Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 3.47M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 32K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 32K
4: EX-32 Certification -- §906 - SOA'02 HTML 30K
10: R1 Cover Page HTML 91K
11: R2 Condensed Consolidated Balance Sheets (Unaudited) HTML 163K
12: R3 Condensed Consolidated Balance Sheets (Unaudited) HTML 42K
(Parenthetical)
13: R4 Condensed Consolidated Statements of Operations HTML 169K
(Unaudited)
14: R5 Condensed Consolidated Statements of Comprehensive HTML 73K
Loss (Unaudited)
15: R6 Condensed Consolidated Statements of Equity HTML 133K
(Unaudited)
16: R7 Condensed Consolidated Statements of Cash Flows HTML 207K
(Unaudited)
17: R8 Condensed Consolidated Statements of Cash Flows HTML 38K
(Unaudited) (Parenthetical)
18: R9 Basis of Presentation HTML 40K
19: R10 Accounting Changes and Recent Accounting HTML 48K
Pronouncements
20: R11 Revenue Recognition and Related Costs HTML 39K
21: R12 Acquisitions and Dispositions HTML 48K
22: R13 Investments HTML 197K
23: R14 Derivative Instruments HTML 153K
24: R15 Fair Value Measurements HTML 125K
25: R16 Long-lived Assets HTML 72K
26: R17 Debt HTML 184K
27: R18 Leases HTML 157K
28: R19 Income Taxes HTML 61K
29: R20 Equity HTML 40K
30: R21 Share-based Compensation HTML 83K
31: R22 Earnings (Loss) per Share HTML 53K
32: R23 Commitments and Contingencies HTML 82K
33: R24 Segment Reporting HTML 256K
34: R25 Pay vs Performance Disclosure HTML 40K
35: R26 Insider Trading Arrangements HTML 34K
36: R27 Accounting Changes and Recent Accounting HTML 52K
Pronouncements (Policies)
37: R28 Acquisitions and Dispositions (Tables) HTML 39K
38: R29 Investments (Tables) HTML 195K
39: R30 Derivative Instruments (Tables) HTML 148K
40: R31 Fair Value Measurements (Tables) HTML 123K
41: R32 Long-lived Assets (Tables) HTML 77K
42: R33 Debt (Tables) HTML 183K
43: R34 Leases (Tables) HTML 114K
44: R35 Income Taxes (Tables) HTML 55K
45: R36 Share-based Compensation (Tables) HTML 85K
46: R37 Earnings (Loss) per Share (Tables) HTML 63K
47: R38 Commitments and Contingencies (Tables) HTML 57K
48: R39 Segment Reporting (Tables) HTML 246K
49: R40 Basis of Presentation (Details) HTML 47K
50: R41 Revenue Recognition and Related Costs (Details) HTML 59K
51: R42 Acquisitions and Dispositions (Narrative) HTML 88K
(Details)
52: R43 Acquisitions and Dispositions (Intercompany HTML 48K
Revenue and Expenses) (Details)
53: R44 Investments (Schedule of Investments) (Details) HTML 153K
54: R45 Investments (Equity Method Investments) (Details) HTML 57K
55: R46 Investments (Narrative) (Details) HTML 87K
56: R47 Investments (Result of Operations (Details) HTML 65K
57: R48 Investments (Fair Value Realized and Unrealized HTML 58K
Losses) (Details)
58: R49 Investments (Debt Securities) (Details) HTML 73K
59: R50 Investments, Debt and Equity Securities (Details) HTML 44K
60: R51 Derivative Instruments (Fair Values of Derivative HTML 81K
Assets and Liabilities) (Details)
61: R52 Derivative Instruments (Realized and Unrealized HTML 40K
Gains (Losses) on Derivatives) (Schedule and
Footnotes) (Details)
62: R53 Derivative Instruments (Net Cash Received (Paid) HTML 35K
Related to Derivatives) (Schedule) (Details)
63: R54 Derivative Instruments (Narrative) (Details) HTML 47K
64: R55 Derivative Instruments (Cross-currency Derivative HTML 57K
Contracts) (Details)
65: R56 Derivative Instruments (Interest Rate Swap HTML 44K
Contracts and Options) (Details)
66: R57 Derivative Instruments (Basis Swaps, Interest Rate HTML 41K
Caps and Collars) (Details)
67: R58 Derivative Instruments (Impact of Derivative HTML 35K
Instruments on Borrowing Costs) (Details)
68: R59 Derivative Instruments (Equity-related Derivative HTML 41K
Instruments) (Details)
69: R60 Fair Value Measurements (Summary of Assets and HTML 95K
Liabilities at Fair Value) (Schedule) (Details)
70: R61 Fair Value Measurements (Assets and Liabilities HTML 63K
Reconciliation) (Schedule and Footnote) (Details)
71: R62 Long-lived Assets (Schedule of PP&E) (Details) HTML 43K
72: R63 Long-lived Assets (Narrative) (Details) HTML 39K
73: R64 Long-lived Assets (Schedule of Changes in Carrying HTML 47K
Amount of Goodwill) (Details)
74: R65 Long-lived Assets (Schedule of Intangible Assets HTML 40K
Subject to Amortization, Net) (Details)
75: R66 Debt (Components of Debt) (Details) HTML 92K
76: R67 Debt ( Component of Debt-Footnotes) (Details) HTML 92K
77: R68 Debt (Narrative) (Details) HTML 75K
78: R69 Debt (Maturities of Debt) (Details) HTML 90K
79: R70 Debt (Vendor Financing Obligations) (Schedule) HTML 76K
(Details)
80: R71 Debt (Vendor Financing Obligations) (Details) HTML 43K
81: R72 Leases (Lease Balances) (Details) HTML 67K
82: R73 Leases (Lease Expense and Cash Outflows from HTML 55K
Operating and Finance Leases) (Details)
83: R74 Leases (Maturities of Operating and Financing HTML 81K
Lease Liabilities) (Details)
84: R75 Income Taxes (Reconciliation of Federal to HTML 50K
Effective Taxes) (Schedule) (Details)
85: R76 Income Taxes (Narrative) (Details) HTML 41K
86: R77 Equity (Details) HTML 91K
87: R78 Share-based Compensation (Share-Based Compensation HTML 67K
Expense) (Details)
88: R79 Share-based Compensation (Awards Outstanding and HTML 65K
Exercisable) (Details)
89: R80 Earnings (Loss) per Share (Schedules) (Details) HTML 36K
90: R81 Earnings (Loss) per Share (Narrative) (Details) HTML 30K
91: R82 Earnings (Loss) per Share (Net Earnings (Loss) HTML 43K
From Continuing Operations) (Details)
92: R83 Commitments and Contingencies (Unrecorded Purchase HTML 64K
Obligation) (Details)
93: R84 Commitments and Contingencies (Narrative) HTML 56K
(Details)
94: R85 Segment Reporting (Summary of the Impact on the HTML 49K
Adjusted EBITDA) (Details)
95: R86 Segment Reporting (Narrative) (Details) HTML 52K
96: R87 Segment Reporting (Performance Measures) HTML 59K
(Schedule) (Details)
97: R88 Segment Reporting (Reconciliation of Consolidated HTML 74K
Segment Adjusted EBITDA) (Schedule) (Details)
98: R89 Segment Reporting (Capital Expenditures of HTML 56K
Reportable Segments) (Details)
99: R90 Segment Reporting (Revenue by Major Category) HTML 65K
(Details)
100: R91 Segment Reporting (Geographic Segments) (Details) HTML 50K
103: XML IDEA XML File -- Filing Summary XML 202K
101: XML XBRL Instance -- lbtya-20230930_htm XML 4.49M
102: EXCEL IDEA Workbook of Financial Report Info XLSX 253K
6: EX-101.CAL XBRL Calculations -- lbtya-20230930_cal XML 367K
7: EX-101.DEF XBRL Definitions -- lbtya-20230930_def XML 1.46M
8: EX-101.LAB XBRL Labels -- lbtya-20230930_lab XML 2.74M
9: EX-101.PRE XBRL Presentations -- lbtya-20230930_pre XML 1.80M
5: EX-101.SCH XBRL Schema -- lbtya-20230930 XSD 280K
104: JSON XBRL Instance as JSON Data -- MetaLinks 759± 1.11M
105: ZIP XBRL Zipped Folder -- 0001570585-23-000417-xbrl Zip 958K
(Exact name of Registrant as specified in its charter)
iEngland and Wales
i98-1112770
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
iGriffin House
i161
Hammersmith Rd
iLondon
iUnited Kingdom
iW6
8BS
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code:
+i44.i208.i483.6449
or 303.220.6600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iClass A ordinary shares
iLBTYA
iNasdaq
Global Select Market
iClass B ordinary shares
iLBTYB
iNasdaq Global Select Market
iClass
C ordinary shares
iLBTYK
iNasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. iYesþ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit such files). iYesþ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Smaller Reporting Company i☐Emerging
Growth Company i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨
Indicate by check mark whether the registrant is a shell company as defined
in Rule 12b-2 of the Exchange Act. Yes ☐ No iþ
The number of outstanding ordinary shares of Liberty Global plc as of October 24, 2023was: i171,379,159
class A ordinary shares, i12,988,658class B ordinary shares and i210,836,412 class C ordinary shares.
Short-term investments (measured
at fair value on a recurring basis) (note 5)
i1,557.0
i2,621.6
Derivative
instruments (note 6)
i556.8
i382.7
Other
current assets (notes 3 and 5)
i747.5
i736.3
Total current assets
i5,428.0
i6,297.4
Investments
and related notes receivable (including $i3,452.3 million and $i2,271.4 million, respectively, measured at fair value on a recurring basis) (note
5)
i15,186.9
i14,948.5
Property and equipment,
net (notes 8 and 10)
i7,002.2
i6,504.5
Goodwill
(note 8)
i9,766.9
i9,316.1
Intangible assets subject to amortization, net (note 8)
i2,019.2
i2,342.4
Other
assets, net (notes 3, 6 and 10)
i3,293.2
i3,486.1
Total
assets
$
i42,696.4
$
i42,895.0
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Liberty Global plc (Liberty Global) is a public limited company organized under the laws of England and Wales. In these notes, the terms “we,”“our,”“our company” and “us” may refer, as the context requires, to Liberty Global or collectively to Liberty Global and its subsidiaries. We are an international provider of broadband internet, video, fixed-line telephony and mobile communications services to residential customers and businesses in Europe.
Our continuing operations comprise businesses that provide residential and business-to-business
(B2B) communications services in (i) Switzerland and Slovakia through certain wholly-owned subsidiaries that we collectively refer to as “UPC Holding”, (ii) Belgium and Luxembourg through certain wholly-owned subsidiaries that we collectively refer to as “Telenet”and (iii) Ireland through another wholly-owned subsidiary (VM Ireland). In addition, we own i50%
noncontrolling interests in (a) a i50:i50 joint venture (the VMO2 JV) with Telefónica SA (Telefónica), which provides residential
and B2B communications services in the United Kingdom (U.K.), and (b) a i50:i50 joint venture (the VodafoneZiggo JV) with Vodafone
Group plc (Vodafone), which provides residential and B2B communications services in the Netherlands. We also own (1) a i50% noncontrolling voting interest in a joint venture (the AtlasEdge JV), which is a leading European Edge data center platform, and (2) a i25%
noncontrolling interest in a joint venture (the nexfibre JV), which is constructing a new fiber network in the U.K. outside of the existing footprint of the VMO2 JV.
In October 2023, we completed the Telenet Takeover Bid (as defined and described in note 12), pursuant to which we increased our ownership interest in Telenet to i100%.
Through March
31, 2022, we provided residential and B2Bcommunications services in Poland through UPC Holding. On April 1, 2022, we completed the sale of our operations in Poland. Accordingly, in these condensed consolidated financial statements, our operations in Poland are reflected as discontinued operations for all applicable periods. For additional information, see note 4.
Our unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these financial statements do not include all of the information required by GAAP or Securities
and Exchange Commission rules and regulations for complete financial statements. In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results of operations for the interim periods presented. The results of operations for any interim period are not necessarily indicative of results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with our 2022 consolidated financial statements and notes thereto included in our 2022 Annual Report on Form 10-K, as amended (our 10-K).
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting period. Estimates and assumptions are used in accounting for, among other things, the valuation of acquisition-related assets and liabilities, allowances for uncollectible accounts, certain components of revenue, programming and copyright costs, deferred income taxes and related valuation allowances, loss contingencies, fair value measurements, impairment assessments, capitalization of internal costs associated with construction and installation activities, lease terms, useful lives of long-lived assets, share-based compensation and actuarial liabilities associated with certain benefit plans. Actual results could differ from those estimates.
Unless otherwise indicated, the amounts presented in these notes relate only to our continuing operations, and ownership percentages and convenience translations into
United States (U.S.) dollars are calculated as of September 30, 2023. Certain prior year amounts have been reclassified to conform to the current year presentation.
11
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
(2) iiAccounting
Changes and Recent Accounting Pronouncements/
Accounting Changes
ASU 2022-04
In September 2022, the Financial Accounting Standards Board (the FASB)issued Accounting Standards Update (ASU)No. 2022-04, Liabilities—Supplier Finance Programs (ASU 2022-04), which requires additional disclosures
for buyers participating in supplier financing programs, which we refer to as vendor financing, including (i) the key terms of the arrangement, (ii) the confirmed amount outstanding at the end of the period, (iii) the balance sheet presentation of related amounts and (iv) a reconciliation of the balances from period to period. We adopted ASU 2022-04 on January 1, 2023, and such adoption did not have a significant impact on our consolidated financial statements. For additional information regarding our vendor financing obligations, see note 9.
ASU 2021-08
In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract
Liabilities from Contracts with Customers (ASU 2021-08), which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured in accordance with Topic 606, Revenue from Contracts with Customers, as if the acquirer had originated the contracts. We adopted ASU 2021-08 on January 1, 2023. The main impact
of the adoption of ASU 2021-08 is the recognition of contract assets and contract liabilities in business combinations at amounts generally consistent with the carrying value of such assets and liabilities of the acquiree immediately before the acquisition date.
ASU 2020-04
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04), which provides, for a limited time, optional expedients
and exceptions for certain contract modifications that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued. In December 2022, the FASB deferred the expiration date of ASU 2020-04 from December 31, 2022 to December 31, 2024. In accordance with the optional expedients in ASU 2020-04, we have modified all applicable debt agreements to replace LIBOR with another reference rate and applied the practical expedient to account for the modification as a continuation of the existing contract. The use of optional expedients in ASU 2020-04 has not had a significant impact on our consolidated financial
statements to date. For additional information regarding our debt, see note 9.
Recent Accounting Pronouncements
ASU 2023-05
In August 2023, the FASBissued ASUNo. 2023-05, Business Combinations - Joint Venture Formations: Recognition and Initial Measurement (ASU 2023-05), which outlines updates to the formation of entities that meet the definition of a joint venture as defined by the FASB. ASU 2023-05 requires a joint venture to measure its assets and liabilities at fair value upon formation. ASU 2023-05 is effective prospectively
for joint venture formations with a formation date on or after January 1, 2025. We do not expect ASU 2023-05 to have a significant impact on our consolidated financial statements.
12
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
The timing of our recognition of revenue may differ from the timing of invoicing our customers. We record a trade receivable when we have transferred goods or services to a customer but have not yet received payment. Our trade receivables are reported net of an allowance for doubtful accounts. Such allowance aggregated $i63.1
millionand $i43.1 million at September 30, 2023 and December 31, 2022, respectively.
If we transfer goods or services to a customer but do not have an unconditional right to payment, we record a contract asset. Contract
assets typically arise from the uniform recognition of introductory promotional discounts over the contract period and accrued revenue for handset sales. Our contract assets were$i37.3 million and $i33.3
million as of September 30, 2023 and December 31, 2022, respectively. The current and long-term portions of our contract asset balances are included within other current assets and other assets, net, respectively, on our condensed consolidated balance sheets.
We record deferred revenue when we receive payment prior to transferring goods or services to a customer. We primarily defer revenue for (i) installation and other upfront services and (ii) other services that are invoiced prior to when services are provided.Our deferred revenue balances were $i279.8
million and $i272.5 million as of September 30, 2023 and December 31, 2022, respectively. Theincreasein deferred revenue for the nine months ended September 30, 2023 isprimarily due to the net effect of (a) the impact of additions during the period and (b) the recognition of $i223.6
million of revenue that was included in our deferred revenue balance at December 31, 2022. The long-term portions of our deferred revenue balances are included within other long-term liabilities on our condensed consolidated balance sheets.
Our aggregate assets associated with incremental costs to obtain and fulfill our contracts were $i71.0
million and $i69.4 million at September 30, 2023 and December 31, 2022, respectively. The current and long-term portions of our assets related to contract costs are included within other current assets and other assets, net, respectively, on our condensed consolidated balance sheets. We amortized $i1.8 million
and$i7.3 million during the three and nine months ended September 30, 2023, respectively, and $i3.9 million and $i12.5
million during the three and nine months ended September 30, 2022, respectively, to operating costs and expenses related to these assets.
Unsatisfied Performance Obligations
A large portion of our revenue is derived from customers who are not subject to contracts. Revenue from customers who are subject to contracts is generally recognized over the term of such contracts, which is typically i12
months for our residential service contracts, one to ithree years for our mobile service contracts and one to ifive
years for our B2B service contracts.
(4) iAcquisitions and Dispositions
2023 Acquisition
Telenet Wyre Transaction. On
July 1, 2023, pursuant to an agreement dated July 19, 2022, Telenet and Fluvius System Operator CV (Fluvius) created an independent, self-funding infrastructure company (Wyre) within their combined geographic footprint in Belgium (the Telenet Wyre Transaction). The companies each contributed certain cable infrastructure assets with Telenet and Fluvius initially owning i66.8%
and i33.2% of Wyre, respectively. Telenet and Liberty Global began consolidating Wyre’s results upon the closing of the transaction.
With the closing of the Telenet Wyre Transaction, Telenet early terminated and effectively settled certain pre-existing contractual relationships with Fluvius, principally related to Telenet’s leased network, and began consolidating certain infrastructure cable assets contributed by Fluvius to Wyre, as described above. Primarily due to Telenet’s aforementioned pre-existing network leasing relationship
with Fluvius, theTelenet Wyre Transaction does not have a significant impact on our operating income during the nine months ended September 30, 2023 or 2022.Accordingly, the pro forma effect of the Telenet Wyre Transaction is not presented herein.
13
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
In
connection with the Telenet Wyre Transaction, we recognized a net gain of $i377.8 million, which represents the difference between the fair value and carrying amount of a pre-existing network leasing relationship between Telenet and Fluvius. No income taxes were required to be provided on this gain.
2022 Dispositions
UPC Poland. On
April 1, 2022, we completed the sale of i100% of our operations in Poland (UPC Poland) to a subsidiary of iliad S.A. (iliad). After considering debt and working capital adjustments (including cash disposed),we received net cash proceeds of Polish zloty i6,566.7 million
($i1,563.0 million at the transaction date) during the nine months ended September 30, 2022.
In connection with the sale ofUPC Poland, we recognized a gain of$i848.9 million
during the nine months ended September 30, 2022,which includes a cumulative foreign currency translation gain of $i10.9 million. No income taxes were required to be provided on this gain.
In connection with the sale of UPC Poland, we have agreed to provide certain transitional services to iliad for a period of up
to ifive years, depending on the service. These services principally comprise network and information technology-related functions. During the nine months ended September 30, 2023 and 2022, we recorded revenue of $i20.1 million
and $i17.1 million, respectively,associated with these transitional services.
UPC Poland is presented as a discontinued operation in our condensed consolidated financial statements for all applicable periods. Effective with the signing of the sale and purchase agreement on September 22, 2021, we ceased to depreciate or amortize the associated long-lived assets. Our operations in Poland were held through UPC Holding prior to the
disposal date. No debt, interest or derivative instruments of the UPC Holding borrowing group have been allocated to discontinued operations.
i
The operating results of UPC Poland for the period from January 1, 2022 to April 1, 2022, the date UPC Poland was sold, are summarized in the following table (in millions). These
amounts exclude intercompany revenue and expenses that are eliminated within our condensed consolidated statement of operations.
Revenue
$
i109.5
Operating
income
$
i45.0
Earnings before income taxes
$
i43.9
Income
tax expense
(i9.3)
Net earningsattributable to Liberty Global shareholders
$
i34.6
/
Telenet
Tower Sale. On June 1, 2022, Telenet completed the sale of substantially all of their passive infrastructure and tower assets to DigitalBridge Investments LLC (DigitalBridge) (the Telenet Tower Sale). After considering working capital adjustments,we received net cash proceeds of €i733.0 million ($i779.9 millionat the transaction date) in the second quarter of 2022. Effective with the signing of the sale and purchase agreement on March 25, 2022, we began accounting for the associated assets and liabilities as held for sale and, accordingly, we ceased to depreciate or amortize these long-lived assets.
In connection with the completion of the Telenet Tower Sale, we recognized a gain of $i700.4 million during the nine months ended September
30, 2022. iNo income taxes were required to be provided on this gain.
As part of the Telenet Tower Sale, Telenet entered into a master lease agreement to lease back the passive infrastructure and tower assets from DigitalBridge for an initial period of i15
years (the Telenet Tower Lease Agreement). In connection with the Telenet Tower Lease Agreement, during the second quarter of 2022, we recorded non-cash additions to our operating lease right-of-use (ROU) assets of $i615.1 million and a corresponding increase to our operating lease liabilities of the same amount.
In addition, as part of the Telenet Tower Lease Agreement, Telenet has also committed to lease backi475
build-to-suit sites over the term of the lease. As of September 30, 2023 the total U.S. dollar equivalent of the estimated future payments for the
14
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
build-to-suit sites over the term of the lease was $i116.7 million,
the majority of which are due after 2028. Telenet will act as an agent over the construction of future towers on the build-to-suit sites.
(5) iInvestments
i
The
details of our investments are set forth below:
(a)Our
ownership percentages are determined based on our legal ownership as of the most recent balance sheet date or are estimated based on the number of shares we own and the most recent publicly-available information.
(b)Our 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 rather than as dividend distributions are received, with our recognition of losses
/
15
LIBERTY GLOBAL PLC
Notes
to Condensed Consolidated Financial Statements — (Continued)
generally limited to the extent of our investment in, and loans and commitments to, the investee. Accordingly, the carrying values of our equity method investments may not equal the respective fair values. At September 30, 2023 and December 31, 2022, the aggregate carrying amounts of our equity method investments exceeded our proportionate share of the respective investee’s net assets by $i1,170.5
million and $i1,196.8 million, respectively, which primarily includes amounts associated with the VodafoneZiggo JV Receivables, as defined below, and amounts we are owed under a long-term note receivable from All3Media.
