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Liberty Latin America Ltd. - Quarter Report: 2019 June (Form 10-Q)

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
☑
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended
June 30, 2019
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from to                    
Commission file number: 001-38335
colorlogoa21.jpg
Liberty Latin America Ltd.
(Exact name of Registrant as specified in its charter)
Bermuda
 
98-1386359
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
 
2 Church Street,
 
 
 Hamilton
 
HM 11
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (441) 295-5950 or (303) 925-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbols
Name of Each Exchange on Which Registered
Class A Shares, par value $0.01 per share
LILA
The NASDAQ Stock Market LLC
Class C Shares, par value $0.01 per share
LILAK
The NASDAQ Stock Market LLC
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ        No  ¨
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).    Yes  þ        No  ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
☑
Accelerated Filer 
☐
Non-Accelerated Filer
☐
Smaller Reporting Company
☐
Emerging Growth Company
☐
 
 
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act  ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
No þ
The number of outstanding common shares of Liberty Latin America Ltd. as of July 31, 2019 was: 48,685,739 Class A; 1,935,226 Class B; and 130,948,890 Class C.
 


LIBERTY LATIN AMERICA LTD.
TABLE OF CONTENTS
 
 
 
Page
Number
 
PART I - FINANCIAL INFORMATION
 
Item 1.
FINANCIAL STATEMENTS
 
 
Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018 (unaudited)
 
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018 (unaudited)
 
Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June, 30, 2019 and 2018 (unaudited)
 
Condensed Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2019 and 2018 (unaudited)
 
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 (unaudited)
 
Notes to Condensed Consolidated Financial Statements (unaudited)
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 4.
CONTROLS AND PROCEDURES
 
PART II - OTHER INFORMATION
 
Item 6.
EXHIBITS




LIBERTY LATIN AMERICA LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
 
 
 
June 30,
2019
 
December 31,
2018
 
 
 
in millions
 
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
$
957.4

 
$
631.0

 
Trade receivables, net of allowances of $141.4 million and $144.4 million, respectively
699.8

 
607.3

 
Prepaid expenses
65.0

 
73.2

 
Other current assets, net
257.0

 
333.3

 
Total current assets
1,979.2

 
1,644.8

 
 
 
 
 
 
Goodwill
5,182.8

 
5,133.3

 
Property and equipment, net
4,361.6

 
4,236.9

 
Intangible assets subject to amortization, net
1,068.4

 
1,165.7

 
Intangible assets not subject to amortization
563.0

 
562.5

 
Other assets, net
752.0

 
703.4

 
Total assets
$
13,907.0

 
$
13,446.6

 

The accompanying notes are an integral part of these condensed consolidated financial statements.
1

LIBERTY LATIN AMERICA LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS – (Continued)
(unaudited)
 
 
 
June 30,
2019
 
December 31, 2018
 
 
 
in millions
 
LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
$
352.1

 
$
297.4

 
Current portion of deferred revenue
169.1

 
161.7

 
Current portion of debt and finance lease obligations
172.4

 
302.5

 
Accrued capital expenditures
57.1

 
75.0

 
Accrued interest
108.1

 
118.7

 
Accrued income taxes
12.9

 
29.8

 
Other accrued and current liabilities
753.6

 
623.6

 
Total current liabilities
1,625.3

 
1,608.7

 
Long-term debt and finance lease obligations
6,860.6

 
6,379.6

 
Deferred tax liabilities
440.4

 
543.0

 
Deferred revenue
226.0

 
239.0

 
Other long-term liabilities
750.8

 
552.9

 
Total liabilities
9,903.1

 
9,323.2

 
 
 
 
 
 
Commitments and contingencies

 

 
 
 
 
 
 
Equity:
 
 
 
 
Liberty Latin America shareholders:
 
 
 
 
Class A, $0.01 par value; 500,000,000 shares authorized; 48,683,914 and 48,501,803 shares issued and outstanding, respectively
0.5

 
0.5

 
Class B, $0.01 par value; 50,000,000 shares authorized; 1,935,226 and 1,935,949 shares issued and outstanding, respectively
—

 
—

 
Class C, $0.01 par value; 500,000,000 shares authorized; 130,930,642 and 130,526,158 shares issued and outstanding, respectively
1.3

 
1.3

 
Undesignated preference shares, $0.01 par value; 50,000,000 shares authorized; nil shares issued and outstanding at each period
—

 
—

 
Additional paid-in capital
4,549.3

 
4,494.1

 
Accumulated deficit
(1,524.7
)
 
(1,367.0
)
 
Accumulated other comprehensive loss, net of taxes
(47.2
)
 
(16.3
)
 
Total Liberty Latin America shareholders
2,979.2

 
3,112.6

 
Noncontrolling interests
1,024.7

 
1,010.8

 
Total equity
4,003.9

 
4,123.4

 
Total liabilities and equity
$
13,907.0

 
$
13,446.6



The accompanying notes are an integral part of these condensed consolidated financial statements.
2

LIBERTY LATIN AMERICA LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

 
Three months ended June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
 
in millions, except per share amounts
 
 
 
 
 
 
 
 
Revenue
$
982.9

 
$
922.1

 
$
1,925.6

 
$
1,832.0

Operating costs and expenses (exclusive of depreciation and amortization, shown separately below):
 
 
 
 
 
 
 
Programming and other direct costs of services
226.4

 
218.4

 
454.2

 
434.2

Other operating
175.5

 
168.7

 
341.9

 
337.0

Selling, general and administrative (SG&A)
209.0

 
190.3

 
406.4

 
381.8

Depreciation and amortization
222.0

 
207.6

 
439.3

 
409.9

Impairment, restructuring and other operating items, net
6.5

 
12.9

 
27.0

 
46.6

 
839.4

 
797.9

 
1,668.8

 
1,609.5

Operating income
143.5

 
124.2

 
256.8

 
222.5

Non-operating income (expense):
 
 
 
 
 
 
 
Interest expense
(119.8
)
 
(109.4
)
 
(235.5
)
 
(211.9
)
Realized and unrealized gains (losses) on derivative instruments, net
(79.0
)
 
115.1

 
(148.0
)
 
73.6

Foreign currency transaction gains (losses), net
(19.5
)
 
(120.6
)
 
12.7

 
(104.7
)
Losses on debt modification and extinguishment
(9.5
)
 
—

 
(9.5
)
 
(13.0
)
Other income, net
2.6

 
4.8

 
5.0

 
10.1

 
(225.2
)
 
(110.1
)
 
(375.3
)
 
(245.9
)
Earnings (loss) before income taxes
(81.7
)
 
14.1

 
(118.5
)
 
(23.4
)
Income tax expense
(29.5
)
 
(41.6
)
 
(33.9
)
 
(58.4
)
Net loss
(111.2
)
 
(27.5
)
 
(152.4
)
 
(81.8
)
Net earnings attributable to noncontrolling interests
(4.8
)
 
(14.7
)
 
(5.3
)
 
(4.9
)
Net loss attributable to Liberty Latin America shareholders
$
(116.0
)
 
$
(42.2
)
 
$
(157.7
)
 
$
(86.7
)
 
 
 
 
 
 
 
 
Basic and diluted net loss per share attributable to Liberty Latin America shareholders
$
(0.64
)
 
$
(0.25
)
 
$
(0.87
)
 
$
(0.51
)





The accompanying notes are an integral part of these condensed consolidated financial statements.
3

LIBERTY LATIN AMERICA LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)
 
 
Three months ended June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
 
in millions
 
 
 
 
 
 
 
 
Net loss
$
(111.2
)
 
$
(27.5
)
 
$
(152.4
)
 
$
(81.8
)
Other comprehensive loss, net of taxes:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(38.0
)
 
(12.0
)
 
(25.7
)
 
(43.8
)
Reclassification adjustments included in net loss
(2.2
)
 
1.1

 
(3.5
)
 
2.7

Pension-related adjustments and other, net
(0.9
)
 
7.5

 
(1.9
)
 
8.4

Other comprehensive loss
(41.1
)
 
(3.4
)
 
(31.1
)
 
(32.7
)
Comprehensive loss
(152.3
)
 
(30.9
)
 
(183.5
)
 
(114.5
)
Comprehensive earnings attributable to noncontrolling interests
(4.3
)
 
(13.3
)
 
(5.1
)
 
(3.0
)
Comprehensive loss attributable to Liberty Latin America shareholders
$
(156.6
)
 
$
(44.2
)
 
$
(188.6
)
 
$
(117.5
)



The accompanying notes are an integral part of these condensed consolidated financial statements.
4

LIBERTY LATIN AMERICA LTD.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
 
 
Liberty Latin America shareholders
 
Non-controlling
interests
 
Total equity
 
Common shares
 
Additional paid-in capital
 
Accumulated deficit
 
Accumulated
other
comprehensive loss, net of taxes
 
Total Liberty Latin America shareholders
 
Class A
 
Class B
 
Class C
 
in millions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at April 1, 2018
$
0.5

 
$
—

 
$
1.2

 
$
4,397.5

 
$
(1,066.3
)
 
$
(86.2
)
 
$
3,246.7

 
$
1,350.2

 
$
4,596.9

Net loss
—

 
—

 
—

 
—

 
(42.2
)
 
—

 
(42.2
)
 
14.7

 
(27.5
)
Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
(2.0
)
 
(2.0
)
 
(1.4
)
 
(3.4
)
C&W Jamaica NCI Acquisition
—

 
—

 
—

 
(1.7
)
 
—

 
0.4

 
(1.3
)
 
(0.2
)
 
(1.5
)
Capital contribution from noncontrolling interest owner
—

 
—

 
—

 
—

 
—

 
—

 
—

 
8.0

 
8.0

Distribution to noncontrolling interest owners
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(19.8
)
 
(19.8
)
Shared-based compensation
—

 
—

 
—

 
5.6

 
—

 
—

 
5.6

 
1.1

 
6.7

Other
—

 
—

 
—

 
2.8

 
—

 
—

 
2.8

 
(0.8
)
 
2.0

Balance at June 30, 2018
$
0.5

 
$
—

 
$
1.2

 
$
4,404.2

 
$
(1,108.5
)
 
$
(87.8
)
 
$
3,209.6

 
$
1,351.8

 
$
4,561.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2018, before effect of accounting change
$
0.5

 
$
—

 
$
1.2

 
$
4,402.8

 
$
(1,010.7
)
 
$
(64.2
)
 
$
3,329.6

 
$
1,361.0

 
$
4,690.6

Accounting change
—

 
—

 
—

 
—

 
(11.1
)
 
—

 
(11.1
)
 
3.6

 
(7.5
)
Balance at January 1, 2018, as adjusted for accounting change
0.5

 
—

 
1.2

 
4,402.8

 
(1,021.8
)
 
(64.2
)
 
3,318.5

 
1,364.6

 
4,683.1

Net loss
—

 
—

 
—

 
—

 
(86.7
)
 
—

 
(86.7
)
 
4.9

 
(81.8
)
Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
(30.8
)
 
(30.8
)
 
(1.9
)
 
(32.7
)
C&W Jamaica NCI Acquisition
—

 
—

 
—

 
(13.7
)
 
—

 
7.2

 
(6.5
)
 
(15.1
)
 
(21.6
)
Capital contribution from noncontrolling interest owner
—

 
—

 
—

 
—

 
—

 
—

 
—

 
18.0

 
18.0

Distribution to noncontrolling interest owners
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(19.8
)
 
(19.8
)
Shared-based compensation
—

 
—

 
—

 
13.0

 
—

 
—

 
13.0

 
1.1

 
14.1

Other
—

 
—

 
—

 
2.1

 
—

 
—

 
2.1

 
—

 
2.1

Balance at June 30, 2018
$
0.5

 
$
—

 
$
1.2

 
$
4,404.2

 
$
(1,108.5
)
 
$
(87.8
)
 
$
3,209.6

 
$
1,351.8

 
$
4,561.4



The accompanying notes are an integral part of these condensed consolidated financial statements.
5

LIBERTY LATIN AMERICA LTD.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY – (Continued)
(unaudited)

 
Liberty Latin America shareholders
 
Non-controlling
interests
 
Total equity
 
Common shares
 
Additional paid-in capital
 
Accumulated deficit
 
Accumulated
other
comprehensive loss, net of taxes
 
Total Liberty Latin America shareholders
 
Class A
 
Class B
 
Class C
 
in millions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at April 1, 2019
$
0.5

 
$
—

 
$
1.3

 
$
4,508.6

 
$
(1,408.7
)
 
$
(6.6
)
 
$
3,095.1

 
$
1,023.2

 
$
4,118.3

Net loss
—

 
—

 
—

 
—

 
(116.0
)
 
—

 
(116.0
)
 
4.8

 
(111.2
)
Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
(40.6
)
 
(40.6
)
 
(0.5
)
 
(41.1
)
Distributions to noncontrolling interest owners
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(2.5
)
 
(2.5
)
Conversion Option, net
—

 
—

 
—

 
77.3

 
—

 
—

 
77.3

 
—

 
77.3

Capped Calls
—

 
—

 
—

 
(45.6
)
 
—

 
—

 
(45.6
)
 
—

 
(45.6
)
Share-based compensation
—

 
—

 
—

 
9.7

 
—

 
—

 
9.7

 
—

 
9.7

Other
—

 
—

 
—

 
(0.7
)
 
—

 
—

 
(0.7
)
 
(0.3
)
 
(1.0
)
Balance at June 30, 2019
$
0.5

 
$
—

 
$
1.3

 
$
4,549.3

 
$
(1,524.7
)
 
$
(47.2
)
 
$
2,979.2

 
$
1,024.7

 
$
4,003.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2019
$
0.5

 
$
—

 
$
1.3

 
$
4,494.1

 
$
(1,367.0
)
 
$
(16.3
)
 
$
3,112.6

 
$
1,010.8

 
$
4,123.4

Net loss
—

 
—

 
—

 
—

 
(157.7
)
 
—

 
(157.7
)
 
5.3

 
(152.4
)
Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
(30.9
)
 
(30.9
)
 
(0.2
)
 
(31.1
)
Impact of the UTS Acquisition
—

 
—

 
—

 
—

 
—

 
—

 
—

 
11.6

 
11.6

Distributions to noncontrolling interest owners
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(2.5
)
 
(2.5
)
Conversion Option, net
—

 
—

 
—

 
77.3

 
—

 
—

 
77.3

 
—

 
77.3

Capped Calls
—

 
—

 
—

 
(45.6
)
 
—

 
—

 
(45.6
)
 
—

 
(45.6
)
Share-based compensation
—

 
—

 
—

 
24.2

 
—

 
—

 
24.2

 
—

 
24.2

Other
—

 
—

 
—

 
(0.7
)
 
—

 
—

 
(0.7
)
 
(0.3
)
 
(1.0
)
Balance at June 30, 2019
$
0.5

 
$
—

 
$
1.3

 
$
4,549.3

 
$
(1,524.7
)
 
$
(47.2
)
 
$
2,979.2

 
$
1,024.7

 
$
4,003.9



The accompanying notes are an integral part of these condensed consolidated financial statements.
6

LIBERTY LATIN AMERICA LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) 
 
Six months ended June 30,
 
2019
 
2018
 
in millions
Cash flows from operating activities:
 
 
 
Net loss
$
(152.4
)
 
$
(81.8
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Share-based compensation expense
30.1

 
15.2

Depreciation and amortization
439.3

 
409.9

Impairment
0.1

 
5.3

Amortization of debt financing costs, premiums and discounts, net
2.0

 
(1.1
)
Realized and unrealized losses (gains) on derivative instruments, net
148.0

 
(73.6
)
Foreign currency transaction losses (gains), net
(12.7
)
 
104.7

Losses on debt modification and extinguishment
9.5

 
13.0

Deferred income tax benefit
(24.9
)
 
(29.5
)
Changes in operating assets and liabilities, net of the effect of an acquisition
(7.6
)
 
35.9

Net cash provided by operating activities
431.4

 
398.0

 
 
 
 
Cash flows from investing activities:
 
 
 
Capital expenditures
(295.4
)
 
(425.1
)
Cash paid in connection with an acquisition, net of cash acquired
(160.4
)
 
—

Recovery on damaged or destroyed property and equipment
33.9

 
—

Other investing activities, net
0.5

 
0.6

Net cash used by investing activities
(421.4
)
 
(424.5
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Borrowings of debt
1,321.2

 
525.7

Repayments of debt and finance lease obligations
(926.0
)
 
(273.2
)
Capped Calls
(45.6
)
 
—

Payment of financing costs and debt premiums
(25.0
)
 
(8.0
)
Distributions to noncontrolling interest owners
(2.5
)
 
(19.8
)
Capital contribution from noncontrolling interest owner
—

 
18.0

Cash payment related to the C&W Jamaica NCI Acquisition
—

 
(19.7
)
Other financing activities, net
(1.7
)
 
0.3

Net cash provided by financing activities
320.4

 
223.3

 
 
 
 
Effect of exchange rate changes on cash, cash equivalents and restricted cash
2.5

 
(15.3
)
 
 
 
 
Net increase in cash, cash equivalents and restricted cash
332.9

 
181.5

 
 
 
 
Cash, cash equivalents and restricted cash:
 
 
 
Beginning of period
642.0

 
568.2

End of period
$
974.9

 
$
749.7

 
 
 
 
Cash paid for interest
$
232.6

 
$
202.5

Net cash paid for taxes
$
59.6

 
$
83.8


The accompanying notes are an integral part of these condensed consolidated financial statements.
7
Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements
June 30, 2019
(unaudited)


(1)
Basis of Presentation
General
Liberty Latin America Ltd. (Liberty Latin America) is a registered company in Bermuda that primarily includes (i) Cable & Wireless Communications Limited (C&W) and its subsidiaries, (ii) VTR Finance B.V. (VTR Finance) and its subsidiaries, which include VTR.com SpA (VTR), (iii) LiLAC Communications and its subsidiaries, which include Liberty Cablevision of Puerto Rico LLC (Liberty Puerto Rico), an entity that, effective October 2018, is a wholly-owned subsidiary, and (iv) LBT CT Communications, S.A. (an 80.0%-owned entity) and its subsidiary, Cabletica (as defined in note 4).

C&W owns less than 100% of certain of its consolidated subsidiaries, including The Bahamas Telecommunications Company Limited (a 49.0%-owned entity that owns all of our operations in the Bahamas), Cable & Wireless Jamaica Limited (C&W Jamaica) (a 92.3%-owned entity that owns the majority of our operations in Jamaica), Cable & Wireless Panama, S.A. (C&W Panama) (a 49.0%-owned entity that owns most of our operations in Panama), and United Telecommunications Services N.V. (UTS) (an 87.5%-owned entity, as further described in note 4).

We are an international provider of fixed, mobile and subsea telecommunications services. We provide residential and business-to-business (B2B) services in (i) 24 countries, primarily in Latin America and the Caribbean, through C&W, (ii) Chile and Costa Rica, through VTR/Cabletica, and (iii) Puerto Rico, through Liberty Puerto Rico. C&W also provides (i) B2B services in certain other countries in Latin America and the Caribbean and (ii) wholesale communication services over its subsea and terrestrial fiber optic cable networks that connect over 40 markets in that region.

In these notes, the terms “we,” “our,” “our company” and “us” may refer, as the context requires, to Liberty Latin America or collectively to Liberty Latin America and its subsidiaries. Unless otherwise indicated, ownership percentages and convenience translations into United States (U.S.) dollars are calculated as of June 30, 2019.

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) and with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these financial statements do not include all of the information required by U.S. GAAP or Securities and Exchange Commission rules and regulations for complete financial statements. In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results of operations for the interim periods presented. The results of operations for any interim period are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our 2018 Annual Report on Form 10-K (the 2018 Form 10-K).

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates and assumptions are used in accounting for, among other things, the valuation of acquisition-related assets and liabilities, allowances for uncollectible accounts, programming and copyright expenses, deferred income taxes and related valuation allowances, loss contingencies, fair value measurements, impairment assessments, capitalization of internal costs associated with construction and installation activities, useful lives of long-lived assets and actuarial liabilities associated with certain benefit plans. Actual results could differ from those estimates.

Certain prior period amounts have been reclassified to conform to the current period presentation.

