Liberty .(LBTYA) - 2019 Q1 - Quarterly Report

Financial Statements Condensed Consolidated Balance Sheets As of March 31, 2019, Liberty Global reported total assets of $53.44 billion, a slight increase from $53.15 billion at year-end 2018, with total liabilities also increasing to $49.59 billion from $49.01 billion over the same period, leading to a decrease in total equity from $4.15 billion to $3.85 billion Condensed Consolidated Balance Sheet Summary (in millions) | Balance Sheet Item | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total current assets | $3,677.2 | $4,141.4 | | Total assets | $53,437.6 | $53,153.6 | | Total current liabilities | $10,175.2 | $10,306.1 | | Total liabilities | $49,588.0 | $49,005.3 | | Total equity | $3,849.6 | $4,148.3 | Condensed Consolidated Statements of Operations For the three months ended March 31, 2019, the company's revenue decreased to $2.87 billion from $3.06 billion year-over-year, while the loss from continuing operations significantly narrowed to $(306.9) million from $(1,367.2) million, resulting in net earnings of $15.7 million, a substantial improvement from a net loss of $(1,178.6) million in Q1 2018 Q1 2019 Statement of Operations Summary (in millions, except per share data) | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Revenue | $2,868.0 | $3,063.5 | | Operating income | $105.5 | $117.6 | | Loss from continuing operations | $(306.9) | $(1,367.2) | | Earnings from discontinued operations | $322.6 | $188.6 | | Net earnings (loss) | $15.7 | $(1,178.6) | | Diluted loss per share from continuing operations | $(0.43) | $(1.70) | Condensed Consolidated Statements of Cash Flows In the first three months of 2019, net cash provided by operating activities decreased to $765.4 million from $1,279.3 million, with net cash used in investing activities at $477.3 million and financing activities at $815.8 million, leading to a net decrease in cash and cash equivalents of $535.3 million and an ending balance of $963.0 million Q1 2019 Cash Flow Summary (in millions) | Cash Flow Category | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net cash from operating activities | $765.4 | $1,279.3 | | Net cash used by investing activities | $(477.3) | $(671.1) | | Net cash used by financing activities | $(815.8) | $(1,732.4) | | Net decrease in cash | $(535.3) | $(1,110.1) | | Cash at end of period | $963.0 | $572.8 | Notes to Condensed Consolidated Financial Statements The notes provide detailed disclosures supporting the financial statements, covering basis of presentation, accounting changes, significant acquisitions and dispositions, investments, debt structure, derivative instruments, leases, income taxes, share-based compensation, and segment reporting, with key events including pending sales of the Vodafone Disposal Group and UPC Switzerland, and the adoption of the new lease accounting standard (ASU 2016-02) Note 4: Acquisitions and Dispositions This note details significant pending and completed dispositions, including agreements to sell operations in Germany, Romania, Hungary, and the Czech Republic to Vodafone for approximately €10.6 billion ($11.9 billion) and UPC Switzerland to Sunrise for a total enterprise value of $6.3 billion, with these operations presented as discontinued - Pending sale of the "Vodafone Disposal Group" (Germany, Romania, Hungary, Czech Republic) to Vodafone, with expected cash proceeds of approximately €10.6 billion ($11.9 billion)[39] - Pending sale of UPC Switzerland to Sunrise Communications Group AG for a total enterprise value of $6.3 billion, with expected net cash proceeds of $2.6 billion[41] Assets and Liabilities of Discontinued Operations (March 31, 2019, in millions) | Category | Vodafone Disposal Group | UPC DTH | Total | | :--- | :--- | :--- | :--- | | Total assets | $10,875.7 | $95.9 | $10,971.6 | | Total liabilities | $12,321.5 | $79.2 | $12,400.7 | Note 9: Debt As of March 31, 2019, total debt before deferred financing costs was $29.5 billion, with a weighted average interest rate of 4.58%, and including finance lease obligations, total debt and finance lease obligations amounted to $30.0 billion, with $2.49 billion in unused borrowing capacity Debt Summary (March 31, 2019) | Metric | Amount (in millions) | | :--- | :--- | | Total debt before deferred financing costs | $29,534.2 | | Total debt and finance lease obligations | $30,039.7 | | Weighted average interest rate | 4.58% | | Unused borrowing capacity | $2,487.4 | Note 12: Equity During the first quarter of 2019, Liberty Global repurchased 9,049,882 shares of its Class C ordinary shares for an aggregate price of $214.1 million, with $353.2 million remaining authorized for future share repurchases as of March 31, 2019 - In Q1 2019, the company repurchased 9.05 million Class C shares for $214.1 million at an average price of $23.66 per share[142] - The remaining amount authorized for share repurchases was $353.2 million as of March 31, 2019[142] Note 17: Segment Reporting The company's performance is evaluated based on reportable segments, including U.K./Ireland, Belgium, Switzerland, and Central and Eastern Europe, as well as the nonconsolidated VodafoneZiggo JV, with Q1 2019 total revenue from continuing operations at $2.87 billion and Adjusted OIBDA at $1.18 billion, and the U.K./Ireland segment being the largest contributor to revenue Revenue by Reportable Segment (in millions) | Segment | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | U.K./Ireland | $1,661.3 | $1,778.2 | | Belgium | $711.9 | $759.6 | | Switzerland | $316.0 | $344.9 | | Central and Eastern Europe | $119.1 | $129.5 | | Total | $2,868.0 | $3,063.5 | Adjusted OIBDA by Reportable Segment (in millions) | Segment | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | U.K./Ireland | $708.3 | $762.6 | | Belgium | $339.0 | $357.6 | | Switzerland | $163.1 | $186.5 | | Central and Eastern Europe | $57.2 | $62.3 | | Total | $1,183.3 | $1,261.7 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Overview Liberty Global provides communication services across Europe, with the MD&A focusing on continuing operations in the U.K., Ireland, Belgium, Switzerland, Poland, and Slovakia, and a 50% interest in the VodafoneZiggo JV, while operations in Germany, Austria, and other CEE countries are treated as discontinued due to sales agreements, and the company faces significant competition and macroeconomic risks, such as Brexit - The company's continuing operations passed 25.2 million homes and served 25.3 million revenue generating units (RGUs) and 6.0 million mobile subscribers as of March 31, 2019[204] - Network extension programs connected approximately 131,000 new premises in Q1 2019, with the majority (102,000) in the U.K. and Ireland[205] - The company highlights significant competition and external risks, including the uncertainty surrounding "Brexit" and its potential adverse effects on business, economic conditions, and currency exchange rates[206][207] Material Changes in Results of Operations For Q1 2019, consolidated revenue decreased 6.4% to $2.87 billion, with an organic decline of only 0.6% primarily due to foreign exchange headwinds, while residential revenue saw an organic decline of 1.8% and B2B revenue grew 2.9% organically, and Adjusted OIBDA decreased 6.2% as reported and 0.2% organically to $1.18 billion, with the loss from continuing operations narrowing significantly due to smaller derivative losses and favorable foreign currency transaction gains Consolidated Revenue Performance (Q1 2019 vs Q1 2018) | Metric | Amount (in millions) | % Change | | :--- | :--- | :--- | | Reported Revenue Change | $(195.5) | (6.4)% | | Organic Revenue Change | $(17.5) | (0.6)% | Consolidated Adjusted OIBDA Performance (Q1 2019 vs Q1 2018) | Metric | Amount (in millions) | % Change | | :--- | :--- | :--- | | Reported Adjusted OIBDA Change | $(78.4) | (6.2)% | | Organic Adjusted OIBDA Change | $(2.5) | (0.2)% | - Programming and other direct costs of services increased 0.5% organically, driven by higher programming and copyright costs, partially offset by lower mobile handset costs[255] - Share of results of affiliates was a loss of $(70.9) million, primarily reflecting the company's 50% share of the VodafoneZiggo JV's net loss of $(150.3) million[287][288] Material Changes in Financial Condition The company's liquidity is managed through separate borrowing groups and a corporate-level cash pool, with total cash at $939.4 million as of March 31, 2019, and a consolidated debt-to-Adjusted OIBDA ratio of 5.4x, exceeding the target of 4-5x, while Adjusted free cash flow for the quarter was an outflow of $(624.5) million, an improvement from $(998.9) million in Q1 2018 due to lower capital expenditures - The company targets a consolidated debt to Adjusted OIBDA ratio of four to five times. As of March 31, 2019, this ratio was 5.4x[311] - Total consolidated debt and finance lease obligations aggregated $30.2 billion, with $21.5 billion not due until 2025 or later[313] Adjusted Free Cash Flow (in millions) | Period | Adjusted Free Cash Flow | | :--- | :--- | | Q1 2019 | $(624.5) | | Q1 2018 | $(998.9) | Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from foreign currency exchange rates, interest rates, and stock prices, with primary currency exposures to the Euro and British pound sterling, and interest rate risk arising from $11.9 billion in variable-rate debt managed through derivative instruments, while the upcoming transition away from LIBOR after 2021 is not anticipated to have a material impact Foreign Currency Risk The company faces significant foreign currency risk due to debt denominated in currencies different from the functional currency of supporting operations, with the report detailing spot and average exchange rates for key currencies like the Euro, British pound sterling, and Swiss franc against the U.S. dollar, highlighting volatility Key Exchange Rates (per one U.S. dollar) | Currency | Spot Rate (Mar 31, 2019) | Avg. Rate (Q1 2019) | Avg. Rate (Q1 2018) | | :--- | :--- | :--- | :--- | | Euro | 0.8912 | 0.8807 | 0.8135 | | British pound sterling | 0.7696 | 0.7679 | 0.7187 | | Swiss franc | 0.9957 | 0.9972 | 0.9480 | Interest Rate Risks Exposure to interest rate changes primarily stems from $11.9 billion in variable-rate debt indexed to EURIBOR and LIBOR, which the company actively hedges with derivative instruments, and a hypothetical 50 basis point increase in variable rates would increase annual interest expense by $59.5 million before considering derivatives, with sensitivity analyses provided for major derivative portfolios - The company has $11.9 billion in outstanding variable-rate debt with a weighted average interest rate of approximately 4.3% at March 31, 2019[345] - A hypothetical 50 basis point (0.50%) increase in the weighted average variable interest rate would increase annual consolidated interest expense by $59.5 million, excluding the impact of derivative contracts[345] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2019, confirming that information required for SEC filings is recorded, processed, and reported in a timely manner, with no material changes to internal controls over financial reporting identified during the quarter Evaluation of Disclosure Controls and Procedures Based on an evaluation as of March 31, 2019, the CEO and CFO concluded that the company's disclosure controls and procedures are effective at providing reasonable assurance that required information is properly recorded and reported within specified timeframes - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2019[355] Part II — Other Information Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's repurchases of its own equity securities during the first quarter of 2019, where it bought back over 9 million Class C shares for a total cost of approximately $214 million Issuer Purchases of Equity Securities (Q1 2019) | Period | Class | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | :--- | | Jan 2019 | C | 3,422,200 | $21.55 | | Feb 2019 | C | 2,704,282 | $24.64 | | Mar 2019 | C | 2,923,400 | $25.23 | | Total | C | 9,049,882 | $23.66 | - As of March 31, 2019, the approximate dollar value of shares that may yet be purchased under the plans or programs was $353.2 million[359] Exhibits This section lists the exhibits filed with the Form 10-Q, including the Share Purchase Agreement for the sale of UPC Switzerland, various material contracts related to executive compensation plans, and required certifications by the CEO and CFO - Key exhibits filed include the Share Purchase Agreement with Sunrise Communications Group AG for the sale of UPC Switzerland, and details of various 2019 executive performance award programs[361]