UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2020

☐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 July 15, 2020 was:

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LIBERTY BROADBAND CORPORATION

Condensed Consolidated Balance Sheets

(unaudited)


	June 30,		December 31,
	2020		2019

	(amounts in thousands)
Assets
Current assets:
Cash and cash equivalents	$	17,162	49,724
Other current assets		2,544	2,409
Total current assets		19,706	52,133
Investment in Charter, accounted for using the equity method (note 4)		12,306,593	12,194,674
Other assets		9,100	9,535
Total assets	$	12,335,399	12,256,342
Liabilities and Equity
Current liabilities:
Accounts payable and accrued liabilities	$	8,562	6,168
Deferred revenue and other current liabilities		11,544	5,971
Total current liabilities		20,106	12,139
Debt (note 5)		573,593	572,944
Deferred income tax liabilities		1,017,921	999,757
Other liabilities		3,045	3,556
Total liabilities		1,614,665	1,588,396
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 26,495,123 shares at June 30, 2020 and 26,493,197 shares at December 31, 2019		265	265
Series B common stock, $.01 par value. Authorized 18,750,000 shares; issued and outstanding 2,451,119 shares at June 30, 2020 and 2,451,920 shares at December 31, 2019		25	25
Series C common stock, $.01 par value. Authorized 500,000,000 shares; issued and outstanding 152,983,879 shares at June 30, 2020 and 152,956,316 shares at December 31, 2019		1,530	1,529
Additional paid-in capital		7,878,499	7,890,084
Accumulated other comprehensive earnings, net of taxes		8,158	8,158
Retained earnings		2,832,257	2,767,885
Total equity		10,720,734	10,667,946
Commitments and contingencies (note 7)
Total liabilities and equity	$	12,335,399	12,256,342

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			Six months ended
	June 30,			June 30,
	2020		2019	2020	2019

	(amounts in thousands, except per share amounts)
Revenue:
Software sales	$	4,114	3,747	8,108	7,205
Service		—	—	110	—
Total revenue		4,114	3,747	8,218	7,205
Operating costs and expenses
Operating, including stock-based compensation (note 6)		2,524	2,227	4,992	4,480
Selling, general and administrative, including stock-based compensation (note 6)		10,930	8,217	19,348	15,155
Depreciation and amortization		492	469	985	937
		13,946	10,913	25,325	20,572
Operating income (loss)		(9,832)	(7,166)	(17,107)	(13,367)
Other income (expense):
Interest expense		(5,131)	(6,342)	(10,992)	(12,885)
Share of earnings (losses) of affiliates (note 4)		158,128	45,400	219,810	80,249
Gain (loss) on dilution of investment in affiliate (note 4)		(46,001)	(16,322)	(105,326)	(57,725)
Other, net		28	406	191	829
Net earnings (loss) before income taxes		97,192	15,976	86,576	(2,899)
Income tax benefit (expense)		(24,978)	(3,924)	(22,204)	650
Net earnings (loss) attributable to Liberty Broadband shareholders	$	72,214	12,052	64,372	(2,249)
Basic net earnings (loss) attributable to Series A, Series B and Series C Liberty Broadband shareholders per common share (note 2)	$	0.40	0.07	0.35	(0.01)
Diluted net earnings (loss) attributable to Series A, Series B and Series C Liberty Broadband shareholders per common share (note 2)	$	0.39	0.07	0.35	(0.01)

See accompanying notes to the condensed consolidated financial statements.

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LIBERTY BROADBAND CORPORATION

Condensed Consolidated Statements of Cash Flows

(unaudited)


	Six months ended
	June 30,
	2020		2019

	(amounts in thousands)
Cash flows from operating activities:
Net earnings (loss)	$	64,372	(2,249)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization		985	937
Stock-based compensation		3,734	5,139
Share of (earnings) losses of affiliates, net		(219,810)	(80,249)
(Gain) loss on dilution of investment in affiliate		105,326	57,725
Deferred income tax expense (benefit)		22,204	(650)
Other, net		625	576
Changes in operating assets and liabilities:
Current and other assets		(72)	(5,764)
Payables and other liabilities		6,938	4,461
Net cash provided (used) by operating activities		(15,698)	(20,074)
Cash flows from investing activities:
Capital expended for property and equipment		(35)	(50)
Exercise of preemptive right to purchase Charter shares		(14,910)	—
Net cash provided (used) by investing activities		(14,945)	(50)
Cash flows from financing activities:
Taxes paid in lieu of shares issued for stock-based compensation		(1,945)	—
Other financing activities, net		26	4,155
Net cash provided (used) by financing activities		(1,919)	4,155
Net increase (decrease) in cash		(32,562)	(15,969)
Cash, cash equivalents and restricted cash, beginning of period		49,724	83,103
Cash, cash equivalents and restricted cash, end of period	$	17,162	67,134

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, 2020	$	—	265	25	1,529	7,890,084	8,158	2,767,885	10,667,946
Net earnings (loss)		—	—	—	—	—	—	64,372	64,372
Stock-based compensation		—	—	—	—	3,705	—	—	3,705
Issuance of common stock upon exercise of stock options		—	—	—	1	25	—	—	26
Withholding taxes on net share settlements of stock-based compensation		—	—	—	—	(2,121)	—	—	(2,121)
Noncontrolling interest activity at Charter		—	—	—	—	(13,194)	—	—	(13,194)
Balance at June 30, 2020	$	—	265	25	1,530	7,878,499	8,158	2,832,257	10,720,734


							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 March 31, 2020	$	—	265	25	1,530	7,876,950	8,158	2,760,043	10,646,971
Net earnings (loss)		—	—	—	—	—	—	72,214	72,214
Stock-based compensation		—	—	—	—	1,900	—	—	1,900
Issuance of common stock upon exercise of stock options		—	—	—	—	23	—	—	23
Withholding taxes on net share settlements of stock-based compensation		—	—	—	—	(177)	—	—	(177)
Noncontrolling interest activity at Charter		—	—	—	—	(197)	—	—	(197)
Balance at June 30, 2020	$	—	265	25	1,530	7,878,499	8,158	2,832,257	10,720,734

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, 2019	$	—	263	25	1,526	7,938,357	7,778	2,650,669	10,598,618
Net earnings (loss)		—	—	—	—	—	—	(2,249)	(2,249)
Stock-based compensation		—	—	—	—	5,010	—	—	5,010
Issuance of common stock upon exercise of stock options		—	1	—	1	4,153	—	—	4,155
Tax sharing arrangement with former parent		—	—	—	—	(16,090)	—	—	(16,090)
Noncontrolling interest activity at Charter		—	—	—	—	(2,384)	—	—	(2,384)
Balance at June 30, 2019	$	—	264	25	1,527	7,929,046	7,778	2,648,420	10,587,060


							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 March 31, 2019	$	—	263	25	1,526	7,943,795	7,778	2,636,368	10,589,755
Net earnings (loss)		—	—	—	—	—	—	12,052	12,052
Stock-based compensation		—	—	—	—	2,487	—	—	2,487
Issuance of common stock upon exercise of stock options		—	1	—	1	2,500	—	—	2,502
Tax sharing arrangement with former parent		—	—	—	—	(16,090)	—	—	(16,090)
Noncontrolling interest activity at Charter		—	—	—	—	(3,646)	—	—	(3,646)
Balance at June 30, 2019	$	—	264	25	1,527	7,929,046	7,778	2,648,420	10,587,060

See accompanying notes to the condensed consolidated financial statements.

