Liberty Latin America Annual Report 2020

Form 10-K (NASDAQ:LILAK)

Published: February 19th, 2020

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019 OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to Commission file number 001-38335

Liberty Latin America Ltd. (Exact name of Registrant as specified in its charter)

Bermuda 98-1386359 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)

2 Church Street, Hamilton HM 11 (Address of Principal Executive Offices) (Zip Code) Registrant’s telephone number, including area code: (441) 295-5950 or (303) 925-6000 Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class Trading Symbols Name of Each Exchange on Which Registered Class A Common Shares, par value $0.01 per share LILA The NASDAQ Stock Market LLC Class C Common Shares, par value $0.01 per share LILAK The NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Act: none Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. þ No ¨ Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨ Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes þ No ¨ Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Check one:

Large Accelerated Filer ☑ Accelerated Filer ☐ Non-Accelerated Filer ☐ Smaller Reporting Company ☐ Emerging Growth Company ☐ If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨ Indicate by check mark whether the Registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No þ State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $2.9 billion. The number of outstanding common shares of Liberty Latin America Ltd. as of January 31, 2020 was: 48,797,179 Class A; 1,934,605 Class B; and 131,192,856 Class C.

DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive proxy statement for the Registrant’s 2020 Annual General Meeting of Shareholders are incorporated by reference in Part III of this Form 10-K.

LIBERTY LATIN AMERICA LTD. ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS

Page Number PART I Item 1. Business I-1 Item 1A. Risk Factors I-29 Item 1B. Unresolved Staff Comments I-48 Item 2. Properties I-48 Item 3. Legal Proceedings I-48 Item 4. Mine Safety Disclosures I-48

PART II Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities II-1 Item 6. Selected Financial Data II-3 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations II-4 Item 7A. Quantitative and Qualitative Disclosures About Market Risk II-28 Item 8. Financial Statements and Supplementary Data II-32 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure II-32 Item 9A. Controls and Procedures II-32 Item 9B. Other Information II-34

PART III Item 10. Directors, Executive Officers and Corporate Governance III-1 Item 11. Executive Compensation III-1 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters III-1 Item 13. Certain Relationships and Related Transactions, and Director Independence III-1 Item 14. Principal Accounting Fees and Services III-1

PART IV Item 15. Exhibits, Financial Statement Schedules IV-1 Item 16. Form 10-K Summary IV-3 PART I

Item 1. BUSINESS

(a) General Development of Business

Liberty Latin America Ltd. is an international provider of fixed, mobile and subsea telecommunications services. Through our subsidiaries, we provide residential and business-to-business (B2B) services in (i) over 20 countries, primarily in Latin America and the Caribbean, through Cable & Wireless Communications Limited (C&W), (ii) Chile, through VTR Finance B.V. ( VTR Finance) and its subsidiaries, which includes VTR.com SpA ( VTR), (iii) Puerto Rico, through Leo Cable LP (Leo Cable) and its subsidiaries, which includes Liberty of Puerto Rico LLC ( LCPR), collectively “Liberty Puerto Rico,” an entity that, effective October 2018, is a wholly-owned subsidiary, and (iv) Costa Rica, through LBT CT Communications, S.A. ( LBT CT) and its subsidiary, Cabletica S.A. (Cabletica). As further described in note 19 to our consolidated financial statements, effective October 1, 2018, VTR and Cabletica together comprise one of our reportable segments referred to as “ VTR/Cabletica.” C&W also provides (i) B2B services in certain other countries in Latin America and the Caribbean and (ii) wholesale communication services over its subsea and terrestrial fiber optic cable networks that connect over 40 markets in that region. In the following text, the terms “ Liberty Latin America,” “we,” “our,” “our company” and “us” may refer, as the context requires, to Liberty Latin America or collectively to Liberty Latin America and its subsidiaries.

C&W owns less than 100% of certain of its consolidated subsidiaries, including Cable & Wireless Panama, S.A. ( C&W Panama) (a 49.0%-owned entity that owns most of our operations in Panama), The Bahamas Telecommunications Company Limited (C&W Bahamas) (a 49.0%-owned entity that owns all of our operations in the Bahamas) and Cable & Wireless Jamaica Limited (C&W Jamaica) (a 92.3%-owned entity that owns the majority of our operations in Jamaica). In addition, we own 80% of Cabletica through our 80% ownership of its parent company, LBT CT.

We were originally formed as a Bermuda company on July 11, 2017, as a wholly-owned subsidiary of 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 below 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.

LiLAC Distribution

On July 1, 2016, a total of 117,430,965 Liberty Global Class A and Class C ordinary shares ( LiLAC Shares) were issued to holders of Class A and Class C Liberty Global ordinary shares (Liberty Global Shares) in recognition of the Liberty Global Shares that were issued to acquire C&W (the LiLAC Distribution). For additional information regarding the acquisition of C&W, see note 4 to our consolidated financial statements included in Part II of this Annual Report on Form 10-K.

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.

Developments in the Business

We have expanded our footprint through new build and upgrade projects, mobile coverage expansion, and strategic acquisitions. Our new build projects consist of network programs pursuant to which we pass additional homes and businesses with our broadband communications network. We are also upgrading networks to increase broadband speeds and the services we can deliver for our customers. During the past three years, we passed or upgraded over 1.3 million additional homes and commercial premises. 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, or have entered into definitive agreements to complete, the following transactions: • the disposition on November 5, 2019 of Cable & Wireless Seychelles based on an enterprise value of approximately $104 million to a consortium of local investors (the Seychelles Disposition);

• entry into a stock purchase agreement on October 9, 2019 with certain subsidiaries of AT&T Inc. ( AT&T) to acquire AT&T’s wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands in an all cash transaction valued at approximately $1.95 billion on a cash and debt- basis, subject to certain adjustments (the AT&T Acquisition);

• the acquisition on March 31, 2019 of an 87.5% stake from the government of Curacao in United Telecommunications Services N.V. ( UTS, and the acquisition, the UTS Acquisition), which provides fixed and mobile services to the island nations of Curacao, St. Maarten, St. Martin, Bonaire, St. Barths, St. Eustatius and Saba, and on September 10, 2019 of the remaining 12.5% from the government of St. Maarten, each in an all cash transaction;

• the acquisition on October 17, 2018 of Searchlight Capital Partners L.P.’s 40% interest in both Leo Cable and Leo Cable L.L.C., which in turn gave us 100% ownership of Liberty Puerto Rico, in exchange for 9,500,000 unregistered Class C common shares;

• the acquisition on October 1, 2018 of an 80% stake in Cabletica (the Cabletica Acquisition), which is a leading cable operator in Costa Rica that provides , broadband internet and fixed-line telephony services to residential customers, from Televisora de Costa Rica S.A. in an all cash transaction;

• the acquisition on May 16, 2016 of C&W, a full-service telecommunications operator with a well-recognized and respected brand that has been in use for more than 70 years; and

• the acquisition on June 3, 2015 of Choice Cable TV, a cable and broadband services provider in Puerto Rico, which has been integrated into our Liberty Puerto Rico operations, in an all cash transaction.

For information regarding our material financing transactions, see note 10 to our consolidated financial statements included in Part II of this Annual Report on Form 10-K.

In September 2019, Hurricane Dorian impacted certain islands of the Bahamas, resulting in significant damage to homes, businesses and infrastructure in those areas. In 2017, Hurricanes Irma and Maria (the 2017 Hurricanes) impacted a number of our markets in the Caribbean. The most extensive damage occurred in Puerto Rico and certain markets within our C&W segment, most notably the British Virgin Islands and Dominica (collectively, the Impacted Markets), including damage to power supply and transmission systems. In December 2018, we settled our insurance claims for the hurricanes with our third-party insurance provider. The settlement amount totaled $121 million and comprised $109 million for the 2017 Hurricanes, which was of $30 million in self-insurance, and $12 million for Hurricane Matthew, which was net of $15 million in self-insurance. For information regarding the impacts of Hurricane Dorian, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Hurricane Dorian 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 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; our property and equipment additions; grants or renewals of licenses; subscriber growth and retention rates; changes in competitive, regulatory and economic factors; the timing and impacts of proposed transactions; anticipated changes in our revenue, costs or growth rates; debt levels; our liquidity and our ability to access the liquidity of our subsidiaries; credit risks; the interest rate risks associated with the phasing out of LIBOR; internal control over financial reporting; foreign currency risks; compliance with debt, financial and other covenants; our future projected contractual commitments and cash flows; the AT&T Acquisition, including the anticipated closing date; 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:

