LIBERTY GLOBAL LTD. The following discussion and analysis, which should be read in conjunction with our condensed consolidated financial statements and the discussion and analysis included in our 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 endedJune 30, 2021 and 2020. •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, toLiberty Global or collectively toLiberty Global and its subsidiaries.
Unless otherwise indicated, convenience translations into
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 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 Part I,
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations and Part I, Item 3. Quantitative and Qualitative Disclosures About
Market Risk may contain forward-looking statements, including statements
regarding our business, product, foreign currency and finance strategies, our
property and equipment additions (including with respect to the Network
Extensions, as defined below), subscriber growth and retention rates,
competitive, regulatory and economic factors, the timing and impacts of proposed
transactions, the maturity of our markets, the potential impact of COVID-19 on
our company, the anticipated impacts of new legislation (or changes to existing
rules and regulations), anticipated changes in our revenue, costs or growth
rates, our liquidity, credit risks, foreign currency risks, interest rate risks,
target leverage levels, debt 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 evaluating these statements, you should consider the risks and
uncertainties discussed in our 10-K, as well as the following list of some but
not all of the factors that could cause actual results or events (including with
respect to our affiliates) to differ materially from anticipated results or
events:
•economic and business conditions and industry trends in the countries in which
we or our affiliates operate;
•the competitive environment in the industries in the countries in which we or
our affiliates operate, including competitor responses to our products and
services;
•fluctuations in currency exchange 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 television viewing and broadband usage preferences and
habits;
•consumer acceptance of our existing service offerings, including our broadband
internet, cable television, fixed-line telephony, mobile and business service
offerings, and of new technology, programming alternatives and other products
and service offerings in the future;
•our ability to manage rapid technological changes;
49
--------------------------------------------------------------------------------
•our ability to maintain or increase the number of subscriptions to our
broadband internet, cable television, 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 or our affiliates operate and adverse outcomes from
regulatory proceedings;
•government intervention that requires opening our broadband distribution
networks to competitors, such as the obligations imposed in Belgium ;
•our ability to obtain regulatory approval and shareholder 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.K. , the U.S. or in other countries in which we or our
affiliates 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 our third-party wireless
network providers under our mobile virtual network operator arrangements) 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 programs;
•the availability of capital for the acquisition and/or development of
telecommunications networks and services;
•problems we may discover post-closing with the operations, including the
internal controls and financial reporting process, of businesses we acquire;
•the leakage of sensitive customer data;
•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; and
•events that are outside of our control, such as political unrest in
international markets, terrorist attacks, malicious human acts, natural
disasters, epidemics, pandemics (such as COVID-19) 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 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, 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,
conditions or circumstances on which any such statement is based. Readers are
cautioned not to place undue reliance on any forward-looking statement.
50
--------------------------------------------------------------------------------Overview
General
We are an international provider of broadband internet, video, fixed-line telephony and mobile communications services to residential customers and businesses inEurope . Our operations comprise businesses that provide residential and B2B communications services in (i)Switzerland ,Poland andSlovakia throughUPC Holding , (ii)Belgium through Telenet and (iii)Ireland through another wholly-owned subsidiary ofLiberty Global (VM Ireland). In addition, we own 50% noncontrolling interests in (a) a 50:50 joint venture between Vodafone Group plc (Vodafone) andLiberty Global (the VodafoneZiggo JV), which provides residential and B2B communication services inthe Netherlands and (b) a 50:50 joint venture between Telefonica SA (Telefónica) andLiberty Global (the VMED O2 JV), which provides residential and B2B communication services in theUnited Kingdom (U.K. ). ThroughMay 31, 2021 , we provided residential and B2B communication services in theU.K. throughVirgin Media Inc. (Virgin Media ). OnJune 1, 2021 , we contributed theU.K. JV Entities to the VMED O2 JV and began accounting for our 50% interest in the VMED O2 JV as an equity method investment. For additional information, see note 4. Operations AtJune 30, 2021 , our consolidated operations owned and operated networks that passed 11,107,600 homes and served 5,675,700 fixed-line customers and 5,710,800 mobile subscribers. Competition and Other External Factors We are experiencing competition in all of the markets in which we or our affiliates operate. This competition, together with macroeconomic and regulatory factors, has adversely impacted our revenue, number of customers and/or average monthly subscription revenue per fixed-line customer or mobile subscriber, as applicable (ARPU). For additional information regarding the revenue impact of changes in fixed-line customers and ARPU of our consolidated reportable segments, see Discussion and Analysis of our Reportable Segments below. The global COVID-19 pandemic continues to adversely impact the economies of the countries in which we operate. However, during the second quarter of 2021, the adverse impact on our company continued to be relatively minimal as demand for our products and services remained strong. It is not currently possible to estimate the duration and severity of the COVID-19 pandemic or the adverse economic impact resulting from the preventative measures taken to contain or mitigate its outbreak, therefore no assurance can be given that an extended period of global economic disruption would not have a material adverse impact on our business, financial condition and results of operations in future periods. For further information regarding the COVID-19 pandemic, see the discussion under Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview included in our 2020 Annual Report on Form 10-K, as amended. For additional information regarding the impact of COVID-19 on our results of operations for the six months endedJune 30, 2021 , see Discussion and Analysis of our Reportable Segments below. 51 --------------------------------------------------------------------------------
Material Changes in Results of Operations
We have completed a number of transactions that impact the comparability of our results of operations, the most notable of which are the Sunrise Acquisition onNovember 11, 2020 and theU.K. JV Transaction onJune 1, 2021 . For further information, see note 4 to our condensed consolidated financial statements. In the following discussion, we quantify the estimated impact of material acquisitions (the Acquisition Impact) and dispositions 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. In general, we base our estimate of the Acquisition Impact on an acquired entity's operating results during the first three to twelve months following the acquisition date, as adjusted to remove integration costs and any other material unusual or nonoperational items, such that changes from those operating results in subsequent periods are considered to be organic changes. Accordingly, in the following discussion, (i) organic variances attributed to an acquired entity during the first 12 months following the acquisition date represent differences between the Acquisition Impact and the actual results and (ii) the calculation of our organic change percentages includes the organic activity of an acquired entity relative to the Acquisition Impact of such entity. With respect to material dispositions, the organic changes that are discussed below reflect adjustments to exclude the historical prior-year results of any disposed entities to the extent that such entities are not included in the corresponding results for the current-year periods. Changes in foreign currency exchange rates have a significant impact on our reported operating results as all of our operating segments have functional currencies other than theU.S. dollar. Our primary exposure to foreign exchange (FX) risk during the six months endedJune 30, 2021 was to the British pound sterling, euro and Swiss franc as 35.8%, 33.9% and 26.6% of our reported revenue during the period was derived from subsidiaries whose functional currencies are the British pound sterling, euro and Swiss franc, respectively. In addition, our reported operating results are impacted by changes in the exchange rates for certain other local currencies inEurope . The portions of the changes in the various components of our results of operations that are attributable to changes in FX are highlighted under Discussion and Analysis of our Reportable Segments and Discussion and Analysis of our Consolidated Operating Results below. For information regarding our foreign currency risks and the applicable foreign currency exchange rates in effect for the periods covered by this Quarterly Report, see Part I, Item 3. Quantitative and Qualitative Disclosures about Market Risk - Foreign Currency Risk below. The amounts presented and discussed below represent 100% of each of our consolidated reportable segment's results of operations. As we have the ability to control Telenet, we consolidate 100% of its revenue and expenses in our condensed consolidated statements of operations despite the fact that third parties own a significant interest. The noncontrolling owners' interests in the operating results of Telenet and other less significant majority-owned subsidiaries are reflected in net earnings or loss attributable to noncontrolling interests in our condensed consolidated statements of operations. 52 --------------------------------------------------------------------------------
Discussion and Analysis of our Reportable Segments
General
All of our reportable segments derive their revenue primarily from residential and B2B communications services, including broadband internet, video, fixed-line telephony and mobile services. For detailed information regarding the composition of our reportable segments and how we define and categorize our revenue components, see note 16 to our condensed consolidated financial statements. For information regarding the results of operations of the VodafoneZiggo JV and, for the period fromJune 1, 2021 throughJune 30, 2021 , the VMED O2 JV, refer to Discussion and Analysis of our Consolidated Operating Results - Share of results of affiliates below. The tables presented below in this section provide the details of the revenue and Adjusted EBITDA of our consolidated reportable segments for the three and six months endedJune 30, 2021 and 2020. These tables present (i) the amounts reported for the current and comparative periods, (ii) the reportedU.S. dollar change and percentage change from period to period and (iii) the organicU.S. dollar change and percentage change from period to period. For our organic comparisons, which exclude the impact of FX, we assume that exchange rates remained constant at the prior-year rate during all periods presented. We also provide a table showing the Adjusted EBITDA margins of our consolidated reportable segments for three and six months endedJune 30, 2021 and 2020 at the end of this section. Consolidated Adjusted EBITDA is a non-GAAP measure, which we believe 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 readily view operating trends from a consolidated view. Investors should view consolidated Adjusted EBITDA as a supplement to, and not a substitute for, GAAP measures of performance included in our condensed consolidated statements of operations. The following table provides a reconciliation of net earnings (loss) to Adjusted EBITDA: Three months ended Six months ended June 30, June 30, 2021 2020 2021 2020 in millions Net earnings (loss)$ 11,174.5 $ (503.8) $ 12,614.8 $ 513.9 Income tax expense (benefit) 282.8 (158.0) 453.3 (77.9) Other income, net (7.2) (9.5) (17.3) (61.9) Gain on U.K. JV Transaction (11,138.0) - (11,138.0) - Share of results of affiliates, net 8.1 105.4 6.4 72.0 Losses on debt extinguishment, net 90.6 165.6 90.6 220.1
Realized and unrealized losses (gains) due to changes in fair values of certain investments and debt, net (288.1)
(152.3) (482.7) 377.5
Foreign currency transaction losses (gains), net (133.3)
478.0 (436.4) 86.3 Realized and unrealized losses (gains) gains on derivative instruments, net 303.1 319.7 (508.0) (917.6) Interest expense 273.0 281.7 608.1 595.0 Operating income 565.5 526.8 1,190.8 807.4
Impairment, restructuring and other operating items, net
6.9 32.2 51.3 63.2
Depreciation and amortization 580.5 545.7 1,214.7 1,329.2
Share-based compensation expense 99.8 83.8 163.2 139.0
Adjusted EBITDA $ 1,252.7 $ 1,188.5 $ 2,620.0 $ 2,338.8
53--------------------------------------------------------------------------------
Revenue of our Consolidated Reportable Segments
General. While not specifically discussed in the below explanations of the changes in the revenue of our consolidated reportable segments, we are experiencing competition in all of our markets. This competition has an adverse impact on our ability to increase or maintain our total number of customers and/or our ARPU.
