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, 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 October 31, 2020 was:

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LIBERTY BROADBAND CORPORATION

Condensed Consolidated Balance Sheets

(unaudited)


	September 30,		December 31,
	2020		2019

	(amounts in thousands)
Assets
Current assets:
Cash and cash equivalents	$	400,268	49,724
Other current assets		2,224	2,409
Total current assets		402,492	52,133
Investment in Charter, accounted for using the equity method (note 4)		12,450,425	12,194,674
Other assets		8,772	9,535
Total assets	$	12,861,689	12,256,342
Liabilities and Equity
Current liabilities:
Accounts payable and accrued liabilities	$	7,699	6,168
Deferred revenue and other current liabilities		8,640	5,971
Total current liabilities		16,339	12,139
Debt, including $621,000 and $0 measured at fair value, respectively (note 5)		1,318,664	572,944
Deferred income tax liabilities		1,036,672	999,757
Other liabilities		2,764	3,556
Total liabilities		2,374,439	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 26,495,183 shares at September 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 September 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 150,952,521 shares at September 30, 2020 and 152,956,316 shares at December 31, 2019		1,510	1,529
Additional paid-in capital		7,587,627	7,890,084
Accumulated other comprehensive earnings, net of taxes		(3,394)	8,158
Retained earnings		2,901,217	2,767,885
Total equity		10,487,250	10,667,946
Commitments and contingencies (note 7)
Total liabilities and equity	$	12,861,689	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			Nine months ended
	September 30,			September 30,
	2020		2019	2020	2019

	(amounts in thousands, except per share amounts)
Revenue:
Software sales	$	4,209	3,713	12,317	10,918
Service		10	—	120	—
Total revenue		4,219	3,713	12,437	10,918
Operating costs and expenses
Operating, including stock-based compensation (note 6)		2,523	2,323	7,515	6,803
Selling, general and administrative, including stock-based compensation (note 6)		17,968	8,507	37,316	23,662
Depreciation and amortization		56	471	1,041	1,408
		20,547	11,301	45,872	31,873
Operating income (loss)		(16,328)	(7,588)	(33,435)	(20,955)
Other income (expense):
Interest expense		(3,719)	(6,123)	(14,711)	(19,008)
Share of earnings (losses) of affiliates (note 4)		188,586	61,633	408,396	141,882
Gain (loss) on dilution of investment in affiliate (note 4)		(35,284)	(11,219)	(140,610)	(68,944)
Realized and unrealized gains (losses) on financial instruments, net (note 3)		(39,324)	(433)	(39,324)	(433)
Other, net		8	350	199	1,179
Net earnings (loss) before income taxes		93,939	36,620	180,515	33,721
Income tax benefit (expense)		(24,979)	(9,124)	(47,183)	(8,474)
Net earnings (loss) attributable to Liberty Broadband shareholders	$	68,960	27,496	133,332	25,247
Basic net earnings (loss) attributable to Series A, Series B and Series C Liberty Broadband shareholders per common share (note 2)	$	0.38	0.15	0.73	0.14
Diluted net earnings (loss) attributable to Series A, Series B and Series C Liberty Broadband shareholders per common share (note 2)	$	0.38	0.15	0.73	0.14

See accompanying notes to the condensed consolidated financial statements.

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LIBERTY BROADBAND CORPORATION

Condensed Consolidated Statements of Comprehensive Earnings (Loss)

(unaudited)


	Three months ended			Nine months ended
	September 30,			September 30,
	2020		2019	2020	2019

	(amounts in thousands)
Net earnings (loss)	$	68,960	27,496	133,332	25,247
Other comprehensive earnings (loss), net of taxes:
Comprehensive earnings (loss) attributable to debt credit risk adjustments		(11,552)	—	(11,552)	—
Other comprehensive earnings (loss), net of taxes		(11,552)	—	(11,552)	—
Comprehensive earnings (loss) attributable to Liberty Broadband shareholders	$	57,408	27,496	121,780	25,247

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,
	2020		2019

	(amounts in thousands)
Cash flows from operating activities:
Net earnings (loss)	$	133,332	25,247
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization		1,041	1,408
Stock-based compensation		5,736	7,670
Share of (earnings) losses of affiliates, net		(408,396)	(141,882)
(Gain) loss on dilution of investment in affiliate		140,610	68,944
Realized and unrealized (gains) losses on financial instruments, net		39,324	433
Deferred income tax expense (benefit)		47,183	8,474
Other, net		1,070	1,016
Changes in operating assets and liabilities:
Current and other assets		244	(927)
Payables and other liabilities		3,044	2,385
Net cash provided (used) by operating activities		(36,812)	(27,232)
Cash flows from investing activities:
Capital expended for property and equipment		(42)	(75)
Exercise of preemptive right to purchase Charter shares		(14,910)	—
Net cash provided (used) by investing activities		(14,952)	(75)
Cash flows from financing activities:
Borrowings of debt		700,000	50,000
Repurchases of Liberty Broadband common stock		(285,722)
Payments from issuances of financial instruments		—	(46,330)
Payment to former parent under tax sharing agreement related to net settlement of Awards		—	(16,090)
Taxes paid in lieu of shares issued for stock-based compensation		(2,121)	—
Other financing activities, net		(9,849)	3,170
Net cash provided (used) by financing activities		402,308	(9,250)
Net increase (decrease) in cash		350,544	(36,557)
Cash, cash equivalents and restricted cash, beginning of period		49,724	83,103
Cash, cash equivalents and restricted cash, end of period	$	400,268	46,546