8

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






(2)
Accounting Changes and Recent Accounting Pronouncements
Accounting Changes
ASU 2016-02
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (ASU 2016-02), as amended by ASU No. 2018-11, Targeted Improvements, which provides an option to use one of two modified retrospective approaches in the adoption of ASU 2016-02. ASU 2016-02, for most leases, results in lessees recognizing right-of-use assets and lease liabilities on the balance sheet and additional disclosures. We adopted ASU 2016-02 effective January 1, 2019 using the effective date transition method. A number of optional practical expedients were applied in transition, as further described below.
The main impact of the adoption of this standard was the recognition of right-of-use assets and lease liabilities in our condensed consolidated balance sheet as of January 1, 2019 for those leases classified as operating leases under ASU 2016-02. We did not recognize right-of-use assets or lease liabilities for leases with a term of 12 months or less, as permitted by the short-term lease practical expedient in the standard. In transition, we applied the practical expedients that permit us not to reassess (i) whether expired or existing contracts are or contain a lease under the new standard, (ii) the lease classification for expired or existing leases, (iii) whether previously-capitalized initial direct costs would qualify for capitalization under the new standard and (iv) whether existing or expired land easements that were not previously accounted for as leases are or contain a lease. We also applied the practical expedient that permits us to account for customer service revenue contracts that include both non-lease and lease components as a single component in all instances where the non-lease component is the predominant component of the arrangement and the other applicable criteria are met. In addition, we did not use hindsight during the transition.
We implemented internal controls to ensure we adequately evaluate our contracts and properly assessed the impact of ASU 2016-02 on our condensed consolidated financial statements. We do not believe such controls represent significant changes to our internal control over financial reporting.
For information regarding changes to our accounting policies following the adoption of ASU 2016-02, see note 3.
The cumulative effect of the changes made to our condensed consolidated balance sheet as of January 1, 2019 is as follows:
 
Balance at December 31, 2018
 
Cumulative catch up adjustments upon adoption
 
Balance at January 1, 2019
 
in millions
Assets:
 
 
 
 
 
Other assets, net
$
703.4

 
$
141.6

 
$
845.0

 
 
 
 
 
 
Liabilities:
 
 
 
 
 
Other accrued and current liabilities
$
623.6

 
$
33.9

 
$
657.5

Other long-term liabilities
$
552.9

 
$
107.7

 
$
660.6


ASU 2018-13
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). ASU 2018-13 modifies certain disclosure requirements on fair value measurements, including (i) clarifying narrative disclosure regarding measurement uncertainty from the use of unobservable inputs, if those inputs reasonably could have been different as of the reporting date, (ii) adding certain quantitative disclosures, including (a) changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and (b) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and (iii) removing certain fair value measurement disclosure requirements, including (a) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (b) the policy for timing of transfers between levels of the fair value hierarchy and (c) the valuation processes for Level 3 fair value measurements. The amendments in ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We are permitted to early adopt any removed or modified disclosures and delay

9

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






adoption of the additional disclosures until their effective date. As of December 31, 2018, we early adopted the portion of ASU 2018-13 that allows for the removal of certain fair value measurement disclosures from our consolidated financial statements. We do not expect the remaining disclosure requirements of ASU 2018-13 will have a material effect on our consolidated financial statements.
Recent Accounting Pronouncements
ASU 2018-14
In August 2018, the FASB issued ASU No. 2018-14, Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans (ASU 2018-14), which removes and modifies certain existing disclosure requirements and adds new disclosure requirements related to employer sponsored defined benefit pension or other postretirement plans. ASU 2018-14 is effective for annual reporting periods after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the effect that ASU 2018-14 will have on our disclosures.
ASU 2018-15
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software—Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (ASU 2018-15). ASU 2018-15 provides additional guidance on ASU No. 2015-05, Intangibles—Goodwill and Other—Internal-Use Software—Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, which was issued to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The guidance (i) provides criteria for determining which implementation costs to capitalize as an asset related to the service contract and which costs to expense, (ii) requires an entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement and (iii) clarifies the presentation requirements for reporting such costs in the entity’s financial statements. ASU 2018-15 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. ASU 2018-15 should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We expect to apply ASU 2018-15 prospectively and are currently evaluating the effect that ASU 2018-15 will have on our consolidated financial statements and related disclosures.
(3)
Summary of Significant Accounting Policies
The following accounting policy reflects an update to the Summary of Significant Accounting Policies included in our 2018 Form 10-K resulting from the adoption of ASU 2016-02. For additional information regarding the adoption of ASU 2016-02, see note 2.
Leases
We classify leases with a term of greater than 12 months where substantially all risks and rewards incidental to ownership are retained by the third-party lessors as operating leases. We record a right-of-use asset and an operating lease liability at inception of the lease at the present value of the lease payments plus certain other payments, including variable lease payments and amounts probable of being owed by us under residual value guarantees. Payments made under operating leases, net of any incentives received from the lessors, are recognized to expense on a straight-line basis over the term of the lease. Initial direct costs incurred in negotiating and arranging operating leases are recognized to expense when incurred. Contingent rental payments are recognized to expense when incurred. Our right-of-use assets are included in other assets, net, in our condensed consolidated balance sheet. Our current and non-current operating lease liabilities are included in other accrued and current liabilities and other long-term liabilities, respectively, in our condensed consolidated balance sheet.

10

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






Our operating leases primarily consist of (i) property leases for mobile tower locations that generally have initial terms of five to ten years with one or more renewal options and (ii) lease commitments for (a) retail stores, offices and facilities, (b) other network assets and (c) other equipment. It is expected that in the normal course of business, operating leases that expire generally will be renewed or replaced by similar leases.
The following table provides details of our operating lease expense:
 
Three months ended June 30,
 
Six months ended June 30,
 
2019
 
2018 (a)
 
2019
 
2018 (a)
 
in millions
 
 
 
 
 
 
 
 
Operating lease expense:
 
 
 
 
 
 
 
Operating lease cost
$
10.5

 
$
11.7

 
$
21.2

 
$
23.8

Short-term lease cost
1.9

 
—

 
4.0

 
—

Total operating lease expense
$
12.4

 
$
11.7

 
$
25.2

 
$
23.8

(a)
Amounts reflect operating lease expense recorded under Accounting Standards Codification (ASC) 840, Leases (ASC 840), prior to adoption of ASU 2016-02 on January 1, 2019. Accordingly, amounts are not necessarily comparable.
For information regarding certain related-party lease arrangements, see note 13.

The following table provides certain other details of our operating leases at June 30, 2019:
For the six months ended June 30, 2019 (in millions):
 
Operating cash flows from operating leases
$
22.9

Right-of-use assets obtained in exchange for new operating lease liabilities (a)
$
9.1

 
 
Weighted-average remaining lease term (in years)
5.9 years

 
 
Weighted-average discount rate (b)
6.7
%
(a)
Represents non-cash transactions associated with operating leases entered into during six months ended June 30, 2019.
(b)
We use a credit-adjusted discount rate to measure our operating lease liabilities. We derive the discount rates associated with each of our borrowing groups starting with a risk free rate, generally the U.S. Treasury Bill rate. To determine credit risk, we create an industry benchmark credit default swap (CDS) curve from an observable high-yield debt index using comparable telecommunication companies as a proxy. We then determine the maximum curve shift against this CDS curve derived from our own tradable debt within each borrowing group, and make adjustments to correct for the collateralized interest rate spread by comparing unsecured debt to asset-backed securities (secured debt) trades, which is based on the spread between the BB- and B+ industrial curves. We determine the discount factor from this adjusted curve for each borrowing group.

11

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






Maturities of Operating Leases
Maturities of our operating lease liabilities on an undiscounted basis as of June 30, 2019 are presented below along with the current and noncurrent operating lease liabilities on a discounted basis. Such amounts represent U.S. dollar equivalents (in millions) based on June 30, 2019 exchange rates.
Years ending December 31:
 
2019 (remainder of year)
$
20.2

2020
35.3

2021
28.3

2022
23.0

2023
18.4

2024
15.5

Thereafter
27.4

Total operating lease liabilities on an undiscounted basis
168.1

Amount representing interest
(31.7
)
Present value of operating lease liabilities
$
136.4

 
 
Current portion
$
31.3

 
 
Noncurrent portion
$
105.1


The following table sets forth the U.S. dollar equivalents (in millions) of our operating lease commitments under ASC 840 as of December 31, 2018, which is required pursuant to ASU 2016-02 when using the effective date transition method.
Years ending December 31:
 
2019
$
40.4

2020
34.5

2021
27.8

2022
22.7

2023
17.2

Thereafter
34.5

Total
$
177.1



12

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






(4)
Acquisitions
2019 Acquisition
UTS. Effective March 31, 2019, we completed the acquisition of an 87.5% interest in UTS for a cash purchase price of $161 million, subject to certain potential post-closing adjustments, based on an enterprise value of $189 million (the UTS Acquisition). UTS provides fixed and mobile services to the island nations of Curaçao, St. Maarten, St. Martin, Bonaire, St. Barths, St. Eustatius and Saba. The UTS Acquisition was funded through a $170 million draw on the C&W Revolving Credit Facility. For further information on the draw of the C&W Revolving Credit Facility, see note 9.
We have accounted for the UTS Acquisition as a business combination using the acquisition method of accounting, whereby the total purchase price was allocated to the acquired identifiable net assets of UTS based on assessments of their respective fair values, and the excess of the purchase price over the fair values of these identifiable net assets was allocated to goodwill. The preliminary opening balance sheet is subject to adjustment based on our final assessment of the fair values of the acquired identifiable assets and liabilities. The valuation process remains open and our opening balance sheet will change as we finalize our valuation. The items with the highest likelihood to change upon finalization of the valuation process include property and equipment, goodwill, intangible assets and income taxes. A summary of the purchase price and preliminary opening balance sheet of UTS at the effective March 31, 2019 acquisition date is presented in the following table (in millions):
Cash
$
0.9

Trade receivables
11.1

Other current assets
3.2

Property and equipment
148.8

Goodwill
50.4

Long-term deferred tax assets
31.3

Other assets
2.6

Accounts payable
(28.2
)
Other accrued and current liabilities
(33.0
)
Other long-term liabilities
(14.2
)
Noncontrolling interest (a)
(11.6
)
Total purchase price (b)
$
161.3

(a)
Amount represents the estimated aggregate fair value of the noncontrolling interest in UTS as of the effective March 31, 2019 acquisition date.
(b)
Excludes $3 million of direct acquisition costs, including $1 million incurred during 2018. Direct acquisition costs are included in impairment, restructuring and other operating items, net, in our condensed consolidated statements of operations.
Our condensed consolidated statements of operations for each of the three and six months ended June 30, 2019 include revenue of $33 million and net earnings of $3 million attributable to UTS.
2018 Acquisition
Cabletica. On February 12, 2018, we entered into a definitive agreement to acquire certain assets and liabilities related to Televisora de Costa Rica S.A.’s (Televisora) cable operations in Costa Rica (“Cabletica”) based on an enterprise value of $252 million, subject to certain customary adjustments. As part of the agreement, the owners of Televisora retained a 20% ownership interest in Cabletica. On October 1, 2018, we completed the acquisition of our 80% interest (the Cabletica Acquisition) for an effective purchase price of $226 million, after working capital adjustments and deducting the value of Televisora’s retained equity interest. The Cabletica Acquisition was financed through a combination of debt and existing cash.
We have accounted for the Cabletica Acquisition as a business combination using the acquisition method of accounting, whereby the total purchase price was allocated to the acquired identifiable net assets of Cabletica based on assessments of their respective fair values, and the excess of the purchase price over the fair values of these identifiable net assets was allocated to

13

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






goodwill. The preliminary opening balance sheet is subject to adjustment based on our final assessment of the fair values of the acquired identifiable assets and liabilities. Although most items in the valuation process remain open, the items with the highest likelihood to change upon finalization of the valuation process include property and equipment, goodwill, intangible assets and income taxes. A summary of the purchase price and preliminary opening balance sheet of Cabletica at the October 1, 2018 acquisition date is presented in the following table (in millions):
Other current assets
$
6.3

Property and equipment
63.8

Goodwill (a)
152.5

Intangible assets subject to amortization (b)
61.9

Other assets
0.1

Other accrued and current liabilities
(13.8
)
Non-current deferred tax liabilities
(18.6
)
Other long-term liabilities
(0.7
)
Noncontrolling interest (c)
(25.1
)
Total purchase price (d)
$
226.4


(a)
The goodwill recognized in connection with the Cabletica Acquisition is primarily attributable to the ability to take advantage of Cabletica’s existing advanced broadband communications network as a base on which to expand our footprint in the region, and to gain immediate access to potential customers.
(b)
Amount primarily includes intangible assets related to customer relationships. As of October 1, 2018, the weighted average useful life of Cabletica’s intangible assets was approximately six years.
(c)
Amount represents the fair value of Televisora’s interest in Cabletica as of the October 1, 2018 acquisition date.
(d)
Excludes $5 million of direct acquisition costs, including $3 million incurred during 2018.
(5)
Derivative Instruments
In general, we seek to enter into derivative instruments to protect against (i) increases in the interest rates on our variable-rate debt and (ii) foreign currency movements, particularly with respect to borrowings that are denominated in a currency other than the functional currency of the borrowing entity. In this regard, through our subsidiaries, we have entered into various derivative instruments to manage interest rate exposure and foreign currency exposure with respect to the U.S. dollar ($), the Chilean peso (CLP), the Colombian peso (COP) and the Jamaican dollar (JMD). With the exception of certain foreign currency forward contracts, we do not apply hedge accounting to our derivative instruments. Accordingly, changes in the fair values of most of our derivative instruments are recorded in realized and unrealized gains or losses on derivative instruments in our condensed consolidated statements of operations.

14

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






The following table provides details of the fair values of our derivative instrument assets and liabilities:
 
June 30, 2019
 
December 31, 2018
 
Current (a)
 
Long-term (a)
 
Total
 
Current (a)
 
Long-term (a)
 
Total
 
in millions
Assets:
 
 
 
 
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts (b)
$
6.8

 
$
12.1

 
$
18.9

 
$
30.7

 
$
82.1

 
$
112.8

Foreign currency forward contracts and other
11.2

 
—

 
11.2

 
14.1

 
—

 
14.1

Total
$
18.0

 
$
12.1

 
$
30.1

 
$
44.8

 
$
82.1

 
$
126.9

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts (b)
$
32.3

 
$
94.7

 
$
127.0

 
$
23.9

 
$
41.4

 
$
65.3

Foreign currency forward contracts
0.4

 
—

 
0.4

 
—

 
—

 
—

Total
$
32.7

 
$
94.7

 
$
127.4

 
$
23.9

 
$
41.4

 
$
65.3

(a)
Our current derivative assets, current derivative liabilities, long-term derivative assets and long-term derivative liabilities are included in other current assets, other accrued and current liabilities, other assets, net, and other long-term liabilities, respectively, in our condensed consolidated balance sheets.
(b)
We consider credit risk relating to our and our counterparties’ nonperformance in the fair value assessment of our derivative instruments. In all cases, the adjustments take into account offsetting liability or asset positions within each of our primary borrowing groups (see note 9). The changes in the credit risk valuation adjustments associated with our cross-currency and interest rate derivative contracts resulted in net gains (losses) of $4 million and ($9 million) during the three months ended June 30, 2019 and 2018, respectively, and $6 million and ($21 million) during the six months ended June 30, 2019 and 2018, respectively. These amounts are included in realized and unrealized gains (losses) on derivative instruments, net, in our condensed consolidated statements of operations. For further information regarding our fair value measurements, see note 6.
The details of our realized and unrealized gains (losses) on derivative instruments, net, are as follows:
 
Three months ended June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
 
in millions
 
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts
$
(75.8
)
 
$
94.2

 
$
(145.8
)
 
$
55.3

Foreign currency forward contracts and other
(3.2
)
 
20.9

 
(2.2
)
 
18.3

Total
$
(79.0
)
 
$
115.1

 
$
(148.0
)
 
$
73.6


The following table sets forth the classification of the net cash inflows (outflows) of our derivative instruments:
 
Six months ended June 30,
 
2019
 
2018
 
in millions
 
 
 
 
Operating activities
$
17.1

 
$
(17.0
)
Investing activities
3.8

 
(3.1
)
Financing activities
(0.3
)
 
—

Total
$
20.6

 
$
(20.1
)


15

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






Counterparty Credit Risk
We are exposed to the risk that the counterparties to the derivative instruments of our borrowing groups will default on their obligations to us.  We manage these credit risks through the evaluation and monitoring of the creditworthiness of, and concentration of risk with, the respective counterparties. In this regard, credit risk associated with our derivative instruments is spread across a relatively broad counterparty base of banks and financial institutions. Collateral has not been posted by either party under the derivative instruments of our borrowing groups. At June 30, 2019, our exposure to counterparty credit risk included derivative assets with an aggregate fair value of $9 million.
Each of our borrowing groups has entered into derivative instruments under agreements with each counterparty that contain master netting arrangements that are applicable in the event of early termination by either party to such derivative instrument. The master netting arrangements under each of these master agreements are limited to the derivative instruments governed by the relevant master agreement within each individual borrowing group and are independent of similar arrangements of our other subsidiary borrowing groups.
Details of our Derivative Instruments
Cross-currency Derivative Contracts
As noted above, we are exposed to foreign currency exchange rate risk in situations where our debt is denominated in a currency other than the functional currency of the operations whose cash flows support our ability to service, repay or refinance such debt. Although we generally seek to match the denomination of our borrowings with the functional currency of the operations that are supporting the respective borrowings, market conditions or other factors may cause us to enter into borrowing arrangements that are not denominated in the functional currency of the underlying operations (unmatched debt). Our policy is generally to provide for an economic hedge against foreign currency exchange rate movements, whenever possible and when cost effective to do so, by using derivative instruments to synthetically convert unmatched debt into the applicable underlying currency. The following table sets forth the total notional amounts and the related weighted average remaining contractual lives of our cross-currency swap contracts at June 30, 2019:
Borrowing group
 
Notional amount
due from
counterparty
 
Notional amount
due to
counterparty
 
Weighted average remaining life
 
 
in millions
 
in years
 
 
 
 
 
 
 
 
 
C&W
$
108.3

 
JMD
13,817.5

 
7.6
 
 
$
56.3

 
COP
180,000.0

 
7.1
 
 
 
 
 
 
 
 
 
VTR Finance
$
1,260.0

 
CLP
854,020.0

 
3.0


16

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






Interest Rate Derivative Contracts
Interest Rate Swaps
As noted above, we enter into interest rate swaps to protect against increases in the interest rates on our variable-rate debt. Pursuant to these derivative instruments, we typically pay fixed interest rates and receive variable interest rates on specified notional amounts. The following table sets forth the total U.S. dollar equivalents of the notional amounts and the related weighted average remaining contractual lives of our interest rate swap contracts at June 30, 2019:
Borrowing group
 
Notional amount due from counterparty
 
Weighted average remaining life
 
 
in millions
 
in years
 
 
 
 
 
C&W (a)
$
2,555.0

 
4.8
 
 
 
 
 
VTR Finance
$
207.6

 
3.6
 
 
 
 
 
Liberty Puerto Rico
$
850.0

 
7.0
 
 
 
 
 
Cabletica
$
53.5

 
4.0
(a)
Includes forward-starting derivative instruments.
Basis Swaps
Basis swaps involve the exchange of attributes used to calculate our floating interest rates, including (i) the benchmark rate, (ii) the underlying currency and/or (iii) the borrowing period. We typically enter into these swaps to optimize our interest rate profile based on our current evaluations of yield curves, our risk management policies and other factors. The following table sets forth the total U.S. dollar equivalents of the notional amounts and the related weighted average remaining contractual lives of our basis swap contracts at June 30, 2019:
Borrowing group
 
Notional amount due from counterparty
 
Weighted average remaining life
 
 
in millions
 
in years
 
 
 
 
 
C&W
$
1,640.0

 
0.5
 
 
 
 
 
Liberty Puerto Rico
$
922.5

 
0.5
Interest Rate Caps
We enter into interest rate cap agreements that lock in a maximum interest rate if variable rates rise, but also allow us to benefit from declines in market rates. At June 30, 2019, the total U.S. dollar notional amount of our interest rate cap was $73 million and the related weighted average remaining contractual life of our interest rate cap was 4.0 years. Our interest rate cap is held by our Liberty Puerto Rico borrowing group.

17

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






Impact of Derivative Instruments on Borrowing Costs
The weighted average impact of the derivative instruments, excluding forward-starting derivative instruments, on our borrowing costs at June 30, 2019 was as follows:
Borrowing group
 
Increase (decrease) to borrowing costs
 
 
 
C&W
(0.03
)%
VTR Finance
(0.09
)%
Liberty Puerto Rico
(0.21
)%
Cabletica
0.17
 %
Liberty Latin America borrowing groups
(0.06
)%

Foreign Currency Forwards Contracts
We enter into foreign currency forward contracts with respect to non-functional currency exposure. At June 30, 2019, the total U.S. dollar equivalent of the notional amounts of our foreign currency forward contracts was $164 million and the related weighted average remaining contractual life of our foreign currency forward contracts was 0.5 years. All of our our foreign currency forward contracts are held by our VTR Finance borrowing group.
(6)
Fair Value Measurements
General
We use the fair value method to account for our derivative instruments and the available-for-sale method to account for our investment in United Kingdom (U.K.) Government Gilts. The reported fair values of our derivative instruments as of June 30, 2019 likely will not represent the value that will be paid or received upon the ultimate settlement or disposition of these assets and liabilities, as we expect that the values realized generally will be based on market conditions at the time of settlement, which may occur at the maturity of the derivative instrument or at the time of the repayment or refinancing of the underlying debt instrument.
U.S. GAAP provides for a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.
Recurring Fair Value Measurements
Derivatives
In order to manage our interest rate and foreign currency exchange risk, we have entered into various derivative instruments, as further described in note 5. The recurring fair value measurements of these derivative instruments are determined using discounted cash flow models. Most of the inputs to these discounted cash flow models consist of, or are derived from, observable Level 2 data for substantially the full term of these derivative instruments. This observable data mostly includes interest rate futures and swap rates, which are retrieved or derived from available market data. Although we may extrapolate or interpolate this data, we do not otherwise alter this data in performing our valuations. We incorporate a credit risk valuation adjustment in our fair value measurements to estimate the impact of both our own nonperformance risk and the nonperformance risk of our counterparties. Our and our counterparties’ credit spreads represent our most significant Level 3 inputs, and these inputs are used to derive the credit risk valuation adjustments with respect to these instruments. As we would not expect changes in our or our counterparties’ credit spreads to have a significant impact on the valuations of these instruments, we have determined that these valuations fall under Level 2 of the fair value hierarchy. Our credit risk valuation adjustments with respect to our cross-currency and interest rate derivative contracts are quantified and further explained in note 5. Due to the lack of Level 2 inputs for the valuation of the U.S dollar to the Jamaican dollar cross-currency swaps (the Sable Currency Swaps) held by Sable International Finance Limited (Sable), a wholly-owned subsidiary of C&W, we believe this valuation falls under Level 3 of the fair value hierarchy. The Sable

18

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






Currency Swaps are our only Level 3 financial instruments. The fair values of the Sable Currency Swaps at June 30, 2019 and December 31, 2018 were $31 million and $36 million, respectively, which are included in other long-term liabilities in our condensed consolidated balance sheets. The change in the fair values of the Sable Currency Swaps resulted in net gains (losses) of $4 million and ($7 million) during the three months ended June 30, 2019 and 2018, respectively, and $5 million and ($12 million) during the six months ended June 30, 2019 and 2018, respectively, which are reflected in realized and unrealized gains (losses) on derivative instruments, net, in our condensed consolidated statements of operations.
Available-for-sale Investments
Our investment in U.K. Government Gilts falls under Level 1 of the fair value hierarchy. At June 30, 2019 and December 31, 2018, the carrying values of our investment in U.K. Government Gilts, which are included in other assets, net, in our condensed consolidated balance sheets, were $36 million and $35 million, respectively.
Nonrecurring Fair Value Measurements
Conversion Option – Convertible Notes
As further described and defined in note 9, our Convertible Notes include a Conversion Option that we bifurcated from the Convertible Notes and recorded at fair value upon issuance as an equity component in our condensed consolidated statement of equity. The fair value of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature, which was established using the present value of cash flows associated with such instrument based on a 5-year tenor and an estimated yield rate of 6.7%, which is a Level 2 input. The fair value of the equity component was determined by deducting the fair value of the liability component from the proceeds received on issuance of the Convertible Notes.
Other
Fair value measurements are also used for purposes of nonrecurring valuations performed in connection with acquisitions and impairment assessments. We did not perform any significant nonrecurring fair value measurements related to these assessments during the six months ended June 30, 2019.
(7)
Insurance Recoveries
In September 2017, Hurricanes Irma and Maria (the Hurricanes) impacted a number of our markets in the Caribbean, resulting in varying degrees of damage to homes, businesses and infrastructure in these markets. In October 2016, our operations in the Bahamas, which is part of our C&W segment, were significantly impacted by Hurricane Matthew.
In December 2018, we settled our insurance claims for Hurricanes Irma, Maria and Matthew, as follows: (i) $109 million for Hurricanes Maria and Irma, after deducting $30 million of self-insurance, and (ii) $12 million for Hurricane Matthew, after deducting $15 million of self-insurance.
During the first quarter of 2019, we received the remaining outstanding insurance settlement amount of $67 million, of which $33 million and $34 million have been presented as operating and investing activities, respectively, in our condensed consolidated statement of cash flows. With respect to the cash received, $37 million, $27 million and $3 million was provided to C&W, Liberty Puerto Rico and our Corporate operations, respectively.
Prior to 2019, we received net advance payments of $54 million associated with the initial insurance claim filed in connection with the Hurricanes, of which $30 million was received during the first half of 2018 and was provided to Liberty Puerto Rico. The net advance received during the first half of 2018 was included in operating activities in our condensed consolidated statement of cash flows.

