Liberty .(LBTYA) - 2019 Q3 - Quarterly Report

Condensed Consolidated Balance Sheets Assets Total assets decreased to $48.2 billion from $53.2 billion at December 31, 2018, driven by a significant reduction in discontinued operations' long-term assets Assets | Asset Category | Sep 30, 2019 (in millions) | Dec 31, 2018 (in millions) | |:---------------|:---------------------------|:---------------------------| | Cash and cash equivalents | $7,382.0 | $1,480.5 | | Total current assets | $9,792.7 | $4,141.4 | | Investments and related note receivables | $4,728.0 | $5,121.8 | | Property and equipment, net | $13,047.8 | $13,878.9 | | Goodwill | $13,283.2 | $13,715.8 | | Deferred tax assets | $2,601.3 | $2,488.2 | | Long-term assets of discontinued operations | — | $10,174.6 | | Other assets, net | $4,725.6 | $3,632.9 | | Total assets | $48,178.6 | $53,153.6 | Liabilities and Equity Total liabilities decreased to $34.8 billion from $49.0 billion at December 31, 2018, due to discontinued operations, while total equity increased to $13.4 billion from $4.1 billion Liabilities and Equity | Liability & Equity Category | Sep 30, 2019 (in millions) | Dec 31, 2018 (in millions) | |:----------------------------|:---------------------------|:---------------------------| | Total current liabilities | $7,747.8 | $10,306.1 | | Long-term debt and finance lease obligations | $24,096.2 | $26,190.0 | | Long-term liabilities of discontinued operations | — | $10,072.4 | | Other long-term liabilities | $2,973.0 | $2,436.8 | | Total liabilities | $34,817.0 | $49,005.3 | | Total Liberty Global shareholders' equity | $13,787.3 | $4,681.4 | | Noncontrolling interests | $(425.7) | $(533.1) | | Total equity | $13,361.6 | $4,148.3 | Condensed Consolidated Statements of Operations Operating Results Net earnings significantly increased to $12.9 billion for the three months and $13.0 billion for the nine months, primarily due to a large gain on discontinued operations disposal Operating Results | Metric | 3 Months Ended Sep 30, 2019 (in millions) | 3 Months Ended Sep 30, 2018 (in millions) | 9 Months Ended Sep 30, 2019 (in millions) | 9 Months Ended Sep 30, 2018 (in millions) | |:-------|:------------------------------------------|:------------------------------------------|:------------------------------------------|:------------------------------------------| | Revenue | $2,840.9 | $2,929.7 | $8,559.3 | $9,008.8 | | Operating income | $208.8 | $205.2 | $463.0 | $586.9 | | Earnings (loss) from continuing operations before income taxes | $516.4 | $(118.1) | $(75.5) | $(199.1) | | Income tax benefit (expense) | $70.8 | $(281.3) | $16.2 | $(898.5) | | Earnings (loss) from continuing operations | $587.2 | $(399.4) | $(59.3) | $(1,097.6) | | Earnings from discontinued operations, net of taxes | $92.2 | $327.2 | $730.3 | $797.3 | | Gain on disposal of discontinued operations, net of taxes | $12,205.7 | $1,098.1 | $12,312.3 | $1,098.1 | | Net earnings | $12,885.1 | $1,025.9 | $12,983.3 | $797.8 | | Net earnings attributable to Liberty Global shareholders | $12,847.9 | $974.1 | $12,907.9 | $700.2 | | Basic and diluted EPS from continuing operations attributable to Liberty Global shareholders | $0.77 | $(0.57) | $(0.18) | $(1.51) | Condensed Consolidated Statements of Comprehensive Earnings Comprehensive Earnings Comprehensive earnings significantly increased to $12.3 billion for both three and nine months, driven by net earnings despite foreign currency translation losses Comprehensive Earnings | Metric | 3 Months Ended Sep 30, 2019 (in millions) | 3 Months Ended Sep 30, 2018 (in millions) | 9 Months Ended Sep 30, 2019 (in millions) | 9 Months Ended Sep 30, 2018 (in millions) | |:-------|:------------------------------------------|:------------------------------------------|:------------------------------------------|:------------------------------------------| | Net earnings | $12,885.1 | $1,025.9 | $12,983.3 | $797.8 | | Foreign currency translation adjustments (continuing operations) | $(599.7) | $(244.0) | $(741.2) | $(672.1) | | Other comprehensive earnings (loss) from discontinued operations | $60.0 | $29.6 | $61.0 | $(7.0) | | Other comprehensive loss | $(540.0) | $(211.2) | $(681.3) | $(683.0) | | Comprehensive earnings | $12,345.1 | $814.7 | $12,302.0 | $114.8 | | Comprehensive earnings attributable to Liberty Global shareholders | $12,307.9 | $760.8 | $12,226.2 | $17.3 | Condensed Consolidated Statements of Equity Equity Changes Total equity significantly increased to $13.4 billion at September 30, 2019, from $4.1 billion at January 1, 2019, primarily due to net earnings and share repurchases Equity Changes | Metric | Balance at Jan 1, 2019 (in millions) | Net Earnings (in millions) | Other Comprehensive Loss (in millions) | Share Repurchases (in millions) | Balance at Sep 30, 2019 (in millions) | |:-------|:-------------------------------------|:---------------------------|:---------------------------------------|:--------------------------------|:--------------------------------------| | Total Liberty Global shareholders | $4,681.4 | $12,847.9 | $(540.0) | $(2,715.8) | $13,787.3 | | Noncontrolling interests | $(533.1) | $37.2 | — | — | $(425.7) | | Total equity | $4,148.3 | $12,885.1 | $(540.0) | $(2,715.8) | $13,361.6 | Condensed Consolidated Statements of Cash Flows Cash Flow Summary Net cash from operating activities decreased for the nine months, while investing activities significantly increased to $9.5 billion due to asset dispositions Cash Flow Summary | Cash Flow Category | 9 Months Ended Sep 30, 2019 (in millions) | 9 Months Ended Sep 30, 2018 (in millions) | |:-------------------|:------------------------------------------|:------------------------------------------| | Net