UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2019

☐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 001-36713

LIBERTY BROADBAND CORPORATION

(Exact name of Registrant as specified in its charter)


State of Delaware		47-1211994
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

12300 Liberty Boulevard Englewood, Colorado		80112
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: (720) 875-5700

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Series A common stock	LBRDA	The Nasdaq Stock Market LLC
Series C common stock	LBRDK	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ 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 ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer ☒		Accelerated Filer ☐		Non-accelerated Filer ☐		Smaller Reporting Company ☐		Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No ☒

The number of outstanding shares of Liberty Broadband Corporation’s common stock as of October 15, 2019 was:

Table of Contents

LIBERTY BROADBAND CORPORATION

Condensed Consolidated Balance Sheets

(unaudited)


	September 30,		December 31,
	2019		2018
	(amounts in thousands)
Assets
Current assets:
Cash and cash equivalents	$	46,546	83,103
Derivative instruments		45,897	—
Other current assets		2,508	1,471
Total current assets		94,951	84,574
Investment in Charter, accounted for using the equity method (note 4)		12,067,329	12,004,376
Other assets		9,767	9,487
Total assets	$	12,172,047	12,098,437
Liabilities and Equity
Current liabilities:
Accounts payable and accrued liabilities	$	4,070	3,504
Deferred revenue and other current liabilities		7,734	4,691
Total current liabilities		11,804	8,195
Debt (note 5)		572,619	522,928
Deferred income tax liabilities		972,005	965,829
Other liabilities		3,447	2,867
Total liabilities		1,559,875	1,499,819
Equity
Preferred stock, $.01 par value. Authorized 50,000,000 shares; no shares issued		—	—
Series A common stock, $.01 par value. Authorized 500,000,000 shares; issued and outstanding 26,375,382 shares at September 30, 2019 and 26,311,681 shares at December 31, 2018		264	263
Series B common stock, $.01 par value. Authorized 18,750,000 shares; issued and outstanding 2,452,520 shares at September 30, 2019 and 2,454,520 shares at December 31, 2018		25	25
Series C common stock, $.01 par value. Authorized 500,000,000 shares; issued and outstanding 152,721,350 shares at September 30, 2019 and 152,591,939 shares at December 31, 2018		1,527	1,526
Additional paid-in capital		7,926,662	7,938,357
Accumulated other comprehensive earnings, net of taxes		7,778	7,778
Retained earnings		2,675,916	2,650,669
Total equity		10,612,172	10,598,618
Commitments and contingencies (note 7)
Total liabilities and equity	$	12,172,047	12,098,437

See accompanying notes to the condensed consolidated financial statements.

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LIBERTY BROADBAND CORPORATION

Condensed Consolidated Statements of Operations

(unaudited)


	Three months ended			Nine months ended
	September 30,			September 30,
	2019		2018	2019	2018
	(amounts in thousands, except per share amounts)
Revenue:
Software sales	$	3,713	3,518	10,918	18,680
Total revenue		3,713	3,518	10,918	18,680
Operating costs and expenses
Operating, including stock-based compensation (note 6)		2,323	1,926	6,803	5,864
Selling, general and administrative, including stock-based compensation (note 6)		8,507	5,187	23,662	17,428
Depreciation and amortization		471	501	1,408	2,309
		11,301	7,614	31,873	25,601
Operating income (loss)		(7,588)	(4,096)	(20,955)	(6,921)
Other income (expense):
Interest expense		(6,123)	(5,967)	(19,008)	(17,039)
Share of earnings (losses) of affiliates (note 4)		61,633	84,739	141,882	126,952
Gain (loss) on dilution of investment in affiliate (note 4)		(11,219)	(3,203)	(68,944)	(35,165)
Realized and unrealized gains (losses) on financial instruments, net (note 3)		(433)	5,678	(433)	3,659
Other, net		350	250	1,179	668
Net earnings (loss) before income taxes		36,620	77,401	33,721	72,154
Income tax benefit (expense)		(9,124)	(17,762)	(8,474)	(17,005)
Net earnings (loss) attributable to Liberty Broadband shareholders	$	27,496	59,639	25,247	55,149
Basic net earnings (loss) attributable to Series A, Series B and Series C Liberty Broadband shareholders per common share (note 2)	$	0.15	0.33	0.14	0.30
Diluted net earnings (loss) attributable to Series A, Series B and Series C Liberty Broadband shareholders per common share (note 2)	$	0.15	0.33	0.14	0.30

See accompanying notes to the condensed consolidated financial statements.

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LIBERTY BROADBAND CORPORATION

Condensed Consolidated Statements of Cash Flows

(unaudited)


	Nine months ended
	September 30,
	2019		2018
	(amounts in thousands)
Cash flows from operating activities:
Net earnings (loss)	$	25,247	55,149
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization		1,408	2,309
Stock-based compensation		7,670	4,198
Share of (earnings) losses of affiliates, net		(141,882)	(126,952)
(Gain) loss on dilution of investment in affiliate		68,944	35,165
Realized and unrealized (gains) losses on financial instruments, net		433	(3,659)
Deferred income tax expense (benefit)		8,474	16,650
Other, net		1,016	1,183
Changes in operating assets and liabilities:
Current and other assets		(927)	861
Payables and other liabilities		2,385	(983)
Net cash provided (used) by operating activities		(27,232)	(16,079)
Cash flows from investing activities:
Capital expended for property and equipment		(75)	(35)
Net cash provided (used) by investing activities		(75)	(35)
Cash flows from financing activities:
Borrowings of debt		50,000	158,000
Repayments of debt		—	(133,000)
Payments from issuances of financial instruments		(46,330)	(142,824)
Proceeds from settlements of financial instruments		—	96,483
Payment to former parent under tax sharing agreement related to net settlement of Awards		(16,090)	—
Other financing activities, net		3,170	(534)
Net cash provided (used) by financing activities		(9,250)	(21,875)
Net increase (decrease) in cash		(36,557)	(37,989)
Cash, cash equivalents and restricted cash, beginning of period		83,103	81,257
Cash, cash equivalents and restricted cash, end of period	$	46,546	43,268

See accompanying notes to the condensed consolidated financial statements.

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LIBERTY BROADBAND CORPORATION

Condensed Consolidated Statements of Equity

(unaudited)


							Accumulated
						Additional	other
	Preferred		Common stock			paid-in	comprehensive	Retained
	Stock		Series A	Series B	Series C	capital	earnings	earnings	Total equity
	(amounts in thousands)
Balance at January 1, 2019	$	—	263	25	1,526	7,938,357	7,778	2,650,669	10,598,618
Net earnings (loss)		—	—	—	—	—	—	25,247	25,247
Stock-based compensation		—	—	—	—	7,515	—	—	7,515
Issuance of common stock upon exercise of stock options		—	1	—	1	4,418	—	—	4,420
Payment to former parent under tax sharing agreement related to net settlement of Awards		—	—	—	—	(16,090)	—	—	(16,090)
Noncontrolling interest activity at Charter		—	—	—	—	(7,538)	—	—	(7,538)
Balance at September 30, 2019	$	—	264	25	1,527	7,926,662	7,778	2,675,916	10,612,172


							Accumulated
						Additional	other
	Preferred		Common stock			paid-in	comprehensive	Retained
	Stock		Series A	Series B	Series C	capital	earnings	earnings	Total equity
	(amounts in thousands)
Balance at June 30, 2019	$	—	264	25	1,527	7,929,046	7,778	2,648,420	10,587,060
Net earnings (loss)		—	—	—	—	—	—	27,496	27,496
Stock-based compensation		—	—	—	—	2,505	—	—	2,505
Issuance of common stock upon exercise of stock options		—	—	—	—	265	—	—	265
Noncontrolling interest activity at Charter		—	—	—	—	(5,154)	—	—	(5,154)
Balance at September 30, 2019	$	—	264	25	1,527	7,926,662	7,778	2,675,916	10,612,172

See accompanying notes to the condensed consolidated financial statements.

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LIBERTY BROADBAND CORPORATION

Condensed Consolidated Statements of Equity (continued)

(unaudited)


							Accumulated
						Additional	other
	Preferred		Common stock			paid-in	comprehensive	Retained
	Stock		Series A	Series B	Series C	capital	earnings	earnings	Total equity
	(amounts in thousands)
Balance at January 1, 2018	$	—	262	25	1,526	7,907,900	8,424	2,568,764	10,486,901
Net earnings (loss)		—	—	—	—	—	—	55,149	55,149
Other comprehensive earnings (loss)		—	—	—	—	—	(646)	—	(646)
Stock-based compensation		—	—	—	—	4,055	—	—	4,055
Issuance of common stock upon exercise of stock options		—	1	—	—	715	—	—	716
Cumulative effect of accounting change		—	—	—	—	—	—	1,223	1,223
Cumulative effect of accounting change at Charter		—	—	—	—	—	—	10,729	10,729
Noncontrolling interest activity at Charter		—	—	—	—	27,168	—	—	27,168
Balance at September 30, 2018	$	—	263	25	1,526	7,939,838	7,778	2,635,865	10,585,295


							Accumulated
						Additional	other
	Preferred		Common stock			paid-in	comprehensive	Retained
	Stock		Series A	Series B	Series C	capital	earnings	earnings	Total equity
	(amounts in thousands)
Balance at June 30, 2018	$	—	263	25	1,526	7,940,118	8,252	2,571,299	10,521,483
Net earnings (loss)		—	—	—	—	—	—	59,639	59,639
Other comprehensive earnings (loss)		—	—	—	—	—	(474)	—	(474)
Stock-based compensation		—	—	—	—	1,352	—	—	1,352
Issuance of common stock upon exercise of stock options		—	—	—	—	128	—	—	128
Cumulative effect of accounting change at Charter		—	—	—	—	—	—	4,927	4,927
Noncontrolling interest activity at Charter		—	—	—	—	(1,760)	—	—	(1,760)
Balance at September 30, 2018	$	—	263	25	1,526	7,939,838	7,778	2,635,865	10,585,295

See accompanying notes to the condensed consolidated financial statements.

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

Spin-Off Arrangements

Following the Broadband Spin-Off, Liberty and Liberty Broadband operate as separate, publicly traded companies, and neither has any stock ownership, beneficial or otherwise, in the other. In connection with the Broadband Spin-Off, Liberty (for accounting purposes a related party of the Company) and Liberty Broadband entered into certain agreements in order to govern certain of the ongoing relationships between the two companies after the Broadband Spin-Off and to provide for an orderly transition. These agreements include a reorganization agreement, a services agreement, a facilities sharing agreement and a tax sharing agreement.

The reorganization agreement provides for, among other things, the principal corporate transactions (including the internal restructuring) required to effect the Broadband Spin-Off, certain conditions to the Broadband Spin-Off and provisions governing the relationship between Liberty Broadband and Liberty with respect to and resulting from the Broadband Spin-Off. The tax sharing agreement provides for the allocation and indemnification of tax liabilities and benefits between Liberty and Liberty Broadband and other agreements related to tax matters. Pursuant to the services agreement, Liberty provides Liberty Broadband with general and administrative services including legal, tax, accounting, treasury and investor relations support. Under the facilities sharing agreement, Liberty Broadband shares office space with Liberty and related amenities at Liberty’s corporate headquarters. Liberty Broadband will reimburse Liberty for direct, out-of-pocket expenses incurred by Liberty in providing these services which will be negotiated semi-annually. Under these various agreements, amounts reimbursable to Liberty were approximately $0.7 million and $0.8 million for the three months ended September 30, 2019 and 2018, respectively, and $18.6 million and $2.6 million for the nine months ended September 30, 2019 and 2018, respectively.

(2) Earnings (Loss) per Share

Basic earnings (loss) per common share (“EPS”) is computed by dividing net earnings (loss) attributable to Liberty Broadband shareholders by the weighted average number of common shares outstanding (“WASO”) for the period. Diluted EPS presents the dilutive effect on a per share basis of potential common shares as if they had been converted at the beginning of the periods presented. The basic and diluted EPS calculations are based on the following weighted average number of shares of outstanding common stock.


	Liberty Broadband Common Stock
	Three months	Three months	Nine months	Nine months
	ended	ended	ended	ended
	September 30, 2019	September 30, 2018	September 30, 2019	September 30, 2018
	(numbers of shares in thousands)
Basic WASO	181,522	181,328	181,409	181,322
Potentially dilutive shares (1)	1,451	1,244	1,377	1,264
Diluted WASO	182,973	182,572	182,786	182,586

(1) Potentially dilutive shares are excluded from the computation of diluted EPS during periods in which losses are reported since the result would be antidilutive.

(3) Assets and Liabilities Measured at Fair Value

For assets and liabilities required to be reported at fair value, GAAP provides a hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs, other than quoted market prices included within Level 1, that are observable for the asset or liability, either

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. The Company does not have any recurring assets or liabilities measured at fair value that would be considered Level 3.

The Company’s assets and (liabilities) measured at fair value are as follows:

September 30, 2019

December 31, 2018

Quoted prices

Significant

Quoted prices

Significant

in active

other

in active

other

markets for

observable

markets for

observable

identical assets

inputs

identical assets

inputs

Description

Total

(Level 1)

(Level 2)

Total

(Level 1)

(Level 2)

(amounts in thousands)

Cash equivalents

36,459

—

67,329

—

Derivative instruments (1)

45,897

—

45,897

—

(1)

As of September 30, 2019, the Company had an outstanding zero-strike call option on 460,675 shares of Liberty Broadband Series C common stock. The Company paid a premium of $46.3 million in September 2019 for the zero-strike call option. The Company accounted for the zero-strike call option as a financial instrument asset due to its settlement provisions, which is recorded at fair value.

The fair value of Level 2 derivative instruments were derived from a Black-Scholes model using observable market data as the significant inputs. The inputs used in the model during the period outstanding (exclusive of the applicable trading price of Liberty Broadband Series C common stock and the prices associated with the call options) were as follows:


	Range
Volatility	22.0	%	-	22.0	%
Interest rate	2.1	%	-	2.1	%
Dividend yield	0	%	-	0	%

Other Financial Instruments

Other financial instruments not measured at fair value on a recurring basis include trade receivables, trade payables, accrued and other current liabilities, current portion of debt and long-term debt. With the exception of long-term debt, the carrying amount approximates fair value due to the short maturity of these instruments as reported on our condensed consolidated balance sheets. The carrying value of our long-term debt bears interest at a variable rate and therefore is also considered to approximate fair value.

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

Realized and Unrealized Gains (Losses) on Financial Instruments

Realized and unrealized gains (losses) on financial instruments are comprised of changes in the fair value of the following:


	Three months ended			Nine months ended
	September 30,			September 30,
	2019		2018	2019		2018
	(amounts in thousands)
Derivative instruments (1)	$	(433)	5,678		(433)	3,659
	$	(433)	5,678		(433)	3,659

(1)

In April 2018, the Company entered into a zero-strike call option on 610,325 shares of Liberty Broadband Series C common stock and prepaid a premium of $47.8 million. Liberty Broadband exercised its option to settle the contract in cash in June 2018 for cash proceeds of $46.5 million, and recognized a realized loss on the options as of June 30, 2018. In June 2018, the Company entered into another zero-strike call option on 632,911 shares of Liberty Broadband Series C common stock. Upon expiration, the zero-strike call option was rolled into a new zero-strike call option on 621,920 shares of Liberty Broadband Series C common stock and the Company prepaid a premium of $48.6 million in August 2018. The Company recognized a realized and unrealized gain upon expiration of the option in August 2018 and recognized an unrealized gain on the outstanding option as of September 30, 2018. In September 2019, the Company entered into a zero-strike call option on 460,675 shares of Liberty Broadband Series C common stock and prepaid a premium of $46.3 million.

(4) Investment in Charter Accounted for Using the Equity Method

Through a number of prior years’ transactions, Liberty Broadband has acquired an interest in Charter. The investment in Charter is accounted for as an equity method affiliate based on our voting and ownership interest and the board seats held by individuals appointed by Liberty Broadband. As of September 30, 2019, the carrying value of Liberty Broadband’s ownership in Charter was approximately $12,067 million. The market value of Liberty Broadband’s ownership in Charter as of September 30, 2019 was approximately $22,284 million, which represented an approximate economic ownership of 25.2% of the outstanding equity of Charter as of that date.

Pursuant to proxy agreements with GCI Liberty and A/N (the “GCI Liberty Proxy” and “A/N Proxy”, respectively), Liberty Broadband has an irrevocable proxy to vote certain shares of Charter common stock owned beneficially or of record by GCI Liberty and A/N, for a five year term expiring May 18, 2021, subject to extension upon the mutual agreement of both parties, subject to certain limitations.

Liberty Broadband’s overall voting interest is diluted by the outstanding A/N interest in a subsidiary of Charter because the A/N interest has voting rights in Charter. As a result of the A/N Proxy and the GCI Liberty Proxy, Liberty Broadband controls 25.01% of the aggregate voting power of Charter and is Charter’s largest stockholder.

Additionally, so long as the A/N Proxy is in effect, if A/N proposes to transfer common units of Charter Communications Holdings, LLC (which units are exchangeable into Charter shares and which will, under certain circumstances, result in the conversion of certain shares of Charter class B common stock into Charter shares) or Charter shares, in each case, constituting either (i) shares representing the first 7.0% of the outstanding voting power of Charter held by A/N or (ii) shares representing the last 7.0% of the outstanding voting power of Charter held by A/N, Liberty Broadband will have a right of first refusal (“ROFR”) to purchase all or a portion of any such securities A/N proposes to transfer. The purchase price per share for any securities sold to Liberty Broadband pursuant to the ROFR will be the volume-weighted average price of Charter shares for the two trading day period before the notice of a proposed sale by A/N, payable in cash.

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

Certain transfers are permitted to affiliates of A/N, subject to the transferee entity entering into an agreement assuming the transferor’s obligations under the A/N Proxy.

Investment in Charter

The excess basis in our investment in Charter of $3,767 million as of September 30, 2019 is allocated within memo accounts used for equity accounting purposes as follows (amounts in millions):


		September 30,	December 31,
		2019	2018
Property and equipment	$	251	328
Customer relationships		906	721
Franchise fees		1,927	1,821
Trademarks		29	29
Goodwill		1,460	1,202
Debt		(41)	(105)
Deferred income tax liability		(765)	(698)
	$	3,767	3,298

Property and equipment and customer relationships have weighted average remaining useful lives of approximately 5 years and 9 years, respectively, and franchise fees, trademarks and goodwill have indefinite lives. The excess basis of outstanding debt is amortized over the contractual period using the straight-line method. The increase in excess basis for the nine months ended September 30, 2019, was primarily due to Charter’s share buyback program and repayment of debt. The Company’s share of earnings (losses) of affiliates line item in the accompanying condensed consolidated statements of operations includes expenses of $32.7 million and $30.2 million, net of related taxes, for the three months ended September 30, 2019 and 2018, respectively, and expenses of $88.7 million and $88.1 million, net of related taxes, for the nine months ended September 30, 2019 and 2018, respectively, due to the amortization of the excess basis related to assets with identifiable useful lives and debt.

The Company had a dilution loss of $11.2 million and $3.2 million during the three months ended September 30, 2019 and 2018, respectively, and a dilution loss of $68.9 million and $35.2 million during the nine months ended September 30, 2019 and 2018, respectively. The dilution losses for the periods presented were attributable to stock option exercises by employees and other third parties at prices below Liberty Broadband’s book basis per share.

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

Summarized unaudited financial information for Charter is as follows (amounts in millions):

Charter condensed consolidated balance sheets


	September 30, 2019		December 31, 2018
Current assets	$	3,477	2,944
Property and equipment, net		34,218	35,126
Goodwill		29,554	29,554
Intangible assets, net		75,278	76,884
Other assets		2,740	1,622
Total assets	$	145,267	146,130
Current liabilities		11,982	12,095
Deferred income taxes		17,609	17,389
Long-term debt		71,390	69,537
Other liabilities		3,764	2,837
Equity		40,522	44,272
Total liabilities and shareholders’ equity	$	145,267	146,130

Charter condensed consolidated statements of operations


	Three months ended			Nine months ended
	September 30,			September 30,
	2019		2018	2019	2018
Revenue	$	11,450	10,892	34,003	32,403
Cost and expenses:
Operating costs and expenses (excluding depreciation and amortization)		7,435	7,012	21,915	20,721
Depreciation and amortization		2,415	2,482	7,465	7,784
Other operating (income) expenses, net		14	18	71	116
		9,864	9,512	29,451	28,621
Operating income		1,586	1,380	4,552	3,782
Interest expense, net		(963)	(901)	(2,833)	(2,630)
Other income (expense), net		(30)	214	(220)	172
Income tax benefit (expense)		(126)	(109)	(329)	(178)
Net income (loss)		467	584	1,170	1,146
Less: Net income attributable to noncontrolling interests		(80)	(91)	(216)	(212)
Net income (loss) attributable to Charter shareholders	$	387	493	954	934

(5) Debt

Amended 2017 Margin Loan Facility

On August 19, 2019, a bankruptcy remote wholly owned subsidiary of the Company (“SPV”), entered into Amendment No. 2 to its multi-draw margin loan credit facility (the “Amended 2017 Margin Loan Facility” and, the credit agreement governing such facility, the “Amended 2017 Margin Loan Agreement”) with Wilmington Trust, National Association as the successor administrative agent, BNP Paribas, Dublin Branch, as the successor calculation agent, and the

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

lenders thereunder. SPV is permitted, subject to certain funding conditions, to borrow term loans up to an aggregate principal amount equal to $1.0 billion. SPV will also have the ability from time to time to request additional loans in an aggregate principal amount of up to $1.0 billion on an uncommitted basis subject to certain conditions. SPV had borrowed $575 million and $525 million as of September 30, 2019 and December 31, 2018, respectively. SPV had $425 million available to be drawn until August 19, 2020. The maturity date of the loans under the Amended 2017 Margin Loan Agreement is August 24, 2021 (except for any incremental loans incurred thereunder to the extent SPV and the incremental lenders agree to a later maturity date). Borrowings under the Amended 2017 Margin Loan Agreement bear interest at the three-month LIBOR rate plus a per annum spread of 1.5%. Borrowings outstanding under this margin loan bore interest at a rate of 3.60% per annum at September 30, 2019. Interest is payable quarterly in arrears beginning on September 29, 2017. SPV used available cash and a portion of the proceeds of the loans under the Amended 2017 Margin Loan Facility to repay the two margin loan agreements entered into by a wholly-owned special purpose subsidiary of the Company on October 30, 2014 and two margin loan agreements entered into by another wholly-owned special purpose subsidiary of the Company on March 21, 2016.

The Amended 2017 Margin Loan Agreement contains various affirmative and negative covenants that restrict the activities of the SPV (and, in some cases, the Company and its subsidiaries with respect to shares of Charter owned by the Company and its subsidiaries). The Amended 2017 Margin Loan Agreement does not include any financial covenants. The Amended 2017 Margin Loan Agreement also contains restrictions related to additional indebtedness and events of default customary for margin loans of this type.

SPV’s obligations under the Amended 2017 Margin Loan Agreement are secured by first priority liens on a portion of the Company’s ownership interest in Charter, sufficient for SPV to meet the loan to value requirements under the Amended 2017 Margin Loan Agreement. The Amended 2017 Margin Loan Agreement indicates that no lender party shall have any voting rights with respect to the shares transferred, except to the extent that a lender party buys any shares in a sale or other disposition made pursuant to the terms of the loan agreements. As of September 30, 2019, 6.8 million shares of Charter with a value of $2.8 billion were pledged as collateral pursuant to the Amended 2017 Margin Loan Agreement.

(6) Stock-Based Compensation

Liberty Broadband grants, to certain of its directors, employees and employees of its subsidiaries, restricted stock and stock options to purchase shares of its common stock (collectively, "Awards"). The Company measures the cost of employee services received in exchange for an equity classified Award (such as stock options and restricted stock) based on the grant-date fair value (“GDFV”) of the Award, and recognizes that cost over the period during which the employee is required to provide service (usually the vesting period of the Award). The Company measures the cost of employee services received in exchange for a liability classified Award based on the current fair value of the Award, and remeasures the fair value of the Award at each reporting date.

Included in the accompanying condensed consolidated statements of operations are the following amounts of stock-based compensation for the three and nine months ended September 30, 2019 and 2018 (amounts in thousands):


	Three months			Nine months
	ended			ended
	September 30,			September 30,
	2019		2018	2019	2018
Operating expense	$	12	15	60	42
Selling, general and administrative		2,519	1,382	7,610	4,156
	$	2,531	1,397	7,670	4,198

I-13

Table of Contents

LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

Liberty Broadband – Grants of Stock Options

During the nine months ended September 30, 2019, Liberty Broadband granted 41 thousand options to purchase shares of Series C Liberty Broadband common stock and 25 thousand performance-based restricted stock units (“RSUs”) of Series C Liberty Broadband common stock to our CEO. Such options had a GDFV of $25.46 per share. The RSUs had a GDFV of $88.99 per share at the time they were granted. The options vest on December 31, 2019 and the RSUs cliff vest one year from the month of grant, subject to satisfaction of certain performance objectives. Performance objectives, which are subjective, are considered in determining the timing and amount of the compensation expense recognized. When the satisfaction of the performance objectives becomes probable, the Company records compensation expense. The probability of satisfying the performance objectives is assessed at the end of each reporting period.

There were no options to purchase shares of Series A or Series B common stock granted during the nine months ended September 30, 2019.

The Company calculates the GDFV for all of its equity classified awards and any subsequent remeasurement of its liability classified awards using the Black-Scholes Model. The Company estimates the expected term of the Awards based on historical exercise and forfeiture data. The volatility used in the calculation for Awards is based on the historical volatility of Liberty Broadband common stock and the implied volatility of publicly traded Liberty Broadband options. The Company uses a zero dividend rate and the risk-free rate for Treasury Bonds with a term similar to that of the subject options.

Liberty Broadband – Outstanding Awards

The following tables present the number and weighted average exercise price (“WAEP”) of Awards to purchase Liberty Broadband common stock granted to certain officers, employees and directors of the Company, as well as the weighted average remaining life and aggregate intrinsic value of the Awards.


	Weighted
	average
	remaining	Aggregate
	contractual	intrinsic
Series A

f
	Page No
Item 1. Financial Statements
LIBERTY BROADBAND CORPORATION Condensed Consolidated Balance Sheets (unaudited)	I-2
LIBERTY BROADBAND CORPORATION Condensed Consolidated Statements of Operations (unaudited)	I-3
LIBERTY BROADBAND CORPORATION Condensed Consolidated Statements of Cash Flows (unaudited)	I-4
LIBERTY BROADBAND CORPORATION Condensed Consolidated Statements of Equity (unaudited)	I-5
LIBERTY BROADBAND CORPORATION Notes to Condensed Consolidated Financial Statements (unaudited)	I-7

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	I-19
Item 3. Quantitative and Qualitative Disclosures about Market Risk	I-26
Item 4. Controls and Procedures	I-26

Part II - Other Information

Item 1. Legal Proceedings	II-1
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	II-1
Item 6. Exhibits	II-2

SIGNATURES	II-3

Liberty Broadband Corporation Common Stock