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

(1) Basis of Presentation

During May 2014, the board of directors of Liberty Media Corporation and its subsidiaries (“Liberty”) authorized management to pursue a plan to spin-off to its stockholders common stock of a wholly-owned subsidiary, Liberty Broadband Corporation (“Liberty Broadband” or the “Company”), and to distribute subscription rights to acquire shares of Liberty Broadband’s common stock (the “Broadband Spin-Off”). These financial statements refer to Liberty Broadband Corporation as “Liberty Broadband,” “the Company,” “us,” “we” and “our” in the notes to the condensed consolidated financial statements.

Through a number of prior years’ transactions, Liberty Broadband has acquired an interest in Charter Communications, Inc. (“Charter”). Pursuant to proxy agreements with GCI Liberty, Inc. (“GCI Liberty”) and Advance/Newhouse Partnership (“A/N”), Liberty Broadband controls 25.01% of the aggregate voting power of Charter.

The Company’s wholly owned subsidiary, Skyhook Holding, Inc. (“Skyhook”), focuses on the development and sale of Skyhook’s device-based location technology. Skyhook markets and sells two primary products: (1) a location determination service called the Precision Location Solution; and (2) a location intelligence and data insights service called Geospatial Insights.

The accompanying (a) condensed consolidated balance sheet as of December 31, 2019, which has been derived from audited financial statements, and (b) interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for such periods have been included. The results of operations for any interim period are not necessarily indicative of results for the full year. Additionally, certain prior period amounts have been reclassified for comparability with current period presentation. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in Liberty Broadband's Annual Report on Form 10-K for the year ended December 31, 2019. All significant intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company considers the application of the equity method of accounting for investments in affiliates and accounting for income taxes to be its most significant estimates.

In December 2019, Chinese officials reported a novel coronavirus outbreak (“COVID-19”). COVID-19 has since spread through China and internationally. On March 11, 2020, the World Health Organization assessed COVID-19 as a global pandemic, causing many countries throughout the world to take aggressive actions, including imposing travel restrictions and stay-at-home orders, closing public attractions and restaurants, and mandating social distancing practices.

We are not presently aware of any events or circumstances arising from the COVID-19 pandemic that would require us to update our estimates or judgments or revise the carrying value of our assets or liabilities. Our estimates may change, however, as new events occur and additional information is obtained, any such changes will be recognized in the consolidated financial statements. Actual results could differ from estimates, and any such differences may be material to our financial statements.

Liberty Broadband holds an investment in Charter that is accounted for using the equity method. Liberty Broadband does not control the decision making process or business management practices of this affiliate. Accordingly, Liberty Broadband relies on the management of this affiliate to provide it with accurate financial information prepared in accordance with GAAP that the Company uses in the application of the equity method. In addition, Liberty Broadband relies on audit

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

reports that are provided by the affiliate's independent auditor on the financial statements of such affiliate. The Company is not aware, however, of any errors in or possible misstatements of the financial information provided by its equity affiliate that would have a material effect on Liberty Broadband's condensed consolidated financial statements.

On June 29, 2020, Liberty Broadband announced that a special committee of independent and disinterested directors formed by its board of directors, and a special committee of independent and disinterested directors formed by the board of directors of GCI Liberty, have informed Liberty Broadband and GCI Liberty that the special committees have reached a preliminary understanding regarding a possible exchange ratio (“Possible Exchange Ratio”) for a potential business combination transaction between Liberty Broadband and GCI Liberty (the “Potential Combination”), in which Liberty Broadband would acquire all of the outstanding shares of Series A common stock, Series B common stock, and Series A Cumulative Redeemable Preferred Stock of GCI Liberty in a stock-for-stock merger. The special committees of each of GCI Liberty and Liberty Broadband also reached a preliminary understanding with John C. Malone, Chairman of the Board of each of GCI Liberty and Liberty Broadband relating to the Potential Combination. Prior to any negotiations, including any discussions regarding a Possible Exchange Ratio or regarding any arrangements with Mr. Malone, the special committees of GCI Liberty and Liberty Broadband were formed and agreed with each other and with Mr. Malone that any Potential Combination would be subject to and conditioned upon (i) the negotiation by, and approval of, each special committee and (ii) approval by a non-waivable vote of the holders of a majority of the voting power of the outstanding shares of each company not held by Mr. Malone or any other interested parties.

The Company expects that there will be continued discussions between and among the special committees and Mr. Malone regarding a Potential Combination and related matters, including the negotiation of mutually acceptable transaction agreements. There can be no assurance, however, that any discussions that occur hereafter will result in the entry into definitive agreements concerning a Potential Combination or, if such definitive agreements are reached, that such definitive agreements will contain transaction terms consistent with those described above, nor can there be any assurance that a Potential Combination will ultimately be consummated. Discussions concerning a Potential Combination may be terminated at any time and without prior notice. Liberty Broadband does not intend to disclose developments with respect to the foregoing unless and until the special committees and the boards of directors of each of GCI Liberty and Liberty Broadband have approved a specific transaction, if any, except as may be required by law.

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. See below for a description of an amendment to the services agreement in December 2019. 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 $1.0 million and $17.0 million for the three months ended June 30, 2020 and 2019, respectively, and $2.2 million and $17.9 million for the six months ended June 30, 2020 and 2019, respectively.

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

In December 2019, the Company entered into an amendment to the services agreement with Liberty in connection with Liberty’s entry into a new employment arrangement with Gregory B. Maffei, the Company’s President and Chief Executive Officer. Under the amended services agreement, components of his compensation will either be paid directly to him by each of the Company, Liberty TripAdvisor Holdings, Inc., GCI Liberty, and Qurate Retail, Inc. (collectively, the “Service Companies”) or reimbursed to Liberty, in each case, based on allocations among Liberty and the Service Companies set forth in the amended services agreement, currently set at 18% for the Company.

(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	Six months	Six months
	ended	ended	ended	ended
	June 30, 2020	June 30, 2019	June 30, 2020	June 30, 2019

	(numbers of shares in thousands)
Basic WASO	181,925	181,450	181,914	181,409
Potentially dilutive shares (1)	921	1,382	913	1,340
Diluted WASO	182,846	182,832	182,827	182,749

(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 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.

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

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

June 30, 2020

December 31, 2019

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

11,598

—

48,174

—

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.

(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 June 30, 2020, the carrying and market value of Liberty Broadband’s ownership in Charter was approximately $12,307 million and $27,597 million, respectively. Liberty Broadband’s ownership in Charter is 26.4% of the outstanding equity of Charter as of June 30, 2020.

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 (23.4% at June 30, 2020) 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.

Liberty’s equity ownership in Charter (on a fully diluted basis) is capped at the greater of 26% or the cap on its voting interest. Liberty’s voting interest in Charter is capped at the greater of (x) 25.01% (or 0.01% above the person or group holding the highest voting percentage of Charter) and (y) 23.5% increased one-for-one to a maximum of 35% for each permanent reduction in A/N’s equity interest in Charter below 15%. As of June 30, 2020, Liberty does not believe it has exceeded the cap on its equity ownership in Charter.

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

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

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. 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.

During the six months ended June 30, 2020, Liberty Broadband exercised its preemptive right to purchase an aggregate of approximately 35 thousand shares of Charter’s Class A common stock for an aggregate purchase price of $14.9 million.

Investment in Charter

The excess basis in our investment in Charter of $4,555 million as of June 30, 2020 is allocated within memo accounts used for equity accounting purposes as follows (amounts in millions):


		June 30,	December 31,
		2020	2019
Property and equipment	$	236	225
Customer relationships		1,180	1,043
Franchise fees		2,182	1,996
Trademarks		29	29
Goodwill		1,883	1,630
Debt		(70)	(9)
Deferred income tax liability		(885)	(817)
	$	4,555	4,097

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 six months ended June 30, was primarily due to Charter’s share buyback program. The Company’s share of earnings (losses) of affiliates line item in the accompanying condensed consolidated statements of operations includes expenses of $41.7 million and $30.4 million, net of related taxes, for the three months ended June 30, 2020 and 2019, respectively, and expenses of $81.8 million and $56.0 million, net of related taxes, for the six months ended June 30, 2020 and 2019, 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 $46.0 million and $16.3 million during the three months ended June 30, 2020 and 2019, respectively, and a dilution loss of $105.3 million and $57.7 million during the six months ended June 30, 2020 and 2019, 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


	June 30, 2020		December 31, 2019
Current assets	$	4,770	6,537
Property and equipment, net		34,074	34,591
Goodwill		29,554	29,554
Intangible assets, net		73,808	74,775
Other assets		2,930	2,731
Total assets	$	145,136	148,188
Current liabilities		9,142	12,385
Deferred income taxes		17,789	17,711
Long-term debt		77,663	75,578
Other liabilities		4,141	3,703
Equity		36,401	38,811
Total liabilities and shareholders’ equity	$	145,136	148,188

Charter condensed consolidated statements of operations


	Three months ended			Six months ended
	June 30,			June 30,
	2020		2019	2020	2019
Revenue	$	11,696	11,347	23,434	22,553
Cost and expenses:
Operating costs and expenses (excluding depreciation and amortization)		7,297	7,244	14,729	14,480
Depreciation and amortization		2,428	2,500	4,925	5,050
Other operating (income) expenses, net		2	62	9	57
		9,727	9,806	19,663	19,587
Operating income		1,969	1,541	3,771	2,966
Interest expense, net		(957)	(945)	(1,937)	(1,870)
Other income (expense), net		30	(126)	(296)	(190)
Income tax benefit (expense)		(166)	(84)	(195)	(203)
Net income (loss)		876	386	1,343	703
Less: Net income attributable to noncontrolling interests		(110)	(72)	(181)	(136)
Net income (loss) attributable to Charter shareholders	$	766	314	1,162	567

(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. Outstanding borrowings under the facility were $575 million as of June 30, 2020 and December 31, 2019. As of June 30, 2020, SPV was permitted to borrow an additional $425 million, which may be drawn through 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 1.81% per annum at June 30, 2020 and is payable quarterly in arrears.

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 June 30, 2020, 6.8 million shares of Charter with a value of $3.5 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, restricted stock units (“RSUs”) 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 six months ended June 30, 2020 and 2019 (amounts in thousands):


	Three months			Six months
	ended			ended
	June 30,			June 30,
	2020		2019	2020	2019
Operating expense	$	12	11	13	48
Selling, general and administrative		1,921	2,512	3,721	5,091
	$	1,933	2,523	3,734	5,139

Liberty Broadband – Grants of Awards

During the six months ended June 30, 2020, Liberty Broadband granted 100 thousand options to purchase shares of Series C Liberty Broadband common stock to our CEO. Such options had a GDFV of $27.39 per share and vest on December 31, 2020.

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

There were no options to purchase shares of Series A or Series B common stock granted during the six months ended June 30, 2020.

During the six months ended June 30, 2020, Liberty Broadband granted 2 thousand time-based RSUs of Series C Liberty Broadband common stock to our CEO. The RSUs had a GDFV of $120.71 per share and cliff vest on December 10, 2020. This RSU grant was issued in lieu of our CEO receiving 50% of his remaining base salary for the last three quarters of calendar year 2020, and he has waived his right to receive the other 50%, in each case, in light of the ongoing financial impact of COVID-19.

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. 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	WAEP		life	value
	(in thousands)			(in years)	(in millions)
Outstanding at January 1, 2020	4	$	47.92
Granted	—	$	—
Exercised	(3)	$	51.83
Forfeited/cancelled	—	$	—
Outstanding at June 30, 2020	1	$	40.92	1.8	$	—
Exercisable at June 30, 2020	1	$	40.92	1.8	$	—


							Weighted
							average
							remaining		Aggregate
							contractual

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-18
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