19

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






(8)
Long-lived Assets
Goodwill
Changes in the carrying amount of our goodwill are set forth below:
 
January 1,
2019
 
Acquisitions
and related
adjustments
 
Foreign
currency
translation
adjustments
 
June 30,
2019
 
in millions
 
 
 
 
 
 
 
 
C&W
$
4,325.6

 
$
50.4

 
$
(16.8
)
 
$
4,359.2

VTR/Cabletica
530.0

 
1.2

 
14.7

 
545.9

Liberty Puerto Rico
277.7

 
—

 
—

 
277.7

Total
$
5,133.3

 
$
51.6

 
$
(2.1
)
 
$
5,182.8


Based on the results of our October 1, 2018 goodwill impairment test, declines in the estimated fair value of certain C&W reporting units, particularly with respect to our Panamanian reporting unit, which had a goodwill balance of $976 million at June 30, 2019, could result in the need to record additional goodwill impairment charges. If, among other factors, (i) our equity values were to decline significantly or (ii) the adverse impacts of competition, economic, regulatory or other factors, including macro-economic and demographic trends, were to cause our results of operations or cash flows to be worse than anticipated, we could conclude in future periods that impairment charges are required in order to reduce the carrying values of the goodwill and, to a lesser extent, other long-lived assets of C&W. Any such impairment charges could be significant.
Property and Equipment, Net
The details of our property and equipment and the related accumulated depreciation are set forth below:
 
June 30,
2019
 
December 31,
2018
 
in millions
 
 
 
 
Distribution systems
$
4,345.8

 
$
4,115.0

Customer premises equipment (CPE)
1,790.4

 
1,606.0

Support equipment, buildings and land
1,461.3

 
1,398.8

 
7,597.5

 
7,119.8

Accumulated depreciation
(3,235.9
)
 
(2,882.9
)
Total
$
4,361.6

 
$
4,236.9


During the six months ended June 30, 2019 and 2018, we recorded non-cash increases to our property and equipment related to vendor financing arrangements aggregating $26 million and $35 million, respectively.

20

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






Intangible Assets Subject to Amortization, Net
The details of our intangible assets subject to amortization are set forth below:
 
June 30,
2019
 
December 31,
2018
 
in millions
Gross carrying amount:
 
 
 
Customer relationships
$
1,510.5

 
$
1,509.7

Licenses and other
186.5

 
186.8

Total gross carrying amount
1,697.0

 
1,696.5

Accumulated amortization:
 
 
 
Customer relationships
(596.6
)
 
(504.7
)
Licenses and other
(32.0
)
 
(26.1
)
Total accumulated amortization
(628.6
)
 
(530.8
)
Net carrying amount
$
1,068.4

 
$
1,165.7


(9)
Debt and Finance Lease Obligations
The U.S. dollar equivalents of the components of our debt are as follows:
 
June 30, 2019
 
Estimated fair value (c)
 
Principal Amount
 
Weighted
average
interest
rate (a)
 
Unused borrowing capacity (b)
 
 
 
Borrowing currency
 
US $ equivalent
 
June 30, 2019
 
December 31, 2018
 
June 30, 2019
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
in millions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Convertible Notes (d)
2.00
%
 
—

 
$
—

 
$
403.9

 
$
—

 
$
402.5

 
$
—

C&W Credit Facilities
5.40
%
 
$
750.0

 
750.0

 
1,946.8

 
2,135.6

 
1,943.6

 
2,193.6

C&W Notes
6.81
%
 
—

 
—

 
2,176.5

 
1,724.7

 
2,110.0

 
1,781.6

VTR Finance Senior Notes
6.88
%
 
—

 
—

 
1,303.2

 
1,265.0

 
1,260.0

 
1,260.0

VTR Credit Facilities
6.64
%
 
(e)
 
251.3

 
253.8

 
245.7

 
256.4

 
250.7

LPR Bank Facility
6.15
%
 
40.0

 
40.0

 
918.2

 
905.4

 
922.5

 
942.5

Cabletica Credit Facilities
10.47
%
 
(f)
 
15.0

 
126.4

 
122.2

 
127.7

 
124.7

Vendor financing (g)
4.98
%
 
—

 
—

 
140.2

 
157.6

 
140.2

 
157.6

Total debt before premiums, discounts and deferred financing costs
6.11
%
 
 
 
$
1,056.3

 
$
7,269.0

 
$
6,556.2

 
$
7,162.9

 
$
6,710.7



21

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






The following table provides a reconciliation of total debt before premiums, discounts and deferred financing costs to total debt and finance lease obligations:
 
June 30, 2019
 
December 31, 2018
 
in millions
 
 
 
 
Total debt before premiums, discounts and deferred financing costs
$
7,162.9

 
$
6,710.7

Premiums, discounts and deferred financing costs, net (d)
(140.5
)
 
(41.5
)
Total carrying amount of debt
7,022.4

 
6,669.2

Finance lease obligations
10.6

 
12.9

Total debt and finance lease obligations
7,033.0

 
6,682.1

Less: Current maturities of debt and finance lease obligations
(172.4
)
 
(302.5
)
Long-term debt and finance lease obligations
$
6,860.6

 
$
6,379.6



(a)
Represents the weighted average interest rate in effect at June 30, 2019 for all borrowings outstanding pursuant to each debt instrument, including any applicable margin. The interest rates presented represent stated rates and do not include the impact of derivative instruments, deferred financing costs, original issue premiums or discounts and commitment fees, all of which affect our overall cost of borrowing. Including the effects of derivative instruments, original issue premiums or discounts, including the discount on the Convertible Notes associated with the Conversion Option, and commitment fees, but excluding the impact of financing costs, the weighted average interest rate on our indebtedness was 6.4% at June 30, 2019; excluding the discount on the Convertible Notes associated with the Conversion Option, the weighted average interest rate was 6.1%. For information regarding our derivative instruments, see note 5.
(b)
Unused borrowing capacity represents the maximum availability under the applicable facility at June 30, 2019 without regard to covenant compliance calculations or other conditions precedent to borrowing. At June 30, 2019, the full amount of unused borrowing capacity was available to be borrowed under each of the respective subsidiary facilities, both before and after completion of the June 30, 2019 compliance reporting requirements. At June 30, 2019, there were no restrictions on the respective subsidiary’s ability to make loans or distributions from this availability to Liberty Latin America or its subsidiaries or other equity holders.

(c)
The estimated fair values of our debt instruments are determined using the average of applicable bid and ask prices (mostly Level 1 of the fair value hierarchy) or, when quoted market prices are unavailable or not considered indicative of fair value, discounted cash flow models (mostly Level 2 of the fair value hierarchy). The discount rates used in the cash flow models are based on the market interest rates and estimated credit spreads of the applicable entity, to the extent available, and other relevant factors. For additional information regarding fair value hierarchies, see note 6.
(d)
The interest rate reflects the stated rate of the Convertible Notes. The effective interest rate of the Convertible Notes is 6.7%, which considers the impact of the $78 million discount recorded during the second quarter of 2019 in connection with the Conversion Option, as further described below.
(e)
The VTR Credit Facilities comprise certain CLP term loans and U.S. dollar and CLP revolving credit facilities, including unused borrowing capacity. In March 2019, the commitment under the existing CLP revolving credit facility was increased to CLP 45 billion ($66 million).
(f)
The Cabletica Credit Facilities comprise certain Costa Rican colón (CRC) and U.S. dollar term loans and a U.S. dollar revolving credit facility.

22

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






(g)
Represents amounts owed pursuant to interest-bearing vendor financing arrangements that are used to finance certain of our operating expenses and property and equipment additions. These obligations are generally due within one year and include value-added taxes (VAT) that were paid on our behalf by the vendor. Our operating expenses include $57 million and $95 million for the six months ended June 30, 2019 and 2018, respectively, that were financed by an intermediary and are reflected on the borrowing date as a hypothetical cash outflow within net cash provided by operating activities and a hypothetical cash inflow within net cash provided by financing activities in our condensed consolidated statements of cash flows. Repayments of vendor financing obligations are included in repayments of debt and finance lease obligations in our condensed consolidated statements of cash flows.
2019 Financing Transactions
Liberty Latin America – Convertible Notes
In June 2019, Liberty Latin America issued $403 million principal amount of 2.0% convertible senior notes (the Convertible Notes) due July 15, 2024. Interest on the Convertible Notes is payable semi-annually on January 15 and July 15, beginning on January 15, 2020. The Convertible Notes are general unsecured obligations of the Company, are subordinated to all of our other debt and structurally subordinated to all liabilities of our subsidiaries.
Conversion Rights. Subject to certain conditions, and adjustments if certain events occur (as specified in the indenture governing the Convertible Notes), the Convertible Notes may be converted at a conversion rate initially equal to 44.9767 Class C common shares per $1,000 principal amount of the Convertible Notes (equivalent to an initial conversion price of approximately $22.23 per Class C common share), the “Conversion Option”. Any conversions of the Convertible Notes may be settled, at the election of the Company, in cash, Class C common shares or a combination thereof.
The Convertible Notes may be converted at the option of the holders at any time prior to the close of business on January 12, 2024, only under the following circumstances:
•
during any calendar quarter commencing after September 30, 2019 (and only during such calendar quarter), if the last reported sale price of our Class C common shares for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on and including the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the applicable conversion price of the Convertible Notes on each applicable trading day;
•
during the five consecutive business day period immediately after any five consecutive trading day period (the “measurement period”), in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day of that measurement period was less than 98% of the product of the last reported sale price of our Class C common shares and the conversion rate on each such trading day;
•
if we give notice of redemption, as described below; or
•
upon the occurrence of specified corporate transactions.
On and after January 15, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders of the Convertible Notes may convert their notes at any time, regardless of the foregoing circumstances.
As of June 30, 2019, we determined the Conversion Option should be bifurcated from the debt host instrument (the Convertible Notes) and accounted for as a separate financial instrument that qualifies for equity classification. Accordingly, we bifurcated the Conversion Option from the Convertible Notes and initially recorded the estimated fair value of $78 million as additional paid-in capital and debt discount. The debt discount will be accreted through interest expense, using the effective interest method, through maturity of the Convertible Notes or when the Conversion Option no longer qualifies for equity classification, if ever.
Redemption Rights. Other than a redemption for a change in certain tax laws, we may not redeem the Convertible Notes prior to July 19, 2022. On or after July 19, 2022 but prior to the 85th scheduled trading day immediately preceding July 15, 2024, we may redeem all or a portion of the notes for cash, if the last reported sale price of our Class C common shares has been at least 130% of the conversion price then in effect on (i) each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption and (ii) the trading day immediately preceding the date we provide such notice.

23

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






Other. If a fundamental change (as defined in the indenture) occurs, holders of the Convertible Notes may require the Company to repurchase all or a portion of their notes for cash at a price equal to 100% of the principal amount of the notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, following certain corporate transactions that occur prior to the maturity date of the Convertible Notes or the delivery of a notice of redemption, we will increase the applicable conversion rate for a holder who elects to convert in connection with such corporate transactions or notice of redemption in certain circumstances by a number of additional Class C common shares, as described in the related indenture.
We used a portion of the net proceeds from the issuance of the Convertible Notes to fund the cost of the Capped Calls, as defined and further described in note 12, and expect to use the remaining funds for other general corporate purposes.
C&W
2019 C&W Senior Notes. On March 25, 2019, we repaid in full the outstanding principal amount under the 2019 C&W Senior Notes for total consideration of £91 million ($120 million at the transaction date), including accrued interest of £7 million ($9 million at the transaction date).
C&W Revolving Credit Facility. In connection with the UTS Acquisition during the first quarter of 2019, we borrowed $170 million on the C&W Revolving Credit Facility. As further described below, the outstanding principal amount of the C&W Revolving Credit Facility, including accrued interest, was repaid in full during the second quarter of 2019.
2027 C&W Senior Notes Add-on A. In April 2019, C&W issued an additional $300 million aggregate principal amount, at 99.205% of par, under the existing 2027 C&W Senior Notes indenture dated August 16, 2017 (the 2027 C&W Senior Notes Add-on A). The terms and conditions of the 2027 C&W Senior Notes Add-on A are consistent with the original indenture.
The net proceeds from the 2027 C&W Senior Notes Add-on A were primarily used to (i) repay in full the $170 million outstanding principal amount under the C&W Revolving Credit Facility and (ii) redeem $115 million of aggregate principal amount of the 2022 C&W Senior Notes according to the redemption terms of the related indenture, comprising (a) a 105.156% redemption price and (b) accrued and unpaid interest on the redeemed notes.
2027 C&W Senior Secured Notes. In April 2019, Sable issued $400 million principal amount, at 99.195% of par, of 5.750% senior secured notes, due September 7, 2027 (the 2027 C&W Senior Secured Notes). Interest on the 2027 C&W Senior Secured Notes is payable semi-annually on January 7 and July 7.
Subject to the circumstances described below, the 2027 C&W Senior Secured Notes are non-callable until September 7, 2022. At any time prior to September 7, 2022, Sable may redeem some or all of the 2027 C&W Senior Secured Notes by paying a price equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest and a “make-whole” premium, which is generally the present value of all remaining scheduled interest payments to September 7, 2022 using the discount rate (as specified in the indenture) as of the redemption date plus 50 basis points. In addition, at any time prior to September 7, 2022, subject to certain restrictions (as specified in the indenture), up to 40% of the 2027 C&W Senior Secured Notes may be redeemed with the net proceeds of one or more specified equity offerings at a redemption price equal to 105.750% of the principal amount redeemed, plus accrued and unpaid interest and additional amounts (as specified in the indenture), if any, to the redemption date. Also, prior to September 7, 2022, during each 12-month period commencing on April 5, 2019, up to 10% of the principal amount of the 2027 C&W Senior Secured Notes may be redeemed at a redemption price equal to 103% of the principal amount redeemed plus accrued and unpaid interest to the redemption date.
Sable may redeem some or all of the 2027 C&W Senior Secured Notes at the following redemption prices (expressed as a percentage of principal amount) plus accrued and unpaid interest and additional amounts (as specified in the indenture), if any, to the applicable redemption date:
 
Redemption price
12-month period commencing September 7:
 
2022
102.875%
2023
101.438%
2024 and thereafter
100.000%


24

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






The net proceeds from the 2027 C&W Senior Secured Notes were primarily used to (i) redeem $150 million of aggregate principal amount under the 2022 C&W Senior Notes according to the redemption terms of the indenture, comprising (a) the 105.156% redemption price and (b) accrued and unpaid interest on the redeemed notes, and (ii) repay $235 million of aggregate principal amount under the C&W Term Loan B-4 Facility.
The details of our outstanding C&W Notes as of June 30, 2019 are summarized in the following table:
 
 
 
 
 
 
Outstanding
principal amount
 
 
 
 
C&W Notes
 
Maturity
 
Interest
rate
 
Borrowing
currency
 
U.S. $ equivalent
 
Estimated
fair value
 
Carrying
value (a)
 
 
 
 
 
 
in millions
Senior Secured Notes:
 
 
 
 
 
 
 
 
 
 
 
 
2027 C&W Senior Secured Notes
 
September 7, 2027
 
5.750
%
 
$
400.0

 
$
400.0

 
$
403.5

 
$
391.4

Senior Notes:
 
 
 
 
 
 
 
 
 
 
 
 
2022 C&W Senior Notes (b) (c)
 
August 1, 2022
 
6.875
%
 
$
210.0

 
210.0

 
217.7

 
213.4

2026 C&W Senior Notes
 
October 15, 2026
 
7.500
%
 
$
500.0

 
500.0

 
523.4

 
493.5

2027 C&W Senior Notes
 
September 15, 2027
 
6.875
%
 
$
1,000.0

 
1,000.0

 
1,031.9

 
990.1

Total
 
$
2,110.0


$
2,176.5


$
2,088.4

(a)
Amounts are inclusive or net of original issue premiums and deferred financing costs, as applicable.
(b)
Carrying values of the 2022 C&W Senior Notes (previously known as the Sable Senior Notes) include the impact of premiums recorded in connection with the acquisition accounting for the C&W Acquisition.
(c)
Subsequent to June 30, 2019, the remaining aggregate principal amount of the 2022 C&W Senior Notes were called for redemption and will be fully repaid in August 2019.
Subsequent Event – 2027 C&W Senior Notes Add-on B. In July 2019, C&W issued an additional $220 million aggregate principal amount, at 103.625% of par, under the existing 2027 C&W Senior Notes indenture dated August 16, 2017 (the 2027 C&W Senior Notes Add-on B). The terms and conditions of the 2027 C&W Senior Notes Add-on B are consistent with the original indenture.
The net proceeds from the 2027 C&W Senior Notes Add-on B will be primarily used to redeem the remaining aggregate principal amount of the 2022 C&W Senior Notes of $210 million, which were called for redemption in July 2019 according to the redemption terms of the related indenture, comprising (a) a 103.438% redemption price and (b) accrued and unpaid interest on the redeemed notes.
Liberty Puerto Rico
LPR Second Lien Term Loan. During the second quarter of 2019, Liberty Puerto Rico repaid $20 million of the principal outstanding under the LPR Second Lien Term Loan.

25

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






Maturities of Debt
Maturities of our debt as of June 30, 2019 are presented below. Amounts presented below represent U.S. dollar equivalents based on June 30, 2019 exchange rates:
 
C&W
 
VTR Finance
 
Liberty Puerto Rico
 
Cabletica
 
Liberty Latin America
 
Consolidated
 
in millions
Years ending December 31:
 
 
 
 
 
 
 
 
 
 
 
2019 (remainder of year)
$
42.4

 
$
59.2

 
$
—

 
$
—

 
$
—

 
$
101.6

2020
33.3

 
40.2

 
—

 
—

 
—

 
73.5

2021
124.2

 
—

 
—

 
—

 
—

 
124.2

2022
224.3

 
103.8

 
850.0

 
—

 
—

 
1,178.1

2023
123.1

 
152.6

 
72.5

 
127.7

 
—

 
475.9

2024
3.0

 
1,260.0

 
—

 
—

 
402.5

 
1,665.5

Thereafter
3,544.1

 
—

 
—

 
—

 
—

 
3,544.1

Total debt maturities
4,094.4

 
1,615.8

 
922.5

 
127.7

 
402.5

 
7,162.9

Premiums, discounts and deferred financing costs, net
(26.2
)
 
(21.0
)
 
(7.5
)
 
(3.6
)
 
(82.2
)
 
(140.5
)
Total debt
$
4,068.2

 
$
1,594.8

 
$
915.0

 
$
124.1

 
$
320.3

 
$
7,022.4

Current portion
$
64.9

 
$
99.4

 
$
—

 
$
—

 
$
—

 
$
164.3

Noncurrent portion
$
4,003.3

 
$
1,495.4

 
$
915.0

 
$
124.1

 
$
320.3

 
$
6,858.1


(10)
Unfulfilled Performance Obligations
We enter into certain long-term capacity contracts with customers where the customer either pays a fixed fee over time or prepays for the capacity upfront and pays a portion related to operating and maintenance of the network over time. We assess whether prepaid capacity contracts contain a significant financing component. If the financing component is significant, interest expense is accreted over the life of the contract using the effective interest method. The revenue associated with prepaid capacity contracts is deferred and generally recognized on a straight-line basis over the life of the contract. As of June 30, 2019, we have approximately $475 million of unfulfilled performance obligations relating to our long-term capacity contracts, primarily subsea contracts, that generally will be recognized as revenue over an average remaining life of seven years.
(11)
Income Taxes
We evaluate and update our estimated annual effective income tax rate on a quarterly basis based on current and forecasted operating results and tax laws. For interim tax reporting, we estimate an annual effective tax rate which is applied to year-to-date ordinary income or loss. The tax effect of significant unusual or infrequently occurring items are excluded from the estimated annual effective tax rate calculation and recognized in the interim period in which they occur.
Our interim estimate of our annual effective tax rate and our interim tax provision are subject to volatility due to factors such as jurisdictions in which our deferred taxes and/or tax attributes are subject to a full valuation allowance, relative changes in unrecognized tax benefits and changes in tax laws. Based upon the mix and timing of our actual annual earnings or loss compared to annual projections, as well as changes in the factors noted above, our effective tax rate may vary quarterly and may make quarterly comparisons not meaningful.
Income tax expense was $30 million and $42 million during the three months ended June 30, 2019 and 2018, respectively, and $34 million and $58 million during the six months ended June 30, 2019 and 2018, respectively. This represents an effective income tax rate of 36.1% and (295.0%) for the three months ended June 30, 2019 and 2018, respectively, and 28.6% and 249.6% for the six months ended June 30, 2019 and 2018, respectively, including items treated discretely.