cash provided by operating activities | $3,091.5 | $4,200.4 | | Net cash provided by investing activities | $9,542.9 | $407.6 | | Net cash used by financing activities | $(6,689.1) | $(5,296.4) | | Effect of exchange rate changes on cash and cash equivalents | $(33.8) | $(33.7) | | Net increase (decrease) in cash and cash equivalents | $5,911.5 | $(722.1) | | Cash and cash equivalents, beginning of period | $1,498.3 | $1,682.9 | | Cash and cash equivalents, end of period | $7,409.8 | $960.8 | - Proceeds received upon disposition of discontinued operations, net, significantly increased to $11,219.9 million in 2019 from $2,061.2 million in 2018, driving the increase in investing activities[16] - Repurchase of Liberty Global ordinary shares increased to $3,212.5 million in 2019 from $1,671.8 million in 2018, contributing to higher cash used in financing activities[18] Notes to Condensed Consolidated Financial Statements Note 1: Basis of Presentation Liberty Global is an international provider of video, broadband internet, fixed-line telephony, and mobile communications services in Europe, with continuing operations in key European markets and several discontinued operations - Liberty Global is an international provider of video, broadband internet, fixed-line telephony, and mobile communications services to residential and business customers in Europe[19] - Continuing operations include Virgin Media (U.K./Ireland), Telenet (Belgium), UPC Holding (Switzerland, Poland, Slovakia), and a 50% noncontrolling interest in VodafoneZiggo JV (Netherlands)[20] - Operations in Austria, Germany, Romania, Hungary, the Czech Republic, and UPC DTH are presented as discontinued operations[21] Note 2: Accounting Changes and Recent Accounting Pronouncements Liberty Global adopted ASU 2016-02 (Leases) on January 1, 2019, recognizing $545.1 million in ROU assets and $558.1 million in lease liabilities, with minimal impact on operations or cash flows - Adopted ASU 2016-02 (Leases) on January 1, 2019, recognizing $545.1 million in ROU assets and $558.1 million in lease liabilities for operating leases[27][29] - The adoption of ASU 2016-02 resulted in a $1.2 million decrease to accumulated deficit and did not significantly impact consolidated statements of operations or cash flows[29] - Currently evaluating the effect of ASU 2018-15 (Cloud Computing Arrangements) and ASU 2019-02 (Costs of Films and License Agreements for Program Materials) on consolidated financial statements[30][31] Note 3: Revenue Recognition and Related Costs Contract balances show $1,221.1 million in trade receivables and $742.2 million in deferred revenue as of September 30, 2019, with deferred revenue decreasing due to recognition Contract Balances and Costs | Metric | Sep 30, 2019 (in millions) | Dec 31, 2018 (in millions) | |:-------|:---------------------------|:---------------------------| | Trade receivables, net | $1,221.1 | $1,342.1 | | Allowance for doubtful accounts | $44.3 | $45.8 | | Contract assets | $34.4 | $44.3 | | Deferred revenue | $742.2 | $877.9 | | Aggregate assets associated with incremental costs to obtain and fulfill contracts | $78.4 | $73.0 | - Deferred revenue decreased primarily due to $730.4 million of revenue recognized from the December 31, 2018 balance[35] - Amortized $73.4 million of contract costs during the nine months ended September 30, 2019[36] Note 4: Acquisitions and Dispositions Liberty Global completed significant dispositions, including the Vodafone Disposal Group for €10.0 billion ($11.1 billion) and UPC DTH for €130.5 million ($145.8 million), resulting in substantial gains - Acquired remaining 50% of De Vijver Media for €52.5 million ($58.9 million), recognizing a $25.7 million gain[38] - Sold Vodafone Disposal Group (Germany, Romania, Hungary, Czech Republic) for €10.0 billion ($11.1 billion) net cash, resulting in a $12.2 billion gain[40][41] - Sold UPC DTH for €130.5 million ($145.8 million) net cash, recognizing a $106.6 million gain[43][44] Discontinued Operations Performance | Discontinued Operations (9 Months Ended Sep 30) | 2019 (in millions) | 2018 (in millions) | |:------------------------------------------------|:-------------------|:-------------------| | Revenue | $2,054.6 | $3,058.8 | | Operating income | $1,176.3 | $1,408.8 | | Net earnings attributable to Liberty Global shareholders | $730.3 | $793.1 | | Basic and diluted EPS from discontinued operations | $1.00 | $1.01 | - The sale of UPC Switzerland to Sunrise Communications Group AG is pending shareholder approval, with a potential CHF 50.0 million ($50.1 million) termination fee if certain conditions are met[58] Note 5: Investments Total investments decreased to $4.7 billion at September 30, 2019, with equity method investments, primarily VodafoneZiggo JV, totaling $3.6 billion, and fair value investments at $1.1 billion Investment Portfolio | Investment Category | Sep 30, 2019 (in millions) | Dec 31, 2018 (in millions) | |:--------------------|:---------------------------|:---------------------------| | Equity Method Investments: | | | | VodafoneZiggo JV | $3,356.6 | $3,761.5 | | All3Media Group | $136.7 | $72.2 | | Formula E Holdings Ltd | $76.4 | $45.4 | | Other | $37.9 | $67.9 | | Total – equity | $3,607.6 | $3,947.0 | | Fair Value Investments: | | | | ITV plc | $616.6 | $634.2 | | ITI Neovision S.A. | $116.9 | $125.4 | | Lions Gate Entertainment Corp | $59.3 | $77.5 | | Casa Systems, Inc. | $19.5 | $39.5 | | Other | $308.1 | $298.2 | | Total – fair value | $1,120.4 | $1,174.8 | | Total Investments | $4,728.0 | $5,121.8 | Realized & Unrealized Gains (Losses) on Investments | Realized & Unrealized Gains (Losses) on Investments | 3 Months Ended Sep 