• economic and business conditions and industry trends in the countries in which we operate; • the competitive environment in the industries in the countries in which we operate, including competitor responses to our products and services; • fluctuations in currency exchange rates, inflation rates and interest rates; • instability in global financial markets, including sovereign debt issues and related fiscal reforms; • consumer disposable income and spending levels, including the availability and amount of individual consumer debt; • changes in consumer viewing preferences and habits, including on mobile devices that function on various operating systems and specifications, limited bandwidth, and different processing power and screen sizes; • customer acceptance of our existing service offerings, including our video, broadband internet, fixed-line telephony, mobile and business service offerings, and of new technology, programming alternatives and other products and services that we may offer in the future; • our ability to manage rapid technological changes; • the impact of 5G and wireless technologies; • our ability to maintain or increase the number of subscriptions to our video, broadband internet, fixed-line telephony and mobile service offerings and our average revenue per household; • our ability to provide satisfactory customer service, including support for new and evolving products and services; • our ability to maintain or increase rates to our subscribers or to pass through increased costs to our subscribers; • the impact of our future financial performance, or market conditions generally, on the availability, terms and deployment of capital; • changes in, or failure or inability to comply with, government regulations in the countries in which we operate and adverse outcomes from regulatory proceedings; • government intervention that requires opening our broadband distribution networks to competitors; • our ability to obtain regulatory approval and satisfy other conditions necessary to close acquisitions and dispositions, and the impact of conditions imposed by competition and other regulatory authorities in connection with acquisitions, such as the AT&T Acquisition; • 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, such as with respect to the AT&T Acquisition; • changes in laws or treaties relating to taxation, or the interpretation thereof, in the U.S. or in other countries in which we operate; • changes in laws and government regulations that may impact the availability and cost of capital and the derivative instruments that hedge certain of our financial risks; • the ability of suppliers and vendors, including third-party channel providers and broadcasters (including our third-party wireless network provider under our mobile virtual network operator (MVNO) arrangement), to timely deliver quality products, equipment, software, services and access; • the availability of attractive programming for our video services and the costs associated with such programming, including retransmission and copyright fees payable to public and private broadcasters; • uncertainties inherent in the development and integration of new business lines and business strategies; • our ability to adequately forecast and plan future network requirements, including the costs and benefits associated with our network extension and upgrade programs; • the availability of capital for the acquisition and/or development of telecommunications networks and services, including property and equipment additions; • problems we may discover post-closing with the operations, including the internal controls and financial reporting process, of businesses we acquire, such as with respect to the AT&T Acquisition; • piracy, targeted vandalism against our networks, and cybersecurity threats or other security breaches, including the leakage of sensitive customer data, which could harm our business or reputation; • the outcome of any pending or threatened litigation; • the loss of key employees and the availability of qualified personnel; • changes in the nature of key strategic relationships with partners and joint venturers; • our equity capital structure; • changes in and compliance with applicable data privacy laws, rules, and regulations; • our ability to recoup insurance reimbursements and settlements from third-party providers; • our ability to comply with economic and trade sanctions laws, such as the U.S. Treasury Department’s Office of Foreign Assets Control ( OFAC); and • events that are outside of our control, such as political conditions and unrest in international markets, terrorist attacks, malicious human acts, hurricanes and other natural disasters, pandemics and other similar events.

The broadband distribution and mobile service industries are changing rapidly and, therefore, the forward-looking statements of expectations, plans and intent in this Annual Report on Form 10-K 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 Annual Report on Form 10-K, 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. (b) Narrative Description of Business

Overview

We are a leading telecommunications company with operations in Chile, Panama, Puerto Rico, Costa Rica, the Caribbean, including Jamaica, and other parts of Latin America. The communications and entertainment services that we deliver to our residential and business customers include video, broadband internet, telephony and mobile services. In most of our operating footprint, we offer a “triple-play” of bundled services of video, internet and telephony in one subscription. We are also focused on leveraging our full-service product suite to deliver fixed-mobile convergence offerings. Available fixed service offerings depend on the bandwidth capacity of a particular system and whether it has been upgraded for two-way communications.

