Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
See the Glossary of defined terms at the beginning of this Annual Report on Form 10-K.
The following discussion and analysis, which should be read in conjunction with our consolidated financial statements, is intended to assist in providing an understanding of our results of operations and financial condition and is organized as follows:
•Overview. This section provides a general description of our business and recent events.
•Results of Operations. This section provides an analysis of our results of operations for the years ended December 31, 2022 and 2021.
•Liquidity and Capital Resources. This section provides an analysis of our liquidity, consolidated statements of cash flows and contractual commitments.
•Critical Accounting Policies, Judgments and Estimates. This section discusses those material accounting policies that involve uncertainties and require significant judgment in their application.
Unless otherwise indicated, operational data (including subscriber statistics) is presented as of December 31, 2022.
A discussion regarding our financial condition and results of operations for the year ended December 31, 2021 compared with the year ended December 31, 2020 can be found under captions entitled “Results of Operations” and “Liquidity and Capital Resources” in the section entitled “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 1, 2022, which is available free of charge through the SEC’s website at www.sec.gov or the Company’s website, https://investors.lla.com/financials/sec-filings. The Company’s website and the information contained therein, or incorporated therein, are not intended to be incorporated into this Annual Report on Form 10-K.
Overview
General
We are an international provider of fixed, mobile and subsea telecommunications services. We provide,
A.residential and B2B services in:
i.over 20 countries across Latin America and the Caribbean through two of our reportable segments, C&W Caribbean and C&W Panama;
ii.Puerto Rico, through our reportable segment Liberty Puerto Rico;
iii.Costa Rica, through our reportable segment Liberty Costa Rica;
iv.Chile, through our reportable segment VTR through September 30, 2022; and
B.through our reportable segment C&W Networks & LatAm, (i) B2B services in certain other countries in Latin America and the Caribbean and (ii) wholesale communication services over its subsea and terrestrial fiber optic cable networks that connect approximately 40 markets in that region.
At December 31, 2022, we (i) owned and operated fixed networks that passed 4,327,000 homes and served 3,819,500 RGUs comprising 1,734,100 broadband internet subscribers, 958,700 video subscribers and 1,126,700 fixed-line telephony subscribers, and (ii) served 8,169,500 mobile subscribers.
During 2022, we completed an organizational change with respect to our C&W operations whereby management of certain subsidiaries of C&W, which primarily operate our subsea and fiber optic cable networks, now report directly to the chief operating decision maker of Liberty Latin America and no longer report to the former C&W Caribbean and Networks segment decision maker. As a result, the aforementioned subsidiaries of C&W are now a separate operating and reportable segment, herein referred to as the C&W Networks & LatAm segment. In connection with this change, we have restated our segment presentation for all periods to separately present (i) C&W Caribbean and (ii) C&W Networks & LatAm.
Transactions
Claro Panama Acquisition. On September 14, 2021, we entered into a definitive agreement to acquire América Móvil’s operations in Panama in an all-cash transaction based upon an enterprise value of $200 million on a cash- and debt-free basis. On July 1, 2022, we completed the acquisition of Claro Panama, which was financed through a combination of debt and existing cash.
Chile JV. On September 29, 2021, we entered into an agreement with América Móvil to contribute the Chile JV Entities to América Móvil’s Chilean operations to form the Chile JV that will be owned 50:50 by Liberty Latin America and América Móvil. In October 2022, we completed the formation of the Chile JV and made a balancing payment to América Móvil totaling $76 million. The transaction did not trigger a change of control under VTR’s debt agreements, and was not subject to Liberty Latin America or América Móvil shareholder approvals. Beginning in October, we have accounted for our 50% interest in the Chile JV as an equity method investment.
Strategy and Management Focus
From a strategic perspective, we are seeking to build or acquire broadband communications and mobile businesses that have strong prospects for future growth. As discussed further under Liquidity and Capital Resources—Capitalization below, we also seek to maintain our debt at levels that provide for attractive equity returns without assuming undue risk.
We strive to achieve “organic” revenue and customer growth in our operations by developing and marketing bundled entertainment, information and communications services, and extending and upgrading the quality of our networks where appropriate. As we use the term, organic growth excludes FX and the estimated impact of acquisitions and disposals. While we seek to increase our customer base, we also seek to maximize the average revenue we receive from each household or business by increasing the penetration of our video, broadband internet, fixed-line telephony and mobile services with existing customers through product bundling and up-selling.
For information regarding our expectation with regard to property and equipment additions as a percent of revenue during 2023, see Liquidity and Capital Resources—Consolidated Statements of Cash Flows below.
Competition and Other External Factors
We are experiencing significant competition from other telecommunications operators and other communication service providers in all of our markets. The significant competition we are experiencing, together with macroeconomic factors, has adversely impacted our revenue, RGUs and/or ARPU in a number of our markets. For additional information regarding the revenue impact of changes in the RGUs and ARPU of our reportable segments, see discussion below.
Results of Operations
The comparability of our operating results during 2022 and 2021 is affected by acquisitions, a disposal and FX effects. As we use the term, “organic” changes exclude FX and the impacts of acquisitions and disposals, each as further discussed below.
In the following discussion, we quantify the estimated impacts on the operating results of the periods under comparison that are attributable to acquisitions and disposals. We (i) acquired (a) América Móvil’s operations in Panama in July 2022, (b) 96% of Broadband VI, LLC’s operations in the USVI effective December 2021, (c) Telefónica’s operations in Costa Rica in August 2021, and (ii) disposed of the Chile JV Entities in October 2022 in connection with the formation of the Chile JV. With respect to acquisitions, organic changes and the calculations of our organic change percentages exclude the operating results of an acquired entity during the first 12 months following the date of acquisition. With respect to disposals, the prior-year operating results of disposed entities are excluded from organic changes and the calculations of our organic change percentages to the same extent that those operations are not included in the current year.
Changes in foreign currency exchange rates may have a significant impact on our operating results, as VTR, Liberty Costa Rica and certain entities within C&W have functional currencies other than the U.S. dollar. Our primary exposure to FX risk, prior to the formation of the Chile JV, was to the Chilean peso, as a significant portion of our revenue was derived from VTR. For example, the average FX rate (utilized to translate our consolidated statements of operations) for the U.S. dollar per one Chilean peso depreciated by 17% for the nine months ended September 30, 2022, the period prior to the formation of the Chile JV in October 2022, as compared with the corresponding period in 2021. The impacts to the various components of our results of operations that are attributable to changes in FX are highlighted below. For information concerning our foreign currency
risks and applicable foreign currency exchange rates, see Item 7A. Quantitative and Qualitative Disclosures About Market Risk—Foreign Currency Risk below. For information regarding foreign currency risk, see Item 1A. Risk Factors above.
The amounts presented and discussed below represent 100% of the revenue and expenses of each segment and our corporate operations. As we have the ability to control certain subsidiaries that are not wholly-owned, we include 100% of the revenue and expenses of these entities in our consolidated statements of operations despite the fact that third parties own significant interests in these entities. The noncontrolling owners’ interests in the operating results of (i) certain subsidiaries of C&W and (ii) Liberty Costa Rica are reflected in net earnings or loss attributable to noncontrolling interests in our consolidated statements of operations.
We are subject to inflationary pressures with respect to certain costs and foreign currency exchange risk with respect to costs and expenses that are denominated in currencies other than the respective functional currencies of our reportable segments. Any cost increases that we are not able to pass on to our subscribers would result in increased pressure on our operating margins.
Year Ended December 31, 2022 as Compared with Year Ended December 31, 2021
Consolidated Adjusted OIBDA
On a consolidated basis, Adjusted OIBDA is a non-U.S. GAAP measure. Adjusted OIBDA is the primary measure used by our chief operating decision maker to evaluate segment operating performance. Adjusted OIBDA is also a key factor that is used by our internal decision makers to determine how to allocate resources to segments. Our internal decision makers believe Adjusted OIBDA is a meaningful measure because it represents a transparent view of our recurring operating performance that is unaffected by our capital structure and allows management to (i) readily view operating trends, (ii) perform analytical comparisons and benchmarking between segments and (iii) identify strategies to improve operating performance in the different countries in which we operate. We believe our Adjusted OIBDA measure is useful to investors because it is one of the bases for comparing our performance with the performance of other companies in the same or similar industries, although our measures may not be directly comparable to similar measures used by other public companies. Adjusted OIBDA should be viewed as a measure of operating performance that is a supplement to, and not a substitute for, operating income or loss, net earnings or loss and other U.S. GAAP measures of income or loss.
A reconciliation of total operating income, the nearest U.S. GAAP measure, to Adjusted OIBDA on a consolidated basis, is presented below for the periods indicated.
| | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 |
| in millions |
| | | |
Operating income | $ | 94.1 | | | $ | 67.3 | |
Share-based compensation expense | 93.5 | | | 118.1 | |
Depreciation and amortization | 910.7 | | | 964.7 | |
Impairment, restructuring and other operating items, net | 619.2 | | | 665.0 | |
Consolidated Adjusted OIBDA | $ | 1,717.5 | | | $ | 1,815.1 | |
The following table sets forth organic and non-organic changes in Adjusted OIBDA for the period indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| C&W Caribbean | | C&W Panama | | C&W Networks & LatAm | | Liberty Puerto Rico | | Liberty Costa Rica | | VTR | | Corporate | | Intersegment eliminations | | Consolidated |
| in millions |
Adjusted OIBDA for the twelve months ending: | | | | | | | | | | | | | | | | | |
December 31, 2021 | $ | 482.9 | | | $ | 200.1 | | | $ | 264.3 | | | $ | 580.9 | | | $ | 80.2 | | | $ | 259.6 | | | $ | (52.9) | | | $ | — | | | $ | 1,815.1 | |
Organic changes related to: | | | | | | | | | | | | | | | | | |
Revenue | 55.1 | | | 5.0 | | | 28.0 | | | (4.1) | | | 17.5 | | | (89.7) | | | 0.6 | | | (7.0) | | | 5.4 | |
Programming and other direct costs | (8.1) | | | (2.8) | | | (6.1) | | | (19.6) | | | (0.9) | | | 15.0 | | | — | | | 6.1 | | | (16.4) | |
Other operating costs and expenses | 8.0 | | | (15.1) | | | (7.8) | | | (33.9) | | | (7.5) | | | 4.4 | | | (19.2) | | | 0.9 | | | (70.2) | |
Non-organic increases (decreases): | | | | | | | | | | | | | | | | | |
FX | (2.7) | | | — | | | (2.1) | | | — | | | (1.6) | | | (18.4) | | | — | | | — | | | (24.8) | |
Acquisitions/disposition, net | — | | | 1.6 | | | — | | | 15.1 | | | 47.0 | | | (55.3) | | | — | | | — | | | 8.4 | |
December 31, 2022 | $ | 535.2 | | | $ | 188.8 | | | $ | 276.3 | | | $ | 538.4 | | | $ | 134.7 | | | $ | 115.6 | | | $ | (71.5) | | | $ | — | | | $ | 1,717.5 | |
Adjusted OIBDA Margin
The following table sets forth the Adjusted OIBDA margin (Adjusted OIBDA divided by revenue) of each of our reportable segments:
| | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 |
| % |
| | | |
C&W Caribbean | 37.2 | | | 34.7 | |
C&W Panama | 29.4 | | | 35.2 | |
C&W Networks & LatAm | 61.3 | | | 61.2 | |
Liberty Puerto Rico | 36.6 | | | 40.1 | |
Liberty Costa Rica | 30.5 | | | 31.0 | |
VTR (a) | 25.7 | | | 33.0 | |
(a)During October 2022, we contributed the Chile JV Entities into the Chile JV. As such, subsequent to September 30, 2022, VTR is no longer included in our consolidated results of operations and is no longer a reportable segment.
Adjusted OIBDA margin is impacted by organic changes in revenue, programming and other direct costs of services and other operating costs and expenses, as further discussed below. The decrease in Adjusted OIBDA margin for C&W Panama is due in part from the inclusion of Claro Panama operations following the Claro Panama Acquisition, which generates a lower Adjusted OIBDA margin compared to legacy operations. We incurred in aggregate $26 million of integration costs during the year ended December 31, 2022 in our Liberty Puerto Rico, Liberty Costa Rica and C&W Panama segments. During the year ended December 31, 2021, we incurred $16 million in our Liberty Puerto Rico and Liberty Costa Rica segments. The decrease in the Adjusted OIBDA margin for VTR is primarily related to a decline in revenue, RGUs and ARPU resulting from significant competition in Chile.
Revenue
Most of our segments derive their revenue primarily from (i) residential fixed services, including video, broadband internet and fixed-line telephony, (ii) mobile services and (iii) B2B services. C&W Networks & LatAm also provides wholesale communication services over its subsea and terrestrial fiber optic cable networks.
While not specifically discussed in the below explanations of the changes in revenue, we are experiencing significant competition in all of our markets. This competition has an adverse impact on our ability to increase or maintain our RGUs and/or ARPU.
Variances in the subscription revenue that we receive from our customers are a function of (i) changes in the number of RGUs or mobile subscribers during the period and (ii) changes in ARPU. Changes in ARPU can be attributable to (i) changes in prices, (ii) changes in bundling or promotional discounts, (iii) changes in the tier of services selected, (iv) variances in subscriber usage patterns and (v) the overall mix of fixed and mobile products 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.
The following tables set forth the organic and non-organic changes in revenue by reportable segment.
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| Year ended December 31, | | Increase (decrease) | | Increase (decrease) from: |
| 2022 | | 2021 | | | FX | | Acquisitions (disposition), net | | Organic |
| in millions, except percentages |
| | | | | | | | | | | |
C&W Caribbean | $ | 1,436.8 | | | $ | 1,389.9 | | | $ | 46.9 | | | $ | (8.2) | | | $ | — | | | $ | 55.1 | |
C&W Panama | 642.7 | | | 568.1 | | | 74.6 | | | — | | | 69.6 | | | 5.0 | |
C&W Networks & LatAm | 450.8 | | | 431.9 | | | 18.9 | | | (9.1) | | | — | | | 28.0 | |
Liberty Puerto Rico | 1,470.1 | | | 1,449.7 | | | 20.4 | | | — | | | 24.5 | | | (4.1) | |
Liberty Costa Rica | 441.3 | | | 258.5 | | | 182.8 | | | (4.3) | | | 169.6 | | | 17.5 | |
VTR | 450.6 | | | 787.5 | | | (336.9) | | | (72.4) | | | (174.8) | | | (89.7) | |
Corporate | 22.2 | | | 21.6 | | | 0.6 | | | — | | | — | | | 0.6 | |
Intersegment eliminations | (99.4) | | | (92.4) | | | (7.0) | | | — | | | — | | | (7.0) | |
Total | $ | 4,815.1 | | | $ | 4,814.8 | | | $ | 0.3 | | | $ | (94.0) | | | $ | 88.9 | | | $ | 5.4 | |
C&W Caribbean. C&W Caribbean’s revenue by major category is set forth below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Increase (decrease) |
| 2022 | | 2021 | | $ | | % |
| in millions, except percentages |
Residential revenue: | | | | | | | |
Residential fixed revenue: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Subscription revenue | $ | 484.3 | | | $ | 473.4 | | | $ | 10.9 | | | 2.3 | |
Non-subscription revenue | 32.6 | | | 34.6 | | | (2.0) | | | (5.8) | |
Total residential fixed revenue | 516.9 | | | 508.0 | | | 8.9 | | | 1.8 | |
Residential mobile revenue: | | | | | | | |
Service revenue | 314.5 | | | 300.2 | | | 14.3 | | | 4.8 | |
Interconnect, inbound roaming, equipment sales and other | 67.9 | | | 63.9 | | | 4.0 | | | 6.3 | |
Total residential mobile revenue | 382.4 | | | 364.1 | | | 18.3 | | | 5.0 | |
Total residential revenue | 899.3 | | | 872.1 | | | 27.2 | | | 3.1 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
B2B revenue | 537.5 | | | 517.8 | | | 19.7 | | | 3.8 | |
Total | $ | 1,436.8 | | | $ | 1,389.9 | | | $ | 46.9 | | | 3.4 | |
The details of the changes in C&W Caribbean’s revenue during 2022, as compared to 2021, are set forth below (in millions):
| | | | | |
Increase (decrease) in residential fixed subscription revenue due to change in: | |
Average number of RGUs (a) | $ | 16.9 | |
ARPU (b) | (3.6) | |
Decrease in residential fixed non-subscription revenue | (1.7) | |
Total increase in residential fixed revenue | 11.6 | |
Increase in residential mobile service revenue (c) | 16.2 | |
Increase in residential mobile interconnect, inbound roaming, equipment sales and other (d) | 4.0 | |
Increase in B2B revenue (e) | 23.3 | |
Total organic increase | 55.1 | |
Impact of FX | (8.2) | |
Total | $ | 46.9 | |
(a)The increases are primarily attributable to higher average broadband internet RGUs.
(b)The decrease is primarily due to lower ARPU from broadband internet and video services, partially offset by higher ARPU from fixed-line telephony service.
(c)The increase is attributable to the net effect of (i) higher average numbers of mobile subscribers, mostly due to growth from fixed-mobile convergence efforts and increases in sales initiatives, and (ii) declines in ARPU as a result of certain pricing strategies.
(d)The increase is primarily attributable to higher inbound roaming traffic.
(e)The increase is attributable to higher revenues from (i) fixed and managed services, primarily due to broadband internet services-related growth, (ii) mobile services, driven by higher average numbers of subscribers, and (iii) certain non-recurring B2B contracts.
C&W Panama. C&W Panama’s revenue by major category is set forth below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Increase (decrease) |
| 2022 | | 2021 | | $ | | % |
| in millions, except percentages |
Residential revenue: | | | | | | | |
Residential fixed revenue: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Subscription revenue | $ | 102.8 | | | $ | 87.9 | | | $ | 14.9 | | | 17.0 | |
Non-subscription revenue | 7.3 | | | 9.5 | | | (2.2) | | | (23.2) | |
Total residential fixed revenue | 110.1 | | | 97.4 | | | 12.7 | | | 13.0 | |
Residential mobile revenue: | | | | | | | |
Service revenue | 218.6 | | | 176.4 | | | 42.2 | | | 23.9 | |
Interconnect, inbound roaming, equipment sales and other | 49.5 | | | 44.5 | | | 5.0 | | | 11.2 | |
Total residential mobile revenue | 268.1 | | | 220.9 | | | 47.2 | | | 21.4 | |
Total residential revenue | 378.2 | | | 318.3 | | | 59.9 | | | 18.8 | |
| | | | | | | |
B2B service revenue | 264.5 | | | 249.8 | | | 14.7 | | | 5.9 | |
Total | $ | 642.7 | | | $ | 568.1 | | | $ | 74.6 | | | 13.1 | |
The details of the changes in C&W Panama’s revenue during 2022, as compared to 2021, are set forth below (in millions):
| | | | | |
Increase (decrease) in residential fixed subscription revenue due to change in: | |
Average number of RGUs (a) | $ | 13.5 | |
ARPU (b) | (3.2) | |
Decrease in residential fixed non-subscription revenue | (2.5) | |
Total increase in residential fixed revenue | 7.8 | |
Decrease in residential mobile service revenue (c) | (0.7) | |
Decrease in residential mobile interconnect, inbound roaming, equipment sales and other revenue (d) | (5.2) | |
Increase in B2B revenue (e) | 3.1 | |
Total organic increase | 5.0 | |
Impact of an acquisition | 69.6 | |
Total | $ | 74.6 | |
(a)The increase is primarily attributable to higher average broadband internet and video RGUs.
(b)The decrease is primarily due to lower ARPU from (i) fixed-line telephony services, as customers shift to lower priced plans and (ii) video services, mainly due to customer discounts.
(c)The decrease is primarily due to the net effect of (i) lower ARPU from prepaid mobile services, mainly attributable to lower recharging activity, and (ii) higher average numbers of postpaid mobile subscribers.
(d)The decrease is primarily attributable to lower interconnect revenue due to lower call volume.
(e)The increase is primarily due to increases in the volume of certain projects.
C&W Networks & LatAm. C&W Networks & LatAm’s revenue by major category is set forth below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Increase |
| 2022 | | 2021 | | $ | | % |
| in millions, except percentages |
| | | | | | | |
| | | | | | | |
| | | | | | | |
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| | | | | | | |
B2B revenue: | | | | | | | |
Service revenue | $ | 113.7 | | | $ | 109.0 | | | $ | 4.7 | | | 4.3 | |
Subsea network revenue | 337.1 | | | 322.9 | | | 14.2 | | | 4.4 | |
| | | | | | | |
Total | $ | 450.8 | | | $ | 431.9 | | | $ | 18.9 | | | 4.4 | |
The details of the changes in C&W Networks & LatAm’s revenue during 2022, as compared to 2021, are set forth below (in millions):
| | | | | |
Increase in B2B service revenue (a) | $ | 9.7 | |
Increase in B2B subsea network revenue (b) | 18.3 | |
Total organic increase | 28.0 | |
Impact of FX | (9.1) | |
Total | $ | 18.9 | |
(a)The increase is primarily attributable to (i) higher B2B connectivity revenue and (ii) growth in managed services.
(b)The increase is primarily due to (i) an increase associated with revenue recognized on a cash basis for services provided to a significant customer, (ii) higher affiliate revenue, (iii) the net negative impact of (a) lower amortized prepaid capacity and operating and maintenance revenue driven by the cancellation of prepaid capacity contracts in prior periods, and (b) higher revenue associated with the recognition of deferred revenue and penalties upon the termination of prepaid capacity contracts, and (iv) a net increase in lease capacity revenue, resulting from customer growth, partially offset by service disconnections and lower revenue from existing customers due to price erosion.
Liberty Puerto Rico. Liberty Puerto Rico’s revenue by major category is set forth below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Increase (decrease) |
| 2022 | | 2021 | | $ | | % |
| in millions, except percentages |
Residential fixed revenue: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Subscription revenue | $ | 457.3 | | | $ | 438.2 | | | $ | 19.1 | | | 4.4 | |
Non-subscription revenue | 22.1 | | | 19.3 | | | 2.8 | | | 14.5 | |
Total residential fixed revenue | 479.4 | | | 457.5 | | | 21.9 | | | 4.8 | |
Residential mobile revenue: | | | | | | | |
Service revenue | 448.0 | | | 480.8 | | | (32.8) | | | (6.8) | |
Interconnect, inbound roaming, equipment sales and other | 268.4 | | | 253.5 | | | 14.9 | | | 5.9 | |
Total residential mobile revenue | 716.4 | | | 734.3 | | | (17.9) | | | (2.4) | |
Total residential revenue | 1,195.8 | | | 1,191.8 | | | 4.0 | | | 0.3 | |
B2B revenue | 220.6 | | | 220.4 | | | 0.2 | | | 0.1 | |
Other revenue | 53.7 | | | 37.5 | | | 16.2 | | | 43.2 | |
Total | $ | 1,470.1 | | | $ | 1,449.7 | | | $ | 20.4 | | | 1.4 | |
The details of the changes in Liberty Puerto Rico’s revenue during 2022, as compared to 2021, are set forth below (in millions):
| | | | | |
Increase (decrease) in residential fixed subscription revenue due to change in: | |
Average number of RGUs (a) | $ | 23.3 | |
ARPU (b) | (13.9) | |
Increase in residential fixed non-subscription revenue | 0.6 | |
Total increase in residential fixed revenue | 10.0 | |
Decrease in residential mobile service revenue (c) | (32.8) | |
Increase in residential mobile interconnect, inbound roaming, equipment sales and other (d) | 14.9 | |
Increase in B2B revenue (e) | 0.2 | |
Increase in other revenue | 3.6 | |
Total organic decrease | (4.1) | |
Impact of an acquisition (f) | 24.5 | |
Total | $ | 20.4 | |
(a)The increase is primarily attributable to higher average broadband internet RGUs.
(b)The decrease is primarily attributable to lower ARPU from broadband internet and video services, which includes the impact of credits issued to customers during 2022 as a result of Hurricane Fiona.
(c)The decrease is primarily due to (i) lower ARPU from mobile services, primarily resulting from higher contract asset amortization driven by increases in handset sales and subsidy levels, and (ii) a decline in the average number of prepaid mobile subscribers.
(d)The increase is primarily due to higher volumes of handset sales.
(e)The increase is primarily due to the net effect of (i) higher revenue associated with data services, and (ii) lower revenue from equipment sales.
(f)The impact of an acquisition includes FCC revenue related to the BBVI Acquisition.
Liberty Costa Rica. Liberty Costa Rica’s revenue by major category is set forth below:
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| Year ended December 31, | | Increase (decrease) |
| 2022 | | 2021 | | $ | | % |
| in millions, except percentages |
Residential revenue: | | | | | | | |
Residential fixed revenue: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Subscription revenue | $ | 137.6 | | | $ | 138.5 | | | $ | (0.9) | | | (0.6) | |
Non-subscription revenue | 5.1 | | | 6.2 | | | (1.1) | | | (17.7) | |
Total residential fixed revenue | 142.7 | | | 144.7 | | | (2.0) | | | (1.4) | |
Residential mobile revenue: | | | | | | | |
Service revenue | 195.1 | | | 72.7 | | | 122.4 | | | 168.4 | |
Interconnect, inbound roaming, equipment sales and other | 64.8 | | | 27.1 | | | 37.7 | | | 139.1 | |
Total residential mobile revenue | 259.9 | | | 99.8 | | | 160.1 | | | 160.4 | |
Total residential revenue | 402.6 | | | 244.5 | | | 158.1 | | | 64.7 | |
| | | | | | | |
B2B service revenue | 38.7 | | | 14.0 | | | 24.7 | | | 176.4 | |
Total | $ | 441.3 | | | $ | 258.5 | | | $ | 182.8 | | | 70.7 | |
The details of the changes in Liberty Costa Rica’s revenue during 2022, as compared to 2021, are set forth below (in millions):
| | | | | |
Increase (decrease) in residential fixed subscription revenue due to change in: | |
Average number of RGUs (a) | $ | 14.6 | |
ARPU (b) | (10.4) | |
Decrease in residential fixed non-subscription revenue (c) | (1.0) | |
Total increase in residential fixed revenue | 3.2 | |
Increase in residential mobile service revenue (d) | 11.2 | |
Increase in residential mobile interconnect, inbound roaming, equipment sales and other | 0.1 | |
Increase in B2B revenue (e) | 3.0 | |
Total organic increase | 17.5 | |
Impact of an acquisition | 169.6 | |
Impact of FX | (4.3) | |
Total | $ | 182.8 | |
(a)The increase is primarily attributable to higher average broadband internet RGUs.
(b)The decrease is primarily due to (i) lower ARPU from video services and fixed-line telephony and (ii) the impact of product mix.
(c)The decrease is primarily due to a discontinued Costa Rica government-sponsored assistance program that provided computer equipment to low-income households offset by an increase in sales of inventory to employees and third-parties.
(d)The increase is primarily attributable to higher postpaid average mobile subscribers.
(e)The increase is primarily due to higher average broadband service revenue.
VTR. VTR’s revenue by major category is set forth below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Decrease |
| 2022 | | 2021 | | $ | | % |
| in millions, except percentages |
Residential revenue: | | | | | | | |
Residential fixed revenue: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Subscription revenue | $ | 392.3 | | | $ | 685.1 | | | $ | (292.8) | | | (42.7) | |
Non-subscription revenue | 8.9 | | | 14.9 | | | (6.0) | | | (40.3) | |
Total residential fixed revenue | 401.2 | | | 700.0 | | | (298.8) | | | (42.7) | |
Residential mobile revenue: | | | | | | | |
Service revenue | 25.8 | | | 48.0 | | | (22.2) | | | (46.3) | |
Interconnect, inbound roaming, equipment sales and other | 2.9 | | | 7.3 | | | (4.4) | | | (60.3) | |
Total residential mobile revenue | 28.7 | | | 55.3 | | | (26.6) | | | (48.1) | |
Total residential revenue | 429.9 | | | 755.3 | | | (325.4) | | | (43.1) | |
| | | | | | | |
B2B revenue | 20.7 | | | 32.2 | | | (11.5) | | | (35.7) | |
Total (a) | $ | 450.6 | | | $ | 787.5 | | | $ | (336.9) | | | (42.8) | |
(a)The amounts for the 2022 period reflect the revenue of VTR for the period from January 1, 2022 through the October closing of the Chile JV.
The details of the changes in VTR’s revenue during 2022, as compared to 2021, are set forth below (in millions):
| | | | | |
Decrease in residential fixed subscription revenue due to change in: | |
Average number of RGUs (a) | $ | (22.2) | |
ARPU (b) | (55.5) | |
Decrease in residential fixed non-subscription revenue | (0.9) | |
Total decrease in residential fixed revenue | (78.6) | |
Decrease in residential mobile service revenue (c) | (7.8) | |
Decrease in residential mobile interconnect, inbound roaming, equipment sales and other revenue | (2.5) | |
Decrease in B2B service revenue | (0.8) | |
Total organic decrease | (89.7) | |
Impact of disposition | (174.8) | |
Impact of FX | (72.4) | |
Total | $ | (336.9) | |
(a)The decrease is primarily attributable to lower average broadband internet and video RGUs.
(b)The decrease is primarily due to lower ARPU from broadband internet services, mainly associated with (i) increased competition that generally resulted in (a) the churn of higher-ARPU customers and (b) the addition of lower-ARPU customers, and (ii) strategic initiatives implemented during 2022. Higher discounts and lower-ARPU customers related to video and telephony services also contributed to the decline in ARPU.
(c)The decrease is primarily due to (i) lower ARPU from mobile services, mainly associated with strategic initiatives implemented during 2022, and (ii) lower average numbers of mobile subscribers.
Programming and other direct costs of services
Programming and other direct costs of services include programming and copyright costs, interconnect and access costs, equipment costs, which primarily relate to 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, may increase in future periods as a result of (i) higher costs associated with the expansion of our digital video content, including rights associated with ancillary product offerings and rights that provide for the broadcast of live sporting events, (ii) rate increases or (iii) growth in the number of our video subscribers.
Consolidated. The following tables set forth the organic and non-organic changes in programming and other direct costs of services on a consolidated basis.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Increase (decrease) from: |
| Year ended December 31, | | Increase (decrease) | | | | Acquisitions (disposition), net | | Organic |
| 2022 | | 2021 | | | FX | | |
| in millions |
| | | | | | | | | | | |
Programming and copyright | $ | 360.3 | | | $ | 441.4 | | | $ | (81.1) | | | $ | (20.2) | | | $ | (42.8) | | | $ | (18.1) | |
Interconnect | 350.3 | | | 347.2 | | | 3.1 | | | (5.7) | | | 20.8 | | | (12.0) | |
Equipment and other | 499.9 | | | 425.8 | | | 74.1 | | | (1.7) | | | 29.3 | | | 46.5 | |
Total programming and other direct costs of services | $ | 1,210.5 | | | $ | 1,214.4 | | | $ | (3.9) | | | $ | (27.6) | | | $ | 7.3 | | | $ | 16.4 | |
C&W Caribbean. The following table sets forth the organic and non-organic changes in programming and other direct costs of services for our C&W Caribbean segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Increase (decrease) | | Increase (decrease) from: |
| 2022 | | 2021 | | | FX | | | | Organic |
| in millions |
| | | | | | | | | | | |
Programming and copyright | $ | 85.9 | | | $ | 92.8 | | | $ | (6.9) | | | $ | (0.6) | | | | | $ | (6.3) | |
Interconnect | 119.8 | | | 118.5 | | | 1.3 | | | (1.6) | | | | | 2.9 | |
Equipment and other | 84.9 | | | 73.8 | | | 11.1 | | | (0.4) | | | | | 11.5 | |
Total programming and other direct costs of services | $ | 290.6 | | | $ | 285.1 | | | $ | 5.5 | | | $ | (2.6) | | | | | $ | 8.1 | |
•Programming and copyright: The organic decrease is primarily due to the (i) the expiration of certain programming content during the first half of 2022, and (ii) the positive impact associated with the reassessment of a content-related accrual during 2022.
•Equipment and other: The organic increase is primarily due to (i) higher capacity fees incurred in connection with the purchase of wholesale services from C&W Networks & LatAm, (ii) higher costs associated with certain non-recurring B2B contracts and (iii) higher volumes of handset sales to B2B customers.
C&W Panama. The following table sets forth the organic changes in programming and other direct costs of services for our C&W Panama segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Increase (decrease) from: |
| Year ended December 31, | | Increase | | An acquisition | | |
| 2022 | | 2021 | | | | Organic |
| in millions |
| | | | | | | | | |
Programming and copyright | $ | 18.5 | | | $ | 14.9 | | | $ | 3.6 | | | $ | 1.0 | | | $ | 2.6 | |
Interconnect | 63.8 | | | 60.3 | | | 3.5 | | | 7.6 | | | (4.1) | |
Equipment and other | 125.1 | | | 111.6 | | | 13.5 | | | 9.2 | | | 4.3 | |
Total programming and other direct costs of services | $ | 207.4 | | | $ | 186.8 | | | $ | 20.6 | | | $ | 17.8 | | | $ | 2.8 | |
•Programming and copyright: The organic increase is primarily due to RGU growth.
•Interconnect: The organic decrease is primarily due to lower call volumes.
•Equipment and other: The organic increase is primarily due to (i) higher volumes and unit costs of handset sales and (ii) higher costs associated with certain non-recurring B2B contracts.
C&W Networks & LatAm. The following table sets forth the organic changes in programming and other direct costs of services for our C&W Networks & LatAm segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Increase | | Increase (decrease) from: |
| 2022 | | 2021 | | | FX | | Organic |
| in millions |
| | | | | | | | | |
| | | | | | | | | |
Interconnect | $ | 45.6 | | | $ | 45.4 | | | $ | 0.2 | | | $ | (0.8) | | | $ | 1.0 | |
Equipment and other | 14.4 | | | 10.3 | | | 4.1 | | | (1.0) | | | 5.1 | |
Total programming and other direct costs of services | $ | 60.0 | | | $ | 55.7 | | | $ | 4.3 | | | $ | (1.8) | | | $ | 6.1 | |
•Equipment and other: The organic increase is primarily due to lower amounts of capitalizable costs associated with licenses, as part of a migration into contracts with shorter terms and more cloud-based arrangements.
Liberty Puerto Rico. The following table sets forth the organic changes in programming and other direct costs of services for our Liberty Puerto Rico segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Increase (decrease) | | Increase (decrease) from: |
| Year ended December 31, | | | An Acquisition | | |
| 2022 | | 2021 | | | | Organic |
| in millions |
| | | | | | | | | |
Programming and copyright | $ | 109.7 | | | $ | 109.0 | | | $ | 0.7 | | | $ | — | | | $ | 0.7 | |
Interconnect | 84.3 | | | 97.2 | | | (12.9) | | | 2.7 | | | (15.6) | |
Equipment and other | 248.4 | | | 213.2 | | | 35.2 | | | 0.7 | | | 34.5 | |
Total programming and other direct costs of services | $ | 442.4 | | | $ | 419.4 | | | $ | 23.0 | | | $ | 3.4 | | | $ | 19.6 | |
•Interconnect: The organic decrease primarily relates to lower roaming expense due in part to (i) lower rates and (ii) the positive impact from the renegotiation of a certain roaming agreement during the fourth quarter of 2021.
•Equipment and other: The organic increase is primarily associated with (i) higher sales volume, (ii) an increase related to lower of cost or market adjustments on equipment-related inventory, and (iii) equipment-related integration costs.
Liberty Costa Rica. The following table sets forth the organic and non-organic changes in programming and other direct costs of services for our Liberty Costa Rica segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Increase (decrease) from: |
| Year ended December 31, | | Increase (decrease) | | FX | | An acquisition | | Organic |
| 2022 | | 2021 | | | | |
| in millions |
| | | | | | | | | | | |
Programming and copyright | $ | 33.9 | | | $ | 35.9 | | | $ | (2.0) | | | $ | (1.5) | | | $ | — | | | $ | (0.5) | |
Interconnect | 32.8 | | | 14.5 | | | 18.3 | | | 0.2 | | | 17.4 | | | 0.7 | |
Equipment and other | 39.9 | | | 17.4 | | | 22.5 | | | 0.3 | | | 21.5 | | | 0.7 | |
Total programming and other direct costs of services | $ | 106.6 | | | $ | 67.8 | | | $ | 38.8 | | | $ | (1.0) | | | $ | 38.9 | | | $ | 0.9 | |
VTR. The following table sets forth the organic and non-organic changes in programming and other direct costs of services for our VTR segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Decrease | | Increase (decrease) from: |
| 2022 | | 2021 | | | FX | | A disposition | | Organic |
| in millions |
| | | | | | | | | | | |
Programming and copyright | $ | 113.5 | | | $ | 188.8 | | | $ | (75.3) | | | $ | (18.1) | | | $ | (43.8) | | | $ | (13.4) | |
Interconnect | 21.9 | | | 28.7 | | | (6.8) | | | (3.5) | | | (6.9) | | | 3.6 | |
Equipment and other | 3.2 | | | 11.1 | | | (7.9) | | | (0.6) | | | (2.1) | | | (5.2) | |
Total programming and other direct costs of services | $ | 138.6 | | | $ | 228.6 | | | $ | (90.0) | | | $ | (22.2) | | | $ | (52.8) | | | $ | (15.0) | |
•Programming and copyright: The organic decrease is primarily due to the net effect of (i) lower average subscribers, (ii) lower content rates, (iii) the positive impacts associated with the renegotiation of certain content agreements, (iv) the positive impact associated with the reassessment of an accrual associated with video-on-demand content-related costs during 2022, and (v) an increase related to a settlement associated with a programming contract during 2022.
•Interconnect: The organic increase is primarily due to (i) higher rates and (ii) higher national leased capacity.
•Equipment and other: The organic decrease is due to lower volumes of equipment sales.
Other operating costs and expenses
Other operating costs and expenses set forth in the tables below comprise the following cost categories:
•Personnel and contract labor-related costs, which primarily include salary-related and cash bonus expenses, net of capitalizable labor costs, and temporary contract labor costs;
•Network-related expenses, which primarily include costs related to network access, system power, core network, and CPE repair, maintenance and test costs;
•Service-related costs, which primarily include professional services, information technology-related services, audit, legal and other services;
•Commercial, which primarily includes sales and marketing costs, such as advertising, commissions and other sales and marketing-related costs, and customer care costs related to outsourced call centers;
•Facility, provision, franchise and other, which primarily includes facility-related costs, provision for bad debt expense, franchise-related fees, bank fees, insurance, vehicle-related, travel and entertainment and other operating-related costs; and
•Share-based compensation expense that relates to (i) equity awards issued to our employees and Directors and (ii) certain bonus-related expenses that are paid in the form of equity.
Consolidated. The following table sets forth the organic and non-organic changes in other operating costs and expenses on a consolidated basis.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Increase (decrease) from: |
| Year ended December 31, | | Increase (decrease) | | | | Acquisitions (disposition), net | | Organic |
| 2022 | | 2021 | | | FX | | |
| in millions |
| | | | | | | | | | | |
Personnel and contract labor | $ | 597.7 | | | $ | 575.1 | | | $ | 22.6 | | | $ | (10.9) | | | $ | 1.4 | | | $ | 32.1 | |
Network-related | 311.4 | | | 324.2 | | | (12.8) | | | (11.4) | | | 1.7 | | | (3.1) | |
Service-related | 209.7 | | | 196.5 | | | 13.2 | | | (4.5) | | | 4.1 | | | 13.6 | |
Commercial | 226.0 | | | 229.4 | | | (3.4) | | | (8.9) | | | 18.9 | | | (13.4) | |
Facility, provision, franchise and other | 542.3 | | | 460.1 | | | 82.2 | | | (5.9) | | | 47.1 | | | 41.0 | |
Share-based compensation expense | 93.5 | | | 118.1 | | | (24.6) | | | (1.3) | | | (2.0) | | | (21.3) | |
Total other operating costs and expenses | $ | 1,980.6 | | | $ | 1,903.4 | | | $ | 77.2 | | | $ | (42.9) | | | $ | 71.2 | | | $ | 48.9 | |
For additional information regarding our share-based compensation, see Results of Operations (below Adjusted OIBDA) discussion and analysis below.
C&W Caribbean. The following table sets forth the organic and non-organic changes in other operating costs and expenses for our C&W Caribbean segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Year ended December 31, | | Increase (decrease) | | Increase (decrease) from: |
| 2022 | | 2021 | | | FX | | | | Organic |
| in millions |
| | | | | | | | | | | |
Personnel and contract labor | $ | 204.6 | | | $ | 206.7 | | | $ | (2.1) | | | $ | (0.9) | | | | | $ | (1.2) | |
Network-related | 142.4 | | | 155.5 | | | (13.1) | | | (1.0) | | | | | (12.1) | |
Service-related | 72.7 | | | 66.5 | | | 6.2 | | | (0.1) | | | | | 6.3 | |
Commercial | 45.7 | | | 48.8 | | | (3.1) | | | (0.5) | | | | | (2.6) | |
Facility, provision, franchise and other | 145.6 | | | 144.4 | | | 1.2 | | | (0.4) | | | | | 1.6 | |
Share-based compensation expense | 20.1 | | | 28.2 | | | (8.1) | | | (0.1) | | | | | (8.0) | |
Total other operating costs and expenses | $ | 631.1 | | | $ | 650.1 | | | $ | (19.0) | | | $ | (3.0) | | | | | $ | (16.0) | |
•Personnel and contract labor: The organic decrease is primarily due to the net effect of (i) a decrease resulting form lower bonus-related achievement levels and (ii) an increase as certain employee bonuses that were granted on a cash-basis in 2022 and recognized as personnel costs, as compared to grants of share-based awards for certain employee bonuses in 2021 that were recognized as share-based compensation.
•Network-related: The organic decrease is primarily due to the net effect of (i) lower network-related maintenance costs, mainly driven by the renegotiation and cancellation of certain vendor contracts as well as lower overall spending, (ii) lower capacity charges associated with the use of C&W Networks & LatAm’s subsea network and (iii) higher utility costs.
•Service-related: The organic increase is primarily due to professional services and IT-related expense.
•Commercial: The organic decrease is primarily due to (i) lower call center volumes and (ii) lower marketing and sales costs.
C&W Panama. The following table sets forth the organic changes in other operating costs and expenses for our C&W Panama segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Increase (decrease) from: | | |
| Year ended December 31, | | Increase | | An Acquisition | | | | | | |
| 2022 | | 2021 | | | | Organic | | |
| in millions |
| | | | | | | | | | | | | |
Personnel and contract labor | $ | 77.6 | | | $ | 69.8 | | | $ | 7.8 | | | $ | 6.0 | | | $ | 1.8 | | | | | |
Network-related | 47.8 | | | 37.6 | | | 10.2 | | | 9.0 | | | 1.2 | | | | | |
Service-related | 15.1 | | | 14.8 | | | 0.3 | | | 1.4 | | | (1.1) | | | | | |
Commercial | 27.2 | | | 19.6 | | | 7.6 | | | 9.8 | | | (2.2) | | | | | |
Facility, provision, franchise and other | 78.8 | | | 39.4 | | | 39.4 | | | 24.0 | | | 15.4 | | | | | |
Share-based compensation expense | 4.3 | | | 4.0 | | | 0.3 | | | — | | | 0.3 | | | | | |
Total other operating costs and expenses | $ | 250.8 | | | $ | 185.2 | | | $ | 65.6 | | | $ | 50.2 | | | $ | 15.4 | | | | | |
•Facility, provision, franchise and other: The organic increase is primarily driven by higher bad debt expense, primarily driven by a factoring arrangement and an increase in underlying rates used to compute the expected credit loss.
C&W Networks & LatAm. The following table sets forth the organic changes in other operating costs and expenses for our C&W Networks & LatAm segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Increase (decrease) | | Increase (decrease) from: | | | | |
| 2022 | | 2021 | | | FX | | Organic | | |
| in millions |
| | | | | | | | | | | | | |
Personnel and contract labor | $ | 43.6 | | | $ | 44.3 | | | $ | (0.7) | | | $ | (2.6) | | | $ | 1.9 | | | | | |
Network-related | 43.3 | | | 45.8 | | | (2.5) | | | (1.1) | | | (1.4) | | | | | |
Service-related | 4.5 | | | 3.7 | | | 0.8 | | | — | | | 0.8 | | | | | |
Commercial | 1.4 | | | 1.0 | | | 0.4 | | | — | | | 0.4 | | | | | |
Facility, provision, franchise and other | 21.7 | | | 17.1 | | | 4.6 | | | (1.5) | | | 6.1 | | | | | |
Share-based compensation expense | 3.4 | | | 4.6 | | | (1.2) | | | — | | | (1.2) | | | | | |
Total other operating costs and expenses | $ | 117.9 | | | $ | 116.5 | | | $ | 1.4 | | | $ | (5.2) | | | $ | 6.6 | | | | | |
•Facility, provision, franchise and other: The organic increase is primarily due to higher bad debt provisions and travel-related costs.
Liberty Puerto Rico. The following table sets forth the organic changes in other operating costs and expenses for our Liberty Puerto Rico segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Increase (decrease) from: |
| Year ended December 31, | | Increase (decrease) | | An acquisition | | |
| 2022 | | 2021 | | | | Organic |
| in millions |
| | | | | | | | | |
Personnel and contract labor | $ | 162.2 | | | $ | 142.1 | | | $ | 20.1 | | | $ | 1.9 | | | $ | 18.2 | |
Network-related | 51.7 | | | 47.8 | | | 3.9 | | | 0.2 | | | 3.7 | |
Service-related | 45.0 | | | 41.6 | | | 3.4 | | | 1.4 | | | 2.0 | |
Commercial | 46.5 | | | 52.5 | | | (6.0) | | | — | | | (6.0) | |
Facility, provision, franchise and other | 183.9 | | | 165.4 | | | 18.5 | | | 2.5 | | | 16.0 | |
Share-based compensation expense | 7.3 | | | 6.4 | | | 0.9 | | | — | | | 0.9 | |
Total other operating costs and expenses | $ | 496.6 | | | $ | 455.8 | | | $ | 40.8 | | | $ | 6.0 | | | $ | 34.8 | |
•Personnel and contract labor: The organic increase is primarily due to the net effect of (i) higher salaries and other personnel costs, including the impact of higher amortization of deferred commissions associated with certain accounting in connection with the AT&T Acquisition, (ii) an increase in charges allocated from our Corporate operations, and (iii) lower bonus-related expenses.
•Network-related: The organic increase is primarily due to the net effect of (i) incremental expenses incurred in operating the network as a result of the impacts from Hurricane Fiona, (ii) lower costs related to the termination of the transition services agreement entered into with AT&T associated with network maintenance and licenses, and (iii) an increase in network-related integration costs associated with the AT&T Acquisition.
•Service-related: The organic increase is primarily due to the net effect of (i) an increase in charges allocated from our Corporate operations and (ii) lower costs associated with the termination of the transition services agreement entered into with AT&T associated with commissions and software licenses. Service-related integration costs associated with the AT&T Acquisition are expected to continue to grow in future periods.
•Commercial: The organic decrease is primarily due to the net effect of (i) lower marketing costs, mainly driven by rebranding-related integration costs associated with the AT&T Acquisition incurred during 2021, (ii) higher amortization of deferred commissions associated with certain accounting in connection with the AT&T Acquisition, and (iii) lower call center costs driven by both volume and rates.
•Facility, provision, franchise and other: The organic increase was impacted by the net effect of (i) an increase in rent expense, driven by purchase accounting adjustments associated with the AT&T Acquisition that were recorded during 2021, (ii) an increase in bank-related fees associated with certain services being provided under a transaction service agreement, (iii) a decrease in bad debt expense resulting from lower expected credit loss rates established during 2022, (iv) higher facility-related costs, including security costs and maintenance costs resulting from the impacts of Hurricane Fiona, and (v) a decrease resulting from a payment made during the second quarter of 2021 to settle certain 2011 property tax claims.
Liberty Costa Rica. The following table sets forth the organic and non-organic changes in other operating costs and expenses for our Liberty Costa Rica segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Increase (decrease) from: |
| Year ended December 31, | | Increase | | FX | | An acquisition | | Organic |
| 2022 | | 2021 | | | | |
| in millions |
| | | | | | | | | | | |
Personnel and contract labor | $ | 27.5 | | | $ | 19.9 | | | $ | 7.6 | | | $ | (0.6) | | | $ | 7.8 | | | $ | 0.4 | |
Network-related | 33.2 | | | 18.1 | | | 15.1 | | | (0.4) | | | 11.9 | | | 3.6 | |
Service-related | 23.1 | | | 11.3 | | | 11.8 | | | (0.4) | | | 10.3 | | | 1.9 | |
Commercial | 53.0 | | | 25.1 | | | 27.9 | | | (0.2) | | | 26.3 | | | 1.8 | |
Facility, provision, franchise and other | 63.2 | | | 36.1 | | | 27.1 | | | (0.1) | | | 27.4 | | | (0.2) | |
Share-based compensation expense | 2.2 | | | 1.1 | | | 1.1 | | | — | | | 0.8 | | | 0.3 | |
Total other operating costs and expenses | $ | 202.2 | | | $ | 111.6 | | | $ | 90.6 | | | $ | (1.7) | | | $ | 84.5 | | | $ | 7.8 | |
•Network-related: The organic increase is primarily due to higher maintenance-related costs.
•Service-related: The organic increase is primarily due to higher information technology-related project costs.
•Commercial: The organic increase is primarily due to higher third-party sales commission costs.
•Facility, provision, franchise and other costs: The organic decrease is primarily due to the net effect of (i) higher bad debt provisions, (ii) lower rental expenses, (iii) lower telecommunications costs and (iv) higher collection-related fees.
Included in the increase from an acquisition in the table above are significant integration-related costs, associated with the Liberty Telecomunicaciones Acquisition.
VTR. The following table sets forth the organic and non-organic changes in other operating costs and expenses for our VTR segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Decrease | | Increase (decrease) from: |
| 2022 | | 2021 | | | FX | | A disposition | | Organic |
| in millions |
| | | | | | | | | | | |
Personnel and contract labor | $ | 41.8 | | | $ | 61.1 | | | $ | (19.3) | | | $ | (6.8) | | | $ | (14.3) | | | $ | 1.8 | |
Network-related | 55.7 | | | 83.2 | | | (27.5) | | | (9.1) | | | (19.4) | | | 1.0 | |
Service-related | 24.0 | | | 37.0 | | | (13.0) | | | (4.0) | | | (9.0) | | | — | |
Commercial | 52.2 | | | 82.4 | | | (30.2) | | | (8.2) | | | (17.2) | | | (4.8) | |
Facility, provision, franchise and other | 22.7 | | | 35.6 | | | (12.9) | | | (3.7) | | | (6.8) | | | (2.4) | |
Share-based compensation expense | 7.6 | | | 10.9 | | | (3.3) | | | (1.2) | | | (2.8) | | | 0.7 | |
Total other operating costs and expenses | $ | 204.0 | | | $ | 310.2 | | | $ | (106.2) | | | $ | (33.0) | | | $ | (69.5) | | | $ | (3.7) | |
•Personnel and contract labor: The organic increase is primarily due to the net effect of (i) higher salaries and other personnel costs due to the effect of inflation and (ii) lower bonus-related expenses.
•Commercial: The organic decrease is due to the net effect of (i) lower sales commissions, (ii) lower call center activity and (iii) higher marketing and advertising costs, primarily related to a commitment to sponsor a music festival that was postponed during each of the past two years due to COVID-19.
•Facility, provision, franchise and other costs: The organic decrease is primarily due to the net effect of (i) lower operating lease rent expense as a result of ceasing the amortization of our right of use assets in connection with held
for sale accounting of the Chile JV Entities, as further described in note 8 to our consolidated financial statements, and (ii) higher bad debt provisions.
Corporate. The following table sets forth the organic and non-organic changes in other operating costs and expenses for our corporate operations.
| | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Increase (decrease) |
| 2022 | | 2021 | |
| in millions |
| | | | | |
Personnel and contract labor | $ | 40.5 | | | $ | 31.5 | | | $ | 9.0 | |
Network-related | 0.7 | | | — | | | 0.7 | |
Service-related | 25.3 | | | 21.3 | | | 4.0 | |
Facility, provision, franchise and other | 27.6 | | | 22.1 | | | 5.5 | |
Share-based compensation expense | 48.6 | | | 62.9 | | | (14.3) | |
Total other operating costs and expenses | $ | 142.7 | | | $ | 137.8 | | | $ | 4.9 | |
•Personnel and contract labor: The organic increase is primarily attributable to (i) higher salaries and other personnel costs, mainly resulting from higher staffing levels in our operations center in Panama and (ii) the net impact of (a) an increase as certain employee bonuses that were granted on a cash-basis in 2022 and recognized as personnel costs, as compared to grants of share-based awards for certain employee bonuses in 2021 that were recognized as share-based compensation, and (b) a decrease resulting form lower bonus-related achievement levels.
•Service-related: The organic increase is primarily due to an increase in professional services related to centralization efforts.
•Facility, provision, franchise and other: The organic increase is primarily due to an increase in travel-related costs.
Results of operations (below Adjusted OIBDA)—2022 compared to 2021
Share-based compensation expense (included in other operating costs and expenses)
Share-based compensation expense decreased $25 million during 2022, as compared to 2021, primarily due to (i) lower grant-date fair values driven by lower average share prices during 2022, and (ii) a change in the bonus structure, whereby certain employees whose bonuses were paid in the form of shares during 2021 were granted on a cash-basis during 2022.
For additional information regarding our share-based compensation, see note 15 to our consolidated financial statements.
Depreciation and amortization
Our depreciation and amortization expense decreased $54 million or 6% during 2022, as compared to 2021, primarily due to the net effect of (i) declines of $128 million at VTR, as we ceased recording depreciation expense during the third quarter of 2021 when we began accounting for the Chile JV Entities as held for sale, (ii) increases at Liberty Costa Rica and C&W Panama resulting from the Liberty Telecomunicaciones Acquisition and the Claro Panama Acquisition, respectively, and (iii) increases in property and equipment additions.
Impairment, restructuring and other operating items, net
| | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 |
| in millions |
| | | |
Impairment charges (a) | $ | 563.8 | | | $ | 609.2 | |
Restructuring charges (b) | 34.3 | | | 33.0 | |
Other operating items, net (c) | 21.1 | | | 22.8 | |
Total | $ | 619.2 | | | $ | 665.0 | |
(a)Amounts primarily consist of goodwill impairment charges associated with certain reporting units within the C&W Caribbean segment.
(b)Amounts include employee severance and termination costs related to certain reorganization activities and contract termination and other related charges, primarily at (i) C&W Panama and C&W Caribbean during 2022 and (ii) VTR and C&W Caribbean during 2021.
(c)The 2022 amount includes direct acquisition costs, primarily related to the Chile JV Transaction and the Claro Panama Acquisition. The 2021 amount includes direct acquisition costs, primarily related to the Liberty Telecomunicaciones Acquisition, and a gain on the disposition of certain B2B operations in our Liberty Puerto Rico segment that was completed in January 2021.
Interest expense
Our interest expense increased $29 million during 2022, as compared to 2021. The increase is primarily attributable to the net effect of (i) the negative impact of FX, (ii) higher weighted-average interest rates and (iii) lower average outstanding debt balances, primarily as a result of the formation of the Chile JV in October 2022.
For additional information regarding our outstanding indebtedness, see note 9 to our consolidated financial statements.
It is possible that the interest rates on (i) any new borrowings could be higher than the current interest rates on our existing indebtedness and (ii) our variable-rate indebtedness could increase in future periods. As further discussed in note 5 to our consolidated financial statements and under Item 7A. Qualitative and Quantitative Disclosures about Market Risk below, we use derivative instruments to manage our interest rate risks.
Realized and unrealized gains or losses on derivative instruments, net
Our realized and unrealized gains or losses on derivative instruments primarily include (i) unrealized changes in the fair values of our derivative instruments that are non-cash in nature until such time as the derivative contracts are fully or partially settled and (ii) realized gains or losses upon the full or partial settlement of the derivative contracts. The details of our realized and unrealized gains on derivative instruments, net, are as follows:
| | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 |
| in millions |
| | | |
Cross-currency and interest rate derivative contracts (a) | $ | 404.3 | | | $ | 565.4 | |
Foreign currency forward contracts | (13.5) | | | 25.8 | |
Weather Derivatives (b) | (31.4) | | | (27.1) | |
Total | $ | 359.4 | | | $ | 564.1 | |
(a)The gains during 2022 and 2021 are primarily attributable to the net effect of (i) changes in FX rates, predominantly due to changes in the value of the Chilean peso, prior to the formation of the Chile JV, relative to the U.S. dollar, and (ii) changes in interest rates. These amounts include losses associated with changes in our credit risk valuation adjustments of $4 million and $41 million, respectively. Included in the 2021 credit risk valuation adjustment is a net loss of $30 million related to the Chile JV Entities.
(b)Amounts represent the amortization of premiums associated with our Weather Derivatives.
For additional information concerning our derivative instruments, see notes 5 and 6 to our consolidated financial statements and Item 7A. Qualitative and Quantitative Disclosures about Market Risk below.
Foreign currency transaction gains or 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 losses, net, are as follows:
| | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 |
| in millions |
| | | |
U.S. dollar-denominated debt issued by a Chilean peso functional currency entity | $ | (181.1) | | | $ | (249.3) | |
Intercompany payables and receivables denominated in a currency other than the entity’s functional currency | (7.2) | | | (48.4) | |
Other (a) | (6.0) | | | (21.9) | |
Total | $ | (194.3) | | | $ | (319.6) | |
(a)Primarily includes (i) third-party receivables and payables denominated in a currency other than an entity’s functional currency, (ii) U.S. dollar-denominated debt issued by a CRC functional currency entity and (iii) cash denominated in a currency other than an entity’s functional currency.
Gains or losses on debt modification and extinguishment, net
Our gains or losses on debt modification and extinguishment generally include (i) premiums or discounts associated with redemptions and/or repurchases of debt, (ii) the write-off of unamortized deferred financing costs, premiums and/or discounts and/or (iii) breakage fees.
We recognized gains (losses) on debt extinguishment, net, of $41 million and ($57 million) during 2022 and 2021, respectively. The gains during 2022 are associated with the buyback of certain VTR debt at fair value prior to the formation of the Chile JV. The losses during 2021 are primarily associated with refinancing activity at C&W, Liberty Puerto Rico and VTR.
For additional information concerning our losses on debt modification and extinguishment, see note 9 to our consolidated financial statements.
Gain on Chile JV Transaction
In connection with the Chile JV Transaction, we recognized a pre-tax gain during 2022 of $169 million. For additional information, see note 8 to our consolidated financial statements.
Other income or expense, net
We recognized other expense, net, of $28 million and $42 million during 2022 and 2021, respectively. The expense during each year primarily relates to impairment of a cost method investment.
Income tax benefit or expense
Liberty Latin America was formed as a corporation in Bermuda and, therefore, the “statutory” or “expected” tax rate for the 2022 and 2021 tax years is 0%, as we are exempt from income taxes on ordinary income and capital gains. However, a majority of our subsidiaries operate in jurisdictions where income tax is imposed at local applicable statutory rates. For additional information, see note 13 to our consolidated financial statements.
We recognized income tax expense of $87 million and $173 million during 2022 and 2021, respectively.
The income tax expense attributable to our loss before income taxes during 2022 differs from the amounts computed using the statutory tax rate, primarily due to the detrimental effects of (i) permanent tax differences, such as non deductible goodwill impairment and other non-deductible expenses, (ii) effect of rate changes (but which are nearly entirely offset by valuation allowance), (iii) changes in uncertain tax positions, (iv) inclusion of withholding taxes on cross-border payments, (v) expiration of deferred tax assets (which are entirely offset by valuation allowance), and (vi) tax effect of the enactment of a Barbados Pandemic Contribution Levy. These negative impacts to our effective tax rate were partially offset by the beneficial effects of (i) net decreases in valuation allowances, (ii) permanent tax differences, such as non-taxable income, (iii) jurisdictional rate differences, and (iv) effect of tax credits.
The income tax expense attributable to our earnings before income taxes during 2021 differs from the amounts computed using the statutory tax rate, primarily due to detrimental effects of (i) net increases in valuation allowances, (ii) permanent tax differences, such as non deductible goodwill impairment and other non-deductible expenses, (iii) expiration of deferred tax assets (which are entirely offset by valuation allowance), and (iv) inclusion of withholding taxes on cross-border payments. These negative impacts to our effective tax rate were partially offset by the beneficial effects of (i) jurisdictional rate differences, (ii) changes in enacted tax rates (but which are nearly entirely offset by valuation allowance), and (iii) permanent tax differences, such as non-taxable income.
Net earnings or loss
The following table sets forth selected summary financial information of our net loss:
| | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 |
| in millions |
| | | |
Operating income | $ | 94.1 | | | $ | 67.3 | |
Net non-operating expenses | $ | (209.5) | | | $ | (381.8) | |
Income tax expense | $ | (86.5) | | | $ | (173.3) | |
Net loss | $ | (201.9) | | | $ | (487.8) | |
Gains or losses associated with (i) changes in the fair values of derivative instruments and (ii) movements in foreign currency exchange rates are subject to a high degree of volatility and, as such, any gains from these sources do not represent a reliable source of income. In the absence of significant gains in the future from these sources or from other non-operating items, our ability to achieve earnings is largely dependent on our ability to increase our aggregate Adjusted OIBDA to a level that more than offsets the aggregate amount of our (i) share-based compensation expense, (ii) depreciation and amortization, (iii) impairment, restructuring and other operating items, (iv) interest expense, (v) other non-operating expenses and (vi) income tax expenses.
Due largely to the fact that we seek to maintain our debt at levels that provide for attractive equity returns, as discussed under Liquidity and Capital Resources—Capitalization below, we expect that we will continue to report significant levels of interest expense for the foreseeable future.
Net earnings or loss attributable to noncontrolling interests
We reported net losses attributable to noncontrolling interests of $26 million and $50 million during 2022 and 2021, respectively.
Liquidity and Capital Resources
Sources and Uses of Cash
As of December 31, 2022, we have three primary “borrowing groups,” which include the respective restricted parent and subsidiary entities of C&W, Liberty Puerto Rico and Liberty Costa Rica. Our borrowing groups, which typically generate cash from operating activities, held a significant portion of our consolidated cash and cash equivalents at December 31, 2022. Our ability to access the liquidity of these and other subsidiaries may be limited by tax and legal considerations, the presence of noncontrolling interests, foreign currency exchange restrictions with respect to certain C&W subsidiaries and other factors. For details of the restrictions on our subsidiaries to make payments to us through dividends, loans or other distributions see note 9 to our consolidated financial statements.
Cash and cash equivalents
The details of the U.S. dollar equivalent balances of our cash and cash equivalents at December 31, 2022 are set forth in the following table (in millions):
| | | | | |
Cash and cash equivalents held by: | |
Liberty Latin America and unrestricted subsidiaries: | |
Liberty Latin America (a) | $ | 23.5 | |
Unrestricted subsidiaries (b) | 133.0 | |
Total Liberty Latin America and unrestricted subsidiaries | 156.5 | |
Borrowing groups (c): | |
C&W (d) | 536.2 | |
Liberty Puerto Rico | 72.3 | |
Liberty Costa Rica | 16.0 | |
Total borrowing groups | 624.5 | |
Total cash and cash equivalents | $ | 781.0 | |
(a)Represents the amount held by Liberty Latin America on a standalone basis.
(b)Represents the aggregate amount held by subsidiaries of Liberty Latin America that are outside of our borrowing groups. All of these companies rely on funds provided by our borrowing groups to satisfy their liquidity needs.
(c)Represents the aggregate amounts held by the parent entity of the applicable borrowing group and their restricted subsidiaries.
(d)Includes $89 million and $51 million of cash held by operations in C&W Panama and C&W Bahamas, respectively.
Liquidity and capital resources of Liberty Latin America and its unrestricted subsidiaries
Our current sources of corporate liquidity include (i) cash and cash equivalents held by Liberty Latin America and, subject to certain tax and legal considerations, Liberty Latin America’s unrestricted subsidiaries, and (ii) interest and dividend income received on our and, subject to certain tax and legal considerations, our unrestricted subsidiaries’ cash and cash equivalents and investments. From time to time, Liberty Latin America and its unrestricted subsidiaries may also receive (i) proceeds in the form of distributions or loan repayments from Liberty Latin America’s borrowing groups upon (a) the completion of recapitalizations, refinancings, asset sales or similar transactions by these entities or (b) the accumulation of excess cash from operations or other means, (ii) proceeds upon the disposition of investments and other assets of Liberty Latin America and its unrestricted subsidiaries and (iii) proceeds in connection with the incurrence of debt by Liberty Latin America or its unrestricted subsidiaries or the issuance of equity securities by Liberty Latin America. No assurance can be given that any external funding would be available to Liberty Latin America or its unrestricted subsidiaries on favorable terms, or at all. As noted above, various factors may limit our ability to access the cash of our borrowing groups.
Our corporate liquidity requirements include (i) corporate general and administrative expenses and (ii) other liquidity needs that may arise from time to time. In addition, Liberty Latin America and its unrestricted subsidiaries may require cash in connection with (i) the repayment of third-party and intercompany debt, (ii) the satisfaction of contingent liabilities, (iii) acquisitions and other investment opportunities, (iv) the repurchase of debt securities, (v) tax payments or (vi) any funding requirements of our consolidated subsidiaries.
During 2022, the aggregate value of our share repurchases was $169 million. For additional information regarding our Share Repurchase Programs, see note 17 to our consolidated financial statements and above Part II—Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Liquidity and capital resources 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 our borrowing groups at December 31, 2022, see note 9 to our consolidated financial statements. The aforementioned sources of liquidity may be
supplemented in certain cases by contributions and/or loans from Liberty Latin America and its unrestricted subsidiaries. The liquidity of our borrowing groups generally is used to fund capital expenditures, debt service requirements and income tax payments. From time to time, our borrowing groups may also require liquidity in connection with (i) acquisitions and other investment opportunities, (ii) loans to Liberty Latin America, (iii) capital distributions to Liberty Latin America and other equity owners or (iv) the satisfaction of contingent liabilities. No assurance can be given that any external funding would be available to our borrowing groups on favorable terms, or at all.
For additional information regarding our cash flows, see the discussion under Liquidity and Capital Resources—Consolidated Statements of Cash Flows below.
Capitalization
We seek to maintain our debt at levels that provide for attractive equity returns without assuming undue risk. When it is cost effective, we generally seek to match the denomination of the borrowings of our subsidiaries with the functional currency of the operations that support the respective borrowings. As further discussed under Item 7A. Quantitative and Qualitative Disclosures about Market Risk and in note 5 to our consolidated financial statements, we also use derivative instruments to mitigate foreign currency and interest rate risks associated with our debt instruments.
Our ability to service or refinance our debt and, where applicable, to maintain compliance with the leverage covenants in the credit agreements of our borrowing groups is dependent primarily on our ability to maintain covenant EBITDA of our operating subsidiaries, as specified by our subsidiaries’ debt agreements (Covenant EBITDA), and to achieve adequate returns on our property and equipment additions and acquisitions. In addition, our ability to obtain additional debt financing is limited by incurrence-based and/or maintenance-based leverage covenants contained in the various debt instruments of our borrowing groups. For example, if the Covenant EBITDA of one of our borrowing groups were to decline, our ability to support or obtain additional debt in that borrowing group 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 December 31, 2022, each of our borrowing groups was in compliance with its debt covenants. We do not anticipate any instances of non-compliance with respect to the debt covenants of our borrowing groups that would have a material adverse impact on our liquidity during the next 12 months.
At December 31, 2022, the outstanding principal amount of our debt, together with our finance lease obligations aggregated $7,975 million, including $227 million that is classified as current in our consolidated balance sheet and $6,868 million that is not due until 2027 or thereafter. At December 31, 2022, $7,571 million of our debt and finance lease obligations have been borrowed or incurred by our subsidiaries. Included in the outstanding principal amount of our debt at December 31, 2022 is $223 million of vendor financing, which we use to finance certain of our operating expenses and property and equipment additions. These obligations are generally due within one year, other than for certain licensing arrangements that generally are due over the term of the related license. For additional information concerning our debt, including our debt maturities, see note 9 to our consolidated financial statements.
The weighted average interest rate in effect at December 31, 2022 for all borrowings outstanding pursuant to each debt instrument, including any applicable margin, was 6.4%. The interest rate is based on stated rates and does not include the impact of derivative instruments, deferred financing costs, original issue premiums or discounts and commitment fees, all of which affect our overall cost of borrowing. The weighted average impact of the derivative instruments, excluding forward-starting derivative instruments, on our borrowing costs at December 31, 2022 was as follows:
| | | | | | | | |
Borrowing group | | Decrease to borrowing costs |
| | |
C&W | (1.30) | % |
Liberty Puerto Rico | (0.49) | % |
Liberty Costa Rica | (1.57) | % |
Liberty Latin America borrowing groups | (0.98) | % |
Including the effects of derivative instruments, original issue premiums or discounts, including the discount on the Convertible Notes associated with the instrument’s conversion option, and commitment fees, but excluding the impact of financing costs, the weighted average interest rate on our indebtedness was 5.7% at December 31, 2022.
We believe that we have sufficient resources to repay or refinance the current portion of our debt and finance lease obligations and to fund our foreseeable liquidity requirements during the next 12 months. However, as our debt maturities grow in later years, we anticipate that we will seek to refinance or otherwise extend our debt maturities. No assurance can be given that we will be able to complete refinancing transactions or otherwise extend our debt maturities. In this regard, it is difficult to predict how political, economic and social conditions, sovereign debt concerns or any adverse regulatory developments will impact the credit and equity markets we access and our future financial position. Our ability to access debt financing on favorable terms, or at all, could be adversely impacted by (i) the financial failure of any of our counterparties, which could (a) reduce amounts available under committed credit facilities and (b) adversely impact our ability to access cash deposited with any failed financial institution, and (ii) tightening of the credit markets. 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.
Consolidated Statements of Cash Flows
General. Our cash flows are subject to variations due to FX. For further information, see related discussion under Item 7A. Quantitative and Qualitative Disclosures about Market Risk—Foreign Currency Risk below.
Consolidated Statements of Cash Flows—2022 compared to 2021
Summary. Our 2022 and 2021 consolidated statements of cash flows are summarized as follows:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, | | |
| 2022 | | 2021 | | Change |
| in millions |
| | | | | |
Net cash provided by operating activities | $ | 868.8 | | | $ | 1,016.2 | | | $ | (147.4) | |
Net cash used by investing activities | (1,122.6) | | | (1,268.6) | | | 146.0 | |
Net cash provided (used) by financing activities | (29.2) | | | 426.6 | | | (455.8) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (2.3) | | | (12.5) | | | 10.2 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | (285.3) | | | $ | 161.7 | | | $ | (447.0) | |
Operating Activities. The decrease in cash provided by operating activities is primarily due to (i) a decrease resulting from an increase in cash paid for taxes and interest, (ii) an increase related to lower derivative-related payments, and (iii) a decrease associated with a decline in Adjusted OIBDA and related working capital change.
Investing Activities. Our cash used during 2022 primarily includes the net effect of (i) capital expenditures, net, as further discussed below, (ii) the Claro Panama Acquisition and BBVI Acquisition and (iii) cash outflow upon the disposition the Chile JV Entities. Our cash used during 2021 primarily includes (i) capital expenditures, as further discussed below, and (ii) the Liberty Telecomunicaciones Acquisition.
The capital expenditures, net, that we report in our consolidated statements of cash flows, which relates to cash paid for property and equipment, does not include amounts that are financed under capital-related vendor financing or finance 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, net, as reported in our consolidated statements of cash flows, and (ii) our total property and equipment additions, which include our capital expenditures, net, on an accrual basis and amounts financed under capital-related vendor financing or finance lease arrangements.
A reconciliation of our property and equipment additions to our capital expenditures, net, as reported in our consolidated statements of cash flows, is set forth below:
| | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 |
| in millions |
| | | |
Property and equipment additions | $ | 816.3 | | | $ | 855.9 | |
Assets acquired under capital-related vendor financing arrangements | (161.1) | | | (100.5) | |
| | | |
| | | |
Changes in current liabilities related to capital expenditures and other | 4.9 | | | (19.1) | |
Capital expenditures, net | $ | 660.1 | | | $ | 736.3 | |
The decrease in our property and equipment additions during the year ended December 31, 2022, as compared to 2021, is primarily due to decreases in CPE-related additions and product and enabler additions which were partially offset by baseline additions. During the year ended December 31, 2022 and 2021, our property and equipment additions represented 17.0% and 17.8% of revenue, respectively.
We expect the percentage of revenue represented by our aggregate 2023 property and equipment additions to be approximately 16%. The actual amount of the 2023 consolidated property and equipment additions may vary from expected amounts for a variety of reasons, including (i) changes in (a) the competitive or regulatory environment, (b) business plans, (c) our expected future operating results and (d) foreign currency exchange rates and, (ii) the availability of sufficient capital. Accordingly, no assurance can be given that our actual property and equipment additions will not vary materially from our expectations.
Financing Activities. During the year ended December 31, 2022, we used $29 million of cash from financing activities, primarily due to $170 million associated with the repurchase of Liberty Latin America common shares, partially offset by (i) $98 million of net cash received related to derivative instruments and (ii) $61 million of net borrowings of debt, which include the impact of $48 million of cash used to extinguish debt at VTR. During 2021, we generated $427 million of cash from financing activities, primarily due to the net effect of (i) $617 million of net borrowings of debt, (ii) $75 million related to payments of financing costs and debt redemption premiums, (iii) $63 million associated with the repurchase of Liberty Latin America common shares, (iv) $48 million in payments related to distributions to noncontrolling interest owners, primarily in C&W Bahamas and C&W Panama, (v) $47 million related to the contribution from a noncontrolling interest owner, as further described in note 17 of the consolidated financial statements, and (vi) $43 million related to derivative payments.
Off Balance Sheet Arrangements
In the ordinary course of business, we may provide (i) indemnifications to our lenders, our vendors and certain other parties and (ii) performance and/or financial guarantees to local municipalities, our customers and vendors. Historically, these arrangements have not resulted in our company making any material payments and we do not believe that they will result in material payments in the future.
Contractual Commitments
The following table sets forth the U.S. dollar equivalents of our debt and certain other contractual obligations and commitments as of December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Payments due by period |
| Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
| in millions |
| | | | | | | | | |
Debt (excluding interest) (a) | $ | 7,966.1 | | | $ | 226.0 | | | $ | 876.1 | | | $ | 2,877.1 | | | $ | 3,986.9 | |
Operating leases | 702.6 | | | 104.5 | | | 183.7 | | | 146.5 | | | 267.9 | |
Other (b) | 60.2 | | | 45.8 | | | 7.8 | | | 2.8 | | | 3.8 | |
Total (c) | $ | 8,728.9 | | | $ | 376.3 | | | $ | 1,067.6 | | | $ | 3,026.4 | | | $ | 4,258.6 | |
| | | | | | | | | |
Projected cash interest payments on debt and finance lease obligations (d) | $ | 2,590.0 | | | $ | 510.7 | | | $ | 939.0 | | | $ | 918.3 | | | $ | 222.0 | |
(a)Subsequent to December 31, 2022, we refinanced certain debt of our Liberty Costa Rica borrowing group. For additional information, see note 9 to our consolidated financial statements.
(b)Amounts primarily represent (i) guaranteed minimum commitments associated with (a) programming fees under multi-year contracts typically based on a rate per customer or stated annual fee and (b) our customer premise equipment and mobile handset device contractual obligations, and (ii) finance leases, excluding interest.
(c)The commitments included in this table do not reflect any liabilities that are included in our December 31, 2022 consolidated balance sheet other than debt, finance lease obligations and operating lease obligations. Our liability for uncertain tax positions, including accrued interest, in the various jurisdictions in which we operate ($51 million at December 31, 2022) has been excluded from the table as the amount and timing of any related payments are not subject to reasonable estimation. For additional information regarding our liability for uncertain tax positions, see note 13 to our consolidated financial statements.
(d)Amounts are based on interest rates, interest payment dates, commitment fees and contractual maturities in effect as of December 31, 2022. These amounts are presented for illustrative purposes only and will likely differ from the actual cash payments required in future periods. In addition, the amounts presented do not include the impact of our derivative contracts.
For information concerning our debt and finance lease obligations, operating leases and commitments, see notes 9, 10 and 19, respectively, to our consolidated financial statements.
In addition to the commitments set forth in the table above, we have commitments under (i) derivative instruments and (ii) defined benefit plans and similar agreements, pursuant to which we expect to make payments in future periods. For information regarding projected cash flows associated with our derivative instruments, see Item 7A. 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 2022, 2021 and 2020, see note 5 to our consolidated financial statements. For information regarding our defined benefit plans, see note 14 to our consolidated financial statements.
Critical Accounting Policies, Judgments and Estimates
In connection with the preparation of our consolidated financial statements, we make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Critical accounting policies are defined as those policies that are reflective of significant judgments, estimates and uncertainties, which would potentially result in materially different results under different assumptions and conditions. We believe the following accounting policies are critical in the preparation of our consolidated financial statements because of the judgment necessary to account for these matters and the significant estimates involved, which are susceptible to change:
•Impairment of property and equipment and intangible assets (including goodwill); and
•Fair value measurements in acquisition accounting.
For additional information concerning our significant accounting policies, see note 3 to our consolidated financial statements.
Impairment of Property and Equipment and Intangible Assets
The aggregate carrying value of our property and equipment and intangible assets (including goodwill) that was held for use comprised 74% of our total assets at December 31, 2022.
When circumstances warrant, we review the carrying amounts of our property and equipment and our intangible assets (other than goodwill and other indefinite-lived intangible assets) to determine whether such carrying amounts continue to be recoverable. Such changes in circumstance may include (i) the impact of natural disasters such as hurricanes, (ii) an expectation of a sale or disposal of a long-lived asset or asset group, (iii) adverse changes in market or competitive conditions, (iv) an adverse change in legal factors or business climate in the markets in which we operate and (v) operating or cash flow losses. For purposes of impairment testing, long-lived assets are grouped at the lowest level for which cash flows are largely independent of other assets and liabilities, generally at or below the reporting unit level (see below). If the carrying amount of the asset or asset group is greater than the expected undiscounted cash flows to be generated by such asset or asset group, an impairment adjustment is recognized. Such adjustment is measured by the amount that the carrying value of such asset or asset group exceeds its fair value. We generally measure fair value by considering (i) sale prices for similar assets, (ii) discounted estimated future cash flows using an appropriate discount rate and/or (iii) estimated replacement cost. Assets to be disposed of are recorded at the lower of their carrying amount or fair value less costs to sell.
We evaluate goodwill and other indefinite-lived intangible assets (primarily cable television franchise rights and spectrum licenses) for impairment at least annually on July 1 and whenever facts and circumstances indicate that the fair value of a reporting unit or an indefinite-lived intangible asset may be less than its carrying value. When evaluating impairment with respect to goodwill and other indefinite-lived intangibles, we first make a qualitative assessment to determine if the goodwill or other indefinite-lived intangible may be impaired. In the case of goodwill, if it is more-likely-than-not that a reporting unit’s fair value is less than its carrying value, we then compare the fair value of the reporting unit to its respective carrying amount. A reporting unit is an operating segment or one level below an operating segment (referred to as a “component”). Goodwill impairment is recorded as the excess of a reporting unit’s carrying value over its fair value and is charged to operations. With respect to other indefinite-lived intangible assets, if it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying value, we then estimate its fair value and any excess of the carrying value over the fair value is also charged to operations as an impairment loss.
When required, considerable management judgment is necessary to estimate the fair value of reporting units and underlying long-lived and indefinite-lived assets. We typically determine fair value using an income-based approach (discounted cash flows) based on assumptions in our long-range business plans. With respect to our discounted cash flow analysis used in the income-based approach, the timing and amount of future cash flows under these business plans require estimates of, among other items, subscriber growth and retention rates, rates charged per product, expected gross margins and Adjusted OIBDA margins and expected property and equipment additions. The development of these cash flows, and the discount rate applied to the cash flows, is subject to inherent uncertainties, and actual results could vary significantly from such estimates. Our determination of the discount rate is based on a weighted average cost of capital approach, which uses a market participant’s cost of equity and after-tax cost of debt and reflects certain risks inherent in the future cash flows.
During 2022 and 2021, we recorded $555 million and $605 million, respectively, of goodwill impairments related to C&W Caribbean. During 2020, we recorded goodwill impairments of $174 million and $99 million related to C&W Panama and C&W Caribbean, respectively. A hypothetical increase/(decrease) of 0.1% in the discount rate used in the goodwill impairment assessment that resulted in our 2022 goodwill impairment charges would have resulted in an increase/(decrease) of
approximately $15 million in aggregate to the goodwill impairment. For additional information regarding certain impairments recorded during 2022, 2021 and 2020, see notes 6 and 7 to our consolidated financial statements.
Fair Value Measurements in Acquisition Accounting
The application of acquisition accounting requires that we make fair value determinations as of the applicable valuation date. In making these determinations, we are required to make estimates and assumptions that affect the recorded amounts, including, but not limited to, expected future cash flows, market comparables and discount rates, remaining useful lives of long-lived assets, replacement or reproduction costs of property and equipment and the amounts to be recovered in future periods from acquired net operating losses and other deferred tax assets. To assist us in making these fair value determinations, we may engage third-party valuation specialists. Our estimates in this area impact, among other items, the amount of depreciation and amortization and income tax expense or benefit that we report. Our estimates of fair value are based upon assumptions we believe to be reasonable, but which are inherently uncertain. A significant portion of our long-lived assets were initially recorded through the application of acquisition accounting.
For additional information, including the specific weighted average discount rates we used to complete certain nonrecurring valuations, see note 6 to our consolidated financial statements. For information regarding our acquisitions and long-lived assets, see notes 4 and 7, respectively, to our consolidated financial statements.
Item 9B. OTHER INFORMATION
Not applicable.
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Liberty Latin America Ltd.:
Opinion on Internal Control Over Financial Reporting
We have audited Liberty Latin America Ltd. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, because of the effect of the material weaknesses, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, equity, and cash flows for each of the years in the three-year period ended, and the related notes (collectively, the consolidated financial statements), and our report dated February 22, 2023 expressed an unqualified opinion on those consolidated financial statements.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses described below have been identified and included in management’s assessment.
•The Company did not have a sufficient number of resources with the appropriate skills and knowledge to adequately support the organization in the operation of internal controls over financial reporting.
•The Company did not have an effective information and communication process to identify, capture and process relevant information necessary for financial accounting and reporting.
•The Company did not i) have an effective IT risk assessment process that successfully identified and assessed risks associated with IT systems relevant to financial reporting to ensure controls were designed and implemented to respond to those risks, ii) establish effective general information technology controls (GITCs), specifically program change controls and access controls, that support the consistent operation of the Company’s IT operating systems, databases and IT applications, and end user computing over all financial reporting, iii) have policies and procedures through which general information technology controls are deployed across the organization. Automated process-level controls and manual controls dependent upon the accuracy and completeness of information derived from information technology systems were also rendered ineffective because they are affected by the lack of GITCs.
•As a consequence, the Company did not effectively design, implement and operate process-level control activities related to order-to-cash (including revenue, trade receivables, and deferred revenue), procure-to-pay (including operating expenses, prepaid expenses, accounts payable, and accrued liabilities), hire-to-pay (including compensation expense and accrued liabilities), long-lived assets, inventory, and other financial reporting processes.
The material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2022 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.
The Company acquired Claro Panama, S.A. during 2022, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022, Claro Panama, S.A.’s internal control over financial reporting associated with total assets of $374M and total revenues of $70M included in the consolidated financial statements of the Company as of and for the year ended December 31, 2022. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Claro Panama, S.A..
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Denver, Colorado
February 22, 2023
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Liberty Latin America Ltd.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Liberty Latin America Ltd. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 22, 2023 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Assessment of impairment of goodwill for certain reporting units
As discussed in Notes 6 and 7 to the consolidated financial statements, the Company tests for impairment of goodwill at least annually and whenever facts and circumstances indicate that the carrying value of a reporting unit might exceed its fair value. The fair value of each reporting unit was measured using an income approach, utilizing a discounted cash flow. As of December 31, 2022, the goodwill balance was $3,438 million and the Company recorded impairments totaling $555 million.
We identified the assessment of impairment of goodwill for certain reporting units as a critical audit matter. There was a high degree of subjective auditor judgment required in assessing the Company’s key assumptions in measuring the fair value. Depending on the reporting unit, the key assumptions were projected revenues, projected direct costs, projected operating expenses, projected capital expenditures, discount rates and terminal growth rates. For these reporting units, certain valuations
were sensitive to minor changes in these inputs which could have a significant impact on the estimated fair value. Additionally, the audit effort associated with this estimate required specialized skills and knowledge.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s assessment of impairment of goodwill. These include controls over the:
•development of assumptions over projected revenues, projected direct costs, projected operating expenses, projected capital expenditures, and
•selection of the discount rates and terminal growth rates assumptions used to develop the estimate.
We performed procedures to test the projected revenues, projected direct costs, projected operating expenses, and projected capital expenditures by comparing them with the historical results of the respective reporting unit and assessing the impacts of internal and/or external economic factors. We involved valuation professionals with specialized skills and knowledge, who assisted in: evaluating the discount rates used in the valuations by comparing them against independently developed discount rates using publicly available market data; evaluating the terminal growth rates used in the valuations by comparing them to publicly available market data, and comparing the implied market multiples from the Company’s fair value estimates using the income approach to the observed range of market multiples derived from comparable companies.
/s/ KPMG LLP
We have served as the Company’s auditor since 2016.
Denver, Colorado
February 22, 2023
LIBERTY LATIN AMERICA LTD.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| in millions |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 781.0 | | | $ | 956.7 | |
Trade receivables, net | 603.3 | | | 526.6 | |
Prepaid expenses | 65.1 | | | 67.7 | |
Current notes receivable, net | 92.0 | | | 100.2 | |
Current contract assets | 107.3 | | | 78.2 | |
Other current assets, net | 430.2 | | | 322.5 | |
Total current assets | 2,078.9 | | | 2,051.9 | |
| | | |
Goodwill | 3,421.3 | | | 3,948.0 | |
Property and equipment, net | 4,293.6 | | | 4,168.4 | |
Intangible assets not subject to amortization | 1,592.8 | | | 1,592.4 | |
Intangible assets subject to amortization, net | 688.1 | | | 788.6 | |
Assets held for sale | — | | | 1,568.7 | |
Other assets, net | 1,500.5 | | | 1,247.7 | |
Total assets | $ | 13,575.2 | | | $ | 15,365.7 | |
The accompanying notes are an integral part of these consolidated financial statements.
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LIBERTY LATIN AMERICA LTD.
CONSOLIDATED BALANCE SHEETS – (Continued)
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| in millions |
LIABILITIES AND EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 525.1 | | | $ | 398.0 | |
Current portion of deferred revenue | 151.7 | | | 148.0 | |
Current portion of debt and finance lease obligations | 226.9 | | | 106.3 | |
Accrued interest | 118.2 | | | 113.0 | |
Accrued payroll and employee benefits | 82.1 | | | 100.5 | |
Current operating lease liabilities | 76.7 | | | 82.0 | |
Other accrued and current liabilities | 581.2 | | | 566.7 | |
Total current liabilities | 1,761.9 | | | 1,514.5 | |
Long-term debt and finance lease obligations | 7,653.8 | | | 7,459.6 | |
Deferred tax liabilities | 691.2 | | | 692.0 | |
Deferred revenue | 109.3 | | | 152.6 | |
Liabilities associated with assets held for sale | — | | | 1,854.1 | |
Other long-term liabilities | 792.9 | | | 795.5 | |
Total liabilities | 11,009.1 | | | 12,468.3 | |
| | | |
Commitments and contingencies | | | |
| | | |
Equity: | | | |
Liberty Latin America shareholders: | | | |
Class A, $0.01 par value; 500.0 million shares authorized; 51.8 million and 42.7 million shares issued and outstanding, respectively, at December 31, 2022; 50.1 million and 45.5 million shares issued and outstanding, respectively, at December 31, 2021 | 0.5 | | | 0.5 | |
Class B, $0.01 par value; 50.0 million shares authorized; 2.1 million shares issued and outstanding at December 31, 2022 and 1.9 million shares issued and outstanding at December 31, 2021 | — | | | — | |
Class C, $0.01 par value; 500.0 million shares authorized; 187.4 million and 171.3 million shares issued and outstanding, respectively, at December 31, 2022; 183.6 million and 182.3 million shares issued and outstanding, respectively, at December 31, 2021 | 1.9 | | | 1.8 | |
Undesignated preference shares, $0.01 par value; 50.0 million shares authorized; nil shares issued and outstanding at each period | — | | | — | |
Treasury shares, at cost; 25.3 million and 6.0 million shares, respectively | (243.4) | | | (74.0) | |
Additional paid-in capital | 5,177.1 | | | 5,075.3 | |
Accumulated deficit | (2,869.5) | | | (2,693.9) | |
Accumulated other comprehensive loss, net of taxes | (149.2) | | | (89.7) | |
Total Liberty Latin America shareholders | 1,917.4 | | | 2,220.0 | |
Noncontrolling interests | 648.7 | | | 677.4 | |
Total equity | 2,566.1 | | | 2,897.4 | |
Total liabilities and equity | $ | 13,575.2 | | | $ | 15,365.7 | |
The accompanying notes are an integral part of these consolidated financial statements.
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LIBERTY LATIN AMERICA LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions, except per share amounts |
| | | | | |
Revenue | $ | 4,815.1 | | | $ | 4,814.8 | | | $ | 3,782.4 | |
Operating costs and expenses (exclusive of depreciation and amortization, shown separately below): | | | | | |
Programming and other direct costs of services | 1,210.5 | | | 1,214.4 | | | 860.4 | |
Other operating costs and expenses | 1,980.6 | | | 1,903.4 | | | 1,541.3 | |
Depreciation and amortization | 910.7 | | | 964.7 | | | 918.7 | |
Impairment, restructuring and other operating items, net | 619.2 | | | 665.0 | | | 375.3 | |
| 4,721.0 | | | 4,747.5 | | | 3,695.7 | |
Operating income | 94.1 | | | 67.3 | | | 86.7 | |
Non-operating expense: | | | | | |
Interest expense | (556.7) | | | (527.4) | | | (533.4) | |
Realized and unrealized gains (losses) on derivative instruments, net | 359.4 | | | 564.1 | | | (352.7) | |
Foreign currency transaction gains (losses), net | (194.3) | | | (319.6) | | | 1.2 | |
Gains (losses) on debt modification and extinguishment, net | 41.1 | | | (57.2) | | | (45.1) | |
Gain on disposal of the Chile JV Entities | 169.4 | | | — | | | — | |
Other income (expense), net | (28.4) | | | (41.7) | | | 5.1 | |
| (209.5) | | | (381.8) | | | (924.9) | |
Loss before income taxes | (115.4) | | | (314.5) | | | (838.2) | |
Income tax benefit (expense) | (86.5) | | | (173.3) | | | 29.2 | |
Net loss | (201.9) | | | (487.8) | | | (809.0) | |
Net loss attributable to noncontrolling interests | 26.3 | | | 50.0 | | | 121.7 | |
Net loss attributable to Liberty Latin America shareholders | $ | (175.6) | | | $ | (437.8) | | | $ | (687.3) | |
| | | | | |
Basic and dilutive net loss per share attributable to Liberty Latin America shareholders | $ | (0.79) | | | $ | (1.88) | | | $ | (3.51) | |
| | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
II-45
LIBERTY LATIN AMERICA LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
| | | | | |
Net loss | $ | (201.9) | | | $ | (487.8) | | | $ | (809.0) | |
Other comprehensive earnings (loss), net of taxes: | | | | | |
Foreign currency translation adjustments | 53.1 | | | 4.8 | | | (119.0) | |
Reclassification adjustments included in net loss | (22.9) | | | (3.2) | | | 0.6 | |
Other, net | (90.2) | | | 33.4 | | | 6.8 | |
Other comprehensive earnings (loss) | (60.0) | | | 35.0 | | | (111.6) | |
Comprehensive loss | (261.9) | | | (452.8) | | | (920.6) | |
Comprehensive loss attributable to noncontrolling interests | 26.8 | | | 50.9 | | | 122.5 | |
Comprehensive loss attributable to Liberty Latin America shareholders | $ | (235.1) | | | $ | (401.9) | | | $ | (798.1) | |
The accompanying notes are an integral part of these consolidated financial statements.
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LIBERTY LATIN AMERICA LTD.
CONSOLIDATED STATEMENTS OF EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liberty Latin America shareholders | | Non- controlling interests | | Total equity |
| Common shares | | Treasury Stock | | Additional paid-in capital | | Accumulated deficit | | Accumulated other comprehensive loss, net of taxes | | Total Liberty Latin America shareholders |
| Class A | | Class B | | Class C | |
| in millions |
| | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2020 | $ | 0.5 | | | $ | — | | | $ | 1.3 | | | $ | — | | | $ | 4,569.9 | | | $ | (1,568.6) | | | $ | (14.8) | | | $ | 2,988.3 | | | $ | 870.1 | | | $ | 3,858.4 | |
Accounting change (note 2) | — | | | — | | | — | | | — | | | — | | | (0.2) | | | — | | | (0.2) | | | 0.2 | | | — | |
Balance at January 1, 2020, as adjusted for accounting change | 0.5 | | | — | | | 1.3 | | | — | | | 4,569.9 | | | (1,568.8) | | | (14.8) | | | 2,988.1 | | | 870.3 | | | 3,858.4 | |
Net loss | — | | | — | | | — | | | — | | | — | | | (687.3) | | | — | | | (687.3) | | | (121.7) | | | (809.0) | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (110.8) | | | (110.8) | | | (0.8) | | | (111.6) | |
Repurchase of Liberty Latin America common shares | — | | | — | | | — | | | (9.5) | | | — | | | — | | | — | | | (9.5) | | | — | | | (9.5) | |
Issuance of Liberty Latin America common shares, net | — | | | — | | | 0.5 | | | — | | | 344.6 | | | — | | | — | | | 345.1 | | | — | | | 345.1 | |
Distributions to noncontrolling interest owners | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (18.8) | | | (18.8) | |
Shared-based compensation | — | | | — | | | — | | | — | | | 66.6 | | | — | | | — | | | 66.6 | | | — | | | 66.6 | |
Other | — | | | — | | | — | | | — | | | 0.9 | | | — | | | — | | | 0.9 | | | — | | | 0.9 | |
Balance at December 31, 2020 | $ | 0.5 | | | $ | — | | | $ | 1.8 | | | $ | (9.5) | | | $ | 4,982.0 | | | $ | (2,256.1) | | | $ | (125.6) | | | $ | 2,593.1 | | | $ | 729.0 | | | $ | 3,322.1 | |
The accompanying notes are an integral part of these consolidated financial statements.
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LIBERTY LATIN AMERICA LTD.
CONSOLIDATED STATEMENTS OF EQUITY – (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liberty Latin America shareholders | | Non-controlling interests | | Total equity |
| Common shares | | Treasury Stock | | Additional paid-in capital | | Accumulated deficit | | Accumulated other comprehensive loss, net of taxes | | Total Liberty Latin America shareholders |
| Class A | | Class B | | Class C | |
| in millions |
| | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2021 | $ | 0.5 | | | $ | — | | | $ | 1.8 | | | $ | (9.5) | | | $ | 4,982.0 | | | $ | (2,256.1) | | | $ | (125.6) | | | $ | 2,593.1 | | | $ | 729.0 | | | $ | 3,322.1 | |
Net loss | — | | | — | | | — | | | — | | | — | | | (437.8) | | | — | | | (437.8) | | | (50.0) | | | (487.8) | |
Other comprehensive earnings | — | | | — | | | — | | | — | | | — | | | — | | | 35.9 | | | 35.9 | | | (0.9) | | | 35.0 | |
Repurchase of Liberty Latin America common shares | — | | | — | | | — | | | (64.5) | | | — | | | — | | | — | | | (64.5) | | | — | | | (64.5) | |
Distributions to noncontrolling interest owners | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (47.6) | | | (47.6) | |
Contributions to noncontrolling interest owners | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 46.9 | | | 46.9 | |
Share-based compensation | — | | | — | | | — | | | — | | | 93.3 | | | — | | | — | | | 93.3 | | | — | | | 93.3 | |
| | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2021 | $ | 0.5 | | | $ | — | | | $ | 1.8 | | | $ | (74.0) | | | $ | 5,075.3 | | | $ | (2,693.9) | | | $ | (89.7) | | | $ | 2,220.0 | | | $ | 677.4 | | | $ | 2,897.4 | |
The accompanying notes are an integral part of these consolidated financial statements.
II-48
LIBERTY LATIN AMERICA LTD.
CONSOLIDATED STATEMENTS OF EQUITY – (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liberty Latin America shareholders | | Non-controlling interests | | Total equity |
| Common shares | | Treasury Stock | | Additional paid-in capital | | Accumulated deficit | | Accumulated other comprehensive loss, net of taxes | | Total Liberty Latin America shareholders |
| Class A | | Class B | | Class C | |
| in millions |
| | | | | | | | | | | | | | | | | | | |
Balance at January 1, 2022 | $ | 0.5 | | | $ | — | | | $ | 1.8 | | | $ | (74.0) | | | $ | 5,075.3 | | | $ | (2,693.9) | | | $ | (89.7) | | | $ | 2,220.0 | | | $ | 677.4 | | | $ | 2,897.4 | |
Net loss | — | | | — | | | — | | | — | | | — | | | (175.6) | | | — | | | (175.6) | | | (26.3) | | | (201.9) | |
Other comprehensive earnings | — | | | — | | | — | | | — | | | — | | | — | | | (59.5) | | | (59.5) | | | (0.5) | | | (60.0) | |
Repurchase of Liberty Latin America common shares | — | | | — | | | — | | | (169.4) | | | — | | | — | | | — | | | (169.4) | | | — | | | (169.4) | |
Distributions to noncontrolling interest owners | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1.9) | | | (1.9) | |
Share-based compensation | — | | | — | | | 0.1 | | | — | | | 101.8 | | | — | | | — | | | 101.9 | | | — | | | 101.9 | |
Balance at December 31, 2022 | $ | 0.5 | | | $ | — | | | $ | 1.9 | | | $ | (243.4) | | | $ | 5,177.1 | | | $ | (2,869.5) | | | $ | (149.2) | | | $ | 1,917.4 | | | $ | 648.7 | | | $ | 2,566.1 | |
The accompanying notes are an integral part of these consolidated financial statements.