Variances in the subscription revenue that we receive from our customers are a
function of (i) changes in the number of our fixed-line customers or mobile
subscribers outstanding during the period and (ii) changes in ARPU. Changes in
ARPU can be attributable to (a) changes in prices, (b) changes in bundling or
promotional discounts, (c) changes in the tier of services selected, (d)
variances in subscriber usage patterns and (e) the overall mix of cable and
mobile products within a segment during the period.
Revenue
Three months ended June 30, Increase (decrease) Organic increase (decrease)
2021 2020 $ % $ %
in millions, except percentages
U.K. (a) $ 1,101.4 $ 1,417.3 $ (315.9) (22.3) $ 41.1 4.4
Belgium 774.8 682.5 92.3 13.5 25.4 3.7
Switzerland 825.4 299.1 526.3 176.0 (8.1) (1.0)
Ireland 134.1 115.2 18.9 16.4 7.2 6.4
Central and Eastern Europe 130.2 116.2 14.0 12.0 3.4 2.9
Central and Corporate (b) 143.7 97.5 46.2 47.4 18.6 19.1
Intersegment eliminations (4.1) (4.9) 0.8 N.M. 0.8 N.M.
Total $ 3,105.5 $ 2,722.9 $ 382.6 14.1 $ 88.4 3.2
Six months ended
June 30, Increase (decrease) Organic increase (decrease)
2021 2020 $ % $ %
in millions, except percentages
U.K. (a)$ 2,736.4 $ 2,913.7 $ (177.3) (6.1) $ 62.4 2.6 Belgium 1,547.5 1,400.6 146.9 10.5 16.0 1.1 Switzerland 1,667.2 615.9 1,051.3 170.7 (25.1) (1.6) Ireland 270.2 239.8 30.4 12.7 7.2 3.0 Central and Eastern Europe 258.8 235.3 23.5 10.0 7.1
3.1
Central and Corporate (b) 250.9 203.1 47.8 23.5 16.6
8.2
Intersegment eliminations (10.2) (9.7) (0.5) N.M. (0.5) N.M. Total$ 6,720.8 $ 5,598.7 $ 1,122.1 20.0 $ 83.7 1.4 _______________ N.M. - Not Meaningful.
(a)Represents the revenue of the
(b)Amounts primarily include revenue earned from transition and other services
provided to the VodafoneZiggo JV, the VMED O2 JV and various third parties and
the sale of customer premises equipment to the VodafoneZiggo JV. For additional
information, see notes 4 and 5 to our condensed consolidated financial
statements.
54
--------------------------------------------------------------------------------
U.K. The details of the decreases in the U.K.'s revenue during the three and six
months ended June 30, 2021 , as compared to the corresponding periods in 2020,
are set forth below:
Three-month period Six-month period
Subscription Non-subscription Subscription Non-subscription
revenue revenue Total revenue revenue Total
in millions
Increase (decrease) in residential
cable subscription revenue due to
change in:
Average number of customers $ 17.3 $ - $ 17.3 $ 36.6 $ - $ 36.6
ARPU (a) (6.7) - (6.7) (55.3) - (55.3)
Increase in residential cable
non-subscription revenue (b) - 7.9 7.9 - 12.8 12.8
Total increase (decrease) in residential cable revenue 10.6 7.9 18.5 (18.7) 12.8
(5.9)
Increase in residential mobile revenue (c) 3.0 8.2 11.2 1.3 32.2 33.5 Increase in B2B revenue (d) 3.8 7.7 11.5 9.6 25.4 35.0 Decrease in other revenue - (0.1) (0.1) - (0.2) (0.2) Total organic increase (decrease) 17.4 23.7 41.1 (7.8) 70.2 62.4 Impact of dispositions (380.1) (99.5) (479.6) (386.1) (101.1) (487.2) Impact of FX 97.4 25.2 122.6 194.8 52.7 247.5 Total$ (265.3) $ (50.6)$ (315.9) $ (199.1) $ 21.8$ (177.3) _______________ (a)The decreases in cable subscription revenue related to changes in ARPU include an increase of approximately$19 million associated with the pausing or cancellation of certain sporting events during the second quarter of 2020, as further described under Discussion and Analysis of our Consolidated Operating Results - Programming and other direct costs of services below.
(b)The increases in residential cable non-subscription revenue are primarily attributable to increases in (i) revenue from late fees, (ii) cancellation revenue and (iii) installation revenue.
(c)The increases in residential mobile non-subscription revenue are primarily attributable to increases in revenue from mobile handset sales.
(d)The increases in B2B subscription revenue are primarily due to increases in
the average number of customers. The increases in B2B non-subscription revenue
are primarily attributable to the net effect of (i) increases in revenue
associated with long-term leases of a portion of our network and (ii) lower
revenue from data services.
55
--------------------------------------------------------------------------------
Belgium . The details of the increases in Belgium's revenue during the three and
six months ended June 30, 2021 , as compared to the corresponding periods in
2020, are set forth below:
Three-month period Six-month period
Subscription Non-subscription Subscription Non-subscription
revenue revenue Total revenue revenue Total
in millions
Increase (decrease) in residential
cable subscription revenue due to
change in:
Average number of customers $ (5.1) $ - $ (5.1) $ (12.0) $ - $ (12.0)
ARPU 1.6 - 1.6 6.5 - 6.5
Increase in residential cable
non-subscription revenue - 2.7 2.7 - 2.1 2.1
Total increase (decrease) in residential cable revenue (3.5) 2.7 (0.8) (5.5) 2.1
(3.4)
Increase (decrease) in residential mobile revenue (a) 3.3 (6.1) (2.8) 1.2 (7.4) (6.2) Increase in B2B revenue (b) 5.4 9.0 14.4 8.8 2.2 11.0 Increase in other revenue (c) - 14.6 14.6 - 14.6 14.6 Total organic increase 5.2 20.2 25.4 4.5 11.5 16.0 Impact of dispositions - - - (1.7) (0.5) (2.2) Impact of FX 50.1 16.8 66.9 99.6 33.5 133.1 Total$ 55.3 $ 37.0$ 92.3 $ 102.4 $ 44.5$ 146.9 _______________
(a)The decreases in residential mobile non-subscription revenue are primarily attributable to lower interconnect and mobile roaming revenue.
(b)The increases in B2B subscription revenue are primarily due to increases in the average number of customers. The increases in B2B non-subscription revenue are primarily attributable to the net effect of (i) increases in revenue from mobile handset sales, (ii) higher revenue from wholesale services and (iii) lower interconnect revenue.
(c)The increases in other revenue are attributable to higher broadcasting revenue.
For information concerning certain regulatory developments that could have an adverse impact on our revenue inBelgium , see Legal and Regulatory Proceedings and Other Contingencies - Belgium Regulatory Developments in note 15 to our condensed consolidated financial statements. 56 --------------------------------------------------------------------------------
Three-month period Six-month period
Subscription Non-subscription Subscription Non-subscription
revenue revenue Total revenue revenue Total
in millions
Increase (decrease) in residential
cable subscription revenue due to
change in:
Average number of customers $ (10.6) $ - $ (10.6) $ (25.6) $ - $ (25.6)
ARPU 1.3 - 1.3 3.6 - 3.6
Increase in residential cable
non-subscription revenue (a) - 4.4 4.4 - 1.7 1.7
Total increase (decrease) in
residential cable revenue (9.3) 4.4 (4.9) (22.0) 1.7 (20.3)
Increase (decrease) in residential mobile revenue (b) 9.8 (19.1) (9.3) 12.3 (22.5)
(10.2)
Increase (decrease) in B2B revenue (c) (2.3) 10.1 7.8 (1.2) 8.1 6.9 Decrease in other revenue - (1.7) (1.7) - (1.5) (1.5) Total organic decrease (1.8) (6.3) (8.1) (10.9) (14.2) (25.1) Impact of acquisitions 326.7 162.2 488.9 652.3 323.2 975.5 Impact of FX 33.5 12.0 45.5 72.5 28.4 100.9 Total$ 358.4 $ 167.9$ 526.3 $ 713.9 $ 337.4$ 1,051.3 _______________ (a)The increase in residential cable non-subscription revenue for the three-month comparison includes an increase of$2.2 million associated with the acceleration of revenue from our distribution partner in the first quarter of 2020 for the broadcast of ice hockey, as further described under Discussion and Analysis of our Consolidated Operating Results - Programming and other direct costs of services below.
