Liberty Latin America(LILA) - 2021 Q4 - Annual Report

PART I Item 1. BUSINESS Liberty Latin America provides fixed, mobile, and subsea telecom services across Latin America and the Caribbean, expanding via acquisitions and network upgrades - Liberty Latin America is an international provider of fixed, mobile, and subsea telecommunications services, operating in over 20 countries across Latin America and the Caribbean[25][27] - The company has expanded its footprint by passing or upgrading over 1.6 million homes and commercial premises in the past three years[27] - Key strategic transactions include the acquisition of Telefónica S.A.'s operations in Costa Rica (August 2021, $500 million enterprise value), AT&T's wireless and wireline operations in Puerto Rico and USVI (October 2020, $1.95 billion enterprise value), and pending acquisitions of América Móvil's operations in Panama (expected H1 2022, $200 million enterprise value) and the formation of a 50:50 Chile JV with América Móvil (expected H2 2022)[27][30] General Development of Business - Liberty Latin America was formed on July 11, 2017, and includes C&W, Liberty Communications PR, VTR, and Cabletica (now Costa Rica segment)[24] - Organizational changes in Q1 2021 separated VTR and Cabletica into distinct operating segments, with Cabletica and Telefónica Costa Rica forming the new Costa Rica segment after the August 2021 acquisition[25] - Effective September 29, 2021, Chile JV Entities were classified as 'held for sale' in anticipation of a 50:50 joint venture with América Móvil, expected to close in H2 2022[26][28] Description of Business - The company is a leading communications provider in Puerto Rico, Chile, Panama, Costa Rica, and the Caribbean, offering video, broadband internet, telephony, and mobile services, often bundled[34] - Business products include enterprise-grade connectivity, data center, hosting, managed solutions, and IT solutions, supported by an extensive subsea and terrestrial fiber optic cable network connecting ~40 markets[35] - As of December 31, 2021, the company passed 8.35 million homes, served 6.44 million RGUs (2.85M broadband, 1.98M video, 1.61M fixed-line telephony), and 7.54 million mobile subscribers[41] Operating Data Operating Data as of December 31, 2021 | Segment | Homes Passed | Two-way Homes Passed | Customer Relationships | Total RGUs | Video RGUs | Internet RGUs | Telephony RGUs | Mobile Subscribers | Prepaid | Postpaid | | :----------------------- | :----------- | :------------------- | :--------------------- | :--------- | :--------- | :------------ | :------------- | :----------------- | :-------- | :--------- | | C&W Caribbean & Networks | 1,581,300 | 1,561,500 | 833,700 | 1,695,800 | 364,000 | 729,700 | 602,100 | 1,821,400 | 1,650,500 | 170,900 | | C&W Panama | 774,300 | 774,300 | 200,200 | 467,100 | 108,200 | 179,400 | 179,500 | 1,712,200 | 1,550,900 | 161,300 | | Liberty Puerto Rico | 1,160,200 | 1,160,200 | 520,500 | 977,100 | 245,700 | 478,900 | 252,500 | 1,022,400 | 199,900 | 822,500 | | VTR | 4,175,900 | 3,809,300 | 1,388,800 | 2,824,300 | 1,060,500 | 1,218,900 | 544,900 | 251,200 | 8,200 | 243,000 | | Costa Rica | 663,100 | 657,200 | 283,200 | 476,700 | 200,800 | 243,300 | 32,600 | 2,733,100 | 2,031,200 | 701,900 | | Total | 8,354,800| 7,962,500 | 3,226,400 | 6,441,000| 1,979,200| 2,850,200 | 1,611,600 | 7,540,300 | 5,440,700 | 2,099,600 | Fixed Network and Product Penetration Data (%) as of December 31, 2021 | Market | Two-way homes passed (%) | Cable (%) | FTTH (%) | VDSL (%) | Television (%) | Broadband internet (%) | Fixed-line telephony (%) | Double-play (%) | Triple-play (%) | | :----------- | :----------------------- | :-------- | :------- | :------- | :------------- | :--------------------- | :----------------------- | :-------------- | :-------------- | | Panama | 100 | 46 | 37 | 17 | 14 | 23 | 23 | 39 | 47 | | Jamaica | 100 | 43 | 27 | 30 | 21 | 46 | 46 | 45 | 39 | | The Bahamas | 100 | — | 49 | 51 | 8 | 25 | 27 | 50 | 18 | | Trinidad and Tobago | 100 | 100 | — | — | 31 | 42 | 26 | 9 | 50 | | Barbados | 100 | — | 100 | — | 26 | 52 | 51 | 31 | 42 | | Other C&W | 94 | 58 | 23 | 19 | 22 | 58 | 37 | 33 | 18 | | Chile | 91 | 86 | 14 | — | 25 | 32 | 14 | 33 | 35 | | Costa Rica | 99 | 91 | 9 | — | 30 | 37 | 5 | 48 | 10 | | Puerto Rico | 100 | 95 | 5 | — | 21 | 41 | 22 | 12 | 38 | Products and Services - Liberty Latin America offers converged mobile, broadband, video, and fixed-line telephony services across its operating footprint, enhancing customer choice and retention[61][62] - Mobile services are offered on postpaid or prepaid bases, with contract terms typically ranging from 12 to 24 months for postpaid plans, and include voice, SMS, and data plans[66] - Broadband internet services are expanding with ultrafast speeds, leveraging FTTH and HFC networks, and offering multiple tiers of service with value-added features like security and online storage[67][68][69][70] - Video services are enhanced with next-generation digital television platforms, DVR, VoD, and 'TV Everywhere' mobile applications, offering multiple tiers and HD channels[71][72] - Business services include cloud-based integrated communication, connectivity, and wholesale solutions over a 50,000 km subsea and terrestrial fiber optic cable network, supporting various industry segments[77][81][82] Technology - The company primarily uses HFC and increasingly FTTH networks for broadband internet, video, and fixed-line telephony, with approximately 95% of networks supporting two-way communications[84][85] - Network extension and upgrade programs (Network Extensions) are expanding fixed networks to pass more homes and businesses, and mobile service opportunities are pursued where cable networks are established to offer converged services[85] - Actions to increase network capacity and enhance customer experience include increasing