30, 2019 (in millions) | 3 Months Ended Sep 30, 2018 (in millions) | 9 Months Ended Sep 30, 2019 (in millions) | 9 Months Ended Sep 30, 2018 (in millions) | |:----------------------------------------------------|:------------------------------------------|:------------------------------------------|:------------------------------------------|:------------------------------------------| | Lionsgate | $(15.9) | $(1.5) | $(33.7) | $(44.7) | | ITV | $70.2 | $(94.5) | $(17.6) | $(71.6) | | Casa | $4.6 | $(6.6) | $(13.8) | $(5.4) | | ITI Neovision | $0.2 | $4.9 | $0.7 | $11.6 | | Other | $(0.1) | $13.5 | $(0.8) | $1.1 | | Total | $59.0 | $(84.2) | $(65.2) | $(109.0) | Share of Results of Affiliates, Net | Share of Results of Affiliates, Net | 3 Months Ended Sep 30, 2019 (in millions) | 3 Months Ended Sep 30, 2018 (in millions) | 9 Months Ended Sep 30, 2019 (in millions) | 9 Months Ended Sep 30, 2019 (in millions) | |:------------------------------------|:------------------------------------------|:------------------------------------------|:------------------------------------------|:------------------------------------------| | VodafoneZiggo JV | $(21.8) | $(8.5) | $(124.1) | $(98.5) | | All3Media | $(11.5) | $(0.5) | $(34.2) | $(20.1) | | Formula E | $1.2 | $(0.9) | $(8.7) | $(8.1) | | Other | $(0.7) | $(1.2) | $(6.0) | $(3.2) | | Total | $(32.8) | $(11.1) | $(173.0) | $(129.9) | - VodafoneZiggo JV is experiencing significant competition, particularly in mobile operations, which could lead to future impairment charges on the investment[68] Note 6: Derivative Instruments Liberty Global uses derivative instruments to manage interest rate, foreign currency, and equity market risks, recognizing $582.1 million in net realized and unrealized gains for the three months ended September 30, 2019 - Derivative instruments are used to protect against increases in interest rates on variable-rate debt, foreign currency movements, and decreases in market prices of certain publicly traded securities[71] Derivative Instrument Fair Values | Derivative Instrument Fair Values | Sep 30, 2019 (in millions) | Dec 31, 2018 (in millions) | |:----------------------------------|:---------------------------|:---------------------------| | Total Assets | $3,273.0 | $2,496.7 | | Total Liabilities | $1,583.6 | $1,370.7 | | Net Assets (Liabilities) | $1,689.4 | $1,126.0 | Realized & Unrealized Gains on Derivative Instruments, Net | Realized & Unrealized Gains on Derivative Instruments, Net | 3 Months Ended Sep 30, 2019 (in millions) | 3 Months Ended Sep 30, 2018 (in millions) | 9 Months Ended Sep 30, 2019 (in millions) | 9 Months Ended Sep 30, 2018 (in millions) | |:-----------------------------------------------------------|:------------------------------------------|:------------------------------------------|:------------------------------------------|:------------------------------------------| | Cross-currency and interest rate derivative contracts | $567.3 | $(18.4) | $549.1 | $489.8 | | Equity-related derivative instruments | $(100.8) | $76.9 | $9.0 | $19.7 | | Foreign currency forward and option contracts | $116.3 | $6.7 | $94.1 | $20.6 | | Other | $(0.7) | $0.3 | — | $(0.4) | | Total | $582.1 | $65.5 | $652.2 | $529.7 | - The company is exposed to counterparty credit risk, which is managed through evaluation and monitoring of creditworthiness and concentration of risk[77] Note 7: Fair Value Measurements Liberty Global uses fair value measurements for investments and derivatives, categorizing inputs into Level 1, 2, and 3, with total assets measured at fair value reaching $4.4 billion at September 30, 2019 - Fair value measurements are categorized into Level 1 (quoted market prices), Level 2 (observable inputs), and Level 3 (unobservable inputs)[93] Fair Value Measurements (Assets) | Fair Value Measurements (Assets) | Sep 30, 2019 (in millions) | Level 1 (in millions) | Level 2 (in millions) | Level 3 (in millions) | |:---------------------------------|:---------------------------|:----------------------|:----------------------|:----------------------| | Derivative instruments | $3,273.0 | — | $2,536.7 | $736.3 | | Investments | $1,120.4 | $695.4 | — | $425.0 | | Total Assets | $4,393.4 | $695.4 | $2,536.7 | $1,161.3 | Fair Value Measurements (Liabilities) | Fair Value Measurements (Liabilities) | Sep 30, 2019 (in millions) | Level 1 (in millions) | Level 2 (in millions) | Level 3 (in millions) | |:--------------------------------------|:---------------------------|:----------------------|:----------------------|:----------------------| | Derivative instruments | $1,583.6 | — | $1,564.2 | $19.4 | | Debt | $218.0 | — | $218.0 | — | | Total Liabilities | $1,801.6 | — | $1,782.2 | $19.4 | - A Monte Carlo based approach is used to incorporate credit risk valuation adjustments in fair value measurements for cross-currency and interest rate swaps[94] Note 8: Long-lived Assets Net property and equipment decreased to $13.0 billion at September 30, 2019, while goodwill decreased to $13.3 billion, primarily due to foreign currency translation adjustments Property and Equipment, Net | Property and Equipment, Net | Sep 30, 2019 (in millions) | Dec 31, 2018 (in millions) | |:----------------------------|:---------------------------|:---------------------------| | Distribution systems | $17,944.8 | $17,845.4 | | Customer premises equipment | $4,445.6 | $4,191.2 | | Support equipment, buildings and land | $5,148.2 | $4,933.7 | | Total property and equipment, gross | $27,538.6 | $26,970.3 | | Accumulated depreciation | $(14,490.8) | $(13,091.4) | | Total property and equipment, net | $13,047.8 | $13,878.9 | Goodwill | Goodwill (in millions) | Jan 1, 2019 | Acquisitions related adjustments | Foreign currency translation adjustments | Sep 30, 2019 | |:-----------------------|:------------|:---------------------------------|:-----------------------------------------|:-------------|\ | U.K./Ireland | $7,671.0 | — | $(277.9) | $7,393.1 | | Belgium | $2,576.3 | $48.8 | $(123.7) | $2,501.4 | | Switzerland | $2,903.9 | — | $(43.9) | $2,860.0 | | Central and Eastern Europe | $564.6 | — | $(35.9) | $528.7 | | Total | $13,715.8 | $48.8 | $(481.4) | $13,283.2 | Intangible Assets Subject to Amortization, Net | Intangible Assets Subject to Amortization, Net | Sep 30, 2019 (in millions) | Dec 31, 2018 (in millions) | |:-----------------------------------------------|:---------------------------|:---------------------------| | Customer relationships, net | $386.9 | $758.9 | | Other, net | $269.5 | $272.3 | | Total, net | $656.4 | $1,031.2 | - Non-cash increases to property and equipment related to vendor financing arrangements were $1,303.2 million during the nine months ended September 30, 2019[107] Note 9: Debt Total debt before deferred financing costs, discounts, and premiums decreased to $27.0 billion at September 30, 2019, with a weighted average interest rate of 4.53%, following significant refinancing activities Debt Principal Amounts | Debt Category | Sep 30, 2019 Principal Amount (in millions) | Dec 31, 2018 Principal Amount (in millions) | Weighted Average Interest Rate (Sep 30, 2019) | |:-----------------------------------------------------------|:--------------------------------------------|:--------------------------------------------|:----------------------------------------------| | VM Senior Secured Notes | $6,519.5 | $6,268.3 | 5.40% | | VM Credit Facilities | $4,677.7 | $4,600.5 | 4.65% | | Telenet Credit Facility | $3,094.4 | $3,145.7 | 3.94% | | UPC Holding Bank Facility | — | $1,645.0 | — | | Vendor financing | $3,375.7 | $3,620.3 | 4.13% | | Total debt before deferred financing costs, discounts and premiums | $26,977.3 | $29,315.3 | 4.53% | Debt and Finance Lease Obligations | Debt and Finance Lease Obligations | Sep 30, 2019 (in millions) | Dec 31, 2018 (in millions) | |:-----------------------------------|:---------------------------|:---------------------------| | Total carrying amount of debt | $26,890.1 | $29,183.9 | | Finance lease obligations | $586.6 | $621.3 | | Total debt and finance lease obligations | $27,476.7 | $29,805.2 | | Current maturities | $(3,380.5) | $(3,615.2) | | Long-term debt and finance lease obligations | $24,096.2 | $26,190.0 | - Virgin Media issued $825.0 million and £300.0 million in senior secured notes, using proceeds to redeem existing notes, resulting in a $77.2 million net loss on debt modification and extinguishment[125] - UPC Holding prepaid $1,645.0 million of debt using proceeds from the Vodafone Disposal Group sale, incurring a $15.4 million loss on debt modification and extinguishment[127] Note 10: Leases Liberty Global recognizes ROU assets and lease liabilities for leases over 12 months, with total lease liabilities at $1.1 billion and total lease expense of $203.7 million for the nine months ended September 30, 2019 Lease Balances | Lease Balances (Sep 30, 2019, in millions) | ROU Assets | Lease Liabilities | |:-------------------------------------------|:-----------|:------------------| | Finance leases | $510.3 | $586.6 | | Operating leases | $502.6 | $529.6 | | Total | $1,012.9 | $1,116.2 | - Weighted average remaining lease term for finance leases was 23.7 years with a 6.1% discount rate; for operating leases, it was 7.9 years with a 4.0% discount rate[138][139] Lease Expense | Lease Expense (9 Months Ended Sep 30, 2019, in millions) | Amount | |:---------------------------------------------------------|:-------| | Total finance lease expense | $90.4 | | Operating lease expense | $103.8 | | Short-term lease expense | $6.0 | | Variable lease expense | $3.5 | | Total lease expense | $203.7 | Cash Outflows from Leases | Cash Outflows from Leases (9 Months Ended Sep 30, 2019, in millions) | Amount | |:---------------------------------------------------------------------|:-------| | Operating cash outflows from operating leases | $103.8 | | Operating cash outflows from finance leases | $25.4 | | Financing cash outflows from finance leases | $57.0 | | Total cash outflows | $186.2 | Note 11: Income Taxes Liberty Global reported an income tax benefit of $70.8 million for the three months and $16.2 million for the nine months ended September 30, 2019, primarily due to decreases in valuation allowances Income Tax Benefit (Expense) | Income Tax Benefit (Expense) (in millions) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | |:-------------------------------------------|:----------------------------|:----------------------------|:----------------------------|:----------------------------| | Computed "expected" tax benefit (expense) | $(98.2) | $22.4 | $14.3 | $37.8 | | Change in valuation allowances | $132.8 | $41.2 | $199.2 | $446.5 | | Mandatory Repatriation Tax | — | $(172.7) | — | $(1,141.2) | | Total income tax benefit (expense) | $70.8 | $(281.3) | $16.2 | $(898.5) | - Unrecognized tax benefits totaled $856.6 million at September 30, 2019, with $681.3 million having a favorable impact on the effective income tax rate if recognized[151] - Potential reductions to unrecognized tax benefits of up to $260.0 million are reasonably possible within the next 12 months, with approximately $95.0 million positively impacting the effective tax rate[152] Note 12: Equity During the nine months ended September 30, 2019, Liberty Global repurchased 119.7 million ordinary shares for an aggregate of $3.2 billion, including significant repurchases through modified