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)		—	—	—	—	—	—	133,332	133,332
Other comprehensive loss		—	—	—	—	—	(11,552)	—	(11,552)
Stock-based compensation		—	—	—	—	5,684	—	—	5,684
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)
Series C Liberty Broadband stock repurchases		—	—	—	(20)	(285,702)	—	—	(285,722)
Noncontrolling interest activity at Charter		—	—	—	—	(20,343)	—	—	(20,343)
Balance at September 30, 2020	$	—	265	25	1,510	7,587,627	(3,394)	2,901,217	10,487,250


							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, 2020	$	—	265	25	1,530	7,878,499	8,158	2,832,257	10,720,734
Net earnings (loss)		—	—	—	—	—	—	68,960	68,960
Other comprehensive loss		—	—	—	—	—	(11,552)	—	(11,552)
Stock-based compensation		—	—	—	—	1,979	—	—	1,979
Series C Liberty Broadband stock repurchases		—	—	—	(20)	(285,702)	—	—	(285,722)
Noncontrolling interest activity at Charter		—	—	—	—	(7,149)	—	—	(7,149)
Balance at September 30, 2020	$	—	265	25	1,510	7,587,627	(3,394)	2,901,217	10,487,250

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)		—	—	—	—	—	—	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
Tax sharing arrangement with former parent		—	—	—	—	(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

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, and 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 August 6, 2020, Liberty Broadband and GCI Liberty entered into a definitive merger agreement under which Liberty Broadband agreed to acquire all of the outstanding shares of GCI Liberty in a stock-for-stock merger (the “Combination”). Under the terms of the merger agreement each holder of Series A and B common stock of GCI Liberty will receive 0.58 of a share of Series C common stock and Series B common stock, respectively, of Liberty Broadband. Additionally, holders of a share of Series A Cumulative Redeemable Preferred Stock of GCI Liberty will receive one share of Series A Cumulative Redeemable Preferred Stock with mirror terms to be issued by Liberty Broadband. The Combination was recommended to the Company’s Board of Directors for approval by a special committee composed solely of independent, disinterested directors and advised by independent financial and legal advisors. The closing of the Combination is subject to certain customary conditions, including: (i) the adoption of the merger agreement by holders of a majority of the aggregate voting power of the GCI Liberty outstanding stock entitled to vote thereon not owned by John C. Malone and certain other persons, (ii) the adoption of the merger agreement by holders of a majority of the aggregate voting power of the Liberty Broadband outstanding stock entitled to vote thereon not owned by John C. Malone and certain other persons, (iii) the adoption of the merger agreement by holders of a majority of the aggregate voting power of the GCI Liberty outstanding stock entitled to vote thereon, (iv) approval of the Liberty Broadband stock issuance by holders of a majority of the aggregate voting power of the Liberty Broadband outstanding stock present in person or by proxy at the stockholder meeting and entitled to vote thereon and (v) the receipt of any applicable regulatory approvals. Liberty Broadband and GCI Liberty expect the Combination to close no later than the first quarter of 2021, subject to potential COVID-19 related delays.

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 $0.7 million for the three months ended September 30, 2020 and 2019, respectively, and $3.2 million and $18.6 million for the nine months ended September 30, 2020 and 2019, respectively.

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.

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

(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, 2020	September 30, 2019	September 30, 2020	September 30, 2019

	(numbers of shares in thousands)
Basic WASO	181,472	181,522	181,765	181,409
Potentially dilutive shares (1)	1,031	1,451	953	1,377
Diluted WASO	182,503	182,973	182,718	182,786

(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.

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

September 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

375,615

—

48,174

—

Exchangeable senior debentures

621,000

—

621,000

—

The Company’s exchangeable senior debentures are debt instruments with quoted market value prices that are not considered to be traded on “active markets”, as defined in GAAP, and are reported in the foregoing table as Level 2 fair value.

Other Financial Instruments

The carrying amounts of other financial instruments not measured at fair value on a recurring basis include trade receivables, trade payables, and accrued and other current liabilities, which approximate fair value due to the short maturity

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

of these instruments as reported on our condensed consolidated balance sheets. The carrying value of our long-term debt under the Margin Loan Facility (as defined in note 5 to the accompanying condensed consolidated financial statements) bears interest at a variable rate and therefore is also considered to approximate fair value.

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,
	2020		2019	2020		2019

	(amounts in thousands)
Derivative instruments (1)	$	—	(433)		—	(433)
Exchangeable senior debentures (2)		(39,324)	NA		(39,324)	NA
	$	(39,324)	(433)		(39,324)	(433)

(1)

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.

(2)

The Company has elected to account for its exchangeable senior debentures entered into in August 2020 using the fair value option. Changes in the fair value of the exchangeable senior debentures recognized in the condensed consolidated statements of operations are primarily due to market factors driven by changes in the fair value of the underlying shares into which debt is exchangeable. The Company isolates the portion of the unrealized gain (loss) attributable to the change in the instrument specific credit risk and recognizes such amount in other comprehensive income. The change in the fair value of the exchangeable senior debentures attributable to changes in the instrument specific credit risk before tax was a loss of $15.3 million for the three and nine months ended September 30, 2020.

(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, 2020, the carrying and market value of Liberty Broadband’s ownership in Charter was approximately $12,450 million and $33,781 million, respectively. Liberty Broadband’s ownership in Charter is 27.1% of the outstanding equity of Charter as of September 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 (24.0% at September 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 Broadband’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 Broadband’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

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

35% for each permanent reduction in A/N’s equity interest in Charter below 15%. As of September 30, 2020, Liberty Broadband 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 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 nine months ended September 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 $5,167 million as of September 30, 2020 is allocated within memo accounts used for equity accounting purposes as follows (amounts in millions):


		September 30,	December 31,
		2020	2019
Property and equipment	$	307	225
Customer relationships		1,381	1,043
Franchise fees		2,402	1,996
Trademarks		29	29
Goodwill		2,182	1,630
Debt		(144)	(9)
Deferred income tax liability		(990)	(817)
	$	5,167	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 nine months ended September 30, 2020 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 $25.5 million and $32.7 million, net of related taxes, for the three months ended September 30, 2020 and 2019, respectively, and expenses of $107.3 million and $88.7 million, net of related taxes, for the nine months ended September 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 $35.3 million and $11.2 million during the three months ended September 30, 2020 and 2019, respectively, and a dilution loss of $140.6 million and $68.9 million during the nine months ended September 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.

I-12

Table of Contents

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, 2020		December 31, 2019
Current assets	$	4,063	6,537
Property and equipment, net		34,196	34,591
Goodwill		29,554	29,554
Intangible assets, net		73,372	74,775
Other assets		3,008	2,731
Total assets	$	144,193	148,188
Current liabilities		10,256	12,385
Deferred income taxes		17,929	17,711
Long-term debt		77,947	75,578
Other liabilities		4,349	3,703
Equity		33,712	38,811
Total liabilities and shareholders’ equity	$	144,193	148,188

Charter condensed consolidated statements of operations


	Three months ended			Nine months ended
	September 30,			September 30,
	2020		2019	2020	2019
Revenue	$	12,039	11,450	35,473	34,003
Cost and expenses:
Operating costs and expenses (excluding depreciation and amortization)		7,483	7,435	22,212	21,915
Depreciation and amortization		2,370	2,415	7,295	7,465
Other operating (income) expenses, net		14	14	23	71
		9,867	9,864	29,530	29,451
Operating income		2,172	1,586	5,943	4,552
Interest expense, net		(946)	(963)	(2,883)	(2,833)
Other income (expense), net		(117)	(30)	(413)	(220)
Income tax benefit (expense)		(177)	(126)	(372)	(329)
Net income (loss)		932	467	2,275	1,170
Less: Net income attributable to noncontrolling interests		(118)	(80)	(299)	(216)
Net income (loss) attributable to Charter shareholders	$	814	387	1,976	954

I-13

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 Comprehensive Earnings (Loss) (unaudited)	I-4
LIBERTY BROADBAND CORPORATION Condensed Consolidated Statements of Cash Flows (unaudited)	I-5
LIBERTY BROADBAND CORPORATION Condensed Consolidated Statements of Equity (unaudited)	I-6
LIBERTY BROADBAND CORPORATION Notes to Condensed Consolidated Financial Statements (unaudited)	I-8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	I-21
Item 3. Quantitative and Qualitative Disclosures about Market Risk	I-29
Item 4. Controls and Procedures	I-29

Part II - Other Information

Item 1. Legal Proceedings	II-1
Item 1A. Risk Factors	II-2
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	II-3
Item 6. Exhibits	II-5

SIGNATURES	II-6


	Outstanding

Liberty Broadband Corporation Common Stock