nodes, upgrading HFC bandwidth, converting analog to digital, and replacing copper lines with fiber optics[88] Mobile - Mobile networks operate in all consumer markets except Chile (MVNO), delivering high-speed services with over 90% LTE population coverage, and 5G networks in Puerto Rico and USVI[89] - Significant capital is invested in expanding network capacity and reach, including building a virtualized, redundant mobile core in Puerto Rico for regional resilience[90] Supply Sources - Programming content is licensed from third-party providers, with a strategy focused on product accessibility, competitive pricing, and strategic partnerships to aggregate content[91][92] - The company relies on a variety of suppliers for mobile handsets, customer premises equipment (set-top boxes, modems, WiFi routers), and network equipment, often employing dual sourcing strategies[93] - Software licenses for internet services, internal IT platforms, and mobile/fixed-line telephony services are obtained from various suppliers, typically under long-term contracts[94] - For MVNO services in Chile, the company depends on third-party wireless network providers, with medium to long-term arrangements sought to carry mobile communications traffic[95] Regulatory Matters - Telecommunications businesses are regulated in each market, with varying scopes of regulation that can impact growth, revenue, service offerings, and operating costs[96] - C&W Caribbean and Networks, as an incumbent provider in many jurisdictions, faces significant regulatory oversight, including price caps, interconnect charges, and potential mandates for third-party network access[97][101][103] - In Panama, C&W Panama operates under concessions for mobile, fixed, and pay TV services, with ongoing regulatory discussions regarding mobile market consolidation and spectrum pricing[116][117][118][123][126][128] - Liberty Puerto Rico is subject to FCC and local TB regulations, including universal service obligations (UPR Fund, Lifeline, E-Rate) and specific conditions from the DOJ related to the AT&T Acquisition[134][137][138][139][140][141][143] - VTR in Chile is subject to antitrust conditions from its 2005 merger, regulations on internet neutrality, quality of service, and spectrum allocation, with ongoing legal proceedings regarding broadband service quality[158][165][167][171][175] - Costa Rica's Cabletica and Telefónica operate under concessions and are subject to regulations on content, quality of service, and competition, with Sutel being the primary telecommunications regulator[179][181][183][185][186] Competition - The company operates in an emerging region with lower market penetration of telecommunication services compared to developed markets, presenting growth opportunities in data services[187] - Competition is significant across all markets from converged service providers, incumbent telecommunication companies, mobile operators, and OTT content providers, driving focus on customer service, competitive pricing, and high-speed connectivity[188][190][191][193][198][199] - Key competitive strategies include offering converged services (fixed-mobile convergence), speed leadership in broadband internet (up to 1 Gbps), tailored video content packages, and bundled service discounts[188][189][192][196][205] - The extensive subsea fiber optic cable network provides a competitive advantage in B2B and wholesale services due to its advanced technical state, operational redundancy, and high unused capacity[208] Human Capital Resources - As of December 31, 2021, Liberty Latin America employed approximately 11,900 full-time employees, with 42% women globally and 38% in managerial positions[210] - The company's talent strategy focuses on acquisition, learning & development, and performance management, fostering a diverse and inclusive workplace through initiatives like 'Pride at Liberty Latin America' and a gender-based violence policy[213][214][215][216] - In response to COVID-19, the company maintained stringent health and safety protocols, encouraged vaccination, and offered an Employee Assistance Fund[218][219][220] - Corporate Social Responsibility efforts focus on Learning, Environment, Access, and Disaster Relief, with employees actively participating in outreach programs[221][222] Item 1A. Risk Factors The company faces significant risks from competition, tech changes, FX fluctuations, political instability, and complex regulations - The markets for cable television, broadband internet, telephony, and mobile services are highly competitive, with new technologies (5G, WiFi, OTT) and overbuilds increasing competitive pressures[233][234] - Operating in overseas markets exposes the company to risks such as foreign currency fluctuations, political and economic instability (e.g., Chile's constitutional process), and complex, evolving regulatory regimes that could limit growth or increase costs[267][270][274][285][291] - The company's substantial leverage ($7,686 million debt at Dec 31, 2021) and exposure to interest rate risks (LIBOR transition) could limit financing ability and increase debt service obligations[313][314][319][320] - The COVID-19 pandemic has negatively impacted operations, leading to reduced demand, potential labor shortages, supply chain disruptions, and increased credit risk, with ongoing uncertainty about future impacts[308][309][310] Risks that Relate to the Competition we Face and the Technology Used in Our Businesses - The company operates in highly competitive markets for video, broadband, telephony, and mobile services, facing competition from FTA/DTT broadcasters, DTH satellite providers, DSL/VDSL/FTTH networks, OTT content providers, and other mobile operators[233] - Rapid technological changes and the emergence of new products (e.g., 5G, WiFi) may limit the competitiveness and demand for the company's services, requiring continuous investment and adaptation[237][258][259] - Significant capital expenditures for network upgrades and expansions may not generate anticipated returns, and the company relies heavily on third-party programming providers and suppliers, with potential risks of content loss or supply chain disruptions[238][239][240][244] - Failures in technology or telecommunications systems due to security attacks, natural disasters (e.g., hurricanes), or piracy could disrupt operations, leading to customer loss and revenue decline[247][248][250][251][260] Risks that Relate to Our Operating in Overseas Markets and Being Subject to Foreign and Domestic Regulation - A substantial portion of the business is conducted outside the U.S., exposing it to foreign currency fluctuations, political and economic instability (e.g., Chile's constitutional process), and public health crises[267][270][273][274] - Failure to comply with economic and trade sanctions (e.g., OFAC regulations concerning Cuba and Venezuela) could result in legal and reputational consequences[279][280][281][284] - The business is subject to diverse and evolving regulatory regimes in each country, which can impose restrictions on pricing, network access, and require governmental approvals for acquisitions and license renewals[285][286][288][291][296][298][300] - Strikes, work stoppages, and other industrial actions could disrupt operations and increase costs[302] - Exposure to additional tax liabilities due to complex and changing tax laws, treaties, and interpretations in various jurisdictions, including potential impacts from OECD's BEPS project[303][304][305] - Risk of non-compliance with anti-corruption laws like the FCPA, potentially leading to liability and reputational damage[306] Risks that Relate to Certain Financial Matters - The COVID-19 pandemic continues to pose risks, including reduced demand, labor shortages, supply chain disruptions, and negative impacts on cash flows and liquidity[308][309][310] - Substantial leverage ($7,686 million debt at Dec 31, 2021) could limit the ability to obtain additional financing or meet debt obligations, with refinancing dependent on future operating performance and market conditions[313][314][315][316] - Subsidiaries are subject to debt instruments with financial and operating restrictions (e.g., incurrence of debt, dividend payments, asset transfers), which could impede beneficial transactions[317][318] - Exposure to interest rate risks (LIBOR transition) and adverse changes in credit markets could increase borrowing costs and debt service obligations[319][320][322] - Increasing operating costs and inflation risks may adversely affect results if not offset by subscription rate increases, which can be constrained by regulation and competition[323] - Uncertainties in the global economy, sovereign debt, and currency instability risks could impact customer demand, revenue, and financial condition, particularly in tourism-reliant Caribbean economies[324][325][326][329][330] - Risk of default by counterparties to derivative instruments, undrawn debt facilities, and cash investments[331] - Goodwill and other intangible assets (totaling $3,948 million goodwill at Dec 31, 2021) represent a significant portion of total assets, with a risk of future impairment charges[333][334] Risks Relating to Climate Change - International climate change treaties or national legislation could increase costs, limit operations, or lead to shortages of components[335] - Physical impacts of climate change, such as rising sea levels or severe weather (hurricanes, floods, fires), could result in loss of markets, customers, property, and revenue, potentially not covered by insurance[336] Risks Relating to our Corporate History and Structure - As a holding company, Liberty Latin America's ability to service financial obligations depends on accessing cash from its operating subsidiaries, which may be limited by tax, legal, noncontrolling interests, and foreign currency restrictions[337] - Overlapping directors and executive officers with Liberty Global, and their financial interests in Liberty Global, may lead to conflicts of interest in corporate opportunities and transactions[338][339][341] Risks Relating to Our Common Shares and the Securities Market - Different classes of common shares have different voting rights (Class A: 1 vote, Class B: 10 votes, Class C: no significant voting rights), meaning Class C holders have little influence on shareholder votes[342] - Certain provisions in bye-laws and Bermuda law (e.g., multiple share classes, staggered board terms, supermajority approvals) may discourage or delay a change in control[345] - John C. Malone's beneficial ownership of approximately 27% of voting power gives him significant influence, and a substantial sale of his shares could decrease the stock price[346] - Bermuda law may offer less protection to shareholders than other jurisdictions, and enforcing judgments against the company or its directors/officers may be difficult[347][349] - The Bermuda Economic Substance Act 2018 may cause substantial additional costs or require re-domiciliation[350] - Sales of Class C common shares by Searchlight parties under a Registration Rights Agreement could cause the market price to decrease[354] - Identified material weaknesses in internal control over financial reporting could lead to material misstatements in financial statements if not remediated[355][356] Item 1B. Unresolved Staff Comments No unresolved staff comments to report - No unresolved staff comments[357] Item 2. Properties The company leases corporate offices and owns significant subsea network portions, with subsidiaries owning/leasing fixed assets - Corporate offices are leased in Denver, Colorado, U.S., and an operations center in Panama City, Panama[358] - The C&W Caribbean and Networks segment owns significant portions of the subsea