note
10
to our condensed consolidated financial statements.
Loss from continuing operations
During the
three months ended March 31, 2018
and
2017
, we reported losses from continuing operations of
$1,178.6 million
and
$256.3 million
, respectively, consisting of (i) operating income of
$493.1 million
and
$427.1 million
, respectively, (ii) net non-operating expense of
$905.6 million
and
$581.2 million
, respectively, and (iii) income tax expense of
$766.1 million
and
$102.2 million
, respectively.
Gains or losses associated with (i) changes in the fair values of derivative instruments, (ii) movements in foreign currency exchange rates and (iii) the disposition of assets and changes in ownership are subject to a high degree of volatility and, as such, any gains from these sources do not represent a reliable source of income. In the absence of significant gains in the future from these sources or from other non-operating items, our ability to achieve earnings is largely dependent on our ability to increase our aggregate
Adjusted OIBDA
to a level that more than offsets the aggregate amount of our (a) share-based compensation expense, (b) depreciation and amortization, (c) impairment, restructuring and other operating items, (d) interest expense, (e) other non-operating expenses and (f) income tax expenses.
Due largely to the fact that we seek to maintain our debt at levels that provide for attractive equity returns, as discussed under
Material Changes in Financial Condition
—
Capitalization
below, we expect that we will continue to report significant levels of interest expense for the foreseeable future. For information concerning our expectations with respect to trends that may affect certain aspects of our operating results in future periods, see the discussion under
Overview
above. For information concerning the reasons for changes in specific line items in our condensed consolidated statements of operations, see
Discussion and Analysis of our Reportable Segments
and
Discussion and Analysis of our Consolidated Operating Results
above.
Loss from discontinued operations, net of taxes
We reported a loss from discontinued operations, net of taxes, of
$10.9 million
during the three months ended March 31, 2017 related to the operations of the
LiLAC Group
. For additional information, see note
4
to our condensed consolidated financial statements.
Net earnings
attributable to noncontrolling interests
Net earnings attributable to noncontrolling interests includes the noncontrolling interests’ share of the results of our continuing and discontinued operations. Our net earnings attributable to noncontrolling interests were
$7.9 million
and
$53.0 million
during the
three months ended
March 31, 2018
and
2017
, respectively. The decrease is primarily attributable to declines in the results of operations of
Telenet
and the impact of the
Split-off Transaction
.
68
Material Changes in Financial Condition
Sources and Uses of Cash
We are a holding company that is dependent on the capital resources of our subsidiaries to satisfy our liquidity requirements at the corporate level. Each of our significant operating subsidiaries is separately financed within one of our four subsidiary “borrowing groups.” These borrowing groups include the respective restricted parent and subsidiary entities within
Virgin Media
,
Unitymedia
,
UPC Holding
and
Telenet
. Although our borrowing groups typically generate cash from operating activities, the terms of the instruments governing the indebtedness of these borrowing groups may restrict our ability to access the liquidity of these subsidiaries. In addition, our ability to access the liquidity of these and other subsidiaries may be limited by tax and legal considerations, the presence of noncontrolling interests and other factors.
Cash and cash equivalents
The details of the
U.S.
dollar equivalent balances of our consolidated cash and cash equivalents at
March 31, 2018
are set forth in the following table (in millions):
|
Cash and cash equivalents held by:
|
|||
|
Liberty Global and unrestricted subsidiaries:
|
|||
|
Liberty Global (a)
|
$
|
26.9
|
|
|
Unrestricted subsidiaries (b)
|
410.6
|
|
|
|
Total Liberty Global and unrestricted subsidiaries
|
437.5
|
|
|
|
Borrowing groups (c):
|
|||
|
Telenet
|
44.1
|
|
|
|
Virgin Media (d)
|
38.2
|
|
|
|
UPC Holding
|
27.7
|
|
|
|
Unitymedia
|
7.4
|
|
|
|
Total borrowing groups
|
117.4
|
|
|
|
Total cash and cash equivalents
|
$
|
554.9
|
|
_______________
|
(a)
|
Represents the amount held by
Liberty Global
on a standalone basis.
|
|
(b)
|
Represents the aggregate amount held by subsidiaries that are outside of our borrowing groups.
|
|
(c)
|
Except as otherwise noted, represents the aggregate amounts held by the parent entity and restricted subsidiaries of our borrowing groups.
|
|
(d)
|
The
Virgin Media
borrowing group includes certain subsidiaries of
Virgin Media
, but excludes the parent entity,
Virgin Media
Inc.
|
Liquidity of
Liberty Global
and its unrestricted subsidiaries
The
$26.9 million
of cash and cash equivalents held by
Liberty Global
and, subject to certain tax and legal considerations, the
$410.6 million
of aggregate cash and cash equivalents held by unrestricted subsidiaries, represented available liquidity at the corporate level at
March 31, 2018
. Our remaining cash and cash equivalents of
$117.4 million
at
March 31, 2018
were held by our borrowing groups as set forth in the table above. As noted above, various factors may limit our ability to access the cash of our borrowing groups. For information regarding certain limitations imposed by our subsidiaries’ debt instruments at
March 31, 2018
, see note
9
to our condensed consolidated financial statements.
Our current sources of corporate liquidity include (i) cash and cash equivalents held by
Liberty Global
and, subject to certain tax and legal considerations,
Liberty Global
’s unrestricted subsidiaries 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, including dividends received from the
VodafoneZiggo JV
, (iii) principal and interest payments received with respect to the
69
VodafoneZiggo JV Receivable
and (iv) cash received with respect to transition services provided to the
VodafoneZiggo JV
and
Liberty Latin America
.
From time to time,
Liberty Global
and its unrestricted subsidiaries may also receive (i) proceeds in the form of distributions or loan repayments from
Liberty Global
’s borrowing groups or affiliates (including amounts from the
VodafoneZiggo JV
) upon (a) the completion of recapitalizations, refinancings, asset sales or similar transactions by these entities or (b) the accumulation of excess cash from operations or other means, (ii) proceeds upon the disposition of investments and other assets of
Liberty Global
and its unrestricted subsidiaries and (iii) proceeds in connection with the incurrence of debt by
Liberty Global
or its unrestricted subsidiaries or the issuance of equity securities by
Liberty Global
, including equity securities issued to satisfy subsidiary obligations. No assurance can be given that any external funding would be available to
Liberty Global
or its unrestricted subsidiaries on favorable terms, or at all. For information regarding the liquidity impacts of the pending disposition of
UPC Austria
, see note
4
to our condensed consolidated financial statements.
At
March 31, 2018
, our consolidated cash and cash equivalents balance included
$504.8 million
held by entities that are domiciled outside of the
U.K.
Based on our assessment of our ability to access the liquidity of our subsidiaries on a tax efficient basis, our expectations with respect to our corporate liquidity requirements and our preliminary assessment of the
2017 U.S. Tax Act
, we do not anticipate that tax considerations will adversely impact our corporate liquidity over the next 12 months. Our ability to access the liquidity of our subsidiaries on a tax efficient basis is a consideration in assessing the extent of our share repurchase program.
In addition, the amount of cash we receive from our subsidiaries to satisfy
U.S.
dollar-denominated liquidity requirements is impacted by fluctuations in exchange rates, particularly with regard to the translation of British pounds sterling and euros into
U.S.
dollars. In this regard, the strengthening (weakening) of the
U.S.
dollar against these currencies will result in decreases (increases) in the
U.S.
dollars received from the applicable subsidiaries to fund the repurchase of our equity securities and other
U.S.
dollar-denominated liquidity requirements.
Our corporate liquidity requirements include (i) corporate general and administrative expenses, (ii) interest payments on the
ITV Collar Loan
, the
Sumitomo Collar Loan
and the
Sumitomo Share Loan
and (iii) principal payments on the
ITV Collar Loan
, the
Sumitomo Collar Loan
, the
Sumitomo Share Loan
and our secured borrowing arrangement with respect to
2.5 million
of our
Lionsgate
shares (the
Lionsgate Loan
) to the extent not settled through the delivery of the underlying shares. In addition,
Liberty Global
and its unrestricted subsidiaries may require cash in connection with (a) the repayment of third-party and intercompany debt, (b) the satisfaction of contingent liabilities, (c) acquisitions, (d) the repurchase of equity and debt securities, (e) other investment opportunities, (f) any funding requirements of our subsidiaries and affiliates or (g) income tax payments. In addition, our parent entity uses available liquidity to make interest and principal payments on notes payable to certain of our unrestricted subsidiaries (aggregate outstanding principal of
$11.3 billion
at
March 31, 2018
with varying maturity dates). For information regarding our commitments and contingencies, see note
15
to our condensed consolidated financial statements.