26

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






For the three and six months ended June 30, 2019, the income tax expense attributable to our earnings (loss) before income taxes differs from the amounts computed using the statutory tax rate, primarily due to the detrimental effects of international rate differences, increases in valuation allowances, changes in uncertain tax positions, and negative effects of permanent items, such as non-deductible expenses. These negative impacts to our effective tax rate were partially offset by the beneficial effects of permanent items, such as non-taxable income. Additionally for the six months ended June 30, 2019, our effective tax rate reflects the beneficial effects of a change in the Barbados and Grenada statutory tax rates.
For the three and six months ended June 30, 2018 the income tax expense attributable to our earnings (loss) before income taxes differs from the amounts computed using the statutory tax rate, primarily due to the detrimental effects of international rate differences, increases in valuation allowances and negative effects of non-deductible expenses. These negative impacts to our effective tax rates were partially offset by the beneficial effects of changes in uncertain tax positions and non-taxable income.
Subsequent to June 30, 2019, we closed certain tax assessments, and as a result, expect to reduce our uncertain tax positions by approximately $240 million during the third quarter of 2019.

(12)
Equity
Capped Calls
In connection with the issuance of our Convertible Notes, Liberty Latin America entered into capped call option contracts (the Capped Calls). The Capped Calls are used as an economic hedge to reduce or offset potential dilution to our Class C common shares upon any conversion of the Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of such converted notes, as the case may be, with such reduction and/or offset subject to a cap. Collectively, the Capped Calls cover, initially, the number of the Company’s Class C common shares underlying the Convertible Notes of 18.1 million. The Capped Calls have an initial strike price of $22.2337 per Class C common share and an initial cap price of $31.7625 per Class C common share, subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the Convertible Notes, and expire on July 15, 2024. The Capped Calls are not considered a derivative instrument under ASC 815, Derivatives and Hedging, as the contracts are indexed to our Class C common shares and therefore classified within shareholders’ equity. The aggregate premiums paid for the Capped Calls of $46 million are included in additional paid-in capital in our condensed consolidated statement of equity.
Conversion Option – Convertible Notes
In connection with the issuance of the Convertible Notes, we recorded $77 million in additional paid-in capital in our condensed consolidated statement of equity for the Conversion Option, which represents the fair value of the Conversion Option at issuance less $1 million of allocated transaction fees and costs. For additional information see notes 6 and 9.
Noncontrolling interests
During the first quarter of 2018, we increased our ownership in C&W Jamaica from 82.0% to 91.7% by acquiring 1,629,734,373 of the then issued and outstanding ordinary stock units of C&W Jamaica that we did not already own (the C&W Jamaica NCI Acquisition) for JMD $1.45 per share or JMD $2,363 million ($19 million at the transaction dates) of paid consideration. During the second quarter of 2018, we acquired an additional 97,312,801 of the then issued and outstanding ordinary stock units of C&W Jamaica that we did not already own for JMD $141 million ($1 million at the transaction dates), which increased our ownership interest to 92.3%.
(13)
Related-party Transactions
We have certain agreements with Liberty Global plc (Liberty Global), collectively the “LG Agreements,” as further described below. During the three and six months ended June 30, 2019, we incurred expenses of $3 million and $6 million, respectively, associated with the LG Agreements. During the three and six months ended June 30, 2018, we incurred expenses of $2 million and $4 million, respectively. In addition, we acquired capital assets associated with the LG Agreements of $6 million and $7 million during the six months ended June 30, 2019 and 2018, respectively. These expenses and capital asset acquisitions are cash settled. The following summarizes the primary terms of the LG Agreements:
•
a services agreement (the Services Agreement) for a period through December 29, 2019 with the option to renew for a one-year period, pursuant to which Liberty Global will provide Liberty Latin America with specified services, including certain technical and information technology services (including software development services associated with the

27

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






Connect Box and the Horizon platform, management information systems, hardware, data storage, and network and telecommunications services), access to Liberty Global’s procurement team and tools to leverage scale and take advantage of joint purchasing opportunities, certain management services, and other services to support Liberty Latin America’s legal, tax, accounting and finance departments;
•
a sublease agreement (the Sublease Agreement), pursuant to which Liberty Latin America will sublease office space from Liberty Global in Denver, Colorado until May 31, 2031, subject to customary termination and notice provisions; and
•
a facilities sharing agreement (the Facilities Sharing Agreement), pursuant to which, for as long as the Sublease Agreement remains in effect, Liberty Latin America will pay a fee for the usage of certain facilities at the office space in Denver, Colorado.
The following table provides details of our significant related-party balances with Liberty Global:
 
June 30,
2019
 
December 31, 2018
 
in millions
Assets:
 
 
 
Other current assets
$
3.8

 
$
3.2

 
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
3.9

 
$
7.0

Other accrued and current liabilities
7.8

 
3.5

Total current liabilities
$
11.7

 
$
10.5


(14)
Restructuring Liabilities
A summary of changes in our restructuring liability is set forth in the table below:
 
Employee severance and termination
 
Contract termination and other
 
Total
 
in millions
 
 
 
 
 
 
Restructuring liability as of January 1, 2019
$
7.6

 
$
18.0

 
$
25.6

Restructuring charges
15.7

 
5.8

 
21.5

Cash paid
(17.3
)
 
(7.9
)
 
(25.2
)
Foreign currency translation adjustments
(0.2
)
 
0.4

 
0.2

Restructuring liability as of June 30, 2019
$
5.8

 
$
16.3

 
$
22.1

 
 
 
 
 
 
Current portion
$
5.8

 
$
10.6

 
$
16.4

Noncurrent portion
—

 
5.7

 
5.7

Total
$
5.8

 
$
16.3

 
$
22.1


Our restructuring charges during the six months ended June 30, 2019, primarily relate to employee severance and termination costs associated with reorganization programs at C&W and VTR.

28

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






(15)
Share-based Compensation
The following table summarizes our share-based compensation expense:
 
Three months ended June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
 
in millions
Included in:
 
 
 
 
 
 
 
Other operating expense
$
0.3

 
$
0.1

 
$
0.5

 
$
0.2

SG&A expense
15.1

 
8.6

 
29.6

 
15.0

Total
$
15.4

 
$
8.7

 
$
30.1

 
$
15.2


Share-based Incentive Awards
The following tables summarize the share-based incentive awards related to Liberty Latin America Class A and C common shares held by our employees and our board of directors as of June 30, 2019:
 
Number of
shares
 
Weighted average exercise price
 
Weighted average remaining contractual term
Share-based incentive award type
 
 
 
 
in years
Stock appreciation rights (SARs):
 
 
 
 
 
Class A common shares:
 
 
 
 
 
Outstanding
3,451,651

 
$
21.92

 
5.6
Exercisable
984,659

 
$
25.54

 
4.5
Class C common shares:
 
 
 
 
 
Outstanding
6,956,267

 
$
21.99

 
5.6
Exercisable
2,022,511

 
$
25.78

 
4.4
 
Number of
shares
 
Weighted average remaining contractual term
Share-based incentive award type
 
 
in years
Restricted stock units (RSUs) outstanding:
 
 
 
Class A common shares
321,604

 
2.7
Class C common shares
643,017

 
2.7
Performance-based restricted stock units (PSUs) outstanding:
 
 
 
Class A common shares
335,293

 
1.2
Class C common shares
670,588

 
1.2

During the six months ended June 30, 2019, we granted SARs with respect to 1,056,100 Class A common shares and 2,112,200 Class C common shares, which have weighted average exercise prices of $19.91 and $20.03, respectively, and weighted average grant-date fair values of $6.91 and $7.04, respectively. We also granted RSUs during the six months ended June 30, 2019 with respect to 220,837 Class A common shares and 441,674 Class C common shares, which have weighted average grant-date fair values of $19.94 and $20.03, respectively.

29

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






(16)
Loss per Share
Basic earnings (loss) per share (EPS) is computed by dividing net earnings (loss) attributable to Liberty Latin America shareholders by the weighted average number of Class A, Class B and Class C common shares of Liberty Latin America (collectively, Liberty Latin America Shares) outstanding during the periods presented, as further described below. Diluted EPS presents the dilutive effect, if any, on a per share basis of potential shares (e.g., SARs and RSUs), as if they had been exercised or vested at the beginning of the periods presented.
 
Three months ended June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Weighted average shares outstanding - basic and dilutive
181,504,385

 
171,278,819

 
181,271,878

 
171,254,577


We reported losses attributable to Liberty Latin America shareholders during the three and six months ended June 30, 2019 and 2018. As a result, the potentially dilutive effect at June 30, 2019 and 2018 of the following items was not included in the computation of diluted loss per share because their inclusion would have been anti-dilutive to the computation or, in the case of certain PSUs, because such awards had not yet met the applicable performance criteria: (i) using the if-converted method, the aggregate number of shares potentially issuable under our Convertible Notes of approximately 18.1 million and nil, respectively, (ii) the aggregate number of shares issuable pursuant to outstanding options, SARs and RSUs of approximately 15.8 million and 14.3 million, respectively, and (iii) the aggregate number of shares issuable pursuant to outstanding PSUs of approximately 1.3 million and 1.2 million, respectively. A portion of these amounts relate to Liberty Latin America Shares held by employees of Liberty Global.
(17)
Commitments and Contingencies
Commitments
In the normal course of business, we have entered into agreements that commit our company to make cash payments in future periods with respect to programming contracts, network and connectivity commitments, purchases of customer premises and other equipment and services and other commitments. The following table sets forth the U.S. dollar equivalents of such commitments as of June 30, 2019:
 
Payments due during:
 
 
 
Remainder of 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2020
 
2021
 
2022
 
2023
 
2024
 
Thereafter
 
Total
 
in millions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Programming commitments
$
62.7

 
$
61.3

 
$
24.8

 
$
2.2

 
$
1.4

 
$
0.9

 
$
—

 
$
153.3

Network and connectivity commitments
52.4

 
49.3

 
39.4

 
13.1

 
12.7

 
12.1

 
13.4

 
192.4

Purchase commitments
146.5

 
44.2

 
17.5

 
1.1

 
0.6

 
—

 
—

 
209.9

Other commitments (a)
14.9

 
5.4

 
3.3

 
2.4

 
2.0

 
2.9

 
9.4

 
40.3

Total (b)
$
276.5

 
$
160.2

 
$
85.0

 
$
18.8

 
$
16.7

 
$
15.9

 
$
22.8

 
$
595.9


(a)
Amounts include certain commitments under the Services Agreement and the Facilities Sharing Agreement, as further described in note 13.
(b)
The commitments included in this table do not reflect any liabilities that are included in our June 30, 2019 condensed consolidated balance sheet.
Programming commitments consist of obligations associated with certain programming, studio output and sports rights contracts that are enforceable and legally binding on us, as we have agreed to pay minimum fees without regard to (i) the actual number of subscribers to the programming services, (ii) whether we terminate service to a portion of our subscribers or dispose of a portion of our distribution systems or (iii) whether we discontinue our premium sports services. In addition, programming commitments do not include increases in future periods associated with contractual inflation or other price adjustments that are not fixed. Accordingly, the amounts reflected in the above table with respect to these contracts are significantly less than the

30

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






amounts we expect to pay in these periods under these contracts. Historically, payments to programming vendors have represented a significant portion of our operating costs, and we expect that this will continue to be the case in future periods. In this regard, our total programming and copyright costs aggregated $217 million and $197 million during the six months ended June 30, 2019 and 2018, respectively.
Network and connectivity commitments include (i) domestic network service agreements with certain other telecommunications companies and (ii) VTR’s mobile virtual network operator (MVNO) agreement. The amounts reflected in the above table with respect to our MVNO commitment represent fixed minimum amounts payable under this agreement and, therefore, may be significantly less than the actual amounts VTR ultimately pays in these periods.
Purchase commitments include unconditional and legally-binding obligations related to (i) the purchase of customer premises and other equipment and (ii) certain service-related commitments, including call center, information technology and maintenance services.
In addition to the commitments set forth in the table above, we have commitments under (i) derivative instruments and (ii) defined benefit plans and similar agreements, pursuant to which we expect to make payments in future periods. For information regarding our derivative instruments, including the net cash paid or received in connection with these instruments during the six months ended June 30, 2019 and 2018, see note 5.
Guarantees and Other Credit Enhancements
In the ordinary course of business, we may provide (i) indemnifications to our lenders, our vendors and certain other parties and (ii) performance and/or financial guarantees to local municipalities, our customers and vendors. Historically, these arrangements have not resulted in our company making any material payments and we do not believe that they will result in material payments in the future. In addition, C&W has provided indemnifications of (i) up to $300 million with respect to any potential tax-related claims related to the disposal in April 2013 of C&W’s interests in certain businesses and (ii) an unlimited amount of qualifying claims associated with the disposal of another business in May 2014. The first indemnification expires in April 2020 and the second expires in May 2020. We do not expect that either of these arrangements will require us to make material payments to the indemnified parties.
Legal and Regulatory Proceedings and Other Contingencies
Regulatory Issues. Video distribution, broadband internet, fixed-line telephony and mobile businesses are regulated in each of the countries in which we operate. The scope of regulation varies from country to country. Adverse regulatory developments could subject our businesses to a number of risks. Regulation, including conditions imposed on us by competition or other authorities as a requirement to close acquisitions or dispositions, could limit growth, revenue and the number and types of services offered and could lead to increased operating costs and property and equipment additions. In addition, regulation may restrict our operations and subject them to further competitive pressure, including pricing restrictions, interconnect and other access obligations, and restrictions or controls on content, including content provided by third parties. Failure to comply with current or future regulation could expose our businesses to various penalties.
In addition to the foregoing items, we have contingent liabilities related to matters arising in the ordinary course of business, including (i) legal proceedings, (ii) issues involving wage, property, withholding and other tax issues and (iii) disputes over interconnection, programming and copyright fees. While we generally expect that the amounts required to satisfy these contingencies will not materially differ from any estimated amounts we have accrued, no assurance can be given that the resolution of one or more of these contingencies will not result in a material impact on our results of operations, cash flows or financial position in any given period. Due, in general, to the complexity of the issues involved and, in certain cases, the lack of a clear basis for predicting outcomes, we cannot provide a meaningful range of potential losses or cash outflows that might result from any unfavorable outcomes.
(18)
Segment Reporting
We generally identify our reportable segments as those operating segments that represent 10% or more of our revenue, Adjusted OIBDA (as defined below) or total assets. We evaluate performance and make decisions about allocating resources to our reportable segments based on financial measures such as revenue and Adjusted OIBDA. In addition, we review non-financial measures such as subscriber growth.

31

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






Adjusted OIBDA, a non-GAAP measure, is the primary measure used by our chief operating decision maker to evaluate segment operating performance. Adjusted OIBDA is also a key factor that is used by our internal decision makers to (i) determine how to allocate resources to segments and (ii) evaluate the effectiveness of our management for purposes of incentive compensation plans. As we use the term, “Adjusted OIBDA” is defined as operating income or loss before depreciation and amortization, share-based compensation, provisions and provision releases related to significant litigation and impairment, restructuring and other operating items. Other operating items include (i) gains and losses on the disposition of long-lived assets, (ii) third-party costs directly associated with successful and unsuccessful acquisitions and dispositions, including legal, advisory and due diligence fees, as applicable, and (iii) other acquisition-related items, such as gains and losses on the settlement of contingent consideration. Our internal decision makers believe Adjusted OIBDA is a meaningful measure because it represents a transparent view of our recurring operating performance that is unaffected by our capital structure and allows management to (i) readily view operating trends, (ii) perform analytical comparisons and benchmarking between segments and (iii) identify strategies to improve operating performance in the different countries in which we operate. A reconciliation of total Adjusted OIBDA to operating income is presented below.
As of June 30, 2019, our reportable segments are as follows:
•C&W
•VTR/Cabletica
•Liberty Puerto Rico
Our reportable segments derive their revenue primarily from residential and B2B services, including video, broadband internet and fixed-line telephony services and, with the exception of Liberty Puerto Rico, mobile services. We provide residential and B2B services in (i) 24 countries, primarily in Latin America and the Caribbean, through C&W, (ii) Chile and Costa Rica, through VTR/Cabletica, and (iii) Puerto Rico, through Liberty Puerto Rico. C&W also provides (i) B2B services in certain other countries in Latin America and the Caribbean and (ii) wholesale services over its subsea and terrestrial networks that connect over 40 markets in that region. Our corporate category includes our corporate operations.
Performance Measures of our Reportable Segments
The amounts presented below represent 100% of each of our reportable segment’s revenue and Adjusted OIBDA. As we have the ability to control Cabletica and certain subsidiaries of C&W that are not wholly-owned, we include 100% of the revenue and expenses of these entities in our condensed consolidated statements of operations despite the fact that third parties own significant interests in these entities. On October 17, 2018, we acquired the remaining 40.0% interest in Liberty Puerto Rico that we did not already own. The noncontrolling owners’ interests in the operating results of certain subsidiaries of C&W, and prior to October 17, 2018, Liberty Puerto Rico, are reflected in net earnings or loss attributable to noncontrolling interests in our condensed consolidated statements of operations.
 
Revenue
 
Three months ended June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
 
in millions
 
 
 
 
 
 
 
 
C&W (a)
$
606.6

 
$
583.7

 
$
1,176.4

 
$
1,169.2

VTR/Cabletica (b)
274.5

 
260.2

 
551.0

 
524.0

Liberty Puerto Rico
103.8

 
80.3

 
202.4

 
142.1

Intersegment eliminations
(2.0
)
 
(2.1
)
 
(4.2
)
 
(3.3
)
Total
$
982.9

 
$
922.1

 
$
1,925.6

 
$
1,832.0


(a)
The amounts presented exclude the pre-acquisition revenue of UTS, which was acquired effective March 31, 2019.
(b)
The amounts presented for the 2018 periods exclude the revenue of Cabletica, which was acquired on October 1, 2018.

32

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






 
Adjusted OIBDA
 
Three months ended June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
 
in millions
 
 
 
 
 
 
 
 
C&W (a)
$
235.4

 
$
223.6

 
$
457.9

 
$
452.7

VTR/Cabletica (b)
112.3

 
105.1

 
219.2

 
210.1

Liberty Puerto Rico
51.6

 
35.7

 
99.5

 
53.7

Corporate
(11.9
)
 
(11.0
)
 
(23.4
)
 
(22.3
)
Total
$
387.4

 
$
353.4

 
$
753.2

 
$
694.2


(a)
The amounts presented exclude the pre-acquisition Adjusted OIBDA of UTS, which was acquired on March 31, 2019.
(b)
The amounts presented for the 2018 periods exclude the Adjusted OIBDA of Cabletica, which was acquired on October 1, 2018.
The following table provides a reconciliation of total Adjusted OIBDA to operating income and to earnings (loss) before income taxes:
 
Three months ended June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
 
in millions
 
 
 
 
 
 
 
 
Total Adjusted OIBDA
$
387.4

 
$
353.4

 
$
753.2

 
$
694.2

Share-based compensation expense
(15.4
)
 
(8.7
)
 
(30.1
)
 
(15.2
)
Depreciation and amortization
(222.0
)
 
(207.6
)
 
(439.3
)
 
(409.9
)
Impairment, restructuring and other operating items, net
(6.5
)
 
(12.9
)
 
(27.0
)
 
(46.6
)
Operating income
143.5

 
124.2

 
256.8

 
222.5

Interest expense
(119.8
)
 
(109.4
)
 
(235.5
)
 
(211.9
)
Realized and unrealized gains (losses) on derivative instruments, net
(79.0
)
 
115.1

 
(148.0
)
 
73.6

Foreign currency transaction gains (losses), net
(19.5
)
 
(120.6
)
 
12.7

 
(104.7
)
Losses on debt modification and extinguishment
(9.5
)
 
—

 
(9.5
)
 
(13.0
)
Other income, net
2.6

 
4.8

 
5.0

 
10.1

Earnings (loss) before income taxes
$
(81.7
)
 
$
14.1

 
$
(118.5
)
 
$
(23.4
)

33

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






Property and Equipment Additions of our Reportable Segments
The property and equipment additions of our reportable segments (including capital additions financed under vendor financing or finance lease arrangements) are presented below and reconciled to the capital expenditure amounts included in our condensed consolidated statements of cash flows. For additional information concerning capital additions financed under vendor financing, see note 8.
 
Six months ended June 30,
 
2019
 
2018
 
in millions
 
 
 
 
C&W (a)
$
145.7

 
$
169.2

VTR/Cabletica (b)
117.1

 
116.0

Liberty Puerto Rico
39.1

 
115.0

Corporate
3.3

 
11.4

Total property and equipment additions
305.2

 
411.6

Assets acquired under capital-related vendor financing arrangements
(26.0
)
 
(35.0
)
Assets acquired under finance leases
(0.2
)
 
(0.9
)
Changes in current liabilities related to capital expenditures
16.4

 
49.4

Total capital expenditures
$
295.4

 
$
425.1


(a)
The amounts presented exclude the pre-acquisition property and equipment additions of UTS, which was acquired effective March 31, 2019.
(b)
The amount presented for the 2018 period excludes the property and equipment additions of Cabletica, which was acquired on October 1, 2018.



34

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






Revenue by Major Category
Our revenue by major category for our reportable segments is set forth in the tables below.
 
Three months ended June 30, 2019
 
C&W
 
VTR/Cabletica
 
Liberty Puerto Rico
 
Intersegment Eliminations (a)
 
Total
 
in millions
Residential revenue:
 
 
 
 
 
 
 
 
 
Residential fixed revenue:
 
 
 
 
 
 
 
 
 
Subscription revenue (b):
 
 
 
 
 
 
 
 
 
Video
$
46.8

 
$
108.3

 
$
35.3

 
$
—

 
$
190.4

Broadband internet
65.5

 
105.3

 
43.6

 
—

 
214.4

Fixed-line telephony
26.7

 
25.9

 
5.9

 
—

 
58.5

Total subscription revenue
139.0

 
239.5

 
84.8

 
—

 
463.3

Non-subscription revenue (c)
14.9

 
8.3

 
5.6

 
—

 
28.8

Total residential fixed revenue
153.9

 
247.8

 
90.4

 
—

 
492.1

Residential mobile revenue:
 
 
 
 
 
 
 
 
 
Service revenue (b)
142.1

 
15.9

 
—

 
—

 
158.0

Interconnect, equipment sales and other (d)
22.2

 
3.5

 
—

 
—

 
25.7

Total residential mobile revenue
164.3

 
19.4

 
—

 
—

 
183.7

Total residential revenue
318.2

 
267.2

 
90.4

 
—

 
675.8

B2B revenue:
 
 
 
 
 
 
 
 
 
Service revenue (e)
226.8

 
7.3

 
13.4

 
(0.4
)
 
247.1

Subsea network revenue (f)
61.6

 
—

 
—

 
(1.6
)
 
60.0

Total B2B revenue
288.4

 
7.3

 
13.4

 
(2.0
)
 
307.1

Total
$
606.6

 
$
274.5

 
$
103.8

 
$
(2.0
)
 
$
982.9

(a)
Represents intersegment transactions between C&W and Liberty Puerto Rico.
(b)
Residential fixed subscription and residential mobile services revenue include amounts received from subscribers for ongoing fixed and airtime services.
(c)
Residential fixed non-subscription revenue primarily includes interconnect and advertising revenue.
(d)
These amounts include $13 million of revenue from sales of mobile handsets and other devices.
(e)
B2B service revenue primarily includes broadband internet, video, fixed-line telephony, mobile and managed services (including equipment installation contracts) offered to small (including small or home office (SOHO)), medium and large enterprises and, on a wholesale basis, other telecommunication operators. These amounts also include $9 million of revenue from sales of mobile handsets and other devices.
(f)
B2B subsea network revenue includes long-term capacity contracts with customers where the customer either pays a fee over time or prepays for the capacity upfront and pays a portion related to operating and maintenance of the network over time.


35

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






 
Three months ended June 30, 2018
 
C&W
 
VTR/Cabletica (a)
 
Liberty Puerto Rico
 
Intersegment Eliminations (b)
 
Total
 
in millions
Residential revenue:
 
 
 
 
 
 
 
 
 
Residential fixed revenue:
 
 
 
 
 
 
 
 
 
Subscription revenue:
 
 
 
 
 
 
 
 
 
Video
$
43.2

 
$
99.7

 
$
29.8

 
$
—

 
$
172.7

Broadband internet
56.4

 
96.2

 
32.4

 
—

 
185.0

Fixed-line telephony
25.9

 
32.1

 
4.6

 
—

 
62.6

Total subscription revenue
125.5

 
228.0

 
66.8

 
—

 
420.3

Non-subscription revenue
16.9

 
6.3

 
4.4

 
—

 
27.6

Total residential fixed revenue
142.4

 
234.3

 
71.2

 
—

 
447.9

Residential mobile revenue:
 
 
 
 
 
 
 
 
 
Service revenue
151.1

 
16.0

 
—

 
—

 
167.1

Interconnect, equipment sales and other (c)
21.6

 
3.7

 
—

 
—

 
25.3

Total residential mobile revenue
172.7

 
19.7

 
—

 
—

 
192.4

Total residential revenue
315.1

 
254.0

 
71.2

 
—

 
640.3

B2B revenue:
 
 
 
 
 
 
 
 
 
Service revenue (d)
204.2

 
6.2

 
9.1

 
(0.5
)
 
219.0

Subsea network revenue
64.4

 
—

 
—

 
(1.6
)
 
62.8

Total B2B revenue
268.6

 
6.2

 
9.1

 
(2.1
)
 
281.8

Total
$
583.7

 
$
260.2

 
$
80.3

 
$
(2.1
)
 
$
922.1


(a)
The amounts presented exclude the revenue of Cabletica, which was acquired on October 1, 2018.
(b)
Represents intersegment transactions between C&W and Liberty Puerto Rico.
(c)
These amounts include $11 million of revenue from sales of mobile handsets and other devices.
(d)
These amounts include $9 million of revenue from sales of mobile handsets and other devices.


36

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






 
Six months ended June 30, 2019
 
C&W (a)
 
VTR/Cabletica
 
Liberty Puerto Rico
 
Intersegment Eliminations (b)
 
Total
 
in millions
Residential revenue:
 
 
 
 
 
 
 
 
 
Residential fixed revenue:
 
 
 
 
 
 
 
 
 
Subscription revenue:
 
 
 
 
 
 
 
 
 
Video
$
90.7

 
$
217.1

 
$
70.3

 
$
—

 
$
378.1

Broadband internet
125.7

 
210.2

 
85.4

 
—

 
421.3

Fixed-line telephony
51.0

 
53.4

 
11.6

 
—

 
116.0

Total subscription revenue
267.4

 
480.7

 
167.3

 
—

 
915.4

Non-subscription revenue
29.9

 
17.0

 
10.9

 
—

 
57.8

Total residential fixed revenue
297.3

 
497.7

 
178.2

 
—

 
973.2

Residential mobile revenue:
 
 
 
 
 
 
 
 
 
Service revenue
277.1

 
31.6

 
—

 
—

 
308.7

Interconnect, equipment sales and other (c)
41.2

 
6.9

 
—

 
—

 
48.1

Total residential mobile revenue
318.3

 
38.5

 
—

 
—

 
356.8

Total residential revenue
615.6

 
536.2

 
178.2

 
—

 
1,330.0

B2B revenue:
 
 
 
 
 
 
 
 
 
Service revenue (d)
439.3

 
14.8

 
24.2

 
(1.0
)
 
477.3

Subsea network revenue
121.5

 
—

 
—

 
(3.2
)
 
118.3

Total B2B revenue
560.8

 
14.8

 
24.2

 
(4.2
)
 
595.6

Total
$
1,176.4

 
$
551.0

 
$
202.4

 
$
(4.2
)
 
$
1,925.6

(a)
The amounts presented exclude the pre-acquisition revenue of UTS, which was acquired effective March 31, 2019.
(b)
Represents intersegment transactions between C&W and Liberty Puerto Rico.
(c)
These amounts include $20 million of revenue from sales of mobile handsets and other devices.
(d)
These amounts include $13 million of revenue from sales of mobile handsets and other devices.

37

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






 
Six months ended June 30, 2018
 
C&W
 
VTR/Cabletica (a)
 
Liberty Puerto Rico
 
Intersegment Eliminations (b)
 
Total
 
in millions
Residential revenue:
 
 
 
 
 
 
 
 
 
Residential fixed revenue:
 
 
 
 
 
 
 
 
 
Subscription revenue:
 
 
 
 
 
 
 
 
 
Video
$
85.9

 
$
199.4

 
$
53.1

 
$
—

 
$
338.4

Broadband internet
110.1

 
192.8

 
57.7

 
—

 
360.6

Fixed-line telephony
52.8

 
66.7

 
8.1

 
—

 
127.6

Total subscription revenue
248.8

 
458.9

 
118.9

 
—

 
826.6

Non-subscription revenue
32.4

 
13.8

 
6.8

 
—

 
53.0

Total residential fixed revenue
281.2

 
472.7

 
125.7

 
—

 
879.6

Residential mobile revenue:
 
 
 
 
 
 
 
 
 
Service revenue
306.2

 
32.3

 
—

 
—

 
338.5

Interconnect, equipment sales and other (c)
43.7

 
6.9

 
—

 
—

 
50.6

Total residential mobile revenue
349.9

 
39.2

 
—

 
—

 
389.1

Total residential revenue
631.1

 
511.9

 
125.7

 
—

 
1,268.7

B2B revenue:
 
 
 
 
 
 
 
 
 
Service revenue (d)
414.1

 
12.1

 
16.4

 
(0.7
)
 
441.9

Subsea network revenue
124.0

 
—

 
—

 
(2.6
)
 
121.4

Total B2B revenue
538.1

 
12.1

 
16.4

 
(3.3
)
 
563.3

Total
$
1,169.2

 
$
524.0

 
$
142.1


$
(3.3
)
 
$
1,832.0

(a)
The amounts presented exclude the revenue of Cabletica, which was acquired on October 1, 2018.
(b)
Represents intersegment transactions between C&W and Liberty Puerto Rico.
(c)
These amounts include $23 million of revenue from sales of mobile handsets and other devices.
(d)
These amounts include $15 million of revenue from sales of mobile handsets and other devices.



38

Liberty Latin America Ltd.
Notes to Condensed Consolidated Financial Statements – (Continued)
June 30, 2019
(unaudited)






Geographic Markets
The revenue from third-party customers for our geographic markets is set forth in the table below. Except as otherwise noted, the amounts presented include revenue from residential and B2B operations.
 
Three months ended June 30,
 
Six months ended June 30,
 
2019
 
2018 (a)
 
2019
 
2018 (a)
 
in millions
 
 
 
 
 
 
 
 
Panama
$
142.6

 
$
151.8

 
$
282.9

 
$
300.1

Networks & LatAm (b)
85.0

 
89.3

 
173.7

 
175.8

Jamaica
99.3

 
86.3

 
192.3

 
174.8

The Bahamas
52.5

 
56.7

 
106.1

 
119.7

Barbados
37.4

 
37.4

 
74.9

 
75.9

Trinidad and Tobago
40.5

 
38.6

 
80.1

 
77.3

Chile
241.9

 
260.2

 
485.9

 
524.0

Costa Rica (c)
32.5

 
—

 
65.0

 
—

Puerto Rico
103.4

 
79.8

 
201.4

 
141.4

Other (d)
147.8

 
122.0

 
263.3

 
243.0

Total
$
982.9

 
$
922.1

 
$
1,925.6

 
$
1,832.0

 
(a)
Amounts for 2018 have been reclassified to exclude intercompany revenue within each geographic region, which conforms with current period presentation.
(b)
The amounts represent wholesale and managed services revenue from various jurisdictions across the Caribbean and Latin America, primarily related to the sale and lease of telecommunications capacity on C&W’s subsea and terrestrial networks.
(c)
Represents revenue associated with Cabletica, which was acquired on October 1, 2018.
(d)
The amounts relate to a number of countries in which C&W has less significant operations, all but one of which are located in Latin America and the Caribbean. Additionally, the amounts presented exclude the pre-acquisition revenue of UTS, which was acquired effective March 31, 2019.


39

Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis, which should be read in conjunction with our consolidated financial statements and the discussion and analysis included in our 2018 Form 10-K, is intended to assist in providing an understanding of our financial condition, changes in financial condition and results of operations and is organized as follows:
•
Forward-looking Statements. This section provides a description of certain factors that could cause actual results or events to differ materially from anticipated results or events.
•
Overview. This section provides a general description of our business and recent events.
•
Material Changes in Results of Operations. This section provides an analysis of our results of operations for the three and six months ended June 30, 2019 and 2018.
•
Material Changes in Financial Condition. This section provides an analysis of our corporate and subsidiary liquidity, condensed consolidated statements of cash flows and contractual commitments.
The capitalized terms used below have been defined in the notes to our condensed consolidated financial statements. In the following text, the terms “we,” “our,” “our company” and “us” may refer, as the context requires, to Liberty Latin America or collectively to Liberty Latin America and its subsidiaries.
Unless otherwise indicated, convenience translations into U.S. dollars are calculated as of June 30, 2019.
Forward-looking Statements
Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. To the extent that statements in this Quarterly Report on Form 10-Q are not recitations of historical fact, such statements constitute forward-looking statements, which, by definition, involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. In particular, statements under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 3. Quantitative and Qualitative Disclosures About Market Risk and Item 4. Controls and Procedures may contain forward-looking statements, including statements regarding: our business, product, foreign currency and finance strategies; subscriber growth and retention rates; changes in competitive, regulatory and economic factors; anticipated changes in our revenue, expenses, or growth rates; debt levels; our liquidity and our ability to access the liquidity of our subsidiaries; credit risks; internal control over financial reporting; foreign currency risks; compliance with debt, financial and other covenants; our future projected contractual commitments and cash flows; and other information and statements that are not historical fact. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. In addition to the risk factors described in our 2018 Form 10-K, the following are some but not all of the factors that could cause actual results or events to differ materially from anticipated results or events:
•
economic and business conditions and industry trends in the countries in which we operate;
•
the competitive environment in the industries in the countries in which we operate, including competitor responses to our products and services;
•
fluctuations in currency exchange rates, inflation rates and interest rates;
•
instability in global financial markets, including sovereign debt issues and related fiscal reforms;
•
consumer disposable income and spending levels, including the availability and amount of individual consumer debt;
•
changes in consumer viewing preferences and habits, including on mobile devices that function on various operating systems and specifications, limited bandwidth, and different processing power and screen sizes;
•
customer acceptance of our existing service offerings, including our video, broadband internet, fixed-line telephony, mobile and business service offerings, and of new technology, programming alternatives and other products and services that we may offer in the future;
•
our ability to manage rapid technological changes;
•
the impact of 5G and wireless technologies on broadband internet;

40

•
our ability to maintain or increase the number of subscriptions to our video, broadband internet, fixed-line telephony and mobile service offerings and our average revenue per household;
•
our ability to provide satisfactory customer service, including support for new and evolving products and services;
•
our ability to maintain or increase rates to our subscribers or to pass through increased costs to our subscribers;
•
the impact of our future financial performance, or market conditions generally, on the availability, terms and deployment of capital;
•
changes in, or failure or inability to comply with, government regulations in the countries in which we operate and adverse outcomes from regulatory proceedings;
•
government intervention that requires opening our broadband distribution networks to competitors;
•
our ability to obtain regulatory approval and satisfy other conditions necessary to close acquisitions and dispositions, and the impact of conditions imposed by competition and other regulatory authorities in connection with acquisitions;
•
our ability to successfully acquire new businesses and, if acquired, to integrate, realize anticipated efficiencies from and implement our business plan with respect to the businesses we have acquired or that we expect to acquire;
•
changes in laws or treaties relating to taxation, or the interpretation thereof, in the U.S. or in other countries in which we operate;
•
changes in laws and government regulations that may impact the availability and cost of capital and the derivative instruments that hedge certain of our financial risks;
•
the ability of suppliers and vendors, including third-party channel providers and broadcasters (including our third-party wireless network provider under our MVNO arrangement), to timely deliver quality products, equipment, software, services and access;
•
the availability of attractive programming for our video services and the costs associated with such programming, including retransmission and copyright fees payable to public and private broadcasters;
•
uncertainties inherent in the development and integration of new business lines and business strategies;
•
our ability to adequately forecast and plan future network requirements, including the costs and benefits associated with our network extension and upgrade programs;
•
the availability of capital for the acquisition and/or development of telecommunications networks and services, including property and equipment additions;
•
problems we may discover post-closing with the operations, including the internal controls and financial reporting process, of businesses we acquire;
•
cybersecurity threats or other security breaches, including the leakage of sensitive customer data, which could harm our business or reputation;
•
the outcome of any pending or threatened litigation;
•
the loss of key employees and the availability of qualified personnel;
•
changes in the nature of key strategic relationships with partners and joint venturers;
•
our equity capital structure;
•
changes in and compliance with applicable data privacy laws, rules, and regulations;
•
our ability to recoup insurance reimbursements and settlements from third-party providers;
•
our ability to comply with economic and trade sanctions laws, such as the U.S. Treasury Department’s Office of Foreign Assets Control; and
•
events that are outside of our control, such as political unrest in international markets, terrorist attacks, malicious human acts, Hurricanes and other natural disasters, pandemics and other similar events.
The broadband distribution and mobile service industries are changing rapidly and, therefore, the forward-looking statements of expectations, plans and intent in this Quarterly Report on Form 10-Q are subject to a significant degree of risk. These forward-looking statements and the above described risks, uncertainties and other factors speak only as of the date of this Quarterly Report on Form 10-Q, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events,

41

conditions or circumstances on which any such statement is based. Readers are cautioned not to place undue reliance on any forward-looking statement.
Overview
General
We are an international provider of fixed, mobile and subsea telecommunications services. We provide residential and B2B communications services in (i) 24 countries, primarily in Latin America and the Caribbean, through C&W, (ii) Chile and Costa Rica, through VTR/Cabletica, and (iii) Puerto Rico, through Liberty Puerto Rico. C&W also provides (i) B2B services in certain other countries in Latin America and the Caribbean and (ii) wholesale communication services over its subsea and terrestrial fiber optic cable networks that connect over 40 markets in those regions.
Operations
At June 30, 2019, we (i) owned and operated fixed networks that passed 7,335,900 homes and served 5,926,500 revenue generating units (RGUs), comprising 2,529,900 broadband internet subscribers, 1,956,500 video subscribers and 1,440,100 fixed-line telephony subscribers and (ii) served 3,669,600 mobile subscribers.
Material Changes in Results of Operations
In the following discussion, we quantify the estimated impact of acquisitions (the Acquisition Impact) on our operating results. The Acquisition Impact represents our estimate of the difference between the operating results of the periods under comparison that is attributable to an acquisition. Accordingly, in the following discussion, (i) organic changes exclude the operating results of an acquired entity during the first 12 months following the date of acquisition, and (ii) the calculation of our organic change percentages exclude the Acquisition Impact of such entity.
Changes in foreign currency exchange rates may have a significant impact on our operating results, as VTR, Cabletica and certain entities within C&W have functional currencies other than the U.S. dollar. Our primary exposure to foreign currency translation effects (FX) risk during the three months ended June 30, 2019 was to the Chilean peso as 24.6% of our revenue during the period was derived from VTR. The impacts to the various components of our results of operations that are attributable to changes in FX are highlighted below. For information concerning our foreign currency risks and applicable foreign currency exchange rates, see Item 3. Quantitative and Qualitative Disclosures About Market Risk—Foreign Currency Exchange Rates below.
The amounts presented and discussed below represent 100% of the revenue and expenses of each segment and our corporate operations. As we have the ability to control Cabletica and certain subsidiaries of C&W that are not wholly-owned, we include 100% of the revenue and expenses of these entities in our condensed consolidated statements of operations despite the fact that third parties own significant interests in these entities. In October 2018, we acquired the remaining 40.0% interest in Liberty Puerto Rico that we did not already own. The noncontrolling owners’ interests in the operating results of certain subsidiaries of C&W and, prior to October 2018, Liberty Puerto Rico, are reflected in net earnings or loss attributable to noncontrolling interests in our condensed consolidated statements of operations.
Effective October 1, 2018, following the Cabletica Acquisition, the VTR segment became the VTR/Cabletica segment. In the discussion and analysis of the three and six months ended June 30, 2019 as compared the corresponding periods in 2018, we refer to the segment as VTR/Cabletica. For additional information regarding the composition of our segments, see note 18 to our condensed consolidated financial statements. For additional information regarding the Cabletica Acquisition, see note 4 to our condensed consolidated financial statements.
On April 1, 2019, certain B2B operations in Puerto Rico were transferred from our C&W segment to our Liberty Puerto Rico segment. This did not have a significant impact on the financial results of our C&W or Liberty Puerto Rico segments.
We are subject to inflationary pressures with respect to certain costs and foreign currency exchange risk with respect to costs and expenses that are denominated in currencies other than the respective functional currencies of our reportable segments. Any cost increases that we are not able to pass on to our subscribers would result in increased pressure on our operating margins.

42

Revenue

All of our segments derive their revenue primarily from (i) residential fixed services, including video, broadband internet and telephony, (ii) with the exception of Liberty Puerto Rico, residential mobile services, and (iii) B2B services. C&W also provides wholesale communication services over its subsea and terrestrial fiber optic cable networks.

While not specifically discussed in the below explanations of the changes in revenue, we are experiencing significant competition in all of our markets. This competition has an adverse impact on our ability to increase or maintain our RGUs and/or average monthly subscription revenue per average fixed RGU or mobile subscriber, as applicable, (ARPU).

Variances in the subscription revenue that we receive from our customers are a function of (i) changes in the number of RGUs or mobile subscribers during the period and (ii) changes in ARPU. Changes in ARPU can be attributable to (i) changes in prices, (ii) changes in bundling or promotional discounts, (iii) changes in the tier of services selected, (iv) variances in subscriber usage patterns, and (v) the overall mix of fixed and mobile products during the period. In the following discussion, we discuss ARPU changes in terms of the net impact of the above factors on the ARPU that is derived from our video, broadband internet, fixed-line telephony and mobile products. Hurricanes Maria and Irma in 2017 significantly impacted variances in revenue at Liberty Puerto Rico for the comparative period, as further discussed below.

The following table sets forth revenue by reportable segment:    





Three months ended June 30,
 
Increase
 
2019
 
2018
 
$
 
%
 
in millions, except percentages
 
 
 
 
 
 
 
 
C&W
$
606.6

 
$
583.7

 
$
22.9

 
3.9
VTR/Cabletica
274.5

 
260.2

 
14.3

 
5.5
Liberty Puerto Rico
103.8

 
80.3

 
23.5

 
29.3
Intersegment eliminations
(2.0
)
 
(2.1
)
 
0.1

 
N.M.
Total
$
982.9

 
$
922.1

 
$
60.8

 
6.6





Six months ended June 30,
 
Increase (decrease)
 
2019
 
2018
 
$
 
%
 
in millions, except percentages
 
 
 
 
 
 
 
 
C&W
$
1,176.4

 
$
1,169.2

 
$
7.2

 
0.6
VTR/Cabletica
551.0

 
524.0

 
27.0

 
5.2
Liberty Puerto Rico
202.4

 
142.1

 
60.3

 
42.4
Intersegment eliminations
(4.2
)
 
(3.3
)
 
(0.9
)
 
N.M.
Total
$
1,925.6

 
$
1,832.0

 
$
93.6

 
5.1
N.M. — Not Meaningful.
Consolidated. The increases during the three and six months ended June 30, 2019, as compared to the corresponding periods in 2018, include (i) increases of $24 million and $60 million, respectively, at Liberty Puerto Rico, primarily attributable to recovery following the Hurricanes, (ii) increases of $66 million and $98 million, respectively, attributable to the impact of acquisitions and (iii) decreases of $31 million and $63 million, respectively, attributable to the impact of FX. Excluding the effects of acquisitions and FX, revenue increased $26 million or 2.8% and $59 million or 3.2%, respectively. The organic increases primarily include (i) decreases of $3 million and $13 million, respectively, at C&W, (ii) increases of $6 million and $13 million, respectively, at VTR/Cabletica and (iii) increases of $24 million and $60 million, respectively, at Liberty Puerto Rico, as further discussed below.