network in the Caribbean region[358] - Subsidiaries own or lease fixed assets including office space, transponder space, headend facilities, rights of way, cable/telecommunications distribution equipment, switches, base stations, poles, cell towers, and customer premises equipment[358] Item 3. Legal Proceedings VTR faces four class action complaints in Chile regarding broadband service quality; allegations are without merit - VTR is a defendant in four class action complaints in Chile, filed by SERNAC, ODECU, AGRECU, and CONADECUS[360] - The complaints allege issues with VTR's broadband service and capacity during the pandemic, disclosure of speeds, and adherence to call center/service level requirements[360] - The lawsuits seek declarations of Consumer Protection Law infringement, fines, and compensatory/punitive damages[360] - The company believes the allegations are without merit and will defend them vigorously; potential liability is not currently determinable[360] Item 4. Mine Safety Disclosures This item is not applicable to the registrant - Not applicable[361] PART II Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Class A and C common shares trade on Nasdaq; Class B lacks active market. No cash dividends. Share repurchase programs authorized - Class A (LILA) and Class C (LILAK) common shares trade on the Nasdaq Global Select Market. Class B (LILAB) shares are eligible for OTC Markets but lack an established public trading market[365] Class B Common Shares High and Low Prices (2020-2021) | Period | High | Low | | :------------------------- | :---- | :---- | | Year ended December 31, 2021 | | First quarter (a) | $17.00| $17.00| | Second quarter (a) | $17.00| $17.00| | Third quarter | $10.25| $10.25| | Fourth quarter | $10.80| $10.30| | Year ended December 31, 2020 | | First quarter | $15.00| $15.00| | Second quarter | $17.00| $17.00| | Third quarter (b) | $17.00| $17.00| | Fourth quarter (b) | $17.00| $17.00| - As of January 31, 2022, there were 10,827 Class A, 24 Class B, and 24,859 Class C holders of record[367] - The company has not paid cash dividends and has no present intention to do so[368] - A share repurchase program for up to $100 million of Class A and/or Class C common shares was authorized in March 2020, expiring March 2022. A new program for an additional $200 million was approved in February 2022, extending through December 2024[371] Issuer Purchases of Equity Securities (Q4 2021) | Period | Total 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 | | :-------------------------------------- | :--------------------- | :------------------------------- | :------------------------------------------------------------------------------- | :------------------------------------------------------------------------------- | | October 1, 2021 through October 31, 2021: | | Class A | 676,100 | $12.58 | 676,100 | (b) | | Class C | — | — | — | | | November 1, 2021 through November 30, 2021: | | Class A | 718,800 | $12.65 | 718,800 | (b) | | Class C | — | — | — | | | December 1, 2021 through December 31, 2021: | | Class A | 786,700 | $11.62 | 786,700 | (b) | | Class C | 699,800 | $11.16 | 699,800 | | | Total — October 1, 2021 through December 31, 2021: | | Class A | 2,181,600 | $12.26 | 2,181,600 | (b) | | Class C | 699,800 | $11.16 | 699,800 | | (b) At December 31, 2021, the remaining amount authorized for repurchases of Liberty Latin America Shares was $26 million[372][373] Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Analysis of financial performance, condition, and operations, covering segment performance, acquisitions, liquidity, and critical accounting policies - The company's reportable segments are C&W Caribbean and Networks, C&W Panama, Liberty Puerto Rico, VTR, and Costa Rica, with VTR and Cabletica becoming separate segments in Q1 2021[379] - Effective September 29, 2021, Chile JV Entities were accounted for as 'held for sale' in anticipation of a joint venture with América Móvil[380] - The COVID-19 pandemic negatively impacted operations, particularly B2B and mobile revenue, in 2020, with ongoing uncertainty regarding future impacts[382] - Strategic focus is on 'organic' revenue and customer growth through bundled services, network extensions, and upgrades, while maximizing ARPU[387] - Significant competition and macroeconomic factors have adversely impacted revenue, RGUs, and ARPU in several markets, especially VTR's fixed-line business[390] Overview - Liberty Latin America is an international provider of fixed, mobile, and subsea telecommunications services across Latin America and the Caribbean[379] - As of December 31, 2021, the company served 6,441,000 RGUs and 7,540,300 mobile subscribers[381] - The company is pursuing strategic acquisitions (Claro Panama) and joint ventures (Chile JV) to expand its footprint[383][384] - Network Extensions program passed approximately 738,800 homes across Liberty Latin America during 2021[388] Results of Operations - Comparability of operating results is affected by acquisitions, disposals, and foreign exchange (FX) effects, with 'organic' changes excluding these impacts[391] - The primary exposure to FX risk is to the Chilean peso, which depreciated by 4% against the U.S. dollar in 2021 compared to 2020[393] - Adjusted OIBDA is the primary measure for evaluating segment operating performance and resource allocation[398] Year Ended December 31, 2021 as Compared with Year Ended December 31, 2020 Consolidated Adjusted OIBDA (2021 vs 2020) | Metric | 2021 (in millions) | 2020 (in millions) | | :------------------------- | :----------------- | :----------------- | | Operating income | $81.2 | $93.2 | | Share-based compensation | $118.1 | $97.5 | | Depreciation & amortization| $964.7 | $918.7 | | Impairment, restructuring, etc. | $665.0 | $375.3 | | Consolidated Adjusted OIBDA | $1,829.0 | $1,484.7 | - Consolidated Adjusted OIBDA increased