During the
three months ended March 31, 2018
, the aggregate purchase price of our share repurchases was
$496.3 million
, including direct acquisition costs. At
March 31, 2018
, the remaining amount authorized for share repurchases was
$1,571.5 million
.
Liquidity of borrowing groups
The cash and cash equivalents of our borrowing groups are detailed in the table above. In addition to cash and cash equivalents, the primary sources of liquidity of our borrowing groups are cash provided by operations and borrowing availability under their respective debt instruments. For the details of the borrowing availability of such entities at
March 31, 2018
, see note
9
to our condensed consolidated financial statements. The aforementioned sources of liquidity may be supplemented in certain cases by contributions and/or loans from
Liberty Global
and its unrestricted subsidiaries. The liquidity of our borrowing groups generally is used to fund property and equipment additions, 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 Global
, (iii) capital distributions to
Liberty Global
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
15
to our condensed consolidated financial statements.
For additional information regarding our consolidated cash flows, see the discussion under
Condensed Consolidated Statements of Cash Flows
below.
70
Capitalization
We seek to maintain our debt at levels that provide for attractive equity returns without assuming undue risk. In this regard, we generally seek to cause our operating subsidiaries to maintain their debt at levels that result in a consolidated debt balance (excluding the
ITV Collar Loan
,
Sumitomo Collar Loan
,
Sumitomo Share Loan
,
Lionsgate Loan
and measured using subsidiary debt figures at swapped foreign currency exchange rates, consistent with the covenant calculation requirements of our subsidiary debt agreements) that is between four and five times our consolidated
Adjusted OIBDA
, although the timing of our acquisitions and financing transactions and the interplay of average and spot foreign currency 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
5.3x
. 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
was
5.2x
.
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 in note
6
to our condensed consolidated financial statements, we also use derivative instruments to mitigate foreign currency and interest rate risk associated with our debt instruments.
Our ability to service or refinance our debt and to maintain compliance with the leverage covenants in the credit agreements and indentures of our borrowing groups is dependent primarily on our ability to maintain or increase the
Adjusted OIBDA
of our operating subsidiaries and to achieve adequate returns on our property and equipment additions and acquisitions. In addition, our ability to obtain additional debt financing is limited by the incurrence-based leverage covenants contained in the various debt instruments of our borrowing groups. For example, if the
Adjusted OIBDA
of
Virgin Media
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
, each of our borrowing groups was in compliance with its debt covenants. In addition, we do not anticipate any instances of non-compliance with respect to the debt covenants of our borrowing groups that would have a material adverse impact on our liquidity during the next 12 months.
At
March 31, 2018
, the outstanding principal amount of our consolidated debt, together with our capital lease obligations, aggregated
$42.8 billion
, including
$4,290.7 million
that is classified as current in our condensed consolidated balance sheet and
$31.8 billion
that is not due until 2024 or thereafter. All of our consolidated debt and capital lease obligations have been borrowed or incurred by our subsidiaries at
March 31, 2018
. For additional information concerning our debt maturities, see note
9
to our condensed consolidated financial statements.
Notwithstanding our negative working capital position at
March 31, 2018
, we believe that we have sufficient resources to repay or refinance the current portion of our debt and capital lease obligations and to fund our foreseeable liquidity requirements during the next 12 months. However, as our maturing debt grows in later years, we anticipate that we will seek to refinance or otherwise extend our debt maturities. No assurance can be given that we will be able to complete these refinancing transactions or otherwise extend our debt maturities. In this regard, it is not possible to predict how political and economic conditions, sovereign debt concerns or any adverse regulatory developments could impact the credit and equity markets we access and, accordingly, our future liquidity and financial position. 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. 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.
For additional information concerning our debt and capital lease obligations, see note
9
to our condensed consolidated financial statements.
71
Condensed Consolidated Statements of Cash Flows
General.
Our cash flows are subject to significant variations due to
FX
.
Summary.