Dutch auction tender offers Share Repurchases | Share Class | Shares Repurchased (9 Months Ended Sep 30, 2019) | Average Price Per Share | Aggregate Purchase Price (in millions) | |:------------|:-------------------------------------------------|:------------------------|:---------------------------------------| | Class A ordinary shares | 346,300 | $25.10 | (Included in $502.5) | | Class C ordinary shares | 19,975,282 | $24.72 | (Included in $502.5) | | Class A ordinary shares (Dutch auction) | 24,002,262 | $27.50 | (Included in $2,700.0) | | Class C ordinary shares (Dutch auction) | 75,420,009 | $27.00 | (Included in $2,700.0) | | Total Repurchases | 119,743,853 | — | $3,202.5 | - The remaining amount authorized for share repurchases was $66.4 million at September 30, 2019[155] Note 13: Share-based Compensation Aggregate share-based compensation expense increased to $228.3 million for the nine months ended September 30, 2019, including $96.8 million for performance-based awards and $82.6 million for non-performance-based awards Share-based Compensation Expense | Share-based Compensation Expense (in millions) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | |:-----------------------------------------------|:----------------------------|:----------------------------|:----------------------------|:----------------------------| | Performance-based incentive awards | $28.9 | $9.3 | $96.8 | $26.0 | | Non-performance based incentive awards | $31.6 | $18.3 | $82.6 | $64.6 | | Other | $8.0 | $8.9 | $30.5 | $29.4 | | Total Liberty Global | $68.5 | $36.5 | $209.9 | $120.0 | | Other | $5.5 | $6.3 | $18.4 | $11.0 | | Total | $74.0 | $42.8 | $228.3 | $131.0 | - The 2019 CEO Performance Award included 670,000 RSAs and 1,330,000 PSUs, with vesting contingent on performance conditions[163] - 2019 PSUs for executive officers and key employees are based on achieving a specified compound annual growth rate (CAGR) with respect to Adjusted OIBDA[164] Note 14: Restructuring Liability Restructuring liability increased to $47.0 million at September 30, 2019, due to $80.8 million in charges, primarily for employee severance and termination costs related to reorganization activities Restructuring Liability | Restructuring Liability (in millions) | Jan 1, 2019 (as adjusted) | Restructuring Charges | Cash Paid | Sep 30, 2019 | |:--------------------------------------|:--------------------------|:----------------------|:----------|:-------------| | Employee severance and termination | $14.7 | $76.8 | $(60.6) | $31.0 | | Office closures | $6.1 | $1.1 | $(2.0) | $4.3 | | Lease termination and other | $17.9 | $2.9 | $(8.3) | $11.7 | | Total | $38.7 | $80.8 | $(70.9) | $47.0 | - Restructuring charges for the nine months ended September 30, 2019, included $33.5 million in U.K./Ireland, $29.9 million in Central and Corporate, and $12.6 million in Switzerland for employee severance and termination costs[167] Note 15: Earnings or Loss per Share Basic and diluted EPS from continuing operations attributable to Liberty Global shareholders improved to $0.77 for the three months and a loss of $0.18 for the nine months ended September 30, 2019 EPS Metrics | EPS Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | |:-----------|:----------------------------|:----------------------------|:----------------------------|:----------------------------| | Net earnings (loss) from continuing operations attributable to Liberty Global shareholders | $550.0 million | $(450.6) million | $(134.7) million | $(1,191.0) million | | Weighted average ordinary shares outstanding (basic) | 714,234,500 | 793,544,759 | 730,476,710 | 787,649,342 | | Basic and diluted EPS from continuing operations | $0.77 | $(0.57) | $(0.18) | $(1.51) | - 61.1 million options, SARs, RSUs, and RSAs, and 25.2 million PSARs and PSUs were excluded from diluted EPS calculation for the three months ended September 30, 2019, due to their anti-dilutive effect or unfulfilled performance criteria[170] Note 16: Commitments and Contingencies Total contractual commitments reached $5.4 billion as of September 30, 2019, with significant programming and network commitments, alongside ongoing legal and regulatory proceedings Contractual Commitments | Commitment Category | Total (in millions) | |:--------------------|:--------------------| | Programming commitments | $2,552.5 | | Network and connectivity commitments | $1,875.4 | | Purchase commitments | $892.6 | | Other commitments | $34.8 | | Total Commitments | $5,355.3 | - Telenet is involved in the Interkabel Acquisition litigation, with Proximus claiming €1.4 billion ($1.5 billion) in damages, though the company does not expect a material impact[181][182] - Belgium Regulatory Authorities upheld a decision imposing wholesale broadband access obligations on Telenet, with proposed tariffs representing an estimated additional 25% reduction compared to interim prices[184][185] - Virgin Media faces VAT matters in the U.K. with an estimated maximum exposure of £47 million ($58 million), with no accrual as loss is not considered probable[186] Note 17: Segment Reporting Liberty Global's total revenue was $8.6 billion (down 5.0% YoY) and Adjusted OIBDA was $3.6 billion (down 6.9% YoY) for the nine months ended September 30, 2019, with U.K./Ireland as the largest segment - Reportable segments include U.K./Ireland, Belgium, Switzerland, Central and Eastern Europe (Poland and Slovakia), and the non-consolidated VodafoneZiggo JV[194] - Adjusted OIBDA is the primary measure for evaluating segment operating performance, defined as operating income before depreciation and amortization, share-based compensation, provisions related to significant litigation, and impairment, restructuring, and