(c)Amounts include certain notes receivable due from a subsidiary of the VodafoneZiggo JV to a subsidiary of Liberty Global comprising (i) a euro-denominated note receivable with a principal
amount of $i740.4 million and $i749.7 million at September 30, 2023 and December 31, 2022, respectively,
(the VodafoneZiggo JV Receivable I) and (ii) a euro-denominated note receivable with a principal amount of $i219.9 million and $i222.7 million at September 30,
2023 and December 31, 2022, respectively, (the VodafoneZiggo JV Receivable II and, together with the VodafoneZiggo JV Receivable I, the VodafoneZiggo JV Receivables). The VodafoneZiggo JV Receivables bear interest at i5.55% and have a final maturity date of December 31, 2030. During the nine months ended September 30, 2023, interest accrued
on the VodafoneZiggo JV Receivables was $i41.4 million, all of which has been cash settled.
(d)Represents investments held under SMAs, which are maintained by investment managers acting as agents on our behalf. We classify, measure and report these investments, the composition of which may change from time to time, based on the underlying nature and characteristics of each security held under the SMAs. With the exception of our SMA in a leveraged structured note,
all of our investments held under SMAs were classified as available-for-sale debt securities as of September 30, 2023. Our SMA held in a leveraged structured note is accounted for at fair value and the associated gains or losses are included in realized and unrealized gains (losses) due to changes in fair values of certain investments, net, in our condensed consolidated statements of operations. At September 30, 2023 and December 31, 2022, interest accrued on our debt securities, which is included in other current assets on our condensed consolidated balance sheets, was $i26.3 million
and $i18.5 million, respectively.
(e)During the first quarter of 2023, we acquired i1,335 million
shares of Vodafone at an average purchase price of £i0.9195 ($i1.1151 at the transaction date) per share. The aggregate purchase price of £i1,227.6 million
($i1,488.7 million at the transaction date) was funded with $i269.2 million of cash on hand, net of a $i0.3 million
collar premium, and the remainder through a collar transaction (the Vodafone Collar Transaction). The Vodafone Collar Transaction includes a collar on the full amount of our Vodafone shares (the Vodafone Collar) and a loan (the Vodafone Collar Loan) collateralized by the Vodafone shares. Under the terms of the Vodafone Collar, the counterparty has the right to re-use pledged Vodafone shares. At September 30, 2023, after consideration of the Vodafone Collar Transaction, the net fair value of our investment in Vodafone is $i168.8 million.
For additional information regarding the Vodafone Collar Transaction, including a description of the related re-use rights and the impact on the dividends we receive on our Vodafone shares, see note 6.
(f)Our investment in Plume includes warrants with a fair value of $i70.5 million and $i92.2 million
at September 30, 2023 and December 31, 2022, respectively.
(g)The purchase and sale of investments are presented on a gross basis in our condensed consolidated statements of cash flows, including amounts associated with SMAs.
16
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
(a)Represents
(i) our i50% share of the results of operations of the VMO2 JV and (ii) i100% of the share-based compensation
expense associated with Liberty Global awards granted to VMO2 JV employees who were formerly employees of Liberty Global prior to the VMO2 JV formation, as these awards remain our responsibility.
(b)Represents (i) our i50% share of the results of operations of the VodafoneZiggo JV and (ii) i100%
of the interest income earned on the VodafoneZiggo JV Receivables.
/
VMO2 JV
Pursuant to an agreement (the U.K. JV Framework Agreement), Liberty Global provides certain services to the VMO2 JV on a transitional or ongoing basis (collectively, the U.K. JV Services). The U.K. JV Services provided by Liberty Global consist primarily of (i) technology and other services and (ii) capital-related expenditures for assets that will be used by or will otherwise benefit the VMO2 JV. Liberty Global charges both fixed and variable fees to the VMO2 JV for the U.K. JV Services it provides
during the term of the U.K. JV Framework Agreement. We recorded revenue related to the U.K. JV Services of $i34.2 million and $i59.8 million
during the three months ended September 30, 2023 and 2022, respectively, and $i155.4 million and $i192.4 million
during the nine months ended September 30, 2023 and 2022, respectively. At September 30, 2023 and December 31, 2022, $i33.3 million and $i37.0 million,
respectively,was due from the VMO2 JV, primarily related to (a) the U.K. JV Services and (b) amounts incurred by Liberty Global for certain equipment and licenses purchased on behalf of the VMO2 JV. The amounts due from the VMO2 JV, which are periodically cash settled, are included in other current assets on our condensed consolidated balance sheets. In addition, during the nine months ended September 30, 2023, we received dividend distributions from the VMO2 JV aggregating $i815.2 million,
all of which was accounted for as a return of capital for purposes of our condensed consolidated statement of cash flows. During the nine months ended September 30, 2022, we received a dividend distribution from the VMO2 JV aggregating $i467.9 million, of which $i201.0 million
was accounted for as a return on capital and $i266.9 million was accounted for as a return of capital for purposes of our condensed consolidated statement of cash flows.
17
LIBERTY GLOBAL PLC
Notes
to Condensed Consolidated Financial Statements — (Continued)
Pursuant to an agreement (the NL JV Framework Agreement), Liberty Global provides certain services to the VodafoneZiggo JV (collectively, the NL JV Services). The NL JV Services provided by Liberty Global consist primarily of (i) technology and other services and (ii) capital-related expenditures for assets that will be used by, or will otherwise benefit, the VodafoneZiggo JV. Liberty Global charges both fixed and usage-based fees to the VodafoneZiggo JV for the NL JV Services provided during the term of the NL JV Framework Agreement. We recorded revenue from the VodafoneZiggo JV of $i37.3
million and $i75.4 million during the three months ended September 30, 2023 and 2022, respectively, and $i157.8
million and $i192.7 million during the nine months ended September 30, 2023 and 2022, respectively, primarily related to (a) the NL JV Services and (b) the sale of customer premises equipment (CPE) to the VodafoneZiggo JV at a mark-up. At September 30, 2023 and December 31, 2022, $i37.9
million and $i35.0 million,respectively,was due from the VodafoneZiggo JV related to the aforementioned transactions. The amounts due from the VodafoneZiggo JV, which are periodically cash settled, are included in other current assets on our condensed consolidated balance sheets. In addition, during the nine months ended September 30, 2022, we received dividend distributions from the VodafoneZiggo JV aggregating $i186.9 million,
all of which was accounted for as a return on capital for purposes of our condensed consolidated statement of cash flows.
The summarized results of operations of the VodafoneZiggo JV are set forth below:
(a)The
nine-month periods include gains of $i8.0 million and $i12.0 million, respectively, related to investments that were sold during the second quarter of
2023 and 2022.
(a)Amount
represents an investment in a leveraged structured note issued by a third party investment bank, which is accounted for at fair value and classified within Level 2 of the fair value hierarchy. For further information regarding our fair value measurements, see note 7. The return on the leveraged structured note is based on changes in the fair value of a proportionate amount of debt issued by various Liberty Global consolidated subsidiaries and affiliates (including the VMO2 JV and the VodafoneZiggo JV). While the structured note itself contains leverage, our at-risk investment is the estimated fair value as reported. At September 30, 2023, the proportionate amount of debt issued by Liberty Global consolidated subsidiaries and affiliates associated
with the return on the leveraged structured note is summarized in the following table:
19
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
We
received proceeds from the sale of debt securities of $i1.8 billion and $i2.6 billion during the three months ended September
30, 2023 and 2022, respectively, and $i6.0 billion and $i7.5 billion during the nine months ended
September 30, 2023 and 2022, respectively, the majority of which were reinvested in new debt securities held under SMAs. The sale of debt securities resulted in realized net losses of $i20.1 million and $i1.5
million during the three months ended September 30, 2023 and 2022, respectively, and $i52.8 million and $i7.6
million during the nine months ended September 30, 2023 and 2022, respectively.
The fair values of our debt securities as of September 30, 2023 by contractual maturity are shown below (in millions):
Due in one year or less
$
i1,557.0
Due
in one to five years
i238.4
Due in five to ten years
i2.3
Total
(a)
$
i1,797.7
_______________
(a)The weighted average life of our total debt securities was i0.6
years as of September 30, 2023.
Our investment portfolio is subject to various macroeconomic pressures and has experienced significant volatility, which affects both our non-public and publicly-traded investments. Changes in the fair values of these investments, including changes with respect to interest rates within our local jurisdictions, are likely to continue and could be significant.
20
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated
Financial Statements — (Continued)
In general, we enter into derivative instruments to protect against (i) increases in the interest rates on our variable-rate debt, (ii) foreign currency movements, particularly with respect to borrowings that
are denominated in a currency other than the functional currency of the borrowing entity, and (iii) decreases in the market prices of certain publicly traded securities that we own. In this regard, through our subsidiaries, we have entered into various derivative instruments to manage interest rate exposure and foreign currency exposure primarily with respect to the U.S. dollar ($), the euro (€) the British pound sterling (£) and the Swiss franc (CHF). Generally, we do not apply hedge accounting to our derivative instruments. Accordingly, changes in the fair values of most of our derivative instruments are recorded in realized and unrealized gains or losses on derivative instruments, net,
in our condensed consolidated statements of operations.
i
The following table provides details of the fair values of our derivative instrument assets and liabilities:
(a)Our
long-term derivative assets and long-term derivative liabilities are included in other assets, net, and other long-term liabilities, respectively, on our condensed consolidated balance sheets.
(b)We consider credit risk relating to our and our counterparties’ nonperformance in the fair value assessment of our derivative instruments. In all cases, the adjustments take into account offsetting liability or asset positions within each of our subsidiary borrowing groups (as defined and described in note 9). The changes in the credit risk valuation adjustments associated with our cross-currency and interest rate derivative contracts resulted in net losses of $i6.9
million and $i16.3 million during the three months ended September 30, 2023 and 2022, respectively, and a net gain (loss) of $i15.3
millionand($i7.0 million)during thenine months ended September 30, 2023 and 2022, respectively. These amounts are included in realized and unrealized gainson derivative instruments, net, in
our condensed consolidated statements of operations. For further information regarding our fair value measurements, see note 7.
/
(c)Our equity-related derivative instruments include the Vodafone Collar. The fair value of the Vodafone Collar does not include credit risk valuation adjustments as we assume that any losses incurred by our company in the event of nonperformance by the respective counterparty would be, subject to relevant insolvency laws, fully offset against amounts we owe to such counterparty pursuant to the related secured borrowing arrangements.
21
LIBERTY
GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
The net cash received or paid related to our derivative instruments is classified as an operating, investing or financing activity in our condensed consolidated statements of cash flows based on the objective of the derivative instrument and the classification of the applicable underlying cash flows. iThe following table sets forth the classification of the net cash inflows(outflows)of our derivative instruments:
We are exposed to the risk that the counterparties to the derivative instruments of our subsidiary borrowing groups will default on their obligations to us. We manage these credit risks through the evaluation and monitoring of the creditworthiness of, and concentration of risk with, the respective counterparties. In this regard, credit risk associated with our derivative instruments is spread across a relatively broad counterparty base of banks and financial institutions, however notwithstanding, given the size of our derivative portfolio, the default of certain counterparties could have a significant impact on our consolidated statements of operations. Collateral is generally not posted by either party under our derivative instruments. At September 30, 2023, our exposure to counterparty credit risk included derivative assets
with an aggregate fair value of $i726.4 million.
22
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
We generally match the denomination of our subsidiaries’ borrowings with the functional currency of the supporting operations or, when it is more cost effective, we provide for an economic hedge against foreign currency exchange rate movements by using derivative instruments to synthetically convert unmatched debt into the applicable underlying currency. At September 30, 2023, substantially all of our debt was either directly or synthetically matched to the applicable functional currencies of the underlying
operations. iThe following table sets forth the total notional amounts and the related weighted average remaining contractual lives of our cross-currency swap contracts at September 30, 2023:
Notional
amount due from counterparty
Notional amount due to counterparty
Weighted average remaining life
in millions
in years
UPC
Holding
$
i250.0
€
i220.6
i2.0
$
i4,275.0
CHF
i3,912.7
(a)
i5.0
€
i1,952.6
CHF
i2,176.5
i3.5
Telenet
$
i3,940.0
€
i3,489.6
(a)
i3.3
€
i45.2
$
i50.0
(b)
i1.3
_______________
(a)Includes
certain derivative instruments that are “forward-starting,” such that the initial exchange occurs at a date subsequent to September 30, 2023. These instruments are typically entered into in order to extend existing hedges without the need to amend existing contracts.
(b)Includes certain derivative instruments that do not involve the exchange of notional amounts at the inception and maturity of the instruments. Accordingly, the only cash flows associated with these derivative instruments are coupon-related payments and receipts.
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 September 30, 2023:
Our
basis swaps involve the exchange of attributes used to calculate our floating interest rates, including (i) the benchmark rate, (ii) the underlying currency and/or (iii) the borrowing period. We typically enter into these swaps to optimize our interest rate profile based on our current evaluations of yield curves, our risk management policies and other factors. The following table sets forth the total U.S. dollar equivalents of the notional amounts and related weighted average remaining contractual lives of our basis swap contracts at September 30, 2023:
Notional
amount due from counterparty
Weighted average remaining life
in millions
in years
UPC Holding
$
i3,573.2
i0.3
Telenet
$
i3,469.1
i0.6
VM
Ireland
$
i952.0
i0.3
Interest Rate Caps, Floors and Collars
From
time to time, we enter into interest rate cap, floor and collar agreements. Purchased interest rate caps and collars lock in a maximum interest rate if variable rates rise, but also allow our company to benefit, to a limited extent in the case of collars, from declines in market rates. Purchased interest rate floors protect us from interest rates falling below a certain level, generally to match a floating rate floor on a debt instrument. At September 30, 2023, we had no interest rate collar agreements, and the total U.S. dollar equivalents of the notional amounts of our purchased interest rate caps and floors were $i1.2
billionand$i5.8 billion, respectively.
Impact of Derivative Instruments on Borrowing Costs
The impact of the derivative instruments that mitigate our foreign currency and interest rate risk, as described above, on our borrowing costs is as follows:
(a)Represents the effect of derivative instruments in effect at September 30, 2023 and does not include forward-starting derivative instruments.
Foreign
Currency Forwards and Options
Certain of our subsidiaries enter into foreign currency forward and option contracts with respect to non-functional currency exposure. As of September 30, 2023, the total U.S. dollar equivalent of the notional amounts of our foreign currency forward and option contracts was $i491.2
million.
24
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
Vodafone Collar and Vodafone Collar Loan. As part of the Vodafone Collar Transaction, on February 11, 2023, we entered into the Vodafone Collar with respect to all i1,335 million
of our Vodafone shares. The Vodafone Collar is comprised of (i) purchase put options that we can exercise and (ii) written call options exercisable by the counterparty. The Vodafone Collar effectively hedges the value of our investment in Vodafone shares from potential losses due to market price decreases below the put option price while retaining a portion of the gains from market price increases up to the call option price. For additional information regarding our investment in Vodafone, see note 5.
The Vodafone Collar Transaction also provided us with the ability to effectively finance the purchase of the Vodafone shares. In this regard, on February 11, 2023, we borrowed €i1,143.6 million
($i1,219.8 million at the transaction date) under the Vodafone Collar Loan. At September 30, 2023, borrowings under the Vodafone Collar Loan were collateralized by our Vodafone shares. The Vodafone Collar Loan has a face value of €i1,258.0 million
($i1,341.8 million at the transaction date) and was issued at a discount of €i114.4 million ($i122.0 million
at the transaction date) with a zero coupon rate and an average implied yield of i295 basis points (i2.95%). The Vodafone Collar Loan has settlement dates from July 2025 to December 2026, contains no financial covenants and provides for customary representations
and warranties, events of default and certain adjustment and termination events. Under the terms of the Vodafone Collar, the counterparty has the right to re-use the pledged Vodafone shares, but we have the right to recall the shares that are re-used by the counterparty subject to certain costs. In addition, we will retain a portion of the dividends on the Vodafone shares, dependent on the value of the collar on the ex-dividend date.
(7) iFair Value
Measurements
We use the fair value method to account for (i) certain of our investments and (ii) our derivative instruments. The reported fair values of these investments and derivative instruments as of September 30, 2023 are unlikely to represent the value that will be paid or received upon the ultimate settlement or disposition of these assets and liabilities.
GAAP provides for a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted market prices included within Level 1
that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. We record transfers of assets or liabilities into or out of Levels 1, 2 or 3 at the beginning of the quarter during which the transfer occurred.
We use a Monte Carlo based approach to incorporate a credit risk valuation adjustment in our fair value measurements to estimate the impact of both our own nonperformance risk and the nonperformance risk of our counterparties. Our credit risk valuation adjustments with respect to our cross-currency and interest rate swap contracts are quantified and further explained in note 6.
Fair value measurements are also used for nonrecurring
valuations performed in connection with acquisition accounting and impairment assessments. These nonrecurring valuations include the valuation of reporting units, customer relationships and other intangible assets, property and equipment and the implied value of goodwill. The valuation of reporting units is based at least in part on discounted cash flow analyses. With the exception of certain inputs for our weighted average cost of capital and discount rate calculations that are derived from pricing services, the inputs used in our discounted cash flow analyses, such as forecasts of future cash flows, including inputs with respect to revenue growth and Adjusted EBITDA margin (as defined in note 16), and terminal growth rates, are based on our assumptions. The valuation of customer relationships is primarily based on an excess earnings methodology, which is a form of a discounted cash flow analysis. The excess earnings methodology requires us to estimate the specific
cash flows expected from the customer relationship, considering such factors as estimated customer life, the revenue expected to be generated over the life of the customer relationship, contributory asset charges and other factors. Tangible assets are typically valued using a replacement or reproduction cost approach, considering factors such as current prices of the same or similar equipment, the age of the equipment and economic obsolescence. The implied value of goodwill is determined by allocating the fair value of a reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination, with the residual amount allocated to goodwill. Most of our
25
LIBERTY GLOBAL PLC
Notes
to Condensed Consolidated Financial Statements — (Continued)
nonrecurring valuations use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy. During the nine months ended September 30, 2023 and 2022, we did not perform any significant nonrecurring fair value measurements.
For additional information concerning our fair value measurements, see note 9 to the consolidated financial statements included in our 10-K.
i
A
summary of our assets and liabilities that are measured at fair value on a recurring basis is as follows:
A reconciliation of the beginning and ending balances of our assets and liabilities measured at fair value on a recurring basis using significant unobservable, or Level 3, inputs is as follows:
(a)Amounts
primarily relate to assets and liabilities that we continue to carry on our condensed consolidated balance sheet as of September 30, 2023.
/
(b)As of September 30, 2023, $i361.5 million
of our Level 3 investments were accounted for under the measurement alternative at cost less impairment, adjusted for observable price changes.
(8) iLong-lived Assets
Property and Equipment, Net
i
The
details of our property and equipment and the related accumulated depreciation are set forth below:
During
the nine months ended September 30, 2023 and 2022, we recorded non-cash increases to our property and equipment related to vendor financing arrangements of $i129.9 million and $i142.9
million, respectively, which exclude related value-added taxes (VAT) of $i14.8 million and $i17.0 million, respectively, that were also financed under these arrangements.
28
LIBERTY
GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
If,
among other factors, (i) our equity values were to decline or (ii) the adverse impacts of economic, competitive, regulatory or other factors were to cause our results of operations or cash flows to be worse than anticipated, we could conclude in future periods that impairment charges are required in order to reduce the carrying values of our goodwill and, to a lesser extent, other long-lived assets. Any such impairment charges could be significant.
Intangible Assets Subject to Amortization, Net
i
The
details of our intangible assets subject to amortization are set forth below:
During
the nine months ended September 30, 2022, we recorded a non-cash increase of $i384.1 million related to Telenet’s acquisition of mobile spectrum licenses.
29
LIBERTY GLOBAL PLC
Notes
to Condensed Consolidated Financial Statements — (Continued)
Total
debt before deferred financing costs, discounts and premiums (j)
i6.13
%
$
i1,542.6
$
i15,289.9
$
i13,370.2
The
following table provides a reconciliation of total debt before deferred financing costs, discounts and premiums to total debt and finance lease obligations:
Total
debt before deferred financing costs, discounts and premiums
$
i15,289.9
$
i13,370.2
Deferred
financing costs, discounts and premiums, net
(i154.4)
(i43.1)
Total
carrying amount of debt
i15,135.5
i13,327.1
Finance lease
obligations (note 10)
i56.1
i436.1
Total debt and finance lease obligations
i15,191.6
i13,763.2
Current
portion of debt and finance lease obligations
(i633.3)
(i799.7)
Long-term
debt and finance lease obligations
$
i14,558.3
$
i12,963.5
_______________
(a)Represents
the weighted average interest rate in effect at September 30, 2023 for all borrowings outstanding pursuant to each debt instrument, including any applicable margin. The interest rates presented represent stated rates and do not include the impact of derivative instruments, deferred financing costs, original issue premiums or discounts and commitment fees, all of which affect our overall cost of borrowing. Including the effects of derivative instruments, original issue premiums or discounts and commitment fees, but excluding the impact of deferred financing costs and certain other obligations that we assumed in connection with certain acquisitions, the weighted average interest rate on our aggregate variable- and fixed-rate indebtedness was i3.48%
at September 30, 2023. The weighted average interest rate calculation includes principal amounts outstanding associated with all of our secured and unsecured borrowings. For information regarding our derivative instruments, see note 6.
/
30
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
(b)Unused
borrowing capacity represents the maximum availability under the applicable facility at September 30, 2023 without regard to covenant compliance calculations or other conditions precedent to borrowing. The following table provides our borrowing availability and amounts available to loan or distribute in accordance with the terms of the respective subsidiary facilities, (i) at September 30, 2023 and (ii) upon completion of the relevant September 30, 2023 compliance reporting requirements. These amounts do not consider any actual or potential changes to our borrowing levels or any amounts loaned or distributed subsequent to September 30, 2023, or the full impact of additional amounts that may be available to borrow, loan or distribute under certain defined baskets within each
respective facility.