The condensed consolidated statements of cash flows of our continuing operations for the
three
months ended
March 31, 2018
and
2017
are summarized as follows:
|
Three months ended
|
|||||||||||
|
March 31,
|
|||||||||||
|
2018
|
2017
|
Change
|
|||||||||
|
in millions
|
|||||||||||
|
Net cash provided by operating activities
|
$
|
1,279.3
|
|
$
|
904.4
|
|
$
|
374.9
|
|
||
|
Net cash provided (used) by investing activities
|
(671.1
|
)
|
1,889.2
|
|
(2,560.3
|
)
|
|||||
|
Net cash used by financing activities
|
(1,732.4
|
)
|
(1,783.1
|
)
|
50.7
|
|
|||||
|
Effect of exchange rate changes on cash and cash equivalents and restricted cash
|
14.1
|
|
22.7
|
|
(8.6
|
)
|
|||||
|
Net increase (decrease) in cash and cash equivalents and restricted cash
|
$
|
(1,110.1
|
)
|
$
|
1,033.2
|
|
$
|
(2,143.3
|
)
|
||
Operating Activities.
The
increase
in total
net cash provided by our operating activities is primarily attributable to the net effect of (i) an increase in cash provided by our
Adjusted OIBDA
and related working capital items, (ii) an increase in cash provided due to lower payments of interest, (iii) an increase in the reported net cash provided by operating activities due to
FX
, (iv) an increase in cash provided due to lower payments for taxes and (v) a decrease in cash provided due to lower cash receipts related to derivative instruments.
Investing Activities.
The change in total net cash
provided (used) by our investing activities is primarily attributable to a decrease in cash of (i)
$1,569.4 million
related to distributions received from affiliates in 2017,
(ii)
$840.8 million
associated with the equalization payment received in 2017 in connection with the completion of the
VodafoneZiggo JV Transaction
and (iii)
$145.6 million
due to higher capital expenditures. Capital expenditures
increased
from
$500.4 million
during the first
three
months of
2017
to
$646.0 million
during the first
three
months of
2018
due to the net effect of (a) a net increase in the local currency capital expenditures of our subsidiaries, including a decrease associated with higher capital-related vendor financing and a decrease associated with related working capital movements, and (b) an increase resulting from
FX
.
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 capital lease arrangements. Instead, these amounts are reflected as non-cash additions to our property and equipment when the underlying assets are delivered and as repayments of debt when the principal is repaid. In 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 capital lease arrangements. For further details regarding our property and equipment additions, see note
16
to our condensed consolidated financial statements. A reconciliation of our consolidated property and equipment additions to our consolidated capital expenditures, as reported in our condensed consolidated statements of cash flows, is set forth below:
|
|
Three months ended
March 31, |
||||||
|
|
2018
|
2017
|
|||||
|
in millions
|
|||||||
|
Property and equipment additions
|
$
|
1,251.4
|
|
$
|
884.4
|
|
|
|
Assets acquired under capital-related vendor financing arrangements
|
(743.4
|
)
|
(614.4
|
)
|
|||
|
Assets acquired under capital leases
|
(29.5
|
)
|
(31.4
|
)
|
|||
|
Changes in current liabilities related to capital expenditures
|
167.5
|
|
261.8
|
|
|||
|
Capital expenditures
|
$
|
646.0
|
|
$
|
500.4
|
|
|
72
The increase in our property and equipment additions during the
three months ended March 31, 2018
is primarily due to (i) an increase in local currency expenditures of our subsidiaries, primarily due to (a) expenditures to support new customer products and operational efficiency initiatives, (b) expenditures for new build and upgrade projects, (c) baseline expenditures, including network improvements and expenditures for property and facilities and information technology systems and (d) expenditures for the purchase and installation of customer premises equipment, and (ii) an increase due to
FX
.
Financing Activities.
The
decrease
in net cash used by our financing activities is primarily attributable to the net effect of
(i) an increase in cash used of
$789.7 million
related to lower net borrowings of debt, (ii) a decrease in cash used of
$479.5 million
due to lower repurchases of
Liberty Global
ordinary shares, (iii)
a decrease in cash used of
$162.6 million
related to
VAT
paid on behalf of the
VodafoneZiggo JV
during the 2017 period and (iv) a decrease in cash used of
$160.3 million
due to higher cash receipts related to derivative instruments.