Our business products and services also include enterprise-grade connectivity, data center, hosting and managed solutions, as well as IT solutions with customers ranging from small and medium enterprises to international companies and governmental agencies. We also operate an extensive subsea and terrestrial fiber optic cable network that connects over 40 markets in the region, providing connectivity solutions both within and outside our operating footprint.

We are the largest fixed-line provider of high-speed broadband and video services across a number of our markets, including Chile, Puerto Rico, Jamaica and Trinidad and Tobago. We also operate the largest telephony network in most of our C&W markets where we provide residential communications services. In addition, we offer mobile services throughout most of our operating footprint. Across C&W’s markets, we are a mobile network operator in Panama and most of our Caribbean markets, including the Bahamas and Jamaica. As a network provider, we are able to offer a full range of voice and data services, including value-added, data-based and fixed-mobile converged services. In Chile, VTR provides mobile services as an MVNO and leases a third-party’s radio access network. For a breakdown of revenue by major category, see note 19 to our consolidated financial statements in Part II of this Annual Report on Form 10-K.

Our operating brands include the following:

C&W VTR Liberty Puerto Rico Cabletica

Operating Data

The following tables present certain operating data as of December 31, 2019. The tables reflect 100% of the data applicable to each of our subsidiaries, regardless of our ownership percentage. For additional information regarding terms used in the following tables, see the Operating Data Glossary below.

Two-way Total Mobile Homes Homes Customer Total Video Internet Telephony Subscribers Passed Passed Relationships RGUs RGUs RGUs RGUs (c) C&W: Panama 617,100 617,100 189,400 386,600 106,900 135,000 144,700 1,527,500 Jamaica 562,900 552,900 259,700 542,100 119,200 211,800 211,100 1,073,100 The Bahamas (a) 128,900 128,900 45,400 75,900 7,000 26,200 42,700 201,100 Trinidad and Tobago 329,600 329,600 158,900 328,800 109,500 137,700 81,600 — Barbados 140,400 140,400 82,500 168,800 29,400 66,700 72,700 123,200 Other (b) 331,700 311,900 241,400 370,400 80,600 167,800 122,000 432,800 Total C&W 2,110,600 2,080,800 977,300 1,872,600 452,600 745,200 674,800 3,357,700 VTR/Cabletica: VTR 3,699,300 3,264,300 1,511,700 2,964,500 1,099,700 1,317,100 547,700 300,800 Cabletica 603,400 597,500 256,500 425,000 207,300 194,300 23,400 — Total VTR/Cabletica 4,302,700 3,861,800 1,768,200 3,389,500 1,307,000 1,511,400 571,100 300,800 Liberty Puerto Rico 1,111,000 1,111,000 404,600 785,100 221,700 353,700 209,700 — Total 7,524,300 7,053,600 3,150,100 6,047,200 1,981,300 2,610,300 1,455,600 3,658,500

(a) In September 2019, Hurricane Dorian impacted certain islands of the Bahamas, resulting in significant damage to homes, businesses and infrastructure. For those areas of the Bahamas impacted by Hurricane Dorian, the homes passed and subscriber counts reflect the pre-hurricane homes passed and subscriber counts as of August 31, 2019 as adjusted through December 31, 2019 for net voluntary disconnects. We are still in the process of assessing the impact of the hurricane on our networks and subscriber counts. The impacted areas in the Bahamas include approximately 30,200 homes passed, 7,700 telephony RGUs, 3,800 internet RGUs, 900 video RGUs, 4,400 postpaid mobile subscribers and 36,500 prepaid mobile subscribers. For those areas of the Bahamas not impacted by Hurricane Dorian, the homes passed and subscriber counts reflect counts as of December 31, 2019.

(b) C&W's "Other" category includes subscriber data related to UTS. Subscriber information for UTS is preliminary and subject to adjustment until we have completed our review of such information and determined that it is presented in accordance with our policies. (c) Mobile subscribers are comprised of the following:

Prepaid Postpaid Total C&W: Panama 1,388,700 138,800 1,527,500 Jamaica 1,053,000 20,100 1,073,100 The Bahamas (a) 175,600 25,500 201,100 Barbados 95,100 28,100 123,200 Other (b) 389,600 43,200 432,800 Total C&W 3,102,000 255,700 3,357,700 VTR 10,100 290,700 300,800 Total 3,112,100 546,400 3,658,500

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