II-49
LIBERTY LATIN AMERICA LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
Cash flows from operating activities: | | | | | |
Net loss | $ | (201.9) | | | $ | (487.8) | | | $ | (809.0) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | |
Share-based compensation expense | 93.5 | | | 118.1 | | | 97.5 | |
Depreciation and amortization | 910.7 | | | 964.7 | | | 918.7 | |
Impairments and other non-cash charges | 593.1 | | | 645.1 | | | 283.8 | |
Amortization of debt financing costs, premiums and discounts, net | 36.6 | | | 33.5 | | | 30.4 | |
Realized and unrealized losses (gains) on derivative instruments, net | (359.4) | | | (564.1) | | | 352.7 | |
Foreign currency transaction losses (gains), net | 194.3 | | | 319.6 | | | (1.2) | |
Losses (gains) on debt modification and extinguishment, net | (41.1) | | | 57.2 | | | 45.1 | |
Gain on disposal of the Chile JV Entities | (169.4) | | | — | | | — | |
Deferred income tax expense (benefit) | (6.7) | | | 87.8 | | | (65.1) | |
Changes in operating assets and liabilities, net of the effect of acquisitions and dispositions: | | | | | |
Receivables and other operating assets | (85.0) | | | (48.5) | | | (127.6) | |
Payables and accruals | (95.9) | | | (109.4) | | | (85.2) | |
Net cash provided by operating activities | 868.8 | | | 1,016.2 | | | 640.1 | |
| | | | | |
Cash flows from investing activities: | | | | | |
Capital expenditures, net | (660.1) | | | (736.3) | | | (565.8) | |
Cash paid in connection with acquisitions, net of cash acquired | (230.8) | | | (520.6) | | | (1,886.1) | |
Cash outflow upon disposal of the Chile JV Entities | (188.8) | | | — | | | — | |
Other investing activities, net | (42.9) | | | (11.7) | | | 1.1 | |
Net cash used by investing activities | $ | (1,122.6) | | | $ | (1,268.6) | | | $ | (2,450.8) | |
The accompanying notes are an integral part of these consolidated financial statements.
II-50
LIBERTY LATIN AMERICA LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
Cash flows from financing activities: | | | | | |
Borrowings of debt | $ | 337.6 | | | $ | 1,249.4 | | | $ | 1,319.0 | |
Payments of principal amounts of debt and finance lease obligations | (276.7) | | | (632.5) | | | (1,439.4) | |
Repurchase of Liberty Latin America common shares | (170.4) | | | (63.0) | | | (9.5) | |
Net cash received (paid) related to derivative instruments | 97.6 | | | (43.0) | | | 182.5 | |
Distributions to noncontrolling interest owners | (1.9) | | | (47.6) | | | (18.8) | |
Payment of financing costs and debt redemption premiums | (7.8) | | | (74.8) | | | (99.0) | |
Issuance of Liberty Latin America common shares, net | — | | | — | | | 347.0 | |
Capital contribution from noncontrolling interest owner | — | | | 46.9 | | | — | |
Other financing activities, net | (7.6) | | | (8.8) | | | (10.7) | |
Net cash provided (used) by financing activities | (29.2) | | | 426.6 | | | 271.1 | |
| | | | | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (2.3) | | | (12.5) | | | (4.9) | |
| | | | | |
Net increase (decrease) in cash, cash equivalents and restricted cash | (285.3) | | | 161.7 | | | (1,544.5) | |
| | | | | |
Cash, cash equivalents and restricted cash: | | | | | |
Beginning of year | 1,074.2 | | | 912.5 | | | 2,457.0 | |
End of year | $ | 788.9 | | | $ | 1,074.2 | | | $ | 912.5 | |
| | | | | |
Cash paid for interest | $ | 506.4 | | | $ | 463.3 | | | $ | 484.3 | |
Net cash paid for taxes | $ | 115.6 | | | $ | 44.3 | | | $ | 81.6 | |
The accompanying notes are an integral part of these consolidated financial statements.
II-51
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements
December 31, 2022, 2021 and 2020
(1) Basis of Presentation
See the Glossary of defined terms at the beginning of this Annual Report on Form 10-K for terms used throughout the consolidated financial statements.
General
Liberty Latin America Ltd. is a registered company in Bermuda that primarily includes: (i) C&W; (ii) Liberty Communications PR; (iii) LBT CT Communications, S.A. (a less than wholly-owned entity) and its subsidiaries, which include Liberty Servicios and, as of August 9, 2021 and as further described in note 4, Liberty Telecomunicaciones; and (iv) prior to the closing of the formation of the Chile JV, VTR. C&W owns less than 100% of certain of its consolidated subsidiaries, including C&W Bahamas, C&W Jamaica and CWP.
We are an international provider of fixed, mobile and subsea telecommunications services. We provide:
A.residential and B2B services in:
i.over 20 countries across Latin America and the Caribbean through two of our reportable segments, C&W Caribbean and C&W Panama;
ii.Puerto Rico, through our reportable segment Liberty Puerto Rico;
iii.Costa Rica, through our reportable segment Liberty Costa Rica; and
iv.Chile, through our reportable segment VTR through September 30, 2022; and
B.through our reportable segment C&W Networks & LatAm, (i) B2B services in certain other countries in Latin America and the Caribbean, and (ii) wholesale communication services over its subsea and terrestrial fiber optic cable networks that connect approximately 40 markets in that region.
The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP.
Effective September 29, 2021, in connection with the pending formation of the Chile JV, as further described in note 8, we began accounting for the Chile JV Entities as “held for sale.” Accordingly, the assets and liabilities of the Chile JV Entities, excluding certain cash balances, are included in assets held for sale and liabilities associated with assets held for sale, respectively, on our December 31, 2021 consolidated balance sheet. Consistent with the applicable guidance, we have not reflected similar reclassifications to exclude the Chile JV Entities from continuing operations in our consolidated statements of operations or cash flows and related footnote disclosures during the period of time they were accounted for as held for sale. In October 2022, we contributed the Chile JV Entities to the Chile JV and began accounting for our 50% interest in the Chile JV as an equity method investment. For additional information, see notes — and 8.
Correction of Immaterial Errors
During the third quarter of 2022, we identified certain errors in our previously reported consolidated financial statements, primarily related to revenue, programming and other direct costs of services, trade receivables, note receivables, and other assets. We have completed a quantitative and qualitative evaluation of the errors and concluded that they are immaterial to the previously issued consolidated financial statements. Notwithstanding this evaluation, we have revised (i) our December 31, 2021 consolidated balance sheet, and (ii) our consolidated statements of operations, comprehensive loss, equity and cash flows for the years ended December 31, 2021 and 2020 for these errors.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
The tables below set forth the adjustments to the primary consolidated financial statement line items resulting from these adjustments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2021 | | Year ended December 31, 2020 |
| As Previously Reported | | Adjustments | | As Adjusted | | As Previously Reported | | Adjustments | | As Adjusted |
| in millions |
| | | | | | | | | | | |
Revenue | $ | 4,799.0 | | | $ | 15.8 | | | $ | 4,814.8 | | | $ | 3,764.6 | | | $ | 17.8 | | | $ | 3,782.4 | |
Operating income | $ | 81.2 | | | $ | (13.9) | | | $ | 67.3 | | | $ | 93.2 | | | $ | (6.5) | | | $ | 86.7 | |
Loss before income taxes | $ | (300.6) | | | $ | (13.9) | | | $ | (314.5) | | | $ | (831.7) | | | $ | (6.5) | | | $ | (838.2) | |
Net loss | $ | (490.1) | | | $ | 2.3 | | | $ | (487.8) | | | $ | (803.9) | | | $ | (5.1) | | | $ | (809.0) | |
Net loss attributable to LLA shareholders | $ | (440.1) | | | $ | 2.3 | | | $ | (437.8) | | | $ | (682.2) | | | $ | (5.1) | | | $ | (687.3) | |
| | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| As Previously Reported | | Adjustments | | As Adjusted |
| in millions |
| | | | | |
Current assets | $ | 2,066.2 | | | $ | (14.3) | | | $ | 2,051.9 | |
Total assets | $ | 15,386.0 | | | $ | (20.3) | | | $ | 15,365.7 | |
Total liabilities | $ | 12,472.6 | | | $ | (4.3) | | | $ | 12,468.3 | |
Total equity | $ | 2,913.4 | | | $ | (16.0) | | | $ | 2,897.4 | |
(2) Accounting Changes and Recent Accounting Pronouncements
Accounting Changes
ASU 2020-06
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options and Derivatives and Hedging—Contracts in Entity’s Own Equity: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which (i) reduces the number of accounting models for convertible instruments and allows more contracts to qualify for equity classification and (ii) makes targeted improvements to convertible instruments and earnings-per-share disclosure requirements. We adopted ASU 2020-06 effective January 1, 2022 and it did not have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements
ASU 2022-04
In September 2022, the FASB issued ASU No. 2022-04, Liabilities—Supplier Finance Programs (ASU 2022-04), which requires that a buyer in a supplier finance program disclose certain information about the program to allow financial statement users to understand the nature of the program, activity during the period and changes to the program from period to period. The disclosure requirements include (i) the key terms of the program, including payments terms, (ii) the amount and location in the balance sheet of obligations outstanding with the finance provider or intermediary, and (iii) a rollforward of the obligations during the annual period. With the exception of the rollforward disclosure requirements, ASU 2022-04 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The rollforward information is effective for fiscal years beginning after December 15, 2023. We are currently evaluating the impact ASU 2022-04 will have to our consolidated financial statement disclosures.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
ASU 2020-04, ASU 2021-01 and ASU 2022-06
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04), which provides optional guidance for a limited time to ease the potential accounting burden associated with transitioning away from reference rates, such as LIBOR. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848) (ASU 2021-01), which clarifies certain optional expedients and exceptions in Topic 848. The expedients and exceptions provided by ASU 2020-04 and ASU 2021-01 are for the application of U.S. GAAP to contracts, hedging relationships and other transactions affected by the rate reform, and was initially not intended to be available after December 31, 2022, other than for certain hedging relationships entered into before December 31, 2022. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 (ASU 2022-06), which defers the expiration date of Topic 848 from December 31, 2022, to December 31, 2024, and permits companies to apply the guidance in Topic 848 through the expected cessation date of USD LIBOR. We do not currently expect that the phase out of LIBOR will have a material impact on our consolidated financial statements.
(3) Summary of Significant Accounting Policies
Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates and assumptions are used in accounting for, among other things, the valuation of acquisition-related assets and liabilities, expected credit losses, programming and copyright expenses, deferred income taxes and related valuation allowances, loss contingencies, fair value measurements, impairment assessments, capitalization of internal costs associated with construction and installation activities, useful lives of long-lived assets, and actuarial liabilities associated with certain benefit plans. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Principles of Consolidation
The accompanying consolidated financial statements include our accounts and the accounts of all voting interest entities where we exercise a controlling financial interest through the ownership of a direct or indirect controlling voting interest and variable interest entities for which our company is the primary beneficiary. Intercompany accounts have been eliminated in consolidation.
Cash and Cash Equivalents
Cash equivalents consist of money market funds and other investments that are readily convertible into cash and have maturities of three months or less at the time of acquisition. We record money market funds at the net asset value as there are no restrictions on our ability, contractual or otherwise, to redeem our investments.
Receivables
We have trade and notes receivables that are each reported net of an allowance for expected credit losses.
Our notes receivable consist of EIP receivables due from customers under contracts that range between a period of 12 to 36 months, depending on the market. The long-term portion of our notes receivable, net of allowances for expected credit losses, is included in other assets, net, in our consolidated balance sheets. From time to time, we may sell our trade or notes receivables to third parties. During 2022, we generated approximately $48 million from the sale of receivables to third parties that is reflected in cash provided by operating activities in our consolidated statement of cash flows.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
Concentration of credit risk with respect to trade and notes receivables is limited due to the large number of customers and their dispersion across many different countries, with the exception of $81 million and $85 million at December 31, 2022 and 2021, respectively, due from a single government.
The allowances on each of our trade and notes receivables are established using our best estimates of current expected credit losses based upon, among other things, actual credit loss experience over the prior 12-month period, recent collection trends, prevailing and anticipated economic conditions and specific customer credit risk. Receivables outstanding greater than 30 days are considered past due and we generally write-off receivables after they become past due for 365 days, with the exception of amounts due from certain governments.
The aggregate changes in our allowance for expected credit losses and associated with trade receivables, and current and long-term note receivables are set forth below:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
| | | | | |
Beginning balance | $ | 112.6 | | | $ | 116.2 | | | $ | 87.3 | |
Provision for expected losses | 78.4 | | | 71.4 | | | 63.9 | |
Write-offs | (79.1) | | | (59.5) | | | (60.3) | |
Reclassification to assets held for sale | — | | | (10.0) | | | — | |
Foreign currency translation adjustments and other | (10.8) | | | (5.5) | | | 25.3 | |
Ending balance | $ | 101.1 | | | $ | 112.6 | | | $ | 116.2 | |
Investments
From time to time, we may hold investments in (i) equity method investments; (ii) cost method investments, and (iii) available-for-sale method investments.
We apply the equity method to investments when we have the ability to exercise significant influence over the operating and financial policies of the investee. Under the equity method, investments are originally recorded at cost and are adjusted to recognize our share of net earnings or losses of the affiliates as they occur with our recognition of losses generally limited to the extent of our investment in, and advances and commitments to, the investee. Our share of the investee’s net earnings or losses is included in other income (expense), net, in our consolidated statements of operations.
We are required to hold security against the value of certain pension liabilities in the U.K.. The security is in the form of U.K. Government Gilts, which we account for using the available-for-sale method. Available-for-sale securities are measured at fair value with changes reflected in other comprehensive income or loss until sold or other-than-temporarily impaired, at which time the amounts are reclassified from accumulated other comprehensive income or loss into non-operating income or expense in our consolidated statements of operations. Our investment in U.K. Government Gilts falls under Level 1 of the fair value hierarchy. At December 31, 2022 and 2021, the carrying values of our investment in U.K. Government Gilts were $30 million and $39 million, respectively, which are included in other assets, net, in our consolidated balance sheets.
We hold an equity security for which the fair value is not readily determinable. Accordingly, we measure this investment at cost minus impairment, plus or minus changes resulting from observable price changes.
We continually review our equity method investments, available-for-sale debt securities and cost-basis investments to determine whether a decline in fair value below the cost basis is other-than-temporary. If it has been determined that an investment has sustained an other-than-temporary decline in value, we estimate the fair value and record an impairment charge if the carrying value of the investment exceeds its estimated fair value. Any impairment charges are recorded in other income (expense), net, in our consolidated statements of operations.
For additional information regarding our fair value measurements, see note 6.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
Financial Instruments
Due to the short maturities of cash and cash equivalents, trade and other receivables, notes receivable, other current assets, accounts payable, accrued liabilities and other accrued and current liabilities, their respective carrying values approximate their respective fair values. For information concerning the fair values of our derivative and debt instruments, see notes 5 and 9, respectively. For information regarding how we arrive at certain of our fair value measurements, see note 6.
Derivative Instruments
Derivative Instruments Recorded at Fair Value
Our derivative instruments, excluding our Weather Derivatives, as discussed below, are recorded in our consolidated balance sheets at fair value, whether designated as a hedge or not. If the derivative instrument is not designated as a hedge, changes in the fair value of the derivative instrument are recognized in earnings. If the derivative instrument is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative instrument are recorded in other comprehensive earnings or loss and subsequently reclassified into our consolidated statements of operations when the hedged forecasted transaction affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in realized and unrealized gains or losses on derivative instruments in our consolidated statements of operations.
As of December 31, 2022, we do not apply hedge accounting to any of our derivative instruments.
The net cash received or paid related to our derivative instruments is classified as an operating, investing or financing activity in our consolidated statements of cash flows based on the objective of the derivative instrument and the classification of the applicable underlying cash flows, as follows:
•cross-currency and interest rate derivative contracts: the net cash paid or received related to principal and current interest is classified as a financing or operating activity, respectively;
•foreign currency forward contracts that are used to hedge operating expenditures: the net cash paid or received is classified as an operating activity;
•foreign currency forward contracts that are used to hedge capital expenditures: the net cash paid or received is reflected in capital expenditures, net, which are classified as an investing activity;
•foreign currency forward contracts that are used to hedge principal exposure on foreign currencies: the net cash paid or received is classified as a financing activity; and
•derivative contracts that are terminated prior to maturity: the cash paid or received upon termination that relates to future periods is classified as a financing activity.
Inventories
Inventories consist primarily of mobile handset devices and accessories and are valued at the lower of cost or net realizable value. We maintain inventory valuation reserves for obsolete and slow-moving inventory based on analysis of recent historical sales activity and current retail, stand-alone selling prices. We record sales of inventories under the average cost method.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. We capitalize costs associated with the construction of new cable and mobile transmission and distribution facilities and the installation of new cable services. The nature and amount of labor and other costs to be capitalized with respect to construction and installation activities involves judgment. In addition to direct external and internal labor and materials, we also capitalize other costs directly attributable to our construction and installation activities, including dispatch costs, quality-control costs, vehicle-related costs and certain warehouse-related costs. The capitalization of these costs is based on time sheets, time studies, standard costs, call tracking systems and other verifiable means that directly link the costs incurred with the applicable capitalizable activity. We continuously monitor the appropriateness of our capitalization policies and update the policies when necessary to respond to changes in facts and circumstances, such as the development of new products and services and changes in the manner that installations or construction activities are performed. Installation activities that are capitalized include (i) the initial connection
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
(or drop) from our cable system to a customer location, (ii) the replacement of a drop and (iii) the installation of equipment for additional services, such as digital cable, telephone or broadband internet service. The costs of other customer-facing activities, such as reconnecting and disconnecting customer locations and repairing or maintaining drops, are expensed as incurred.
We capitalize internal and external costs directly associated with the development of internal-use software. Capitalized internal-use software is included as a component of property and equipment. We also capitalize costs associated with the purchase of software licenses. Costs associated with software obtained in a hosting arrangement are expensed over the life of the service contract, unless we have the right to take possession of the software at any time without significant penalty and it is feasible to run the software on our own hardware or contract with another party unrelated to the vendor to host the software. Maintenance and training costs, as well as costs incurred during the preliminary stage of an internal-use software development project, are expensed as incurred.
Depreciation is computed using the straight-line method over the estimated useful life of the underlying asset. Equipment under finance leases is amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset and is included in depreciation and amortization in our consolidated statements of operations. Useful lives used to depreciate our property and equipment are assessed periodically and are adjusted when warranted. The useful lives of cable and mobile distribution systems that are undergoing a rebuild are adjusted such that property and equipment to be retired will be fully depreciated by the time the rebuild is completed. For additional information regarding the useful lives of our property and equipment, see note 7.
Additions, replacements and improvements that extend the asset life are capitalized. Repairs and maintenance are expensed as incurred.
We recognize a liability for asset retirement obligations in the period in which it is incurred if sufficient information is available to make a reasonable estimate of fair values. Asset retirement obligations primarily relate to assets placed on leased wireless towers and other premises. Asset retirement obligations of $55 million and $46 million at December 31, 2022 and 2021, respectively, are included in other long-term liabilities in our consolidated balance sheets.
Intangible Assets
Our primary intangible assets relate to goodwill, customer relationships, spectrum licenses and cable television franchise rights. Goodwill represents the excess purchase price over the fair value of the identifiable net assets acquired in a business combination. Customer relationships, spectrum licenses and cable television franchise rights that are acquired in connection with a business combination are initially recorded at their fair values.
Goodwill and other intangible assets with indefinite useful lives are not amortized, but instead are tested for impairment at least annually. Intangible assets with finite lives are amortized on a straight-line basis over their respective estimated useful lives to their estimated residual values, and reviewed for impairment.
We do not amortize our cable television franchise rights or spectrum licenses that have indefinite lives.
Spectrum licenses provide us with the exclusive right to utilize a certain radio frequency spectrum to provide wireless communications services. While spectrum licenses are issued for only a fixed time (generally 10 years or less), renewals of spectrum licenses occur routinely and at nominal cost. Moreover, we believe there are currently no significant legal, regulatory, contractual, competitive, economic or other factors limiting the useful lives of most of our spectrum licenses, and therefore while spectrum licenses in certain markets are amortized over a finite period, we generally treat these spectrum licenses as indefinite-lived intangible assets. We believe we will be able to meet all requirements necessary to secure renewal of such spectrum licenses.
For additional information regarding the useful lives of our intangible assets, see note 7.
Impairment of Property and Equipment and Intangible Assets
When circumstances warrant, we review the carrying amounts of our property and equipment and our intangible assets (other than goodwill and other indefinite-lived intangible assets) to determine whether such carrying amounts continue to be recoverable. Such changes in circumstance may include (i) the impact of natural disasters, such as hurricanes, (ii) an expectation of a sale or disposal of a long-lived asset or asset group, (iii) adverse changes in market or competitive conditions,
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
(iv) an adverse change in legal factors or business climate in the markets in which we operate and (v) operating or cash flow losses. For purposes of impairment testing, long-lived assets are grouped at the lowest level for which cash flows are largely independent of other assets and liabilities, generally at or below the reporting unit level (see below). If the carrying amount of the asset or asset group is greater than the expected undiscounted cash flows to be generated by such asset or asset group, an impairment adjustment is recognized. Such adjustment is measured by the amount that the carrying value of such asset or asset group exceeds its fair value. We generally measure fair value by considering (i) sale prices for similar assets, (ii) discounted estimated future cash flows using an appropriate discount rate and/or (iii) estimated replacement cost. Assets to be disposed of are recorded at the lower of their carrying amount or fair value less costs to sell.
We evaluate goodwill and other indefinite-lived intangible assets for impairment at least annually on July 1, which we changed from October 1 during 2022, and whenever facts and circumstances indicate that the fair value of a reporting unit or an indefinite-lived intangible asset may be less than its carrying value. For impairment evaluations with respect to both goodwill and other indefinite-lived intangibles, we first make a qualitative assessment to determine if the goodwill or other indefinite-lived intangible may be impaired. In the case of goodwill, if it is more-likely-than-not that a reporting unit’s fair value is less than its carrying value, we then compare the fair value of the reporting unit to its respective carrying amount. A reporting unit is an operating segment or one level below an operating segment. Goodwill impairment is recorded as the excess of a reporting unit’s carrying value over its fair value and is charged to operations as an impairment loss. With respect to other indefinite-lived intangible assets, if it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying value, we then estimate its fair value and any excess of the carrying value over the fair value is also charged to operations as an impairment loss. For additional information regarding the fair value measurements of our property and equipment and intangible assets, see note 6. For additional information regarding impairments, see note 7.
Contract Assets
When we transfer goods or services to a customer but do not have an unconditional right to payment, we record a contract asset. Contract assets are reclassified to trade receivables, net, in our consolidated balance sheet at the point in time we have the unconditional right to payment. The long-term portion of contract assets are $107 million and $86 million as of December 31, 2022 and 2021, respectively, and are included in other assets, net, in our consolidated balance sheets.
Deferred Contract Costs
Incremental costs to obtain a contract with a customer, such as incremental sales commissions, are recognized as an asset and amortized to other operating costs and expenses over the applicable period benefited, which is the longer of the contract life or the economic life of the commission. If, however, the amortization period is one year or less, we expense such costs in the period incurred. Costs to obtain a contract that would have been incurred regardless of whether the contract was obtained are recognized as an expense when incurred. Our aggregate deferred contract costs were $56 million and $31 million as of December 31, 2022 and 2021, respectively. The current and long-term portion of deferred contract costs are included in other current assets, net, and other assets, net, respectively, in our consolidated balance sheets.
Deferred Revenue
We record deferred revenue when we have received payment prior to transferring goods or services to a customer. Deferred revenue primarily relates to (i) advanced payments on fixed subscription services, mobile airtime services and long-term capacity contracts and (ii) deferred installation and other upfront fees. Our aggregate current and long-term deferred revenue as of December 31, 2022 and 2021 was $261 million and $301 million, respectively. The decrease in our current and long-term deferred revenue balances during 2022, primarily relates to amortization of long-term capacity contracts, which were partially offset by new contracts entered into during the year.
Operating Leases
Our operating leases primarily consist of (i) property leases for mobile tower locations that generally have initial terms of five to ten years with one or more renewal options, and (ii) lease commitments for (a) retail stores, offices and facilities, (b) other network assets and (c) other equipment. It is expected that in the normal course of business, operating leases that expire generally will be renewed or replaced by similar leases. For additional information regarding our leases, see note 10.
We classify leases with a term of greater than 12 months where substantially all risks and rewards incidental to ownership are retained by the third-party lessors as operating leases. We record a right-of-use asset and an operating lease liability at
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
inception of the lease at the present value of the lease payments plus certain other payments, including variable lease payments and amounts probable of being owed by us under residual value guarantees. Payments made under operating leases, net of any incentives received from the lessors, are recognized to expense on a straight-line basis over the term of the lease. Initial direct costs incurred in negotiating and arranging operating leases are recognized to expense when incurred. Contingent rental payments are recognized to expense when incurred. Our right-of-use assets and non-current operating lease liabilities are included in other assets, net, and other long-term liabilities, respectively, in our consolidated balance sheets.
We use a credit-adjusted discount rate to measure our operating lease liabilities. We derive the discount rates associated with each of our borrowing groups by firstly constructing a credit curve which is based on the implied credit spread between the risk free rate (generally U.S. dollar denominated U.S. Treasuries) and a credit curve constructed using an index of observable U.S. dollar denominated fixed rate corporate bonds issued by U.S. telecommunications companies with the same rating as the respective borrowing group. Next, we apply a linear fixed spread to this credit curve reflecting the difference between the observable price on the longest tradable debt instrument in each borrowing group and the credit curve at the maturity date of the observed debt instrument. Lastly, we make adjustments for all tenors to correct for the collateralized interest rate spread by comparing unsecured debt to asset-backed securities (secured debt) trades, this adjustment is based on the difference between the index of observable U.S. dollar denominated fixed rate corporate bonds issued by U.S. telecommunications companies with the same rating as the borrowing group and a similar index for companies rated one-class higher on the rating-code scale.
Income Taxes
The income taxes of Liberty Latin America are presented on a standalone basis, and each tax paying entity or group within Liberty Latin America is presented on a separate return basis. Income taxes are accounted for under the asset and liability method. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts and income tax basis of assets and liabilities and the expected benefits of utilizing net operating loss and tax credit carryforwards, using enacted tax rates in effect for each taxing jurisdiction in which we operate for the year in which those temporary differences are expected to be recovered or settled. We recognize the financial statement effects of a tax position when it is more-likely-than-not, based on technical merits, that the position will be sustained upon examination. Net deferred tax assets are then reduced by a valuation allowance if we believe it is more-likely-than-not that such net deferred tax assets will not be realized. Certain of our valuation allowances are associated with entities that we acquired in business combinations. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. Deferred tax liabilities related to investments in foreign entities and foreign corporate joint ventures that are essentially permanent in duration are not recognized until it becomes apparent that such amounts will reverse in the foreseeable future. In order to be considered essentially permanent in duration, sufficient evidence must indicate that the foreign entity has invested or will invest its undistributed earnings indefinitely, or that earnings will be remitted in a tax-free liquidation. Interest and penalties related to income tax liabilities are included in income tax benefit or expense in our consolidated statements of operations.
For additional information regarding our income taxes, see note 13.
Foreign Currency Translation and Transactions
The reporting currency of Liberty Latin America is the U.S. dollar. The functional currency of our foreign operations is the applicable local currency for each foreign entity. Assets and liabilities of our foreign subsidiaries (including intercompany balances for which settlement is not anticipated in the foreseeable future) are translated at the spot rate in effect at the applicable reporting date. With the exception of certain material transactions, the amounts reported in our consolidated statements of operations are translated at the average exchange rates in effect during the applicable period. The resulting unrealized cumulative translation adjustment, net of applicable income taxes, is recorded as a component of accumulated other comprehensive earnings or loss in our consolidated statements of equity. With the exception of certain material transactions, the cash flows from our operations in foreign countries are translated at the average rate for the applicable period in our consolidated statements of cash flows. The impacts of material transactions generally are recorded at the applicable spot rates in our consolidated statements of operations and cash flows. The effect of exchange rates on cash balances held in foreign currencies are separately reported in our consolidated statements of cash flows.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
Transactions denominated in currencies other than our or our subsidiaries’ functional currencies are recorded based on exchange rates at the time such transactions arise. Changes in exchange rates with respect to amounts recorded in our consolidated balance sheets related to these non-functional currency transactions result in transaction gains and losses that are reflected in our consolidated statements of operations as unrealized (based on the applicable period end exchange rates) or realized upon settlement of the transactions.
Revenue Recognition
We categorize revenue into two major categories: (i) residential revenue, which includes revenue from fixed and mobile services provided to residential customers, and (ii) B2B revenue, which includes B2B service and subsea network revenue. For additional information regarding our revenue by major category, see note 20. Our revenue recognition policies are as follows:
General. Most of our fixed and mobile residential contracts are not enforceable or do not contain substantive early termination penalties. Accordingly, revenue relating to these customers is recognized on a basis consistent with customers that are not subject to contracts. We account for customer service revenue contracts that include both non-lease and lease components as a single component in all instances where the non-lease component is the predominant component of the arrangement and the other applicable criteria are met.
Residential Fixed and B2B Service Revenue – Fixed Networks. We recognize revenue from video, broadband internet and fixed-line telephony services over our fixed networks to customers in the period the related residential fixed or B2B services are provided. Installation or other upfront fees related to services provided over our fixed networks are generally deferred and recognized as subscription revenue over the contractual period, or longer if the upfront fee results in a material renewal right. We defer upfront installation and certain nonrecurring fees received on B2B contracts where we maintain ownership of the installed equipment. The deferred fees are amortized into revenue on a straight-line basis over the term of the arrangement or the expected period of performance.
We may also sell video, broadband internet and fixed-line telephony services to our customers in bundled packages at a rate lower than if the customer purchased each product on a standalone basis. Arrangement consideration from bundled packages generally is allocated proportionally to the individual service based on the relative standalone price for each respective product or service.
Mobile Revenue – General. Consideration from mobile contracts is allocated to airtime services and handset sales based on the relative standalone prices of each performance obligation.
Mobile Revenue – Airtime Services. We recognize revenue from mobile services in the period the related services are provided. Payments received from prepaid customers are recorded as deferred revenue prior to the commencement of services and are recognized as revenue as the services are rendered or usage rights expire.
Mobile Revenue – Handset Revenue. Arrangement consideration allocated to handsets is recognized as revenue when the goods have been transferred to the customer.
B2B Subsea Network Revenue – Long-term Capacity Contracts. We enter into certain long-term capacity contracts with customers where the customer either pays a fixed fee over time or prepays for the capacity upfront and pays a portion related to operating and maintenance of the network over time. We assess whether prepaid capacity contracts contain a significant financing component. If the financing component is significant, interest expense is accreted over the life of the contract using the effective interest method. The revenue associated with prepaid capacity contracts is deferred and generally recognized on a straight-line basis over the life of the contract. As of December 31, 2022, we have approximately $355 million of unfulfilled performance obligations relating to our long-term capacity contracts, primarily subsea contracts, that generally will be recognized as revenue over an average remaining life of five years.
Government Funding Revenue. From time to time, we receive funds from the FCC, primarily in Puerto Rico, where funds were established in an effort to restore, expand and upgrade fixed and mobile networks in Puerto Rico and the U.S. Virgin Islands. We recognize funds granted from the FCC as other revenue in the period in which we are entitled to receive the funds, as the FCC does not meet the definition of a “customer.”
Sales, Use and Other VAT. Revenue is recorded net of applicable sales, use and other value-added taxes.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
Share-based Compensation
We recognize compensation expense associated with share-based incentive awards based on their grant-date fair values. The grant-date fair values for SARs and PSARs are estimated using the Black-Scholes-Merton valuation model, and the grant-date fair values for RSUs and PSUs are based upon the closing market price of our stock on the date of grant. We may also settle annual bonus-related obligations in the form of equity. We use the liability-based method of accounting in such situations, as the equity to be issued is variable. We use the legal life of the award for the expected life of SARs granted to executives. For SARs granted to non-executives, the expected life is calculated using the “simplified method” as we do not have sufficient historical exercise data. The expected volatility of SARs is based on a weighted average calculation that may include (i) data from a comparable group of peer companies, (ii) Liberty Latin America’s share trading history and/or (iii) the implied volatility from traded LILA and LILAK options. We recognize the grant-date fair value of outstanding awards as a charge to operations over the requisite service period, which is generally the vesting period, and account for forfeitures as they occur. We use the straight-line method to recognize share-based compensation expense for share-based incentive awards that do not contain a performance condition and the accelerated expense attribution method for our share-based incentive awards that contain a performance condition and vest on a graded basis.
For additional information regarding our share-based compensation, see note 15.
Litigation Costs
Legal fees and related litigation costs are expensed as incurred.
(4) Acquisitions
2022 Acquisition
Claro Panama Acquisition. On September 14, 2021, we entered into a definitive agreement to acquire América Móvil’s operations in Panama in an all-cash transaction based upon an enterprise value of $200 million on a cash- and debt-free basis. On July 1, 2022, we completed the acquisition of Claro Panama, which was financed through a combination of debt and existing cash.
