Liberty .(LBTYA) - 2022 Q4 - Annual Report

PART I Business Liberty Global is an international converged fixed and mobile communications company focused on European markets, offering broadband, video, fixed-line, and mobile services - Liberty Global is an international converged fixed and mobile communications company, serving over 86 million subscribers across its operating companies as of December 31, 2022[4] - The company has executed several strategic transactions to focus on core markets, including the acquisition of Sunrise in Switzerland (2020), the formation of the VMO2 JV in the U.K. (2021), and the disposition of its Polish operations (2022)[7][8][9] Primary Business Operations and Ownership (as of Dec 31, 2022) | Brand | Entity | Location | Ownership | | :--- | :--- | :--- | :--- | | Sunrise | Sunrise | Switzerland | 100.0% | | Telenet | Telenet | Belgium | 61.1% | | Virgin Media | Ireland | Ireland | 100.0% | | UPC Slovakia | Slovakia | Slovakia | 100.0% | | Virgin Media O2 | United Kingdom (U.K.) | 50.0% | | VodafoneZiggo | Netherlands | 50.0% | 2022 Share Repurchases | Title of shares | Number of shares | Average price paid per share | Aggregate purchase price (in millions) | | :--- | :--- | :--- | :--- | | Class A ordinary shares | 3,856,700 | $21.55 | $83.1 | | Class C ordinary shares | 69,381,968 | $23.34 | $1,619.5 | | Total | 73,238,668 | | $1,702.6 | Key Operating Data (as of Dec 31, 2022) | Segment | Homes Passed | Fixed-Line Customer Relationships | Internet Subscribers | Video Subscribers | Telephony Subscribers | Mobile Subscribers | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Consolidated Total | 7,553,400 | 4,083,200 | 3,443,100 | 3,336,800 | 2,357,300 | 5,850,300 | | VMO2 JV | 16,144,600 | 5,795,500 | 5,653,800 | N/A | N/A | 33,831,400 | | VodafoneZiggo JV | 7,373,300 | 3,676,200 | 3,307,000 | 3,664,700 | 1,786,600 | 5,527,600 | Risk Factors The company faces significant risks from intense competition, technological changes, third-party reliance, international operations, and substantial financial leverage - The company operates in highly competitive markets, facing pressure from incumbent telecom operators, FTTx network builders, and OTT video providers, which could lead to increased customer churn and impact revenue and margins[180][182] - A significant risk is the dependence on third-party suppliers for programming content, where failure to acquire popular programming on acceptable terms could adversely affect the business[186] - Cybersecurity breaches and leakage of sensitive customer data pose a major threat that could disrupt operations, reduce the customer base, and result in fines, litigation, or lost revenue[194][195] - The company's substantial leverage, with consolidated debt and finance lease obligations of $13.8 billion at year-end 2022, could limit its ability to obtain additional financing and is dependent on maintaining Adjusted EBITDA levels[231] - Operations are almost exclusively outside the U.S., exposing the company to risks from foreign currency exchange rate fluctuations, adverse regulations, and economic and political instability[199][207] Unresolved Staff Comments The company reports no unresolved staff comments - None[260] Properties The company leases corporate offices and its subsidiaries own or lease necessary fixed assets, which management deems adequate for operations - Corporate offices in London (U.K.), Denver (U.S.), and Amsterdam (Netherlands) are leased[262] - Subsidiaries and affiliates own or lease all necessary fixed assets for business operations, including network infrastructure and customer premises equipment, which management considers suitable and adequate[263] Legal Proceedings The company's subsidiaries and affiliates are involved in litigation from time to time in the normal course of business - The company is involved in litigation arising from normal business operations, with detailed information available in note 18 of the consolidated financial statements[263] Mine Safety Disclosures This item is not applicable to the company - Not applicable[264] PART II Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Liberty Global's ordinary shares trade on Nasdaq, with no cash dividends paid, and an active share repurchase program authorized for 2023 - The company's ordinary shares trade on the Nasdaq Global Select Market under the symbols LBTYA, LBTYB, and LBTYK[267] - The company has not paid any cash dividends on its ordinary shares and has no present intention of doing so[271] - Under the current repurchase program, the company is authorized to repurchase approximately 45.9 million shares during 2023, representing 10% of total outstanding shares at the beginning of the year[273] Issuer Purchases of Equity Securities (Q4 2022) | Period | Total number of shares purchased (Class C) | Average price paid per share | | :--- | :--- | :--- | | Oct 1 - Oct 31, 2022 | 6,634,155 | $17.38 | | Nov 1 - Nov 30, 2022 | — | — | | Dec 1 - Dec 31, 2022 | — | — | | Total Q4 2022 | 6,634,155 | $17.38 | Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated revenue and Adjusted EBITDA decreased significantly in 2022 due to the U.K. JV deconsolidation, while liquidity remains strong despite substantial debt Consolidated Revenue and Adjusted EBITDA (2022 vs 2021) | Metric | 2022 (in millions) | 2021 (in millions) | Reported Change | Organic Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $7,195.7 | $10,311.3 | (30.2)% | +1.7% | | Adjusted EBITDA | $2,595.4 | $3,963.1 | (34.5)% | (1.8)% | - The significant year-over-year decrease in reported revenue and Adjusted EBITDA is primarily due to the U.K. JV Transaction on June 1, 2021, which resulted in the deconsolidation of the U.K. operations[296][331] Reconciliation of Earnings from Continuing Operations to Adjusted EBITDA (2022) | Line Item | Amount (in millions) | | :--- | :--- | | Earnings from continuing operations | $1,105.3 | | Add: Income tax expense | $318.9 | | Add: Net non-operating expenses | $1,024.4 | | Add: Depreciation & amortization | $2,171.4 | | Add: Share-based compensation | $192.1 | | Less: Operating income | ($146.8) | | Add: Impairment, restructuring, etc. | $85.1 | | Adjusted EBITDA | $2,595.4 | - At December 31, 2022, the company had $1.7 billion in cash and cash equivalents and $2.9 billion in investments held under Separately-Managed Accounts (SMAs)[395] - Adjusted Free Cash Flow was $1,118.0 million for the year ended December 31, 2022, compared to $1,289.5 million in 2021[426] Quantitative and Qualitative Disclosures About Market Risk The company manages market risks including foreign currency fluctuations, interest rate changes, and counterparty credit risk through various strategies - The company is exposed to foreign currency risk as its primary revenue-generating currencies are the euro and Swiss franc, while its reporting currency is the U.S. dollar, and it uses derivative instruments to synthetically match the currency of its debt with the functional currency of its operations[451][453] - Interest rate risk is managed through derivative instruments like swaps, caps, and collars to protect against increases in rates on its variable-rate debt, which aggregated $9.3 billion at year-end 2022[457][458][462] - The company faces counterparty credit risk with derivative assets valued at $0.9 billion and undrawn debt facilities of $1.5 billion as of December 31, 2022, with this risk spread across a broad base of financial institutions[463][465] Projected Net Derivative Cash Flows (as of Dec 31, 2022) | Period | Net Payments/(Receipts) (in millions) | | :--- | :--- | | 2023 | ($90.2) | | 2024 | ($379.2) | | 2025 | ($249.9) | | 2026 | ($222.3) | | 2027 | ($268.6) | | Thereafter | ($352.1) | | Total | ($1,562.3) | Financial Statements and Supplementary Data This section contains the audited consolidated financial statements of Liberty Global plc for the three-year period ended December 31, 2022, including the Consolidated Balance Sheets, Statements of Operations, Comprehensive Earnings (Loss), Equity, and Cash Flows, along with detailed notes to the financial statements Consolidated Financial Statements This section presents the audited consolidated financial statements, including balance sheets, statements of operations, and cash flows Consolidated Balance Sheet Summary (as of Dec 31) | Account | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Total current assets | $6,297.4 | $5,940.5 | | Total assets | $42,895.0 | $46,917.0 | | Total current liabilities | $3,921.0 | $4,084.8 | | Total liabilities | $20,321.6 | $21,319.0 | | Total equity | $22,573.4 | $25,598.0 | Consolidated Statement of Operations Summary (Year ended Dec 31) | Account | 2022 (in millions) | 2021 (in millions) | 2020 (in millions) | | :--- | :--- | :--- | :--- | | Revenue | $7,195.7 | $10,311.3 | $11,545.4 | | Operating income | $146.8 | $1,320.3 | $2,030.9 | | Earnings (loss) from continuing operations | $1,105.3 | $13,527.5 | ($1,525.1) | | Net earnings (loss) | $1,986.3 | $13,610.1 | ($1,466.7) | Consolidated Statement of Cash Flows Summary (Year ended Dec 31) | Account | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,786.7 | $3,364.0 | | Net cash provided (used) by investing activities | $1,296.6 | ($5,745.5) | | Net cash used by financing activities | ($3,273.4) | ($1,512.6) | Notes to Consolidated Financial Statements The notes provide detailed explanations of accounting policies and financial figures, covering significant transactions, investments, debt, and equity - On April 1, 2022, the company sold its UPC Poland operations for net cash proceeds of $1,553.3 million, recognizing a gain of $846.4 million, with these operations now presented as discontinued[604][605] - On June 1, 2021, the company contributed its U.K. operations to the VMO2 JV, recognizing a pre-tax gain of $10,873.8 million, with the 50% interest now accounted for using the equity method[616][618] Carrying Value of Key Equity Method Investments (as of Dec 31) | Investment | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | VMO2 JV | $9,790.9 | $13,774.7 | | VodafoneZiggo JV | $2,345.8 | $2,572.4 | - Total debt before deferred financing costs was $13.4 billion at December 31, 2022, with $12.5 billion maturing after 2027[708][732] - Subsequent to year-end, on February 13, 2023, the company acquired a 4.92% interest in Vodafone for an aggregate purchase price of £1.23 billion ($1.49 billion)[866] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[478] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that disclosure controls and procedures were effective as of December 31, 2022[478] - Management assessed internal control over financial reporting as effective as of December 31, 2022, based on the COSO framework (2013)[483] - KPMG LLP, the independent registered public accounting firm, provided an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2022[485] Other Information This item is not applicable to the company - Not applicable[480] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[480] PART III Directors, Executive Officers and Corporate Governance Information required for this item is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Shareholders - This section is incorporated by reference to the definitive proxy statement for the 2023 Annual General Meeting of Shareholders[870] Executive Compensation Information required for this item is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Shareholders - This section is incorporated by reference to the definitive proxy statement for the 2023 Annual General Meeting of Shareholders[870] Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters This section details securities authorized for issuance under equity compensation plans and incorporates other security ownership information by reference Equity Compensation Plan Information (as of Dec 31, 2022) | Plan Category | Securities to be issued upon exercise of outstanding options, etc. | Weighted-average exercise price | Securities available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | | | | | Liberty Global Class A ordinary shares | 26,695,384 | N/A | 57,118,806 (total) | | Liberty Global Class C ordinary shares | 62,311,843 | N/A | | Certain Relationships and Related Transactions, and Director Independence Information required for this item is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Shareholders - This section is incorporated by reference to the definitive proxy statement for the 2023 Annual General Meeting of Shareholders[870] Principal Accountant Fees and Services Information required for this item is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Shareholders - This section is incorporated by reference to the definitive proxy statement for the 2023 Annual General Meeting of Shareholders[870] - The independent registered public accounting firm is KPMG LLP, Denver, CO (Auditor Firm ID: 185)[868] PART IV Exhibits, Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Annual Report on Form 10-K - This section contains the list of all financial statements, schedules, and exhibits filed with the Form 10-K[880][882] Form 10-K Summary The company reports no Form 10-K summary - None[888]