43

C&W. C&W’s revenue by major category is set forth below:
 
Three months ended June 30,
 
Increase (decrease)
 
2019
 
2018
 
$
 
%
 
in millions, except percentages
Residential revenue:
 
 
 
 
 
 
 
Residential fixed revenue:
 
 
 
 
 
 
 
Subscription revenue:
 
 
 
 
 
 
 
Video
$
46.8

 
$
43.2

 
$
3.6

 
8.3

Broadband internet
65.5

 
56.4

 
9.1

 
16.1

Fixed-line telephony
26.7

 
25.9

 
0.8

 
3.1

Total subscription revenue
139.0

 
125.5

 
13.5

 
10.8

Non-subscription revenue
14.9

 
16.9

 
(2.0
)
 
(11.8
)
Total residential fixed revenue
153.9

 
142.4

 
11.5

 
8.1

Residential mobile revenue:
 
 
 
 
 
 
 
Service revenue
142.1

 
151.1

 
(9.0
)
 
(6.0
)
Interconnect, equipment sales and other
22.2

 
21.6

 
0.6

 
2.8

Total residential mobile revenue
164.3

 
172.7

 
(8.4
)
 
(4.9
)
Total residential revenue
318.2

 
315.1

 
3.1

 
1.0

B2B revenue:
 
 
 
 
 
 
 
Service revenue
226.8

 
204.2

 
22.6

 
11.1

Subsea network revenue
61.6

 
64.4

 
(2.8
)
 
(4.3
)
Total B2B revenue
288.4

 
268.6

 
19.8

 
7.4

Total
$
606.6

 
$
583.7

 
$
22.9

 
3.9


44

 
Six months ended June 30,
 
Increase (decrease)
 
2019
 
2018
 
$
 
%
 
in millions, except percentages
Residential revenue:
 
 
 
 
 
 
 
Residential fixed revenue:
 
 
 
 
 
 
 
Subscription revenue:
 
 
 
 
 
 
 
Video
$
90.7

 
$
85.9

 
$
4.8

 
5.6

Broadband internet
125.7

 
110.1

 
15.6

 
14.2

Fixed-line telephony
51.0

 
52.8

 
(1.8
)
 
(3.4
)
Total subscription revenue
267.4

 
248.8

 
18.6

 
7.5

Non-subscription revenue
29.9

 
32.4

 
(2.5
)
 
(7.7
)
Total residential fixed revenue
297.3

 
281.2

 
16.1

 
5.7

Residential mobile revenue:
 
 
 
 
 
 
 
Service revenue
277.1

 
306.2

 
(29.1
)
 
(9.5
)
Interconnect, equipment sales and other
41.2

 
43.7

 
(2.5
)
 
(5.7
)
Total residential mobile revenue
318.3

 
349.9

 
(31.6
)
 
(9.0
)
Total residential revenue
615.6

 
631.1

 
(15.5
)
 
(2.5
)
B2B revenue:
 
 
 
 
 
 
 
Service revenue
439.3

 
414.1

 
25.2

 
6.1

Subsea network revenue
121.5

 
124.0

 
(2.5
)
 
(2.0
)
Total B2B revenue
560.8

 
538.1

 
22.7

 
4.2

Total
$
1,176.4

 
$
1,169.2

 
$
7.2

 
0.6

The details of the changes in C&W’s revenue during the three and six months ended June 30, 2019, as compared to the corresponding periods in 2018, are set forth below (in millions):
 
Three-month period
 
Six-month period
Increase (decrease) in residential fixed subscription revenue due to change in:
 
 
 
Average number of RGUs (a)
$
8.0

 
$
15.8

ARPU (b)
(3.4
)
 
(4.9
)
Decrease in residential fixed non-subscription revenue (c)
(2.5
)
 
(2.8
)
Total increase in residential fixed revenue
2.1

 
8.1

Decrease in residential mobile service revenue (d)
(16.0
)
 
(35.2
)
Decrease in residential mobile interconnect, equipment sales and other (e)
(0.9
)
 
(4.0
)
Increase in B2B service revenue (f)
12.4

 
17.6

Increase (decrease) in B2B subsea network revenue
(0.9
)
 
0.4

Total organic decrease
(3.3
)
 
(13.1
)
Impact of the UTS Acquisition
32.9

 
32.9

Impact of FX
(6.7
)
 
(12.6
)
Total
$
22.9

 
$
7.2


(a)
The increases are primarily attributable to higher broadband internet and video RGUs.
(b)
The decreases are primarily due to the net effect of (i) lower ARPU from fixed-line telephony and video services and (ii) higher ARPU from broadband internet services.
(c)
The decreases are primarily attributable to lower interconnect revenue, mainly due to lower (i) mobile termination rates on our fixed network in various C&W markets and (ii) volumes in Panama.

45

(d)
The decreases are primarily attributable to (i) lower ARPU in Panama, other C&W markets, and the Bahamas, and (ii) lower average subscribers in Panama, the Bahamas and other C&W markets.
(e)
The decrease during the six-month comparison is primarily attributable to decreased volumes of handset sales, primarily in our Cayman Islands operations, the Bahamas and other C&W markets.
(f)
The increases are primarily due to the net effect of (i) higher managed services revenue, largely driven by Panama, Jamaica and Networks & LatAm, and (ii) increased interconnect revenue, primarily associated with higher volumes in Jamaica. In addition, the three and six-month comparisons also include an increase (decrease) of $1 million and ($4 million), respectively, associated with a change in the timing of revenue for directory services recognized within the year. These amounts also include decreases related to the transfer of certain B2B operations in Puerto Rico from our C&W segment to our Liberty Puerto Rico segment.

VTR/Cabletica. VTR/Cabletica’s revenue by major category is set forth below:
 
Three months ended June 30,
 
Increase (decrease)
 
2019
 
2018
 
$
 
%
 
in millions, except percentages
Residential revenue:
 
 
 
 
 
 
 
Residential fixed revenue:
 
 
 
 
 
 
 
Subscription revenue:
 
 
 
 
 
 
 
Video
$
108.3

 
$
99.7

 
$
8.6

 
8.6

Broadband internet
105.3

 
96.2

 
9.1

 
9.5

Fixed-line telephony
25.9

 
32.1

 
(6.2
)
 
(19.3
)
Total subscription revenue
239.5

 
228.0

 
11.5

 
5.0

Non-subscription revenue
8.3

 
6.3

 
2.0

 
31.7

Total residential fixed revenue
247.8

 
234.3

 
13.5

 
5.8

Residential mobile revenue:
 
 
 
 
 
 
 
Service revenue
15.9

 
16.0

 
(0.1
)
 
(0.6
)
Interconnect, equipment sales and other
3.5

 
3.7

 
(0.2
)
 
(5.4
)
Total residential mobile revenue
19.4

 
19.7

 
(0.3
)
 
(1.5
)
Total residential revenue
267.2

 
254.0

 
13.2

 
5.2

B2B service revenue
7.3

 
6.2

 
1.1

 
17.7

Total
$
274.5

 
$
260.2

 
$
14.3

 
5.5


46

 
Six months ended June 30,
 
Increase (decrease)
 
2019
 
2018
 
$
 
%
 
in millions, except percentages
Residential revenue:
 
 
 
 
 
 
 
Residential fixed revenue:
 
 
 
 
 
 
 
Subscription revenue:
 
 
 
 
 
 
 
Video
$
217.1

 
$
199.4

 
$
17.7

 
8.9

Broadband internet
210.2

 
192.8

 
17.4

 
9.0

Fixed-line telephony
53.4

 
66.7

 
(13.3
)
 
(19.9
)
Total subscription revenue
480.7

 
458.9

 
21.8

 
4.8

Non-subscription revenue
17.0

 
13.8

 
3.2

 
23.2

Total residential fixed revenue
497.7

 
472.7

 
25.0

 
5.3

Residential mobile revenue:
 
 
 
 
 
 
 
Service revenue
31.6

 
32.3

 
(0.7
)
 
(2.2
)
Interconnect, equipment sales and other
6.9

 
6.9

 
—

 
—

Total residential mobile revenue
38.5

 
39.2

 
(0.7
)
 
(1.8
)
Total residential revenue
536.2

 
511.9

 
24.3

 
4.7

B2B service revenue
14.8

 
12.1

 
2.7

 
22.3

Total
$
551.0

 
$
524.0

 
$
27.0

 
5.2

The details of the changes in VTR/Cabletica’s revenue during the three and six months ended June 30, 2019, as compared to the corresponding periods in 2018, are set forth below (in millions):
 
Three-month period
 
Six-month period
Increase (decrease) in residential fixed subscription revenue due to change in:
 
 
 
Average number of RGUs (a)
$
1.4

 
$
3.7

ARPU (b)
0.8

 
2.0

Increase (decrease) in residential fixed non-subscription revenue
0.2

 
(0.8
)
Total increase in residential fixed revenue
2.4

 
4.9

Increase in residential mobile service revenue (c)
1.5

 
2.6

Increase in residential mobile interconnect, equipment sales and other
0.2

 
0.7

Increase in B2B service revenue (d)
1.8

 
4.3

Total organic increase
5.9

 
12.5

Impact of the Cabletica Acquisition
32.6

 
65.1

Impact of FX
(24.2
)
 
(50.6
)
Total
$
14.3

 
$
27.0

(a)
The increases are primarily attributable to the net effect of (i) higher broadband internet RGUs and (ii) lower fixed-line telephony RGUs.
(b)
The increases are primarily due to the net effect of (i) higher ARPU from broadband internet services, (ii) lower ARPU from fixed-line telephony services, (iii) an improvement in RGU mix, and (iv) lower ARPU from video services.

(c)
The increases are primarily due to the net effect of (i) higher average numbers of mobile subscribers and (ii) lower ARPU from mobile services.

(d)
The increases are primarily attributable to higher average numbers of broadband internet, video and fixed-line telephony RGUs.


47

Liberty Puerto Rico. Due to the significant impact of the Hurricanes on the operations of our Liberty Puerto Rico segment during the 2018 periods, we have provided supplementary sequential information in order to provide a meaningful analysis of Liberty Puerto Rico’s business, including recovery after the Hurricanes. Accordingly, Liberty Puerto Rico’s revenue by major category during each of the (i) three months ended June 30, 2019, March 31, 2019 and June 30, 2018 and (ii) six months ended June 30, 2019 and 2018 is set forth below:
 
Three months ended
 
Six months ended
 
June 30, 2019
 
March 31, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
 
in millions
Residential fixed revenue:
 
 
 
 
 
 
 
 
 
Subscription revenue:
 
 
 
 
 
 
 
 
 
Video
$
35.3

 
$
35.0

 
$
29.8

 
$
70.3

 
$
53.1

Broadband internet
43.6

 
41.8

 
32.4

 
85.4

 
57.7

Fixed-line telephony
5.9

 
5.7

 
4.6

 
11.6

 
8.1

Total subscription revenue
84.8

 
82.5

 
66.8


167.3


118.9

Non-subscription revenue
5.6

 
5.3

 
4.4

 
10.9

 
6.8

Total residential fixed revenue
90.4

 
87.8

 
71.2


178.2


125.7

B2B service revenue
13.4

 
10.8

 
9.1

 
24.2

 
16.4

Total
$
103.8

 
$
98.6

 
$
80.3


$
202.4


$
142.1


The increases in Liberty Puerto Rico’s revenue during the three and six months ended June 30, 2019, as compared to the corresponding periods in 2018, are primarily attributable to recovery following the Hurricanes.

The table below presents changes in (i) residential fixed subscription revenue due to changes in the average number of RGUs and ARPU, (ii) residential fixed non-subscription revenue, and (iii) B2B service revenue, each reflective of changes during the three months ended June 30, 2019, as compared to the three months ended March 31, 2019 (in millions).
Increase in residential fixed subscription revenue due to change in:
 
Average number of RGUs (a)
$
1.4

ARPU (b)
0.9

Increase in residential fixed non-subscription revenue
0.3

Total increase in residential fixed revenue
2.6

Increase in B2B service revenue (c)
2.6

Total
$
5.2

(a)
The increase is primarily attributable to an increase in broadband internet RGUs.
(b)
The increase is primarily attributable to higher ARPU from broadband internet services.
(c)
The increase primarily relates to the transfer of certain B2B operations in Puerto Rico from our C&W segment to our Liberty Puerto Rico segment.

48

Programming and other direct costs of services
General. Programming and other direct costs of services include programming and copyright costs, interconnect and access costs, costs of mobile handsets and other devices, and other direct costs related to our operations. Programming and copyright costs, which represent a significant portion of our operating costs, may increase in future periods as a result of (i) higher costs associated with the expansion of our digital video content, including rights associated with ancillary product offerings and rights that provide for the broadcast of live sporting events, (ii) rate increases or (iii) growth in the number of our enhanced video subscribers.
The following tables set forth programming and other direct costs of services by reportable segment:
 
Three months ended June 30,
 
Increase (decrease)
 
2019
 
2018
 
$
 
%
 
in millions, except percentages
 
 
 
 
 
 
 
 
C&W
$
132.6

 
$
130.2

 
$
2.4

 
1.8
VTR/Cabletica
72.3

 
70.4

 
1.9

 
2.7
Liberty Puerto Rico
23.5

 
19.7

 
3.8

 
19.3
Intersegment eliminations
(2.0
)
 
(1.9
)
 
(0.1
)
 
N.M.
Total
$
226.4

 
$
218.4

 
$
8.0

 
3.7
 
Six months ended June 30,
 
Increase (decrease)
 
2019
 
2018
 
$
 
%
 
in millions, except percentages
 
 
 
 
 
 
 
 
C&W
$
264.1

 
$
260.4

 
$
3.7

 
1.4
VTR/Cabletica
147.9

 
140.9

 
7.0

 
5.0
Liberty Puerto Rico
46.4

 
36.2

 
10.2

 
28.2
Intersegment eliminations
(4.2
)
 
(3.3
)
 
(0.9
)
 
N.M.
Total
$
454.2

 
$
434.2

 
$
20.0

 
4.6

N.M. — Not Meaningful.
Consolidated. The increases in programming and other direct costs of services during the three and six months ended June 30, 2019, as compared to the corresponding periods in 2018, include increases of $13 million and $24 million, respectively, attributable to the impact of acquisitions and decreases of $8 million and $17 million, respectively, due to FX. Excluding the effects of acquisitions and FX, our programming and other direct costs of services increased $3 million or 1.3% and $13 million or 3.0%, respectively. The organic increases primarily include (i) an increase for the six-month comparison of $3 million at C&W, (ii) an increase (decrease) of ($1 million) and $1 million, respectively, at VTR/Cabletica and (iii) increases of $4 million and $10 million, respectively, at Liberty Puerto Rico, as further discussed below.

49

C&W. The increases in C&W’s programming and other direct costs of services during the three and six months ended June 30, 2019, as compared to the corresponding periods in 2018, include an increase of $4 million attributable to the impact of the UTS Acquisition and decreases of $2 million and $4 million, respectively, due to FX. Excluding the effects of the UTS Acquisition and FX, C&W’s programming and other direct costs of services remained relatively flat for the three-month comparison and increased $3 million or 1.3% for the six-month comparison. These changes include the following factors:
•
Higher costs related to B2B managed services projects in Panama and Jamaica;
•
An increase in interconnect and access costs of $2 million or 3.3% for the three-month comparison, primarily due to the net effect of (i) an increase in wholesale call volumes in Jamaica, (ii) the beneficial impact of the reassessment of an accrual during 2019 and (iii) lower rates; and
•
A decrease in programming and copyright costs of $1 million or 3.9% for the three-month comparison, primarily due to the net effect of (i) lower content costs, including the beneficial impact of the reassessment of content accruals across several markets in 2019, and (ii) higher costs associated with an increase in subscribers during 2019.
VTR/Cabletica. The increases in VTR/Cabletica’s programming and other direct costs of services during the three and six months ended June 30, 2019, as compared to the corresponding periods in 2018, include increases of $10 million and $20 million, respectively, attributable to the Cabletica Acquisition and decreases of $6 million and $13 million, respectively, attributable to FX. Excluding the effects of the Cabletica Acquisition and FX, VTR/Cabletica’s programming and other direct costs of services increased (decreased) ($1 million) or (1.8%) and $1 million or 0.4%, respectively. These changes include the following factors:
•
Decreases in interconnect and access costs of $4 million or 19.8% and $3 million and 9.4%, respectively, primarily due to (i) net decreases in interconnect costs resulting from lower rates, and (ii) decreases in MVNO charges due to lower rates, which resulted from the renegotiation of our contract during the fourth quarter of 2018; and
•
Increases in programming and copyright costs of $2 million or 3.7% and $3 million or 3.2%, respectively, primarily due to the net effect of (i) increases in certain premium and basic content costs, primarily resulting from higher rates, (ii) net decreases in the foreign currency impact of programming contracts denominated in U.S. dollars, driven by the impact of hedge accounting, and (iii) higher costs associated with video-on-demand (VoD) services and catch-up television.
Liberty Puerto Rico. Programing and other direct costs of services for Liberty Puerto Rico increased during the three and six months ended June 30, 2019, as compared to the corresponding periods in 2018, primarily due to increases in programming and copyright costs of $4 million or 21.1% and $11 million or 35.7%, respectively, mostly attributable to credits received from programming vendors in 2018 resulting from the Hurricanes of $3 million and $10 million, respectively.
Other operating expenses
General. Other operating expenses include (i) network operations, (ii) customer operations, which includes personnel costs and call center costs, (iii) bad debt and collection expenses, and (iv) other costs related to our operations.
The following tables set forth other operating expenses by reportable segment:
 
Three months ended June 30,
 
Increase (decrease)
 
2019
 
2018
 
$
 
%
 
in millions, except percentages
 
 
 
 
 
 
 
 
C&W
$
119.1

 
$
118.1

 
$
1.0

 
0.8
VTR/Cabletica
41.5

 
37.8

 
3.7

 
9.8
Liberty Puerto Rico
14.6

 
12.7

 
1.9

 
15.0
Total other operating expenses excluding share-based compensation expense
175.2

 
168.6

 
6.6

 
3.9
Share-based compensation expense
0.3

 
0.1

 
0.2

 
200.0
Total
$
175.5

 
$
168.7

 
$
6.8

 
4.0

50

 
Six months ended June 30,
 
Increase (decrease)
 
2019
 
2018
 
$
 
%
 
in millions, except percentages
 
 
 
 
 
 
 
 
C&W
$
227.0

 
$
232.7

 
$
(5.7
)
 
(2.4
)
VTR/Cabletica
85.5

 
77.5

 
8.0

 
10.3

Liberty Puerto Rico
28.9

 
26.7

 
2.2

 
8.2

Intersegment eliminations
—

 
(0.1
)
 
0.1

 
N.M.

Total other operating expenses excluding share-based compensation expense
341.4

 
336.8

 
4.6

 
1.4

Share-based compensation expense
0.5

 
0.2

 
0.3

 
150.0

Total
$
341.9

 
$
337.0

 
$
4.9

 
1.5

N.M. — Not Meaningful.
Consolidated. The increases in other operating expenses during the three and six months ended June 30, 2019, as compared to the corresponding periods in 2018, include increases of $15 million and $23 million, respectively, attributable to the impact of acquisitions and decreases of $5 million and $10 million, respectively, attributable to FX. Excluding the effects of acquisitions, FX and share-based compensation expense, our other operating expenses decreased $3 million or 2.0% and $8 million or 2.3%, respectively. The organic decreases primarily include (i) decreases of $7 million and $12 million, respectively, at C&W, (ii) an increase of $2 million for each of the three and six-month comparisons at VTR/Cabletica and (iii) an increase of $2 million for each of the three and six-month comparisons at Liberty Puerto Rico, as further discussed below.
C&W. The changes in C&W’s other operating expenses during the three and six months ended June 30, 2019, as compared to the corresponding periods in 2018, primarily include an increase of $9 million attributable to the impact of the UTS Acquisition and decreases of $2 million and $3 million due to FX, respectively. Excluding the effects of the UTS Acquisition and FX, C&W’s other operating expenses (exclusive of share-based compensation expense) decreased $7 million or 5.8% and $12 million or 5.2%, respectively. These decreases primarily include the following factors:
•
Decreases in network-related expenses of $2 million or 5.0% and $4 million or 5.1%, respectively, primarily due to (i) lower maintenance costs and (ii) hurricane restoration costs in the prior year;
•
Decreases in bad debt and collection expenses of $4 million or 29.1% and $3 million or 16.9%, respectively, primarily due to the net effect of (i) improved collections during the first half of 2019 and (ii) a $3 million recovery in the first quarter of 2018 related to provisions established following the impacts of Hurricanes Irma and Maria; and
•
Decreases of $1 million and $3 million, respectively, in revenue-based franchise fees in certain of our markets.
VTR/Cabletica. The increases in VTR/Cabletica’s other operating expenses during the three and six months ended June 30, 2019, as compared to the corresponding periods in 2018, include increases of $6 million and $13 million, respectively, attributable to the Cabletica Acquisition and decreases of $4 million and $8 million, respectively, due to FX. Excluding the effects of the Cabletica Acquisition and FX, VTR/Cabletica’s other operating expenses (exclusive of share-based compensation expense) increased $2 million or 4.0% and $2 million or 3.0%, respectively. These increases include the following factors:
•
Increases in outsourced labor and professional services of $1 million or 29.6% and $2 million or 18.9%, respectively, primarily due to increased call center volume;
•
For the six-month comparison, a decrease in network-related expenses of $1 million or 3.0%, primarily due to the net effect of (i) lower contracted labor for network access-related services, and (ii) higher costs related to CPE materials and refurbishment activity; and
•
An increase of $1 million for each comparison driven by charges incurred during 2019 for certain technical and information technology services provided to us by Liberty Global under the Services Agreement, as further described in note 13 to our condensed consolidated financial statements.

51

Liberty Puerto Rico. The increases in Liberty Puerto Rico’s other operating expenses during the three and six months ended June 30, 2019, as compared to the corresponding periods in 2018, include the following factors:
•
Increases in network related expenses of $1 million or 53.9% and $2 million of 52.3%, respectively, primarily due to (i) higher CPE repair costs, and (ii) increases in system power expenses, as the 2018 periods were impacted by the Hurricanes;
•
An increase (decrease) in personnel costs of $1 million and ($1 million), respectively, driven by the net effect of (i) lower overtime-related personnel activities, as the 2018 periods were impacted by the Hurricanes, and (ii) a $1 million hurricane disaster relief credit, which was recognized in the second quarter of 2018 and subsequently received in the third quarter of 2018, from the Puerto Rico treasury department, representing relief for wages paid to employees during the period of time our business was inoperable as a result of the Hurricanes; and
•
Higher various other operating expenses, as the 2018 periods were impacted by the Hurricanes.
SG&A Expenses
General. SG&A expenses include human resources, information technology, general services, management, finance, legal, sales and marketing costs, share-based compensation and other general expenses.
The following tables set forth SG&A by reportable segment and our corporate category:





Three months ended June 30,
 
Increase
 
2019
 
2018
 
$
 
%
 
in millions, except percentages
 
 
 
 
 
 
 
 
C&W
$
119.5

 
$
111.8

 
$
7.7

 
6.9
VTR/Cabletica
48.4

 
46.9

 
1.5

 
3.2
Liberty Puerto Rico
14.1

 
12.2

 
1.9

 
15.6
Corporate
11.9

 
11.0

 
0.9

 
8.2
Intersegment eliminations
—

 
(0.2
)
 
0.2

 
N.M.
Total SG&A expenses excluding share-based compensation expense
193.9

 
181.7

 
12.2

 
6.7
Share-based compensation expense
15.1

 
8.6

 
6.5

 
75.6
Total
$
209.0

 
$
190.3

 
$
18.7

 
9.8





Six months ended June 30,
 
Increase (decrease)
 
2019
 
2018
 
$
 
%
 
in millions, except percentages
 
 
 
 
 
 
 
 
C&W
$
227.4

 
$
223.4

 
$
4.0

 
1.8
VTR/Cabletica
98.4

 
95.5

 
2.9

 
3.0
Liberty Puerto Rico
27.6

 
25.5

 
2.1

 
8.2
Corporate
23.4

 
22.3

 
1.1

 
4.9
Intersegment eliminations
—

 
0.1

 
(0.1
)
 
N.M.
Total SG&A expenses excluding share-based compensation expense
376.8

 
366.8

 
10.0

 
2.7
Share-based compensation expense
29.6

 
15.0

 
14.6

 
97.3
Total
$
406.4

 
$
381.8

 
$
24.6

 
6.4
N.M. — Not Meaningful.
Consolidated. The increases in SG&A expenses during the three and six months ended June 30, 2019, as compared to the corresponding periods in 2018, include increases of $16 million and $19 million, respectively, attributable to the impact of acquisitions and decreases of $5 million and $12 million, respectively, due to FX. Excluding the effects of acquisitions, FX and

52

share-based compensation expense, our SG&A expenses increased $2 million or 0.9% and $3 million or 0.8%, respectively. The organic increases primarily include (i) decreases of $2 million and $5 million, respectively, at C&W, (ii) increases of $1 million and $5 million, respectively, at VTR/Cabletica and (iii) an increase of $2 million for each of the three and six-month comparisons at Liberty Puerto Rico, as further discussed below.
C&W. The increases in C&W’s SG&A expenses during the three and six months ended June 30, 2019, as compared to the corresponding periods in 2018, include an increase of $11 million attributable to the impact of the UTS Acquisition and decreases of $1 million and $2 million, respectively, due to FX. Excluding the effects of the UTS Acquisition and FX, C&W’s SG&A expenses (exclusive of share-based compensation expense) decreased $2 million or 1.8% and $5 million or 2.1%, respectively. These decreases include the following factors:
•
Decreases in personnel costs of $3 million or 4.7% and $3 million or 3.1%, respectively, primarily due to lower staffing levels largely stemming from various restructuring activities, as further described below;
•
Increases in insurance expense of $2 million and $3 million, respectively, related to higher premiums;
•
A decrease in marketing and advertising expenses of $2 million or 7.3% for the six-month comparison, primarily due to timing of marketing campaigns; and
•
Net decreases resulting from other individually insignificant changes in SG&A expense categories.
VTR/Cabletica. The increases in VTR/Cabletica’s SG&A expenses during the three and six months ended June 30, 2019, as compared to the corresponding periods in 2018, include increases of $5 million and $8 million, respectively, attributable to the Cabletica Acquisition and decreases of $4 million and $10 million, respectively, due to FX. Excluding the effects of the Cabletica Acquisition and FX , VTR/Cabletica’s SG&A expenses (exclusive of share-based compensation expense) increased $1 million or 1.5% and $5 million or 4.9%, respectively. These increases include the following factors:
•
Increases in professional services of $2 million or 41.6% and $3 million or 41.4%, respectively, primarily due to increased information technology costs associated with the implementation of a business support system;
•
For the six-month comparison, an increase in sales, marketing and advertising expenses of $2 million or 5.0%, primarily due to the net effect of (i) higher sales commissions to third-party dealers, and (ii) lower costs associated with advertising campaigns;
•
For this six-month comparison, a decrease in facilities-related expenses of $1 million or 6.7%, primarily due to lower lease costs; and
•
For the three-month comparison, a decrease in personnel costs of $1 million or 3.4%, primarily due to the net effect of (i) lower bonus accruals as a result of a restructuring program implemented in 2019, and (ii) annual wage increases.
Liberty Puerto Rico. The increases in Liberty Puerto Rico’s SG&A expenses during the three and six months ended June 30, 2019, as compared to the corresponding periods in 2018, are primarily attributable to higher personnel costs of $1 million or 32.4% and $2 million or 17.3%, respectively, mostly driven by a $1 million hurricane disaster relief credit, which was recognized in the second quarter of 2018 and subsequently received in the third quarter of 2018, from the Puerto Rico treasury department, representing relief for wages paid to employees during the period of time our business was inoperable as a result of the Hurricanes.
Corporate. The increases in Corporate’s SG&A expenses during the three and six months ended June 30, 2019, as compared to the corresponding periods in 2018, are primarily attributable to higher personnel costs.

53

Adjusted OIBDA
Adjusted OIBDA, a non-GAAP measure, is the primary measure used by our chief operating decision maker to evaluate segment operating performance. For the definition of this performance measure and for a reconciliation of total Adjusted OIBDA to our loss before income taxes, see note 18 to our condensed consolidated financial statements.
The following tables set forth Adjusted OIBDA by reportable segment and our corporate category:
 
Three months ended June 30,
 
Increase (decrease)
 
2019
 
2018
 
$
 
%
 
in millions, except percentages
 
 
 
 
 
 
 
 
C&W
$
235.4

 
$
223.6

 
$
11.8

 
5.3
VTR/Cabletica
112.3

 
105.1

 
7.2

 
6.9
Liberty Puerto Rico
51.6

 
35.7

 
15.9

 
44.5
Corporate
(11.9
)
 
(11.0
)
 
(0.9
)
 
8.2
Total
$
387.4

 
$
353.4

 
$
34.0

 
9.6
 
Six months ended June 30,
 
Increase (decrease)
 
2019
 
2018
 
$
 
%
 
in millions, except percentages
 
 
 
 
 
 
 
 
C&W
$
457.9

 
$
452.7

 
$
5.2

 
1.1
VTR/Cabletica
219.2

 
210.1

 
9.1

 
4.3
Liberty Puerto Rico
99.5

 
53.7

 
45.8

 
85.3
Corporate
(23.4
)
 
(22.3
)
 
(1.1
)
 
4.9
Total
$
753.2

 
$
694.2

 
$
59.0

 
8.5
Adjusted OIBDA Margin
The following table sets forth the Adjusted OIBDA margins (Adjusted OIBDA divided by revenue) of each of our reportable segments:
 
Three months ended June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
 
%
 
 
 
 
 
 
 
 
C&W
38.8
 
38.3
 
38.9
 
38.7
VTR/Cabletica
40.9
 
40.4
 
39.8
 
40.1
Liberty Puerto Rico
49.7
 
44.5
 
49.2
 
37.8
Adjusted OIBDA margin is impacted by organic changes in revenue, programming and other direct costs of services, other operating expenses and SG&A expenses, as further discussed above. During the three and six months ended June 30, 2018, the Adjusted OIBDA of Liberty Puerto Rico was adversely impacted by the Hurricanes. Accordingly, the increases in Liberty Puerto Rico’s Adjusted OIBDA margin in the three and six months ended June 30, 2019 are primarily the result of the recovery from the Hurricanes.
Share-based compensation expense (included in other operating and SG&A expenses)
Share-based compensation expense increased $7 million and $15 million during the three and six months ended June 30, 2019, respectively, as compared to the corresponding periods in 2018. These increases are primarily due to share-based incentive awards granted during 2019 and 2018.
For additional information regarding our share-based compensation, see note 15 to our condensed consolidated financial statements.

54

Depreciation and amortization expense
Our depreciation and amortization expense increased $14 million or 6.9% and $29 million or 7.2% during the three and six months ended June 30, 2019, respectively, as compared to the corresponding periods in 2018. Excluding the impacts of FX and acquisitions, depreciation and amortization expense increased $8 million or 3.7% and $23 million or 5.5%, respectively. The organic increases are primarily due to the net effect of (i) increases in property and equipment additions, primarily associated with the expansion and upgrade of our networks and other capital initiatives, the installation of customer premises equipment, and baseline and product and enablers-related additions, and (ii) decreases associated with certain assets becoming fully depreciated.
Impairment, restructuring and other operating items, net
We recognized impairment, restructuring and other operating items, net, of $7 million and $13 million during the three months ended June 30, 2019 and 2018, respectively, and $27 million and $47 million during the six months ended June 30, 2019 and 2018, respectively.
During the three months ended June 30, 2019 and 2018, we incurred $4 million and $6 million, respectively, of restructuring charges. During the 2019 period, restructuring charges primarily comprise contract termination costs mainly at VTR and C&W. During the 2018 period, restructuring charges primarily comprise employee severance and termination costs related to certain reorganization activities, primarily at VTR and C&W. Additionally, we incurred $1 million and $4 million, respectively, of direct acquisition and disposition costs.
During the six months ended June 30, 2019 and 2018, we incurred $22 million and $32 million, respectively, of restructuring charges, which include $16 million and $29 million, respectively, of employee severance and termination costs related to certain reorganization activities, primarily at VTR and C&W. Additionally, we incurred $4 million and $11 million, respectively, of direct acquisition and disposition costs.
For additional information regarding our restructuring charges, see note 14 to our condensed consolidated financial statements.

Interest expense
Our interest expense increased $10 million and $24 million during the three and six months ended June 30, 2019, respectively, as compared to the corresponding periods in 2018, primarily due to higher average outstanding debt balances and higher weighted-average interest rates.
For additional information regarding our outstanding indebtedness, see note 9 to our condensed consolidated financial statements.
It is possible that the interest rates on (i) any new borrowings could be higher than the current interest rates on our existing indebtedness and (ii) our variable-rate indebtedness could increase in future periods. As further discussed in note 5 to our condensed consolidated financial statements, we use derivative instruments to manage our interest rate risks.
Realized and unrealized gains (losses) on derivative instruments, net
Our realized and unrealized gains or losses on derivative instruments include (i) unrealized changes in the fair values of our derivative instruments that are non-cash in nature until such time as the derivative contracts are fully or partially settled and (ii) realized gains or losses upon the full or partial settlement of the derivative contracts. The details of our realized and unrealized gains (losses) on derivative instruments, net, are as follows:
 
Three months ended June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
 
in millions
 
 
 
 
 
 
 
 
Cross-currency and interest rate derivative contracts (a)
$
(75.8
)
 
$
94.2

 
$
(145.8
)
 
$
55.3

Foreign currency forward contracts and other
(3.2
)
 
20.9

 
(2.2
)
 
18.3

Total
$
(79.0
)
 
$
115.1

 
$
(148.0
)
 
$
73.6

 
(a)
The gains (losses) during the three and six months ended June 30, 2019 and 2018 are primarily attributable to (i) changes in interest rates and (ii) changes in FX rates, predominantly due to changes in the value of the Chilean peso relative to the U.S. dollar. In addition, the losses during the 2019 periods include net gains of $4 million and $6 million, respectively, and

55

the gains during the 2018 periods include net losses of $9 million and $21 million, respectively, resulting from changes in our credit risk valuation adjustments.
For additional information concerning our derivative instruments, see notes 5 and 6 to our condensed consolidated financial statements and Item 3. Quantitative and Qualitative Disclosures about Market Risk below.
Foreign currency transaction gains (losses), net
Our foreign currency transaction gains or losses primarily result from the remeasurement of monetary assets and liabilities that are denominated in currencies other than the underlying functional currency of the applicable entity. Unrealized foreign currency transaction gains or losses are computed based on period-end exchange rates and are non-cash in nature until such time as the amounts are settled. The details of our foreign currency transaction gains (losses), net, are as follows:
 
Three months ended June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
 
in millions
 
 
 
 
 
 
 
 
U.S. dollar-denominated debt issued by a Chilean peso functional currency entity
$
2.1

 
$
(112.8
)
 
$
28.4

 
$
(86.0
)
Intercompany payables and receivables denominated in a currency other than the entity’s functional currency
(23.4
)
 
(11.8
)
 
(8.7
)
 
(12.3
)
British pound sterling-denominated debt issued by a U.S. dollar functional currency entity
—

 
15.2

 
(3.7
)
 
4.7

Other
1.8

 
(11.2
)
 
(3.3
)
 
(11.1
)
Total
$
(19.5
)
 
$
(120.6
)
 
$
12.7

 
$
(104.7
)
Losses on debt modification and extinguishment
We recognized losses on debt modification and extinguishment of $10 million during each of the three and six months ended June 30, 2019, respectively, and nil and $13 million during the three and six months ended June 30, 2018, respectively. The 2019 loss primarily relates to the redemptions of our 2022 C&W Senior Notes.
For additional information concerning our losses on debt modification and extinguishment, see note 9 to our condensed consolidated financial statements.
Other income, net
We recognized other income, net, of $3 million and $5 million during the three and six months ended June 30, 2019, respectively, and $5 million and $10 million during the three and six months ended June 30, 2018, respectively. The amounts for the 2019 periods primarily relate to interest income. The amounts for the 2018 periods primarily relate to pension-related credits and interest income.
Income tax expense
Income tax expense was $30 million and $42 million during the three months ended June 30, 2019 and 2018, respectively, and $34 million and $58 million during the six months ended June 30, 2019 and 2018, respectively.
For the three and six months ended June 30, 2019, the income tax expense attributable to our loss before income taxes differs from the expected income tax expense of nil (based on the Bermuda statutory income tax rate of 0%), primarily due to the detrimental effects of international rate differences, increases in valuation allowances, changes in uncertain tax positions, and negative effects of permanent items such as non-deductible expenses. These negative impacts to our effective tax rate were partially offset by the beneficial effects of permanent items, such as non-taxable income. Additionally for the six months ended June 30, 2019, our effective tax rate reflects the beneficial effects of a change in the Barbados and Grenada statutory tax rates.
For the three and six months ended June 30, 2018, the income tax expense attributable to our loss before income taxes differs from the expected income tax expense of nil (based on the Bermuda statutory income tax rate of 0%), primarily due to the detrimental effects of international rate differences, increases in valuation allowances, and negative effects of non-deductible expenses. These negative impacts to our effective tax rate were partially offset by the beneficial effects of changes in uncertain tax positions and non-taxable income.
For additional information regarding our income taxes, see note 11 to our condensed consolidated financial statements.

56

Net loss
The following table sets forth selected summary financial information of our net loss:
 
Three months ended June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
 
in millions
 
 
 
 
 
 
 
 
Operating income
$
143.5

 
$
124.2

 
$
256.8

 
$
222.5

Net non-operating expenses
$
(225.2
)
 
$
(110.1
)
 
$
(375.3
)
 
$
(245.9
)
Income tax expense
$
(29.5
)
 
$
(41.6
)
 
$
(33.9
)
 
$
(58.4
)
Net loss
$
(111.2
)
 
$
(27.5
)
 
$
(152.4
)
 
$
(81.8
)
Gains or losses associated with (i) changes in the fair values of derivative instruments and (ii) movements in foreign currency exchange rates are subject to a high degree of volatility and, as such, any gains from these sources do not represent a reliable source of income. In the absence of significant gains in the future from these sources or from other non-operating items, our ability to achieve earnings is largely dependent on our ability to increase our aggregate Adjusted OIBDA to a level that more than offsets the aggregate amount of our (i) share-based compensation expense, (ii) depreciation and amortization, (iii) impairment, restructuring and other operating items, (iv) interest expense, (v) other non-operating expenses and (vi) income tax expenses.
Due largely to the fact that we seek to maintain our debt at levels that provide for attractive equity returns, as discussed under Material Changes in Financial Condition—Capitalization below, we expect that we will continue to report significant levels of interest expense for the foreseeable future.
Net earnings attributable to noncontrolling interests
We reported net earnings attributable to noncontrolling interests of $5 million during each of the three and six months ended June 30, 2019 and $15 million and $5 million during the three and six months ended June 30, 2018, respectively. The decrease during the 2019 three-month period, as compared to corresponding 2018 period, is mostly attributable to net decreases in earnings of our less-than-wholly-owned subsidiaries at C&W, primarily in Panama.
For information regarding increased ownership in C&W Jamaica, see note 12 to our condensed consolidated financial statements.
Material Changes in Financial Condition
Sources and Uses of Cash
As of June 30, 2019, we have four primary “borrowing groups,” which include the respective restricted parent and subsidiary entities of C&W, VTR Finance, Liberty Puerto Rico and Cabletica. Our borrowing groups, which typically generate cash from operating activities, held a significant portion of our consolidated cash and cash equivalents at June 30, 2019. Our ability to access the liquidity of these and other subsidiaries may be limited by tax and legal considerations, the presence of noncontrolling interests, foreign currency exchange restrictions with respect to certain C&W subsidiaries and other factors.