Upon completion of the relevant September 30,
2023 compliance reporting requirements
Borrowing currency
U.S. $ equivalent
Borrowing currency
U.S. $ equivalent
in millions
Available to borrow:
UPC
Holding Bank Facility
€
i713.4
$
i754.6
€
i713.4
$
i754.6
Telenet
Credit Facility
€
i645.0
$
i682.2
€
i645.0
$
i682.2
VM
Ireland Credit Facility
€
i100.0
$
i105.8
€
i100.0
$
i105.8
Available
to loan or distribute:
UPC Holding Bank Facility
€
i713.4
$
i754.6
€
i713.4
$
i754.6
Telenet
Credit Facility
€
i645.0
$
i682.2
€
i645.0
$
i682.2
VM
Ireland Credit Facility
€
i100.0
$
i105.8
€
i100.0
$
i105.8
(c)Unused
borrowing capacity under the UPC Holding Bank Facility relates to an equivalent €i713.4 million ($i754.6 million) under the UPC Revolving Facility. The UPC Revolving Facility provides
for maximum borrowing capacity of €i736.4 million ($i778.9 million), including €i23.0
million ($i24.3 million) under the related ancillary facility. With the exception of €i23.0 million of borrowings under the ancillary facility, the UPC Revolving Facility was undrawn
at September 30, 2023. During 2023, the UPC Holding Bank Facility was amended to replace LIBOR with the Term Secured Overnight Financing Rate (Term SOFR)as the reference rate for U.S. dollar-denominated loans.
(d)Unused borrowing capacity under the Telenet Credit Facility comprises (i) €i570.0 million($i602.9 million) under Telenet Revolving Facility B (as defined below), (ii) €i30.0 million ($i31.7
million) under Telenet Revolving Facility A (as defined below), (iii) €i25.0 million ($i26.4 million) under the Telenet Overdraft Facility and (iv) €i20.0
million ($i21.2 million) under the Telenet Revolving Facility, each of which were undrawn at September 30, 2023. During 2023, the Telenet Credit Facility was amended to replace LIBOR with Term SOFR as the reference rate for U.S. dollar-denominated loans. In addition, Telenet Revolving Facility I was amended to provide for an additional €i90.0
million ($i95.2 million) of borrowing capacity and was split into itwo revolving facilities. Telenet Revolving Facility A has a maximum borrowing capacity of €i30.0 million
and a final maturity date of May 31, 2026 and Telenet Revolving Facility B has a maximum borrowing capacity of €i570.0 million and a final maturity date of May 31, 2029. All other terms from the previously existing Telenet Revolving Facility I continue to apply to the new revolving facilities.
(e)Unused borrowing capacity under the VM Ireland Credit Facility relates
to €i100.0 million ($i105.8 million) under the VM Ireland Revolving Facility, which was undrawn at September 30, 2023.
(f)For
information regarding the Vodafone Collar Loan, see notes 5 and 6.
(g)For information regarding LGBH Facility B, see the Financing Transactions section below.
(h)Represents amounts owed to various creditors pursuant to interest-bearing vendor financing arrangements that are used to finance certain of our property and equipment additions and operating expenses. These arrangements extend our repayment terms beyond a vendor’s original due dates (e.g., extension beyond a vendor’s customary payment terms,
31
LIBERTY
GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
which are generally 90 days or less) and as such are classified outside of accounts payable as debt on our condensed consolidated balance sheets. These obligations are generally due within one year and include VAT that was also financed under these arrangements. For purposes of our condensed consolidated statements of cash flows, operating-related expenses financed by an intermediary are treated as constructive operating cash outflows and constructive financing cash inflows when the intermediary settles the liability with the vendor as there is no actual cash outflow until we pay the financing intermediary. During the nine months ended
September 30, 2023 and 2022, the constructive cash outflow included in cash flows from operating activities and the corresponding constructive cash inflow included in cash flows from financing activities related to these operating expenses were $i444.5 million and $i397.1
million, respectively. Repayments of vendor financing obligations at the time we pay the financing intermediary are included in repayments and repurchases of debt and finance lease obligations in our condensed consolidated statements of cash flows.
(i)Amounts include $i420.5 millionand $i428.1
million at September 30, 2023 and December 31, 2022, respectively,of liabilities related to Telenet’s acquisition of mobile spectrum licenses. Telenet will make annual payments for the license fees over the terms of the respective licenses. For additional information regarding Telenet’s acquisition of mobile spectrum licenses, see note 8.
(j)As of September 30, 2023 and December 31, 2022, our debt had an estimated fair value of $i14.6
billion and $i12.6 billion, respectively. The estimated fair values of our debt instruments are generally determined using the average of applicable bid and ask prices (mostly Level 1 of the fair value hierarchy). For additional information regarding fair value hierarchies, see note 7.
General Information
At September 30, 2023, most of our outstanding debt had been incurred by ione
of our ithree subsidiary “borrowing groups.” References to these borrowing groups, which comprise UPC Holding, Telenet and VM Ireland, include their respective restricted parent and subsidiary entities. For information regarding the general terms and conditions of our debt and capitalized terms not defined herein, see note 11 to the consolidated financial statements included in our 10-K.
Financing Transactions
In connection withtheTelenet Takeover Bid (as defined and described in note 12),Liberty Global Belgium Holding B.V. (LGBH), an indirect wholly-owned subsidiary of Liberty Global, entered into a €i1.0 billion ($i1.1
billion) term loan facility (LGBH Facility B). LGBH Facility B was issued at par, matures on July 25, 2026 and bears interest at a rate of EURIBOR plus (i) i4.0% per annum through July 24, 2024, (ii) i4.5%
per annum from July 25, 2024 through July 24, 2025 and (iii) i5.25% per annum from July 25, 2025 through maturity, in each case subject to a EURIBOR floor of i0.0%.
Under LGBH Facility B, LGBH drew (a) €i745.0 million ($i788.0 million) in July 2023 and (b) €i67.5
million ($i71.4 million) in September 2023, the proceeds of which were used to fund the Offer (as defined and described in note 12).
In October 2023, LGBH drew an additional €i77.5
million ($i82.0 million) under LGBH Facility B, the proceeds of which were used to further fund the Offer. The remaining €i110.0 million ($i116.4
million) of undrawn commitments under LGBH Facility B were subsequently cancelled.
32
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
Maturities
of our debt as of September 30, 2023 are presented below for the named entity and its subsidiaries, unless otherwise noted, and represent U.S. dollar equivalents based on September 30, 2023 exchange rates.
UPC
Holding (a)
Telenet
VM Ireland
Other (b)
Total
in millions
Year ending December 31:
2023 (remainder of
year)
$
i43.0
$
i100.8
$
i—
$
i11.7
$
i155.5
2024
i191.4
i285.2
i—
i15.1
i491.7
2025
i—
i22.2
i—
i315.1
i337.3
2026
i—
i22.3
i—
i1,876.1
i1,898.4
2027
i—
i22.6
i—
i—
i22.6
2028
i1,152.4
i3,917.3
i—
i—
i5,069.7
Thereafter
i4,877.1
i1,485.6
i952.0
i—
i7,314.7
Total
debt maturities (c)
i6,263.9
i5,856.0
i952.0
i2,218.0
i15,289.9
Deferred
financing costs, discounts and premiums, net
(i22.4)
(i9.8)
(i5.2)
(i117.0)
(i154.4)
Total
debt
$
i6,241.5
$
i5,846.2
$
i946.8
$
i2,101.0
$
i15,135.5
Current
portion
$
i234.4
$
i368.3
$
i—
$
i18.9
$
i621.6
Long-term
portion
$
i6,007.1
$
i5,477.9
$
i946.8
$
i2,082.1
$
i14,513.9
_______________
(a)Amounts
include certain senior secured notes issued by special purpose financing entities that are consolidated by UPC Holding and Liberty Global.
(b)Includes $i1,330.7 million related to the Vodafone Collar Loan, which has settlement dates in 2025 and 2026 consistent with the Vodafone Collar.We may elect to use cash or the collective value of the related shares and Vodafone Collar to settle amounts under the Vodafone Collar Loan.
(c)Amounts
include vendor financing obligations of $i611.2 million, as set forth below:
UPC
Holding
Telenet
Other
Total
in millions
Year ending December 31:
2023 (remainder of
year)
$
i43.0
$
i85.2
$
i11.7
$
i139.9
2024
i191.4
i263.7
i15.1
i470.2
2025
i—
i—
i1.1
i1.1
Total
vendor financing maturities
$
i234.4
$
i348.9
$
i27.9
$
i611.2
Current
portion
$
i234.4
$
i348.9
$
i18.9
$
i602.2
Long-term
portion
$
i—
$
i—
$
i9.0
$
i9.0
/
33
LIBERTY
GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
A reconciliation of the beginning and ending balances of our vendor financing obligations for the indicated periods is set forth below:
2023
2022
in
millions
Balance at January 1
$
i704.7
$
i843.2
Operating-related
vendor financing additions
i444.5
i397.1
Capital-related
vendor financing additions
i129.9
i142.9
Principal
payments on operating-related vendor financing
(i470.9)
(i525.9)
Principal
payments on capital-related vendor financing
(i210.8)
(i120.0)
Foreign
currency and other
i13.8
(i76.5)
Balance
at September 30
$
i611.2
$
i660.8
/
(10) iiiLeases//
General
We
enter into operating and finance leases for network equipment, real estate, mobile site sharing and vehicles. We provide residual value guarantees on certain of our vehicle leases.
Lease Balances
i
A summary of our ROU assets and lease liabilities is set forth below:
(a)Our
finance lease ROU assets are included in property and equipment, net, on our condensed consolidated balance sheets. At September 30, 2023, the weighted average remaining lease term for finance leases was i10.8 years and the weighted average discount rate was i4.9%.
During the nine months ended September 30, 2023 and 2022, we recorded non-cash additions to our finance lease ROU assets of $i20.8 million and $i25.8
million, respectively. The decrease in our finance lease ROU assets is primarily related to the Telenet Wyre Transaction. For additional information, see note 4.
(b)Our operating lease ROU assets are included in other assets, net, on our condensed consolidated balance sheets. At September 30, 2023, the weighted average remaining lease term for operating leases was i12.6 years and the weighted average discount rate was i5.8%.
During the nine months ended September 30, 2023 and 2022, we recorded non-cash
/
34
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
additions to our operating lease ROU assets of $i38.0
million and $i670.0 million, respectively. For information regarding non-cash additions to our operating lease ROU assets during the nine months ended September 30, 2022 related to the Telenet Tower Lease Agreement, see note 4.
(c)The current and long-term portions of our finance lease liabilities are included within current portion of debt and finance lease obligations and long-term
debt and finance lease obligations, respectively, on our condensed consolidated balance sheets. The decrease in our finance lease liabilities is primarily related to the Telenet Wyre Transaction. For additional information, see note 4.
(d)The current portions of our operating lease liabilities are included within other accrued and current liabilities on our condensed consolidated balance sheets. For information regarding the increase in our operating lease liabilities during the nine months ended September 30, 2022 related to the Telenet Tower Lease Agreement, see note 4.
i
A
summary of our aggregate lease expense is set forth below:
(a)Amounts
for the 2023 periods include the reversal of previously recognized interest expense as a result of certain settlements of lease liabilities.
(b)Our operating lease expense and short-term lease expense are included in programming and other direct costs of services, other operating expenses, SG&A expenses and impairment, restructuring and other operating items, net, in our condensed consolidated statements of operations.
(c)Variable lease expense represents payments made to a lessor during the lease term that vary because of a change in circumstance that occurred after the lease commencement date. Variable lease payments are expensed as incurred and are included in other operating expenses in our condensed consolidated statements of operations.
/
35
LIBERTY
GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases
$
i163.9
$
i163.7
Operating
cash outflows from finance leases (interest component)
i1.5
i20.3
Financing
cash outflows from finance leases (principal component)
i25.3
i46.5
Total cash outflows
from operating and finance leases
$
i190.7
$
i230.5
ii
Maturities
of our operating and finance lease liabilities as of September 30, 2023 are presented below. Amounts represent U.S. dollar equivalents based on September 30, 2023 exchange rates:
Operating leases
Finance leases
in millions
Year
ending December 31:
2023 (remainder of year)
$
i65.7
$
i3.8
2024
i221.1
i10.6
2025
i203.6
i9.5
2026
i189.4
i7.7
2027
i180.2
i6.8
2028
i174.1
i4.2
Thereafter
i1,360.8
i29.5
Total
payments
i2,394.9
i72.1
Less:
present value discount
(i691.0)
(i16.0)
Present
value of lease payments
$
i1,703.9
$
i56.1
Current
portion
$
i149.6
$
i11.7
Long-term
portion
$
i1,554.3
$
i44.4
//
36
LIBERTY
GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
Income
tax benefit (expense) attributable to our earnings (loss) from continuing operations before income taxes differs from the amounts computed using the applicable income tax rate as a result of the following factors:
Non-deductible
or non-taxable interest and other expenses
(i33.3)
(i19.6)
(i108.0)
(i85.8)
Non-deductible
or non-taxable foreign currency exchange results
i197.5
i334.7
i82.9
i729.7
Tax
benefit associated with technology innovation
i5.9
i5.1
i12.1
i16.4
International
rate differences (b)
(i6.8)
(i33.9)
(i11.0)
(i150.3)
Basis
and other differences in the treatment of items associated with investments in subsidiaries and affiliates (c)
i78.8
i103.7
(i1.7)
i364.1
Other,
net
(i7.9)
i7.7
i2.0
i8.7
Total
income tax benefit (expense)
$
i1.7
$
(i64.8)
$
(i170.0)
$
(i209.6)
_______________
(a)The
statutory or “expected” tax rates are the U.K. rates of 23.5% for the 2023 periods and 19.0% for the 2022 periods. The statutory rate for the 2023 periods represents the blended rate in effect for the year ended December 31, 2023 based on the 19.0% statutory rate that was in effect for the first quarter of 2023 and the 25.0% statutory rate that is in effect from April 1, 2023.
(b)Amounts reflect adjustments (either a benefit or expense) to the “expected” taxbenefit (expense) for statutory rates in jurisdictions in which we operate outside of the U.K.
(c)Amounts reflect the net impact of differences
in the treatment of income and loss items between financial reporting and tax accounting related to investments in subsidiaries and affiliates, including the effects of foreign earnings. The 2023 periods also include the non-taxable gain associated with the Telenet Wyre Transaction.
/
On August 16, 2022, the Inflation Reduction Act was signed into law in the U.S. Although this legislation does not increase the U.S. corporate income tax rate, it includes, among other provisions, a new corporate alternative minimum tax (CAMT) on
“adjusted financial statement income” that is effective for tax years beginning after December 31, 2022. We do not currently anticipate the CAMT will have a material impact on our consolidated financial statements although we will continue to monitor additional guidance as it is issued to assess the impact to our tax position. We will disregard our CAMT status when evaluating our deferred tax assets under the regular U.S. tax system.
As of September 30, 2023, our unrecognized tax benefits were $i442.7
million, of which $i345.3 million would have a favorable impact on our effective income tax rate if ultimately recognized, after considering amounts that we would expect to be offset by valuation allowances and other factors. During the next 12 months it is reasonably possible that the resolution of ongoing tax controversies, as well as the expiration of statutes of limitation and other items, could result in reductions to our unrecognized tax benefits related to tax positions taken as of September 30, 2023.
The amount of such reductions could range up to $i176 million. No assurance can be given as to the nature or impact of any changes in our unrecognized tax positions during the next 12 months.
Certain of our subsidiaries are currently involved in income tax examinations in various jurisdictions in which we operate, including Belgium, Ireland, Luxembourg and the U.S. While we do
not expect adjustments from the foregoing examinations to have a material impact on our consolidated financial position, results of operations or cash flows, no assurance can be given that this will be the case given the amounts involved and the complex nature of the related issues.
37
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
On October 7, 2022, the U.S. Department of Justice
filed suit against Liberty Global, Inc. (LGI), a wholly-owned U.S. subsidiary of Liberty Global, in the U.S. District Court of Colorado for unpaid federal income taxes and penalties for the 2018 tax year of approximately $i284 million. This action by the U.S. Department of Justice is related to the November 2020 complaint filed by LGI in the District Court of Colorado seeking a refund of approximately $i110 million
of taxes, penalties and interest associated with the application of certain temporary Treasury regulations issued in June 2019. No amounts have been accrued by LGI with respect to this matter. We will vigorously defend this matter and continue to actively pursue our claim for refund.
12) iEquity
Share Repurchases
During the nine months ended September 30, 2023, we repurchased (i) i1,444,000 shares of our Class A ordinary shares at an average price per share of $i18.24
and (ii) i58,057,884 shares of our Class C ordinary shares at an average price per share of $i19.34, for an aggregate purchase price of $i1,149.2
million, including direct acquisition costs.
As of September 30, 2023, we repurchased i13% of our total number of outstanding shares as of December 31, 2022. Our original share buyback plan for 2023 authorized the repurchase of i10%
of our outstanding shares as of December 31, 2022, and this was increased to a minimum of i15% in July 2023. As of October 30, 2023, we repurchased shares for an aggregate purchase price of $i1,315.4 million,representing i15% of our outstanding shares as of December 31, 2022. We are now targeting a further repurchase of shares through the end of January 2024 in the amount of approximately $i300.0 million.
Telenet Takeover Bid
On June 8, 2023, following approval by the Belgian Financial Services and Markets Authority, LGBH launched a voluntary and conditional public takeover bid (the Offer) for all of the shares of Telenet that we do not already own or that are not held by Telenet (the Telenet Bid Shares) (the Telenet Takeover Bid). The Offer consists of per share cash consideration for the tendered Telenet Bid Shares of €i22
per share, which after deducting the €i1 gross dividend paid on May 5, 2023, results in an offer price of €i21 per share.
After the conclusion of both
the initial acceptance period and the subsequent mandatory reopening period, LGBH acquired i38,210,285of the Telenet Bid Shares, including i380,691
shares subject to lock-up provisions, increasing our ownership interest in Telenet’s issued and outstanding shares to i96.26%. On September 22, 2023, we initiated a simplified “squeeze-out” procedure according to applicable Belgium law, pursuant to which LGBH acquired the remaining Telenet Bid Shares that it or Telenet did not already own. As of September 30, 2023, we have recorded a liability of €i96.1 million
($i101.6 million) associated with the Telenet Bid Shares not yet acquired. The simplified squeeze-out procedure concluded on October 13, 2023 and, on that date, any shares of Telenet that were not tendered during the simplified squeeze-out procedure were automatically transferred to LGBH by operation of law. The Telenet Bid Shares that were acquired as a result of the simplified squeeze-out procedure were settled on October 19, 2023 and, from that date, Telenet is
owned i100% by LGBH. Telenet shares were delisted from Euronext Brussels at the close of trade on October 13, 2023.
The Telenet Takeover Bid was funded through (i) available borrowings under LGBH Facility B and (ii) existing liquidity of Liberty Global. As of September 30, 2023, the consideration associated with the Telenet Takeover Bid, including certain fees and expenses, totaled €i807.6 million
($i891.3 millionat the applicable transaction dates).
38
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated
Financial Statements — (Continued)
Our share-based compensation expense primarily relates to the share-based incentive awards issued by Liberty Global to its employees and employees of its subsidiaries.
iA summary of our aggregate share-based compensation expense is set forth below:
(a)In
April 2023, the compensation committee of our board of directors approved the extension of the expiration dates of outstanding share appreciation rights (SARs) and director options granted in 2016 through 2018 from a iseven-year term to a iten-year
term. Accordingly, the Black-Scholes fair values of the outstanding awards increased, resulting in the recognition of an aggregate incremental share-based compensation expense of $i27.1 million during the second quarter of 2023.
(b)The 2022 amount includes share-based compensation expense related to our 2019 Challenge Performance Awards.
(c)Represents
annual incentive compensation and defined contribution plan liabilities that have been or are expected to be settled with Liberty Global ordinary shares. In the case of annual incentive compensation, shares have been or will be issued to senior management and key employees pursuant to a shareholding incentive program. The shareholding incentive program allows these employees to elect to receive up to i100% of their annual incentive compensation in ordinary shares of Liberty Global in lieu of cash.
39
LIBERTY
GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
The following table provides the aggregate number of options, SARs and performance-based share appreciation rights (PSARs) with respect to awards issued by Liberty Global that were (i) outstanding and (ii) exercisable as of September 30,
2023:
Class A
Class C
Gross number of shares underlying option, SAR and PSAR awards (a)
Weighted average exercise or base price
Gross
number of shares underlying option, SAR and PSAR awards (a)
Weighted average exercise or base price
Held by Liberty Global employees:
Outstanding
i24,500,124
$
i25.99
i57,037,426
$
i25.24
Exercisable
i19,089,801
$
i27.04
i41,547,818
$
i26.11
Held
by former Liberty Global employees (b):
Outstanding
i1,195,983
$
i32.51
i2,373,744
$
i31.60
Exercisable
i1,162,937
$
i32.77
i2,307,664
$
i31.83
_______________
(a)Amounts
represent the gross number of shares associated with option, SAR and PSAR awards issued to our current and former employees and our directors. Our company settles SARs and PSARs on a net basis when exercised by the award holder, whereby the number of shares issued represents the excess value of the award based on the market price of the respective Liberty Global shares at the time of exercise relative to the award’s exercise price. In addition, the number of shares issued is further reduced by the amount of the employee’s required income tax withholding.
(b)Amounts represent certain share-based awards that continue to be held by former employees of Liberty Global subsequent to certain split-off or disposal transactions. Although future exercises of these awards by former employees
will not result in the recognition of share-based compensation expense, such exercises will increase the number of our outstanding ordinary shares.
/
i
The following table provides the aggregate number of restricted share units (RSUs) that were outstanding as of September 30,
2023. The number of shares to be issued on the vesting date of these awards will be reduced by the amount of the employee’s required income tax withholding.
Class A
Class C
Held
by Liberty Global employees
i2,004,229
i4,564,394
Held
by former Liberty Global employees (a)
i14,872
i29,729
_______________
/
(a)Amounts
represent certain share-based awards that continue to be held by former employees of Liberty Global subsequent to certain split-off or disposal transactions. The future vesting of these RSUs will increase the number of our outstanding ordinary shares.
The Liberty Global 2023 Incentive Plan, which contains many of the same terms and conditions as those in the Liberty Global 2014 Incentive Plan and the Liberty Global 2014 Nonemployee Director Incentive Plan, was approved by our shareholders on June 14, 2023. Accordingly, no further awards will be granted under the Liberty Global 2014 Incentive Plans.
40
LIBERTY
GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
Basic earnings or loss per share (EPS) is computed by dividing net earnings or loss by the weighted average number of shares outstanding for
the period. Diluted EPS presents the dilutive effect, if any, on a per share basis of potential shares from share-based incentive awards as if they had been exercised, vested or converted at the beginning of the periods presented. For additional information regarding our share-based incentive awards, see note 13.
ii
The
details of our basic and diluted weighted average ordinary shares outstanding are set forth below:
Weighted
average ordinary shares outstanding (basic EPS computation)
i416,014,282
i477,176,983
i437,255,956
i499,476,564
Incremental
shares attributable to the assumed exercise or release of outstanding share-based incentive awards upon vesting (treasury stock method)
i4,959,080
i5,338,957
i—
i8,403,044
Weighted
average ordinary shares outstanding (diluted EPS computation)
i420,973,362
i482,515,940
i437,255,956
i507,879,608
//
We
reported a net loss from continuing operations attributable to Liberty Global shareholders for the nine months ended September 30, 2023. Therefore, the potentially dilutive effect at September 30, 2023 excludes i96.0 million shares issuable pursuant to outstanding share-based incentive awards in the computation of diluted net loss from continuing operations attributable to Liberty Global shareholders per share because
their inclusion would have been anti-dilutive to the computation.