Adjusted Free Cash Flow
We define adjusted free cash flow 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, less (a) capital expenditures, as reported in our condensed consolidated statements of cash flows, (b) principal payments on amounts financed by vendors and intermediaries and (c) principal payments on capital leases (exclusive of the portions of the network lease in Belgium and the duct leases in Germany that we assumed in connection with certain acquisitions), with each item excluding any cash provided or used by our discontinued operations. We believe that our presentation of 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:
|
|
Three months ended
March 31, |
||||||
|
|
2018
|
2017 (a)
|
|||||
|
in millions
|
|||||||
|
Net cash provided
by operating activities of our continuing operations
|
$
|
1,279.3
|
|
$
|
904.4
|
|
|
|
Cash payments for direct acquisition and disposition costs
|
1.6
|
|
1.8
|
|
|||
|
Expenses financed by an intermediary (b)
|
557.8
|
|
297.8
|
|
|||
|
Capital expenditures
|
(646.0
|
)
|
(500.4
|
)
|
|||
|
Principal payments on amounts financed by vendors and intermediaries
|
(1,796.8
|
)
|
(1,014.2
|
)
|
|||
|
Principal payments on certain capital leases
|
(21.0
|
)
|
(20.4
|
)
|
|||
|
Adjusted free cash flow
|
$
|
(625.1
|
)
|
$
|
(331.0
|
)
|
|
_______________
|
(a)
|
Adjusted free cash flow for the three months ended March 31, 2017 has been restated to reflect our January 1, 2018 adoption of
ASU 2016-18
.
|
|
(b)
|
For purposes of our condensed consolidated statements of cash flows, expenses 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 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.
|
73
Contractual Commitments
The following table sets forth the
U.S.
dollar equivalents of our commitments as of
March 31, 2018
:
|
|
Payments due during:
|
Total
|
|||||||||||||||||||||||||||||
|
|
Remainder
of 2018 |
||||||||||||||||||||||||||||||
|
2019
|
2020
|
2021
|
2022
|
2023
|
Thereafter
|
||||||||||||||||||||||||||
|
|
in millions
|
||||||||||||||||||||||||||||||
|
Debt (excluding interest)
|
$
|
4,159.4
|
|
$
|
360.2
|
|
$
|
346.4
|
|
$
|
3,095.6
|
|
$
|
777.6
|
|
$
|
1,517.4
|
|
$
|
31,076.5
|
|
$
|
41,333.1
|
|
|||||||
|
Capital leases (excluding interest)
|
112.3
|
|
125.4
|
|
119.2
|
|
118.6
|
|
122.5
|
|
126.8
|
|
725.5
|
|
1,450.3
|
|
|||||||||||||||
|
Programming commitments
|
903.7
|
|
908.0
|
|
543.7
|
|
251.4
|
|
49.0
|
|
15.6
|
|
49.4
|
|
2,720.8
|
|
|||||||||||||||
|
Network and connectivity commitments
|
640.7
|
|
396.4
|
|
319.1
|
|
281.1
|
|
86.4
|
|
66.7
|
|
914.9
|
|
2,705.3
|
|
|||||||||||||||
|
Purchase commitments
|
927.2
|
|
263.4
|
|
178.1
|
|
50.4
|
|
22.0
|
|
18.5
|
|
41.6
|
|
1,501.2
|
|
|||||||||||||||
|
Operating leases
|
125.0
|
|
122.9
|
|
100.0
|
|
76.5
|
|
61.9
|
|
51.9
|
|
180.3
|
|
718.5
|
|
|||||||||||||||
|
Other commitments
|
20.7
|
|
13.5
|
|
3.1
|
|
0.5
|
|
0.3
|
|
0.1
|
|
—
|
|
38.2
|
|
|||||||||||||||
|
Total (a)
|
$
|
6,889.0
|
|
$
|
2,189.8
|
|
$
|
1,609.6
|
|
$
|
3,874.1
|
|
$
|
1,119.7
|
|
$
|
1,797.0
|
|
$
|
32,988.2
|
|
$
|
50,467.4
|
|
|||||||
|
Projected cash interest payments on debt and capital lease obligations (b)
|
$
|
1,200.3
|
|
$
|
1,678.5
|
|
$
|
1,802.1
|
|
$
|
1,758.0
|
|
$
|
1,659.5
|
|
$
|
1,601.4
|
|
$
|
4,540.0
|
|
$
|
14,239.8
|
|
|||||||
_______________
|
(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 (
$460.0 million
at
March 31, 2018
) 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
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 interest rate derivative contracts, deferred financing costs, original issue premiums or discounts.
|
For information concerning our debt and capital lease obligations, see note
9
to our condensed consolidated financial statements. For information concerning our commitments, see note
15
to our condensed consolidated financial statements.
In addition to the commitments set forth in the table above, we have significant commitments under (i) derivative instruments and (ii) defined benefit plans and similar agreements, pursuant to which we expect to make payments in future periods. For information regarding projected cash flows associated with these derivative instruments, see
Quantitative and Qualitative Disclosures about Market Risk — Projected Cash Flows Associated with Derivative Instruments
below
.
For information regarding our derivative instruments, including the net cash paid or received in connection with these instruments during the
three
months ended
March 31, 2018
and
2017
, see note
6
to our condensed consolidated financial statements.
74
|
Item 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
General
We are exposed to market risk in the normal course of our business operations due to our investments in various foreign countries and ongoing investing and financing activities. Market risk refers to the risk of loss arising from adverse changes in foreign currency exchange rates, interest rates and stock prices. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. As further described below, we have established policies, procedures and processes governing our management of market risks and the use of derivative instruments to manage our exposure to such risks.
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
10-K
. The following discussion updates selected numerical information to
March 31, 2018
.
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 Global
or collectively to
Liberty Global
and its subsidiaries.
Unless otherwise indicated, convenience translations into
U.S.
dollars are calculated as of
March 31, 2018
.
Cash
We invest our cash in highly liquid instruments that meet high credit quality standards. We are exposed to exchange rate risk to the extent that the denominations of our cash and cash equivalent balances, revolving lines of credit and other short-term sources of liquidity do not correspond to the denominations of our and our subsidiaries’ short-term liquidity requirements. In order to mitigate this risk, we actively manage the denominations of our cash balances in light of our and our subsidiaries’ forecasted liquidity requirements. At
March 31, 2018
,
$309.4 million
or
55.8%
,
$123.1 million
or
22.2%
and
$85.1 million
or
15.3%
of our consolidated cash balances were denominated in
euros
,
U.S. dollars
and
British pounds sterling
, respectively.
Foreign Currency Exchange Rates
The relationships between the primary currencies of the countries in which we operate and the
U.S.
dollar, which is our reporting currency, are shown below, per one
U.S.
dollar:
|
March 31, 2018
|
December 31, 2017
|
||||
|
Spot rates:
|
|||||
|
Euro
|
0.8136
|
|
0.8318
|
|
|
|
British pound sterling
|
0.7134
|
|
0.7394
|
|
|
|
Swiss franc
|
0.9571
|
|
0.9736
|
|
|
|
Hungarian forint
|
254.31
|
|
258.41
|
|
|
|
Polish zloty
|
3.4256
|
|
3.4730
|
|
|
|
Czech koruna
|
20.669
|
|
21.243
|
|
|
|
Romanian lei
|
3.7910
|
|
3.8830
|
|
|
75
|
Three months ended
|
|||||
|
|
March 31,
|
||||
|
|
2018
|
2017
|
|||
|
Average rates:
|
|||||
|
Euro
|
0.8135
|
|
0.9389
|
|
|
|
British sterling
|
0.7187
|
|
0.8070
|
|
|
|
Swiss franc
|
0.9480
|
|
1.0040
|
|
|
|
Hungarian forint
|
253.05
|
|
290.18
|
|
|
|
Polish zloty
|
3.3998
|
|
4.0559
|
|
|
|
Czech koruna
|
20.664
|
|
25.373
|
|
|
|
Romanian lei
|
3.7881
|
|
4.2452
|
|
|
Sensitivity Information
Information concerning the sensitivity of the fair value of certain of our more significant derivative instruments to changes in market conditions is set forth below. The potential changes in fair value set forth below do not include any amounts associated with the remeasurement of the derivative asset or liability into the applicable functional currency. For additional information, see notes
6
and
7
to our condensed consolidated financial statements.
Virgin Media
Cross-currency and Interest Rate Derivative Contracts
Holding all other factors constant, at
March 31, 2018
:
|
(i)
|
an instantaneous increase (decrease) of 10% in the value of the British pound sterling relative to the
U.S.
dollar would have decreased (increased) the aggregate fair value of the
Virgin Media
cross-currency and interest rate derivative contracts by approximately
£593 million
(
$831 million
); and
|
|
(ii)
|
an instantaneous increase (decrease) in the relevant base rate of 50 basis points (0.50%) would have increased (decreased) the aggregate fair value of the
Virgin Media
cross-currency and interest rate derivative contracts by approximately
£56 million
(
$78 million
).