57

Cash and cash equivalents
The details of the U.S. dollar equivalent balances of our cash and cash equivalents at June 30, 2019 are set forth in the following table (in millions):
Cash and cash equivalents held by:
 
Liberty Latin America and unrestricted subsidiaries:
 
Liberty Latin America (a)
$
395.6

Unrestricted subsidiaries (b)
11.7

Total Liberty Latin America and unrestricted subsidiaries
407.3

Borrowing groups (c):
 
C&W
389.3

VTR Finance
121.0

Liberty Puerto Rico
22.3

Cabletica
17.5

Total borrowing groups
550.1

Total cash and cash equivalents
$
957.4

(a)
Represents the amount held by Liberty Latin America on a standalone basis, which includes the proceeds resulting from the offering of the Convertible Notes, net of issue costs and payments for the Capped Calls.
(b)
Represents the aggregate amount held by subsidiaries of Liberty Latin America that are outside of our borrowing groups. All of these companies rely on funds provided by our borrowing groups to satisfy their liquidity needs.
(c)
Represents the aggregate amounts held by the parent entity of the applicable borrowing group and their restricted subsidiaries.
Liquidity of Liberty Latin America and its unrestricted subsidiaries
Our current sources of corporate liquidity include (i) cash and cash equivalents held by Liberty Latin America and, subject to certain tax and legal considerations, Liberty Latin America’s unrestricted subsidiaries and (ii) interest and dividend income received on our and, subject to certain tax and legal considerations, our unrestricted subsidiaries’ cash and cash equivalents and investments. From time to time, Liberty Latin America and its unrestricted subsidiaries may also receive (i) proceeds in the form of distributions or loan repayments from Liberty Latin America’s borrowing groups upon (a) the completion of recapitalizations, refinancings, asset sales or similar transactions by these entities or (b) the accumulation of excess cash from operations or other means, (ii) proceeds upon the disposition of investments and other assets of Liberty Latin America and its unrestricted subsidiaries and (iii) proceeds in connection with the incurrence of debt by Liberty Latin America or its unrestricted subsidiaries or the issuance of equity securities by Liberty Latin America. No assurance can be given that any external funding would be available to Liberty Latin America or its unrestricted subsidiaries on favorable terms, or at all. As noted above, various factors may limit our ability to access the cash of our borrowing groups.
Our corporate liquidity requirements include (i) corporate general and administrative expenses and (ii) other liquidity needs that may arise from time to time. In addition, Liberty Latin America and its unrestricted subsidiaries may require cash in connection with (i) the repayment of third-party and intercompany debt, (ii) the satisfaction of contingent liabilities, (iii) acquisitions and other investment opportunities, (iv) the repurchase of debt securities, (v) tax payments or (vi) any funding requirements of our consolidated subsidiaries.
Liquidity of borrowing groups
The cash and cash equivalents of our borrowing groups are detailed in the table above. In addition to cash and cash equivalents, the primary sources of liquidity of our borrowing groups are cash provided by operations and borrowing availability under their respective debt instruments. For the details of the borrowing availability of such subsidiaries at June 30, 2019, see note 9 to our condensed consolidated financial statements. The aforementioned sources of liquidity may be supplemented in certain cases by contributions and/or loans from Liberty Latin America and its unrestricted subsidiaries. The liquidity of our borrowing groups generally is used to fund property and equipment additions, debt service requirements and income tax payments. From time to time, our borrowing groups may also require liquidity in connection with (i) acquisitions and other investment opportunities, (ii) loans to Liberty Latin America, (iii) capital distributions to Liberty Latin America and other equity owners or (iv) the satisfaction of contingent liabilities. No assurance can be given that any external funding would be available to our borrowing groups on

58

favorable terms, or at all. For information regarding our borrowing groups’ commitments and contingencies, see note 17 to our condensed consolidated financial statements.
For additional information regarding our cash flows, see the discussion under Condensed Consolidated Statements of Cash Flows below.
Capitalization
We seek to maintain our debt at levels that provide for attractive equity returns without assuming undue risk. The ratio of our June 30, 2019 consolidated debt (total principal amount of debt and finance lease obligations outstanding, net of projected derivative principal-related cash payments (receipts)) to our annualized consolidated Adjusted OIBDA for the quarter ended June 30, 2019 was 4.8x. In addition, the ratio of our June 30, 2019 consolidated net debt (debt less cash and cash equivalents) to our annualized consolidated Adjusted OIBDA for the quarter ended June 30, 2019 was 4.1x. These ratios, which were calculated on a latest two quarters annualized basis, include the impact of 0.3x and nil, respectively, related to the Convertible Notes.
When it is cost effective, we generally seek to match the denomination of the borrowings of our subsidiaries with the functional currency of the operations that support the respective borrowings. As further discussed under Item 3. Quantitative and Qualitative Disclosures about Market Risk and in note 5 to our condensed consolidated financial statements, we also use derivative instruments to mitigate foreign currency and interest rate risks associated with our debt instruments.
Our ability to service or refinance our debt and to maintain compliance with the leverage covenants in the credit agreements and indentures of our borrowing groups is dependent primarily on our ability to maintain covenant EBITDA of our operating subsidiaries, as specified by our subsidiaries’ debt agreements (Covenant EBITDA), and to achieve adequate returns on our property and equipment additions and acquisitions. In addition, our ability to obtain additional debt financing is limited by incurrence-based leverage covenants contained in the various debt instruments of our borrowing groups. For example, if the Covenant EBITDA of C&W were to decline, our ability to obtain additional debt could be limited. No assurance can be given that we would have sufficient sources of liquidity, or that any external funding would be available on favorable terms, or at all, to fund any such required repayment. At June 30, 2019, each of our borrowing groups was in compliance with its debt covenants. We do not anticipate any instances of non-compliance with respect to the debt covenants of our borrowing groups that would have a material adverse impact on our liquidity during the next 12 months.
At June 30, 2019, the outstanding principal amount of our debt, together with our finance lease obligations, aggregated $7,174 million, including $172 million that is classified as current in our condensed consolidated balance sheet and $6,865 million that is not due until 2022 or thereafter. At June 30, 2019, $6,770 million of our debt and finance lease obligations have been borrowed or incurred by our subsidiaries. For additional information concerning our debt, including our debt maturities and certain refinancing transactions subsequent to June 30, 2019, see note 9 to our condensed consolidated financial statements.
We believe that we have sufficient resources to repay or refinance the current portion of our debt and finance lease obligations and to fund our foreseeable liquidity requirements during the next 12 months. However, as our debt maturities grow in later years, we anticipate that we will seek to refinance or otherwise extend our debt maturities. No assurance can be given that we will be able to complete refinancing transactions or otherwise extend our debt maturities. In this regard, it is difficult to predict how political and economic conditions, sovereign debt concerns or any adverse regulatory developments will impact the credit and equity markets we access and our future financial position. Our ability to access debt financing on favorable terms, or at all, could be adversely impacted by (i) the financial failure of any of our counterparties, which could (a) reduce amounts available under committed credit facilities and (b) adversely impact our ability to access cash deposited with any failed financial institution, and (ii) tightening of the credit markets. In addition, any weakness in the equity markets could make it less attractive to use our shares to satisfy contingent or other obligations, and sustained or increased competition, particularly in combination with adverse economic or regulatory developments, could have an unfavorable impact on our cash flows and liquidity.

59

Condensed Consolidated Statements of Cash Flows
General. Our cash flows are subject to variations due to FX.
Summary. Our condensed consolidated statements of cash flows for the six months ended June 30, 2019 and 2018 are summarized as follows:
 
Six months ended June 30,
 
 
 
2019
 
2018
 
Change
 
in millions
 
 
 
 
 
 
Net cash provided by operating activities
$
431.4

 
$
398.0

 
$
33.4

Net cash used by investing activities
(421.4
)
 
(424.5
)
 
3.1

Net cash provided by financing activities
320.4

 
223.3

 
97.1

Effect of exchange rate changes on cash, cash equivalents and restricted cash
2.5

 
(15.3
)
 
17.8

Net increase in cash, cash equivalents and restricted cash
$
332.9

 
$
181.5

 
$
151.4

Operating Activities. The increase in net cash provided by our operating activities is primarily attributable to the net effect of (i) an increase from our Adjusted OIBDA and related working capital items, including changes resulting from insurance receipts as discussed below, (ii) an increase in cash related to derivative instruments, as we received $17 million during the 2019 period and made net payments of $17 million during the 2018 period, (iii) increased interest payments and (iv) lower payments of taxes. During the first half of 2019, $33 million of the cash received associated with the final insurance settlement for the Hurricanes was reflected as an operating cash inflow. During the first half of 2018, we received $30 million of net advance payments from our third-party insurance provider associated with the then outstanding insurance settlement claims resulting from the Hurricanes.
Investing Activities. The decrease in net cash used by our investing activities is primarily attributable $160 million of cash used for the UTS Acquisition in March 2019, which was more than offset by a decrease in cash used capital expenditures, as further discussed below, and $34 million of cash received during the first quarter of 2019 related to the recovery on damaged or destroyed property and equipment resulting from hurricanes Maria, Irma and Matthew. For additional information regarding the settlement of our insurance claims associated with these hurricanes, see note 7 to our condensed consolidated financial statements.
The capital expenditures that we report in our condensed consolidated statements of cash flows do not include amounts that are financed under capital-related vendor financing or finance lease arrangements. Instead, these amounts are reflected as non-cash additions to our property and equipment when the underlying assets are delivered and as repayments of debt when the principal is repaid. In this discussion, we refer to (i) our capital expenditures, as reported in our condensed consolidated statements of cash flows, and (ii) our total property and equipment additions, which include our capital expenditures on an accrual basis and amounts financed under capital-related vendor financing or finance lease arrangements. For further details regarding our property and equipment additions, see note 18 to our condensed consolidated financial statements.
A reconciliation of our property and equipment additions to our capital expenditures, as reported in our condensed consolidated statements of cash flows, is set forth below:
 
Six months ended June 30,
 
2019
 
2018
 
in millions
 
 
 
 
Property and equipment additions
$
305.2

 
$
411.6

Assets acquired under capital-related vendor financing arrangements
(26.0
)
 
(35.0
)
Assets acquired under finance leases
(0.2
)
 
(0.9
)
Changes in current liabilities related to capital expenditures
16.4

 
49.4

Capital expenditures
$
295.4

 
$
425.1

The decrease in our property and equipment additions during the six months ended June 30, 2019, as compared to the corresponding period in 2018, is primarily due to the net effect of (i) a decrease of $92 million and $20 million in expenditures by Liberty Puerto Rico and C&W, respectively, and (ii) excluding the impact of hurricane restoration activities, an increase in the expansion and upgrade of our networks and other capital initiatives. During the six months ended June 30, 2019 and 2018, our

60

property and equipment additions represented 15.8% and 22.5% of revenue, respectively. Our property and equipment additions as a percentage of revenue decreased primarily due to declines in property and equipment additions at Liberty Puerto Rico together with an increase in revenue at Liberty Puerto Rico following the recovery from the Hurricanes.
Financing Activities. During the six months ended June 30, 2019, we received $320 million in net cash from financing activities, primarily due to $395 million of net borrowings of debt, which was slightly offset by $46 million of cash used related to the purchase of the Capped Calls and $25 million related to payments of financing costs and debt premiums. The net borrowings of debt primarily relate to the issuance of the Convertible Notes, as further described in note 9 to our condensed consolidated financial statements. During the six months ended June 30, 2018, we received $223 million in net cash from financing activities, due in part to $253 million in net borrowings of debt, primarily at VTR, and $18 million in capital contributions from funds affiliated with Searchlight Capital Partners, L.P.. These cash inflows were partially offset by $20 million in distributions to C&W Panama, a noncontrolling interest owner, and $20 million of cash used in connection with the C&W Jamaica NCI Acquisition.
Adjusted Free Cash Flow
We define adjusted free cash flow, a non-GAAP measure, as net cash provided by our operating activities, plus (i) cash payments for third-party costs directly associated with successful and unsuccessful acquisitions and dispositions, (ii) expenses financed by an intermediary and (iii) insurance recoveries related to damaged and destroyed property and equipment, less (a) capital expenditures, (b) distributions to noncontrolling interest owners, (c) principal payments on amounts financed by vendors and intermediaries and (d) principal payments on finance leases. We believe that our presentation of adjusted free cash flow provides useful information to our investors because this measure can be used to gauge our ability to service debt and fund new investment opportunities. Adjusted free cash flow should not be understood to represent our ability to fund discretionary amounts, as we have various mandatory and contractual obligations, including debt repayments, which are not deducted to arrive at this amount. Investors should view adjusted free cash flow as a supplement to, and not a substitute for, U.S. GAAP measures of liquidity included in our condensed consolidated statements of cash flows.
The following table provides the details of our adjusted free cash flow:
 
Six months ended June 30,
 
2019
 
2018
 
in millions
 
 
 
 
Net cash provided by operating activities
$
431.4

 
$
398.0

Cash payments for direct acquisition and disposition costs
0.6

 
1.3

Expenses financed by an intermediary (a)
56.8

 
94.9

Capital expenditures
(295.4
)
 
(425.1
)
Recovery on damaged or destroyed property and equipment
33.9

 
—

Distributions to noncontrolling interest owners
(2.5
)
 
(19.8
)
Principal payments on amounts financed by vendors and intermediaries
(105.9
)
 
(105.0
)
Principal payments on finance leases
(2.5
)
 
(3.8
)
Adjusted free cash flow
$
116.4

 
$
(59.5
)
(a)
For purposes of our condensed consolidated statements of cash flows, expenses, including VAT, financed by an intermediary are treated as hypothetical operating cash outflows and hypothetical financing cash inflows when the expenses are incurred. When we pay the financing intermediary, we record financing cash outflows in our condensed consolidated statements of cash flows. For purposes of our adjusted free cash flow definition, we add back the hypothetical operating cash outflow when these financed expenses are incurred and deduct the financing cash outflows when we pay the financing intermediary.
Off Balance Sheet Arrangements
In the ordinary course of business, we may provide (i) indemnifications to our lenders, our vendors and certain other parties and (ii) performance and/or financial guarantees to local municipalities, our customers and vendors. Historically, these arrangements have not resulted in our company making any material payments and we do not believe that they will result in material payments in the future. For information concerning certain indemnifications provided by C&W, see note 17 to our condensed consolidated financial statements.

61

Contractual Commitments
The following table sets forth the U.S. dollar equivalents of our commitments as of June 30, 2019:
 
Payments due during
 
Total
 
Remainder of 2019
 
2020
 
2021
 
2022
 
2023
 
2024
 
Thereafter
 
 
in millions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt (excluding interest)
$
101.6

 
$
73.5

 
$
124.2

 
$
1,178.1

 
$
475.9

 
$
1,665.5

 
$
3,544.1

 
$
7,162.9

Finance leases (excluding interest)
7.2

 
1.9

 
0.5

 
0.2

 
0.2

 
0.2

 
0.4

 
10.6

Operating leases
20.2

 
35.3

 
28.3

 
23.0

 
18.4

 
15.5

 
27.4

 
168.1

Programming commitments
62.7

 
61.3

 
24.8

 
2.2

 
1.4

 
0.9

 
—

 
153.3

Network and connectivity commitments
52.4

 
49.3

 
39.4

 
13.1

 
12.7

 
12.1

 
13.4

 
192.4

Purchase commitments
146.5

 
44.2

 
17.5

 
1.1

 
0.6

 
—

 
—

 
209.9

Other commitments
14.9

 
5.4

 
3.3

 
2.4

 
2.0

 
2.9

 
9.4

 
40.3

Total (a)
$
405.5

 
$
270.9

 
$
238.0

 
$
1,220.1

 
$
511.2

 
$
1,697.1

 
$
3,594.7

 
$
7,937.5

Projected cash interest payments on debt and finance lease obligations (b)
$
210.6

 
$
440.3

 
$
436.6

 
$
386.0

 
$
341.7

 
$
275.0

 
$
465.2

 
$
2,555.4

(a)
The commitments included in this table do not reflect any liabilities that are included in our June 30, 2019 condensed consolidated balance sheet other than (i) debt and (ii) capital and operating lease obligations. Our liability for uncertain tax positions, including accrued interest, in the various jurisdictions in which we operate ($314 million at June 30, 2019) has been excluded from the table as the amount and timing of any related payments are not subject to reasonable estimation. For additional information regarding our liability for uncertain tax positions, see note 11 to our condensed consolidated financial statements.
(b)
Amounts are based on interest rates, interest payment dates, commitment fees and contractual maturities in effect as of June 30, 2019. These amounts are presented for illustrative purposes only and will likely differ from the actual cash payments required in future periods. In addition, the amounts presented do not include the impact of our derivative contracts.
For information concerning our debt, see note 9 to our condensed consolidated financial statements. For information concerning our operating lease obligations, see note 3 to our condensed consolidated financial statements. For information concerning our commitments, see note 17 to our condensed consolidated financial statements.
In addition to the commitments set forth in the table above, we have commitments under (i) derivative instruments and (ii) defined benefit plans and similar agreements, pursuant to which we expect to make payments in future periods. For information regarding projected cash flows associated with our derivative instruments, see Item 3. Quantitative and Qualitative Disclosures About Market Risk—Projected Cash Flows Associated with Derivative Instruments below. For information regarding our derivative instruments, including the net cash paid or received in connection with these instruments during the six months ended June 30, 2019 and 2018, see note 5 to our condensed consolidated financial statements.

62

Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information in this section should be read in conjunction with the more complete discussion that appears under Quantitative and Qualitative Disclosures About Market Risk in our 2018 Form 10-K. The following discussion updates selected numerical information to June 30, 2019.
We are exposed to market risk in the normal course of our business operations due to our investments in various countries and ongoing investing and financing activities. Market risk refers to the risk of loss arising from adverse changes in foreign currency exchange rates, interest rates and stock prices. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. As further described below, we have established policies, procedures and processes governing our management of market risks and the use of derivative instruments to manage our exposure to such risks.
Cash and Investments
We invest our cash in highly liquid instruments that meet high credit quality standards. We are exposed to exchange rate risk to the extent that the denominations of our cash and cash equivalent balances, revolving lines of credit and other short-term sources of liquidity do not correspond to the denominations of Liberty Latin America’s short-term liquidity requirements. In order to mitigate this risk, we actively manage the denominations of our cash balances in consideration of Liberty Latin America’s forecasted liquidity requirements. At June 30, 2019, $120 million or 12.6% of our cash balance was denominated in Chilean pesos.
Foreign Currency Exchange Rates
The relationship between (i) the Chilean peso and the Jamaican dollar and (ii) the U.S. dollar, which is our reporting currency, is shown below, per one U.S. dollar:
 
June 30, 2019
 
December 31, 2018
Spot rates:
 
 
 
Chilean peso
678.72

 
694.00

Jamaican dollar
130.72

 
128.59

 
 
Three months ended June 30,
 
Six months ended June 30,
 
2019
 
2018
 
2019
 
2018
Average rates:
 
 
 
 
 
 
 
Chilean peso
683.88

 
621.77

 
675.87

 
612.15

Jamaican dollar
132.14

 
127.25

 
131.44

 
126.51

Interest Rate Risks
In general, we seek to enter into derivative instruments to protect against increases in the interest rates on our variable-rate debt. Accordingly, we have entered into various derivative transactions to reduce exposure to increases in interest rates. We use interest rate derivative contracts to exchange, at specified intervals, the difference between fixed and variable interest rates calculated by reference to an agreed-upon notional principal amount. We also use interest rate cap agreements that lock in a maximum interest rate if variable rates rise, but also allow our company to benefit from declines in market rates. At June 30, 2019, we paid a fixed rate of interest on 97% of our total debt, which includes the impact of our interest rate cap agreements. The final maturity dates of our various portfolios of interest rate derivative instruments generally fall short of the respective maturities of the underlying variable-rate debt. In this regard, we use judgment to determine the appropriate maturity dates of our portfolios of interest rate derivative instruments, taking into account the relative costs and benefits of different maturity profiles in light of current and expected future market conditions, liquidity issues and other factors. For additional information concerning the impacts of these interest rate derivative instruments, see note 5 to our condensed consolidated financial statements.

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Sensitivity Information
Information concerning the sensitivity of the fair value of certain of our more significant derivative instruments to changes in market conditions is set forth below. The potential changes in fair value set forth below do not include any amounts associated with the remeasurement of the derivative asset or liability into the applicable functional currency. For additional information, see notes 5 and 6 to our condensed consolidated financial statements.
VTR Finance Cross-currency and Interest Rate Derivative Contracts
Holding all other factors constant, at June 30, 2019:
i.
an instantaneous increase (decrease) of 10% in the value of the Chilean peso relative to the U.S. dollar would have decreased (increased) the aggregate fair value of the VTR Finance cross-currency derivative contracts by approximately CLP 101 billion or $148 million; and
ii.
an instantaneous increase (decrease) in the relevant base rate of 100 basis points (1.0%) would have increased (decreased) the aggregate fair value of the VTR Finance cross-currency and interest rate derivative contracts by approximately CLP 11 billion or $16 million.
C&W Cross-currency and Interest Rate Derivative Contracts
Holding all other factors constant, at June 30, 2019, an instantaneous increase (decrease) in the relevant base rate of 100 basis points (1.0%) would have increased (decreased) the aggregate fair value of the C&W cross-currency and interest rate derivative contracts by approximately $94 million.
Liberty Puerto Rico Interest Rate Derivative Contracts
Holding all other factors constant, at June 30, 2019, an instantaneous increase (decrease) in the relevant base rate of 100 basis points (1.0%) would have increased (decreased) the aggregate fair value of the Liberty Puerto Rico interest rate derivative contracts by approximately $50 million.
Projected Cash Flows Associated with Derivative Instruments
The following table provides information regarding the projected cash flows associated with our derivative instruments. The U.S. dollar equivalents presented below are based on interest rates and exchange rates that were in effect as of June 30, 2019. These amounts are presented for illustrative purposes only and will likely differ from the actual cash payments required in future periods. For additional information regarding our derivative instruments, including our counterparty credit risk, see note 5 to our condensed consolidated financial statements.
 
Payments (receipts) due during:
 
Total
 
Remainder of 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2020
 
2021
 
2022
 
2023
 
2024
 
Thereafter
 
 
in millions
Projected derivative cash payments (receipts), net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-related (a)
$
5.1

 
$
11.1

 
$
2.1

 
$
8.0

 
$
19.4

 
$
13.8

 
$
23.1

 
$
82.6

Principal-related (b)
—

 
—

 
—

 
5.6

 
—

 
(7.7
)
 
(2.6
)
 
(4.7
)
Other (c)
(1.3
)
 
(1.1
)
 
—

 
—

 
—

 
—

 
—

 
(2.4
)
Total
$
3.8

 
$
10.0

 
$
2.1

 
$
13.6

 
$
19.4

 
$
6.1

 
$
20.5

 
$
75.5

(a)
Includes the interest-related cash flows of our cross-currency and interest rate derivative contracts.
(b)
Includes the principal-related cash flows of our cross-currency derivative contracts.
(c)
Includes amounts related to our foreign currency forward contracts.

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Item 4.
CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and our Principal Financial Officer (the Executives), as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, the Executives recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply judgment in evaluating the cost-benefit relationship of possible controls and objectives.
As disclosed in our Annual Report on Form 10-K for our fiscal year ended December 31, 2018, we identified material weaknesses in our internal control over financial reporting. The material weaknesses will not be considered remediated until the applicable new or enhanced controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Our management, with the participation of the Executives, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2019. As remediation has not yet been completed, the Executives concluded that our disclosure controls and procedures continued to be ineffective as of June 30, 2019.
Notwithstanding such material weaknesses in internal control over financial reporting, our management concluded that our unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q present fairly, in all material respects, the company’s financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity with U.S. GAAP.
Management’s Remediation Plans

Management is continuing to implement the remediation plans as disclosed in our Annual Report on Form 10-K for our fiscal year ended December 31, 2018. We believe that these actions and the improvements we expect to achieve, when fully implemented, will strengthen our internal control over financial reporting and remediate the material weaknesses identified.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II - OTHER INFORMATION
Item 6.
EXHIBITS

Listed below are the exhibits filed as part of this Quarterly Report on Form 10-Q (according to the number assigned to them in Item 601 of Regulation S-K):

4.1
10.1
31.1
31.2
32.1
101.SCH
XBRL Inline Taxonomy Extension Schema Document.*
101.CAL
XBRL Inline Taxonomy Extension Calculation Linkbase Document.*
101.DEF
XBRL Inline Taxonomy Extension Definition Linkbase.*
101.LAB
XBRL Inline Taxonomy Extension Label Linkbase Document.*
101.PRE
XBRL Inline Taxonomy Extension Presentation Linkbase Document.*
104
Cover Page Interactive Data File.* (formatted as Inline XBRL and contained in Exhibit 101)

*    Filed herewith
**    Furnished herewith


66

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 
 
LIBERTY LATIN AMERICA LTD.
 
 
 
Dated:
August 6, 2019
 
/s/ BALAN NAIR
 
 
 
Balan Nair
President and Chief Executive Officer
 
 
 
 
Dated:
August 6, 2019
 
/s/ CHRISTOPHER NOYES
 
 
 
Christopher Noyes
Senior Vice President and Chief Financial Officer




67