The calculation of diluted EPS excludes aggregate share-based incentive awards of i75.1 million for the three months ended September 30, 2023 and i80.4 million
and i60.1 million for the three and nine months ended September 30, 2022, respectively, because their effect would have been anti-dilutive.
The details of our net earnings (loss) from continuing operations attributable to Liberty Global shareholders is set forth below:
In the normal course of business, we enter into
agreements that commit our company to make cash payments in future periods with respect to purchases of CPE and other equipment and services, network and connectivity commitments, programming contracts and other items. iThe following table sets forth the U.S. dollar equivalents of such commitments as of September 30, 2023. The commitments included in this table do not reflect
any liabilities that are included on our September 30, 2023 condensed consolidated balance sheet.
Payments
due during:
Remainder of 2023
2024
2025
2026
2027
2028
Thereafter
Total
in
millions
Purchase commitments
$
i215.3
$
i574.4
$
i419.2
$
i367.9
$
i349.4
$
i345.0
$
i—
$
i2,271.2
Network
and connectivity commitments
i58.3
i152.1
i94.7
i45.9
i41.5
i39.6
i218.1
i650.2
Programming
commitments
i65.8
i178.5
i116.5
i43.1
i20.3
i—
i—
i424.2
Other
commitments
i69.9
i152.7
i159.2
i122.8
i28.6
i26.7
i91.6
i651.5
Total
$
i409.3
$
i1,057.7
$
i789.6
$
i579.7
$
i439.8
$
i411.3
$
i309.7
$
i3,997.1
Purchase
commitments include unconditional and legally binding obligations related to (i) certain service-related commitments, including software development, information technology, maintenance and call center services and (ii) the purchase of network and other equipment and CPE.
Network and connectivity commitments include(i) certain network capacity arrangements in Switzerland and (ii) certain equipment and service-related commitments in Belgium.As a result of the Telenet Wyre Transaction, as described in note 4, Telenet’s commitments associated with its leased network terminated, and as such, are no longer reflected in the above table as of the third quarter of 2023.
Programming commitments consist of obligations
associated with certain of our programming, studio output and sports rights contracts that are enforceable and legally binding on us as we have agreed to pay minimum fees without regard to (i) the actual number of subscribers to the programming services, (ii) whether we terminate service to a portion of our subscribers or dispose of a portion of our distribution systems or (iii) whether we discontinue our premium sports services. Programming commitments do not include increases in future periods associated with contractual inflation or other price adjustments that are not fixed. Accordingly, the amounts reflected in the above table with respect to these contracts are significantly less than the amounts we expect to pay in these periods under these contracts.
Historically, payments to programming vendors have represented a significant portion of our operating costs, and we expect this will continue to be the case in future periods.In this regard, our total programming and copyright costs aggregated $i408.7 million and$i368.8
millionduring the nine months ended September 30, 2023 and 2022, respectively.
Other commitments include (i) our share of the funding commitment associated with the nexfibre JV and (ii) various sports sponsorships.
In addition to the commitments set forth in the table above, we have significant commitments under (i) derivative instruments and (ii) defined benefit plans and similar agreements, pursuant to which we expect to make payments in future periods. For information regarding our derivative instruments, including the net cash paid or received in connection with these instruments, see note 6.
We
also have commitments pursuant to agreements with, and obligations imposed by, franchise authorities and municipalities, which may include obligations in certain markets to move aerial cable to underground ducts or to upgrade, rebuild or extend portions of our broadband communication systems. Such amounts are not included in the above table because they are not fixed or determinable.
42
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
In the ordinary course of business, we may provide (i) indemnifications to our lenders, our vendors and certain other parties and (ii) performance and/or financial guarantees to local municipalities, our customers and vendors. Historically, these arrangements have not resulted in our company making any material payments and we do not believe that they will result in material payments in the future.
Legal and Regulatory Proceedings and Other Contingencies
Interkabel Acquisition. On November 26, 2007, Telenet and ifour
associations of municipalities in Belgium, which we refer to as the pure intercommunales or the “PICs,” announced a non-binding agreement-in-principle to transfer the analog and digital television activities of the PICs, including all existing subscribers, to Telenet. Subsequently, Telenet and the PICs entered into a binding agreement (the 2008 PICs Agreement), which closed effective October 1, 2008. Beginning in December 2007, Proximus NV/SA (Proximus), the incumbent telecommunications operator in Belgium, instituted several proceedings seeking to block implementation of these agreements. Proximus lodged summary proceedings with the President of the Court of First Instance of Antwerp to obtain a provisional injunction preventing the PICs from effecting the agreement-in-principle
and initiated a civil procedure on the merits claiming the annulment of the agreement-in-principle. In March 2008, the President of the Court of First Instance of Antwerp ruled in favor of Proximus in the summary proceedings, which ruling was overturned by the Court of Appeal of Antwerp in June 2008. Proximus brought an appeal judgment before the Belgian Supreme Court, which confirmed the appeal judgment in September 2010. On April 6, 2009, the Court of First Instance of Antwerp ruled in favor of the PICs and Telenet in the civil procedure on the merits, dismissing Proximus’ request for the rescission of the agreement-in-principle and the 2008 PICs Agreement. On June 12, 2009, Proximus appealed this judgment to the Court of Appeal of Antwerp. In this appeal, Proximus also sought compensation for damages. While these proceedings were suspended indefinitely, other proceedings
were initiated, which resulted in a ruling by the Belgian Council of State in May 2014 annulling (i) the decision of the PICs not to organize a public market consultation and (ii) the decision from the PICs’ board of directors to approve the 2008 PICs Agreement. In December 2015, Proximus resumed the civil proceedings pending with the Court of Appeal of Antwerp seeking to have the 2008 PICs Agreement annulled and claiming damages of €i1.4 billion($i1.5
billion). On December 18, 2017, the Court of Appeal of Antwerp rejected Proximus’ claim in its entirety. On June 28, 2019, Proximus brought this appeal judgment before the Belgian Supreme Court. On January 22, 2021, the Belgian Supreme Court partially annulled the judgment of the Court of Appeal of Antwerp. The case was referred to the Court of Appeal of Brussels and is currently pending with this Court which will need to make a new decision on the matter within the boundaries of the annulment by the Belgian Supreme Court. It is likely that it will take the Court of Appeal of Brussels several years to decide on the matter.
No assurance can be given as to the outcome of these or other proceedings. However, an unfavorable outcome of existing
or future proceedings could potentially lead to the annulment of the 2008 PICs Agreement. We do not expect the ultimate resolution of this matter to have a material impact on our results of operations, cash flows or financial position. iNo amounts have been accrued by us with respect to this matter as the likelihood of loss is not considered to be probable.
Telekom Deutschland Litigation. On December 28, 2012, Unitymedia filed a lawsuit
against Telekom Deutschland GmbH (Telekom Deutschland) in which Unitymedia asserted that it pays excessive prices for the co-use of Telekom Deutschland’s cable ducts in Unitymedia’s footprint. The Federal Network Agency approved rates for the co-use of certain ducts of Telekom Deutschland in March 2011. Based in part on these approved rates, Unitymedia sought a reduction of the annual lease fees by approximately five-sixths. In addition, Unitymedia sought the return of similarly calculated overpayments from 2009 through the ultimate settlement date, plus accrued interest. In October 2016, the first instance court dismissed this action, and in March 2018, the court of appeal dismissed Unitymedia’s appeal of the first instance court’s decision. Unitymedia has since successfully appealed the case to the Federal Court of Justice, and proceedings continue before the German courts. The resolution of this matter may take several
years and no assurance can be given that Unitymedia’s claims will be successful. In connection with our sale of our former operations in Germany, Romania, Hungary and the Czech Republic to Vodafone (the Vodafone Disposal Group) in 2019, we will only share in i50% of any amounts recovered, plus i50%
of the net present value of certain cost savings in future periods that are attributable to the favorable resolution of this matter, less i50% of associated legal or other third-party fees paid post-completion of the sale of the Vodafone Disposal Group. Any amount we may recover related to this matter will not be reflected in our consolidated financial statements until such time as the final disposition of this matter has been reached.
43
LIBERTY
GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
Belgium Regulatory Developments. In June 2018, the Belgisch Instituut voor Post en Telecommunicatie and the regional regulators for the media sectors (together, the Belgium Regulatory Authorities) adopted a new decision finding that Telenet has significant market power in the wholesale broadband market (the 2018 Decision). The 2018 Decision imposes on Telenet the obligations to (i) provide third-party operators with access to the digital television platform (including basic digital video and analog video) and (ii)
make available to third-party operators a bitstream offer of broadband internet access (including fixed-line telephony as an option). On May 26, 2020, the Belgium Regulatory Authorities adopted a final decision regarding the “reasonable access tariffs” (the 2020 Decision) that became effective on July 1, 2020. Telenet appealed the 2018 Decision, which was rejected by the Brussels Court of Appeal on September 4, 2019.
The 2020 Decision aims to, and in its application may, strengthen Telenet’s competitors by granting them resale access to Telenet’s network to offer competing products and services notwithstanding Telenet’s substantial historical financial outlays in developing the infrastructure.
In addition, any resale access granted to competitors could (i) limit the bandwidth available to Telenet to provide new or expanded products and services to the customers served by its network and (ii) adversely impact Telenet’s ability to maintain or increase its revenue and cash flows. The extent of any such adverse impacts ultimately will be dependent on the extent that competitors take advantage of the resale access afforded to Telenet’s network, the rates that Telenet receives for such access and other competitive factors or market developments.
Swisscom MVNO Matter. On December 8, 2017, ione
of our subsidiaries, UPC Schweiz GmbH (now Sunrise GmbH (Sunrise)), entered into a mobile virtual network operator (MVNO) agreement with Swisscom (Schweiz) AG (Swisscom), as subsequently amended (the Swisscom MVNO), for the provision of mobile network services to certain of Sunrise’s end customers. In January 2023, Swisscom filed a formal lawsuit against Sunrise, asserting that it is in breach of the Swisscom MVNO and claiming approximately CHF i90
million($i98 million) in damages. No amounts have been accrued by us with respect to this matter, as the likelihood of loss is not considered to be probable at this stage. We believe the assertions in this claim are unsupported and/or exaggerated and intend to vigorously defend this matter.
Other Contingency Matters. In connection with the dispositions of certain of our operations, we provided tax indemnities to the counterparties for certain
tax liabilities that could arise from the period we owned the respective operations, subject to certain thresholds. While we have not received notification from the counterparties for indemnification, it is reasonably possible that we could, and the amounts involved could be significant. No amounts have been accrued by our company as the likelihood of any loss is not considered to be probable. Further, Liberty Global may be entitled to certain amounts that our disposed operations may recover from taxing authorities. Any such amounts will not be reflected in our consolidated financial statements until such time as the final disposition of such matters has been reached.
Other Regulatory Matters. Broadband internet, video distribution, fixed-line telephony, mobile and content businesses
are regulated in each of the countries in which we or our affiliates operate. The scope of regulation varies from country to country, although in some significant respects regulation in European markets is harmonized under the regulatory structure of the European Union (E.U.). Adverse regulatory developments could subject our businesses to a number of risks. Regulation, including conditions imposed on us by competition or other authorities as a requirement to close acquisitions or dispositions, could limit growth, revenue and the number and types of services offered and could lead to increased operating costs and property and equipment additions. Regulation may also restrict our operations and subject them to further competitive pressure, including pricing restrictions, interconnect and other access obligations, and restrictions or controls on content, including content provided by third parties. Failure to comply with
current or future regulation could expose our businesses to various penalties.
In addition to the foregoing items, we have contingent liabilities related to matters arising in the ordinary course of business including (i) legal proceedings, (ii) issues involving VAT and wage, property, withholding and other tax issues and (iii) disputes over interconnection, programming, copyright and channel carriage fees. While we generally expect that the amounts required to satisfy these contingencies will not materially differ from any estimated amounts we have accrued, no assurance can be given that the resolution of one or more of these contingencies will not result in a material impact on our results of operations, cash flows or financial position in any given period. Due, in general, to the complexity of the issues involved and, in certain cases, the lack of a clear basis for predicting outcomes,
we cannot provide a meaningful range of potential losses or cash outflows that might result from any unfavorable outcomes.
44
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
We generally identify our reportable segments as (i) those consolidated subsidiaries that represent 10% or more of our revenue, Adjusted EBITDA (as defined below) or total assets or (ii) those equity method affiliates where our investment or share of revenue or Adjusted EBITDA represents 10% or more of our total assets, revenue or Adjusted EBITDA, respectively. In certain cases, we may elect to include an operating segment in our segment disclosure that does not meet the above-described criteria for a reportable segment. We evaluate performance and make decisions about allocating resources to our operating segments based on financial measures such as revenue and Adjusted EBITDA. In addition, we review non-financial measures such as customer growth, as appropriate.
Adjusted
EBITDA is the primary measure used by our chief operating decision maker to evaluate segment operating performance and is also a key factor that is used by our internal decision makers to (i) determine how to allocate resources to segments and (ii) evaluate the effectiveness of our management for purposes of annual and other incentive compensation plans. As we use the term, “Adjusted EBITDA” is defined as earnings (loss) from continuing operations before net income tax benefit (expense), other non-operating income or expenses, net share of results of affiliates, net gains (losses) on extinguishment of debt, net realized and unrealized gains (losses) due to changes in fair values of certain investments, net foreign currency gains (losses), net gains (losses) on derivative instruments, net interest expense, depreciation and amortization, share-based compensation, provisions and provision releases related to significant litigation
and impairment, restructuring and other operating items. Other operating items include (a) gains and losses on the disposition of long-lived assets, (b) third-party costs directly associated with successful and unsuccessful acquisitions and dispositions, including legal, advisory and due diligence fees, as applicable, and (c) other acquisition-related items, such as gains and losses on the settlement of contingent consideration. Our internal decision makers believe Adjusted EBITDA is a meaningful measure because it represents a transparent view of our recurring operating performance that is unaffected by our capital structure and allows management to (1) readily view operating trends, (2) perform analytical comparisons and benchmarking between segments and (3) identify strategies to improve operating performance in the different countries in which we operate. A reconciliation of earnings or loss from continuing operations to Adjusted EBITDA is presented below.
All of our reportable segments derive their revenue primarily from residential and B2B communications services, including broadband internet, video, fixed-line
telephony and mobile services.
Our “Central and Other” category primarily includes (i) our operations in Slovakia, (ii) services provided to the VMO2 JV, the VodafoneZiggo JV and various third parties related to transitional service agreements, (iii) sales of CPE to the VodafoneZiggo JV and (iv) certain centralized functions, including billing systems, network operations, technology, marketing, facilities, finance and other administrative functions.
We present only the reportable segments of our continuing operations in the tables below.
45
LIBERTY
GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
During the first quarter of 2023, we changed the terms related to, and approach to how we reflect the allocation of, charges for certain products and services that our centrally-managed technology and innovation function (our T&I Function) provide to our consolidated reportable segments (the Tech Framework). These products and services include CPE hardware and related essential software, maintenance, hosting and other services. As a result, our consolidated reportable segments now capitalize the combined cost of the CPE hardware and
essential software as property and equipment additions. The other services, including maintenance and hosting, continue to be reported as operating costs in the period incurred (included in our Adjusted EBITDA). The corresponding amounts charged by our T&I Function are reflected as revenue when earned. The new Tech Framework is a result of internal changes with respect to the way in which our chief operating decision maker evaluates the revenue, Adjusted EBITDA and property and equipment additions of our consolidated reportable segments. Segment information has been revised, as applicable, to reflect these changes. The following table provides a summary of the impact on the revenue, Adjusted EBITDA and property and equipment additions of our consolidated reportable segments and Central and Other.
Increase
(decrease) to property and equipment additions (c):
Switzerland
$
i5.8
$
i5.3
$
i17.0
$
i16.7
Belgium
i7.0
i6.4
i20.8
i20.4
Ireland
i2.6
i2.4
i7.8
i7.6
Central
and Other
i—
i—
i—
i—
Intersegment
eliminations
(i15.4)
(i14.1)
(i45.6)
(i44.7)
Total
$
i—
$
i—
$
i—
$
i—
_______________
(a)Amounts
reflect the revenue recognized within our T&I Function, as well as any applicable markup, related to theTech Framework.
(b)Amounts reflect the charge to each respective consolidated reportable segment related to the service and maintenance component of the Tech Framework and, additionally for Central and Other, the Adjusted EBITDA impact of the value attributed to centrally-held internally developed technology that is embedded within our various CPE, as well as any applicable markup.
(c)Amounts reflect the charge to each respective consolidated reportable segment related to the value attributed to centrally-held internally developed technology that is embedded within our various CPE, as well as any applicable
markup.
/
46
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
During the second quarter of 2023, we determined to market and sell certain of our internally-developed software to third parties. As a result of these strategic and operational changes, from May 2023, proceeds from
the licensing and related sale of products from this internally-developed software (including proceeds generated from our arrangements with the VMO2 JV and the VodafoneZiggo JV) have been, and will continue to be, applied against the net book value of our existing internally-developed capitalized software until that balance is reduced to zero, after which time we will resume recognizing revenue for such licensing and related sale of products. Further, we now expense the costs of development of such software due to the fact that it is now externally marketed to third parties. During the three and nine months ended September 30, 2023, revenue within our Central and Other category was reduced by $i61.5
million and $i92.2 million, respectively, as a result of this change and the associated accounting treatment, including $i33.8
million and $i49.5 million, respectively, from the VMO2 JV and $i19.9 million and $i29.7
million, respectively, from the VodafoneZiggo JV.
Performance Measures of Our Reportable Segments
The amounts presented below represent i100% of each of our reportable segment’s revenue and Adjusted EBITDA. The noncontrolling owners’ interests in the operating results of Telenet, prior to the Telenet Takeover Bid, and other less significant majority-owned subsidiaries
are reflected in net earnings or loss attributable to noncontrolling interests in our condensed consolidated statements of operations. Furthermore, despite only holding a ii50/%
noncontrolling interest in both the VMO2 JV and the VodafoneZiggo JV, we present i100% of the revenue and Adjusted EBITDA of those entities in the tables below. Our share of the operating results of the VMO2 JV and the VodafoneZiggo JV is included in share of results of affiliates, net, in our condensed consolidated statements of operations.
(a)Amounts
have been revised, as applicable, to reflect the retrospective impact of the Tech Framework, as described above.
(b)Amounts primarily relate to (i) the revenue recognized within our T&I Function related to theTech Framework and (ii) for the nine months ended September 30, 2022, transactions between our continuing and discontinued operations.
47
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
(a)Amounts
have been revised, as applicable, to reflect the retrospective impact of the Tech Framework, as described above.
(b)Amounts relate to (i) the Adjusted EBITDA impact to Central and Other of the value attributed to centrally-held internally developed technology that is embedded within our various CPE, as well as any applicable markup, and (ii) for the nine months ended September 30, 2022, transactions between our continuing and discontinued operations.
The following table provides a reconciliation of earnings (loss) from continuing operations to Adjusted EBITDA:
Property and Equipment Additions of our Reportable Segments
i
The property and equipment additions of our reportable segments (including capital additions financed under capital-related vendor
financing or finance lease arrangements) are presented below and reconciled to the capital expenditure amounts included in our condensed consolidated statements of cash flows. For additional information concerning capital additions financed under vendor financing and finance lease arrangements, see notes 8 and 10, respectively.
Assets
acquired under capital-related vendor financing arrangements
(i129.9)
(i142.9)
Assets
acquired under finance leases
(i20.8)
(i25.8)
Changes in current liabilities
related to capital expenditures
i59.2
i8.4
Total
capital expenditures, net
$
i1,016.2
$
i929.3
Property
and equipment additions:
VMO2 JV
$
i1,949.1
$
i2,053.7
VodafoneZiggo
JV
$
i737.8
$
i683.7
_______________
(a)Amounts
have been revised, as applicable, to reflect the retrospective impact of the Tech Framework, as described above.
(b)Includes (i) property and equipment additions representing centrally-owned assets that benefit our operating segments, (ii) the net impact of certain centrally-procured network equipment that is ultimately transferred to our operating segments and (iii) property and equipment additions of our operations in Slovakia.
(c)Amounts reflect the charge under the Tech Framework to each respective consolidated reportable segment related to the value attributed to centrally-held internally developed technology that is embedded within our various CPE, as well as any applicable markup.
/
49
LIBERTY
GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
(a)Residential
fixed subscription revenue includes amounts received from subscribers for ongoing services and the recognition of deferred installation revenue over the associated contract period. Residential fixed non-subscription revenue includes, among other items, channel carriage fees, late fees and revenue from the sale of equipment.
(b)Residential subscription revenue from subscribers who purchase bundled services at a discounted rate is generally allocated proportionally to each service based on the standalone price for each individual service. As a result, changes in the standalone pricing of our fixed and mobile products or the composition of bundles can contribute to changes in our product revenue categories from period to period.
(c)Residential
mobile subscription revenue includes amounts received from subscribers for ongoing services. Residential mobile non-subscription revenue includes, among other items, interconnect revenue and revenue from sales of mobile handsets and other devices.
(d)B2B subscription revenue represents revenue from (i) services provided to small or home office (SOHO) subscribers and (ii) mobile services provided to medium and large enterprises. SOHO subscribers pay a premium price to receive expanded service levels along with broadband internet, video, fixed-line telephony or mobile services that are the same or similar to the mass marketed products offered to our residential subscribers. B2B non-subscription revenue includes (a) revenue from business broadband internet, video, fixed-line telephony and data services offered to medium
and large
/
50
LIBERTY GLOBAL PLC
Notes to Condensed Consolidated Financial Statements — (Continued)
enterprises and, fixed-line and mobile services on a wholesale basis, to other operators and (b) revenue from long-term leases of portions of our network.
(e)Other
revenue includes, among other items, (i) broadcasting revenue in Belgium, Ireland and Switzerland, (ii) revenue earned from the U.K. JV Services and NL JV Services, (iii) revenue earned from the sale of CPE to the VodafoneZiggo JV and (iv) revenue earned from transitional and other services provided to various third parties.
Geographic Segments
i
The revenue of our geographic segments is set forth below:
(a)Revenue
from our other geographic segments relates to (i) our Central functions, most of which are located in the Netherlands and the U.K., and (ii) certain other operations at Telenet, primarily in the U.S. and Luxembourg.