by $344.3 million (23.2%) from $1,484.7 million in 2020 to $1,829.0 million in 2021, primarily driven by acquisitions (net increase of $307.0 million) and organic revenue growth[400] Consolidated Revenue (2021 vs 2020) | Segment | 2021 (in millions) | 2020 (in millions) | Increase (decrease) | FX Impact | Acquisitions (disposition), net | Organic Change | | :------------------------- | :----------------- | :----------------- | :------------------ | :-------- | :------------------------------ | :------------- | | C&W Caribbean and Networks | $1,751.2 | $1,706.8 | $44.4 | $(25.1) | $3.9 | $65.6 | | C&W Panama | $547.6 | $500.2 | $47.4 | — | — | $47.4 | | Liberty Puerto Rico | $1,456.7 | $624.1 | $832.6 | — | $769.4 | $63.2 | | VTR | $787.5 | $809.0 | $(21.5) | $34.3 | — | $(55.8) | | Costa Rica | $256.2 | $140.0 | $116.2 | $(8.9) | $111.8 | $13.3 | | Corporate | $21.6 | $2.7 | $18.9 | — | — | $18.9 | | Intersegment eliminations | $(21.8) | $(18.2) | $(3.6) | — | — | $(3.6) | | Total | $4,799.0 | $3,764.6 | $1,034.4 | $0.3 | $885.1 | $149.0 | - Total revenue increased by $1,034.4 million (27.5%) to $4,799.0 million in 2021, primarily due to acquisitions (AT&T and Telefónica Costa Rica) and organic growth in C&W Caribbean and Networks, C&W Panama, and Liberty Puerto Rico[408] - VTR's revenue decreased organically by $55.8 million due to lower average broadband internet and video RGUs and ARPU, impacted by high competition[418][419] - Programming and other direct costs of services increased by $344.0 million, with organic increase of $73.7 million, driven by higher programming rates, roaming costs, and mobile handset sales[429] - Other operating costs and expenses increased by $366.7 million, with an organic increase of $57.0 million, mainly due to higher personnel costs, network-related expenses, and commercial activities[443] - Depreciation and amortization increased by $46 million (5%) due to assets acquired from AT&T and Telefónica Costa Rica, partially offset by fully depreciated assets and cessation of depreciation for Chile JV Entities held for sale[458] - Impairment, restructuring and other operating items, net, increased to $665.0 million in 2021 from $375.3 million in 2020, primarily due to a $605.1 million goodwill impairment in C&W Caribbean and Networks[459][463] - Realized and unrealized gains on derivative instruments, net, swung from a loss of $352.7 million in 2020 to a gain of $564.1 million in 2021, mainly due to FX rate changes (Chilean peso vs. USD) and interest rate changes[463] - Foreign currency transaction losses, net, increased to $319.6 million in 2021 from a gain of $1.2 million in 2020, primarily from U.S. dollar-denominated debt in Chilean peso functional currency entities[465] - Net loss attributable to Liberty Latin America shareholders decreased from $682.2 million in 2020 to $440.1 million in 2021[677] Year Ended December 31, 2020 as Compared with Year Ended December 31, 2019 Consolidated Adjusted OIBDA (2020 vs 2019) | Metric | 2020 (in millions) | 2019 (in millions) | | :------------------------- | :----------------- | :----------------- | | Operating income | $93.2 | $325.8 | | Share-based compensation | $97.5 | $57.5 | | Depreciation & amortization| $918.7 | $889.9 | | Impairment, restructuring, etc. | $375.3 | $268.2 | | Consolidated Adjusted OIBDA | $1,484.7 | $1,541.4 | - Consolidated Adjusted OIBDA decreased by $56.7 million (3.7%) from $1,541.4 million in 2019 to $1,484.7 million in 2020, primarily due to organic decreases in revenue and negative FX impacts, partially offset by acquisitions[479] Consolidated Revenue (2020 vs 2019) | Segment | 2020 (in millions) | 2019 (in millions) | Increase (decrease) | FX Impact | Acquisitions (disposition), net | Organic Change | | :------------------------- | :----------------- | :----------------- | :------------------ | :---------- | :------------------------------ | :------------- | | C&W Caribbean and Networks | $1,706.8 | $1,812.8 | $(106.0) | $(33.7) | $(14.1) | $(58.2) | | C&W Panama | $500.2 | $582.7 | $(82.5) | — | — | $(82.5) | | Liberty Puerto Rico | $624.1 | $412.1 | $212.0 | — | $174.2 | $37.8 | | VTR | $809.0 | $941.1 | $(132.1) | $(103.5) | — | $(28.6) | | Costa Rica | $140.0 | $132.7 | $7.3 | $0.2 | — | $7.1 | | Corporate | $2.7 | — | $2.7 | — | — | $2.7 | | Intersegment eliminations | $(18.2) | $(14.4) | $(3.8) | — | — | $(3.8) | | Total | $3,764.6 | $3,867.0 | $(102.4) | $(137.0)| $160.1 | $(125.5) | - Total revenue decreased by $102.4 million (2.6%) to $3,764.6 million in 2020, primarily due to negative FX impacts ($137.0 million) and organic decreases, partially offset by acquisitions ($160.1 million)[483] - C&W Caribbean and Networks and C&W Panama experienced organic revenue decreases due to COVID-19 lockdowns and travel restrictions impacting mobile services and B2B revenue[488][490][493][494] - Liberty Puerto Rico saw organic revenue increase by $37.8 million, driven by higher broadband internet RGUs due to work-from-home mandates[500] - VTR's revenue decreased organically by $28.6 million, mainly due to lower ARPU from video and fixed-line telephony services and lower activations/installations due to COVID-19[506][507] - Programming and other direct costs of services decreased by $31.8 million, with an organic decrease of $53.1 million, mainly due to lower sports content costs and mobile handset sales volumes[512][513][515][518] - Other operating costs and expenses increased by $26.1 million, with an organic increase of $22.6 million, driven by higher share-based compensation and bad debt provisions due to COVID-19[523][527][533] - Impairment, restructuring and other operating items, net, increased to $375.3 million in 2020 from $268.2 million in 2019, including goodwill impairments of $174 million at C&W Panama and $99 million at C&W Caribbean and Networks due to COVID-19 impacts[544] - Net loss attributable to Liberty Latin America shareholders increased from $106.1 million in 2019 to $682.2 million in 2020[677] Liquidity and Capital Resources - The company's liquidity is primarily derived from cash and cash equivalents, operating activities of borrowing groups, and borrowing availability under debt instruments[563] - As of December 31, 2021, total cash and cash equivalents were $956.7 million, with $776.9 million held by borrowing groups[558] - The company aims to maintain debt levels that provide attractive equity returns without undue risk, generally matching borrowing denominations with functional currencies and using derivatives to mitigate FX and interest rate risks[565] - At December 31, 2021, outstanding debt and finance lease obligations aggregated $7,686 million, with a weighted average interest rate of 4.8% (5.6% including derivative effects, premiums/discounts, and fees)[567][569] - The company expects 2022 property and equipment additions to be approximately 18% of revenue[577] Sources and Uses of Cash Cash and Cash Equivalents (December 31, 2021) | Category | Amount (in millions) | | :---------------------------------------- | :------------------- | | Liberty Latin America and unrestricted subsidiaries: | | Liberty Latin America | $72.5 | | Unrestricted subsidiaries | $107.3 | | Total Liberty Latin America and unrestricted subsidiaries | $179.8 | | Borrowing groups: | | C&W | $562.9 | | Liberty Puerto Rico | $157.7 | | VTR (d) | $32.1 | | Costa Rica | $24.2 | | Total borrowing groups | $776.9 | | Total cash and cash equivalents | $956.7 | - Corporate liquidity sources include cash balances, net cash from wholly-owned subsidiaries, dividends/interest from other subsidiaries, and proceeds from asset sales or equity issuance[559] - Corporate liquidity requirements include general and administrative expenses, debt repayment, contingent liabilities, acquisitions, and share repurchases[560] - Borrowing groups' liquidity is used for capital expenditures, debt service, and income tax payments, with potential for acquisitions or distributions to Liberty Latin America[563] Capitalization - The company seeks to maintain debt at levels providing attractive equity returns and generally matches borrowing currency with the functional currency of supporting operations[565] - Ability to service/refinance debt and comply with covenants depends on Covenant EBITDA and returns on capital additions/acquisitions[566] - At December 31, 2021, total outstanding debt and finance lease obligations were $7,686 million, with $6,433 million due in 2027 or thereafter[567] - The weighted average interest rate on all borrowings outstanding at December 31, 2021, was 4.8%, increasing to 5.6% when including derivative effects, premiums/discounts, and commitment fees[569] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Summary (2021 vs 2020) | Cash Flow Activity | 2021 (in millions) | 2020 (in millions) | Change (in millions) | | :--------------------------------- | :----------------- | :----------------- | :------------------- | | Net cash provided by operating activities | $1,016.2 | $640.1 | $376.1 | | Net cash used by investing activities | $(1,268.6) | $(2,450.8) | $1,182.2 | | Net cash provided by financing activities | $426.6 | $271.1 | $155.5 | | Effect of exchange rate changes | $(12.5) | $(4.9) | $(7.6) | | Net increase (decrease) in cash | $161.7 | $(1,544.5) | $1,706.2 | - Net cash provided by operating activities increased by $376.1 million in 2021, driven by higher Adjusted OIBDA and related working capital changes, and lower cash paid for taxes[572] - Net cash used by investing activities decreased by $1,182.2 million in 2021, primarily due to lower cash paid for acquisitions ($521 million in 2021 vs. $1,886 million in 2020) and higher capital expenditures ($736 million in 2021 vs. $566 million in 2020)[574] - Net cash provided by financing activities increased by $155.5 million in 2021, mainly from net debt borrowings and a capital contribution from a noncontrolling interest owner, partially offset by share repurchases and derivative payments[578] Consolidated Statements of Cash Flows Summary (2020 vs 2019) | Cash Flow Activity | 2020 (in millions) | 2019 (in millions) | Change (in millions) | | :--------------------------------- | :----------------- | :----------------- | :------------------- | | Net cash provided by operating activities | $640.1 | $918.2 | $(278.1) | | Net cash used by investing activities | $(2,450.8) | $(635.3) | $(1,815.5) | | Net cash provided by financing activities | $271.1 | $1,539.8 | $(1,268.7) | | Effect of exchange rate changes | $(4.9) | $(7.7) | $2.8 | | Net increase (decrease) in cash | $(1,544.5) | $1,815.0 | $(3,359.5) | - Net cash provided by operating activities decreased by $278.1 million in 2020, due to cash used for prepaid roaming services, lower Adjusted OIBDA, and derivative activities[579] - Net cash used by investing activities increased by $1,815.5 million in 2020, primarily due to the AT&T Acquisition ($1,886 million) and capital expenditures ($566 million)[580] - Net cash provided by financing activities decreased by $1,268.7 million in 2020, despite the Rights Offering ($347 million) and derivative cash, due to net debt repayments and financing costs[582] Off Balance Sheet Arrangements - The company may provide indemnifications and performance/financial guarantees in the ordinary course of business, which historically have not resulted in material payments[584] Contractual Commitments Contractual Obligations and Commitments (December 31, 2021) | Obligation Category | Total (in millions) | Less than 1 year (in millions) | 1-3 years (in millions) | 3-5 years (in millions) | More than 5 years (in millions) | | :------------------------------- | :------------------ | :----------------------------- | :---------------------- | :---------------------- | :---------------------------- | | Debt (excluding interest) | $7,678.3 | $105.4 | $997.2 | $146.8 | $6,428.9 | | Finance leases (excluding interest) | $7.6 | $0.8 | $1.6 | $1.4 | $3.8 | | Operating leases | $568.1 | $96.4 | $160.8 | $126.3 | $184.6 | | Programming minimum commitments | $31.0 | $24.9 | $6.0 | $0.1 | — | | Other | $49.4 | $49.1 | $0.3 | — | — | | Total | $8,334.4 | $276.6 | $1,165.9 | $274.6 | $6,617.3 | | Projected cash interest payments | $2,187.6 | $374.0 | $714.5 | $628.9 | $470.2 | | Chile JV Entities: | | Debt (excluding interest) | $1,522.2 | $82.2 | — | — | $1,440.0 | | Other contractual commitments | $274.2 | $144.3 | $126.2 | $3.7 | — | | Total (Chile JV Entities) | $1,796.4 | $226.5 | $126.2 | $3.7 | $1,440.0 | | Projected cash interest payments (Chile JV) | $552.9 | $80.5 | $161.1 | $159.4 | $151.9 | - The company has additional commitments under derivative instruments and defined benefit plans[589] Critical Accounting Policies, Judgments and Estimates - Critical accounting policies involve significant judgments, estimates, and uncertainties, including impairment of property and equipment/intangible assets and fair value measurements in acquisition accounting[590] Impairment of Property and Equipment and Intangible Assets - The aggregate carrying value of property and equipment and intangible assets (including goodwill) was 68% of total assets at December 31, 2021[591] - Impairment tests for long-lived assets are performed when circumstances warrant, comparing carrying amounts to expected undiscounted cash flows[592] - Goodwill and indefinite-lived intangible assets are tested for impairment at least annually (October 1) using qualitative and quantitative assessments (market-value or income-based approaches)[593][595] - In 2021, a $605 million goodwill impairment was recorded for the C&W Caribbean and Networks segment[596] Fair Value Measurements in Acquisition Accounting - Acquisition accounting requires fair value determinations for acquired assets and liabilities, involving estimates of future cash flows, market comparables, discount rates, and useful lives[597] - Spectrum licenses are valued using the Greenfield methodology (income approach), estimating cash flow potential of a hypothetical start-up[598] - Weighted average discount rates used in 2021 valuations for customer relationships (Telefónica Costa Rica, AT&T) were ~11% and ~10%, respectively, and ~8% for AT&T spectrum licenses[599] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from foreign currency, interest rates, and counterparty credit using derivatives and active cash management - The company is exposed to market risk from foreign currency exchange rates, interest rates, and stock prices, managed through policies and derivative instruments[601] - Foreign currency risk arises from debt denominated in non-functional currencies and transactions in non-functional currencies, with primary exposure to the Chilean peso[603][604][605] Foreign Currency Exchange Rates (CLP, JMD, CRC per USD) | Currency | Spot Rate (Dec 31, 2021) | Spot Rate (Dec 31, 2020) | Average Rate (2021) | Average Rate (2020) | Average Rate (2019) | | :------- | :----------------------- | :----------------------- | :------------------ | :------------------ | :------------------ | | CLP | 852.00 | 711.78 | 759.90 | 791.70 | 703.92 | | JMD | 153.96 | 142.41 | 150.60 | 142.08 | 133.48 | | CRC | 642.21 | 613.19 | 622.03 | 585.79 | 587.78 | - Interest rate risk is primarily from LIBOR-indexed variable-rate debt, managed with derivative instruments (interest rate swaps) to achieve fixed or capped rates on 97% of total debt[609][611] - Counterparty credit risk for derivatives, undrawn debt facilities, and cash investments is managed by evaluating creditworthiness and diversifying exposure[614] - At December 31, 2021, exposure to counterparty credit risk included $957 million in cash/cash equivalents and $959 million in undrawn credit facilities[615] Cash and Investments - Cash is invested in highly liquid instruments meeting high credit quality standards[602] - Exchange rate risk on cash balances is managed by actively managing denominations in consideration of forecasted liquidity requirements[602] Foreign Currency Risk - Exposure to foreign currency exchange rate risk arises from unmatched debt (denominated in a currency other than the functional currency of supporting operations) and non-functional currency transactions (e.g., equipment purchases, programming contracts)[603][604] - The company's policy is to economically hedge unmatched debt using derivative instruments to synthetically convert it into the applicable underlying currency[603] - Primary FX exposure in 2021 was to the Chilean peso, which accounted for 16% of reported revenue[605] Inflation and Foreign Investment Risk - The company is subject to inflationary pressures on labor, programming, and other costs, which may negatively impact operating results if not offset by subscription rate increases[608] - Economic environments in operating countries are volatile, and unfavorable conditions could impact customer demand and spending power[608] Interest Rate Risks - Exposure to interest rate changes is primarily through LIBOR-indexed variable-rate debt of C&W, Liberty Puerto Rico, and Costa Rica[609] - The phasing out of LIBOR (majority by June 30, 2023) may lead to new reference rates, which the company anticipates managing through debt and/or derivative instrument modifications[609][610] - Derivative instruments (interest rate swaps) are used to protect against increases in variable interest rates, with 97% of total debt having fixed or capped rates at December 31, 2021[611] - A hypothetical 50 basis point increase in the weighted average variable interest rate would increase annual interest expense by $16 million, excluding derivative effects[613] Counterparty Credit Risk - The company is