The following table sets forth a reconciliation of the stated purchase price to the net cash paid (in millions):
| | | | | |
Stated purchase price | $ | 200.0 | |
Preliminary working capital adjustments | 9.3 | |
Total purchase price | 209.3 | |
Opening balance sheet cash | (1.2) | |
Net cash paid for the Claro Panama Acquisition | $ | 208.1 | |
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
We have accounted for the Claro Panama Acquisition as a business combination using the acquisition method of accounting, whereby the total purchase price was allocated to the acquired identifiable net assets of Claro Panama based on assessments of their respective fair values. The preliminary opening balance sheet is subject to adjustment based on our final assessment of the fair values of the acquired identifiable net assets and liabilities. The items with the highest likelihood to change upon finalization of the valuation process include property and equipment, intangible assets, leases and income taxes. A summary of the purchase price and the preliminary opening balance sheet of Claro Panama at the July 1, 2022 acquisition date is presented in the following table (in millions):
| | | | | |
Current assets | $ | 42.8 | |
| |
Property and equipment | 136.4 | |
Intangible assets subject to amortization (a) | 47.9 | |
Other assets (b) | 180.9 | |
Current liabilities | (64.9) | |
Long-term liabilities (c) | (133.8) | |
Total purchase price | $ | 209.3 | |
(a)At July 1, 2022, the preliminary assessment of the weighted average useful life of the spectrum intangible assets was approximately 6 years.
(b)Primarily consists of operating lease right-of-use assets.
(c)Primarily consists of the non-current portion of operating lease obligations.
Our consolidated statements of operations for the year ended December 31, 2022 includes third-party revenue and a net loss of $70 million and $14 million, respectively, attributable to Claro Panama..
2021 Acquisitions
Liberty Telecomunicaciones Acquisition. On July 30, 2020, we entered into the Telefónica Acquisition Agreement to acquire Telefónica S.A.’s operations in Costa Rica in an all-cash transaction based upon an enterprise value of $500 million on a cash- and debt-free basis. On August 9, 2021, we completed the acquisition of all of the outstanding shares of Liberty Telecomunicaciones. The Liberty Telecomunicaciones Acquisition was financed through a combination of debt, existing cash and a $47 million equity contribution from the noncontrolling interest owner of our Liberty Servicios entity, as further described in note 17.
During 2022, we finalized the purchase price for the Liberty Telecomunicaciones Acquisition, which resulted in a reduction in total consideration paid of $12 million. The proceeds received from the final purchase price adjustments have been reflected as an investing activity in our condensed consolidated statement of cash flows.
| | | | | |
Stated Telefónica Acquisition Agreement purchase price | $ | 500.0 | |
Working capital adjustments | 25.1 | |
Total purchase price | 525.1 | |
Opening balance sheet cash | (17.0) | |
Net cash paid for the Liberty Telecomunicaciones Acquisition | $ | 508.1 | |
We have accounted for the Liberty Telecomunicaciones Acquisition as a business combination using the acquisition method of accounting, whereby the total purchase price was allocated to the acquired identifiable net assets of Liberty Telecomunicaciones based on assessments of their respective fair values, and the excess of the purchase price over the fair values of these identifiable net assets was allocated to goodwill. A summary of the purchase price and the opening balance sheet of Liberty Telecomunicaciones at the August 9, 2021 acquisition date is presented in the following table. The opening balance sheet presented below reflects our final purchase price allocation (in millions):
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
| | | | | |
Current assets (a) | $ | 74.7 | |
Goodwill (b) | 256.7 | |
Property and equipment | 150.6 | |
Intangible assets subject to amortization (c) | 139.9 | |
Other assets (d) | 145.7 | |
Current liabilities (e) | (74.2) | |
Long-term liabilities (f) | (168.3) | |
Total purchase price (g) | $ | 525.1 | |
(a)Primarily consists of trade receivables, notes receivables related to EIP receivables, and cash.
(b)The goodwill recognized in connection with the Liberty Telecomunicaciones Acquisition is primarily attributable to (i) the ability to take advantage of Liberty Telecomunicaciones’s existing mobile network to gain immediate access to potential customers, and (ii) synergies that are expected to be achieved through the integration of Liberty Telecomunicaciones with Liberty Latin America’s existing business in Costa Rica, Liberty Servicios. Due to the nature of the Liberty Telecomunicaciones Acquisition, no tax deductions related to goodwill are expected.
(c)At August 9, 2021, the weighted average useful lives of the acquired customer relationship intangible assets and spectrum intangible assets were approximately 7 years and 25 years, respectively.
(d)Primarily consists of operating lease right-of-use assets and the long-term portion of note receivables related to EIP receivables.
(e)Primarily consists of accounts payable and current operating lease obligations.
(f)Primarily consists of the non-current portion of operating lease obligations and deferred tax liabilities.
(g)Amount excludes $9 million of direct acquisition costs incurred during 2021. Direct acquisition costs are included in impairment, restructuring and other operating items, net, in our consolidated statement of operations.
Our consolidated statement of operations for the year ended December 31, 2021 includes revenue and net earnings of $112 million and $5 million, respectively, attributable to Liberty Telecomunicaciones.
BBVI Acquisition. Effective December 31, 2021, we acquired 96% of the outstanding shares of Broadband VI, LLC for $33 million, the payment of which occurred in January 2022, subject to certain post-closing adjustments. Broadband VI, LLC provides fixed services to residential and business customers in the U.S. Virgin Islands and is included in our Liberty Puerto Rico reportable segment.
2020 Acquisition
AT&T Acquisition. On October 31, 2020, we acquired from AT&T all of the outstanding shares of the AT&T Acquired Entities, which following the closing of the AT&T Acquisition are referred to as Liberty Mobile and its subsidiaries. The operations acquired in the AT&T Acquisition provide consumer mobile and B2B services in Puerto Rico and the U.S. Virgin Islands.
As a condition of approval of the AT&T Acquisition, the United States Department of Justice required us to divest certain B2B operations that were a part of our then-existing operations in Puerto Rico. We satisfied this condition in January 2021 by divesting those B2B operations for a stated sales price of $22 million. In connection with this divestiture, we recognized a gain on sale of $9 million, which is included in impairment, restructuring and other operating items, net, in our consolidated statement of operations.
AT&T is providing ongoing support to the AT&T Acquired Entities under the AT&T TSA for a period up to 36 months following the closing of the AT&T Acquisition. Services under the AT&T TSA include, but are not limited to, (i) network operations, (ii) customer service, (iii) finance and accounting, (iv) information technology, (v) sales and marketing and (vi)
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
content-related services. We may terminate any services under the AT&T TSA upon sixty business days’ notice to AT&T in accordance with the terms and conditions of the AT&T TSA.
The following table sets forth a reconciliation of the stated purchase price included in the Acquisition Agreement to the “Accounting Purchase Price” (in millions):
| | | | | |
Stated Acquisition Agreement purchase price | $ | 1,950.0 | |
Less: Purchase price allocated to purchase of prepaid roaming services (a) | (73.3) | |
Working capital and other purchase price adjustments: | |
Closing adjustments (b) | (51.7) | |
Additional working capital consideration (c) | 61.0 | |
Net cash paid for the AT&T Acquisition (d) | 1,886.0 | |
Contingent purchase price consideration (e) | 46.4 | |
Accounting Purchase Price | $ | 1,932.4 | |
| |
| |
(a)Represents the portion of the stated Acquisition Agreement purchase price that has been allocated to the purchase of prepaid roaming services. In connection with the Acquisition Agreement, AT&T agreed to give us a $75 million credit against certain roaming services that AT&T provides to the AT&T Acquired Entities for a seven-year period following the closing of the AT&T Acquisition. If the credits are not used for roaming services in that time period, any remaining credit may be used to acquire certain other services from AT&T thereafter. For accounting purposes, we have bifurcated the discounted value of these services from the stated purchase consideration and reflected the amount allocated to the purchase of prepaid roaming, $73 million, in net cash provided by operating activities in our consolidated statement of cash flows.
(b)Represents closing adjustments to the purchase price pursuant to the terms of the Acquisition Agreement for (i) closing working capital balances, (ii) outstanding indebtedness and (iii) shortfalls in equipment subsidies made by AT&T prior to the closing of the AT&T Acquisition.
(c)Represents cash paid subsequent to the closing of the AT&T Acquisition related to certain liabilities of the AT&T Acquired Entities that were not assumed by us under the terms of the Acquisition Agreement.
(d)The net cash paid for the AT&T Acquisition is comprised of (i) borrowings in our Liberty Puerto Rico segment during 2019 of $1,353 million, and (ii) $533 million of cash and cash equivalents from available liquidity.
(e)Prior to the closing of the AT&T Acquisition, AT&T made prepayments to the tax authorities of Puerto Rico and the U.S. Virgin Islands. We expect that we will utilize these prepayments, which are reflected in income tax receivable on the consolidated balance sheet, against our future income tax liabilities. Pursuant to the Acquisition Agreement, if we utilize such prepayments to reduce our future income tax liabilities, we are required to pay AT&T additional purchase consideration.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
We have accounted for the AT&T Acquisition as a business combination using the acquisition method of accounting, whereby the total purchase price was allocated to the acquired identifiable net assets of the AT&T Acquired Entities based on assessments of their respective fair values, and the excess of the total purchase price over the fair values of these identifiable net assets was allocated to goodwill. A summary of the purchase price and the opening balance sheet of the AT&T Acquired Entities at the October 31, 2020 acquisition date is presented in the following table. The opening balance sheet presented below reflects our final purchase price allocation (in millions):
| | | | | |
Current assets (a) (b) | $ | 155.6 | |
Goodwill (c) | 196.9 | |
Property and equipment | 768.6 | |
Intangible assets subject to amortization (d) | 85.6 | |
Intangible assets not subject to amortization (e) | 1,043.0 | |
Other assets (b) (g) | 272.8 | |
Current liabilities (f) (g) | (67.9) | |
Long-term debt and finance lease obligations | (10.6) | |
Non-current deferred tax liabilities | (344.3) | |
Other long-term liabilities (g) | (167.3) | |
Total purchase price (h) | $ | 1,932.4 | |
(a)Current assets consists of trade receivables, prepaid expenses and other current assets.
(b)Current assets and other assets include $67 million and $39 million, respectively, in EIP receivables.
(c)The goodwill recognized in connection with the AT&T Acquisition is primarily attributable to (i) the ability to take advantage of the AT&T Acquired Entities’ existing mobile network to gain immediate access to potential customers and (ii) synergies that are expected to be achieved through the integration of the AT&T Acquired Entities with Liberty Latin America. Due to the nature of the AT&T Acquisition, no tax deductions related to goodwill have been taken.
(d)Amount includes intangible assets related to customer relationships. At October 31, 2020, the weighted average useful life of the acquired customer relationship intangible assets was approximately 10 years.
(e)Amount represents the estimated fair value of spectrum licenses.
(f)Current liabilities include accounts payable, current portion of debt and finance lease obligations and other accrued and current liabilities.
(g)Other assets, current liabilities and other long-term liabilities include $182 million, $33 million and $163 million related to operating lease right-of-use assets, current operating lease obligations and non-current operating lease obligations, respectively.
(h)Amount excludes $51 million of direct acquisition costs, incurred during 2020.
Our consolidated statement of operations for the year ended year ended December 31, 2020 includes revenue of $170 million and a net loss of $88 million attributable to the AT&T Acquired Entities.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
Supplemental Pro Forma Information
The pro forma financial information set forth in the tables below is based on available information and assumptions that we believe are reasonable. The pro forma financial information is for illustrative and informational purposes only and is not intended to represent or be indicative of what our results of operations would have been had these acquisitions occurred on the date indicated nor should it be considered representative of our future financial condition or results of operations. The pro forma information set forth in the tables below include, as applicable, tax-effected pro forma adjustments primarily related to:
i.the impact of estimated costs associated with the AT&T TSA that replaced parent-company allocations included in the historical financial statements of the AT&T Acquired Entities;
ii.the impact of estimated costs associated with the transition services agreement entered into in connection with the Liberty Telecomunicaciones Acquisition;
iii.the impact of new rate agreements associated with roaming, subsea and ethernet services stemming from the AT&T Acquisition;
iv.the alignment of accounting policies;
v.interest expense related to additional borrowings in conjunction with the Claro Panama Acquisition, the Liberty Telecomunicaciones Acquisition and the AT&T Acquisition;
vi.depreciation expense related to acquired tangible assets;
vii.amortization expense related to acquired intangible assets; and
viii.the elimination of direct acquisition costs.
The following unaudited pro forma consolidated operating results give effect to (i) the Claro Panama Acquisition, as if it had been completed as of January 1, 2021, (ii) the Liberty Telecomunicaciones Acquisition, as if it had been completed as of January 1, 2020, and (iii) the AT&T Acquisition, as if it had occurred on January 1, 2019:
| | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
| | | | | |
Revenue | $ | 4,879.6 | | | $ | 5,119.6 | | | $ | 4,785.3 | |
Net loss attributable to Liberty Latin America shareholders | $ | (186.1) | | | $ | (464.7) | | | $ | (568.0) | |
(5) Derivative Instruments
In general, we seek to enter into derivative instruments to protect against (i) increases in the interest rates on our variable-rate debt and (ii) foreign currency movements, particularly with respect to borrowings that are denominated in a currency other than the functional currency of the borrowing entity. In this regard, through our subsidiaries, we have entered into various derivative instruments to manage interest rate exposure and foreign currency exposure.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
The following table provides details of the fair values of our derivative instrument assets and liabilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Current (a) | | Long-term (a) | | Total | | Current (a) | | Long-term (a) | | Total |
| in millions |
Assets (b): | | | | | | | | | | | |
Cross-currency and interest rate derivative contracts (c) | $ | 91.3 | | | $ | 224.2 | | | $ | 315.5 | | | $ | 15.1 | | | $ | 25.3 | | | $ | 40.4 | |
Foreign currency forward contracts | — | | | — | | | — | | | 0.1 | | | — | | | 0.1 | |
Total | $ | 91.3 | | | $ | 224.2 | | | $ | 315.5 | | | $ | 15.2 | | | $ | 25.3 | | | $ | 40.5 | |
| | | | | | | | | | | |
Liabilities (b): | | | | | | | | | | | |
Cross-currency and interest rate derivative contracts (c) | $ | 30.4 | | | $ | — | | | $ | 30.4 | | | $ | 33.3 | | | $ | 62.1 | | | $ | 95.4 | |
Foreign currency forward contracts | 11.9 | | | — | | | 11.9 | | | 5.8 | | | — | | | 5.8 | |
Total | $ | 42.3 | | | $ | — | | | $ | 42.3 | | | $ | 39.1 | | | $ | 62.1 | | | $ | 101.2 | |
(a)Our current derivative assets, long-term derivative assets, current derivative liabilities and long-term derivative liabilities are included in other current assets, net, other assets, net, other accrued and current liabilities and other long-term liabilities, respectively, in our consolidated balance sheets.
(b)Effective with the agreement to form the Chile JV, the derivative assets and liabilities associated with the Chile JV Entities are included in assets held for sale and liabilities associated with assets held for sale, respectively, on our December 31, 2021 consolidated balance sheet. For information regarding the formation of the Chile JV and the held-for-sale presentation of the Chile JV Entities as of December 31, 2021, see note 8.
(c)We consider credit risk relating to our and our counterparties’ nonperformance in the fair value assessment of our derivative instruments. In all cases, the adjustments take into account offsetting liability or asset positions within each of our primary borrowing groups (see note 9) and are recorded in realized and unrealized gains or losses on derivative instruments, net, in our consolidated statements of operations. For further information regarding our fair value measurements, see note 6.
The derivative assets set forth in the table above exclude our Weather Derivatives, as they are not accounted for at fair value.
The details of our realized and unrealized gains (losses) on derivative instruments, net, are as follows:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
| | | | | |
Cross-currency and interest rate derivative contracts (a) (b) | $ | 404.3 | | | $ | 565.4 | | | $ | (328.6) | |
Foreign currency forward contracts | (13.5) | | | 25.8 | | | (7.8) | |
Weather Derivatives | (31.4) | | | (27.1) | | | (16.3) | |
Total | $ | 359.4 | | | $ | 564.1 | | | $ | (352.7) | |
(a)Changes in the credit risk valuation adjustments associated with our cross-currency and interest rate derivative contracts resulted in net gains (losses) of ($4 million), ($41 million) and $47 million during 2022, 2021 and 2020, respectively. Included in the 2021 credit risk valuation adjustment is a net loss of $30 million related to the Chile JV Entities. These amounts are included in realized and unrealized gains (losses) on derivative instruments, net, in our consolidated statements of operations.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
(b)The losses for 2020 include a realized gain of $71 million associated with the settlement of certain cross-currency swaps at VTR in June 2020 that were unwound in connection with the July 2020 refinancing of certain VTR debt. For additional information regarding the refinancing, see note 9.
The following table sets forth the classification of the net cash inflows (outflows) of our derivative instruments:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
| | | | | |
Operating activities | $ | (20.5) | | | $ | (94.5) | | | $ | (50.1) | |
Investing activities | (7.4) | | | (1.2) | | | 7.4 | |
Financing activities (a) | 97.6 | | | (43.0) | | | 182.5 | |
Total | $ | 69.7 | | | $ | (138.7) | | | $ | 139.8 | |
(a)The 2022 amount is primarily related to the settlement of certain cross currency swaps at VTR prior to the formation of the Chile JV. The 2021 amount is primarily related to (i) $11 million associated with the settlement of interest rate swaps at VTR in connection with the refinancing of the VTR Credit Facilities and (ii) $32 million associated with the settlement of interest rate swaps at Liberty Puerto Rico in connection with the refinancing of the LPR Credit Facilities. The 2020 amount is primarily related to the settlement of certain cross-currency interest rate swaps at VTR. For additional information regarding our debt refinancing activity, see note 9.
Counterparty Credit Risk
We are exposed to the risk that the counterparties to the derivative instruments of our borrowing groups will default on their obligations to us. We manage these credit risks through the evaluation and monitoring of the creditworthiness of, and concentration of risk with, the respective counterparties. In this regard, credit risk associated with our derivative instruments is spread across a relatively broad counterparty base of banks and financial institutions. Collateral has not been posted by either party under the derivative instruments of our borrowing groups. At December 31, 2022, our exposure to counterparty credit risk resulting from our net derivative position was $282 million.
Each of our borrowing groups has entered into derivative instruments under agreements with each counterparty that contain master netting arrangements that are applicable in the event of early termination by either party to such derivative instrument. The master netting arrangements under each of these master agreements are limited to the derivative instruments governed by the relevant master agreement within each individual borrowing group and are independent of similar arrangements of our other subsidiary borrowing groups.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
Details of our Derivative Instruments
Interest Rate Derivative Contracts
Interest Rate Swaps
As noted above, we enter into interest rate swaps to protect against increases in the interest rates on our variable-rate debt. Pursuant to these derivative instruments, we typically pay fixed interest rates and receive variable interest rates on specified notional amounts. The following table sets forth the total U.S. dollar equivalents of the notional amounts and the related weighted average remaining contractual lives of our interest rate swap contracts at December 31, 2022:
| | | | | | | | | | | | | | |
Borrowing group | | Notional amount due from counterparty | | Weighted average remaining life |
| | in millions | | in years |
| | | | |
C&W (a) | $ | 2,690.0 | | | 4.4 |
| | | | |
Liberty Puerto Rico | $ | 500.0 | | | 5.8 |
| | | | |
Costa Rica (b) | $ | 276.7 | | | 1.0 |
(a)Includes forward-starting derivative instruments and, on certain interest rate swaps, an embedded floor of 0%.
(b)Includes an embedded floor of 0.75%.
Basis Swaps
Basis swaps involve the exchange of attributes used to calculate our floating interest rates, including (i) the benchmark rate, (ii) the underlying currency and/or (iii) the borrowing period. We typically enter into these swaps to optimize our interest rate profile based on our current evaluations of yield curves, our risk management policies and other factors. 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 basis swap contracts at December 31, 2022:
| | | | | | | | | | | | | | |
Borrowing group | | Notional amount due from counterparty | | Weighted average remaining life |
| | in millions | | in years |
| | | | |
C&W | $ | 2,100.0 | | | 0.5 |
| | | | |
Liberty Puerto Rico | $ | 620.0 | | | 0.5 |
Foreign Currency Forwards Contracts
We enter into foreign currency forward contracts with respect to non-functional currency exposure. At December 31, 2022, our foreign currency forward contracts had total notional amounts due from and to counterparties of $150 million and CRC 96 billion, respectively, with a weighted average remaining contractual life of 0.5 years.
Interest Rate Floors
Interest rate floors provide protection against interest rates falling below a pre-set level. During 2021, we entered into interest rate floors at Liberty Puerto Rico related to certain financing activity associated with the LPR Credit Facilities, as described in note 9. At December 31, 2022, the total notional amount of our interest rate floors was $620 million with a weighted average remaining contractual life of 5.8 years.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
Interest Rate Caps
Interest rate caps provide protection against interest rates rising above a pre-set level. During 2021, we entered into interest rate caps at Liberty Puerto Rico associated with the 2028 LPR Term Loan, as described in note 9. At December 31, 2022, the total notional amount of our interest rate caps was $120 million with a remaining contractual life of 5.8 years.
(6) Fair Value Measurements
General
We use the fair value method to account for most of our derivative instruments. The reported fair values of our derivative instruments likely will not represent the value that will be paid or received upon the ultimate settlement or disposition of these assets and liabilities, as we expect that the values realized generally will be based on market conditions at the time of settlement, which generally occurs at the maturity of the derivative instrument or at the time of the repayment or refinancing of the underlying debt instrument.
U.S. GAAP provides for a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.
All of our Level 2 inputs (interest rate futures, swap rates and certain of the inputs for our weighted average cost of capital calculations) and certain of our Level 3 inputs (non-interest rate curves and credit spreads) are obtained from pricing services. These inputs, or interpolations or extrapolations thereof, are used in our internal models to calculate, among other items, yield curves, forward interest and currency rates and weighted average cost of capital rates. In the normal course of business, we receive market value assessments from the counterparties to our derivative contracts. Although we compare these assessments to our internal valuations and investigate unexpected differences, we do not otherwise rely on counterparty quotes to determine the fair values of our derivative instruments. The midpoints of applicable bid and ask ranges generally are used as inputs for our internal valuations.
Recurring Fair Value Measurements
Derivatives
In order to manage our interest rate and foreign currency exchange risk, we have entered into various derivative instruments, as further described in note 5. The recurring fair value measurements of these derivative instruments are determined using discounted cash flow models. Most of the inputs to these discounted cash flow models consist of, or are derived from, observable Level 2 data for substantially the full term of these derivative instruments. This observable data mostly includes interest rate futures and swap rates, which are retrieved or derived from available market data. Although we may extrapolate or interpolate this data, we do not otherwise alter this data in performing our valuations. We incorporate a credit risk valuation adjustment in our fair value measurements to estimate the impact of both our own nonperformance risk and the nonperformance risk of our counterparties. Our and our counterparties’ credit spreads represent our most significant Level 3 inputs, and these inputs are used to derive the credit risk valuation adjustments with respect to these instruments. As we would not expect changes in our or our counterparties’ credit spreads to have a significant impact on the valuations of these instruments, we have determined that these valuations fall under Level 2 of the fair value hierarchy. Our credit risk valuation adjustments with respect to our interest rate and cross-currency derivative contracts are quantified and further explained in note 5.
Non-recurring Fair Value Measurements
Fair value measurements may also be used for purposes of non-recurring valuations performed in connection with our acquisition accounting, impairment assessments and the initial valuation related to our equity method investment in the Chile JV. For information concerning our investment in the Chile JV, including the initial fair value assessment, see note 8.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
Acquisition Accounting
The nonrecurring valuations associated with acquisition accounting, which use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy, primarily include the valuation of property and equipment, customer relationships and spectrum intangible assets, as further described below:
•Property and equipment. The valuation of property and equipment may use either an indirect cost approach, which utilizes trends based on historical cost information, or a combination of indirect cost approach, market approach and direct replacement cost method, which considers factors such as current prices of the same or similar equipment, the age of the equipment and economic obsolescence.
•Customer relationships. The valuation of customer relationships is primarily based on an excess earnings methodology, which is a form of a discounted cash flow analysis. The excess earnings methodology for customer relationship intangible assets requires us to estimate the specific cash flows expected from the acquired customer relationships, considering such factors as estimated customer life, the revenue expected to be generated over the life of the customer relationships, contributory asset charges and other factors.
•Spectrum intangible assets. The valuation of spectrum intangible assets may use either an adjusted market-based approach, which requires the calibration of observable market inputs to reflect the fair value of the assets acquired, or a combination of an adjusted market-based approach with other methods, such as an income-based approach (e.g. the “greenfield” valuation method), which requires a wide range of assumptions and inputs, including forecasting costs associated with building a complementary asset base.
During the third quarter of 2022, we performed certain nonrecurring valuations related to the preliminary acquisition accounting for the Claro Panama Acquisition. For information related to the status of valuation work associated with assets acquired in connection with the Claro Panama Acquisition, see note 4.
During 2021, we performed a nonrecurring valuation related to the preliminary acquisition accounting for the Liberty Telecomunicaciones Acquisition using an 11% weighted average discount rate for the valuation of the customer relationships acquired. During 2022, we finalized our acquisition accounting for the Liberty Telecomunicaciones Acquisition, which did not result in any material changes to our opening balance sheet. Also during 2021, we finalized our acquisition accounting for the AT&T Acquisition. The weighted average discount rates used in the valuation of the customer relationships and spectrum licenses acquired in the AT&T Acquisition was approximately 10% and 8%, respectively.
For additional information relating to our acquisitions, see note 4.
Impairment Assessments
The nonrecurring valuations associated with impairment assessments, which use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy, primarily include the valuation of reporting units for the purpose of testing for goodwill impairment. Unless a reporting unit has a readily determinable fair value, we estimate the fair value of the reporting unit using either a market-based or income-based approach.
Goodwill
During the second quarter of 2022, primarily due to significant increases in interest rates, we performed goodwill impairment analyses of all of our reporting units. We used an income approach to determine the estimated fair values of these reporting units. Under this approach, we utilized a discounted cash flow model as the valuation technique to estimate the fair values of the reporting units from a market participant’s perspective. This approach uses certain inputs and assumptions that require estimates and judgments, including forecasted cash flows and an appropriate discount rate. Forecasts of future cash flows are largely based on our assumptions using Level 3 inputs, which we consider to be consistent with a market participant’s approach. We used the weighted-average cost of capital for each reporting unit as the basis for the discount rate to establish the present value of the expected cash flows for the respective reporting unit. The inputs for our weighted average cost of capital calculations include Level 2 and Level 3 inputs, generally derived from third-party pricing services and estimated discount rates. Based upon the results of the aforementioned analysis, we recognized impairment charges associated with certain reporting units of our C&W Caribbean segment. For additional information regarding goodwill impairment charges resulting from these impairment analyses, see note 7.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
As part of our annual goodwill impairment assessment in the fourth quarter of 2021, we performed goodwill impairment analyses of several reporting units within the C&W Caribbean segment and the C&W Panama segment. We used an income approach to determine the estimated fair values of these reporting units. Under this approach, we utilized a discounted cash flow model as the valuation technique to estimate the fair values of the reporting units from a market participant’s perspective. This approach uses certain inputs and assumptions that require estimates and judgments, including forecasted cash flows and appropriate discount rates. Forecasts of future cash flows are largely based on our assumptions using Level 3 inputs, which we consider to be consistent with a market participant’s approach. We used the weighted-average cost of capital for each reporting unit as the basis for the discount rate to establish the present value of the expected cash flows for the respective reporting unit. The inputs for our weighted average cost of capital calculations include Level 2 and Level 3 inputs, generally derived from third-party pricing services and estimated discount rates.
For additional information regarding goodwill impairment charges resulting from these impairment analyses, see note 7.
(7) Long-lived Assets
Impairment Charges
The following table sets forth the details of our impairment charges:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| C&W Caribbean | | C&W Panama | | C&W Networks & LatAm | | Liberty Puerto Rico | | VTR (a) | | Liberty Costa Rica | | Total |
| in millions |
Year ended December 31, 2022: | | | | | | | | | | | | | |
Goodwill (b) | $ | 555.3 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 555.3 | |
Property and equipment and other | 3.1 | | | — | | | 1.0 | | | 3.6 | | | 0.1 | | | 0.7 | | | 8.5 | |
Total impairment charges | $ | 558.4 | | | $ | — | | | $ | 1.0 | | | $ | 3.6 | | | $ | 0.1 | | | $ | 0.7 | | | $ | 563.8 | |
| | | | | | | | | | | | | |
Year ended December 31, 2021: | | | | | | | | | | | | | |
Goodwill | $ | 605.1 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 605.1 | |
Property and equipment and other | 2.6 | | | — | | | — | | | 0.2 | | | 1.3 | | | — | | | 4.1 | |
Total impairment charges | $ | 607.7 | | | $ | — | | | $ | — | | | $ | 0.2 | | | $ | 1.3 | | | $ | — | | | $ | 609.2 | |
| | | | | | | | | | | | | |
Year ended December 31, 2020: | | | | | | | | | | | | | |
Goodwill | $ | 99.0 | | | $ | 173.6 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 272.6 | |
Property and equipment and other | 1.9 | | | — | | | — | | | 1.5 | | | 1.6 | | | 0.1 | | | 5.1 | |
Total impairment charges | $ | 100.9 | | | $ | 173.6 | | | $ | — | | | $ | 1.5 | | | $ | 1.6 | | | $ | 0.1 | | | $ | 277.7 | |
(a)During October 2022, we contributed the Chile JV Entities into the Chile JV. As such, subsequent to September 30, 2022, VTR is no longer included in our consolidated results of operations.
(b)During 2022, we recorded a $555 million impairment of goodwill within certain reporting units of our C&W Caribbean segment. This impairment was driven primarily by macroeconomic factors, including higher interest rates, that drove an increase in the discount rates used to value these reporting units. After recording these impairments, the associated reporting units have $498 million of goodwill remaining at December 31, 2022. If, among other factors, (i) our equity values were to decline significantly, (ii) we experience additional adverse impacts associated with macroeconomic factors, including increases in our estimated weighted average cost of capital, or (iii) the adverse impacts stemming from competition, economic, regulatory or other factors were to cause our results of operations or cash flows to be worse than currently anticipated, we could conclude in future periods that additional impairment charges of certain reporting units are required in order to reduce the carrying values of goodwill. Any such impairment charges could be significant.
For additional information regarding the fair value methods and related assumptions used in our impairment assessments, see note 6.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
Goodwill
Changes in the carrying amount of our goodwill during 2022 are set forth below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| January 1, 2022 | | Acquisitions and related adjustments | | | | Foreign currency translation adjustments and other | | Impairments | | December 31, 2022 |
| in millions |
| | | | | | | | | | | |
C&W Caribbean | $ | 1,787.1 | | | $ | (16.5) | | | | | $ | 5.1 | | | $ | (555.3) | | | $ | 1,220.4 | |
C&W Panama | 617.1 | | | — | | | | | — | | | — | | | 617.1 | |
C&W Networks & LatAm | 646.8 | | | 11.5 | | | | | (4.3) | | | — | | | 654.0 | |
Liberty Puerto Rico | 498.3 | | | 2.8 | | | | | — | | | — | | | 501.1 | |
Liberty Costa Rica | 398.7 | | | (3.8) | | | | | 33.8 | | | — | | | 428.7 | |
Total | $ | 3,948.0 | | | $ | (6.0) | | | | | $ | 34.6 | | | $ | (555.3) | | | $ | 3,421.3 | |
Changes in the carrying amount of our goodwill during 2021 are set forth below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| January 1, 2021 | | Acquisitions and related adjustments | | Reclassification to assets held for sale (a) | | Foreign currency translation adjustments and other | | Impairments | | December 31, 2021 |
| in millions |
| | | | | | | | | | | |
C&W Caribbean | $ | 2,459.3 | | | $ | — | | | $ | — | | | $ | (67.1) | | | $ | (605.1) | | | $ | 1,787.1 | |
C&W Panama | 617.1 | | | — | | | — | | | — | | | — | | | 617.1 | |
C&W Networks & LatAm | 652.7 | | | — | | | — | | | (5.9) | | | — | | | 646.8 | |
Liberty Puerto Rico | 629.9 | | | (131.6) | | | — | | | — | | | — | | | 498.3 | |
Liberty Costa Rica | 151.9 | | | 262.0 | | | — | | | (15.2) | | | — | | | 398.7 | |
VTR | 374.6 | | | — | | | (313.0) | | | (61.6) | | | — | | | — | |
Total | $ | 4,885.5 | | | $ | 130.4 | | | $ | (313.0) | | | $ | (149.8) | | | $ | (605.1) | | | $ | 3,948.0 | |
(a)In connection with the then pending formation of the Chile JV, the goodwill associated with the Chile JV Entities was included in assets held for sale on our December 31, 2021 consolidated balance sheet. For information regarding the formation of the Chile JV and the held-for-sale presentation of the Chile JV Entities, see notes 8 and 8.
At December 31, 2022 and 2021, our accumulated goodwill impairments were $2,784 million and $2,229 million, respectively.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
Property and Equipment, Net
The details of our property and equipment and the related accumulated depreciation are set forth below:
| | | | | | | | | | | | | | | | | |
| Estimated useful life at December 31, 2022 | | December 31, |
| | 2022 | | 2021 |
| | | in millions |
| | | | | |
Distribution systems | 3 to 25 years | | $ | 4,419.1 | | | $ | 4,208.8 | |
Support equipment, buildings, land and CIP | 3 to 40 years | | 2,232.7 | | | 1,641.6 | |
CPE | 3 to 5 years | | 919.0 | | | 893.7 | |
| | | 7,570.8 | | | 6,744.1 | |
Accumulated depreciation | | (3,277.2) | | | (2,575.7) | |
Total | | $ | 4,293.6 | | | $ | 4,168.4 | |
Depreciation expense related to our property and equipment was $726 million, $771 million and $730 million during 2022, 2021 and 2020, respectively.
We recorded non-cash increases to our property and equipment related to vendor financing arrangements of $161 million $101 million and $99 million during 2022, 2021 and 2020, respectively.
Intangible Assets Subject to Amortization, Net
The details of our intangible assets subject to amortization, which had estimated useful lives ranging from four to 25 years at December 31, 2022, are set forth below:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| in millions |
| | | |
Customer relationships | $ | 1,464.4 | | | $ | 1,527.6 | |
Licenses and other (a) | 278.9 | | | 220.2 | |
| 1,743.3 | | | 1,747.8 | |
Accumulated amortization | (1,055.2) | | | (959.2) | |
Total | $ | 688.1 | | | $ | 788.6 | |
(a)The 2022 amount includes $50 million of spectrum licenses attributable to the Claro Panama Acquisition. For additional information regarding the assets acquired as part of the Claro Panama Acquisition, see note 4.
Amortization expense related to intangible assets with finite useful lives was $185 million, $193 million and $189 million during 2022, 2021 and 2020, respectively.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
Based on our amortizable intangible assets balance at December 31, 2022, we expect that amortization expense will be as follows for the next five years and thereafter (in millions):
| | | | | |
2023 | $ | 170.6 | |
2024 | 133.2 | |
2025 | 90.3 | |
2026 | 64.8 | |
2027 | 54.5 | |
Thereafter | 174.7 | |
Total | $ | 688.1 | |
Intangible Assets Not Subject to Amortization
The details of our intangible assets not subject to amortization are set forth below:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| in millions |
| | | |
Spectrum licenses | $ | 1,051.0 | | | $ | 1,050.9 | |
Cable television franchise rights and other | 541.8 | | | 541.5 | |
| | | |
Total intangible assets not subject to amortization | $ | 1,592.8 | | | $ | 1,592.4 | |
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
(8) Assets Held for Sale
On September 29, 2021, we entered into an agreement with América Móvil to contribute the Chile JV Entities to América Móvil’s Chilean operations to form the Chile JV. During October 2022, we completed the formation of the Chile JV, which is owned 50:50 by Liberty Latin America and América Móvil.
Effective with the agreement to form the Chile JV, we began accounting for the Chile JV Entities as held for sale. Accordingly, we ceased to depreciate the long-lived assets and amortization of the right of use assets of the Chile JV Entities. The Chile JV Entities were not presented as a discontinued operation, as this transaction did not represent a strategic shift that will have a major effect on our financial results or operations. The carrying amounts of the major classes of assets and liabilities that are classified as held for sale on our December 31, 2021 consolidated balance sheet are summarized below (in millions):
| | | | | |
Assets: | |
Cash and cash equivalents | $ | 109.7 | |
Other current assets, net | 132.6 | |
Property and equipment, net | 686.0 | |
Goodwill | 313.0 | |
Other assets, net | 327.4 | |
Total assets | $ | 1,568.7 | |
| |
Liabilities: | |
Current portion of debt | $ | 82.2 | |
Other accrued and current liabilities | 294.2 | |
Long-term debt | 1,416.8 | |
Other long-term liabilities | 60.9 | |
Total liabilities | $ | 1,854.1 | |
Our consolidated statements of operations include earnings (losses) before income taxes attributable to the Chile JV Entities of ($26 million), $271 million, and ($118 million) for the years ended December 31, 2022, 2021 and 2020, respectively.
During October 2022, and in connection with the closing on the formation of the Chile JV, we made a balancing payment to América Móvil totaling $76 million. The transaction did not trigger a change of control under VTR’s debt agreements, and was not subject to Liberty Latin America or América Móvil shareholder approvals. Beginning in October 2022, we account for our 50% interest in the Chile JV as an equity method investment.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
The carrying amounts of the major classes of assets and liabilities associated with the Chile JV Entities, which were contributed to the Chile JV, are summarized below (in millions):
| | | | | |
Assets: | |
Cash and cash equivalents | $ | 63.0 | |
Other current assets, net | 104.4 | |
Property and equipment, net | 697.5 | |
Goodwill | 275.6 | |
Other assets, net | 259.1 | |
Total assets | $ | 1,399.6 | |
| |
Liabilities: | |
Current portion of debt | $ | 72.4 | |
Other accrued and current liabilities | 210.1 | |
Long-term debt | 1,330.9 | |
Other long-term liabilities | 55.1 | |
Total liabilities | $ | 1,668.5 | |
In connection with the formation of the Chile JV, we recognized a pre-tax gain of $169 million, which is net of the recognition of a cumulative foreign currency translation loss of $17 million. The gain is a result of a minimal preliminary estimated fair value of our investment in the Chile JV at formation and the negative net carrying value of the Chile JV Entities at the time of closing, and is net of a $50 million contribution that was provided to the Chile JV near the time of closing for working capital purposes. In determining our preliminary value, we considered the limited qualitative and quantitative information we have available, including negative cash flows of the Chile JV and the significant discount in the fair value of the Chile JV’s debt in relation to its par value. Our investment balance in the Chile JV was subsequently reduced to zero by December 31, 2022 after taking our share of the net losses of the Chile JV during the fourth quarter of 2022.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
(9) Debt and Finance Lease Obligations
The U.S. dollar equivalents of the components of our debt are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | Estimated fair value (c) | | Principal amount |
| Weighted average interest rate (a) | | Unused borrowing capacity (b) | |
| | Borrowing currency | | US $ equivalent | | December 31, | | December 31, |
| | | | 2022 | | 2021 | | 2022 | | 2021 |
| | | in millions |
| | | | | | | | | | | | | |
Convertible Notes (d) | 2.00 | % | | $ | — | | | $ | — | | | $ | 357.4 | | | $ | 396.5 | | | $ | 402.5 | | | $ | 402.5 | |
C&W Notes | 6.55 | % | | — | | | — | | | 1,591.6 | | | 1,774.3 | | | 1,715.0 | | | 1,715.0 | |
C&W Credit Facilities | 6.32 | % | | (e) | | 719.2 | | | 2,505.0 | | | 2,422.7 | | | 2,605.2 | | | 2,451.3 | |
LPR Senior Secured Notes | 6.08 | % | | — | | | — | | | 1,772.7 | | | 2,058.1 | | | 1,981.0 | | | 1,981.0 | |
LPR Credit Facilities | 8.07 | % | | $ | 172.5 | | | 172.5 | | | 613.8 | | | 623.1 | | | 620.0 | | | 620.0 | |
LCR Credit Facilities (f) | 10.32 | % | | $ | 7.0 | | | 7.0 | | | 382.9 | | | 407.1 | | | 419.3 | | | 408.7 | |
Vendor financing and other (g) | 6.04 | % | | — | | | — | | | 223.1 | | | 99.8 | | | 223.1 | | | 99.8 | |
Total debt before premiums, discounts and deferred financing costs | 6.43 | % | | | | $ | 898.7 | | | $ | 7,446.5 | | | $ | 7,781.6 | | | $ | 7,966.1 | | | $ | 7,678.3 | |
The following table provides a reconciliation of total debt before premiums, discounts and deferred financing costs to total debt and finance lease obligations:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| in millions |
| | | |
Total debt before premiums, discounts and deferred financing costs | $ | 7,966.1 | | | $ | 7,678.3 | |
Premiums, discounts and deferred financing costs, net (d) | (94.0) | | | (120.0) | |
Total carrying amount of debt | 7,872.1 | | | 7,558.3 | |
Finance lease obligations | 8.6 | | | 7.6 | |
Total debt and finance lease obligations | 7,880.7 | | | 7,565.9 | |
Less: Current maturities of debt and finance lease obligations | (226.9) | | | (106.3) | |
Long-term debt and finance lease obligations | $ | 7,653.8 | | | $ | 7,459.6 | |
(a)Represents the weighted average interest rate in effect at December 31, 2022 for all borrowings outstanding (excluding those of the Chile JV Entities) pursuant to each debt instrument, including any applicable margin. The interest rates presented represent stated rates and do not include the impact of derivative instruments, deferred financing costs, original issue premiums or discounts and commitment fees, all of which affect our overall cost of borrowing.
(b)Unused borrowing capacity represents the maximum availability under the applicable facility at December 31, 2022 without regard to covenant compliance calculations or other conditions precedent to borrowing. At December 31, 2022, the full amount of unused borrowing capacity was available to be borrowed under each of the respective subsidiary facilities, both before and after completion of the December 31, 2022 compliance reporting requirements. At December 31, 2022, except as may be limited by tax and legal considerations, the presence of noncontrolling interests, foreign currency exchange restrictions with respect to certain C&W subsidiaries and other factors, there were no restrictions on the respective subsidiary’s ability to upstream cash from this availability to Liberty Latin America or its subsidiaries or other equity holders.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
(c)The estimated fair values of our debt instruments are determined using the applicable bid prices (mostly Level 1 of the fair value hierarchy) or from quoted prices for similar instruments in active markets adjusted for the estimated credit spreads of the applicable entity, to the extent available, and other relevant factors (Level 2 of the fair value hierarchy). For additional information regarding fair value hierarchies, see note 6.
(d)The interest rate reflects the stated rate of the Convertible Notes. The effective interest rate of the Convertible Notes is 6.7%, which considers the impact of a discount recorded in connection with the Conversion Option, as further described below.
(e)The C&W Credit Facilities unused borrowing capacity comprise certain U.S. dollar, Trinidad & Tobago dollar and JMD revolving credit facilities. For further information, see C&W Credit Facilities below.
(f)The LCR Credit Facilities comprise certain CRC and U.S. dollar term loans and a U.S. dollar revolving credit facility. For further information, see LCR Credit Facilities below.
(g)Represents amounts owed pursuant to interest-bearing vendor financing arrangements that are used to finance certain of our operating expenses and property and equipment additions. These obligations are generally due within one year and include VAT that were paid on our behalf by the vendor. Our operating expenses include $149 million, $110 million and $108 million for 2022, 2021 and 2020, respectively, that were financed by an intermediary and are reflected on the borrowing date as a cash outflow within net cash provided by operating activities and a cash inflow within net cash provided (used) by financing activities in our consolidated statements of cash flows. Repayments of vendor financing obligations are included in payments of principal amounts of debt and finance lease obligations in our consolidated statements of cash flows.
General Information
At December 31, 2022, all of our outstanding debt had been incurred by one of our three primary “borrowing groups”: C&W, Liberty Puerto Rico and Liberty Costa Rica, except for our Convertible Notes (as described below).
Credit Facilities. Each of our borrowing groups has entered into one or more credit facility agreements with certain financial institutions. Each of these credit facilities contain certain covenants, the more notable of which are as follows:
•Our credit facilities contain certain net leverage ratios, as specified in the relevant credit facility, which are required to be complied with on an incurrence and/or maintenance basis;
•Our credit facilities contain certain restrictions which, among other things, restrict the ability of the entities of the relevant borrowing group to (i) incur or guarantee certain financial indebtedness, (ii) make certain disposals and acquisitions, (iii) create certain security interests over their assets, in each case, subject to certain customary and agreed exceptions, and (iv) make certain restricted payments to their direct and/or indirect parent companies through dividends, loans or other distributions, subject to compliance with applicable covenants;
•Our credit facilities require that certain entities of the relevant borrowing group guarantee the payment of all sums payable under the relevant credit facility and such entities are required to have first-ranking security granted over their shares and, in certain borrowing groups, over substantially all of their assets to secure the payment of all sums payable thereunder;
•In addition to certain mandatory prepayment events, the instructing group of lenders under the relevant credit facility may cancel the commitments thereunder and declare the loans thereunder due and payable after the applicable notice period following the occurrence of a change of control (as specified in the relevant credit facility);
•Our credit facilities contain certain customary events of default, the occurrence of which, subject to certain exceptions and materiality qualifications, would allow the instructing group of lenders to (i) cancel the total commitments, (ii) accelerate all outstanding loans and terminate their commitments thereunder and/or (iii) declare that all or part of the loans be payable on demand;
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
•Our credit facilities require entities of the relevant borrowing group to observe certain affirmative and negative undertakings and covenants, which are subject to certain materiality qualifications and other customary and agreed exceptions; and
•In addition to customary default provisions, our credit facilities generally include certain cross-default and cross-acceleration provisions with respect to other indebtedness of entities of the relevant borrowing group, subject to agreed minimum thresholds and other customary and agreed exceptions.
Senior and Senior Secured Notes. Our C&W and Liberty Puerto Rico borrowing groups have issued senior and/or senior secured notes. In general, our senior and senior secured notes (i) are senior obligations of each respective issuer within the relevant borrowing group that rank equally with all of the existing and future debt of such issuer and, in the case of our senior secured notes, are senior to all existing and future subordinated debt of each respective issuer within the relevant borrowing group, (ii) contain, in most instances, guarantees from other entities of the relevant borrowing group (as specified in the applicable indenture) and (iii) are secured by pledges over the shares of certain entities of the relevant borrowing group and, in certain instances, over substantially all of the assets of those entities. In addition, the indentures governing our senior and senior secured notes contain certain covenants, the more notable of which are as follows:
•Our notes contain certain customary incurrence-based covenants. In addition, our notes provide that any failure to pay principal prior to expiration of any applicable grace period, or any acceleration with respect to other indebtedness of the issuer or certain other members of the relevant borrowing group, over agreed minimum thresholds (as specified under the applicable indenture), is an event of default under the respective notes;
•Our notes contain certain restrictions that, among other things, restrict the ability of the entities of the relevant borrowing group to (i) incur or guarantee certain financial indebtedness, (ii) make certain disposals and acquisitions, (iii) create certain security interests over their assets, in each case, subject to certain customary and agreed exceptions and (iv) make certain restricted payments to its direct and/or indirect parent companies through dividends, loans or other distributions, subject to compliance with applicable covenants; and
•If the relevant issuer or certain of its subsidiaries (as specified in the applicable indenture) sell certain assets, such issuer must offer to repurchase the applicable notes at par, or if a change of control (as specified in the applicable indenture) occurs, such issuer must offer to repurchase all of the relevant notes at a redemption price of 101%.
Liberty Latin America – Convertible Notes
In June 2019, Liberty Latin America issued the Convertible Notes. Interest on the Convertible Notes is payable semi-annually on January 15 and July 15. The Convertible Notes are general unsecured obligations of the Company and are structurally subordinated to all the debt and other liabilities of our subsidiaries.
Conversion Rights. Subject to certain conditions, and adjustments if certain events occur (as specified in the indenture governing the Convertible Notes), including the Rights Offering (as discussed further below), as of December 31, 2022, the Convertible Notes may be converted at a conversion rate equal to 48.4315 Class C common shares per $1,000 principal amount of the Convertible Notes (equivalent to a conversion price of approximately $20.65 per Class C common share. Any conversions of the Convertible Notes may be settled, at the election of the Company, in cash, Class C common shares or a combination thereof.
In September 2020, we completed the Rights Offering, as further described in note 17, whereby we issued 49,049,073 of our Class C common shares. In connection with the Rights Offering, subject to certain anti-dilution provisions in the indenture governing the Convertible Notes, the conversion rate for the Convertible Notes was adjusted from 44.9767 to 48.4315 Class C common shares per $1,000 principal amount of the Convertible Notes.
The Convertible Notes may be converted at the option of the holders at any time prior to the close of business on January 12, 2024, only under the following circumstances:
•during any calendar quarter (and only during such calendar quarter), if the last reported sale price of our Class C common shares for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on and including the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the applicable conversion price of the Convertible Notes on each applicable trading day;
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
•during the five consecutive business day period immediately after any five consecutive trading day period (the “measurement period”), in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day of that measurement period was less than 98% of the product of the last reported sale price of our Class C common shares and the conversion rate on each such trading day;
•if we give notice of redemption, as described below; or
•upon the occurrence of specified corporate transactions.
On and after January 15, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the Convertible Notes may convert their notes at any time, regardless of the foregoing circumstances.
We determined the Conversion Option should be bifurcated from the debt host instrument (the Convertible Notes) and accounted for as a separate financial instrument that qualifies for equity classification. Accordingly, we bifurcated the Conversion Option from the Convertible Notes and initially recorded the estimated fair value of $78 million as additional paid-in capital and debt discount. The debt discount is being accreted through interest expense, using the effective interest method, through maturity of the Convertible Notes or when the Conversion Option no longer qualifies for equity classification, if ever. At December 31, 2022, the carrying value of the Convertible Notes was $375 million and the unamortized debt discount on the Convertible Notes was $27 million.
Redemption Rights. On or after July 19, 2022 but prior to the 85th scheduled trading day immediately preceding July 15, 2024, we may redeem all or a portion of the Convertible Notes for cash, if the last reported sale price of our Class C common shares has been at least 130% of the conversion price then in effect on (i) each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption and (ii) the trading day immediately preceding the date we provide such notice.
Other. If a fundamental change (as defined in the indenture) occurs, holders of the Convertible Notes may require the Company to repurchase all or a portion of their notes for cash at a price equal to 100% of the principal amount of the notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, following certain corporate transactions that occur prior to the maturity date of the Convertible Notes or the delivery of a notice of redemption, we will increase the applicable conversion rate for a holder who elects to convert in connection with such corporate transactions or notice of redemption in certain circumstances by a number of additional Class C common shares, as described in the related indenture..
Borrowing Group – Outstanding Debt Instruments
C&W Notes
The details of the outstanding C&W Notes as of December 31, 2022 are summarized in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Outstanding principal amount | | |
C&W Notes | | Maturity | | Interest rate | | Borrowing currency | | U.S. $ equivalent | | Carrying value (a) |
| | | | | | in millions |
| | | | | | | | | | |
2027 C&W Senior Secured Notes | | September 7, 2027 | | 5.750 | % | | $ | 495.0 | | | $ | 495.0 | | | $ | 494.2 | |
2027 C&W Senior Notes | | September 15, 2027 | | 6.875 | % | | $ | 1,220.0 | | | 1,220.0 | | | 1,218.0 | |
Total | | $ | 1,715.0 | | | $ | 1,712.2 | |
(a)Amounts are inclusive or net of original issue premiums and deferred financing costs, as applicable.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
Redemption Rights. The C&W Notes are subject to certain redemption rights (as specified in the applicable indenture). Some or all of the 2027 C&W Senior Notes and 2027 C&W Senior Secured Notes may be redeemed at the following redemption prices (expressed as a percentage of the principal amount) plus accrued and unpaid interest and additional amounts (as specified in the indenture), if any, to the applicable redemption date, as set forth below:
| | | | | | | | | | | |
| Redemption Price |
| 2027 C&W Senior Notes | | 2027 C&W Senior Secured Notes |
| | | |
12-month period commencing: | September 15 | | September 7 |
| | | |
2023 | 101.719% | | 101.438% |
2024 | 100.859% | | 100.000% |
2025 and thereafter | 100.000% | | 100.000% |
C&W Credit Facilities
The details of our borrowings under the C&W Credit Facilities as of December 31, 2022 are summarized in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Unused borrowing capacity | | Outstanding principal amount | | |
C&W Credit Facilities | | Maturity | | Interest rate | | Borrowing currency | | US $ equivalent | | Borrowing currency | | US $ equivalent | | Carrying value (a) |
| | | | | | in millions |
| | | | | | | | | | | | | | |
CWP Revolving Credit Facility (b) | | January 18, 2027 | | SOFR + 3.75% | | $ | 20.0 | | | 20.0 | | | $ | — | | | $ | — | | | $ | — | |
C&W Revolving Credit Facility (c) | | January 30, 2027 | | LIBOR + 3.25% | | $ | 630.0 | | | $ | 630.0 | | | $ | — | | | — | | | — | |
C&W Term Loan B-5 Facility | | January 31, 2028 | | LIBOR + 2.25% (d) | | $ | — | | | — | | | $ | 1,510.0 | | | 1,510.0 | | | 1,497.2 | |
C&W Term Loan B-6 Facility | | October 15, 2029 | | LIBOR + 3.0% (d) | | $ | — | | | — | | | $ | 590.0 | | | 590.0 | | | 581.1 | |
2028 CWP Term Loan (e) | | January 18, 2028 | | 4.25% | | $ | — | | | — | | | $ | 435.0 | | | 435.0 | | | 429.9 | |
C&W Regional Facilities | | various dates ranging from 2023 to 2038 | | 5.35% (f) | | (g) | | 69.2 | | | (h) | | 70.2 | | | 68.2 | |
Total | | $ | 719.2 | | | | | $ | 2,605.2 | | | $ | 2,576.4 | |
(a)Amounts are net of discounts and deferred financing costs, as applicable.
(b)The CWP Revolving Credit Facility has a fee on unused commitments of 0.5% per year.
(c)The C&W Revolving Credit Facility (i) includes $50 million that matures on June 30, 2023 and (ii) has a fee on unused commitments of 0.5% per year.
(d)Subject to a LIBOR floor of 0 basis points.
(e)Certain proceeds of the 2028 CWP Term Loan were used to fund a portion of the Claro Panama Acquisition.
(f)Represents a weighted average rate for all C&W Regional Facilities.
(g)The unused borrowing capacity on the C&W Regional Facilities comprise certain U.S. dollar, Trinidad & Tobago dollar and JMD denominated revolving credit facilities.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
(h)The outstanding principal amount on the C&W Regional Facilities comprise certain JMD, U.S. dollar, East Caribbean dollar denominated credit facilities.
LPR Senior Secured Notes
The details of the outstanding LPR Senior Secured Notes as of December 31, 2022 are summarized in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Outstanding principal amount | | |
LPR Senior Secured Notes | | Maturity | | Interest rate | | Borrowing currency | | U.S. $ equivalent | | Carrying value (a) |
| | | | | | in millions |
| | | | | | | | | | |
2027 LPR Senior Secured Notes | | October 15, 2027 | | 6.750% | | $ | 1,161.0 | | | $ | 1,161.0 | | | $ | 1,146.3 | |
2029 LPR Senior Secured Notes | | July 15, 2029 | | 5.125% | | $ | 820.0 | | | 820.0 | | | 810.5 | |
Total | | $ | 1,981.0 | | | $ | 1,956.8 | |
(a)Amounts are inclusive or net of original issue premiums and deferred financing costs, as applicable.
Redemption Rights. The LPR Senior Secured Notes are subject to certain redemption rights (as specified in the applicable indenture). LCPR Senior Secured Financing may redeem some or all of the 2027 LPR Senior Secured Notes and 2029 LPR Senior Secured Notes at the following redemption prices (expressed as a percentage of principal amount) plus accrued and unpaid interest and additional amounts (as specified in the applicable indenture), if any, to the applicable redemption date:
| | | | | | | | | | | |
| Redemption Price |
| 2027 LPR Senior Secured Notes | | 2029 LPR Senior Secured Notes |
| | | |
12-month period commencing: | October 15 | | July 15 |
| | | |
2023 | 101.688% | | N.A. |
2024 | 100.000% | | 102.563% |
2025 | 100.000% | | 101.281% |
2026 and thereafter | 100.000% | | 100.000% |
LPR Credit Facilities
The details of our borrowings under the LPR Credit Facilities as of December 31, 2022 are summarized in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
LPR Credit Facilities | | Maturity | | Interest rate | | Unused borrowing capacity | | Outstanding principal amount | | Carrying value |
| | | | | | in millions |
| | | | | | | | | | |
LPR Revolving Credit Facility (a) | | March 15, 2027 | | LIBOR + 3.50% | | $ | 172.5 | | | $ | — | | | $ | — | |
2028 LPR Term Loan | | October 15, 2028 | | LIBOR + 3.75% | | — | | | 620.0 | | | 615.6 | |
Total | | $ | 172.5 | | | $ | 620.0 | | | $ | 615.6 | |
(a)The LPR Revolving Credit Facility has a fee on unused commitments of 0.5% per year.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
LCR Credit Facilities
The details of the LCR Credit Facilities as of December 31, 2022 are summarized in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Unused borrowing capacity | | Outstanding principal | | |
Costa Rica Credit Facilities | | Maturity | | Interest rate | | Borrowing currency | | U.S. $ equivalent | | Borrowing currency | | U.S. $ equivalent | | Carrying value (a) |
| | | | | | in millions |
| | | | | | | | | | | | | | | | |
LCR Term Loan B-1 Facility | | (b) | | LIBOR + 5.50% (c) | | $ | — | | | $ | — | | | $ | 276.7 | | | $ | 276.7 | | | $ | 270.5 | |
LCR Term Loan B-2 Facility | | (b) | | TBP + 6.75% | | CRC | — | | | — | | | CRC | 79,635.2 | | | 134.6 | | | 135.5 | |
LCR Revolving Credit Facility (d) | | August 1, 2024 | | LIBOR + 4.25% | | $ | 7.0 | | | 7.0 | | | $ | 8.0 | | | 8.0 | | | 8.0 | |
Total | | $ | 7.0 | | | | | | $ | 419.3 | | | $ | 414.0 | |
(a)Amounts are net of deferred financing costs.
(b)Under the terms of the credit agreement, Liberty Servicios was obligated to repay 50% of the outstanding aggregate principal amounts of the LCR Term Loan B-1 Facility and the LCR Term Loan B-2 Facility on February 1, 2024, with the remaining respective principal amounts due on August 1, 2024, which represented the ultimate maturity date of each facility.
The LCR Term Loan B-1 Facility and LCR Term Loan B-2 Facility were refinanced subsequent to December 31, 2022, as further described below.
(c)Subject to a LIBOR floor of 75 basis points.
(d)The LCR Revolving Credit Facility had a fee on unused commitments of 1.70% per year. Subsequent to December 31, 2022, the LCR Revolving Credit Facility was amended and restated. The amended and restated $60 million LCR Revolving Credit Facility bears interest at SOFR plus a margin of 4.25%, matures on January 15, 2028 and has a fee on unused commitments of 0.5% per year.
In January 2023, Liberty Costa Rica entered into the 2031 LCR Term Loan A and the 2031 LCR Term Loan B, both issued at par. At any time prior to the maturity dates, the 2031 LCR Term Loan A and 2031 LCR Term Loan B outstanding principal amounts, in whole or in part, may be redeemed or repaid, as applicable, along with (i) any accrued and unpaid interest and (ii) as applicable, any prepayment fee or prepayment premium or applicable premium (each as defined in the applicable credit agreement). The proceeds from the 2031 LCR Term Loan A and 2031 LCR Term Loan B were primarily used to repay the LCR Term Loan B-1 Facility and LCR Term Loan B-2 Facility.
Financing and Refinancing Activity
Borrowings related to significant notes we issued and credit facilities drew down, entered into or amended during 2022, 2021 and 2020 are included in the tables below. Non-cash activity relates to cash borrowed that did not pass through our bank accounts, as financing proceeds from the issuance of debt were used to directly repay some or all of the outstanding debt instruments within the same borrowing group.
Borrowings during 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Borrowing group | | | | | | Borrowing | | Non-cash component |
| Instrument | | Issued at | | Borrowing currency | | USD equivalent | |
| | | | | | in millions |
| | | | | | | | | | | |
C&W | | 2028 CWP Term Loan | | 100% | | $ | 435.0 | | | 435.0 | | | $ | 272.9 | |
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
Borrowings during 2021, including activity related to the Chile JV Entities, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Borrowing group | | | | | | Borrowing | | Non-cash component |
| Instrument | | Issued at | | Borrowing currency | | USD equivalent | |
| | | | | | in millions |
| | | | | | | | | | | |
C&W | | C&W Term Loan B-6 Facility | | 99.25% | | $ | 590.0 | | | $ | 590.0 | | | $ | 555.0 | |
C&W | | C&W Revolving Credit Facility | | N/A | | | (a) | | $ | — | |
| | | | | | | | | | | |
Liberty Puerto Rico | | 2029 LPR Senior Secured Notes | | 100% | | $ | 820.0 | | | $ | 820.0 | | | $ | 500.0 | |
Liberty Puerto Rico | | 2028 LPR Term Loan | | 100% | | $ | 620.0 | | | $ | 620.0 | | | $ | 500.0 | |
Liberty Puerto Rico | | LPR Revolving Credit Facility | | N/A | | | (b) | | $ | — | |
| | | | | | | | | | | |
VTR | | 2029 VTR Senior Secured Notes | | 100% | | $ | 410.0 | | | $ | 410.0 | | | $ | 60.0 | |
VTR | | VTR RCF – A | | N/A | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | |
Liberty Costa Rica (c) | | LCR Term Loan B-1 Facility | | 100% | | $ | 227.5 | | | $ | 227.5 | | | $ | — | |
Liberty Costa Rica (c) | | LCR Term Loan B-2 Facility | | 100% | | CRC | 36,457.9 | | | $ | 58.8 | | N/A | $ | — | |
(a)In September 2021, the C&W Revolving Credit Facility was amended to extend the maturity of $580 million in underlying commitments from January 30, 2026 to January 30, 2027.
(b)Total commitments under the LPR Revolving Credit Facility were increased by $48 million during 2021.
(c)Borrowings under the LCR Term Loan B-1 Facility and LCR Term Loan B-2 Facility were used to fund a portion of the Liberty Telecomunicaciones Acquisition.
Borrowings during 2020, including activity related to the Chile JV Entities, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Borrowing group | | | | Issued at | | Borrowing | | Non-cash component |
| Instrument | | | Borrowing currency | | USD equivalent | |
| | | | | | in millions |
| | | | | | | | | | | |
C&W | | C&W Term Loan B-5 Facility | | N/A | | $ | 1,510.0 | | | $ | 1,510.0 | | | $ | 1,510.0 | |
C&W | | 2027 C&W Senior Secured Notes Add-on | | 106% | | $ | 150.0 | | | $ | 150.0 | | | $ | 130.0 | |
C&W | | C&W Revolving Credit Facility | | N/A | | $ | 312.5 | | | $ | 312.5 | | | $ | — | |
| | | | | | | | | | | |
VTR | | 2028 VTR Senior Secured Notes | | 100% | | $ | 600.0 | | | $ | 600.0 | | | $ | — | |
VTR | | 2028 VTR Senior Notes | | 100% | | $ | 550.0 | | | $ | 550.0 | | | $ | 550.0 | |
VTR | | VTR RCF – B | | N/A | | $ | 92.0 | | | $ | 92.0 | | | $ | — | |
| | | | | | | | | | | |
Liberty Puerto Rico | | 2027 LPR Senior Secured Notes Add-on | | 102.5% | | $ | 90.0 | | | $ | 90.0 | | | $ | — | |
Liberty Puerto Rico | | LPR Revolving Credit Facility | | N/A | | $ | 62.5 | | | $ | 62.5 | | | $ | — | |
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
During 2022, we made certain repurchases or repayments on the following debt instruments, including repayments related to the Chile JV Entities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Borrowing group | | | | Redemption price | | Amount paid | | Non-cash component |
| Instrument | | | Borrowing currency | | USD equivalent (a) | |
| | | | | | in millions |
| | | | | | | | | | | |
C&W | | C&W Regional Facilities | | 100% | | $ | 272.9 | | | $ | 272.9 | | | $ | 272.9 | |
| | | | | | | | | | | |
VTR | | 2029 VTR Senior Secured Notes | | (b) | | $ | 12.2 | | | $ | 12.2 | | | $ | — | |
VTR | | 2028 VTR Senior Secured Notes | | (b) | | $ | 4.3 | | | $ | 4.3 | | | $ | — | |
VTR | | 2028 VTR Senior Notes | | (b) | | $ | 31.6 | | | $ | 31.6 | | | $ | — | |
(a)Translated at the transaction date, if applicable.
(b)During the third quarter of 2022, in aggregate we repurchased and cancelled approximately $91 million original principal amount of certain of the outstanding senior secured notes and senior notes of the Chile JV Entities.
During 2021, we made repayments on the following debt instruments, including repayments related to the Chile JV Entities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Borrowing group | | | | Redemption price | | Amount paid | | Non-cash component |
| Instrument | | | Borrowing currency | | USD equivalent (a) | |
| | | | | | in millions |
| | | | | | | | | | | |
C&W | | 2026 C&W Senior Notes | | 103.75% | | $ | 500.0 | | | $ | 500.0 | | | $ | 500.0 | |
C&W | | 2027 C&W Senior Secured Notes | | 103% | | $ | 55.0 | | | $ | 55.0 | | | $ | 55.0 | |
| | | | | | | | | | | |
Liberty Puerto Rico | | 2026 SPV Credit Facility | | 100% | | $ | 1,000.0 | | | $ | 1,000.0 | | | $ | 1,000.0 | |
Liberty Puerto Rico | | 2027 LPR Senior Secured Notes | | 103% | | $ | 129.0 | | | $ | 129.0 | | | $ | — | |
| | | | | | | | | | | |
VTR | | 2028 VTR Senior Secured Notes | | 103% | | $ | 120.0 | | | $ | 120.0 | | | $ | 60.0 | |
VTR | | VTR TLB-1 Facility | | 100% | | CLP | 140,900.0 | | | $ | 196.4 | | | $ | — | |
VTR | | VTR TLB-2 Facility | | 100% | | CLP | 33,100.0 | | | $ | 46.1 | | | $ | — | |
(a)Translated at the transaction date, if applicable.
During 2020, we made repayments on the following debt instruments, including repayments related to the Chile JV Entities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Borrowing group | | | | Redemption price | | Amount paid | | Non-cash component |
| Instrument | | | Borrowing currency | | USD equivalent (a) | |
| | | | | | in millions |
| | | | | | | | | | | |
C&W | | C&W Term Loan B-4 Facility | | 100% | | $ | 1,640.0 | | | $ | 1,640.0 | | | $ | 1,640.0 | |
C&W | | C&W Revolving Credit Facility | | N/A | | $ | 312.5 | | | $ | 312.5 | | | $ | — | |
| | | | | | | | | | | |
VTR | | VTR Finance Senior Notes | | 100% | | $ | 1,260.0 | | | $ | 1,260.0 | | | $ | 550.0 | |
VTR | | VTR RCF – B | | N/A | | $ | 92.0 | | | $ | 92.0 | | | $ | — | |
| | | | | | | | | | | |
Liberty Puerto Rico | | LPR Revolving Credit Facility | | N/A | | $ | 62.5 | | | $ | 62.5 | | | $ | — | |
(a)Translated at the transaction date, if applicable.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
Maturities of Debt
Maturities of our debt as of December 31, 2022 are presented below. Amounts presented below represent U.S. dollar equivalents based on December 31, 2022 exchange rates.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| C&W | | Liberty Puerto Rico | | Liberty Costa Rica | | Liberty Latin America (a) | | Consolidated |
| in millions |
Years ending December 31: | | | | | | | | | |
2023 | $ | 203.6 | | | $ | 16.7 | | | $ | 5.2 | | | $ | 0.5 | | | $ | 226.0 | |
2024 | 49.8 | | | — | | | 420.2 | | | 402.9 | | | 872.9 | |
2025 | 3.2 | | | — | | | — | | | — | | | 3.2 | |
2026 | 0.6 | | | — | | | — | | | — | | | 0.6 | |
2027 | 1,715.5 | | | 1,161.0 | | | — | | | — | | | 2,876.5 | |
Thereafter | 2,546.9 | | | 1,440.0 | | | — | | | — | | | 3,986.9 | |
Total debt maturities | 4,519.6 | | | 2,617.7 | | | 425.4 | | | 403.4 | | | 7,966.1 | |
Premiums, discounts and deferred financing costs, net | (31.6) | | | (28.6) | | | (5.8) | | | (28.0) | | | (94.0) | |
Total debt | $ | 4,488.0 | | | $ | 2,589.1 | | | $ | 419.6 | | | $ | 375.4 | | | $ | 7,872.1 | |
Current portion | $ | 203.6 | | | $ | 16.7 | | | $ | 5.2 | | | $ | 0.5 | | | $ | 226.0 | |
Noncurrent portion | $ | 4,284.4 | | | $ | 2,572.4 | | | $ | 414.4 | | | $ | 374.9 | | | $ | 7,646.1 | |
(a)Represents the amount held by Liberty Latin America on a standalone basis plus the aggregate amount held by subsidiaries of Liberty Latin America that are outside our borrowing groups.
(10) Operating Leases
The following table provides details of our operating lease expense:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
| | | | | |
Operating lease expense: | | | | | |
Operating lease cost | $ | 118.8 | | | $ | 93.1 | | | $ | 52.8 | |
Short-term lease cost | 24.6 | | | 21.0 | | | 13.5 | |
Total operating lease expense | $ | 143.4 | | | $ | 114.1 | | | $ | 66.3 | |
Our operating lease expense is included in facility, provision, franchise and other expense, in other operating costs and expenses, in our consolidated statements of operations.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
Certain other details of our operating leases are set forth in the tables below.
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| in millions |
| | | |
Operating lease right-of-use assets | $ | 550.8 | | | $ | 441.0 | |
Operating lease liabilities: | | | |
Current | $ | 76.7 | | | $ | 82.0 | |
Noncurrent | 438.5 | | | 371.0 | |
Total operating lease liabilities | $ | 515.2 | | | $ | 453.0 | |
| | | | | | | | | | | |
Weighted-average remaining lease term | 8.2 years | | 7.5 years |
| | | |
Weighted-average discount rate | 7.5 | % | | 6.2 | % |
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
| | | | | |
Operating cash flows from operating leases | $ | 120.4 | | | $ | 93.1 | | | $ | 47.0 | |
Right-of-use assets obtained in exchange for new operating lease liabilities (a) | $ | 237.4 | | | $ | 211.8 | | | $ | 230.5 | |
(a)Represents non-cash transactions associated with operating leases entered into during the year, including amounts related to acquisitions, as further described in note 4.
Maturities of Operating Leases
Maturities of our operating lease liabilities as of December 31, 2022 are presented below. Amounts presented below represent U.S. dollar equivalents (in millions) based on December 31, 2022 exchange rates.
| | | | | |
Years ending December 31: | |
2023 | $ | 104.5 | |
2024 | 95.8 | |
2025 | 87.9 | |
2026 | 79.7 | |
2027 | 66.8 | |
Thereafter | 267.9 | |
Total operating lease liabilities on an undiscounted basis | 702.6 | |
Present value discount | (187.4) | |
Present value of operating lease liabilities | $ | 515.2 | |
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
(11) Programming and Other Direct Costs of Services
Programming and other direct costs of services include programming and copyright costs, interconnect and access costs, equipment costs, which primarily relate to costs of mobile handsets and other devices, and other direct costs related to our operations.
Our programming and other direct costs of services by major category are set forth below.
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
| | | | | |
Programming and copyright | $ | 360.3 | | | $ | 441.4 | | | $ | 389.3 | |
Interconnect | 350.3 | | | 347.2 | | | 270.1 | |
Equipment and other (a) | 499.9 | | | 425.8 | | | 201.0 | |
Total programming and other direct costs | $ | 1,210.5 | | | $ | 1,214.4 | | | $ | 860.4 | |
(a)Amounts for 2022, 2021, and 2020 include $370 million, $309 million, and $118 million, respectively, related to equipment cost of goods sold.
(12) Other Operating Costs and Expenses
Other operating costs and expenses set forth in the table below comprise the following cost categories:
•Personnel and contract labor-related costs, which primarily include salary-related and cash bonus expenses, net of capitalizable labor costs, and temporary contract labor costs;
•Network-related expenses, which primarily include costs related to network access, system power, core network, and CPE repair, maintenance and test costs;
•Service-related costs, which primarily include professional services, information technology-related services, audit, legal and other services;
•Commercial, which primarily includes sales and marketing costs, such as advertising, commissions and other sales and marketing-related costs, and customer care costs related to outsourced call centers;
•Facility, provision, franchise and other, which primarily includes facility-related costs, provision for bad debt expense, franchise-related fees, bank fees, insurance, vehicle-related, travel and entertainment and other operating-related costs; and
•Share-based compensation expense that relates to (i) equity awards issued to our employees and Directors and (ii) certain bonus-related expenses that are paid in the form of equity.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
Our other operating costs and expenses by major category are set forth below:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
| | | | | |
Personnel and contract labor | $ | 597.7 | | | $ | 575.1 | | | $ | 483.6 | |
Network-related | 311.4 | | | 324.2 | | | 271.3 | |
Service-related | 209.7 | | | 196.5 | | | 161.7 | |
Commercial | 226.0 | | | 229.4 | | | 168.1 | |
Facility, provision, franchise and other | 542.3 | | | 460.1 | | | 359.1 | |
Share-based compensation expense | 93.5 | | | 118.1 | | | 97.5 | |
Total other operating costs and expenses | $ | 1,980.6 | | | $ | 1,903.4 | | | $ | 1,541.3 | |
(13) Income Taxes
On July 11, 2017, Liberty Latin America was formed as a corporation in Bermuda where a Tax Assurance Certificate has been granted to guarantee that any imposition of income or other taxes will not be applicable to Liberty Latin America through March 31, 2035. Accordingly, Liberty Latin America does not file a primary corporate income tax return in Bermuda, although various subsidiaries in other jurisdictions are taxable operations and file income tax returns in their respective jurisdictions. The income taxes of Liberty Latin America are presented on a standalone basis, and each tax paying entity or group within Liberty Latin America is presented on a separate return basis, unless a combined or consolidated tax return regime is permitted.
The components of our loss before income taxes are as follows:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
| | | | | |
Domestic (a) | $ | (97.6) | | | $ | (85.7) | | | $ | (67.3) | |
Foreign (b) (c) | (17.8) | | | (228.8) | | | (770.9) | |
Total | $ | (115.4) | | | $ | (314.5) | | | $ | (838.2) | |
(a)Liberty Latin America is considered a stand-alone Bermuda entity.
(b)Amounts for the year ended December 31, 2022, include a goodwill impairment charge of $555 million and a $13 million impairment associated with a cost method investment, both of which occurred at our C&W Caribbean segment. Amounts for the year ended December 31, 2021, include a goodwill impairment charge of $605 million and a $41 million impairment associated with a cost method investment, both of which occurred at our C&W Caribbean segment. Amounts for the year ended December 31, 2020, include goodwill impairment charges of $177 million and $99 million at our C&W Panama and C&W Caribbean reporting units.
(c)For the year ended December 31, 2022, significant jurisdictions that comprise the “foreign” component of our loss before income taxes include Bahamas, Barbados, British Virgin Islands, Chile, Colombia, Costa Rica, Curacao, Jamaica, the Netherlands, Panama, Puerto Rico, Spain, Trinidad, U.S. Virgin Islands, the U.K. and the U.S. For the year ended December 31, 2021, significant jurisdictions that comprise the “foreign” component of our loss before income taxes include Bahamas, Barbados, British Virgin Islands, Chile, Costa Rica, Curacao, Jamaica, the Netherlands, Panama, Puerto Rico, Trinidad, U.S. Virgin Islands, the U.K. and the U.S. For the year ended December 31, 2020, significant jurisdictions that comprise the “foreign” component of our loss before income taxes include Bahamas, Barbados, Chile, Costa Rica, Jamaica, the Netherlands, Panama, Puerto Rico, Trinidad, the U.K. and the U.S.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
Income tax benefit (expense) consists of:
| | | | | | | | | | | | | | | | | |
| Current | | Deferred | | Total |
| in millions |
Year ended December 31, 2022: | | | | | |
Domestic | $ | — | | | $ | — | | | $ | — | |
Foreign | (93.2) | | | 6.7 | | | (86.5) | |
Total | $ | (93.2) | | | $ | 6.7 | | | $ | (86.5) | |
Year ended December 31, 2021: | | | | | |
Domestic | $ | — | | | $ | — | | | $ | — | |
Foreign | (85.5) | | | (87.8) | | | (173.3) | |
Total | $ | (85.5) | | | $ | (87.8) | | | $ | (173.3) | |
Year ended December 31, 2020: | | | | | |
Domestic | $ | — | | | $ | — | | | $ | — | |
Foreign | (35.9) | | | 65.1 | | | 29.2 | |
Total | $ | (35.9) | | | $ | 65.1 | | | $ | 29.2 | |
Income tax benefit (expense) attributable to our loss before income taxes differs from the amounts computed by using the applicable tax rate as a result of the following:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
| | | | | |
Computed expected tax benefit (a) | $ | — | | | $ | — | | | $ | — | |
Permanent differences (b) | 46.8 | | | (13.6) | | | (17.7) | |
Basis and other differences in the treatment of items associated with investments in Liberty Latin America entities | (1.2) | | | 1.4 | | | 0.5 | |
(Increases) Decreases in valuation allowances | 188.8 | | | (321.6) | | | (223.0) | |
Expiration of deferred tax assets with full valuation allowance | (12.7) | | | (129.5) | | | — | |
International rate differences (a) (c) | 49.9 | | | 82.2 | | | 180.7 | |
Changes in uncertain tax positions | (24.5) | | | (1.0) | | | 33.4 | |
Enacted tax law and rate changes (d) (e) (f) | (162.2) | | | 393.7 | | | 149.4 | |
Effect of non-deductible goodwill impairments | (174.3) | | | (201.2) | | | (70.3) | |
Effect of tax credits | 15.9 | | | 38.7 | | | — | |
Withholding tax | (13.3) | | | (23.4) | | | (40.0) | |
Other, net | 0.3 | | | 1.0 | | | 16.2 | |
Total income tax benefit (expense) | $ | (86.5) | | | $ | (173.3) | | | $ | 29.2 | |
(a)On July 11, 2017, Liberty Latin America was formed as a corporation in Bermuda where the company is exempt from income taxes on ordinary income and capital gains, and therefore has a “statutory” or “expected” tax rate of 0% in 2022, 2021, and 2020. The majority of our subsidiaries operate in jurisdictions where income tax is imposed at local applicable rates, resulting in “international rate differences,” as shown in the table above that reflect the computed tax benefit (expense) of pre-tax book income (loss) in the respective taxable jurisdiction.
(b)Permanent differences primarily relate to various non-taxable income or non-deductible expenses, such as Caribbean Community (CARICOM) treaty income, limitations on deductible management fees, or executive compensation, among others.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
(c)The 2022 corporate tax rates applicable to our primary material jurisdictions are as follows: Bahamas, 0%; Barbados, 1% to 5.5%; British Virgin Islands, 0%; Chile, 27%; Colombia, 35%; Costa Rica, 30%; Curacao, 22%; Jamaica, 33.33%; the Netherlands, 25.8%; Panama, 25%; Puerto Rico, 37.5%; Spain, 25%; Trinidad, 30%; U.S. Virgin Islands, 23.10%; the U.K. 19% and the U.S., 21%.
(d)On June 10, 2021, the United Kingdom Finance Bill of 2021 enacted an increase in the main corporate tax rate to 25%, with effect from April 1, 2023. While deferred tax assets were re-valued as of enactment, there is a net nil tax impact of this on total tax result due to a full valuation allowance on all deferred tax items in the U.K.
(e)On September 14, 2021, legislation was enacted in Colombia. Changes include an increase in the corporate income tax to 35% from January 1, 2022. Substantially all of the impact of this rate change on our deferred tax balances was recorded during the third quarter of 2021 when the change in law was enacted.
(f)On December 27, 2021, the Netherlands enacted legislation increasing the top corporate income tax rate to 25.8%. with effect from January 1, 2022. While deferred tax assets were re-valued, there is a net nil tax impact of this on total tax result due to a full valuation allowance on all deferred tax items in the Netherlands.
Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. The components of our deferred tax assets (liabilities) are as follows:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| in millions |
| | | |
Deferred tax assets | $ | 31.0 | | | $ | 25.1 | |
Deferred tax liabilities | (691.2) | | | (692.0) | |
Net deferred tax liability | $ | (660.2) | | | $ | (666.9) | |
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| in millions |
Deferred tax assets: | | | |
Net operating losses, credits and other carryforwards | $ | 2,276.4 | | | $ | 2,439.1 | |
Deferred revenue | 13.7 | | | 19.3 | |
Unrealized gains and losses | 16.0 | | | 9.9 | |
Accrued expenses | 32.6 | | | 4.1 | |
Other future deductible amounts | 1.0 | | | 0.2 | |
Deferred tax assets | 2,339.7 | | | 2,472.6 | |
Valuation allowance | (1,780.4) | | | (1,940.3) | |
Deferred tax assets, net of valuation allowance | 559.3 | | | 532.3 | |
Deferred tax liabilities: | | | |
Investments | (255.4) | | | (221.5) | |
Intangible assets | (663.5) | | | (690.7) | |
Property and equipment, net | (298.5) | | | (286.2) | |
Un-remitted foreign earnings | (2.1) | | | (0.8) | |
| | | |
Deferred tax liabilities | (1,219.5) | | | (1,199.2) | |
Net deferred tax liability | $ | (660.2) | | | $ | (666.9) | |
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
The changes in our valuation allowances are summarized below:
| | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
| | | | | |
Balance at January 1 | $ | 1,940.3 | | | $ | 1,630.9 | | | $ | 1,402.8 | |
Net tax expense (benefit) related to operations | (188.8) | | | 321.6 | | | 223.0 | |
Translation adjustments | (6.2) | | | (9.1) | | | 0.3 | |
Business acquisitions and other | 35.1 | | | (3.1) | | | 4.8 | |
Balance at December 31 | $ | 1,780.4 | | | $ | 1,940.3 | | | $ | 1,630.9 | |
Deferred tax assets related to net operating losses may be used to offset future taxable income. The significant components of our tax loss carryforwards at December 31, 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
Country | | Tax loss carryforward | | Related tax asset | | Expiration date |
| | in millions | | |
U.K.: | | | | | | |
Amount attributable to capital losses | | $ | 4,459.6 | | | $ | 1,114.9 | | | Indefinite |
Amount attributable to net operating losses | | 1,343.4 | | | 335.9 | | | Indefinite |
Barbados | | 925.2 | | | 23.5 | | | 2023 - 2029 |
Jamaica | | 405.7 | | | 135.1 | | | Indefinite |
Curacao | | 177.0 | | | 41.6 | | | 2023 - 2032 |
Puerto Rico | | 275.4 | | | 85.2 | | | 2024 - 2030 |
U.S. | | 101.7 | | | 23.1 | | | 2025-Indefinite |
Panama | | 64.0 | | | 16.0 | | | 2023 - 2027 |
U.S. Virgin Islands | | 41.3 | | | 9.6 | | | 2033-Indefinite |
Colombia | | 17.6 | | | 6.2 | | | Indefinite |
Other | | 32.6 | | | 8.9 | | | Various |
Total | | $ | 7,843.5 | | | $ | 1,800.0 | | | |
As of December 31, 2022, a valuation allowance of $1,672 million has been recorded on the net operating loss carryforwards where we do not expect to generate future taxable income, or where certain losses may be limited in use due to change in control or same-business tests.
Our tax loss carryforwards within each jurisdiction combine all companies’ tax losses (both capital and ordinary losses) in that jurisdiction; however, certain tax jurisdictions limit the ability to offset taxable income of a separate company or different tax group with the tax losses associated with another separate company or group. Further, tax jurisdictions restrict the type of taxable income that the above losses are able to offset.
In 2022 and 2021, we have foreign tax credit carryforwards of $13 million and $13 million, respectively, which are available in the U.S. Substantially all credits not utilized will expire at the end of 2032.
In 2022 and 2021, we have alternative minimum tax credit carryforwards in the amounts of $47 million and $52 million, respectively, attributable to our operations in Puerto Rico for which the current tax law provides no period of expiration.
In 2022, we have research and development credit carryforwards of $19 million and $6 million available in Puerto Rico and the U.S., respectively. With respect to such credits in Puerto Rico, current law provides no period of expiration. In the U.S., substantially all credits not utilized will expire at the end of 2041.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
Through our consolidated subsidiaries, we maintain a presence in many countries. Many of these countries maintain highly complex tax regimes. We have accounted for the effect of these taxes based on what we believe is reasonably expected to apply to us and our consolidated subsidiaries based on tax laws currently in effect and reasonable interpretations of these laws. Because some jurisdictions do not have systems of taxation that are as well established as the system of income taxation used in other major industrialized countries, it may be difficult to anticipate how other jurisdictions will tax our and our consolidated subsidiaries’ current and future operations.
Although we intend to take reasonable tax planning measures to limit our tax exposures, no assurance can be given that we will be able to do so.
We file income tax returns in various jurisdictions. In the normal course of business, our income tax filings are subject to review by various taxing authorities. In connection with such reviews, disputes could arise with the taxing authorities over the interpretation or application of certain income tax rules related to our business in that tax jurisdiction. Such disputes may result in future tax and interest and penalty assessments by these taxing authorities. The ultimate resolution of tax contingencies will take place upon the earlier of (i) the settlement date with the applicable taxing authorities in either cash or agreement of income tax positions or (ii) the date when the tax authorities are statutorily prohibited from adjusting the company’s tax computations.
In general, tax returns filed by, or that include, entities comprising Liberty Latin America for years prior to 2009 are no longer subject to examination by tax authorities. We are currently undergoing income tax audits in Colombia and Trinidad and Tobago and certain other jurisdictions within the Caribbean and Latin America. Except as noted below, any adjustments that might arise from the foregoing examinations are not expected to have a material impact on our consolidated financial position or results of operations.
The changes in our unrecognized tax benefits are summarized below:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
| | | | | |
Balance at January 1 | $ | 12.0 | | | $ | 32.0 | | | $ | 64.1 | |
Additions for tax positions of prior years | 12.7 | | | 1.0 | | | 2.6 | |
Effects of business acquisitions | — | | | — | | | — | |
Additions based on tax positions related to the current year | 14.5 | | | — | | | 1.6 | |
Lapse of statute of limitations | (1.7) | | | (3.4) | | | (16.7) | |
Foreign currency translation | 0.1 | | | (2.4) | | | (0.8) | |
Decrease for settlement with tax authorities | — | | | (3.9) | | | — | |
Reductions for tax positions of prior years | — | | | — | | | (18.8) | |
Reclassification to liabilities associated with assets held for sale | — | | | (11.3) | | | — | |
Balance at December 31 | $ | 37.6 | | | $ | 12.0 | | | $ | 32.0 | |
No assurance can be given that any of these unrecognized tax benefits will be recognized or realized.
As of December 31, 2022, all of our unrecognized tax benefits would have a favorable impact on our effective income tax rate if ultimately recognized.
During 2023, it is reasonably possible that the resolution of ongoing examinations by tax authorities as well as expiration of statutes of limitation could result in reductions to our unrecognized tax benefits related to tax positions taken as of December 31, 2022. Other than the potential impacts of ongoing examinations and the expected expiration of certain statutes of limitation, we do not expect any material changes to our unrecognized tax benefits during 2023. No assurance can be given as to the nature or impact of any changes in our unrecognized tax positions during 2023.
During 2022, 2021 and 2020, our income tax benefit (expense) includes interest income (expense) of ($0.2 million), ($1 million) and $2 million, respectively, representing the net accrual of interest and penalties incurred during the respective
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
period. Our other long-term liabilities include accrued interest and penalties of $13 million and $13 million at December 31, 2022 and 2021, respectively.
(14) Defined Benefit Plans
We maintain various funded defined benefit plans for certain current and past employees, including (i) the CWSF, which is C&W’s largest defined benefit plan, (ii) plans in the Bahamas, Jamaica, Barbados, Curacao and Puerto Rico and (iii) certain other defined benefit arrangements in the U.K., which are governed by individual trust deeds. These defined benefit plans are closed to new entrants, and existing participants do not accrue any additional benefits.
Defined benefit plan amounts included in our consolidated balance sheets are as follows:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| in millions |
| | | |
Other assets, net | $ | 119.4 | | | $ | 218.8 | |
Other long-term liabilities | (146.6) | | | (216.4) | |
Net pension asset (liability) | $ | (27.2) | | | $ | 2.4 | |
The table below provides summary information for our defined benefit plans:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| in millions |
| | | |
Projected benefit obligations (a) | $ | (1,543.7) | | | $ | (2,289.5) | |
Fair value of plan assets (b) | 1,516.5 | | | 2,291.9 | |
Net pension asset (liability) | $ | (27.2) | | | $ | 2.4 | |
(a)The weighted average discount rate used in determining our benefit obligations was 6.0% and 2.8% at December 31, 2022 and 2021, respectively. A 1.0% increase or decrease in the weighted average discount rate would have a ($64 million) or $91 million impact, respectively, on the projected benefit obligations, net of the annuity insurance policies (as described further below).
(b)Our plan assets primarily comprise investments in debt securities, equity securities and insurance contracts. The fair value of plan assets at December 31, 2022 includes $659 million, $116 million and $742 million of assets that are valued based on Level 1, Level 2 and Level 3 inputs, respectively, of the fair value hierarchy (as further described in note 6). The fair value of plan assets at December 31, 2021 includes $952 million, $209 million and $1,131 million of assets that are valued based on Level 1, Level 2 and Level 3 inputs, respectively.
At December 31, 2022, approximately 67% of the CWSF’s liabilities, 53% of the Jamaican plan’s liabilities and 100% of the UTS liabilities are covered through the purchase of insurance annuity policies, the payments from which match the corresponding obligations to employees. The remaining investment risks in the plans have also been mitigated to a reasonable extent by a combination of matching assets and diversification of the return-seeking assets.
(15) Share-based Compensation
Equity Incentive Plans
In 2017, we adopted the Employee Incentive Plan and the Nonemployee Director Incentive Plan, under which options, SARs, RSUs, cash awards, performance awards or any combination of the foregoing may be granted. The maximum number of
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
Liberty Latin America common shares that may be issued under the Employee Incentive Plan and the Nonemployee Director Incentive Plan is 75 million (of which no more than 10 million shares may consist of Class B shares) and 5 million, respectively, in each case subject to anti-dilution and other adjustment provisions in the respective plans. Liberty Latin America common shares issuable pursuant to awards will be made available from either authorized but unissued shares, or shares that have been issued but reacquired by Liberty Latin America.
Prior to 2020, RSUs and SARs granted under the Employee Incentive Plan generally vested 12.5% on the six-month anniversary of the grant date and then vested at a rate of 6.25% each quarter thereafter over a four year term. SARs granted under the Employee Incentive Plan prior to 2020 expire seven years after the grant date. Awards granted during or after 2020 generally vest 33.3% on the anniversary of the grant date over a three year vesting term. SARs granted under the Employee Incentive Plan during or subsequent to 2020 expire ten years after the grant date. SARs issued under the Employee Incentive Plan may be granted with an exercise price at or above the fair market value of the shares on the date of grant in any class of common shares. RSUs issued under the Nonemployee Director Incentive Plan vest on the first anniversary of the grant date.
Our share-based compensation expense includes amounts related to share-based incentive awards held by our employees and employees of our subsidiaries.
The following table summarizes certain information related to share-based incentive awards granted:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
Assumptions used to estimate fair value of SARs and PSARs: | 2022 | | 2021 | | 2020 |
| | | | | |
Risk-free interest rate | 2.0 - 3.7% | | 0.8 - 1.4% | | 0.2 - 0.9% |
Expected life | 6.0 - 10.0 years | | 6.0 - 10.0 years | | 4.5 - 7.0 years |
Expected volatility | 40.2 - 49.8% | | 36.9 - 46.8% | | 48.1 - 90.6% |
Expected dividend yield | none | | none | | none |
Weighted average grant-date fair value per share of awards granted: | | | | | |
SARs | $ | 4.91 | | | $ | 6.43 | | | $ | 5.39 | |
PSARs | $ | 5.92 | | | $ | 6.88 | | | $ | — | |
RSUs | $ | 9.49 | | | $ | 13.96 | | | $ | 10.07 | |
PSUs | $ | 6.11 | | | $ | 11.57 | | | $ | — | |
| | | | | |
As of December 31, 2022, we have $102 million of total unrecognized compensation expense related to awards held by our employees that is expected to be recognized as a future expense over a weighted-average period of approximately 2 years.
Performance Awards
The following is a summary of the material terms and conditions with respect to our performance-based awards for certain executive officers and key employees.
PSUs
In early 2020, our compensation committee approved the 2020 PSUs, which represent the right to receive one Liberty Latin America Class A or Class C common share, as applicable, subject to performance and vesting. Because of the COVID-19 pandemic, and the difficulty in providing clarity on our then expected results over a two-year performance period for the 2020 PSUs, the compensation committee delayed setting performance targets for the 2020 PSUs until February 2021. During February 2021, the compensation committee formally communicated the financial and operational targets for earning the 2020 PSUs thereby establishing a grant date for the 2020 PSUs. The performance criteria was based upon the achievement of an Adjusted OIBDA CAGR during the period from January 1, 2021 through December 31, 2021. The earned 2020 PSUs vested 50% on each of March 15, 2022 and September 15, 2022.
During 2022, we granted a total of 0.3 million Class B PSUs, 0.1 million of which vested immediately and the remainder of which will vest in March 2023 based upon the achievement of certain 2022 performance objectives.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
PSARs
2021 PSARs. During 2021 and 2022, certain key employees received the 2021 PSARs. Each award represents the right to receive a payment in shares or, if the compensation committee so determines, cash or a combination of cash and shares, equal to the excess of the fair market value of the common shares on the day of exercise over the exercise price, subject to performance and vesting. The 2021 PSARs, have a term of ten years, a performance period from January 1, 2021 and ending December 31, 2023 and will vest on March 16, 2024 based on the continued employment of the recipient through this date. The 2021 PSARs include performance conditions based on the achievement of individual qualitative objectives during the performance period. As of December 31, 2022 and 2021, we had 2.8 million Class A PSARs and 5.7 million Class C PSARs, and 2.7 million Class A PSARs and 5.5 million Class C PSARs outstanding, respectively.
Share-based Incentive Awards
The following tables summarize the share-based incentive award activity during 2022 with respect to Liberty Latin America awards held by our employees and our Directors.
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of shares | | Weighted average base price | | Weighted average remaining contractual term | | Aggregate intrinsic value |
SARs – Class A shares | in millions | | | | in years | | in millions |
Outstanding at January 1, 2022 | 6.4 | | | $ | 16.21 | | | | | |
Granted | 3.2 | | | $ | 9.67 | | | | | |
Forfeited | (0.5) | | | $ | 16.46 | | | | | |
| | | | | | | |
Outstanding at December 31, 2022 | 9.1 | | | $ | 13.91 | | | 6.1 | | $ | — | |
Exercisable at December 31, 2022 | 4.2 | | | $ | 17.32 | | | 3.6 | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of shares | | Weighted average base price | | Weighted average remaining contractual term | | Aggregate intrinsic value |
SARs – Class C shares | in millions | | | | in years | | in millions |
Outstanding at January 1, 2022 | 12.8 | | | $ | 16.27 | | | | | |
Granted | 6.4 | | | $ | 9.61 | | | | | |
Forfeited | (0.9) | | | $ | 16.53 | | | | | |
| | | | | | | |
Outstanding at December 31, 2022 | 18.3 | | | $ | 13.92 | | | 6.1 | | $ | 0.1 | |
Exercisable at December 31, 2022 | 8.4 | | | $ | 17.35 | | | 3.6 | | $ | — | |
| | | | | | | | | | | | | | | | | |
| Number of shares | | Weighted average grant-date fair value per share | | Weighted average remaining contractual term |
RSUs – Class A shares | in millions | | | | in years |
Outstanding at January 1, 2022 | 1.1 | | | $ | 13.40 | | | |
Granted | 2.6 | | | $ | 9.66 | | | |
Forfeited | (0.1) | | | $ | 11.53 | | | |
Released from restrictions | (1.5) | | | $ | 10.82 | | | |
Outstanding at December 31, 2022 | 2.1 | | | $ | 10.74 | | | 2.1 |
| | | | | |
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
| | | | | | | | | | | | | | | | | |
| Number of shares | | Weighted average grant-date fair value per share | | Weighted average remaining contractual term |
RSUs – Class C shares | in millions | | | | in years |
Outstanding at January 1, 2022 | 2.3 | | | $ | 13.54 | | | |
Granted | 5.5 | | | $ | 9.49 | | | |
Forfeited | (0.2) | | | $ | 11.57 | | | |
Released from restrictions | (3.3) | | | $ | 10.14 | | | |
Outstanding at December 31, 2022 | 4.3 | | | $ | 11.04 | | | 2.1 |
(16) Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss included in our consolidated balance sheets and statements of equity reflects the aggregate impact of foreign currency translation adjustments and pension-related adjustments and other. The changes in the components of accumulated other comprehensive loss, net of taxes, are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liberty Latin America shareholders | | | | |
| Foreign currency translation adjustments | | Pension- related adjustments and other | | Accumulated other comprehensive loss | | Non-controlling interests | | Total accumulated other comprehensive loss |
| in millions |
| | | | | | | | | |
Balance at January 1, 2020 | $ | (25.5) | | | $ | 10.7 | | | $ | (14.8) | | | $ | (8.8) | | | $ | (23.6) | |
Other comprehensive loss | (117.7) | | | 6.9 | | | (110.8) | | | (0.8) | | | (111.6) | |
Balance at December 31, 2020 | (143.2) | | | 17.6 | | | (125.6) | | | (9.6) | | | (135.2) | |
Other comprehensive earnings | 5.7 | | | 30.2 | | | 35.9 | | | (0.9) | | | 35.0 | |
Balance at December 31, 2021 | (137.5) | | | 47.8 | | | (89.7) | | | (10.5) | | | (100.2) | |
Other comprehensive loss | 53.8 | | | (113.3) | | | (59.5) | | | (0.5) | | | (60.0) | |
Balance at December 31, 2022 | $ | (83.7) | | | $ | (65.5) | | | $ | (149.2) | | | $ | (11.0) | | | $ | (160.2) | |
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
The components of other comprehensive earnings (loss), net of taxes, are reflected in our consolidated statements of comprehensive loss. The following table summarizes the tax effects related to each component of other comprehensive earnings (loss), net, of amounts reclassified to our consolidated statements of operations:
| | | | | | | | | | | | | | | | | |
| Pre-tax amount | | Tax benefit (expense) | | Net-of-tax amount |
| in millions |
Year ended December 31, 2022: | | | | | |
Foreign currency translation adjustments | $ | 53.1 | | | $ | — | | | $ | 53.1 | |
Pension-related adjustments and other | (114.0) | | | 0.9 | | | (113.1) | |
Other comprehensive loss | (60.9) | | | 0.9 | | | (60.0) | |
Other comprehensive loss attributable to noncontrolling interests (a) | 0.5 | | | — | | | 0.5 | |
Other comprehensive loss attributable to Liberty Latin America shareholders | $ | (60.4) | | | $ | 0.9 | | | $ | (59.5) | |
| | | | | |
Year ended December 31, 2021: | | | | | |
Foreign currency translation adjustments | $ | 4.8 | | | $ | — | | | $ | 4.8 | |
Pension-related adjustments and other | 34.4 | | | (4.2) | | | 30.2 | |
Other comprehensive earnings | 39.2 | | | (4.2) | | | 35.0 | |
Other comprehensive loss attributable to noncontrolling interests (a) | 0.9 | | | — | | | 0.9 | |
Other comprehensive earnings attributable to Liberty Latin America shareholders | $ | 40.1 | | | $ | (4.2) | | | $ | 35.9 | |
| | | | | |
Year ended December 31, 2020: | | | | | |
Foreign currency translation adjustments | $ | (118.5) | | | $ | — | | | $ | (118.5) | |
Pension-related adjustments and other | 4.9 | | | 2.0 | | | 6.9 | |
Other comprehensive loss | (113.6) | | | 2.0 | | | (111.6) | |
Other comprehensive loss attributable to noncontrolling interests (a) | 0.8 | | | — | | | 0.8 | |
Other comprehensive loss attributable to Liberty Latin America shareholders | $ | (112.8) | | | $ | 2.0 | | | $ | (110.8) | |
(a)Amounts represent the noncontrolling interest owners’ share of our foreign currency translation adjustments and pension-related adjustments.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
(17) Equity
Share Capital
A summary of the changes in our share capital during 2022, 2021 and 2020 is set forth in the table below:
| | | | | | | | | | | | | | | | | |
| Class A | | Class B | | Class C |
| in millions |
Balance at January 1, 2020 | 48.8 | | | 1.9 | | | 131.2 | |
Rights Offering | — | | | — | | | 49.0 | |
Repurchase of Liberty Latin America common shares | (0.3) | | | — | | | (0.7) | |
Issued in connection with share-based compensation plans and other | 0.5 | | | — | | | 1.6 | |
Balance at December 31, 2020 | 49.0 | | | 1.9 | | | 181.1 | |
| | | | | |
Balance at January 1, 2021 | 49.0 | | | 1.9 | | | 181.1 | |
Repurchase of Liberty Latin America common shares | (4.3) | | | — | | | (0.7) | |
Issued in connection with share-based compensation plans and other | 0.8 | | | — | | | 1.9 | |
Balance at December 31, 2021 | 45.5 | | | 1.9 | | | 182.3 | |
| | | | | |
Balance at January 1, 2022 | 45.5 | | | 1.9 | | | 182.3 | |
Repurchase of Liberty Latin America common shares | (4.5) | | | — | | | (14.8) | |
Issued in connection with share-based compensation plans and other | 1.7 | | | 0.2 | | | 3.8 | |
Balance at December 31, 2022 | 42.7 | | | 2.1 | | | 171.3 | |
Voting rights. Holders of Class A common shares and Class B common shares vote together as a single class on all matters submitted to a vote of Liberty Latin America’s shareholders. The holders of Class A common shares have one vote per share; the holders of Class B common shares have 10 votes per share; and the holders of Class C common shares generally have no votes per share. In the event a right to vote is required under applicable law, holders of Class C common shares will vote as a single class with the holders of Class A common shares and Class B common shares and will be entitled to 1/100 of a vote on such matter for each Class C common share. Each Class B common share is convertible at the option of the holder for one Class A common share.
Contribution from noncontrolling interest owners
During 2021, we received an equity contribution of $47 million from the noncontrolling interest owner of Liberty Servicios, the proceeds of which were used to partially fund the Liberty Telecomunicaciones Acquisition. This contribution represented their pro-rata share of the equity portion of the purchase price for the Liberty Telecomunicaciones Acquisition, and has been reflected as a contribution from noncontrolling interest owners in our consolidated statement of equity, and as a financing activity in our consolidated statement of cash flows.
Share Repurchase Program
On March 16, 2020, our Directors approved the 2020 Share Repurchase Program, which authorize us to repurchase from time to time up to $100 million of our Class A common shares and/or Class C common shares through March 2022, subject to certain limitations and conditions. On February 22, 2022, our Directors approved the 2022 Share Repurchase Program. This program authorizes us to repurchase from time to time up to an additional $200 million of our Class A common shares and/or Class C common shares through December 2024. The 2022 Share Repurchase Program does not obligate us to repurchase any of our Class A or C common shares. Under the 2022 Share Repurchase Program, we may repurchase our common shares in open market purchases at prevailing market prices, in privately negotiated transactions, in block trades, derivative transactions and/or through other legally permissible means. At December 31, 2022, the remaining amount authorized for share repurchases under the 2022 Share Repurchase Program was $57 million.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
Rights Offering
On August 5, 2020, our Directors authorized the Rights Distribution to holders of Class C Rights to acquire LILAK common shares in the Rights Offering. In the Rights Distribution, we distributed 0.269 of a Class C Right for each share of Class A, Class B or Class C common shares of Liberty Latin America held as of September 8, 2020, which was the record date for the Rights Distribution. Fractional Class C Rights were rounded up to the nearest whole right. Each whole Class C Right entitled the holder to purchase, pursuant to the basic subscription privilege, one share of LILAK at a subscription price of $7.14, which was equal to an approximate 25% discount to the volume weighted average trading price of LILAK for the 3-day trading period ending on and including September 2, 2020. Each Class C Right also entitled the holder to subscribe for additional shares of LILAK that were unsubscribed for in the Rights Offering pursuant to an over-subscription privilege. The Rights Offering commenced on September 11, 2020, which was also the ex-dividend date for the Rights Distribution. The Rights Offering expired in accordance with its terms on September 25, 2020 and was fully subscribed with 49,049,073 shares of LILAK issued to those rights holders exercising basic and, if applicable, over-subscription privileges.
Capped Calls
In connection with the issuance of our Convertible Notes, we entered into the Capped Calls, which are used as an economic hedge to reduce or offset potential dilution to our Class C common shares upon any conversion of the Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of such converted notes, as the case may be, with such reduction and/or offset subject to a cap. Collectively, the Capped Calls cover the number of the Company’s Class C common shares underlying the Convertible Notes, or 19.5 million of Class C common shares, as adjusted for the impact of the Rights Offering as described below. The Capped Calls have a current strike price of $20.65 per Class C common share and the cap price per Class C common share ranges from $28.00 to $29.50, subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the Convertible Notes, and expire on July 15, 2024. The Capped Calls are not considered a derivative instrument under ASC 815, Derivatives and Hedging, as the contracts are indexed to our Class C common shares and therefore classified within shareholders’ equity.
(18) Earnings (Loss) per Share
Basic EPS is computed by dividing net earnings (loss) attributable to Liberty Latin America shareholders by the weighted average number of Liberty Latin America Shares outstanding during the years presented, as further described below. Diluted EPS presents the dilutive effect, if any, on a per share basis of potential shares as if they had been exercised, vested or converted at the beginning of the periods presented.
The details of our weighted average shares outstanding are set forth below:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
| | | | | |
Weighted average shares outstanding – basic and dilutive | 222.6 | | | 232.6 | | | 195.5 | |
We reported losses attributable to Liberty Latin America shareholders during 2022, 2021 and 2020. As a result, the potentially dilutive effect at December 31, 2022, 2021 and 2020 of the following items was not included in the computation of diluted loss per share for such periods because their inclusion would have been anti-dilutive to the computation or, in the case of certain PSUs and PSARs, because such awards had not yet met the applicable performance criteria: (i) using the if-converted method, the aggregate number of shares potentially issuable under our Convertible Notes of approximately 19.5 million in each of the years presented, (ii) the aggregate number of shares issuable pursuant to outstanding options, SARs and RSUs of approximately 35.4 million, 24.7 million and 19.1 million, respectively, and (iii) the aggregate number of shares issuable pursuant to outstanding PSUs and PSARs of approximately 8.7 million, 10.1 million and 1.1 million, respectively. With regards to the aggregate number of shares potentially issuable under our Convertible Notes, the Capped Calls provide an economic hedge to reduce or offset potential dilution to our Class C common shares upon any conversion of the Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of such converted notes, as the case may be, with such reduction and/or offset subject to a cap.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
(19) Commitments and Contingencies
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.
Regulatory Issues. We have contingent liabilities related to matters arising in the ordinary course of business, including (i) legal proceedings, (ii) issues involving wage, property, withholding and other tax issues and (iii) disputes over interconnection, programming and copyright fees. While we generally expect that the amounts required to satisfy these contingencies will not materially differ from any estimated amounts we have accrued, no assurance can be given that the resolution of one or more of these contingencies will not result in a material impact on our results of operations, cash flows or financial position in any given period. Due, in general, to the complexity of the issues involved and, in certain cases, the lack of a clear basis for predicting outcomes, we cannot provide a meaningful range of potential losses or cash outflows that might result from any unfavorable outcomes.
(20) Segment Reporting
Our reportable segments derive their revenue primarily from residential and B2B services, including video, broadband internet, fixed-line telephony and mobile services. Our corporate category includes our corporate operations, which derive revenue from mobile handset insurance services. We generally identify our reportable segments as those operating segments that represent 10% or more of our revenue, Adjusted OIBDA or total assets.
During 2022, we completed an organizational change with respect to our C&W operations whereby management of certain subsidiaries of C&W, which primarily operate our subsea and fiber optic cable networks, now report directly to the chief operating decision maker of Liberty Latin America and no longer report to the former C&W Caribbean and Networks segment decision maker. As a result, the aforementioned subsidiaries of C&W are now a separate operating and reportable segment, herein referred to as the C&W Networks & LatAm segment. In connection with this change, we have revised our segment presentation for all periods to separately present (i) C&W Caribbean and (ii) C&W Networks & LatAm. Accordingly, as of December 31, 2022, unless otherwise specified below, our reportable segments are as follows:
•C&W Caribbean;
•C&W Panama;
•C&W Networks & LatAm;
•Liberty Puerto Rico;
•Liberty Costa Rica; and
•VTR (through September 30, 2022, see note 8).
Performance Measures of our Reportable Segments
We evaluate performance and make decisions about allocating resources to our reportable segments based on financial measures, such as revenue and Adjusted OIBDA. In addition, we review non-financial measures, such as subscriber growth. We account for intersegment sales as if they were to third parties, that is, at current market prices.
Adjusted OIBDA is the primary measure used by our chief operating decision maker to evaluate segment operating performance. Adjusted OIBDA is also a key factor that is used by our internal decision makers to (i) determine how to allocate resources to segments and (ii) evaluate the effectiveness of our management for purposes of incentive compensation plans. Our internal decision makers believe Adjusted OIBDA is a meaningful measure because it represents a transparent view of our recurring operating performance that is unaffected by our capital structure and allows management to (i) readily view operating trends, (ii) perform analytical comparisons and benchmarking between segments and (iii) identify strategies to improve operating performance in the different countries in which we operate. A reconciliation of total Adjusted OIBDA to operating income or loss and to earnings or loss before income taxes is presented below.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
The amounts presented below represent 100% of the revenue and Adjusted OIBDA of each of our reportable segments and our corporate operations. As we have the ability to control certain subsidiaries that are not wholly owned, we include 100% of the revenue and expenses of these entities in our consolidated statements of operations despite the fact that third parties own significant interests in these entities. The noncontrolling owners’ interests in the operating results of (i) certain subsidiaries of (a) C&W and (b) Liberty Puerto Rico, and (ii) Liberty Costa Rica are reflected in net earnings or loss attributable to noncontrolling interests in our consolidated statements of operations.
| | | | | | | | | | | | | | | | | |
| Revenue |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
| | | | | |
C&W Caribbean | $ | 1,436.8 | | | $ | 1,389.9 | | | $ | 1,354.1 | |
C&W Panama | 642.7 | | | 568.1 | | | 522.5 | |
C&W Networks & LatAm | 450.8 | | | 431.9 | | | 405.2 | |
Liberty Puerto Rico | 1,470.1 | | | 1,449.7 | | | 619.6 | |
Liberty Costa Rica | 441.3 | | | 258.5 | | | 140.0 | |
VTR | 450.6 | | | 787.5 | | | 809.0 | |
Corporate | 22.2 | | | 21.6 | | | 2.7 | |
Intersegment eliminations | (99.4) | | | (92.4) | | | (70.7) | |
Total | $ | 4,815.1 | | | $ | 4,814.8 | | | $ | 3,782.4 | |
| | | | | | | | | | | | | | | | | |
| Adjusted OIBDA |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
| | | | | |
C&W Caribbean | $ | 535.2 | | | $ | 482.9 | | | $ | 473.4 | |
C&W Panama | 188.8 | | | 200.1 | | | 177.2 | |
C&W Networks & LatAm | 276.3 | | | 264.3 | | | 239.8 | |
Liberty Puerto Rico | 538.4 | | | 580.9 | | | 270.4 | |
Liberty Costa Rica | 134.7 | | | 80.2 | | | 54.9 | |
VTR | 115.6 | | | 259.6 | | | 307.0 | |
Corporate | (71.5) | | | (52.9) | | | (44.5) | |
Total | $ | 1,717.5 | | | $ | 1,815.1 | | | $ | 1,478.2 | |
The following table provides a reconciliation of total Adjusted OIBDA to operating income and to loss before income taxes:
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
| | | | | |
Total Adjusted OIBDA | $ | 1,717.5 | | | $ | 1,815.1 | | | $ | 1,478.2 | |
Share-based compensation expense | (93.5) | | | (118.1) | | | (97.5) | |
Depreciation and amortization | (910.7) | | | (964.7) | | | (918.7) | |
Impairment, restructuring and other operating items, net | (619.2) | | | (665.0) | | | (375.3) | |
Operating income | 94.1 | | | 67.3 | | | 86.7 | |
Interest expense | (556.7) | | | (527.4) | | | (533.4) | |
Realized and unrealized gains (losses) on derivative instruments, net | 359.4 | | | 564.1 | | | (352.7) | |
Foreign currency transaction gains (losses), net | (194.3) | | | (319.6) | | | 1.2 | |
Gains (losses) on debt modification and extinguishment, net | 41.1 | | | (57.2) | | | (45.1) | |
Gain on disposal of the Chile JV Entities | 169.4 | | | — | | | — | |
Other income (expense), net | (28.4) | | | (41.7) | | | 5.1 | |
Loss before income taxes | $ | (115.4) | | | $ | (314.5) | | | $ | (838.2) | |
Property and Equipment Additions of our Reportable Segments
The property and equipment additions of our reportable segments and corporate operations (including capital additions financed under vendor financing or finance lease arrangements) are presented below and reconciled to the capital expenditures, net, amounts included in our consolidated statements of cash flows. For additional information concerning capital additions financed under vendor financing, see note 7.
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
| | | | | |
C&W Caribbean | $ | 230.7 | | | $ | 222.9 | | | $ | 200.1 | |
C&W Panama | 98.4 | | | 88.9 | | | 70.4 | |
C&W Networks & LatAm | 40.2 | | | 45.3 | | | 46.7 | |
Liberty Puerto Rico | 233.5 | | | 219.2 | | | 97.3 | |
Liberty Costa Rica | 65.5 | | | 45.0 | | | 24.2 | |
VTR | 107.3 | | | 199.1 | | | 172.2 | |
Corporate | 40.7 | | | 35.5 | | | 20.2 | |
Total property and equipment additions | 816.3 | | | 855.9 | | | 631.1 | |
Assets acquired under capital-related vendor financing arrangements | (161.1) | | | (100.5) | | | (99.1) | |
Changes in current liabilities related to capital expenditures and other | 4.9 | | | (19.1) | | | 33.8 | |
Total capital expenditures, net | $ | 660.1 | | | $ | 736.3 | | | $ | 565.8 | |
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
Balance Sheet Data of our Reportable Segments
We do not present the balance sheet data of our reportable segments, as this information is not a primary measure used by our chief operating decision maker to evaluate segment operating performance, determine the allocation of resources to segments, or assess the effectiveness of our management for purposes of annual or other incentive compensation plans.
Revenue by Major Category
Our revenue by major category for our reportable segments is set forth in the tables below and includes the following categories:
•residential fixed subscription and residential mobile services revenue, which includes amounts received from subscribers for ongoing fixed and airtime services, respectively;
•residential fixed non-subscription revenue, which primarily includes interconnect and advertising revenue;
•B2B service revenue, which primarily includes broadband internet, video, fixed-line telephony, mobile and managed services (including equipment installation contracts) offered to small (including small or home office), medium and large enterprises and, on a wholesale basis, other telecommunication operators; and
•B2B subsea network revenue, which includes long-term capacity contracts with customers where the customer either pays a fee over time or prepays for the capacity upfront and pays a portion related to operating and maintenance of the network over time.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2022 |
| C&W Caribbean | | C&W Panama | | C&W Networks & LatAm | | Liberty Puerto Rico | | Liberty Costa Rica | | VTR | | Corporate (a) | | Intersegment Eliminations | | Total |
| in millions |
Residential revenue: | | | | | | | | | | | | | | | | | |
Residential fixed revenue: | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Subscription revenue | $ | 484.3 | | | $ | 102.8 | | | $ | — | | | $ | 457.3 | | | $ | 137.6 | | | $ | 392.3 | | | $ | — | | | $ | — | | | $ | 1,574.3 | |
Non-subscription revenue | 32.6 | | | 7.3 | | | — | | | 22.1 | | | 5.1 | | | 8.9 | | | — | | | — | | | 76.0 | |
Total residential fixed revenue | 516.9 | | | 110.1 | | | — | | | 479.4 | | | 142.7 | | | 401.2 | | | — | | | — | | | 1,650.3 | |
Residential mobile revenue: | | | | | | | | | | | | | | | | | |
Service revenue | 314.5 | | | 218.6 | | | — | | | 448.0 | | | 195.1 | | | 25.8 | | | — | | | — | | | 1,202.0 | |
Interconnect, inbound roaming, equipment sales and other (b) | 67.9 | | | 49.5 | | | — | | | 268.4 | | | 64.8 | | | 2.9 | | | 22.2 | | | — | | | 475.7 | |
Total residential mobile revenue | 382.4 | | | 268.1 | | | — | | | 716.4 | | | 259.9 | | | 28.7 | | | 22.2 | | | — | | | 1,677.7 | |
Total residential revenue | 899.3 | | | 378.2 | | | — | | | 1,195.8 | | | 402.6 | | | 429.9 | | | 22.2 | | | — | | | 3,328.0 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
B2B revenue (c) | 537.5 | | | 264.5 | | | 450.8 | | | 220.6 | | | 38.7 | | | 20.7 | | | — | | | (99.4) | | | 1,433.4 | |
Other revenue (d) | — | | | — | | | — | | | 53.7 | | | — | | | — | | | — | | | — | | | 53.7 | |
Total | $ | 1,436.8 | | | $ | 642.7 | | | $ | 450.8 | | | $ | 1,470.1 | | | $ | 441.3 | | | $ | 450.6 | | | $ | 22.2 | | | $ | (99.4) | | | $ | 4,815.1 | |
(a)Amount relates to services we now provide for mobile handset insurance following the AT&T Acquisition.
(b)The total amount includes $257 million of revenue from sales of mobile handsets and other devices.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
(c)The total amount includes $26 million of revenue from sales of mobile handsets and other devices to B2B mobile customers.
(d)Amount relates to revenue received from the FCC.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2021 |
| C&W Caribbean | | C&W Panama | | C&W Networks & LatAm | | Liberty Puerto Rico | | Liberty Costa Rica | | VTR | | Corporate (a) | | Intersegment Eliminations | | Total |
| in millions |
Residential revenue: | | | | | | | | | | | | | | | | | |
Residential fixed revenue: | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Subscription revenue | $ | 473.4 | | | $ | 87.9 | | | $ | — | | | $ | 438.2 | | | $ | 138.5 | | | $ | 685.1 | | | $ | — | | | $ | — | | | $ | 1,823.1 | |
Non-subscription revenue | 34.6 | | | 9.5 | | | — | | | 19.3 | | | 6.2 | | | 14.9 | | | — | | | — | | | 84.5 | |
Total residential fixed revenue | 508.0 | | | 97.4 | | | — | | | 457.5 | | | 144.7 | | | 700.0 | | | — | | | — | | | 1,907.6 | |
Residential mobile revenue: | | | | | | | | | | | | | | | | | |
Service revenue | 300.2 | | | 176.4 | | | — | | | 480.8 | | | 72.7 | | | 48.0 | | | — | | | — | | | 1,078.1 | |
Interconnect, inbound roaming, equipment sales and other (b) | 63.9 | | | 44.5 | | | — | | | 253.5 | | | 27.1 | | | 7.3 | | | 21.6 | | | — | | | 417.9 | |
Total residential mobile revenue | 364.1 | | | 220.9 | | | — | | | 734.3 | | | 99.8 | | | 55.3 | | | 21.6 | | | — | | | 1,496.0 | |
Total residential revenue | 872.1 | | | 318.3 | | | — | | | 1,191.8 | | | 244.5 | | | 755.3 | | | 21.6 | | | — | | | 3,403.6 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
B2B revenue (c) | 517.8 | | | 249.8 | | | 431.9 | | | 220.4 | | | 14.0 | | | 32.2 | | | — | | | (92.4) | | | 1,373.7 | |
Other revenue (d) | — | | | — | | | — | | | 37.5 | | | — | | | — | | | — | | | — | | | 37.5 | |
Total | $ | 1,389.9 | | | $ | 568.1 | | | $ | 431.9 | | | $ | 1,449.7 | | | $ | 258.5 | | | $ | 787.5 | | | $ | 21.6 | | | $ | (92.4) | | | $ | 4,814.8 | |
(a)Amount relates to services we now provide for mobile handset insurance following the AT&T Acquisition.
(b)The total amount includes $219 million of revenue from sales of mobile handsets and other devices.
(c)The total amount includes $33 million of revenue from sales of mobiles handsets and other devices to B2B mobile customers.
(d)Amount relates to revenue received from the FCC primarily related to Liberty Mobile following the closing of the AT&T Acquisition.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2020 |
| C&W Caribbean | | C&W Panama | | C&W Networks & LatAm | | Liberty Puerto Rico | | Liberty Costa Rica | | VTR | | Corporate | | Intersegment Eliminations | | Total |
| in millions |
Residential revenue: | | | | | | | | | | | | | | | | | |
Residential fixed revenue: | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Subscription revenue | $ | 467.0 | | | $ | 85.6 | | | $ | — | | | $ | 377.4 | | | $ | 134.2 | | | $ | 696.3 | | | $ | — | | | $ | — | | | $ | 1,760.5 | |
Non-subscription revenue | 42.2 | | | 11.8 | | | — | | | 17.7 | | | 5.8 | | | 18.5 | | | — | | | — | | | 96.0 | |
Total residential fixed revenue | 509.2 | | | 97.4 | | | — | | | 395.1 | | | 140.0 | | | 714.8 | | | — | | | — | | | 1,856.5 | |
Residential mobile revenue: | | | | | | | | | | | | | | | | | |
Service revenue | 294.1 | | | 182.4 | | | — | | | 82.7 | | | — | | | 55.7 | | | — | | | — | | | 614.9 | |
Interconnect, inbound roaming, equipment sales and other (a) | 44.4 | | | 41.0 | | | — | | | 46.3 | | | — | | | 8.2 | | | 2.7 | | | — | | | 142.6 | |
Total residential mobile revenue | 338.5 | | | 223.4 | | | — | | | 129.0 | | | — | | | 63.9 | | | 2.7 | | | — | | | 757.5 | |
Total residential revenue | 847.7 | | | 320.8 | | | — | | | 524.1 | | | 140.0 | | | 778.7 | | | 2.7 | | | — | | | 2,614.0 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
B2B revenue (b) | 506.4 | | | 201.7 | | | 405.2 | | | 89.8 | | | — | | | 30.3 | | | — | | | (70.7) | | | 1,162.7 | |
Other revenue | — | | | — | | | — | | | 5.7 | | | — | | | — | | | — | | | — | | | 5.7 | |
Total | $ | 1,354.1 | | | $ | 522.5 | | | $ | 405.2 | | | $ | 619.6 | | | $ | 140.0 | | | $ | 809.0 | | | $ | 2.7 | | | $ | (70.7) | | | $ | 3,782.4 | |
(a)The total amount includes $64 million of revenue from sales of mobile handsets and other devices.
(b)The total amount includes $18 million of revenue from sales of mobiles handsets and other devices to B2B mobile customers.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
Geographic Markets
The revenue from third-party customers for each of our geographic markets is set forth in the table below.
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
| | | | | |
Puerto Rico | $ | 1,419.5 | | | $ | 1,395.5 | | | $ | 606.5 | |
Panama | 639.7 | | | 565.9 | | | 520.1 | |
Chile | 450.6 | | | 787.5 | | | 809.0 | |
Costa Rica | 440.8 | | | 258.2 | | | 139.9 | |
Jamaica | 428.8 | | | 402.0 | | | 375.5 | |
Networks & Latam (a) | 369.4 | | | 355.8 | | | 349.4 | |
The Bahamas | 194.7 | | | 189.9 | | | 181.1 | |
Trinidad and Tobago | 159.3 | | | 158.2 | | | 160.6 | |
Barbados | 148.0 | | | 141.6 | | | 139.2 | |
Curacao | 134.0 | | | 137.9 | | | 143.9 | |
Other (b) | 430.3 | | | 422.3 | | | 357.2 | |
Total | $ | 4,815.1 | | | $ | 4,814.8 | | | $ | 3,782.4 | |
(a)The amounts represent managed services and wholesale revenue from various jurisdictions across Latin America and the Caribbean, primarily related to the sale and lease of telecommunications capacity on C&W Networks & LatAm’s subsea and terrestrial fiber optic cable networks.
(b)The amounts primarily relate to a number of countries in which we have less significant operations, all of which are located in the Caribbean, and to a lesser extent, in Latin America.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
The long-lived assets of our geographic markets are set forth below:
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| in millions |
| | | |
Puerto Rico | $ | 1,166.7 | | | $ | 1,165.3 | |
Networks & LatAm | 634.3 | | | 675.6 | |
Panama | 481.3 | | | 351.4 | |
Jamaica | 372.4 | | | 349.0 | |
The Bahamas | 312.0 | | | 323.9 | |
Costa Rica | 250.7 | | | 216.1 | |
Trinidad and Tobago | 221.0 | | | 220.3 | |
Barbados | 164.6 | | | 175.5 | |
Curacao | 141.8 | | | 152.6 | |
Other (a) | 548.8 | | | 538.7 | |
Total | $ | 4,293.6 | | | $ | 4,168.4 | |
(a)The amounts primarily include long-lived assets of C&W’s other operations, which are primarily located in the Caribbean, and to a lesser extent, in Latin America.
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
(21) Parent Company Financial Information
| | | | | | | | | | | |
| December 31, |
| 2022 | | 2021 |
| in millions |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 23.5 | | | $ | 72.5 | |
Other receivables – related-party | 169.5 | | | 138.2 | |
Prepaid expenses | 1.3 | | | 1.7 | |
Other current assets | 0.2 | | | 3.4 | |
Total current assets | 194.5 | | | 215.8 | |
| | | |
| | | |
Investments in consolidated subsidiaries | 2,192.0 | | | 2,434.4 | |
| | | |
Total assets | $ | 2,386.5 | | | $ | 2,650.2 | |
| | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Related-party liabilities | $ | 87.6 | | | $ | 62.0 | |
Accrued liabilities and other | 7.0 | | | 10.5 | |
Total current liabilities | 94.6 | | | 72.5 | |
| | | |
Long-term debt and finance lease obligations, net | 374.5 | | | 357.7 | |
Total liabilities | 469.1 | | | 430.2 | |
| | | |
Shareholders’ equity: | | | |
Class A, $0.01 par value; 500.0 million shares authorized; 51.8 million and 42.7 million shares issued and outstanding, respectively, at December 31, 2022; 50.1 million and 45.5 million shares issued and outstanding, respectively, at December 31, 2021 | 0.5 | | | 0.5 | |
Class B, $0.01 par value; 50.0 million shares authorized; 2.1 million shares issued and outstanding at December 31, 2022 and 1.9 million shares issued and outstanding at December 31, 2021 | — | | | — | |
Class C, $0.01 par value; 500.0 million shares authorized; 187.4 million and 171.3 million shares issued and outstanding, respectively, at December 31, 2022; 183.6 million and 182.3 million shares issued and outstanding, respectively, at December 31, 2021 | 1.9 | | | 1.8 | |
Treasury shares, at cost; 25.3 million and 6.0 million shares, respectively | (243.4) | | | (74.0) | |
Additional paid-in capital | 5,177.1 | | | 5,075.3 | |
Accumulated deficit | (2,869.5) | | | (2,693.9) | |
Accumulated other comprehensive loss, net of taxes | (149.2) | | | (89.7) | |
Total shareholders’ equity | 1,917.4 | | | 2,220.0 | |
Total liabilities and shareholders’ equity | $ | 2,386.5 | | | $ | 2,650.2 | |
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
Operating costs and expenses: | | | | | |
Other operating costs and expenses | $ | 12.4 | | | $ | 11.2 | | | $ | 11.9 | |
| | | | | |
Related-party charges and other operating items, net | 29.3 | | | 37.3 | | | 33.1 | |
Operating loss | (41.7) | | | (48.5) | | | (45.0) | |
Non-operating income (expense): | | | | | |
Interest expense | (24.8) | | | (23.8) | | | (22.0) | |
| | | | | |
| | | | | |
Other income (loss), net | (9.6) | | | 0.6 | | | 1.7 | |
| (34.4) | | | (23.2) | | | (20.3) | |
Loss before equity in losses of consolidated subsidiaries | (76.1) | | | (71.7) | | | (65.3) | |
Equity in losses of consolidated subsidiaries, net | (99.5) | | | (366.1) | | | (622.0) | |
| | | | | |
Net loss | $ | (175.6) | | | $ | (437.8) | | | $ | (687.3) | |
Liberty Latin America Ltd.
Notes to Consolidated Financial Statements – (Continued)
December 31, 2022, 2021 and 2020
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| in millions |
Cash flows from operating activities: | | | | | |
Net loss | $ | (175.6) | | | $ | (437.8) | | | $ | (687.3) | |
Adjustments to reconcile net loss to net cash used by operating activities: | | | | | |
Equity in losses of consolidated subsidiaries, net | 99.5 | | | 366.1 | | | 622.0 | |
Share-based compensation expense | 3.9 | | | 2.3 | | | 2.7 | |
| | | | | |
Amortization of debt financing costs | 16.8 | | | 15.7 | | | 14.8 | |
Changes in operating assets and liabilities | 92.4 | | | 124.6 | | | (8.2) | |
Net cash provided (used) by operating activities | 37.0 | | | 70.9 | | | (56.0) | |
| | | | | |
Cash flows from investing activities: | | | | | |
| | | | | |
Distribution and repayments from (Investments in and advances to) consolidated subsidiaries, net | 53.5 | | | (128.7) | | | (511.7) | |
Net cash provided (used) by investing activities | 53.5 | | | (128.7) | | | (511.7) | |
| | | | | |
Cash flows from financing activities: | | | | | |
Repayments of related-party debt | — | | | — | | | (101.1) | |
Borrowings of related-party debt | 30.0 | | | — | | | — | |
Repurchase of Liberty Latin America Shares | (170.4) | | | (63.0) | | | (9.5) | |
Issuance of Liberty Latin America common shares, net | — | | | — | | | 347.0 | |
Other financing activities, net | 0.9 | | | — | | | — | |
Net cash provided (used) by financing activities | (139.5) | | | (63.0) | | | 236.4 | |
| | | | | |
| | | | | |
| | | | | |
Net decrease in cash, cash equivalents and restricted cash | (49.0) | | | (120.8) | | | (331.3) | |
| | | | | |
Cash, cash equivalents and restricted cash: | | | | | |
Beginning of year | 72.5 | | | 193.3 | | | 524.6 | |
End of year | $ | 23.5 | | | $ | 72.5 | | | $ | 193.3 | |