/
51
Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and
analysis, which should be read in conjunction with our consolidated financial statements and the discussion and analysis included in our 10-K, is intended to assist in providing an understanding of our financial condition, changes in financial condition and results of operations and is organized as follows:
•Forward-looking Statements. This section provides a description of certain factors that could cause actual results or events to differ materially from anticipated results or events.
•Overview. This section provides a general description of our business and recent events.
•Material Changes in Results of Operations. This section provides an analysis of
our results of operations for the three and nine months ended September 30, 2023 and 2022.
•Material Changes in Financial Condition. This section provides an analysis of our corporate and subsidiary liquidity and our condensed consolidated statements of cash flows.
The capitalized terms used below have been defined in the notes to our condensed consolidated financial statements. In the following text, the terms “we,”“our,”“our company” and “us” may refer, as the context requires, to Liberty Global or collectively to Liberty Global and its subsidiaries.
Unless
otherwise indicated, convenience translations into U.S. dollars are calculated as of September 30, 2023.
Forward-looking Statements
Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. To the extent that statements in this Quarterly Report are not recitations of historical fact, such statements constitute forward-looking statements, which, by definition, involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. In particular, statements under Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations, Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk and Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds maycontain forward-looking statements, including statements regarding our business, product, foreign currency, hedging and finance strategies, our property and equipment additions, subscriber growth and retention rates, competitive, regulatory and economic factors, the timing and impacts of proposed transactions, the maturity of our markets, the anticipated impacts of new legislation (or changes to existing rules and regulations), anticipated changes in our revenue, costs or growth rates, our liquidity, credit risks, foreign currency risks, interest rate risks, target leverage levels, debt covenants, future projected contractual commitments
and cash flows, our share repurchase program and other information and statements that are not historical fact. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. In evaluating these statements, you should consider the risks and uncertainties discussed in Part I, Item 1A. Risk Factors of our 10-K, as well as the following list of some but not all of the factors that could cause actual results or events (including with respect to our affiliates) to differ materially from anticipated results or events:
•economic and business conditions and industry trends in the
countries in which we or our affiliates operate;
•the competitive environment in the industries and in the countries in which we or our affiliates operate, including competitor responses to our products and services;
•fluctuations in currency exchange rates and interest rates;
•instability in global financial markets, including sovereign debt issues and related fiscal reforms;
•consumer disposable income and spending levels, including the availability and amount of individual consumer debt, as a result of, among other things, inflationary pressures;
•changes in consumer television viewing and mobile and broadband usage preferences
and habits;
•consumer acceptance of our existing service offerings, including our broadband internet, video, fixed-line telephony, mobile and business service offerings, and of new technology, programming alternatives and other products and services that we may offer in the future;
52
•our ability to manage rapid technological changes and the rate at which our current technology becomes obsolete;
•our ability to maintain or increase the number of subscriptions to our broadband internet, video, fixed-line telephony and mobile service offerings and our average revenue per household;
•our
ability to provide satisfactory customer service, including support for new and evolving products and services;
•our ability to maintain or increase rates to our subscribers or to pass through increased costs to our subscribers as a result of, among other things, inflationary pressures;
•the impact of our future financial performance, or market conditions generally, on the availability, terms and deployment of capital;
•changes in, or failure or inability to comply with, government regulations and legislation in the countries in which we or our affiliates operate and adverse outcomes from regulatory proceedings;
•government intervention that requires opening our broadband distribution networks to
competitors, such as certain regulatory obligations imposed in Belgium;
•our ability to obtain regulatory approval and shareholder approval and satisfy other conditions necessary to close acquisitions and dispositions and the impact of conditions imposed by competition and other regulatory authorities in connection with acquisitions, combinations or joint ventures;
•our ability to successfully acquire new businesses or form joint ventures and, if acquired or joined, to integrate, realize anticipated efficiencies from, and implement our business plan with respect to, the businesses we have acquired or joined or that we expect to acquire;
•changes in laws or treaties relating to taxation, or the interpretation thereof, in the U.K., the U.S. or in other countries in
which we or our affiliates operate or are incorporated;
•changes in laws, monetary policies and government regulations that may impact the availability or cost of capital and the derivative instruments that hedge certain of our financial risks;
•our ability to navigate the potential impacts on our business resulting from the U.K.’s departure from the E.U.;
•the ability of suppliers and vendors (including our third-party wireless network provider, Three (Hutchison), under our MVNO arrangement in Ireland) to timely deliver quality products, equipment, software, services and access;
•the availability of attractive programming for our video services and the costs associated with such programming, including
production costs, retransmission and copyright fees payable to public and private broadcasters;
•uncertainties inherent in the development and integration of new business lines and business strategies;
•our ability to adequately forecast and plan future network requirements;
•the availability and cost of capital for the acquisition, maintenance and/or development of telecommunications networks, products and services;
•the availability, cost and regulation of spectrum;
•problems we may discover post-closing with the operations, including the internal controls and financial reporting processes, of businesses we acquire;
•successfully
integrating businesses or operations that we acquire or partner with on the timelines or within the budgets estimated for such integrations;
•operating costs, customer loss and business disruption, including maintaining relationships with employees, customers, suppliers or vendors, may be greater than expected in connection with our acquisitions, dispositions and joint ventures;
•our ability to realize the expected synergies from our acquisitions and joint ventures in the amounts anticipated or on the anticipated timelines;
•our ability to profit from investments, such as our joint ventures, that we do not solely control;
•our ability to anticipate, protect against, mitigate and contain loss of our
and our customers’ data as a result of cyber attacks on us or any of our operating companies;
•the leakage of sensitive customer or company data;
•the outcome of any pending or threatened litigation;
53
•the loss of key employees and the availability of qualified personnel;
•changes in the nature of key strategic relationships with partners and joint venturers;
•our capital structure and factors related to our debt arrangements; and
•events
that are outside of our control, such as political unrest in international markets, terrorist attacks, malicious human acts, natural disasters, epidemics, pandemics (such as COVID-19) and other similar events, including the ongoing invasion of Ukraine by Russia and the Israeli-Palestinian conflict.
The broadband distribution and mobile service industries are changing rapidly and, therefore, the forward-looking statements of expectations, plans and intent in this Quarterly Report are subject to a significant degree of risk. These forward-looking statements and the above-described risks, uncertainties and other factors speak only as of the date of this Quarterly Report, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other
change in events, conditions or circumstances on which any such statement is based. Readers are cautioned not to place undue reliance on any forward-looking statement.
Overview
General
We are an international provider of broadband internet, video, fixed-line telephony and mobile communications services to residential customers and businesses in Europe. Our operations comprise businesses that provide residential and B2B communications services in (i) Switzerland and Slovakia through UPC Holding, (ii) Belgium and Luxembourg through Telenet and (iii) Ireland through VM Ireland. In addition, we own 50%
noncontrolling interests in (a) the VMO2 JV, which provides residential and B2B communications services in the U.K., and (b) the VodafoneZiggo JV, which provides residential and B2B communications services in the Netherlands. We also own (1) a 50% noncontrolling voting interest in the AtlasEdge JV, which is a leading European Edge data center platform, and (2) a 25% noncontrolling interest in the nexfibre JV, which is constructing a new fiber network in the U.K. outside of the existing footprint of the VMO2 JV.
Through March 31, 2022, we provided residential and B2B communications services in Poland through UPC Holding. On April 1, 2022, we completed the sale of our operations in Poland. Accordingly, our operations in Poland are reflected as discontinued operations for all applicable periods.
In the following discussion and analysis, the operating statistics, results of operations, cash flows and financial condition that we present and discuss are those of our continuing operations, unless otherwise indicated. For additional information regarding the sale of UPC Poland, including with respect to our use of proceeds, see note 4 to our condensed consolidated financial statements.
Operations
At September 30, 2023, our continuing operations owned and operated networks that passed 7,916,000 homes and served 4,085,100 fixed-line customers and 5,894,300 mobile subscribers.
Competition and Other External Factors
We
are experiencing competition in all of the markets in which we or our affiliates operate. This competition, together with macroeconomic and regulatory factors, has adversely impacted our revenue, number of customers and/or average monthly subscription revenue per fixed-line customer or mobile subscriber, as applicable (ARPU). For additional information regarding the revenue impact of changes in the fixed-line customers and ARPU of our consolidated reportable segments, see Discussion and Analysis of our Reportable Segments below.
We are subject to inflationary pressures with respect to labor, programming and other operating costs, including energy costs. In this regard, inflation rates in the countries in which we operate have increased, and in most countries such increases
have been significant. While we attempt to increase our revenue to offset increases in costs, there is no assurance that we will be able to do so. Therefore, costs could rise faster than associated revenue, thereby resulting in a negative impact on our operating results, cash flows and liquidity. The economic environment in the respective countries in which we operate is a function of government, economic, fiscal and monetary policies and various other factors beyond our control that could lead to further inflation. We are unable to predict the extent that price levels might be impacted in future periods by the current state of the economies in the countries in which we operate.
54
Material
Changes in Results of Operations
We have completed a number of transactions that impact the comparability of our 2023 and 2022 results of operations, the most notable of which are (i) the sale of UPC Poland on April 1, 2022 and (ii) the Telenet Tower Sale on June 1, 2022. For further information regarding our dispositions, see note 4 to our condensed consolidated financial statements.
In the following discussion, we quantify the estimated impact of material acquisitions (the Acquisition Impact) and dispositions on our operating results. The Acquisition Impact represents our estimate of the difference between the operating results of the periods under comparison
that is attributable to an acquisition. In general, we base our estimate of the Acquisition Impact on an acquired entity’s operating results during the first three to twelve months following the acquisition date, as adjusted to remove integration costs and any other material unusual or nonoperational items, such that changes from those operating results in subsequent periods are considered to be organic changes. Accordingly, in the following discussion, (i) organic variances attributed to an acquired entity during the first 12 months following the acquisition date represent differences between the Acquisition Impact and the actual results and (ii) the calculation of our organic change percentages includes the organic activity of an acquired entity relative to the Acquisition Impact of such entity. With respect to material dispositions, the organic changes that are discussed below reflect adjustments to exclude the historical prior-year results of any disposed entities
to the extent that such entities are not included in the corresponding results for the current-year period.
Changes in foreign currency exchange rates have a significant impact on our reported operating results as all of our operating segments have functional currencies other than the U.S. dollar. Our primary exposure to foreign exchange (FX) risk during the three months ended September 30, 2023 was to the euro and Swiss franc, as 55.9% and 46.3% of our reported revenue during the period was derived from subsidiaries whose functional currencies are the euro and Swiss franc, respectively. In addition, our reported operating results are impacted by changes in the exchange rates for certain other local
currencies in Europe. The portions of the changesin the various components of our results of operations that are attributable to changes in FX are highlighted under Discussion and Analysis of ourReportable Segments and Discussion and Analysis of our Consolidated Operating Results below. For information regarding our foreign currency risks and the applicable foreign currency exchange rates in effect for the periods covered by this Quarterly Report, see Part I, Item 3. Quantitative and Qualitative Disclosures about Market Risk — Foreign Currency Risk below.
The amounts presented and discussed below represent 100% of each of our consolidated reportable
segment’s results of operations. The noncontrolling owners’ interests in the operating results of Telenet, prior to the Telenet Takeover Bid, and other less significant majority-owned subsidiaries are reflected in net earnings or loss attributable to noncontrolling interests in our condensed consolidated statements of operations. Furthermore, despite only holding a 50% noncontrolling interest in both the VMO2 JV and the VodafoneZiggo JV, we present 100% of the revenue and Adjusted EBITDA of those entities in the tables below.
Discussion and Analysis of our Reportable Segments
General
All
of our reportable segments derive their revenue primarily from residential and B2B communications services. For detailed information regarding the composition of our reportable segments and how we define and categorize our revenue components, see note 16 to our condensed consolidated financial statements. For information regarding the results of operations of the VMO2 JV and the VodafoneZiggo JV, refer to Discussion and Analysis of our Consolidated Operating Results — Share of results of affiliates, net below.
The tables presented below in this section provide the details of the revenue and Adjusted EBITDA of our reportable segments for the three and nine months ended September 30, 2023 and 2022. These tables present (i) the amounts reported
for the current and comparative periods, (ii) the reported U.S. dollar change and percentage change from period to period and (iii) with respect to our consolidated reportable segments, the organic U.S. dollar change and percentage change from period to period. For our organic comparisons, which exclude the impact of FX, we assume that exchange rates remained constant at the prior-period rate during all periods presented. We also provide a table showing the Adjusted EBITDA margins of our reportable segments for the three and nine months ended September 30, 2023 and 2022 at the end of this section.
55
Consolidated Adjusted EBITDA is
a non-GAAP measure, which we believe 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 readily view operating trends from a consolidated view. Investors should view consolidated Adjusted EBITDA as a supplement to, and not a substitute for, GAAP measures of performance included in our condensed consolidated statements of operations.
The following table provides a reconciliation ofearnings (loss)from continuing operations to Adjusted EBITDA:
Realized
and unrealized losses (gains) due to changes in fair values of certain investments, net
(71.5)
2.1
344.8
207.4
Foreign currency transaction gains, net
(664.4)
(1,462.7)
(417.9)
(3,186.4)
Realized
and unrealized gains on derivative instruments, net
(177.1)
(546.9)
(193.8)
(1,668.8)
Interest expense
241.4
149.7
656.0
416.8
Operating
income (loss)
(27.4)
108.9
(39.2)
192.2
Impairment, restructuring and other operating items, net
(13.7)
6.4
6.6
74.1
Depreciation
and amortization
584.0
506.0
1,681.8
1,588.4
Share-based compensation expense
54.8
42.7
174.4
143.4
Adjusted
EBITDA
$
597.7
$
664.0
$
1,823.6
$
1,998.1
56
Revenue of our Reportable Segments
General.
While not specifically discussed in the below explanations of the changes in the revenue of our reportable segments, we are experiencing competition in all of our markets. This competition has an adverse impact on our ability to increase or maintain our total number of customers and/or our ARPU.
Variances in the subscription revenue that we receive from our customers are a function of (i) changes in the number of our fixed-line customers or mobile subscribers outstanding during the period and (ii) changes in ARPU. Changes in ARPU can be attributable to (a) changes in prices, (b) changes in bundling or promotional discounts, (c) changes in the tier of services selected, (d) variances in subscriber usage patterns and (e) the overall mix of fixed and mobile products within a segment during the period.
Revenue
Three
months ended September 30,
Increase (decrease)
Organic increase (decrease)
2023
2022 (a)
$
%
$
%
in millions, except percentages
Switzerland
$
859.3
$
789.8
$
69.5
8.8
$
(7.2)
(0.9)
Belgium
775.2
665.1
110.1
16.6
9.0
1.3
Ireland
125.5
116.1
9.4
8.1
—
—
Central
and Other
164.3
238.3
(74.0)
(31.1)
(67.8)
(28.5)
Intersegment eliminations
(69.8)
(63.0)
(6.8)
N.M.
(6.8)
N.M.
Total
$
1,854.5
$
1,746.3
$
108.2
6.2
$
(72.8)
(4.1)
VMO2
JV
$
3,503.8
$
3,042.1
$
461.7
15.2
VodafoneZiggo JV
$
1,125.2
$
1,041.7
$
83.5
8.0
Nine
months ended September 30,
Increase (decrease)
Organic increase (decrease)
2023
2022 (a)
$
%
$
%
in millions, except percentages
Switzerland
$
2,482.9
$
2,377.3
$
105.6
4.4
$
(30.4)
(1.3)
Belgium
2,296.7
2,078.6
218.1
10.5
42.8
1.9
Ireland
372.4
365.4
7.0
1.9
0.4
0.1
Central
and Other
615.0
720.2
(105.2)
(14.6)
(70.8)
(9.8)
Intersegment eliminations
(196.1)
(187.7)
(8.4)
N.M.
(8.4)
N.M.
Total
$
5,570.9
$
5,353.8
$
217.1
4.1
$
(66.4)
(1.2)
VMO2
JV
$
10,058.0
$
9,642.7
$
415.3
4.3
VodafoneZiggo JV
$
3,297.0
$
3,237.3
$
59.7
1.8
_______________
N.M.
— Not Meaningful.
(a)Amounts have been revised, as applicable, to reflect the retrospective impact of the Tech Framework, as further described in note 16 to our condensed consolidated financial statements.
57
Switzerland. The details of theincreasesin Switzerland’s revenue during the three and nine months ended September 30, 2023,
as compared to the corresponding periods in 2022, are set forth below:
Three-month period
Nine-month
period
Subscription revenue
Non-subscription revenue
Total
Subscription revenue
Non-subscription revenue
Total
in millions
Decrease
in residential fixed subscription revenue due to change in:
Average number of customers
$
(2.0)
$
—
$
(2.0)
$
(5.2)
$
—
$
(5.2)
ARPU
(5.2)
—
(5.2)
(33.7)
—
(33.7)
Increase
in residential fixed non-subscription revenue (a)
—
8.4
8.4
—
11.1
11.1
Total increase (decrease) in residential fixed revenue
(7.2)
8.4
1.2
(38.9)
11.1
(27.8)
Increase
(decrease) in residential mobile revenue (b)
8.0
(15.5)
(7.5)
11.6
(21.6)
(10.0)
Increase (decrease) in B2B revenue
0.1
(0.7)
(0.6)
5.7
(0.5)
5.2
Increase
(decrease) in other revenue
—
(0.3)
(0.3)
—
2.2
2.2
Total organic increase (decrease)
0.9
(8.1)
(7.2)
(21.6)
(8.8)
(30.4)
Impact
of acquisitions
2.5
—
2.5
7.6
—
7.6
Impact
of FX
54.4
19.8
74.2
94.0
34.4
128.4
Total
$
57.8
$
11.7
$
69.5
$
80.0
$
25.6
$
105.6
_______________
(a)The
increases in residential fixed non-subscription revenue are primarily attributable to higher revenue from equipment sales.
(b)The increases in residential mobile subscription revenue are primarily attributable to increases in the average number of mobile subscribers. The decreases in residential mobile non-subscription revenue are primarily attributable to lower interconnect revenue.
58
Belgium. The details of the increasesin Belgium’s revenue during the three and nine months ended September 30, 2023,
as compared to the corresponding periods in 2022, are set forth below:
Three-month period
Nine-month
period
Subscription revenue
Non-subscription revenue
Total
Subscription revenue
Non-subscription revenue
Total
in millions
Increase
(decrease) in residential fixed subscription revenue due to change in:
Average number of customers
$
(11.3)
$
—
$
(11.3)
$
(20.7)
$
—
$
(20.7)
ARPU
16.7
—
16.7
29.7
—
29.7
Decrease
in residential fixed non-subscription revenue
—
(2.9)
(2.9)
—
(6.1)
(6.1)
Total increase (decrease) in residential fixed revenue
5.4
(2.9)
2.5
9.0
(6.1)
2.9
Increase
(decrease) in residential mobile revenue (a)
2.8
(0.7)
2.1
15.0
(4.7)
10.3
Increase (decrease) in B2B revenue (b)
5.6
(2.2)
3.4
13.5
10.9
24.4
Increase
in other revenue
—
1.0
1.0
—
5.2
5.2
Total organic increase (decrease)
13.8
(4.8)
9.0
37.5
5.3
42.8
Impact
of acquisitions
5.7
37.3
43.0
18.2
118.1
136.3
Impact of dispositions
—
—
—
(0.1)
(1.5)
(1.6)
Impact
of FX
42.5
15.6
58.1
29.4
11.2
40.6
Total
$
62.0
$
48.1
$
110.1
$
85.0
$
133.1
$
218.1
_____________
(a)The
increases in residential mobile subscription revenue are primarily attributable to increases in ARPU.
(b)The increases in B2B subscription revenue are primarily due to increases in the average number of customers. The increase in B2B non-subscription revenue for the nine-month comparison is primarily attributable to higher revenue from wholesale services.
For information concerning certain regulatory developments that could have an adverse impact on our revenue in Belgium, see Legal and Regulatory Proceedings and Other Contingencies — Belgium Regulatory Developments in note 15 to our condensed consolidated financial statements.
59
Ireland.
The details of the increases in Ireland’s revenue during the three and nine months ended September 30, 2023, as compared to the corresponding periods in 2022, are set forth below:
Three-month
period
Nine-month period
Subscription revenue
Non-subscription revenue
Total
Subscription revenue
Non-subscription revenue
Total
in millions
Increase
(decrease) in residential fixed subscription revenue due to change in:
Average number of customers
$
(3.0)
$
—
$
(3.0)
$
(8.2)
$
—
$
(8.2)
ARPU
0.8
—
0.8
3.1
—
3.1
Decrease
in residential fixed non-subscription revenue
—
(0.1)
(0.1)
—
(0.3)
(0.3)
Total decrease in residential fixed revenue
(2.2)
(0.1)
(2.3)
(5.1)
(0.3)
(5.4)
Increase
(decrease) in residential mobile revenue
0.7
(0.3)
0.4
2.2
(0.4)
1.8
Increase (decrease) in B2B revenue
0.1
0.1
0.2
0.5
(0.3)
0.2
Increase
in other revenue
—
1.7
1.7
—
3.8
3.8
Total organic increase (decrease)
(1.4)
1.4
—
(2.4)
2.8
0.4
Impact
of FX
7.0
2.4
9.4
5.1
1.5
6.6
Total
$
5.6
$
3.8
$
9.4
$
2.7
$
4.3
$
7.0
Programming
and Other Direct Costs of Services, Other Operating Expenses and SG&A Expenses of our Consolidated Reportable Segments
For information regarding the changes in our (i) programming and other direct costs of services, (ii) other operating expenses and (iii) SG&A expenses, see Discussion and Analysis of our Consolidated Operating Results below.
Adjusted EBITDA of our Reportable Segments
Adjusted EBITDA is the primary measure used by our chief operating decision maker to evaluate segment operating performance.
As presented below, consolidated Adjusted EBITDA is a non-GAAP measure, which investors should view as a supplement to, and not a substitute for, GAAP measures of performance included in our condensed consolidated statements of operations. The following table sets forth the Adjusted EBITDA of our reportable segments:
Three
months ended September 30,
Increase (decrease)
Organic decrease
2023
2022 (a)
$
%
$
%
in millions, except percentages
Switzerland
$
311.0
$
292.8
$
18.2
6.2
$
(11.9)
(4.0)
Belgium
339.8
316.6
23.2
7.3
(5.9)
(1.8)
Ireland
45.9
46.3
(0.4)
(0.9)
(3.8)
(7.8)
Central
and Other
(83.6)
22.4
(106.0)
N.M.
(89.7)
N.M.
Intersegment eliminations
(15.4)
(14.1)
(1.3)
N.M.
(1.3)
N.M.
Total
$
597.7
$
664.0
$
(66.3)
(10.0)
$
(112.6)
(16.8)
VMO2
JV
$
1,170.9
$
1,060.5
$
110.4
10.4
VodafoneZiggo JV
$
518.3
$
501.4
$
16.9
3.4
60
Nine
months ended September 30,
Increase (decrease)
Organic increase (decrease)
2023
2022 (a)
$
%
$
%
in millions, except percentages
Switzerland
$
861.1
$
850.3
$
10.8
1.3
$
(42.7)
(5.0)
Belgium
988.7
982.9
5.8
0.6
3.1
0.3
Ireland
134.7
141.9
(7.2)
(5.1)
(9.8)
(6.7)
Central
and Other
(115.3)
68.5
(183.8)
N.M.
(158.2)
N.M.
Intersegment eliminations
(45.6)
(45.5)
(0.1)
N.M.
(0.1)
N.M.
Total
$
1,823.6
$
1,998.1
$
(174.5)
(8.7)
$
(207.7)
(10.4)
VMO2
JV
$
3,335.6
$
3,515.2
$
(179.6)
(5.1)
VodafoneZiggo JV
$
1,474.7
$
1,530.1
$
(55.4)
(3.6)
_______________
N.M.
— Not Meaningful.
(a)Amounts have been revised, as applicable, to reflect the retrospective impact of the Tech Framework, as further described in note 16 to our condensed consolidated financial statements.
Adjusted EBITDA Margin
The following table sets forth the Adjusted EBITDA margins (Adjusted EBITDA divided by revenue) of each of our reportable segments:
(a)Amounts
have been revised, as applicable, to reflect the retrospective impact of the Tech Framework, as further described in note 16 to our condensed consolidated financial statements.
In addition to organic changes in the revenue, operating and SG&A expenses of our reportable segments, the Adjusted EBITDA margins presented above include the impact of acquisitions, as applicable. For discussion of the factors contributing to the changes in the Adjusted EBITDA margins of our consolidated reportable segments, see the analysis of our revenue included in Discussion and Analysis of our Reportable Segments above and the analysis of our expenses included in Discussion and Analysis of our Consolidated Operating Results below. For discussion of the factors contributing to the changes in the Adjusted EBITDA
margins of the VMO2 JV and the VodafoneZiggo JV, see Discussion and Analysis of our Consolidated Operating Results — Share of results of affiliates, net below.
61
Discussion and Analysis of our Consolidated Operating Results
General
For more detailed explanations of the changes in our revenue, see Discussion and Analysis of
our Reportable Segments above.
Revenue
Our revenue by major category is set forth below:
Three
months ended September 30,
Increase (decrease)
Organic increase (decrease)
2023
2022
$
%
$
%
in millions, except percentages
Residential
revenue:
Residential fixed revenue (a):
Subscription revenue (b):
Broadband
internet
$
385.6
$
336.1
$
49.5
14.7
$
17.3
5.1
Video
276.6
261.3
15.3
5.9
(13.2)
(4.9)
Fixed-line
telephony
91.2
91.6
(0.4)
(0.4)
(7.9)
(8.6)
Total subscription revenue
753.4
689.0
64.4
9.3
(3.8)
(0.5)
Non-subscription
revenue
18.3
11.7
6.6
56.4
5.4
45.4
Total residential fixed revenue
771.7
700.7
71.0
10.1
1.6
0.2
Residential
mobile revenue (c):
Subscription revenue (b)
401.4
356.5
44.9
12.6
11.5
3.2
Non-subscription
revenue
119.8
126.8
(7.0)
(5.5)
(17.0)
(13.4)
Total residential mobile revenue
521.2
483.3
37.9
7.8
(5.5)
(1.1)
Total
residential revenue
1,292.9
1,184.0
108.9
9.2
(3.9)
(0.3)
B2B revenue (d):
Subscription
revenue
144.6
127.4
17.2
13.5
5.9
4.6
Non-subscription revenue
234.8
214.0
20.8
9.7
(7.9)
(3.6)
Total
B2B revenue
379.4
341.4
38.0
11.1
(2.0)
(0.6)
Other revenue (e)
182.2
220.9
(38.7)
(17.5)
(66.9)
(26.5)
Total
$
1,854.5
$
1,746.3
$
108.2
6.2
$
(72.8)
(4.1)
62
Nine
months ended September 30,
Increase (decrease)
Organic increase (decrease)
2023
2022
$
%
$
%
in millions, except percentages
Residential
revenue:
Residential fixed revenue (a):
Subscription revenue (b):
Broadband
internet
$
1,111.0
$
1,037.5
$
73.5
7.1
$
33.1
3.2
Video
822.5
817.2
5.3
0.6
(41.1)
(4.9)
Fixed-line
telephony
273.3
291.1
(17.8)
(6.1)
(26.2)
(9.0)
Total subscription revenue
2,206.8
2,145.8
61.0
2.8
(34.2)
(1.6)
Non-subscription
revenue
43.8
36.7
7.1
19.3
4.6
12.3
Total residential fixed revenue
2,250.6
2,182.5
68.1
3.1
(29.6)
(1.3)
Residential
mobile revenue (c):
Subscription revenue (b)
1,133.5
1,056.7
76.8
7.3
28.8
2.7
Non-subscription
revenue
374.2
387.9
(13.7)
(3.5)
(27.7)
(7.1)
Total residential mobile revenue
1,507.7
1,444.6
63.1
4.4
1.1
0.1
Total
residential revenue
3,758.3
3,627.1
131.2
3.6
(28.5)
(0.8)
B2B revenue (d):
Subscription
revenue
418.9
387.6
31.3
8.1
19.8
5.1
Non-subscription revenue
688.9
644.7
44.2
6.9
9.4
1.4
Total
B2B revenue
1,107.8
1,032.3
75.5
7.3
29.2
2.8
Other revenue (e)
704.8
694.4
10.4
1.5
(67.1)
(8.4)
Total
$
5,570.9
$
5,353.8
$
217.1
4.1
$
(66.4)
(1.2)
_______________
(a)Residential
fixed subscription revenue includes amounts received from subscribers for ongoing services and the recognition of deferred installation revenue over the associated contract period. Residential fixed non-subscription revenue includes, among other items, channel carriage fees, late fees and revenue from the sale of equipment.
(b)Residential subscription revenue from subscribers who purchase bundled services at a discounted rate is generally allocated proportionally to each service based on the standalone price for each individual service. As a result, changes in the standalone pricing of our fixed and mobile products or the composition of bundles can contribute to changes in our product revenue categories from period to period.
(c)Residential
mobile subscription revenue includes amounts received from subscribers for ongoing services. Residential mobile non-subscription revenue includes, among other items, interconnect revenue and revenue from sales of mobile handsets and other devices. Residential mobile interconnect revenue was $28.0 million and$32.8 million during the three months ended September 30, 2023 and 2022, respectively, and $88.5 million and $106.9 million during the nine months ended September 30, 2023 and 2022, respectively.
(d)B2B subscription revenue represents revenue from (i) services provided to SOHO subscribers and (ii) mobile services
provided to medium and large enterprises. SOHO subscribers pay a premium price to receive expanded service levels along with broadband internet, video, fixed-line telephony or mobile services that are the same or similar to the mass marketed products offered to our residential subscribers. A portion of thechange in our B2B subscription revenue is attributable to the conversion of certain residential subscribers to SOHO subscribers.B2B non-subscription revenue includes (a) revenue from business broadband internet, video, fixed-line telephony and data services offered to medium and large enterprises and, fixed-line and mobile services on a wholesale basis, to other operators and (b) revenue from long-term leases of portions of our network.
63
(e)Other
revenue includes, among other items, (i) broadcasting revenue in Belgium, Ireland and Switzerland, (ii) revenue earned from the U.K. JV Services and NL JV Services, (iii) revenue earned from the sale of CPE to the VodafoneZiggo JV and (iv) revenue earned from transitional and other services provided to various third parties.
Total revenue. Our consolidated revenue increased $108.2 million or 6.2% and $217.1 million or 4.1% during the three and nine months ended September 30, 2023, respectively, as compared to the corresponding periods in 2022. These increases include increases of $45.5 million and $143.9 million, respectively, attributable to the impact of acquisitions. On an organic basis, our consolidated revenuedecreased $72.8 million or 4.1% and $66.4 million
or 1.2%, respectively.
Residential revenue. The details of the increases in our consolidated residential revenue during the three and nine months ended September 30, 2023, as compared to the corresponding periods in 2022, are as follows:
Three-month period
Nine-month period
in millions
Increase
(decrease) in residential fixed subscription revenue due to change in:
Average number of customers
$
(17.1)
$
(36.2)
ARPU
13.3
2.0
Increase in residential fixed non-subscription revenue
5.4
4.6
Total
increase (decrease) in residential fixed revenue
1.6
(29.6)
Increase in residential mobile subscription revenue
11.5
28.8
Decrease in residential mobile non-subscription revenue
(17.0)
(27.7)
Total organic decrease in residential revenue
(3.9)
(28.5)
Impact
of acquisitions and dispositions
8.4
26.4
Impact of FX
104.4
133.3
Total increase in residential revenue
$
108.9
$
131.2
On an organic basis, our consolidated residential
fixed subscription revenuedecreased $3.8 million or 0.5%and $34.2 million or 1.6% during the three and nine months ended September 30, 2023, respectively, as compared to the corresponding periods in 2022, primarily attributable to decreases in Switzerland.
On an organic basis, our consolidated residential fixed non-subscription revenue increased $5.4 million or 45.4% and $4.6 million or 12.3% during the three and nine months ended September 30, 2023, respectively, as compared to the corresponding periods in 2022, primarily due to the net effect of (i) increases in Switzerland and (ii) decreases in Belgium.
On
an organic basis, our consolidated residential mobile subscription revenueincreased $11.5 million or 3.2% and $28.8 million or 2.7% during the three and nine months ended September 30, 2023, respectively, as compared to the corresponding periods in 2022, primarily attributable to increases in Belgium and Switzerland.
On an organic basis, our consolidated residential mobile non-subscription revenue decreased $17.0 million or 13.4% and $27.7 million or 7.1% during the three and nine months ended September 30, 2023, respectively, as compared to the corresponding periods in 2022, primarily attributable to decreases in Switzerland.
B2B
revenue. On an organic basis, our consolidated B2B subscription revenue increased $5.9 million or 4.6% and $19.8 million or 5.1% during the three and nine months ended September 30, 2023, respectively, as compared to the corresponding periods in 2022,primarily due to increases in Belgium.
On an organic basis, our consolidated B2B non-subscription revenueincreased (decreased) ($7.9 million) or (3.6%) and $9.4 million or 1.4% during the three and nine months ended September 30, 2023, respectively, as compared to the corresponding periods in 2022, primarily attributable to changes in Belgium.
Other
revenue. On an organic basis, our consolidated other revenue decreased $66.9 million or 26.5% and $67.1 million or 8.4% during the three and nine months ended September 30, 2023, respectively, as compared to the corresponding periods in 2022, primarily due to the net effect of (i) decreases in revenue earned from the U.K. JV Services and NL JV Services, (ii)
64
higher broadcasting revenue in Belgium, Ireland and Switzerland and (iii) increases in Central and Other related to revenue earned from the sale of CPE to the VodafoneZiggo JV.
For additional information regarding the changes in our residential, B2B and other
revenue, see Discussion and Analysis of our Reportable Segments above.
Programming and other direct costs of services
Programming and other direct costs of services include programming and copyright costs, interconnect and access costs, costs of mobile handsets and other devices and other direct costs related to our operations, including costs associated with our transitional service agreements. Programming and copyright costs represent a significant portion of our operating costs and are subject to rise in future periods due to various factors, including (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 and (ii) rate increases.
The details of our programming and other direct costs of services are as follows:
Three
months ended September 30,
Increase (decrease)
Organic increase (decrease)
2023
2022 (a)
$
%
$
%
in millions, except percentages
Switzerland
$
270.0
$
246.1
$
23.9
9.7
$
5.1
2.1
Belgium
186.6
141.9
44.7
31.5
0.3
0.2
Ireland
33.9
29.2
4.7
16.1
2.1
7.2
Central
and Other
85.7
92.2
(6.5)
(7.0)
(6.0)
(6.5)
Intersegment eliminations
(26.2)
(25.1)
(1.1)
N.M.
(1.1)
N.M.
Total
$
550.0
$
484.3
$
65.7
13.6
$
0.4
0.1
Nine
months ended September 30,
Increase (decrease)
Organic increase (decrease)
2023
2022 (a)
$
%
$
%
in millions, except percentages
Switzerland
$
786.4
$
734.8
$
51.6
7.0
$
25.2
3.5
Belgium
582.5
465.2
117.3
25.2
6.1
1.1
Ireland
102.8
97.4
5.4
5.5
3.8
3.9
Central
and Other
273.4
271.4
2.0
0.7
15.1
5.6
Intersegment eliminations
(68.7)
(67.1)
(1.6)
N.M.
(1.6)
N.M.
Total
$
1,676.4
$
1,501.7
$
174.7
11.6
$
48.6
3.1
_______________
N.M.
— Not Meaningful.
(a)Amounts have been revised, as applicable, to reflect the retrospective impact of the Tech Framework, as further described in note 16 to our condensed consolidated financial statements.
Our programming and other direct costs of services increased $65.7 million or 13.6% and$174.7 million or 11.6%during the three and nine months ended September 30, 2023, respectively, as compared to the corresponding periods in 2022. These increases include increases of $26.0 million and $88.5 million, respectively, attributable to the impact of acquisitions. On an organic basis, our programming and other direct costs of servicesincreased $0.4 million or 0.1%and$48.6 million or 3.1%,respectively. These increases include the following factors:
•An increase (decrease) in costs of ($3.1 million) and $12.1 million, respectively, in Central and Other related to the sale of CPE to the VodafoneZiggo JV;
65
•Increases in programming and copyright costs of $6.0 million or 5.2% and $7.7 million or 1.9%, respectively, attributable to higher costs for certain premium and/or
basic content, primarily in Belgium and Ireland;
•For the nine-month comparison, an increase in mobile handset and other device costs of $2.7 million or 1.3%, primarily due to an increase in Belgium as a result of higher sales volumes and higher average costs per handset sold; and
•For the three-month comparison, a decrease in interconnect and access costs of $8.0 million or 11.3%, primarily due to the net effect of (i) lower interconnect and mobile roaming costs, primarily in Belgium and Switzerland, and (ii) higher lease and B2B data costs, primarily in Switzerland.
Other operating expenses
Other
operating expenses include network operations, customer operations, customer care, share-based compensation and other costs related to our operations. We do not include share-based compensation in the following discussion and analysis of the other operating expenses of our consolidated reportable segments as share-based compensation expense is not included in the performance measures of our consolidated reportable segments. Share-based compensation expense is separately discussed further below.
The details of our other operating expenses are as follows:
Three
months ended September 30,
Increase (decrease)
Organic increase (decrease)
2023
2022 (a)
$
%
$
%
in millions, except percentages
Switzerland
$
127.0
$
121.2
$
5.8
4.8
$
(6.0)
(4.9)
Belgium
134.4
113.5
20.9
18.4
7.2
6.1
Ireland
31.4
26.0
5.4
20.8
3.1
11.9
Central
and Other
69.2
36.7
32.5
88.6
26.9
73.3
Intersegment eliminations
(25.7)
(22.8)
(2.9)
N.M.
(2.9)
N.M.
Total
other operating expenses excluding share-based compensation expense
336.3
274.6
61.7
22.5
$
28.3
10.1
Share-based compensation expense
1.6
1.0
0.6
60.0
Total
$
337.9
$
275.6
$
62.3
22.6
66
Nine
months ended September 30,
Increase (decrease)
Organic increase (decrease)
2023
2022 (a)
$
%
$
%
in millions, except percentages
Switzerland
$
379.2
$
352.7
$
26.5
7.5
$
5.2
1.5
Belgium
381.5
331.0
50.5
15.3
12.2
3.4
Ireland
92.3
81.1
11.2
13.8
9.5
11.7
Central
and Other
167.9
109.1
58.8
53.9
55.1
50.5
Intersegment eliminations
(63.2)
(61.2)
(2.0)
N.M.
(2.0)
N.M.
Total
other operating expenses excluding share-based compensation expense
957.7
812.7
145.0
17.8
$
80.0
9.5
Share-based compensation expense
6.4
3.4
3.0
88.2
Total
$
964.1
$
816.1
$
148.0
18.1
_______________
N.M.
— Not Meaningful.
(a)Amounts have been revised, as applicable, to reflect the retrospective impact of the Tech Framework, as further described in note 16 to our condensed consolidated financial statements.
Our other operating expenses (exclusive of share-based compensation expense) increased $61.7 million or 22.5%and$145.0 million or 17.8% during the three and nine months ended September 30, 2023, respectively, as compared to the corresponding periods in 2022. These increases include increases of $4.7 million and $13.1 million, respectively, attributable to the impact of acquisitions. On an organic basis, our other operating expenses increased
$28.3 million or 10.1% and $80.0 million or 9.5%, respectively. Theseincreases include the following factors:
•Increases in service delivery platform costs of $26.0 million or 91.3% and $30.0 million or 34.2%, respectively, primarily related to higher CPE software costs in Central and Other;
•Increases in personnel costs of $10.5 million or 14.5% and $22.9 million or 9.3%, respectively, primarily due to (i) higher average costs per employee, primarily in Belgium and Central and Other, that were only partially offset by lower average costs per employee in Switzerland, (ii) higher costs due to lower capitalizable activities, primarily in Central and Other, and (iii) higher staffing levels, primarily in Switzerland;
•For
the nine-month comparison, an increase in business service costs of $14.7 million or 12.5%, primarily due to higher energy costs in Belgium and Switzerland;
•Increases in outsourced labor costs of $3.4 million or 14.4% and $11.6 million or 17.3%, respectively, primarily associated with customer facing activities in Belgium and Switzerland;
•For the nine-month comparison, a $11.2 million decrease in costs in Belgium associated with the one-time benefit from expected settlements of certain operational contingencies during the second quarter of 2023;
•Increases in customer service costs of $4.6 million or 14.5% and $7.3 million or 7.1%, respectively,
primarily related to higher call center costs in Belgium;
•For the three-month comparison, a decrease in core network and information technology-related costs of $5.6 million or 8.0%, due to the net effect of (i) lower leased bandwidth and outsourced data center costs in Belgium and Switzerland and (ii) higher technology-related expenses in Ireland that were only partially offset by lower expenses in Central and Other; and
•For the nine-month comparison, a decrease in other operating expenses due to $4.5 million recognized in Switzerland associated with the sale of certain handset receivables in the second quarter of 2022. The expense recognized represents the difference between the carrying amount of the associated receivables and the amount received
pursuant to the sale.
67
SG&A expenses
SG&A expenses include human resources, information technology, general services, management, finance, legal, external sales and marketing costs, share-based compensation and other general expenses. We do not include share-based compensation in the following discussion and analysis of the SG&A expenses of our consolidated reportable segments as share-based compensation expense is not included in the performance measures of our consolidated reportable segments. Share-based compensation expense is separately discussed further below.
The
details of our SG&A expenses are as follows:
Three months ended September 30,
Increase
(decrease)
Organic increase (decrease)
2023
2022 (a)
$
%
$
%
in millions, except percentages
Switzerland
$
151.3
$
129.7
$
21.6
16.7
$
5.6
4.2
Belgium
114.4
93.1
21.3
22.9
7.4
7.5
Ireland
14.3
14.6
(0.3)
(2.1)
(1.4)
(9.6)
Central
and Other
93.0
87.0
6.0
6.9
1.0
1.1
Intersegment eliminations
(2.5)
(1.0)
(1.5)
N.M.
(1.5)
N.M.
Total
SG&A expenses excluding share-based compensation expense
370.5
323.4
47.1
14.6
$
11.1
3.3
Share-based compensation expense
53.2
41.7
11.5
27.6
Total
$
423.7
$
365.1
$
58.6
16.1
Nine
months ended September 30,
Increase (decrease)
Organic increase (decrease)
2023
2022 (a)
$
%
$
%
in millions, except percentages
Switzerland
$
456.2
$
439.5
$
16.7
3.8
$
(18.1)
(4.0)
Belgium
344.0
299.5
44.5
14.9
21.4
6.8
Ireland
42.6
45.0
(2.4)
(5.3)
(3.1)
(6.9)
Central
and Other
289.0
271.2
17.8
6.6
17.2
6.3
Intersegment eliminations
(18.6)
(13.9)
(4.7)
N.M.
(4.7)
N.M.
Total SG&A expenses excluding share-based compensation expense
1,113.2
1,041.3
71.9
6.9
$
12.7
1.2
Share-based compensation expense
168.0
140.0
28.0
20.0
Total
$
1,281.2
$
1,181.3
$
99.9
8.5
_______________
N.M.
— Not Meaningful.
(a)Amounts have been revised, as applicable, to reflect the retrospective impact of the Tech Framework, as further described in note 16 to our condensed consolidated financial statements.
68
Supplemental SG&A expense information
Three
months ended September 30,
Increase (decrease)
Organic increase (decrease)
2023
2022
$
%
$
%
in millions, except percentages
General
and administrative (a)
$
295.2
$
248.0
$
47.2
19.0
$
16.6
6.5
External sales and marketing
75.3
75.4
(0.1)
(0.1)
(5.5)
(7.2)
Total
$
370.5
$
323.4
$
47.1
14.6
$
11.1
3.3
Nine
months ended September 30,
Increase
Organic increase (decrease)
2023
2022
$
%
$
%
in millions, except percentages
General
and administrative (a)
$
876.1
$
816.3
$
59.8
7.3
$
18.7
2.2
External sales and marketing
237.1
225.0
12.1
5.4
(6.0)
(2.6)
Total
$
1,113.2
$
1,041.3
$
71.9
6.9
$
12.7
1.2
_______________
(a)General
and administrative expenses include all personnel-related costs within our SG&A expenses, including personnel-related costs associated with our sales and marketing function.
Our SG&A expenses (exclusive of share-based compensation expense)increased $47.1 million or 14.6%and$71.9 million or 6.9% during the three and nine months ended September 30, 2023, respectively, as compared to the corresponding periods in 2022. These increases include increases of $7.9 million and $28.9 million, respectively, attributable to the impact of acquisitions. On an organic basis, our SG&A expenses increased $11.1 million or 3.3% and $12.7 million or 1.2%, respectively. These increases include the following
factors:
•Increases in personnel costs of $14.9 million or 10.2% and $23.8 million or 4.9%, respectively, primarily due to the net effect of (i) higher average costs per employee, primarily in Belgium and Central and Other, (ii) increases in incentive compensation costs in Central and Other and Switzerland and (iii) lower costs due to higher capitalizable activities, primarily in Switzerland;
•For the nine-month comparison, an increase in business service costs of $11.7 million or 8.6%, primarily due to higher (i) consulting costs in Switzerland and Central and Other and (ii) travel and entertainment costs in Central and Other;
•Decreases in core
network and information technology-related costs of $4.8 million or 14.6% and $7.3 million or 7.4%, respectively, primarily due to lower technology-related expenses in Central and Other and Switzerland that were only partially offset by higher technology-related expenses in Belgium; and
•Decreases in external sales and marketing costs of $5.5 million or 7.2% and $6.0 million or 2.6%, respectively, primarily due to lower costs associated with advertising campaigns in Switzerland and Belgium.
69
Share-based
compensation expense
Our share-based compensation expense primarily relates to the share-based incentive awards issued by Liberty Global to its employees and employees of its subsidiaries. A summary of our aggregate share-based compensation expense is set forth below:
(a)In
April 2023, the compensation committee of our board of directors approved the extension of the expiration dates of outstanding SARs and director options granted in 2016 through 2018 from a seven-year term to a ten-year term. Accordingly, the Black-Scholes fair values of the outstanding awards increased, resulting in the recognition of an aggregate incremental share-based compensation expense of $27.1 million during the second quarter of 2023.
(b)The 2022 amount includes share-based compensation expense related to our 2019 Challenge Performance Awards.
(c)Represents annual incentive compensation and defined contribution plan liabilities that have been or are expected to be settled with Liberty Global ordinary shares. In the case of annual incentive compensation,
shares have been or will be issued to senior management and key employees pursuant to a shareholding incentive program. The shareholding incentive program allows these employees to elect to receive up to 100% of their annual incentive compensation in ordinary shares of Liberty Global in lieu of cash.
For additional information regarding our share-based compensation expense, see note 13 to our condensed consolidated financial statements.
Depreciation and amortization expense
Our depreciation and amortization expense was $584.0 million and $1,681.8 million for the three and nine months ended September
30, 2023, respectively, and $506.0 million and $1,588.4 million for the three and nine months ended September 30, 2022, respectively. Excluding the effects of FX, depreciation and amortization expense increased $31.8 million or 6.3% and $37.3 million or 2.3% during the three and nine months ended September 30, 2023, respectively, as compared to the corresponding periods in 2022. These increases are primarily due to the net effect of (i) decreases associated with certain assets becoming fully depreciated, primarily in Central and Other and Switzerland, (ii) increases associated with property and equipment additions, the expansion and upgrade of our networks and other capital initiatives, primarily in Central and Other, Switzerland and Belgium, and (iii) increases associated with acquisitions, primarily in Belgium and Switzerland. For additional information regarding
our recent acquisitions, see note 4 to our condensed consolidated financial statements.
70
Impairment, restructuring and other operating items, net
We recognized impairment, restructuring and other operating items, net, of ($13.7 million) and $6.6 million during the three and nine months ended September 30, 2023, respectively and $6.4 million and $74.1 million during the three and nine months ended September 30, 2022, respectively.
The amounts for the 2023 periods include (i) direct acquisition and disposition costs of $4.2 million and $25.7 million, respectively, primarily in Belgium and Central and Other, (ii) restructuring costs of $3.3 million and $24.4 million, respectively, primarily in Switzerland and Belgium, (iii) a $21.3 million credit to abandoned lease expense in Switzerland during the second quarter of 2023, and (iv) a $19.2 million credit related to a settlement in Switzerland during the third quarter of 2023.
The amounts for the 2022 periods include (i) a $39.6 million provision in Central and Other during the second quarter of 2022 related to a legal contingency, (ii) direct acquisition and disposition costs of $2.8 million and $16.5 million, respectively, primarily in Belgium, and (iii) abandoned lease expense
of $0.6 million and $14.2 million, respectively, primarily in Switzerland.
If, among other factors, (i) our equity values were to decline or (ii) the adverse impacts of economic, competitive, regulatory or other factors were to cause our results of operations or cash flows to be worse than anticipated, we could conclude in future periods that impairment charges are required in order to reduce the carrying values of our goodwill and, to a lesser extent, other long-lived assets. Any such impairment charges could be significant.
Interest expense
We recognized interest expense of $241.4 millionand $656.0 million during the three and nine months ended September 30, 2023, respectively, and $149.7 millionand $416.8 million during the three and nine months ended September 30, 2022, respectively. Excluding the effects of FX, interest expense increased $74.1 million or 49.5% and $225.3 million or 54.1% during the three and nine months ended September 30, 2023, respectively, as compared to the corresponding periods in 2022. These increases are primarily attributable to higher weighted average interest rates. For additional information regarding our outstanding indebtedness, see note 9 to our condensed consolidated financial statements.
It is possible that the interest
rates on (i) any new borrowings could be higher than the current interest rates on our existing indebtedness and (ii) our variable-rate indebtedness could increase in future periods. As further discussed in note 6 to our condensed consolidated financial statements and under Quantitative and Qualitative Disclosures about Market Risk below, we use derivative instruments to manage our interest rate risks.
Realized and unrealizedgains on derivative instruments, net
Our realized and unrealized gains or losses on derivative instruments include (i) unrealized changes in the fair values of our
derivative instruments that are non-cash in nature until such time as the derivative contracts are fully or partially settled and (ii) realized gains or losses upon the full or partial settlement of the derivative contracts. The details of our realized and unrealized gains on derivative instruments, net, are as follows:
(a)The
recurring fair value measurements of our equity-related derivative instruments are based on Black-Scholes pricing models.
71
(b)Thegainsfor the 2023 periods are primarily attributable to the net effect of (i) a net loss for the three-month period and a net gain for the nine-month period associated with certain market interest rates and (ii) a net gain for the three-month period and a net loss for the nine-month period associated with the relative value of certain currencies. In addition, thegainsfor the 2023 periods
includeanet gain (loss)of ($6.9 million)and $15.3 million, respectively,resulting from changes in our credit risk valuation adjustments.The gains for the 2022 periods are attributable to netgains associated with changes in (a) certain market interest rates and (b) the relative value of certain currencies. In addition, the gains for the 2022 periods include net losses of $16.3 million and $7.0 million, respectively, resulting from changes in our credit risk valuation adjustments.
For additional information concerning our derivative instruments, see
notes 6 and 7 to our condensed consolidated financial statements and Part I, Item 3. Quantitative and Qualitative Disclosures about Market Risk below.
Foreign currency transaction gains, net
Our foreign currency transaction gains or losses primarily result from the remeasurement of monetary assets and liabilities that are denominated in currencies other than the underlying functional currency of the applicable entity. Unrealized foreign currency transaction gains or losses are computed based on period-end exchange rates and are non-cash in nature until such time as the amounts are settled. The details of our foreign currency transaction
gains, net, are as follows:
Intercompany balances denominated in a currency other than the entity’s functional currency (a)
$
897.7
$
1,956.6
$
502.0
$
4,280.6
U.S.
dollar-denominated debt issued by euro functional currency entities
(238.8)
(516.4)
(89.6)
(1,160.1)
Cash and restricted cash denominated in a currency other than the entity’s functional currency
4.8
25.9
9.6
72.4
Other
0.7
(3.4)
(4.1)
(6.5)
Total
$
664.4
$
1,462.7
$
417.9
$
3,186.4
_______________
(a)Amounts
primarily relate to (i) loans between certain of our non-operating subsidiaries in Europe and (ii) loans between certain of our non-operating and operating subsidiaries in Europe, which generally are denominated in the currency of the applicable operating subsidiary.
72
Realized and unrealized gains (losses) due to changes in fair values of certain investments, net
Our
realized and unrealized gains or losses due to changes in fair values of certain investments include unrealized gains or losses associated with changes in fair values that are non-cash in nature until such time as these gains or losses are realized through cash transactions. For additional information regarding our investments and fair value measurements, see notes 5 and 7, respectively, to our condensed consolidated financial statements. The details of our realized and unrealized gains (losses) due to changes in fair values of certain investments, net, are as follows:
(a)The
nine-month periods include gains of $8.0 million and $12.0 million, respectively, related to investments that were sold during the second quarter of 2023 and 2022.
Share of results of affiliates, net
The following table sets forth the details of our share of resultsof affiliates, net:
(a)Represents
(i) our 50% share of the results of operations of the VMO2 JV and (ii) 100% of the share-based compensation expense associated with Liberty Global awards granted to VMO2 JV employees who were formerly employees of Liberty Global prior to the VMO2 JV formation, as these awards remain our responsibility. The summarized results of operations of the VMO2 JV are set forth below:
(1)Includes
interest expense of $394.6 million, $260.0 million, $1,087.2 million and $732.3 million, in the respective periods shown.
The changes in the VMO2 JV’s revenue during the three and nine months ended September 30, 2023, as compared to the corresponding periods in 2022, are primarily due to the net effect of (i) increases in other revenue due to the construction agreement with the nexfibre JV, (ii) increases in mobile revenue, (iii) decreases in residential fixed revenue and (iv) a one-time increase of $48 million in other revenue due to a change in the contract terms with a related-party supplier, with each revenue category as defined and reported by the VMO2 JV. The changes in the VMO2 JV’s Adjusted EBITDA during the three and nine months ended
September 30, 2023, as compared to the corresponding periods in 2022, are primarily due to the net effect of (a) the realization of synergies, (b) consumer price rises, (c) higher energy costs and (d) the aforementioned one-time revenue increase partially offset by a $35 million benefit in the third quarter of 2022 due to the resolution of a legal matter. In addition, the reported revenue and Adjusted EBITDA amounts are impacted by FX.
(b)Represents (i) our 50% share of the results of operations of the VodafoneZiggo JV and (ii) interest income of $14.0 million, $12.9 million, $41.4 million and $40.7 million, in the respective periods shown, representing 100% of the interest earned on the VodafoneZiggo JV Receivables. The summarized results of operations of the VodafoneZiggo JV are set forth below:
(1)Includes
interest expense of $205.2 million, $148.8 million, $581.6 million and $436.0 million, in the respective periods shown.
The changes in the VodafoneZiggo JV’s revenue during the three and nine months ended September 30, 2023, as compared to the corresponding periods in 2022, are primarily due to (i) increases in B2B fixed revenue and (ii) increases in residential mobile revenue. The changes in the VodafoneZiggo JV’s Adjusted EBITDA during the three and nine months ended September 30, 2023, as compared to the corresponding periods in 2022, are primarily due to inflation-related increases in energy and staff costs. In addition, the reported revenue and Adjusted EBITDA amounts are impacted by FX.
Gain
associated with the Telenet Wyre Transaction
In connection with the Telenet Wyre Transaction, we recognized a net gain of $377.8 million during the nine months ended September 30, 2023.For additional information, see note 4 to our condensed consolidated financial statements.
74
Gain on Telenet Tower Sale
In connection with the Telenet Tower Sale, we
recognized a pre-tax gain of $700.4 million during the nine months ended September 30, 2022.For additional information, see note 4 to our condensed consolidated financial statements.
Otherincome, net
We recognized other income, net, of $39.8 million and $21.7 million during the three months ended September 30, 2023and 2022, respectively, and $159.5 million and $63.0 million during the nine
months ended September 30, 2023 and 2022, respectively. These amounts primarily include (i) interest and dividend income of $36.5 million and $16.3 million during the three-month periods, respectively, and $140.7 million and $41.7 million during the nine-month periods, respectively, and (ii) credits related to the non-service component of our net periodic pension costs of $6.4 million and $8.5 million during the three-month periods, respectively, and $15.8 million and $25.8 million during the nine-month periods, respectively.
Income tax benefit (expense)
We recognized income tax benefit
(expense) of $1.7 million and ($64.8 million) during the three months ended September 30, 2023 and 2022, respectively.
The income tax benefit during the three months ended September 30, 2023 differs from the expected income tax expense of $193.0 million (based on the U.K. blended income tax rate of 23.5%), primarily due to the positive impact of non-deductible or non-taxable foreign currency exchange results.
The income tax expense during the three months ended September 30, 2022 differs from the expected income tax expense of $474.3 million (based on the U.K. statutory income tax rate of 19.0%), primarily
due to the positive impact of (i) non-deductible or non-taxable foreign currency exchange results and (ii) certain permanent differences between the financial and tax accounting treatment of items associated with investments in subsidiaries. The positive impact of these items was partially offset by the net negative impact of statutory rates in certain jurisdictions in which we operate that are different than the U.K. statutory income tax rate.
We recognized income tax expense of $170.0 million and $209.6 million during the nine months ended September 30, 2023 and 2022, respectively.
The income tax expense during
the nine months ended September 30, 2023 differs from the expected income tax benefit of $54.5 million (based on the U.K. blended income tax rate of 23.5%), primarily due to the net negative impact of (i) a net increase in valuation allowances and (ii) certain permanent differences between the financial and tax accounting treatment of interest and other items. The negative impact of these items was partially offset by the positive impact of non-deductible or non-taxable foreign currency exchange results.
The income tax expense during the nine months ended September 30, 2022 differs from the expected income tax expense of $1,139.8 million (based on the U.K. statutory income tax rate of 19.0%), primarily due to the positive impact of (i) non-deductible or non-taxable foreign currency exchange
results and (ii) certain permanent differences between the financial and tax accounting treatment of items associated with investments in subsidiaries. The positive impact of these items was partially offset by the net negative impact of statutory rates in certain jurisdictions in which we operate that are different than the U.K. statutory income tax rate.
For additional information concerning our income taxes, see note 11 to our condensed consolidated financial statements.
Earnings (loss) from continuing operations
During
the three months ended September 30, 2023 and 2022, we reported earnings from continuing operations of $822.7 million and $2,431.7 million, respectively, consisting of (i) operating income (loss) of ($27.4 million) and $108.9 million, respectively, (ii) net non-operating income of $848.4 million and $2,387.6 million, respectively, and (iii) income tax benefit (expense) of $1.7 million and ($64.8 million), respectively.
During the nine months ended September 30, 2023 and 2022, we reported earnings (loss) from continuing operations of ($402.1 million) and $5,789.6 million, respectively, consisting of (i) operating income (loss) of ($39.2 million) and $192.2
75
million,
respectively, (ii) net non-operating income (expense) of ($192.9 million) and $5,807.0 million, respectively, and (iii) income tax expense of $170.0 million and $209.6 million, respectively.
Gains or losses associated with (i) changes in the fair values of derivative instruments, (ii) movements in foreign currency exchange rates and (iii) the disposition of assets and changes in ownership are subject to a high degree of volatility and, as such, any gains from these sources do not represent a reliable source of income. In the absence of significant gains in the future from these sources or from other non-operating items, our ability to achieve earnings is largely dependent on our ability to increase our aggregate operating income to a level that more than offsets the aggregate amount of our (a) interest expense, (b) other non-operating expenses and (c) income tax expense.
Due
largely to the fact that we seek to maintain our debt at levels that provide for attractive equity returns, as discussed under Material Changes in Financial Condition — Capitalization below, we expect we will continue to report significant levels of interest expense for the foreseeable future. For information concerning our expectations with respect to trends that may affect certain aspects of our operating results in future periods, see the discussion under Overview above. For information concerning the reasons for changes in specific line items in our condensed consolidated statements of operations, see Discussion and Analysis of our Reportable Segments and Discussion and Analysis of our Consolidated Operating Results above.
Earnings
from discontinued operations, net of taxes
We reported earnings from discontinued operations, net of taxes, of $34.6 million during the nine months ended September 30, 2022 related to the results of UPC Poland. In addition, we recognized a gain on the sale of UPC Poland of $848.9 millionduring the second quarter of 2022, which includes a cumulative foreign currency translation gain of $10.9 million. For additional information, see note 4 to our condensed consolidated financial statements.
Net earnings attributable to noncontrolling interests
Net
earnings attributable to noncontrolling interests was $163.5 million and $83.7 million during the three months ended September 30, 2023 and 2022, respectively, and $159.7 million and $500.2 million during the nine months ended September 30, 2023 and 2022, respectively, primarily attributable to the results of operations of Telenet prior to the Telenet Takeover Bid.
76
Material Changes in Financial Condition
Sources
and Uses of Cash
We are a holding company that is dependent on the capital resources of our subsidiaries to satisfy our liquidity requirements at the corporate level. Each of our significant operating subsidiaries is separately financed within one of our three subsidiary “borrowing groups”. These borrowing groups include the respective restricted parent and subsidiary entities within UPC Holding, Telenet and VM Ireland. Although our borrowing groups typically generate cash from operating activities, the terms of the instruments governing the indebtedness of these borrowing groups may restrict our ability to access the liquidity of these subsidiaries.
In addition, our ability to access the liquidity of these and other subsidiaries may be limited by tax and legal considerations, the presence of noncontrolling interests and other factors.
Cash, cash equivalents and SMAs
The details of the U.S. dollar equivalent balances of our consolidated cash and cash equivalents at September 30, 2023 are set forth in the following table (in millions):
Total Liberty Global and unrestricted subsidiaries
595.7
Borrowing groups
(c):
Telenet
1,136.7
UPC Holding
7.7
VM Ireland
1.5
Total borrowing groups
1,145.9
Total cash and cash equivalents (d)
1,741.6
Investments held under SMAs (e)
1,797.7
Total
cash and cash equivalents and investments held under SMAs
$
3,539.3
_______________
(a)Represents the amount held by Liberty Global on a standalone basis.
(b)Represents the aggregate amount held by subsidiaries that are outside of our borrowing groups.
(c)Represents the aggregate amounts held by the parent entity and restricted subsidiaries
of our borrowing groups.
(d)The total cash and cash equivalents balance includes $1,221.0 million or 70.1% and $489.0 million or 28.1% denominated in euros and U.S. dollars, respectively.
(e)The balance of our investments held under SMAs isdenominated entirely in U.S. dollarsand is held by unrestricted subsidiaries that are outside of our borrowing groups.
For additional information regarding our cash and cash equivalents and investments held under SMAs, see the discussion under Quantitative and Qualitative
Disclosures about Market Risk— Cash and Investments below.
Liquidity of Liberty Global and its unrestricted subsidiaries
The $3.3 million of cash and cash equivalents held by Liberty Global and, subject to certain tax and legal considerations, the $592.4 million of aggregate cash and cash equivalents held by unrestricted subsidiaries, together with the $1,797.7 million of investments held under SMAs, represented available liquidity at the corporate level at September 30, 2023. Our remaining cash and
cash equivalents of $1,145.9 million at September 30, 2023 were held by our borrowing groups, as set forth in the table above. As noted above, various factors may limit our ability to access the cash of our borrowing groups. For information
77
regarding certain limitations imposed by our subsidiaries’ debt instruments at September 30, 2023, see note 9 to our condensed consolidated financial statements.
Our short-term sources of corporate liquidity include (i) cash and cash equivalents held by Liberty
Global and, subject to certain tax and legal considerations, Liberty Global’s unrestricted subsidiaries, (ii) investments held under SMAs, (iii) interest and dividend income received on our and, subject to certain tax and legal considerations, our unrestricted subsidiaries’ cash and cash equivalents and investments, including dividend distributions received from the VMO2 JV or the VodafoneZiggo JV, (iv) cash received with respect to transitional and other services provided to various third parties and (v) interest payments received with respect to the VodafoneZiggo JV Receivables.
From time to time, Liberty Global and its unrestricted subsidiaries
may also receive (i) proceeds in the form of dividend distributions or loan repayments from Liberty Global’s borrowing groups or affiliates (including amounts from the VMO2 JV or the VodafoneZiggo JV) upon (a) the completion of recapitalizations, refinancings, asset sales or similar transactions by these entities or (b) the accumulation of excess cash from operations or other means, (ii) proceeds upon the disposition of investments and other assets of Liberty Global and its unrestricted subsidiaries, such as the sale of UPC Poland, and (iii) proceeds in connection with the incurrence of debt by Liberty Global or its unrestricted subsidiaries or the issuance of equity securities by Liberty Global, including equity securities issued to satisfy subsidiary obligations. No assurance can be given
that any external funding would be available to Liberty Global or its unrestricted subsidiaries on favorable terms, or at all.
At September 30, 2023, our consolidated cash and cash equivalents balance included $1,324.2 million held by entities that are domiciled outside of the U.K. Based on our assessment of our ability to access the liquidity of our subsidiaries on a tax efficient basis and our expectations with respect to our corporate liquidity requirements, we do not anticipate that tax considerations will adversely impact our corporate liquidity over the next 12 months. Our ability to access the liquidity of our subsidiaries
on a tax efficient basis is a consideration in assessing the extent of our share repurchase program.
In addition, the amount of cash we receive from our subsidiaries to satisfy U.S. dollar-denominated liquidity requirements is impacted by fluctuations in exchange rates, particularly with regard to the translation of euros, British pound sterling and Swiss francs into U.S. dollars. In this regard, the strengthening (weakening) of the U.S. dollar against these currencies will result in decreases (increases) in the U.S. dollars received from the applicable subsidiaries to fund the repurchase of our equity securities and other U.S. dollar-denominated liquidity requirements.
Our
short- and long-term liquidity requirements include (i) corporate general and administrative expenses, (ii) interest payments on the Vodafone Collar Loan and (iii) principal payments on the Vodafone Collar Loan to the extent not settled through the delivery of the underlying shares. In addition, Liberty Global and its unrestricted subsidiaries may require cash in connection with (a) the repayment of third-party and intercompany debt, (b) the satisfaction of contingent liabilities, (c) acquisitions, (d) the repurchase of equity and debt securities, (e) other investment opportunities, (f) any funding requirements of our subsidiaries and affiliates or (g) income tax payments. Our parent entity also uses available liquidity to make interest and principal payments on notes payable to certain
of our unrestricted subsidiaries (aggregate outstanding principal of $15.1 billion at September 30, 2023 with varying maturity dates).
During the nine months ended September 30, 2023, the aggregate amount of our share repurchases, including direct acquisition costs, was $1,149.2 million. In July 2023, our board of directors authorized an increase in our 2023 share repurchase program from 10% of our total outstanding shares as of December 31, 2022 to a minimum of at least 15%. We are now targeting a further repurchase of shares through the end of January 2024 in the amount of approximately $300.0 million. For additional information regarding our
share repurchase programs, see note 12 to our condensed consolidated financial statements.
Liquidity of borrowing groups
The cash and cash equivalents of our borrowing groups are detailed in the table above. In addition to cash and cash equivalents, the primary sources of liquidity of our borrowing groups are cash provided by operations and borrowing availability under their respective debt instruments. For the details of the borrowing availability of our borrowing groups at September 30, 2023, see note 9 to our condensed consolidated financial statements. The aforementioned sources of liquidity may be supplemented in certain cases by contributions and/or loans from Liberty Global and its unrestricted subsidiaries.
The liquidity of our borrowing groups generally is used to fund (i) property and equipment additions, (ii) debt service requirements and (iii) income tax payments, as well as to settle certain obligations that are not included on our September 30, 2023 condensed consolidated balance sheet. In this regard, we have significant commitments related to (a) certain operating
78
costs associated with our networks, (b) purchase obligations associated with CPE and certain service-related commitments and (c) programming, studio output and sports rights contracts.These obligations are expected to represent a significant liquidity requirement of our borrowing groups, a significant portion of which is due over the next 12 to 24 months. For additional information regarding our commitments, see note 15 to our condensed consolidated financial statements.
From time to time, our borrowing groups may also require liquidity in connection with (i) acquisitions and other investment opportunities, (ii) loans to Liberty Global, (iii) capital distributions to Liberty Global and other equity owners or (iv) the satisfaction of contingent liabilities. No assurance can be given that any external funding would be available to our borrowing groups on favorable terms, or at all.
For additional information regarding our consolidated cash flows, see the discussion
under Condensed Consolidated Statements of Cash Flows below.
Capitalization
We seek to maintain our debt at levels that provide for attractive equity returns without assuming undue risk. In this regard, we generally seek to cause our operating subsidiaries to maintain their debt at levels that result in a consolidated debt balance (excluding the Vodafone Collar Loan and measured using subsidiary debt figures at swapped foreign currency exchange rates, consistent with the covenant calculation requirements of our subsidiary debt agreements) that
is between four and five times our consolidated Adjusted EBITDA, although the timing of our acquisitions and financing transactions and the interplay of average and spot foreign currency rates may impact this ratio. Consolidated Adjusted EBITDA is a non-GAAP measure, which investors should view as a supplement to, and not a substitute for, GAAP measures of performance included in our condensed consolidated statements of operations.
Our ability to service or refinance our debt and to maintain compliance with the leverage covenants in the credit agreements and indentures of our borrowing groups is dependent primarily on our ability to maintain or increase the Adjusted EBITDA of our operating subsidiaries and
to achieve adequate returns on our property and equipment additions and acquisitions. In addition, our ability to obtain additional debt financing is limited by the incurrence-based leverage covenants contained in the various debt instruments of our borrowing groups. For example, if the Adjusted EBITDA of one of our borrowing groups were to decline, our ability to obtain additional debt could be limited. Under our credit facilities and senior and senior secured notes there is no cross-default risk between subsidiary borrowing groups in the event that one or more of our borrowing groups were to experience significant declines in their Adjusted EBITDA to the extent they were no longer able to service their debt obligations. Any mandatory prepayment events or events of default that may occur would only impact the relevant borrowing group in which these events occur and do not allow for any recourse to other borrowing groups or Liberty Global plc. Our credit facilities and
senior and senior secured notes require that certain members of the relevant borrowing group guarantee the payment of all sums payable thereunder and such group members are required to grant first-ranking security over their shares or, in certain borrowing groups, over substantially all of their assets to secure the payment of all sums payable thereunder. At September 30, 2023, each of our borrowing groups was in compliance with its debt covenants. In addition, we do not anticipate any instances of non-compliance with respect to the debt covenants of our borrowing groups that would have a material adverse impact on our liquidity during the next 12 months.
At September 30, 2023, the outstanding principal amount of our consolidated debt, together with our finance lease obligations, aggregated
$15.3 billion, including $0.6 billion that is classified as current on our condensed consolidated balance sheet and $7.3 billion that is not due until 2029 or thereafter. All of our consolidated debt and finance lease obligations have been borrowed or incurred by our subsidiaries at September 30, 2023.
We believe 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 maturing debt grows in later years, we anticipate we will seek to refinance or otherwise extend our debt maturities. No assurance can be given that we will be able to complete these refinancing transactions or otherwise extend our debt
maturities. In this regard, it is not possible to predict how political and economic conditions, sovereign debt concerns or any adverse regulatory developments could impact the credit and equity markets we access and, accordingly, our future liquidity and financial position. Our ability to access debt financing on favorable terms, or at all, could be adversely impacted by (i) the financial failure of any of our counterparties, which could (a) reduce amounts available under committed credit facilities and (b) adversely impact our ability to access cash deposited with any failed financial institution, and (ii) tightening of the credit markets. In addition, any weakness in the equity markets could make it less attractive to use our shares to satisfy contingent or other obligations, and sustained or increased competition, particularly in combination with adverse economic or regulatory developments, could have an unfavorable impact on our cash flows and liquidity.
79
For
additional information concerning our debt and finance lease obligations, see notes 9 and 10, respectively, to our condensed consolidated financial statements.
Condensed Consolidated Statements of Cash Flows
General. Our cash flows are subject to significant variations due to FX.
Summary. The condensed consolidated statements of cash flows of our continuing operations for the nine months ended September 30, 2023 and 2022 are summarized as follows:
Effect of exchange rate changes on cash and cash equivalents and restricted cash
(1.1)
(141.3)
140.2
Net
increase in cash and cash equivalents and restricted cash
$
16.1
$
650.0
$
(633.9)
Operating Activities. The decrease in net cash provided by operating activities is primarily attributable to the net effect of (i) a decrease in cash provided of $387.9 million due to lower dividend distributions received from the VMO2 JV and the VodafoneZiggo JV, (ii) a decrease in cash provided by our Adjusted EBITDA and related working capital items, (iii) an increase in cash provided
due to higher net cash receipts related to derivative instruments, (iv) a decrease in cash provided due to higher payments of interest, (v) an increase in cash provided due to higher receipts of interest and (vi) an increase due to FX. Consolidated Adjusted EBITDA is a non-GAAP measure, which investors should view as a supplement to, and not a substitute for, GAAP measures of performance included in our condensed consolidated statements of operations.
Investing Activities. The change in net cash provided (used) by investing activities is primarily attributable to the net effect of (i) a decrease in cash of $1,563.0 million in connection with the sale of UPC Poland during the first nine months of 2022, (ii) a decrease in cash of $905.8 million associated with higher net cash paid for investments, primarily related to the net effect of our investment in Vodafone
and our investments held under SMAs, (iii) a decrease in cash of $779.9 million in connection with the Telenet Tower Sale during the first nine months of 2022, (iv) an increase in cash of $548.3 million due to higher dividend distributions received from the VMO2 JV and (v) a decrease in cash of $113.8 million associated with higher net cash paid for acquisitions.
80
The capital expenditures we report in our condensed consolidated statements of cash flows do 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 as reported in our condensed consolidated statements of cash flows, which exclude amounts financed under capital-related vendor financing or finance lease arrangements, and (ii) our total property and equipment additions, which include our capital expenditures on an accrual basis and amounts financed under capital-related vendor financing or finance lease arrangements. For further details regarding our property and equipment additions, see note 16 to our condensed consolidated financial statements. A reconciliation of our consolidated property and equipment additions to our consolidated capital expenditures, as reported in our condensed consolidated statements of cash flows, is set forth below:
Assets acquired under
capital-related vendor financing arrangements
(129.9)
(142.9)
Assets acquired under finance leases
(20.8)
(25.8)
Changes in current liabilities related to capital expenditures
59.2
8.4
Capital expenditures, net
$
1,016.2
$
929.3
The
increase in our property and equipment additions during the nine months ended September 30, 2023, as compared to the corresponding period in 2022, is primarily due to the net effect of(i) an increase due to FX and (ii) a decrease in local currency expenditures of our subsidiaries due to the net effect of (a) a decrease in expenditures to support new customer products and operational efficiency initiatives, (b) an increase in new build and upgrade projects, (c) an increase in expenditures for the purchase and installation of CPE and (d) a decrease in baseline expenditures, including network improvements and expenditures for property and facilities and information technology systems.
Financing Activities.
Thedecrease in net cash used by financing activities is primarily attributable tothe net effect of(i) a decrease in cash used of $3,068.2 million due to higher net borrowings of debt, including borrowings related to the Vodafone Collar Loan and borrowings under LGBH Facility B in connection with the Telenet Takeover Bid, (ii) an increase in cash used of $878.7 million due to the acquisition of shares in connection with the Telenet Takeover Bid and (iii)a decrease in cash used of $440.7 million due to lower repurchases of Liberty Global ordinary shares.
81
Adjusted
Free Cash Flow
We define adjusted free cash flow as net cash provided by the operating activities of our continuing operations, plus operating-related vendor financed expenses (which represents an increase in the period to our actual cash available as a result of extending vendor payment terms beyond normal payment terms, which are typically 90 days or less, through non-cash financing activities), less (i) cash payments in the period for capital expenditures, (ii) principal payments on operating- and capital-related amounts financed by vendors and intermediaries (which represents a decrease in the period to our actual cash available as a result of paying amounts to vendors and intermediaries where we previously had extended vendor payments beyond the normal payment terms) and (iii) principal payments on finance leases (which represents a decrease in the period to our actual cash available),
each as reported in our condensed consolidated statements of cash flows with each item excluding any cash provided or used by our discontinued operations. Net cash provided by operating activities of our continuing operations includes cash paid for third-party costs directly associated with successful and unsuccessful acquisitions and dispositions of $23.8 million and $32.0 million during the nine months ended September 30, 2023 and 2022, respectively.
We believe our presentation of adjusted free cash flow, which is a non-GAAP measure, provides useful information to our investors because this measure can be used to gauge our ability to (i) service debt and (ii) fund new investment opportunities after consideration of all actual cash payments related to our working capital activities and
expenses that are capital in nature whether paid inside normal vendor payment terms or paid later outside normal vendor payment terms (in which case we typically pay in less than 365 days). Adjusted free cash flow should not be understood to represent our ability to fund discretionary amounts, as we have various mandatory and contractual obligations, including debt repayments, that are not deducted to arrive at these amounts. Investors should view adjusted free cash flow as a supplement to, and not a substitute for, GAAP measures of liquidity included in our condensed consolidated statements of cash flows. Further, our adjusted free cash flow may differ from how other companies define and apply their definition of adjusted free cash flow.
The following table provides the details of our adjusted free cash flow:
Net cash provided by operating activities of our continuing operations
$
1,326.7
$
1,903.5
Operating-related
vendor financing additions (a)
444.5
397.1
Cash capital expenditures, net
(1,016.2)
(929.3)
Principal payments on operating-related vendor financing
(470.9)
(525.9)
Principal payments on capital-related vendor financing
(210.8)
(120.0)
Principal
payments on finance leases
(25.3)
(46.5)
Adjusted free cash flow
$
48.0
$
678.9
_______________
(a)For purposes of our condensed consolidated statements of cash flows, operating-related vendor financing additions represent operating-related expenses financed by an intermediary that are treated as constructive operating cash outflows
and constructive financing cash inflows when the intermediary settles the liability with the vendor. When we pay the financing intermediary, we record financing cash outflows in our consolidated statements of cash flows. For purposes of our adjusted free cash flow definition, we (i) add in the constructive financing cash inflow when the intermediary settles the liability with the vendor as our actual net cash available at that time is not affected and (ii) subsequently deduct the related financing cash outflow when we actually pay the financing intermediary, reflecting the actual reduction to our cash available to service debt or fund new investment opportunities.
82
Item
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General
The capitalized terms used below have been defined in the notes to our condensed consolidated financial statements. In the following text, the terms “we,”“our,”“our company” and “us” may refer, as the context requires, to Liberty Global or collectively to Liberty Global and its subsidiaries.
We
are exposed to market risk in the normal course of our business operations due to our investments in various foreign countries and ongoing investing and financing activities. Market risk refers to the risk of loss arising from adverse changes in foreign currency exchange rates, interest rates and stock prices. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. As further described below, we have established policies, procedures and processes governing our management of market risks and the use of derivative instruments to manage our exposure to such risks.
The information in this section should be read in conjunction with the more complete discussion that appears under Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 10-K. The following
discussion updates selected numerical information to September 30, 2023.
Unless otherwise indicated, convenience translations into U.S. dollars are calculated as of September 30, 2023.
Cash and Investments
We invest our cash in highly liquid instruments that meet high credit quality standards. We are exposed to exchange rate risk to the extent that the denominations of our cash and cash equivalent balances, revolving lines of credit and other short-term sources of liquidity do not correspond to the
denominations of our and our subsidiaries’ short-term liquidity requirements. In order to mitigate this risk, we actively manage the denominations of our cash balances in light of our and our subsidiaries’ forecasted liquidity requirements. At September 30, 2023,$1,221.0 million or70.1% and $489.0 million or 28.1%of our consolidated cash balance was denominated in euros and U.S. dollars, respectively. At September 30, 2023, the balance of our consolidated investments held under SMAs was denominated entirely in U.S. dollars.
Foreign
Currency Risk
We are exposed to foreign currency exchange rate risk with respect to our consolidated debt in situations where our debt is denominated in a currency other than the functional currency of the operations whose cash flows support our ability to repay or refinance such debt. For information regarding our use of derivative instruments to manage our foreign currency exchange rate risk, see note 6 to our condensed consolidated financial statements.
The relationships between the primary currencies of the countries in which we operate and the U.S. dollar, which is our reporting currency, are shown below, per one U.S. dollar:
We are subject to inflationary pressures with respect to labor, programming and other costs. In this regard, inflation rates in the countries in which we operate have recently increased, and in many countries such
increases have been significant. While we attempt to increase our revenue to offset increases in costs, there is no assurance that we will be able to do so. Therefore, costs could rise faster than associated revenue, thereby resulting in a negative impact on our operating results, cash flows and liquidity. The economic environment in the respective countries in which we operate is a function of government, economic, fiscal and monetary policies and various other factors beyond our control that could lead to inflation. We are unable to predict the extent that price levels might be impacted in future periods by the current state of the economies in the countries in which we operate.
Interest Rate Risks
We
are exposed to changes in interest rates primarily as a result of our borrowing activities, which include fixed-rate and variable-rate borrowings by our borrowing groups. Our primary exposure to variable-rate debt is through the EURIBOR-indexed and Term SOFR-indexed debt of our borrowing groups and the variable-rate debt of certain of our other subsidiaries.
In general, we enter into derivative instruments to protect against increases in the interest rates on our variable-rate debt. Accordingly, we have entered into various derivative transactions to manage exposure to increases in interest rates. We use interest rate derivative contracts to exchange, at specified intervals, the difference between fixed
and variable interest rates calculated by reference to an agreed upon notional principal amount. From time to time, we also use interest rate cap, floor and collar agreements that lock in a maximum interest rate if variable rates rise, but also allow our company to benefit, to a limited extent in the case of collars, from declines in market rates. Under our current guidelines, we use various interest rate derivative instruments to mitigate interest rate risk. The final maturity dates of our various portfolios of interest rate derivative instruments might, in some instances, fall short of the respective maturities of the underlying variable-rate debt. In this regard, we use judgment to determine the appropriate composition and maturity dates of our portfolios of interest rate derivative instruments, taking into account the relative costs and benefits of different maturity profiles in
light of current and expected future market conditions, liquidity issues and other factors. For additional information concerning the impacts of these interest rate derivative instruments, see note 6 to our condensed consolidated financial statements.
In July 2017, the U.K. Financial Conduct Authority (the FCA), the authority that regulates LIBOR, announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. In March 2021, the FCA announced that all LIBOR settings will either cease to be published or be deemed no longer representative, either (i) immediately after December 31, 2021, in the case of the one-week and two-month USD rates and (ii) immediately after June 30, 2023, in the case of the
remaining USD rates. The Alternative Reference Rate Committee, a committee convened by the Federal Reserve that includes major market participants, has identified Term SOFR, a new index calculated by short-term repurchase agreements backed by Treasury securities, as its preferred alternative rate for LIBOR. Accordingly, Term SOFR, as administered by CME Group Benchmark Administration Limited (or any other person which takes over the administration of that rate), is now referenced for the calculation of interest for U.S. dollar-denominated loans under the credit agreements currently held by our borrowing groups. The European Money Markets Institute (the authority that administers EURIBOR) reformed the methodology for EURIBOR and EURIBOR has been granted regulatory approval to continue to be used.
In October 2020, the International Swaps and Derivatives Association (the ISDA)
launched the Fallback Supplement, which, as of January 25, 2021, amended the standard definitions for interest rate derivatives to incorporate fallbacks for derivatives linked to certain key interbank offered rates (IBORs). The ISDA also launched the Fallback Protocol, a protocol that enables market participants to incorporate these revisions into their legacy non-cleared derivatives with other counterparties that choose to adhere to the protocol. The fallbacks for a particular currency apply following a permanent cessation of the IBOR
84
in that currency, or in the case of an IBOR setting, that IBOR setting becoming permanently unrepresentative, and are adjusted versions
of the risk-free rates identified in each currency. It is possible, however, that any new reference rate that applies to our debt could be different from any new reference rate that applies to our derivative instruments. For discontinued currencies and tenors, we expect to continue taking steps to mitigate the changes in these benchmark rates, including by adhering to the Fallback Protocol, where appropriate. We plan to continue to manage this difference and any resulting increased variable-rate exposure through modifications to our debt and/or derivative instruments, however, future market conditions may not allow immediate implementation of desired modifications and our subsidiaries may incur significant associated costs.
Weighted Average Variable Interest Rate. At September 30,
2023, the outstanding principal amount of our variable-rate indebtedness aggregated $11.3 billion, and the weighted average interest rate (including margin) on such variable-rate indebtedness was approximately 6.7%, excluding the effects of interest rate derivative contracts, deferred financing costs, original issue premiums or discounts and commitment fees, all of which affect our overall cost of borrowing. Assuming no change in the amount outstanding, and without giving effect to any interest rate derivative contracts, deferred financing costs, original issue premiums or discounts and commitment fees, a hypothetical 50 basis point (0.50%) increase (decrease) in our weighted average variable interest rate would increase (decrease) our annual consolidated interest expense and cash outflows
by $56.5 million. As discussed above and in note 6 to our condensed consolidated financial statements, we use interest rate derivative contracts to manage our exposure to increases in variable interest rates. In this regard, increases in the fair value of these contracts generally would be expected to offset most of the economic impact of increases in the variable interest rates applicable to our indebtedness to the extent and during the period that principal amounts are matched with interest rate derivative contracts.
Sensitivity
Information
Information concerning the sensitivity of the fair value of certain of our more significant derivative instruments to changes in market conditions is set forth below. The potential changes in fair value set forth below do not include any amounts associated with the remeasurement of the derivative asset or liability into the applicable functional currency. For additional information, see notes 6 and 7 to our condensed consolidated financial statements.
UPC Holding Cross-currency and Interest Rate Derivative Contracts
(i)an
instantaneous increase (decrease) of 10% in the value of the Swiss franc relative to the U.S. dollar would have decreased (increased) the aggregate fair value of the UPC Holding cross-currency and interest rate derivative contracts by approximately €417 million($441 million);
(ii)an instantaneous increase (decrease) of 10% in the value of the Swiss franc relative to the euro would have decreased (increased) the aggregate fair value of the UPC Holding cross-currency and interest rate derivative contracts by approximately€245 million($260
million); and
(iii)an instantaneous increase (decrease) in the relevant base rate of 50 basis points (0.50%) would have increased (decreased) the aggregate fair value of the UPC Holding cross-currency and interest rate derivative contracts by approximately €92 million($98 million).
Telenet Cross-currency and Interest Rate Derivative Contracts
(i)an
instantaneous increase (decrease) of 10% in the value of the euro relative to the U.S. dollar would have decreased (increased) the aggregate fair value of the Telenet cross-currency and interest rate derivative contracts by approximately €292 million ($309 million); and
(ii)an instantaneous increase (decrease) in the relevant base rate of 50 basis points (0.50%) would have increased (decreased) the aggregate fair value of the Telenet cross-currency and interest rate derivative contracts by approximately €64 million ($67 million).
85
Vodafone
Collar
Holding all other factors constant, at September 30, 2023, (i) an instantaneous increase of 10% in the per share market price of Vodafone’s ordinary shares would have decreased the fair value of the Vodafone Collar by approximately €82 million ($86 million) and (ii) an instantaneous decrease of 10% in the per market share price of Vodafone’s ordinary shares would have increased the fair value of the Vodafone Collar by approximately €81 million ($86 million).
Projected Cash Flows Associated with Derivative Instruments
The following table provides
information regarding the projected cash flows associated with our derivative instruments. The U.S. dollar equivalents presented below are based on interest rate projections and exchange rates as of September 30, 2023. These amounts are presented for illustrative purposes only and will likely differ from the actual cash payments or receipts required in future periods. For additional information regarding our derivative instruments, see note 6 to our condensed consolidated financial statements.
(a)Includes
(i) the cash flows of our interest rate cap, floor and swap contracts and (ii) the interest-related cash flows of our cross-currency and interest rate swap contracts.
(b)Includes the principal-related cash flows of our cross-currency swap contracts.
(c)Includes amounts related to our equity-related derivative instruments and foreign currency forward contracts. We may elect to use cash or the
collective value of the related shares and Vodafone Collar to settle the Vodafone Collar Loan.
Item 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In accordance with Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the Exchange Act), we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and chief financial officer (the Executives), of the effectiveness of our disclosure
controls and procedures as of September 30, 2023. In designing and evaluating the disclosure controls and procedures, the Executives recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is necessarily required to apply judgment in evaluating the cost-benefit relationship of possible controls and objectives. Based on that evaluation, the Executives concluded that our disclosure controls and procedures as of September 30, 2023 effectively provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
Changes
in Internal Controls over Financial Reporting
There have been no changes in our internal controls over financial reporting identified in connection with the evaluation described above that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
86
PART II — OTHER INFORMATION
Item
1.LEGAL PROCEEDINGS
From time to time, our subsidiaries and affiliates have become involved in litigation relating to claims arising out of their operations in the normal course of business. For additional information, see note 15 to our condensed consolidated financial statements in Part I of this Quarterly Report on Form 10-Q.
Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c)Issuer Purchases of Equity
Securities
Period
Total number of shares purchased
Average price paid per share (a)
Total number of
shares purchased as part of publicly announced plans or programs
Approximate dollar value of shares that may yet be purchased under the plans or programs
(a)Average
price paid per share includes direct acquisition costs.
(b)As of September 30, 2023, we repurchased 13% of our total number of outstanding shares as of December 31, 2022. Our original share buyback plan for 2023 authorized the repurchase of 10% of our outstanding shares as of December 31, 2022, and this was increased to a minimum of 15% in July 2023. As of October 30, 2023, we repurchased shares for an aggregate purchase price of $1,315.4 million, representing 15% of our outstanding shares as of December 31, 2022. We are now targeting a further repurchase of shares through the end of January 2024 in the amount of approximately
$300.0 million. For additional information, see note 12 to our condensed consolidated financial statements in Part I of this Quarterly Report on Form 10-Q.
Item 5.OTHER INFORMATION
During the quarter ended September 30, 2023, none of the Company’s directors or executive officers iiadopted/
or iiterminated/ any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1
trading arrangement.”
87
Item 6.EXHIBITS
Listed below are the exhibits filed as part of this Quarterly Report (according to the number assigned to them in Item 601 of Regulation S-K):
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