exposed to counterparty credit risk from derivative instruments, undrawn debt facilities, and cash investments[614] - Credit risks are managed through evaluation and monitoring of counterparty creditworthiness and diversification across banks and financial institutions[614] - At December 31, 2021, exposure included $957 million in cash/cash equivalents and $959 million in undrawn credit facilities[615] Sensitivity Information - A 100 basis point increase in the relevant base rate would increase the fair value of C&W cross-currency and interest rate derivative contracts by approximately $165 million[620] - A 100 basis point increase in the relevant base rate would increase the fair value of Liberty Puerto Rico interest rate derivative contracts by approximately $48 million[621] Projected Cash Flows Associated with Derivative Instruments Projected Derivative Cash Flows, Net (December 31, 2021) | Category | 2022 (in millions) | 2023 (in millions) | 2024 (in millions) | 2025 (in millions) | 2026 (in millions) | Thereafter (in millions) | Total (in millions) | | :------------------ | :----------------- | :----------------- | :----------------- | :----------------- | :----------------- | :----------------------- | :------------------ | | Interest-related | $29.9 | $58.5 | $44.5 | $44.1 | $43.7 | $180.1 | $400.8 | | Principal-related | — | — | — | — | $(8.5) | — | $(8.5) | | Other | $(2.5) | — | — | — | — | — | $(2.5) | | Total | $27.4 | $58.5 | $44.5 | $44.1 | $35.2 | $180.1 | $389.8 | Item 8. Financial Statements and Supplementary Data Consolidated financial statements for 2021, 2020, 2019, with an unqualified audit opinion on financials but adverse on internal controls - The consolidated financial statements are presented for the years ended December 31, 2021, 2020, and 2019[625] - KPMG LLP issued an unqualified opinion on the consolidated financial statements but an adverse opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2021[647][656][657] - Critical audit matters included the assessment of goodwill impairment for certain reporting units and the valuation of spectrum intangible assets of the AT&T Acquired Entities, both involving high degrees of subjective auditor judgment[661][662][664][665] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure No changes in or disagreements with accountants on accounting and financial disclosure to report - None[626] Item 9A. Controls and Procedures Disclosure controls were ineffective due to material weaknesses in internal control over financial reporting; remediation ongoing - Management concluded that disclosure controls and procedures were not effective as of December 31, 2021, due to material weaknesses in internal control over financial reporting[628] - Material weaknesses identified include insufficient resources with appropriate skills, ineffective information and communication processes, and ineffective IT risk assessment and general IT controls (GITCs)[633][648] - These deficiencies created a reasonable possibility of material misstatement in consolidated financial statements[634] - Management's remediation plan includes hiring additional skilled personnel, enhancing information and communication processes (including new ERP software), completing IT risk assessments, designing/implementing GITCs, and enhancing process-level control activities[636][637] - Certain material weaknesses disclosed as of December 31, 2020, were remediated during 2021 through enhanced training, third-party assistance, improved risk assessment, and monitoring processes[638][640] Item 9B. Other Information This item is not applicable - Not applicable[642] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable - Not applicable[643] PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance incorporated by reference from 2022 proxy statement - Information is incorporated by reference from the 2022 Annual General Meeting of Shareholders proxy statement[1054][1056] Item 11. Executive Compensation Executive compensation information incorporated by reference from 2022 Annual General Meeting of Shareholders proxy statement - Information is incorporated by reference from the 2022 Annual General Meeting of Shareholders proxy statement[1054][1056] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Security ownership and related shareholder matters incorporated by reference from 2022 proxy statement - Information is incorporated by reference from the 2022 Annual General Meeting of Shareholders proxy statement[1054][1056] Item 13. Certain Relationships and Related Transactions, and Director Independence Related transactions and director independence information incorporated by reference from 2022 proxy statement - Information is incorporated by reference from the 2022 Annual General Meeting of Shareholders proxy statement[1054][1056] Item 14. Principal Accountant Fees and Services Principal accountant fees and services information incorporated by reference from 2022 proxy statement - Information is incorporated by reference from the 2022 Annual General Meeting of Shareholders proxy statement[1054][1056] - KPMG LLP, Denver CO, is the independent registered public accounting firm (Auditor Firm ID: 185)[1055] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K - Financial statements are included starting on page II-57 of this Annual Report on Form 10-K[1058] - All financial statement schedules are omitted because the required information is either not applicable, not present in sufficient amounts, or included in the consolidated financial statements and accompanying notes[1059] - A list of exhibits, including the Master Transaction Agreement for the Chile JV, Memorandum of Association, Bye-laws, various Indentures, Registration Rights Agreement, Incentive Plans, and Certifications, is provided[1060][1061][1062][1064] Item 16. Form 10-K Summary No Form 10-K Summary is provided - None[1065]