other operating items[193] Segment Performance | Segment Performance (9 Months Ended Sep 30) | 2019 Revenue (in millions) | 2018 Revenue (in millions) | 2019 Adjusted OIBDA (in millions) | 2018 Adjusted OIBDA (in millions) | |:--------------------------------------------|:---------------------------|:---------------------------|:----------------------------------|:----------------------------------| | U.K./Ireland | $4,885.2 | $5,180.8 | $2,085.5 | $2,268.3 | | Belgium | $2,147.0 | $2,260.3 | $1,047.0 | $1,124.7 | | Switzerland | $942.7 | $1,000.4 | $500.8 | $566.5 | | Central and Eastern Europe | $355.4 | $373.1 | $173.3 | $185.2 | | Central and Corporate | $231.4 | $197.4 | $(222.0) | $(283.3) | | Intersegment eliminations | $(2.4) | $(3.2) | $1.1 | $(11.5) | | Total Consolidated | $8,559.3 | $9,008.8 | $3,585.7 | $3,849.9 | | VodafoneZiggo JV | $3,275.3 | $3,468.5 | $1,481.5 | $1,534.7 | Property and Equipment Additions by Segment | Property and Equipment Additions (9 Months Ended Sep 30, in millions) | 2019 | 2018 | |:------------------------------------------------------|:-----|:-----| | U.K./Ireland | $1,128.5 | $1,495.8 | | Belgium | $397.8 | $564.6 | | Switzerland | $207.2 | $164.9 | | Central and Eastern Europe | $66.2 | $99.1 | | Central and Corporate | $240.4 | $409.9 | | Total property and equipment additions | $2,040.1 | $2,734.3 | Note 18: Subsequent Events Subsequent to September 30, 2019, Virgin Media and Telenet completed significant financing transactions, including new term loan facilities and senior secured notes, to prepay existing debt - Virgin Media entered into new term loan facilities ($3,300.0 million USD, €750.0 million EUR) and issued £400.0 million GBP senior secured notes in October 2019[211] - Proceeds from Virgin Media's financing were used to prepay $3,400.0 million in term loans and redeem $1,000.0 million USD and £300.0 million GBP senior secured notes[211] - Telenet increased term loan commitments by $220.0 million USD and €175.0 million EUR to prepay €371.0 million in term loans and redeem notes[212] MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-looking Statements This section highlights that the report contains forward-looking statements, which involve inherent risks and uncertainties that could cause actual results to differ materially from expectations - Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from expectations[216] - Key risk factors include economic conditions, competitive environment, currency and interest rate fluctuations, global financial market instability, consumer behavior, technological changes, regulatory compliance, and the impact of acquisitions and dispositions[216][218] - The company disclaims any obligation to update or revise forward-looking statements due to the rapidly changing broadband distribution and mobile service industries[219] Overview Liberty Global is an international provider of communications services in Europe, serving 25.5 million homes passed and 25.1 million revenue generating units as of September 30, 2019, amidst significant competition and macroeconomic challenges - Liberty Global is an international provider of video, broadband internet, fixed-line telephony, and mobile communications services to residential and businesses in Europe[221] Key Operational Metrics | Metric (as of Sep 30, 2019) | Count | |:----------------------------|:----------| | Homes passed | 25,576,300 | | Revenue generating units (RGUs) | 25,175,800 | | Video subscribers | 8,372,500 | | Broadband internet subscribers | 9,329,500 | | Fixed-line telephony subscribers | 7,473,800 | | Mobile subscribers | 6,207,700 | - Connected approximately 458,000 additional residential and commercial premises through Network Extensions during the first nine months of 2019[224] - Significant competition and macroeconomic factors, including Brexit uncertainty, are adversely impacting revenue, RGUs, and ARPU[225][226] Material Changes in Results of Operations Consolidated revenue decreased by 3.0% for the three months and 5.0% for the nine months ended September 30, 2019, while net earnings significantly increased due to substantial gains from discontinued operations disposal Consolidated Operating Results | Metric | 3 Months Ended Sep 30, 2019 (in millions) | 3 Months Ended Sep 30, 2018 (in millions) | 9 Months Ended Sep 30, 2019 (in millions) | 9 Months Ended Sep 30, 2018 (in millions) | |:-------|:------------------------------------------|:------------------------------------------|:------------------------------------------|:------------------------------------------| | Total Revenue | $2,840.9 | $2,929.7 | $8,559.3 | $9,008.8 | | Organic Revenue Change | $(9.5) (-0.3%) | — | $(56.3) (-0.6%) | — | | Total Adjusted OIBDA | $1,211.7 | $1,284.7 | $3,585.7 | $3,849.9 | | Organic Adjusted OIBDA Change | $(46.4) (-3.5%) | — | $(102.0) (-2.6%) | — | | Net Earnings | $12,885.1 | $1,025.9 | $12,983.3 | $797.8 | | Programming and other direct costs of services | $801.8 | $787.7 | $2,388.5 | $2,438.3 | | Other operating expenses (excl. share-based comp) | $398.6 | $425.6 | $1,233.9 | $1,311.9 | | SG&A expenses (excl. share-based comp) | $428.8 | $431.7 | $1,351.2 | $1,408.7 | | Share-based compensation expense | $74.0 | $42.8 | $228.3 | $131.0 | | Depreciation and amortization | $892.9 | $929.4 | $2,754.3 | $2,934.1 | | Impairment, restructuring and other operating items, net | $36.0 | $107.3 | $140.1 | $197.9 | | Interest expense | $(340.1) | $(363.0) | $(1,071.0) | $(1,118.7) | | Realized and unrealized gains on derivative instruments, net | $582.1 | $65.5 | $652.2 | $529.7 | | Foreign currency transaction gains, net | $54.2 | $96.6 | $165.8 | $46.4 | | Losses on debt modification and extinguishment, net | $(48.5) | $(27.7) | $(97.3) | $(50.4) | | Share of results of affiliates, net | $(32.8) | $(11.1) | $(173.0) | $(129.9) | | Other income, net | $36.3 | $16.0 | $75.3 | $32.2 | | Income tax benefit (expense) | $70.8 | $(281.3) | $16.2 | $(898.5) | | Earnings (loss) from continuing operations | $587.2 | $(399.4) | $(59.3) | $(1,097.6) | | Earnings from discontinued operations, net of taxes | $92.2 | $327.2 | $730.3 | $797.3 | | Gain on disposal of discontinued operations, net of taxes | $12,205.7 | $1,098.1 | $12,312.3 | $1,098.1 | | Net earnings attributable to Liberty Global shareholders | $12,847.9 | $974.1 | $12,907.9 | $700.2 | - Consolidated revenue decreased organically by 0.3% for the three months and 0.6% for the nine months, primarily due to declines in residential cable and mobile subscription revenue[272][273][275] - Adjusted OIBDA margins for U.K./Ireland, Belgium, Switzerland, and Central and Eastern Europe ranged from 42.7% to 53.9% for the three months ended September 30, 2019[265] - Share-based compensation expense increased significantly to $228.3 million for the nine months ended September 30, 2019, from $131.0 million in the prior year[301] - Net earnings were substantially boosted by a $12.2 billion gain on disposal of the Vodafone Disposal Group and a $106.6 million gain on disposal of UPC DTH[345] Material Changes in Financial Condition Liberty Global's corporate liquidity is primarily derived from cash held by Liberty Global and its unrestricted subsidiaries, with consolidated cash and cash equivalents at $7.4 billion as of September 30, 2019 Cash and Cash Equivalents Breakdown | Cash and Cash Equivalents (Sep 30, 2019, in millions) | Amount | |:------------------------------------------------------|:-------| | Liberty Global and unrestricted subsidiaries | $7,144.3 | | Borrowing groups | $237.7 | | Total cash and cash equivalents | $7,382.0 | - The ratio of consolidated debt to annualized consolidated Adjusted OIBDA was 5.1x at September 30, 2019, with net debt to Adjusted OIBDA at 3.6x[361] - Total outstanding principal amount of consolidated debt and finance lease obligations aggregated $27.6 billion at September 30, 2019, with $20.4 billion not due until 2025 or thereafter[363] Cash Flow Summary | Cash Flow Summary (9 Months Ended Sep 30, in millions) | 2019 | 2018 | |:-------------------------------------------------------|:-----|:-----| | Net cash provided by operating activities | $2,220.2 | $2,707.5 | | Net cash provided by investing activities | $9,809.3 | $795.2 | | Net cash used by financing activities | $(6,434.8) | $(5,415.6) | | Net increase (decrease) in cash and cash equivalents | $5,562.1 | $(1,944.7) | Adjusted Free Cash Flow | Adjusted Free Cash Flow (9 Months Ended Sep 30, in millions) | 2019 | 2018 | |:-------------------------------------------------------------|:-----|:-----| | Net cash provided by operating activities of continuing operations | $2,220.2 | $2,707.5 | | Capital expenditures, net | $(900.1) | $(1,138.5) | | Principal payments on amounts financed by vendors and intermediaries | $(3,069.2) | $(3,918.0) | | Adjusted free cash flow | $(143.4) | $(970.2) | Contractual Commitments | Contractual Commitments (Sep 30, 2019, in millions) | Total | |:------------------------------------|:------| | Debt (excluding interest) | $26,977.3 | | Finance leases (excluding interest) | $586.6 | | Operating leases | $628.4 | | Programming commitments | $2,552.5 | | Network and connectivity commitments | $1,875.4 | | Purchase commitments | $892.6 | | Other commitments | $34.8 | | Total | $33,547.6 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK General Liberty Global is exposed to market risk from foreign currency exchange rates, interest rates, and stock prices, which it manages through established policies and derivative instruments - The company is exposed to market risk from foreign currency exchange rates, interest rates, and stock prices[384] - Market risks are managed through established policies, procedures, and the use of derivative instruments[384] Cash Liberty Global invests its cash in highly liquid, high-credit-quality instruments, with 91.7% of consolidated cash denominated in U.S. dollars and 6.5% in euros as of September 30, 2019 - Cash is invested in highly liquid instruments meeting high credit quality standards[387] - Exchange rate risk on cash balances is mitigated by actively managing denominations based on forecasted liquidity requirements[387] - At September 30, 2019, 91.7% of consolidated cash was in U.S. dollars and 6.5% in euros[387] Foreign Currency Risk Liberty Global manages foreign currency exchange rate risk, which arises when debt is denominated in a currency other than the functional currency of supporting operations, primarily through derivative instruments - Foreign currency exchange rate risk arises when debt is denominated in a currency different from the functional currency of supporting operations[388] - Derivative instruments are used to manage foreign currency exchange rate risk, with most debt directly or synthetically matched to functional currencies[388][78] Key Exchange Rates | Currency | Spot Rate (Sep 30, 2019) | Spot Rate (Dec 31, 2018) | Average Rate (9 Months Ended Sep 30, 2019) | Average Rate (9 Months Ended Sep 30, 2018) | |:---------|:-------------------------|:-------------------------|:-------------------------------------------|:-------------------------------------------| | Euro | 0.9172 | 0.8732 | 0.8900 | 0.8374 | | British pound sterling | 0.8137 | 0.7846 | 0.7858 | 0.7405 | | Swiss franc | 0.9979 | 0.9828 | 0.9951 | 0.9722 | | Hungarian forint | 306.99 | 280.21 | 287.54 | 265.96 | | Polish zloty | 4.0089 | 3.7454 | 3.8284 | 3.5588 | Interest Rate Risks Liberty Global is exposed to interest rate changes from its fixed-rate and variable-rate debt, primarily EURIBOR-indexed and LIBOR-indexed, which it manages using derivative instruments - Exposure to interest rate changes primarily stems from EURIBOR-indexed and LIBOR-indexed variable-rate debt[392] - Derivative instruments (swaps, caps, collars, swaptions) are used to mitigate interest rate risk, typically for five years[393] - The potential cessation of LIBOR and reform of EURIBOR after 2021 introduce uncertainty, but loan documents contemplate alternative base rate calculations[394] - A hypothetical 50 basis point increase in the weighted average variable interest rate would increase annual consolidated interest expense by $50.0 million, largely offset by derivative contracts[395][397] Sensitivity Information A 10% change in key foreign currency exchange rates or a 50 basis point change in base rates would significantly impact the fair value of Liberty Global's derivative contracts - A 10% change in GBP/USD would impact Virgin Media's cross-currency and interest rate derivative contracts by approximately £595 million ($731 million)[399] - A 10% change in CHF, PLN, and HUF relative to EUR would impact UPC Holding's cross-currency and interest rate derivative contracts by approximately €386 million ($421 million)[399] - A 10% change in EUR/USD would impact Telenet's cross-currency derivative contracts by approximately €338 million ($369 million)[400] - A 50 basis point change in the relevant base rate would impact Telenet's cross-currency, interest rate cap, and swap contracts by approximately €99 million ($108 million)[400] Projected Cash Flows Associated with Derivative Instruments Projected net cash payments for derivative instruments total $(2.6 billion), based on September 30, 2019, interest rate projections and exchange rates, covering interest, principal, and equity-related derivatives Projected Derivative Cash Flows, Net | Projected Derivative Cash Flows, Net (in millions) | Remainder of 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | |:---------------------------------------------------|:------------------|:-----|:-----|:-----|:-----|:-----|:-----------|:------| | Interest-related | $(285.4) | $9.9 | $(27.5) | $54.4 | $(3.2) | $(63.5) | $(14.0) | $(329.3) | | Principal-related | $5.5 | $43.6 | $(122.1) | $(181.8) | $(196.3) | $(102.3) | $(1,023.1) | $(1,576.5) | | Other | $23.0 | $(67.7) | $(469.0) | $(182.0) | — | — | — | $(695.7) | | Total | $(256.9) | $(14.2) | $(618.6) | $(309.4) | $(199.5) | $(165.8) | $(1,037.1) | $(2,601.5) | - Projected cash flows are based on September 30, 2019, interest rate projections and exchange rates and are illustrative[402] CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Liberty Global's management concluded that the company's disclosure controls and procedures were effective as of September 30, 2019, providing reasonable assurance for timely and accurate SEC filings - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2019[406] - Controls provide reasonable assurance that information for SEC filings is recorded, processed, summarized, and reported within specified time periods[406] Changes in Internal Controls over Financial Reporting No material changes in internal controls over financial reporting were identified during the fiscal quarter ended September 30, 2019 - No material changes in internal controls over financial reporting occurred during the quarter ended September 30, 2019[407] PART II — OTHER INFORMATION Unregistered Sales of Equity Securities and Use of Proceeds During September 2019, Liberty Global repurchased 99.4 million Class A and Class C ordinary shares through modified Dutch auction tender offers, with $66.4 million remaining authorized for repurchases Share Repurchase Activity | Period | Share Class | Total Number of Shares Purchased | Average Price Paid Per Share | |:-------|:------------|:---------------------------------|:-----------------------------| | Sep 1, 2019 - Sep 30, 2019 | Class A | 24,002,262 | $27.50 | | Sep 1, 2019 - Sep 30, 2019 | Class C | 75,420,009 | $27.00 | | Jul 1, 2019 - Sep 30, 2019 | Class A | 24,002,262 | $27.50 | | Jul 1, 2019 - Sep 30, 2019 | Class C | 75,420,009 | $27.00 | - These repurchases were part of modified Dutch auction tender offers announced on August 7, 2019, which expired on September 10, 2019[410] - The remaining amount authorized for share repurchases was $66.4 million as of September 30, 2019[410] Exhibits This section lists the exhibits filed as part of the Quarterly Report, including plans of acquisition, instruments defining rights of securities holders, and material contracts - Exhibits include plans of acquisition (e.g., Amended Sale and Purchase Agreement with Vodafone Group plc)[411] - Instruments defining rights of securities holders include supplemental indentures for Virgin Media Senior Secured Notes and accession agreements for Telenet and Virgin Media credit facilities[412][413][414][415][417] - Material contracts include various forms of share appreciation rights, restricted share units, and performance grant award agreements under the Liberty Global 2014 Incentive Plan[418] Signatures The report is signed by Michael T. Fries, President and Chief Executive Officer, and Charles H.R. Bracken, Executive Vice President and Chief Financial Officer, certifying compliance with SEC requirements - The report is signed by Michael T. Fries, President and Chief Executive Officer, and Charles H.R. Bracken, Executive Vice President and Chief Financial Officer[419] - Signatures certify compliance with the requirements of the Securities Exchange Act of 1934[419]