(b)The increases in residential mobile subscription revenue are primarily due to increases in the average number of mobile subscribers. The decreases in residential mobile non-subscription revenue are largely attributable to decreases in revenue from mobile handset sales.
(c)The increases in B2B non-subscription revenue are primarily attributable to higher revenue from wholesale services.
57
--------------------------------------------------------------------------------
Ireland . The details of the increases in Ireland's revenue during the three and
six months ended June 30, 2021 , as compared to the corresponding periods in
2020, are set forth below:
Three-month period Six-month period
Subscription Non-subscription Subscription Non-subscription
revenue revenue Total revenue revenue Total
in millions
Increase (decrease) in residential
cable subscription revenue due to
change in:
Average number of customers $ 0.1 $ - $ 0.1 $ 0.2 $ - $ 0.2
ARPU (0.6) - (0.6) 0.6 - 0.6
Increase in residential cable
non-subscription revenue - 0.3 0.3 - 0.1 0.1
Total increase (decrease) in residential cable revenue (0.5) 0.3 (0.2) 0.8 0.1
0.9
Increase (decrease) in residential mobile revenue 0.9 (0.3) 0.6 1.8 (0.4)
1.4
Increase (decrease) in B2B revenue 0.1 (0.2) (0.1) 0.3 (1.1) (0.8) Increase in other revenue (a) - 6.9 6.9 - 5.7 5.7 Total organic increase 0.5 6.7 7.2 2.9 4.3 7.2 Impact of FX 9.1 2.6 11.7 17.8 5.4 23.2 Total $ 9.6 $ 9.3$ 18.9 $ 20.7 $ 9.7$ 30.4 _______________
(a)The increases in other revenue are attributable to higher broadcasting revenue.
Central and
Three-month period Six-month period
Subscription Non-subscription Subscription Non-subscription
revenue revenue Total revenue revenue Total
in millions
Increase in residential cable
subscription revenue due to change
in:
Average number of customers $ 1.9 $ - $ 1.9 $ 3.9 $ - $ 3.9
ARPU 0.4 - 0.4 0.8 - 0.8
Decrease in residential cable
non-subscription revenue - (0.2) (0.2) - (0.2) (0.2)
Total increase (decrease) in residential cable revenue 2.3 (0.2) 2.1 4.7 (0.2)
4.5
Increase (decrease) in residential mobile revenue 0.6 (0.1) 0.5 1.2 - 1.2 Increase in B2B revenue 0.6 0.6 1.2 1.3 0.7 2.0 Decrease in other revenue - (0.4) (0.4) - (0.6) (0.6) Total organic increase (decrease) 3.5 (0.1) 3.4 7.2 (0.1) 7.1 Impact of FX 10.0 0.6 10.6 15.1 1.3 16.4 Total $ 13.5 $ 0.5$ 14.0 $ 22.3 $ 1.2$ 23.5 58
--------------------------------------------------------------------------------
Programming and Other Direct Costs of Services, Other Operating Expenses and SG&A Expenses of our Consolidated Reportable Segments
For information regarding the changes in our (i) programming and other direct costs of services, (ii) other operating expenses and (iii) SG&A expenses, see Discussion and Analysis of our Consolidated Operating Results below.
Adjusted EBITDA of our Consolidated Reportable Segments
Adjusted EBITDA is the primary measure used by our chief operating decision
maker to evaluate segment operating performance. As presented below,
consolidated Adjusted EBITDA is a non-GAAP measure, which investors should view
as a supplement to, and not a substitute for, GAAP measures of performance
included in our condensed consolidated statements of operations. The following
tables set forth the Adjusted EBITDA of our consolidated reportable segments:
Three months ended June 30, Increase (decrease) Organic increase (decrease)
2021 2020 $ % $ %
in millions, except percentages
U.K. (a)$ 444.9 $ 601.7 $ (156.8) (26.1) $ 0.1 - Belgium 389.6 354.1 35.5 10.0 2.0 0.6 Switzerland 298.5 150.9 147.6 97.8 (15.6) (5.2) Ireland 54.0 49.2 4.8 9.8 - 0.1 Central and Eastern Europe 59.5 52.7 6.8 12.9 1.8 3.4 Central and Corporate 6.2 (20.1) 26.3 130.8 22.6 112.4 Total$ 1,252.7 $ 1,188.5 $ 64.2 5.4 $ 10.9 1.0 Six months ended June 30, Increase (decrease) Organic increase
(decrease)
2021 2020 $ % $ %
in millions, except percentages
U.K. (a)$ 1,085.3 $ 1,208.7 $ (123.4) (10.2)$ (12.5) (1.3) Belgium 761.4 685.7 75.7 11.0 12.4 1.8 Switzerland 580.1 285.0 295.1 103.5 (32.9) (5.7) Ireland 101.6 93.3 8.3 8.9 (0.4) (0.4) Central and Eastern Europe 116.5 107.0 9.5 8.9 1.9 1.9 Central and Corporate (24.9) (40.9) 16.0 39.1 18.3 44.7 Total$ 2,620.0 $ 2,338.8 $ 281.2 12.0$ (13.2) (0.5) _______________ N.M. - Not Meaningful.
(a)Represents the Adjusted EBITDA of the
59
--------------------------------------------------------------------------------Adjusted EBITDA Margin
The following table sets forth the Adjusted EBITDA margins (Adjusted EBITDA divided by revenue) of each of our consolidated reportable segments:
Six months ended
Three months ended June 30, June 30,
2021 2020 2021 2020
U.K. (a) 40.4 % 42.5 % 39.7 % 41.5 %
Belgium 50.3 % 51.9 % 49.2 % 49.0 %
Switzerland 36.2 % 50.4 % 34.8 % 46.3 %
Ireland 40.3 % 42.7 % 37.6 % 38.9 %
Central and Eastern Europe 45.7 % 45.5 % 45.0 % 45.6 %
_______________
(a)Represents the results of the
In addition to organic changes in the revenue, operating and SG&A expenses of our consolidated reportable segments, the Adjusted EBITDA margins presented above are impacted by acquisitions. In this regard, the Sunrise Acquisition had a significant adverse impact on the Adjusted EBITDA margin inSwitzerland , as the acquired Sunrise mobile business generates a relatively lower Adjusted EBITDA margin than our legacy cable operations inSwitzerland . For discussion of the factors contributing to the changes in the Adjusted EBITDA margins of our consolidated reportable segments, see the analysis of our revenue included in Discussion and Analysis of our Reportable Segments above and the analysis of our expenses included in Discussion and Analysis of our Consolidated Operating Results below. 60 --------------------------------------------------------------------------------
Discussion and Analysis of our Consolidated Operating Results
Revenue
Our revenue by major category is set forth below:
Three months ended
June 30, Increase (decrease) Organic increase (decrease)
2021 2020 $ % $ %
in millions, except percentages
Residential revenue:
Residential cable revenue (a):
Subscription revenue (b):
Broadband internet $ 763.9 $ 781.0 $ (17.1) (2.2) $ 15.0 2.2
Video 631.5 633.6 (2.1) (0.3) 15.7 2.8
Fixed-line telephony 272.0 328.3 (56.3) (17.1) (31.1) (11.2)
Total subscription revenue 1,667.4 1,742.9 (75.5) (4.3) (0.4) -
Non-subscription revenue 47.3 35.6 11.7 32.9 14.8 52.9
Total residential cable revenue 1,714.7 1,778.5 (63.8) (3.6) 14.4 0.9
Residential mobile revenue (c): Subscription revenue (b) 415.8 227.3 188.5 82.9 17.6 4.6 Non-subscription revenue 197.2 129.7 67.5 52.0 (17.2) (8.7) Total residential mobile revenue 613.0 357.0 256.0 71.7 0.4 0.1 Total residential revenue 2,327.7 2,135.5 192.2 9.0 14.8 0.7 B2B revenue (d): Subscription revenue 191.6 133.1 58.5 44.0 7.6 5.1 Non-subscription revenue 380.6 328.5 52.1 15.9 26.5 8.2 Total B2B revenue 572.2 461.6 110.6 24.0 34.1 7.2 Other revenue (e) 205.6 125.8 79.8 63.4 39.5 29.4 Total$ 3,105.5 $ 2,722.9 $ 382.6 14.1 $ 88.4 3.2 61
--------------------------------------------------------------------------------
Six months ended
June 30, Increase (decrease) Organic increase (decrease)
2021 2020 $ % $ %
in millions, except percentages
Residential revenue:
Residential cable revenue (a):
Subscription revenue (b):
Broadband internet $ 1,690.7 $ 1,577.8 $ 112.9 7.2 $ 18.9 1.2
Video 1,376.6 1,316.7 59.9 4.5 3.7 0.3
Fixed-line telephony 629.2 666.5 (37.3) (5.6) (63.3) (9.9)
Total subscription revenue 3,696.5 3,561.0 135.5 3.8 (40.7) (1.2)
Non-subscription revenue 104.0 88.6 15.4 17.4 15.9 20.0
Total residential cable revenue 3,800.5 3,649.6 150.9 4.1 (24.8) (0.7)
Residential mobile revenue (c): Subscription revenue (b) 897.1 463.2 433.9 93.7 17.8 2.2 Non-subscription revenue 477.6 275.0 202.6 73.7 2.1 0.5 Total residential mobile revenue 1,374.7 738.2 636.5 86.2 19.9 1.6 Total residential revenue 5,175.2 4,387.8 787.4 17.9 (4.9) (0.1) B2B revenue (d): Subscription revenue 359.6 268.8 90.8 33.8 18.8 6.0 Non-subscription revenue 816.8 666.9 149.9 22.5 31.5 4.4 Total B2B revenue 1,176.4 935.7 240.7 25.7 50.3 4.9 Other revenue (e) 369.2 275.2 94.0 34.2 38.3 13.2 Total$ 6,720.8 $ 5,598.7 $ 1,122.1 20.0 $ 83.7 1.4 _______________ (a)Residential cable subscription revenue includes amounts received from subscribers for ongoing services and the recognition of deferred installation revenue over the associated contract period. Residential cable non-subscription revenue includes, among other items, channel carriage fees, late fees and revenue from the sale of equipment.
(b)Residential subscription revenue from subscribers who purchase bundled services at a discounted rate is generally allocated proportionally to each service based on the standalone price for each individual service. As a result, changes in the standalone pricing of our cable and mobile products or the composition of bundles can contribute to changes in our product revenue categories from period to period.
(c)Residential mobile subscription revenue includes amounts received from subscribers for ongoing services. Residential mobile non-subscription revenue includes, among other items, interconnect revenue and revenue from sales of mobile handsets and other devices. Residential mobile interconnect revenue was$57.9 million and$48.9 million during the three months endedJune 30, 2021 and 2020, respectively, and$135.5 million and$108.5 million during the six months endedJune 30, 2021 and 2020, respectively. (d)B2B subscription revenue represents revenue from (i) services provided to SOHO subscribers and (ii) mobile services provided to medium and large enterprises. SOHO subscribers pay a premium price to receive expanded service levels along with broadband internet, video fixed-line telephony or mobile services that are the same or similar to the mass marketed products offered to our residential subscribers. A portion of the increase in our B2B subscription revenue is attributable to the conversion of certain residential subscribers to SOHO subscribers. B2B non-subscription revenue includes (a) revenue from business broadband internet, video, fixed-line telephony and data services offered to medium to large enterprises and, on a wholesale basis, to other operators and (b) revenue from long-term leases of portions of our network. 62 -------------------------------------------------------------------------------- (e)Other revenue includes, among other items, (i) revenue earned from theU.K. JV Services, the NL JV Services and the sale of customer premises equipment to the VodafoneZiggo JV, (ii) broadcasting revenue inBelgium andIreland and (iii) revenue earned from transitional and other services provided to various third parties. Total revenue. Our consolidated revenue increased$382.6 million or 14.1% and$1,122.1 million or 20.0% during the three and six months endedJune 30, 2021 , respectively, as compared to the corresponding periods in 2020. These increases include increases of$488.9 million and$975.5 million , respectively, attributable to the impact of the Sunrise Acquisition and decreases of$479.6 million and$487.2 million , respectively, attributable to the impact of theU.K. JV Transaction. On an organic basis, our consolidated revenue increased$88.4 million or 3.2% and$83.7 million or 1.4%, respectively.
Residential revenue. The details of the increases in our consolidated
residential revenue during the three and six months ended
Three-month Six-month
period period
in millions
Increase (decrease) in residential cable subscription revenue due to change in: Average number of customers
$ 8.1 $ 12.7
ARPU (8.5) (53.4)
Increase in residential cable non-subscription revenue 14.8 15.9
Total increase (decrease) in residential cable revenue 14.4 (24.8)
Increase in residential mobile subscription revenue 17.6 17.8
Increase (decrease) in residential mobile non-subscription revenue
(17.2) 2.1 Total organic increase (decrease) in residential revenue 14.8 (4.9) Impact of acquisitions and dispositions (9.0) 376.2 Impact of FX 186.4 416.1 Total increase in residential revenue $
192.2
On an organic basis, our consolidated residential cable subscription revenue remained relatively unchanged during the three months endedJune 30, 2021 and decreased$40.7 million or 1.2% during the six months endedJune 30, 2021 as compared to the corresponding periods in 2020, primarily attributable to the net effect of (i) decreases inSwitzerland and (ii) changes in theU.K. On an organic basis, our consolidated residential cable non-subscription revenue increased$14.8 million or 52.9% and$15.9 million or 20.0% during the three and six months endedJune 30, 2021 , respectively, as compared to the corresponding periods in 2020, primarily due to increases in theU.K. On an organic basis, our consolidated residential mobile subscription revenue increased$17.6 million or 4.6% and$17.8 million or 2.2% during the three and six months endedJune 30, 2021 , respectively, as compared to the corresponding periods in 2020, primarily attributable to increases inSwitzerland . On an organic basis, our consolidated residential mobile non-subscription revenue increased (decreased) ($17.2 million ) or (8.7%) and$2.1 million or 0.5% during the three and six months endedJune 30, 2021 , respectively, as compared to the corresponding periods in 2020, primarily due to the net effect of (i) increases in theU.K. and (ii) decreases inSwitzerland andBelgium . B2B revenue. On an organic basis, our consolidated B2B subscription revenue increased$7.6 million or 5.1% and$18.8 million or 6.0% during the three and six months endedJune 30, 2021 , respectively, as compared to the corresponding periods in 2020, primarily attributable to increases in theU.K. andBelgium . On an organic basis, our consolidated B2B non-subscription revenue increased$26.5 million or 8.2% and$31.5 million or 4.4% during the three and six months endedJune 30, 2021 , respectively, as compared to the corresponding periods in 2020, primarily due to increases in theU.K. ,Switzerland andBelgium . 63 --------------------------------------------------------------------------------
Other revenue. On an organic basis, our consolidated other revenue increased
For additional information concerning the changes in our residential, B2B and other revenue, see Discussion and Analysis of our Reportable Segments above.
Programming and other direct costs of services
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 represent a significant portion of our operating costs and are subject to
rise in future periods due to various factors, including (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 and (ii) rate increases.
The details of our programming and other direct costs of services are as
follows:
Three months ended
June 30, Increase (decrease) Organic increase (decrease)
2021 2020 $ % $ %
in millions, except percentages
U.K. (a)$ 339.6 $ 428.3 $ (88.7) (20.7) $ 21.8 7.8 Belgium 168.8 142.4 26.4 18.5 12.0 8.4 Switzerland 264.3 54.7 209.6 383.2 4.9 2.0 Ireland 36.9 28.8 8.1 28.1 4.8 16.7 Central and Eastern Europe 32.0 30.4 1.6 5.3 (1.1) (3.6) Central and Corporate 34.6 31.9 2.7 8.5 (3.0) (9.4) Intersegment eliminations (3.2) (1.5) (1.7) N.M. (1.7) N.M. Total$ 873.0 $ 715.0 $ 158.0 22.1 $ 37.7 5.0 Six months ended June 30, Increase (decrease) Organic increase (decrease) 2021 2020 $ % $ % in millions, except percentages
U.K. (a)$ 868.1 $ 906.2 $ (38.1) (4.2) $ 34.6 4.6 Belgium 348.3 331.3 17.0 5.1 (12.5) (3.8) Switzerland 546.6 140.9 405.7 287.9 (6.5) (1.2) Ireland 82.2 67.9 14.3 21.1 7.2 10.6 Central and Eastern Europe 65.6 60.2 5.4 9.0 1.0 1.7 Central and Corporate 78.2 65.6 12.6 19.2 (0.8) (1.2) Intersegment eliminations (5.4) (2.0) (3.4) N.M. (3.4) N.M. Total$ 1,983.6 $ 1,570.1 $ 413.5 26.3 $ 19.6 1.1 _______________ N.M. - Not Meaningful.
(a)Represents the programming and other direct costs of the
64
--------------------------------------------------------------------------------
Our programming and other direct costs of services increased $158.0 million or
22.1% and $413.5 million or 26.3% during the three and six months ended June 30,
2021 , respectively, as compared to the corresponding periods in 2020. These
increases include increases of $189.8 million and $379.3 million , respectively,
attributable to the impact of the Sunrise Acquisition and decreases of $148.3
million and $150.7 million , respectively, attributable to the impact of the U.K.
JV Transaction. On an organic basis, our programming and other direct costs of
services increased $37.7 million or 5.0% and $19.6 million or 1.1%,
respectively. These increases include the following factors:
•Increases in programming and copyright costs of $45.8 million or 12.8% and
$38.0 million or 4.6%, respectively, primarily due to increases in the U.K. ,
Belgium , Ireland and Switzerland attributable to higher costs for certain
premium and/or basic content. The higher costs in the U.K. include increases of
$12.5 million and $14.1 million , respectively, related to the net impact of
credits received during the second quarters of 2020 and 2021 in connection with
(i) the pausing or cancellation of certain sporting events due to the COVID-19
pandemic during 2020, which offset the aforementioned revenue increases, and
(ii) the loss of certain content. In Belgium and Switzerland , the higher costs
for the three-month comparison include increases of $10.6 million and
$4.8 million , respectively, associated with the impact of the acceleration of
certain costs for sports rights during the second quarter of 2020 as a result of
the COVID-19 pandemic. In this respect, certain sports leagues in Belgium and
Switzerland were cancelled during 2020. Accordingly, the prepaid amounts for the
associated sports rights that were previously scheduled to be expensed during
the second quarter of 2020 were recognized during the first quarter of 2020;
•An increase (decrease) in interconnect and access costs of $3.8 million or 2.0%
and ($29.9 million ) or (7.4%), respectively, primarily due to the net effect of
(i) lower interconnect and mobile roaming costs, primarily due to decreases in
Belgium , the U.K. and Switzerland , (ii) higher leased tower costs in Switzerland
and (iii) lower MVNO costs, as decreases in the U.K. were only partially offset
by increases in Ireland . Across all of our markets, interconnect and mobile
roaming costs have been impacted by changes in usage per subscriber associated
with factors such as lower travel and the use of WiFi alternatives during the
COVID-19 pandemic; and
•An increase (decrease) in mobile handset and other device costs of ($14.1
million ) or (18.6%) and $1.4 million or 0.9%, respectively, primarily due to the
net effect of (i) higher average costs per handset sold in the U.K. and (ii)
lower sales volumes, as decreases in Switzerland were only partially offset by
increases in the U.K.
65
--------------------------------------------------------------------------------Other operating expenses
Other operating expenses include network operations, customer operations, customer care, share-based compensation and other costs related to our operations. We do not include share-based compensation in the following discussion and analysis of the other operating expenses of our consolidated reportable segments as share-based compensation expense is not included in the performance measures of our consolidated reportable segments. Share-based compensation expense is separately discussed further below. The details of our other operating expenses are as follows:
Three months ended
June 30, Increase (decrease) Organic increase (decrease)
2021 2020 $ % $ %
in millions, except percentages
U.K. (a) $ 162.2 $ 206.0 $ (43.8) (21.3) $ 4.5 3.2
Belgium 113.8 94.9 18.9 19.9 8.8 9.3
Switzerland 106.0 45.5 60.5 133.0 - -
Ireland 24.1 22.2 1.9 8.6 - -
Central and Eastern Europe 18.7 15.7 3.0 19.1 1.5 9.6
Central and Corporate 18.3 13.1 5.2 39.7 (2.9) (22.1)
Intersegment eliminations 2.7 2.1 0.6 N.M. 0.6 N.M.
Total other operating expenses excluding
share-based compensation expense 445.8 399.5 46.3 11.6 $ 12.5 3.2
Share-based compensation expense 7.6 1.6 6.0 375.0 Total$ 453.4 $ 401.1 $ 52.3 13.0 Six months ended June 30, Increase (decrease) Organic increase
(decrease)
2021 2020 $ % $ %
in millions, except percentages
U.K. (a)$ 405.9 $ 424.5 $ (18.6) (4.4) $ 12.0 3.4 Belgium 228.5 188.1 40.4 21.5 20.2 10.7 Switzerland 212.4 91.9 120.5 131.1 (1.4) (0.7) Ireland 48.5 45.2 3.3 7.3 (0.8) (1.8) Central and Eastern Europe 36.7 32.1 4.6 14.3 2.4 7.5 Central and Corporate 33.5 35.0 (1.5) (4.3) (5.7) (16.3) Intersegment eliminations 3.2 2.1 1.1 N.M. 1.1
N.M.
Total other operating expenses excluding share-based compensation expense 968.7 818.9 149.8 18.3 $ 27.8
3.2
Share-based compensation expense 8.8 2.3 6.5 282.6 Total$ 977.5 $ 821.2 $ 156.3 19.0 _______________ N.M. - Not Meaningful.
(a)Represents the other operating expenses of the
66
--------------------------------------------------------------------------------
Our other operating expenses (exclusive of share-based compensation expense)
increased $46.3 million or 11.6% and $149.8 million or 18.3% during the three
and six months ended June 30, 2021 , respectively, as compared to the
corresponding periods in 2020. These increases include increases of $53.3
million and $106.2 million , respectively, attributable to the impact of the
Sunrise Acquisition and decreases of $64.7 million and $65.7 million ,
respectively, attributable to the impact of the U.K. JV Transaction. On an
organic basis, our other operating expenses increased $12.5 million or 3.2% and
$27.8 million or 3.2%, respectively. These increases include the following
factors:
•Increases in personnel costs of $2.9 million or 2.3% and $13.8 million or 5.4%,
respectively, primarily due to the net effect of (i) higher staffing levels,
primarily due to increases in Central and Corporate, Switzerland , U.K. and
Belgium , (ii) lower costs due to higher capitalizable activities in the U.K. and
(iii) lower average costs per employee for the three-month comparison and higher
average costs per employee for the six-month comparison resulting from decreases
in Central and Corporate and a decrease for the three-month comparison and an
increase for the six-month comparison in the U.K. ; and
•Increases in customer service costs of $9.1 million or 19.4% and $10.7 million
or 9.5%, respectively, primarily due to higher call center costs in the U.K. and
Belgium . The higher call center costs in the U.K. are primarily due to the
impact of lockdowns during the second quarter of 2020 associated with the
COVID-19 pandemic, which prevented certain outsourced contract services from
being performed during such period.
SG&A expenses
SG&A expenses include human resources, information technology, general services, management, finance, legal, external sales and marketing costs, share-based compensation and other general expenses. We do not include share-based compensation in the following discussion and analysis of the SG&A expenses of our consolidated reportable segments as share-based compensation expense is not included in the performance measures of our consolidated reportable segments. Share-based compensation expense is separately discussed further below.
The details of our SG&A expenses are as follows:
Three months ended
June 30, Increase (decrease) Organic increase
2021 2020 $ % $ %
in millions, except percentages
U.K. (a)$ 154.7 $ 181.3 $ (26.6) (14.7)$ 14.7 12.0 Belgium 102.6 91.1 11.5 12.6 2.6 2.9 Switzerland 156.6 48.0 108.6 226.3 2.6 1.8 Ireland 19.1 15.0 4.1 27.3 2.4 16.0 Central and Eastern Europe 20.0 17.4 2.6 14.9 1.2 6.9 Central and Corporate 84.6 72.6 12.0 16.5 1.9 2.6 Intersegment eliminations (3.6) (5.5) 1.9 N.M. 1.9 N.M. Total SG&A expenses excluding share-based compensation expense 534.0 419.9 114.1 27.2$ 27.3
5.9
Share-based compensation expense 92.2 82.2 10.0 12.2 Total$ 626.2 $ 502.1 $ 124.1 24.7 67
--------------------------------------------------------------------------------
Six months ended
June 30, Increase Organic increase (decrease)
2021 2020 $ % $ %
in millions, except percentages
U.K. (a)$ 377.1 $ 374.3 $ 2.8 0.7 $ 28.3 9.0 Belgium 209.3 195.5 13.8 7.1 (4.1) (2.1) Switzerland 328.1 98.1 230.0 234.5 15.7 5.4 Ireland 37.9 33.4 4.5 13.5 1.2 3.6 Central and Eastern Europe 40.0 36.0 4.0 11.1 1.8 5.0 Central and Corporate 164.1 143.4 20.7 14.4 4.8 3.3 Intersegment eliminations (8.0) (9.8) 1.8 N.M. 1.8 N.M. Total SG&A expenses excluding share-based compensation expense 1,148.5 870.9 277.6 31.9 $ 49.5
4.9
Share-based compensation expense 154.4 136.7 17.7 12.9 Total$ 1,302.9 $ 1,007.6 $ 295.3 29.3 _______________ N.M. - Not Meaningful.
(a)Represents the SG&A expenses of the
Supplemental SG&A expense information
Three months ended
June 30, Increase Organic increase
2021 2020 $ % $ %
in millions, except percentages
General and administrative (a) $ 418.3 $ 334.8 $ 83.5 24.9 $ 24.2 6.8
External sales and marketing 115.7 85.1 30.6 36.0 3.1 3.0
Total $ 534.0 $ 419.9 $ 114.1 27.2 $ 27.3 5.9
Six months ended
June 30, Increase Organic increase
2021 2020 $ % $ %
in millions, except percentages
General and administrative (a) $ 893.0 $ 691.3 $ 201.7 29.2 $ 44.0 5.7
External sales and marketing 255.5 179.6 75.9 42.3 5.5 2.4
Total $ 1,148.5 $ 870.9 $ 277.6 31.9 $ 49.5 4.9
_______________
(a)General and administrative expenses include all personnel-related costs within our SG&A expenses, including personnel-related costs associated with our sales and marketing function.
Our SG&A expenses (exclusive of share-based compensation expense) increased$114.1 million or 27.2% and$277.6 million or 31.9% during the three and six months endedJune 30, 2021 , respectively, as compared to the corresponding periods in 2020. These increases include increases of$97.6 million and$194.5 million , respectively, attributable to the impact of the Sunrise Acquisition and decreases of$57.0 million and$57.9 million , respectively, attributable to the impact of theU.K. JV Transaction. On an organic basis, our SG&A expenses increased$27.3 million or 5.9% and$49.5 million or 4.9%, respectively. These increases include the following factors: 68 -------------------------------------------------------------------------------- •Increases in personnel costs of$16.7 million or 8.2% and$29.9 million or 7.3%, respectively, primarily due to the net effect of (i) higher staffing levels, primarily due to increases in Central and Corporate that were only partially offset by decreases in theU.K. , (ii) higher incentive compensation costs, primarily due to increases in theU.K. , Central and Corporate,Switzerland andBelgium , (iii) increases in temporary personnel costs in theU.K. and (iv) higher average costs per employee for the three-month comparison and lower average costs per employee for the six-month comparison, primarily due to decreases in Central and Corporate and increases in theU.K. andBelgium ;
•Increases in core network and information technology-related costs of
•Increases in external sales and marketing costs of$3.1 million or 3.0% and$5.5 million or 2.4%, respectively, primarily due to higher costs associated with advertising campaigns in theU.K. andIreland ; and •An increase (decrease) in business service costs of$8.8 million or 23.6% and ($0.2 million ) or (0.2%), primarily due the net effect of (i) higher consulting costs primarily in theU.K. and (ii) for the six-month comparison, a decrease in travel and entertainment expenses as a result of the COVID-19 pandemic, primarily in Central and Corporate and theU.K.
Share-based compensation expense
Our share-based compensation expense primarily relates to the share-based incentive awards issued byLiberty Global to its employees and employees of its subsidiaries. A summary of our aggregate share-based compensation expense is set forth below: Three months ended Six months ended June 30, June 30, 2021 2020 2021 2020 in millions Liberty Global: Performance-based incentive awards (a)$ 14.4
59.4 47.8 84.8 66.1
Other (c) 7.6 6.0 15.0 12.2
Total Liberty Global 81.4 75.4 138.2 127.6
Other (d) 18.4 8.4 25.0 11.4
Total $ 99.8 $ 83.8 $ 163.2 $ 139.0
Included in:
Other operating expense $ 7.6 $ 1.6 $ 8.8 $ 2.3
SG&A expense 92.2 82.2 154.4 136.7
Total $ 99.8 $ 83.8 $ 163.2 $ 139.0
_______________
(a)Includes share-based compensation expense related to (i) PSUs, (ii) our 2019 CEO Performance Award and (iii) our 2019 Challenge Performance Awards.
(b)InApril 2021 with respect to 2014 and 2015 grants andApril 2020 with respect to 2013 grants, the compensation committee of our board of directors approved the extension of the expiration dates of outstanding SARs and director options from a seven-year term to a ten-year term. Accordingly, the Black-Scholes fair values of the outstanding awards increased, resulting in the recognition of an aggregate incremental share-based compensation expense of$22.7 million and$18.9 million during the second quarters of 2021 and 2020, respectively. (c)Represents annual incentive compensation and defined contribution plan liabilities that have been or are expected to be settled withLiberty Global ordinary shares. In the case of the annual incentive compensation, shares have been or will be issued to senior management and key employees pursuant to a shareholding incentive program. The shareholding incentive program allows these employees to elect to receive up to 100% of their annual incentive compensation in 69 --------------------------------------------------------------------------------
ordinary shares of
(d)Amounts primarily relate to share-based compensation expense associated with Telenet's share-based incentive awards.
For additional information regarding our share-based compensation expense, see note 13 to our condensed consolidated financial statements.
Depreciation and amortization expense
Our depreciation and amortization expense was$580.5 million and$1,214.7 million for the three and six months endedJune 30, 2021 , respectively, and$545.7 million and$1,329.2 million for the three and six months endedJune 30, 2020 , respectively. Excluding the effects of FX, depreciation and amortization expense decreased$11.3 million or 2.1% and$203.8 million or 15.3% during the three and six months endedJune 30, 2021 , respectively, as compared to the corresponding periods in 2020. These decreases are primarily due to the net effect of (i) decreases in theU.K. of$153.6 million and$567.1 million , respectively, as a result of the held-for-sale presentation of theU.K. JV Entities effectiveMay 7, 2020 , (ii) increases due to the Sunrise Acquisition, (iii) increases associated with property and equipment additions related to the installation of customer premises equipment, the expansion and upgrade of our networks and other capital initiatives, primarily in Central and Corporate andBelgium , and (iv) decreases associated with certain assets becoming fully depreciated, primarily in Central and Corporate,Switzerland andBelgium . For information regarding the held-for-sale presentation of theU.K. JV Entities prior to the completion of theU.K. JV Transaction, see note 4 to our condensed consolidated financial statements.
Impairment, restructuring and other operating items, net
We recognized impairment, restructuring and other operating items, net, of$6.9 million and$51.3 million during the three and six months endedJune 30, 2021 , respectively, and$32.2 million and$63.2 million during the three and six months endedJune 30, 2020 , respectively. The amounts for the 2021 periods include (i) restructuring charges of$26.0 million and$57.3 million , respectively, including$22.0 million and$50.4 million , respectively of employee severance and termination costs related to certain reorganization activities, primarily inSwitzerland and Central and Corporate, (ii) a$38.0 million gain in Central and Corporate during the second quarter of 2021 associated with a provision release related to a legal contingency and (iii) direct acquisition and disposition costs of$11.2 million and$29.6 million , respectively, primarily related to costs incurred in connection with the formation of the VMED O2 JV. The amounts for the 2020 periods include (i) restructuring charges of$15.4 million and$36.6 million , respectively, including$8.5 million and$28.3 million , respectively, of employee severance and termination costs related to certain reorganization activities, primarily inSwitzerland ,U.K. and Central and Corporate, (ii) direct acquisition and disposition costs of$13.7 million and$20.0 million , respectively, primarily related to costs incurred in connection with the formation of the VMED O2 JV, and (iii) for the six-month period, impairment charges of$6.2 million , primarily inBelgium . If, among other factors, (i) our equity values were to decline or (ii) the adverse impacts of economic, competitive, regulatory or other factors 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 our goodwill and, to a lesser extent, other long-lived assets. Any such impairment charges could be significant.
Interest expense
We recognized interest expense of$273.0 million and$608.1 million during the three and six months endedJune 30, 2021 , respectively, and$281.7 million and$595.0 million during the three and six months endedJune 30, 2020 , respectively. Excluding the effects of FX, interest expense decreased$48.3 million or 21.6% and$74.0 million or 13.8% during the three and six months endedJune 30, 2021 , respectively, as compared to the corresponding periods in 2020. These decreases are primarily attributable to lower weighted average interest rates, partially offset by higher average outstanding debt balances. For additional information regarding our outstanding indebtedness, see note 9 to our condensed consolidated financial statements. 70 -------------------------------------------------------------------------------- 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 6 to our condensed consolidated financial statements and under Quantitative and Qualitative Disclosures about Market Risk below, 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 Six months ended
June 30, June 30,
2021 2020 2021 2020
in millions
Cross-currency and interest rate derivative
contracts (a) $ (297.5) $ (309.4) $ 487.1 $ 532.9
Equity-related derivative instruments:
ITV Collar (1.2) (33.1) (11.8) 350.3
Other 0.2 20.3 35.3 27.3
Total equity-related derivative instruments (b) (1.0) (12.8) 23.5 377.6
Foreign currency forward and option contracts (6.8) 1.7 (4.7) 7.4
Other 2.2 0.8 2.1 (0.3)
Total $ (303.1) $ (319.7) $ 508.0 $ 917.6
_______________
(a)The results for the 2021 periods are primarily attributable to the net effect
of (i) net gains associated with changes in certain market interest rates and
(ii) a net loss for the three-month period and a net gain for the six-month
period associated with changes in the relative value of certain currencies. In
addition, the results for the 2021 periods include a net gain (loss) of $38.2
million and ($0.8 million ), respectively, resulting from changes in our credit
risk valuation adjustments. The results for the 2020 periods are primarily
attributable to the net effect of (a) a net loss for the three-month period and
a net gain for the six-month period associated with changes in the relative
value of certain currencies and (b) a net loss for the three-month period and a
net gain for the six-month period associated with changes in certain market
interest rates. In addition, the results for the 2020 periods include net gains
of $5.4 million and $71.7 million , respectively, resulting from changes in our
credit risk valuation adjustments.
(b)The recurring fair value measurements of our equity-related derivative instruments are based on Black-Scholes pricing models.
For additional information concerning our derivative instruments, see notes 6
and 7 to our condensed consolidated financial statements and Part I, Item 3.
Quantitative and Qualitative Disclosures about Market Risk below.
71
--------------------------------------------------------------------------------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 Six months ended
June 30, June 30,
2021 2020 2021 2020
in millions
Intercompany payables and receivables denominated in a
currency other than the entity's functional currency (a)
108.0 (53.7) 198.1 (349.4)
47.7 98.1 (87.1) 28.9
Euro-denominated debt issued by British pound sterling functional currency entities
(6.4) 8.3 24.1 30.5
British pound sterling-denominated debt issued by a
- 1.9 - 88.9
Other (31.2) (34.5) (95.9) (48.3)
Total $ 133.3 $ (478.0) $ 436.4 $ (86.3)
_______________
(a)Amounts primarily relate to (i) loans between certain of our non-operating
and operating subsidiaries in Europe , which generally are denominated in the
currency of the applicable operating subsidiary and (ii) loans between certain
of our non-operating subsidiaries in the U.S. and Europe .
Realized and unrealized gains (losses) due to changes in fair values of certain investments and debt, net
Our realized and unrealized gains or losses due to changes in fair values of
certain investments and debt include unrealized gains or losses associated with
changes in fair values that are non-cash in nature until such time as these
gains or losses are realized through cash transactions. For additional
information regarding our investments, fair value measurements and debt, see
notes 5, 7 and 9, respectively, to our condensed consolidated financial
statements. The details of our realized and unrealized gains (losses) due to
changes in fair values of certain investments and debt, net, are as follows:
Three months ended Six months ended
June 30, June 30,
2021 2020 2021 2020
in millions
Investments:
Univision $ 155.4 $ - $ 155.4 $ -
ITV 29.7 42.2 109.5 (429.7)
Lionsgate 36.8 8.5 57.6 (20.9)
Plume - 29.6 55.1 29.6
Lacework 48.8 - 48.8 -
Skillz 21.3 45.4 21.3 45.4
EdgeConneX 4.7 - 17.8 -
Other, net (8.6) 15.9 17.2 (10.8)
Total investments 288.1 141.6 482.7 (386.4)
Debt - 10.7 - 8.9
Total $ 288.1 $ 152.3 $ 482.7 $ (377.5)
72--------------------------------------------------------------------------------
Losses on debt extinguishment, net
We recognized net losses on debt extinguishment of$90.6 million and$165.6 million during the three months endedJune 30, 2021 and 2020, respectively, and$90.6 million and$220.1 million during the six months endedJune 30, 2021 and 2020, respectively. The loss during the six months endedJune 30, 2021 is attributable to (i) the write-off of$77.7 million of unamortized deferred financing costs and discounts and (ii) the payment of$12.9 million of redemption premiums, all of which occurred during the second quarter. The loss during the six months endedJune 30, 2020 is primarily attributable to (i) the payment of$188.2 million of redemption premiums (including$157.5 million during the second quarter) and (ii) the write-off of$35.2 million of net unamortized deferred financing costs, discounts and premiums (including$11.4 million during the second quarter).
For additional information concerning our losses on debt extinguishment, see note 9 to our condensed consolidated financial statements.
Share of results of affiliates, net
The following table sets forth the details of our share of results of
affiliates, net:
Three months ended Six months ended
June 30, June 30,
2021 2020 2021 2020
in millions
All3Media $ (5.8) $ (14.9) $ (14.8) $ (39.8)
VodafoneZiggo JV (a) 4.7 (89.2) 9.4 (28.1)
Formula E (4.3) 1.9 4.4 0.7
VMED O2 JV (b) (0.3) - (0.3) -
Other (2.4) (3.2) (5.1) (4.8)
Total $ (8.1) $ (105.4) $ (6.4) $ (72.0)
_______________
(a)Amounts include the net effect of (i) interest income of $13.6 million , $10.8
million , $27.0 million and $21.6 million , respectively, representing 100% of the
interest earned on the VodafoneZiggo JV Receivables and (ii) our 50% share of
the results of operations of the VodafoneZiggo JV. The summarized results of
operations of the VodafoneZiggo JV are set forth below:
Three months ended Six months ended
June 30, June 30,
2021 2020 2021 2020
in millions
Revenue $ 1,215.3 $ 1,081.6 $ 2,432.3 $ 2,178.7
Adjusted EBITDA $ 570.1 $ 531.5 $ 1,135.3 $ 1,034.3
Operating income $ 82.4 $ 69.8 $ 186.7 $ 151.2
Non-operating expense (1) $ (102.0) $ (221.6) $ (227.7) $ (178.1)
Net loss $ (15.5) $ (185.4) $ (31.6) $ (85.7)
_______________
(1)Includes interest expense of
73
--------------------------------------------------------------------------------
(b)Amounts include (i) 100% of the share-based compensation expense associated
with Liberty Global awards held by VMED O2 JV employees who were formerly
employees of Liberty Global , as these awards remain our responsibility, and (ii)
our 50% share of the results of operations of the VMED O2 JV beginning June 1,
2021 . The summarized results of operations of the VMED O2 JV for the period June
1, 2021 through June 30, 2021 are set forth below (in millions):
Revenue $ 1,208.5
Adjusted EBITDA $ 411.0
Operating income $ 8.6
Non-operating expense (1) $ (174.6)
Net loss $ (34.6)
_______________
(1)Includes interest expense of
Gain on the
In connection with theU.K. JV Transaction, we recognized a pre-tax gain during the three months endedJune 30, 2021 of$11.1 billion , net of the recognition of a cumulative foreign currency translation loss of$1.2 billion . For additional information, see note 4 to our condensed consolidated financial statements.
Other income, net
We recognized other income, net, of$7.2 million and$9.5 million for the three months endedJune 30, 2021 and 2020, respectively, and$17.3 million and$61.9 million for the six months endedJune 30, 2021 and 2020, respectively. These amounts include (i) credits related to the non-service components of our net periodic pension costs of$7.6 million and$4.3 million during the three-month periods, respectively, and$16.2 million and$8.8 million during the six-month periods, respectively, and (ii) interest and dividend income of$3.0 million and$10.8 million during the three-month periods, respectively and$7.0 million and$42.4 million during the six-month periods, respectively.
Income tax expense
We recognized income tax benefit (expense) of (
The income tax expense during the three months endedJune 30, 2021 differs from the expected income tax expense of$2,176.8 million (based on theU.K. statutory income tax rate of 19.0%) primarily due to the positive impact of the non-taxable gain associated with theU.K. JV Transaction. The income tax benefit during the three months endedJune 30, 2020 differs from the expected income tax benefit of$115.8 million (based on theU.K. blended income tax rate of 17.5%) primarily due to the net positive impact of the recognition of previously unrecognized tax benefits. The net positive impact of this item was partially offset by the negative impact of (i) non-deductible or non-taxable foreign currency exchange results and (ii) certain permanent differences between the financial and tax accounting treatment of interest and other items.
We recognized income tax benefit (expense) of (
The income tax expense during the six months endedJune 30, 2021 differs from the expected income tax expense of$2,482.9 million (based on theU.K. statutory income tax rate of 19.0%) primarily due to the positive impact of the non-taxable gain associated with theU.K. JV Transaction. The income tax benefit during the six months endedJune 30, 2020 differs from the expected income tax expense of$76.3 million (based on theU.K. blended income tax rate of 17.5%) primarily due to the net positive impact of (i) the recognition of previously unrecognized tax benefits, (ii) non-deductible or non-taxable foreign currency exchange results and (iii) tax benefits associated with technology innovation incentives. The net positive impact of these items was partially offset by the negative impact of (a) a net increase in valuation allowances and (b) certain permanent differences between the financial and tax accounting treatment of interest and other items. 74 --------------------------------------------------------------------------------
For additional information concerning our income taxes, see note 11 to our condensed consolidated financial statements.
Net earnings (loss)
During the three months endedJune 30, 2021 and 2020, we reported net earnings (loss) of$11,174.5 million and ($503.8 million ), respectively, consisting of (i) operating income of$565.5 million and$526.8 million , respectively, (ii) net non-operating income (expense) of$10,891.8 million and ($1,188.6 million ), respectively, and (iii) income tax benefit (expense) of ($282.8 million ) and$158.0 million , respectively. During the six months endedJune 30, 2021 and 2020, we reported net earnings of$12,614.8 million and$513.9 million , respectively, consisting of (i) operating income of$1,190.8 million and$807.4 million , respectively, (ii) net non-operating income (expense) of$11,877.3 million and ($371.4 million ), respectively, and (iii) income tax benefit (expense) of ($453.3 million ) and$77.9 million , respectively. Gains or losses associated with (i) changes in the fair values of derivative instruments, (ii) movements in foreign currency exchange rates and (iii) the disposition of assets and changes in ownership 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 operating income to a level that more than offsets the aggregate amount of our (a) interest expense, (b) other non-operating expenses and (c) income tax expense. Due largely to the fact that we seek to maintain our debt at levels that provide for attractive equity returns, as discussed below under Material Changes in Financial Condition - Capitalization, we expect we will continue to report significant levels of interest expense for the foreseeable future. For information concerning our expectations with respect to trends that may affect certain aspects of our operating results in future periods, see the discussion under Overview above. For information concerning the reasons for changes in specific line items in our condensed consolidated statements of operations, see Discussion and Analysis of our Reportable Segments and Discussion and Analysis of our Consolidated Operating Results above.
Net earnings attributable to noncontrolling interests
Net earnings attributable to noncontrolling interests decreased$25.9 million and$12.9 million during the three and six months endedJune 30, 2021 , respectively, as compared to the corresponding period in 2020, attributable to the results of operations of Telenet. 75 --------------------------------------------------------------------------------
Material Changes in Financial Condition
Sources and Uses of Cash
We are a holding company that is dependent on the capital resources of our subsidiaries to satisfy our liquidity requirements at the corporate level. Each of our significant operating subsidiaries is separately financed within one of our three subsidiary "borrowing groups." These borrowing groups include the respective restricted parent and subsidiary entities withinUPC Holding , Telenet and VM Ireland. Although our borrowing groups typically generate cash from operating activities, the terms of the instruments governing the indebtedness of these borrowing groups may restrict our ability to access the liquidity of these subsidiaries. In addition, our ability to access the liquidity of these and other subsidiaries may be limited by tax and legal considerations, the presence of noncontrolling interests and other factors.
Cash and cash equivalents
The details of theU.S. dollar equivalent balances of our consolidated cash and cash equivalents atJune 30, 2021 are set forth in the following table (in millions): Cash and cash equivalents held by:Liberty Global and unrestricted subsidiaries:Liberty Global (a)$ 28.9 Unrestricted subsidiaries (b) 641.5 TotalLiberty Global and unrestricted subsidiaries 670.4 Borrowing groups (c): Telenet 112.4UPC Holding 83.4 VM Ireland 8.1 Total borrowing groups 203.9 Total cash and cash equivalents$ 874.3
_______________
(a)Represents the amount held by
(b)Represents the aggregate amount held by subsidiaries that are outside of our borrowing groups.
(c)Represents the aggregate amounts held by the parent entity and restricted
subsidiaries of our borrowing groups, unless otherwise noted.
Liquidity of
The$28.9 million of cash and cash equivalents held byLiberty Global and, subject to certain tax and legal considerations, the$641.5 million of aggregate cash and cash equivalents held by unrestricted subsidiaries, together with the$3,239.5 million of investments held under SMAs, represented available liquidity at the corporate level atJune 30, 2021 . Our remaining cash and cash equivalents of$203.9 million atJune 30, 2021 were held by our borrowing groups, as set forth in the table above. As noted above, various factors may limit our ability to access the cash of our borrowing groups. For information regarding certain limitations imposed by our subsidiaries' debt instruments atJune 30, 2021 , see note 9 to our condensed consolidated financial statements. Our current sources of corporate liquidity include (i) cash and cash equivalents held byLiberty Global and, subject to certain tax and legal considerations,Liberty Global's unrestricted subsidiaries, (ii) investments held under SMAs, (iii) interest and dividend income received on our and, subject to certain tax and legal considerations, our unrestricted subsidiaries' cash and cash equivalents and investments, including dividends received from the VodafoneZiggo JV or the VMED O2 JV, (iv) cash received with respect to transitional and other services provided to various third parties and (v) interest payments received with respect to the VodafoneZiggo JV Receivables. 76 -------------------------------------------------------------------------------- From time to time,Liberty Global and its unrestricted subsidiaries may also receive (i) proceeds in the form of distributions or loan repayments fromLiberty Global's borrowing groups or affiliates (including amounts from the VodafoneZiggo JV or the VMED O2 JV) 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 ofLiberty Global and its unrestricted subsidiaries and (iii) proceeds in connection with the incurrence of debt byLiberty Global or its unrestricted subsidiaries or the issuance of equity securities byLiberty Global , including equity securities issued to satisfy subsidiary obligations. No assurance can be given that any external funding would be available toLiberty Global or its unrestricted subsidiaries on favorable terms, or at all. AtJune 30, 2021 , our consolidated cash and cash equivalents balance included$845.4 million held by entities that are domiciled outside of theU.K. Based on our assessment of our ability to access the liquidity of our subsidiaries on a tax efficient basis and our expectations with respect to our corporate liquidity requirements, we do not anticipate that tax considerations will adversely impact our corporate liquidity over the next 12 months. Our ability to access the liquidity of our subsidiaries on a tax efficient basis is a consideration in assessing the extent of our share repurchase program. In addition, the amount of cash we receive from our subsidiaries to satisfyU.S. dollar-denominated liquidity requirements is impacted by fluctuations in exchange rates, particularly with regard to the translation of British pounds sterling and euros intoU.S. dollars. In this regard, the strengthening (weakening) of theU.S. dollar against these currencies will result in decreases (increases) in theU.S. dollars received from the applicable subsidiaries to fund the repurchase of our equity securities and otherU.S. dollar-denominated liquidity requirements. Our corporate liquidity requirements include corporate general and administrative expenses and, from time to time, cash requirements in connection with (i) the repayment of third-party and intercompany debt, (ii) the satisfaction of contingent liabilities, (iii) acquisitions, (iv) the repurchase of equity and debt securities, (v) other investment opportunities, (vi) any funding requirements of our subsidiaries and affiliates or (vii) income tax payments. In addition, our parent entity uses available liquidity to make interest and principal payments on notes payable to certain of our unrestricted subsidiaries (aggregate outstanding principal of$10.4 billion atJune 30, 2021 with varying maturity dates). During the six months endedJune 30, 2021 , the aggregate amount of our share repurchases was$668.6 million , including direct acquisition costs. AtJune 30, 2021 , the remaining amount authorized for share repurchases under our existing repurchase program was$334.8 million . InJuly 2021 , our board of directors authorized a new share repurchase program. For additional information, see note 12 to our condensed consolidated financial statements.
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 our borrowing groups atJune 30, 2021 , 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 fromLiberty Global and its unrestricted subsidiaries. The liquidity of our borrowing groups generally is used to fund (i) property and equipment additions, (ii) debt service requirements and (iii) income tax payments, as well as to settle certain obligations that are not included on ourJune 30, 2021 condensed consolidated balance sheet. In this regard, we have significant commitments related to (a) programming, studio output and sports rights contracts, (b) certain operating costs associated with our networks and (c) purchase obligations associated with customer premises equipment and certain service-related commitments. These obligations are expected to represent a significant liquidity requirement of our borrowing groups, the majority of which is due over the next 12 to 24 months. For additional information regarding our commitments, see note 15 to our condensed consolidated financial statements. From time to time, our borrowing groups may also require liquidity in connection with (i) acquisitions and other investment opportunities, (ii) loans toLiberty Global , (iii) capital distributions toLiberty Global 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 favorable terms, or at all.
For additional information regarding our consolidated cash flows, see the discussion under Condensed Consolidated Statements of Cash Flows below.
77
--------------------------------------------------------------------------------Capitalization
We seek to maintain our debt at levels that provide for attractive equity returns without assuming undue risk. In this regard, we generally seek to cause our operating subsidiaries to maintain their debt at levels that result in a consolidated debt balance (measured using subsidiary debt figures at swapped foreign currency exchange rates, consistent with the covenant calculation requirements of our subsidiary debt agreements) that is between four and five times our consolidated Adjusted EBITDA, although the timing of our acquisitions and financing transactions and the interplay of average and spot foreign currency rates may impact this ratio. Consolidated Adjusted EBITDA is a non-GAAP measure, which investors should view as a supplement to, and not a substitute for, GAAP measures of performance included in our condensed consolidated statements of operations. 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 or increase the Adjusted EBITDA of our operating subsidiaries 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 the incurrence-based leverage covenants contained in the various debt instruments of our borrowing groups. For example, if the Adjusted EBITDA of one of our borrowing groups were to decline, our ability to obtain additional debt could be limited. Under our credit facilities and senior and senior secured notes there is no cross-default risk between subsidiary borrowing groups in the event that one or more of our borrowing groups were to experience significant declines in their Adjusted EBITDA to the extent they were no longer able to service their debt obligations. Any mandatory prepayment events or events of default that may occur would only impact the relevant borrowing group in which these events occur and do not allow for any recourse to other borrowing groups orLiberty Global plc . Our credit facilities and senior and senior secured notes require that certain members of the relevant borrowing group guarantee the payment of all sums payable thereunder and such group members are required to grant first-ranking security over their shares or, in certain borrowing groups, over substantially all of their assets to secure the payment of all sums payable thereunder. AtJune 30, 2021 , each of our borrowing groups was in compliance with its debt covenants. In addition, 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. AtJune 30, 2021 , the outstanding principal amount of our consolidated debt, together with our finance lease obligations, aggregated$15.3 billion , including$1.0 billion that is classified as current on our condensed consolidated balance sheet and$13.9 billion that is not due until 2027 or thereafter. All of our consolidated debt and finance lease obligations have been borrowed or incurred by our subsidiaries atJune 30, 2021 . We believe 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 maturing debt grows in later years, we anticipate we will seek to refinance or otherwise extend our debt maturities. No assurance can be given that we will be able to complete these refinancing transactions or otherwise extend our debt maturities. In this regard, it is not possible to predict how political and economic conditions (including with respect to the COVID-19 pandemic), sovereign debt concerns or any adverse regulatory developments could impact the credit and equity markets we access and, accordingly, our future liquidity and 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.
For additional information concerning our debt and finance lease obligations, see notes 9 and 10, respectively, to our condensed consolidated financial statements.
78
--------------------------------------------------------------------------------Condensed Consolidated Statements of Cash Flows
General. Our cash flows are subject to significant variations due to FX.
Summary. Our condensed consolidated statements of cash flows for the six months
ended
© Edgar Online, source