|
UPC Holding
Cross-currency and Interest Rate Derivative Contracts
Holding all other factors constant, at
March 31, 2018
:
|
(i)
|
an instantaneous increase (decrease) of 10% in the value of the Swiss franc, Polish zloty, Hungarian forint, Czech koruna and Romanian lei relative to the euro would have decreased (increased) the aggregate fair value of the
UPC Holding
cross-currency and interest rate derivative contracts by approximately
€506 million
(
$622 million
);
|
|
(ii)
|
an instantaneous increase (decrease) of 10% in the value of the euro relative to the
U.S.
dollar would have decreased (increased) the aggregate fair value of the
UPC Holding
cross-currency and interest rate derivative contracts by approximately
€280 million
(
$344 million
); and
|
|
(iii)
|
an instantaneous increase (decrease) of 10% in the value of the Swiss franc relative to the
U.S.
dollar would have decreased (increased) the aggregate fair value of the
UPC Holding
cross-currency and interest rate derivative contracts by approximately
€89 million
(
$109 million
).
|
Unitymedia
Cross-currency and Interest Rate Derivative Contracts
Holding all other factors constant, at
March 31, 2018
, an instantaneous increase (decrease) of 10% in the value of the euro relative to the
U.S.
dollar would have decreased (increased) the aggregate fair value of the
Unitymedia
cross-currency and interest rate derivative contracts by approximately
€320 million
(
$393 million
).
76
Telenet
Cross-currency and Interest Rate Derivative Contracts
Holding all other factors constant, at
March 31, 2018
:
|
(i)
|
an instantaneous increase (decrease) of 10% in the value of the euro relative to the
U.S.
dollar would have decreased (increased) the aggregate fair value of the
Telenet
cross-currency derivative contracts by approximately
€257 million
(
$316 million
);
and
|
|
(ii)
|
an instantaneous increase (decrease) in the relevant base rate of 50 basis points (0.50%) would have increased (decreased) the aggregate fair value of the
Telenet
cross-currency, interest rate cap and swap contracts by approximately
€89 million
(
$109 million
).
|
ITV Collar
Holding all other factors constant, at
March 31, 2018
, an instantaneous increase (decrease) of 10% in the per share market price of
ITV
’s ordinary shares would have decreased (increased) the fair value of the
ITV Collar
by approximately
£56 million
(
$78 million
).
Projected Cash Flows Associated with Derivative Instruments
The following table provides information regarding the projected cash flows associated with our derivative instruments. The
U.S.
dollar equivalents presented below are based on interest rates and exchange rates that were in effect as of
March 31, 2018
. 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, see note
6
to our condensed consolidated financial statements.
|
Payments (receipts) due during:
|
Total
|
||||||||||||||||||||||||||||||
|
|
Remainder of 2018
|
||||||||||||||||||||||||||||||
|
|
2019
|
2020
|
2021
|
2022
|
2023
|
Thereafter
|
|||||||||||||||||||||||||
|
|
in millions
|
||||||||||||||||||||||||||||||
|
Projected derivative cash payments (receipts), net:
|
|||||||||||||||||||||||||||||||
|
Interest-related (a)
|
$
|
(253.3
|
)
|
$
|
69.0
|
|
$
|
(65.7
|
)
|
$
|
(44.0
|
)
|
$
|
(85.1
|
)
|
$
|
(94.1
|
)
|
$
|
(127.4
|
)
|
$
|
(600.6
|
)
|
|||||||
|
Principal-related (b)
|
(2.8
|
)
|
6.3
|
|
84.9
|
|
(139.0
|
)
|
(193.5
|
)
|
(83.7
|
)
|
(64.8
|
)
|
(392.6
|
)
|
|||||||||||||||
|
Other (c)
|
—
|
|
—
|
|
6.6
|
|
37.6
|
|
(43.0
|
)
|
(467.2
|
)
|
(168.2
|
)
|
(634.2
|
)
|
|||||||||||||||
|
Total
|
$
|
(256.1
|
)
|
$
|
75.3
|
|
$
|
25.8
|
|
$
|
(145.4
|
)
|
$
|
(321.6
|
)
|
$
|
(645.0
|
)
|
$
|
(360.4
|
)
|
$
|
(1,627.4
|
)
|
|||||||
_______________
|
(a)
|
Includes (i) the cash flows of our interest rate cap,
swaption
, collar and swap contracts and (ii) the interest-related cash flows of our cross-currency and interest rate swap contracts.
|
|
(b)
|
Includes the principal-related cash flows of our cross-currency swap contracts.
|
|
(c)
|
Includes amounts related to our equity-related derivative instruments and foreign currency forward contracts. We may elect to use cash or the collective value of the related shares and equity-related derivative instrument to settle the
ITV Collar Loan
, the
Sumitomo Collar Loan
and the
Lionsgate Loan
.
|
77
|
Item 4.
|
CONTROLS AND PROCEDURES
|
Evaluation of Disclosure Controls and Procedures
In accordance with Exchange Act Rule 13a-15, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and chief financial officer (the Executives), of the effectiveness of our disclosure controls and procedures as of
March 31, 2018
. In designing and evaluating the disclosure controls and procedures, the Executives recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is necessarily required to apply judgment in evaluating the cost-benefit relationship of possible controls and objectives. Based on that evaluation, the Executives concluded that our disclosure controls and procedures are effective as of
March 31, 2018
, to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
Changes in Internal Controls over Financial Reporting
There have been no changes in our internal controls over financial reporting identified in connection with the evaluation described above that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
78
Unless otherwise defined herein, the capitalized terms used in Part II of this Quarterly Report on Form 10-Q are defined in the notes to our condensed consolidated financial statements.
|
Item 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
|
(c)
|
Issuer Purchases of Equity Securities
|
The following table sets forth information concerning our company’s purchase of its own equity securities during the three months ended
March 31, 2018
:
|
Period
|
Total number of shares purchased
|
Average price
paid per share (a)
|
Total number of
shares purchased as part of publicly
announced plans
or programs
|
Approximate
dollar value of
shares that may
yet be purchased
under the plans or programs
|
||||||||
|
January 1, 2018 through January 31, 2018:
|
||||||||||||
|
Class C
|
4,876,900
|
|
$
|
35.05
|
|
4,876,900
|
|
(b)
|
||||
|
February 1, 2018 through February 28, 2018:
|
|
|
||||||||||
|
Class A
|
1,254,400
|
|
$
|
32.44
|
|
1,254,400
|
|
(b)
|
||||
|
Class C
|
3,322,500
|
|
$
|
34.29
|
|
3,322,500
|
|
(b)
|
||||
|
March 1, 2018 through March 31, 2018:
|
||||||||||||
|
Class A
|
1,004,400
|
|
$
|
32.45
|
|
1,004,400
|
|
(b)
|
||||
|
Class C
|
4,352,100
|
|
$
|
31.77
|
|
4,352,100
|
|
(b)
|
||||
|
Total — January 1, 2018 through March 31, 2018:
|
|
|||||||||||
|
Class A
|
2,258,800
|
|
$
|
32.44
|
|
2,258,800
|
|
(b)
|
||||
|
Class C
|
12,551,500
|
|
$
|
33.70
|
|
12,551,500
|
|
(b)
|
||||
_______________
|
(a)
|
Average price paid per share includes direct acquisition costs and the effects of derivative instruments, where applicable.
|
|
(b)
|
At
March 31, 2018
, the remaining amount authorized for share repurchases was
$1,571.5 million
.
|
79
|
Item 6.
|
EXHIBITS
|
Listed below are the exhibits filed as part of this Quarterly Report (according to the number assigned to them in Item 601 of Regulation S-K):
_______________
|
4 — Instruments Defining the Rights of Securities Holders, including Indentures:
|
||
|
4.1
|
||
|
4.2
|
||
|
4.3
|
||
|
4.4
|
||
|
10 — Material Contracts:
|
||
|
10.1
|
||
|
10.2
|
||
|
31 — Rule 13a-14(a)/15d-14(a) Certification:
|
||
|
31.1
|
||
|
31.2
|
||
|
101.SCH
|
XBRL Taxonomy Extension Schema Document*
|
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document*
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase*
|
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document*
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document*
|
|
|
*
|
Filed herewith
|
|
**
|
Furnished herewith
|
80
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
LIBERTY GLOBAL PLC
|
|
|
Dated:
|
May 8, 2018
|
|
/s/ M
ICHAEL
T. F
RIES
|
|
|
Michael T. Fries
President and Chief Executive Officer
|
||
|
Dated:
|
May 8, 2018
|
|
/s/ C
HARLES
H.R. B
RACKEN
|
|
|
Charles H.R. Bracken
Executive Vice President and Chief
Financial Officer
|
||
81
TABLE OF CONTENTS
Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits