PART I
(a) General Development of Business
Liberty Latin America Ltd. is an international provider of video, broadband internet, fixed-line telephony and mobile services. Through our subsidiaries, we provide residential and business-to-business (B2B) services in (i) 18 countries, primarily in Latin America and the Caribbean through Cable & Wireless Communications Limited (C&W), (ii) Chile through VTR.com SpA (VTR) and (iii) Puerto Rico through Liberty Cablevision of Puerto Rico LLC (Liberty Puerto Rico), an entity in which we hold a 60.0% ownership interest (Searchlight Capital Partners L.P. (Searchlight) owns the 40% of Liberty Puerto Rico that we do not own). C&W also provides (i) B2B services in certain other countries in Latin America and the Caribbean and (ii) wholesale communication services over its sub-sea and terrestrial fiber optic cable networks that connect over 40 markets in that region. In the following text, the terms “Liberty Latin America,” “we,” “our,” “our company” and “us” may refer, as the context requires, to Liberty Latin America Ltd. or collectively to Liberty Latin America Ltd. and its subsidiaries.
The operations of C&W are provided through various consolidated subsidiaries, including the following subsidiaries where we own less than 100%: Cable & Wireless Panama, SA (C&W Panama) (a 49.0%-owned entity that owns most of our operations in Panama); The Bahamas Telecommunications Company Limited (BTC) (a 49.0%-owned entity that owns all of our operations in the Bahamas); and Cable & Wireless Jamaica Limited (C&W Jamaica) (an 82.0%-owned entity that owns the majority of our operations in Jamaica). On December 28, 2017, one of our subsidiaries made a public take-over offer to purchase all of the outstanding shares in C&W Jamaica not already owned through our subsidiaries at a price of $1.45 per share (in Jamaican dollars). The offer closes February 28, 2018 unless otherwise extended.
We were originally formed as a Bermuda company on July 11, 2017, as a wholly-owned subsidiary of Liberty Global plc (Liberty Global) under the name LatAm Splitco Ltd. and we changed our name to Liberty Latin America Ltd. on September 22, 2017. During October 2017, the Board of Directors of Liberty Global authorized a plan to distribute to the holders of Liberty Global’s LiLAC Shares (as defined and described in note 1 to our consolidated financial statements included in Part II of this Annual Report on Form 10-K) common shares in our company (the Split-Off), which was completed on December 29, 2017.
References in the following text to our assets, liabilities or businesses reflect the historical information of (i) certain former subsidiaries of Liberty Global for periods prior to the Split-Off and (ii) Liberty Latin America and its consolidated subsidiaries for the period following the Split-Off. Although Liberty Latin America was previously reported on a combined basis, the financial and operating information presented herein includes Liberty Latin America and its consolidated subsidiaries for all periods presented, unless stated otherwise.
Split-off of Liberty Latin America from Liberty Global
Following the Split-Off, Liberty Latin America and Liberty Global operate as separate, publicly traded companies, and neither has any share ownership, beneficial or otherwise, in the other. In the Split-Off, 48,428,841 Class A common shares, 1,940,193 Class B common shares and 120,843,539 Class C common shares of Liberty Latin America were issued. Several agreements were entered into in connection with the Split-Off between Liberty Latin America, Liberty Global and/or certain of their respective subsidiaries. The following summarizes the material agreements:
Developments in the Business
We have expanded our footprint through new build projects and strategic acquisitions. Our new build projects consist of network programs pursuant to which we connect additional homes and businesses to our broadband communications network. We are also upgrading networks to make them two-way compatible. During the past three years, we connected or upgraded approximately 900,000 additional homes and commercial premises, including homes and commercial premises connected by C&W prior to its acquisition by Liberty Global on May 16, 2016, to our two way networks. We have made strategic acquisitions to drive scale benefits across our business, enhancing our ability to innovate and deliver quality services, content and products to our customers. Within the last five years, we completed the following acquisitions:
For information regarding our material financing transactions, see note 9 to our consolidated financial statements included in Part II of this Annual Report on Form 10-K.
Hurricanes Irma and Maria impacted a number of our markets in the Caribbean, resulting in varying degrees of damage to homes, businesses and infrastructure in these markets. The most extensive damage occurred in Puerto Rico and certain of C&W’s markets (collectively, the Impacted Markets), including damage to power supply and transmission systems. For information regarding the impacts of Hurricanes Irma and Maria, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Impacts of Hurricanes included in Part II of this Annual Report on Form 10-K.
Pending Acquisition
On February 12, 2018, we entered into a definitive agreement to acquire 80% of Costa Rican cable operator, Cabletica, which is part of Televisora de Costa Rica S.A. in an all cash transaction. Cabletica is a leading cable operator in Costa Rica that provides analog and digital television, broadband internet and fixed-line telephony services to residential customers. The current owners of Cabletica will retain the remaining 20% interest. The transaction is subject to customary closing adjustments and conditions, including regulatory approvals, and is expected to close during the second half of 2018. For additional information on this acquisition, see note 20 to our consolidated financial statements included in Part II of this Annual Report on Form 10-K.
(b) Financial Information About Operating Segments
Financial information about our reportable segments is provided in note 18 to our consolidated financial statements included in Part II of this Annual Report on Form 10-K.
Forward-looking Statements
Certain statements in this Annual Report on Form 10-K constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. To the extent that statements in this Annual Report on Form 10-K 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 1. Business, Item 1A. Risk Factors, Item 2. Properties, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 7A. Quantitative and Qualitative Disclosures About Market Risk may contain forward-looking statements, including statements regarding our business, product, foreign currency and finance strategies in 2018, the rate, cost and extent of our recovery in certain markets from the impact of Hurricanes Maria and Irma, our property and equipment additions in 2018 (including with respect to network extension and upgrade programs), subscriber growth and retention rates, competitive, regulatory and economic factors, the timing and impacts of proposed transactions, the maturity of our markets, 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, target leverage levels, 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 under Item 1A. Risk Factors and Item 7A. Quantitative and Qualitative Disclosures About Market Risk, as well as the following list of some but not all of the factors that could cause actual results or events to differ materially from anticipated results or events: