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Table of Contents

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 March 31, 2021

OR

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

For the transition period from                to                

Commission File Number 001-36713

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: (720875-5700

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

Series A Cumulative Redeemable preferred stock

LBRDP

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 April 30, 2021 was:

Series A

Series B

Series C

Liberty Broadband Corporation common stock

26,495,671

2,549,048

160,240,257

Table of Contents

Table of Contents

Part I - Financial Information

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-4

LIBERTY BROADBAND CORPORATION Condensed Consolidated Statements of Comprehensive Earnings (Loss) (unaudited)

I-5

LIBERTY BROADBAND CORPORATION Condensed Consolidated Statements of Cash Flows (unaudited)

I-6

LIBERTY BROADBAND CORPORATION Condensed Consolidated Statements of Equity (unaudited)

I-7

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-26

Item 3. Quantitative and Qualitative Disclosures about Market Risk

I-39

Item 4. Controls and Procedures

I-41

Part II - Other Information

Item 1. Legal Proceedings

II-1

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

II-2

Item 6. Exhibits

II-3

SIGNATURES

II-4

I-1

Table of Contents

LIBERTY BROADBAND CORPORATION

Condensed Consolidated Balance Sheets

(unaudited)

March 31,

December 31,

2021

2020

 

amounts in thousands

 

Assets

    

    

    

    

Current assets:

Cash and cash equivalents

$

1,177,161

 

1,417,802

Trade and other receivables, net of allowance for doubtful accounts of $537 and $10, respectively

201,228

349,256

Other current assets

 

82,954

 

79,453

Total current assets

 

1,461,343

 

1,846,511

Investment in Charter, accounted for using the equity method (note 5)

 

15,734,862

 

16,178,939

Property and equipment, net

1,071,969

1,098,512

Intangible assets not subject to amortization

Goodwill

764,686

745,577

Cable certificates

550,000

560,000

Other

36,500

21,500

Intangible assets subject to amortization, net (note 6)

624,956

674,049

Tax sharing receivable

86,260

94,549

Other assets, net

 

160,466

 

151,487

Total assets

$

20,491,042

 

21,371,124

See accompanying notes to the condensed consolidated financial statements.

I-2

Table of Contents

LIBERTY BROADBAND CORPORATION

Condensed Consolidated Balance Sheets (Continued)

(unaudited)

March 31,

December 31,

2021

2020

 

amounts in thousands,

 

except share amounts

Liabilities and Equity

Current liabilities:

Accounts payable and accrued liabilities

$

198,045

 

97,933

Deferred revenue

 

22,244

 

24,926

Current portion of debt, including $24,741 and $26,350 measured at fair value, respectively (note 7)

29,425

31,026

Indemnification obligation (note 4)

292,873

344,643

Other current liabilities

133,499

113,234

Total current liabilities

 

676,086

 

611,762

Long-term debt, net, including $1,399,600 and $1,445,775 measured at fair value, respectively (note 7)

4,557,172

4,785,207

Obligations under finance leases and tower obligations, excluding current portion

91,524

92,840

Long-term deferred revenue

38,278

39,649

Deferred income tax liabilities

1,974,045

1,977,643

Preferred stock (note 8)

202,795

202,917

Other liabilities

140,910

146,687

Total liabilities

 

7,680,810

 

7,856,705

Equity

Series A common stock, $.01 par value. Authorized 500,000,000 shares; issued and outstanding 26,495,557 and 26,495,249 at March 31, 2021 and December 31, 2020, respectively

265

265

Series B common stock, $.01 par value. Authorized 18,750,000 shares; issued and outstanding 2,549,162 and 2,549,470 at March 31, 2021 and December 31, 2020, respectively

25

25

Series C common stock, $.01 par value. Authorized 500,000,000 shares; issued and outstanding 162,652,971 and 167,480,926 at March 31, 2021 and December 31, 2020, respectively

1,627

1,675

Additional paid-in capital

9,563,275

10,319,754

Accumulated other comprehensive earnings, net of taxes

 

15,597

 

15,436

Retained earnings

 

3,217,724

 

3,165,504

Total stockholders' equity

12,798,513

13,502,659

Non-controlling interests

11,719

11,760

Total equity

 

12,810,232

 

13,514,419

Commitments and contingencies (note 10)

 

 

Total liabilities and equity

$

20,491,042

 

21,371,124

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 

 

March 31,

 

2021

    

2020

 

amounts in thousands, except per share amounts

Revenue

$

246,534

4,104

Operating costs and expenses

Operating, including stock-based compensation (note 9)

69,178

2,468

Selling, general and administrative, including stock-based compensation and transaction costs (note 9)

104,473

8,418

Depreciation and amortization

63,762

493

Litigation settlement

110,000

347,413

11,379

Operating income (loss)

(100,879)

(7,275)

Other income (expense):

Interest expense (including amortization of deferred loan fees)

(33,143)

(5,861)

Share of earnings (losses) of affiliates (note 5)

188,979

61,682

Gain (loss) on dilution of investment in affiliate (note 5)

(82,215)

(59,325)

Realized and unrealized gains (losses) on financial instruments, net (note 4)

99,348

Other, net

(8,126)

163

Earnings (loss) before income taxes

63,964

(10,616)

Income tax (expense) benefit

(11,785)

2,774

Net earnings (loss)

52,179

(7,842)

Less net earnings (loss) attributable to the non-controlling interests

(41)

Net earnings (loss) attributable to Liberty Broadband shareholders

$

52,220

(7,842)

Basic net earnings (loss) attributable to Series A, Series B and Series C Liberty Broadband shareholders per common share (note 2)

$

0.27

(0.04)

Diluted net earnings (loss) attributable to Series A, Series B and Series C Liberty Broadband shareholders per common share (note 2)

$

0.27

(0.04)

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 

 

March 31,

 

2021

    

2020

 

amounts in thousands

 

Net earnings (loss)

    

$

52,179

(7,842)

Other comprehensive earnings (loss), net of taxes:

Comprehensive earnings (loss) attributable to debt credit risk adjustments

161

Other

Other comprehensive earnings (loss), net of taxes

161

Comprehensive earnings (loss)

52,340

(7,842)

Less comprehensive earnings (loss) attributable to the non-controlling interests

(41)

Comprehensive earnings (loss) attributable to Liberty Broadband shareholders

$

52,381

(7,842)

See accompanying notes to the condensed consolidated financial statements.

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LIBERTY BROADBAND CORPORATION

Condensed Consolidated Statements of Cash Flows

(unaudited)

Three months ended

March 31,

 

2021

2020

 

amounts in thousands

 

Cash flows from operating activities:

    

    

    

    

Net earnings (loss)

$

52,179

 

(7,842)

Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:

Depreciation and amortization

 

63,762

 

493

Stock-based compensation

 

9,870

 

1,801

Litigation settlement

110,000

Share of (earnings) losses of affiliate, net

 

(188,979)

 

(61,682)

(Gain) loss on dilution of investment in affiliate

 

82,215

 

59,325

Realized and unrealized (gains) losses on financial instruments, net

 

(99,348)

 

Deferred income tax expense (benefit)

 

10,669

 

(2,774)

Other, net

 

(739)

 

436

Changes in operating assets and liabilities:

Current and other assets

 

164,639

 

(192)

Payables and other liabilities

 

(11,304)

 

(4,066)

Net cash provided by (used in) operating activities

 

192,964

 

(14,501)

Cash flows from investing activities:

Capital expended for property and equipment

(28,617)

(15)

Exercise of preemptive right to purchase Charter shares

(14,910)

Cash received for Charter shares repurchased by Charter

518,405

Other investing activities, net

141

Net cash provided by (used in) investing activities

489,929

(14,925)

Cash flows from financing activities:

Repayments of debt, finance leases and tower obligations

(182,571)

Repurchases of Liberty Broadband common stock

(738,411)

Other financing activities, net

 

(2,481)

 

(1,941)

Net cash provided by (used in) financing activities

 

(923,463)

 

(1,941)

Net increase (decrease) in cash, cash equivalents and restricted cash

(240,570)

 

(31,367)

Cash, cash equivalents and restricted cash, beginning of period

1,433,292

49,724

Cash, cash equivalents and restricted cash, end of period

$

1,192,722

18,357

The following table reconciles cash and cash equivalents and restricted cash reported in the accompanying condensed consolidated balance sheets to the total amount presented in the accompanying condensed consolidated statement of cash flows:

March 31,

December 31,

2021

2020

amounts in thousands

Cash and cash equivalents

$

1,177,161

1,417,802

Restricted cash included in other current assets

15,561

15,490

Total cash and cash equivalents and restricted cash at end of period

$

1,192,722

1,433,292

See accompanying notes to the condensed consolidated financial statements.

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LIBERTY BROADBAND CORPORATION

Condensed Consolidated Statements of Equity

(unaudited)

Accumulated

Noncontrolling

Additional

other

interest in

Common stock

paid-in

comprehensive

Retained

equity of

Series A

  

Series B

  

Series C

  

capital

earnings

earnings

subsidiaries

Total equity

amounts in thousands

Balance at January 1, 2021

    

$

265

25

1,675

10,319,754

    

15,436

    

3,165,504

11,760

    

13,514,419

Net earnings (loss)

 

 

52,220

(41)

 

52,179

Other comprehensive loss

161

161

Stock-based compensation

9,859

9,859

Issuance of common stock upon exercise of stock options

151

151

Withholding taxes on net share settlements of stock-based compensation

(2,631)

(2,631)

Series C Liberty Broadband stock repurchases

(48)

(738,363)

(738,411)

Noncontrolling interest activity at Charter and other

(25,495)

(25,495)

Balance at March 31, 2021

$

265

25

1,627

9,563,275

 

15,597

 

3,217,724

11,719

 

12,810,232

Accumulated

Additional

other

Common stock

paid-in

comprehensive

Retained

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)

(7,842)

(7,842)

Stock-based compensation

1,805

1,805

Issuance of common stock upon exercise of stock options

1

3

4

Withholding taxes on net share settlements of stock-based compensation

(1,944)

(1,944)

Noncontrolling interest activity at Charter

(12,998)

(12,998)

Balance at March 31, 2020

$

265

25

1,530

7,876,950

8,158

2,760,043

10,646,971

See accompanying notes to the condensed consolidated financial statements.

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Table of Contents

LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

(1) Basis of Presentation

Liberty Broadband Corporation (“Liberty Broadband”, “the Company,” “us,” “we” and “our”), is primarily comprised of a wholly owned subsidiary, GCI Holdings, LLC (“GCI Holdings”) (as of December 18, 2020) and an equity method investment in Charter Communications, Inc. (“Charter”).  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, and to distribute subscription rights to acquire shares of Liberty Broadband’s common stock (the “Broadband Spin-Off”).

On December 18, 2020, pursuant to the Agreement and Plan of Merger, dated as of August 6, 2020, entered into by GCI Liberty, Inc. (“GCI Liberty”), Liberty Broadband, Grizzly Merger Sub 1, LLC, a wholly owned subsidiary of Liberty Broadband (“Merger LLC”), and Grizzly Merger Sub 2, Inc., a wholly owned subsidiary of Merger LLC (“Merger Sub”), Merger Sub merged with and into GCI Liberty (the “First Merger”), with GCI Liberty surviving the First Merger as an indirect wholly owned subsidiary of Liberty Broadband (the “Surviving Corporation”), and immediately following the First Merger, GCI Liberty (as the Surviving Corporation in the First Merger) merged with and into Merger LLC (the “Upstream Merger”, and together with the First Merger, the “Combination”), with Merger LLC surviving the Upstream Merger as a wholly owned subsidiary of Liberty Broadband.

As a result of the Combination, each holder of a share of Series A common stock and Series B common stock of GCI Liberty received 0.58 of a share of Series C common stock and Series B common stock, respectively, of Liberty Broadband.  Additionally, each holder of a share of Series A Cumulative Redeemable Preferred Stock of GCI Liberty (“GCI Liberty Preferred Stock”) received one share of newly issued Liberty Broadband Series A Cumulative Redeemable Preferred Stock (“Liberty Broadband Preferred Stock”), which has substantially identical terms to GCI Liberty’s former Series A Cumulative Redeemable Preferred Stock, including a mandatory redemption date of March 9, 2039. Cash was paid in lieu of issuing fractional shares of Liberty Broadband stock in the Combination. No shares of Liberty Broadband stock were issued with respect to shares of GCI Liberty capital stock held by (i) GCI Liberty as treasury stock, (ii) any of GCI Liberty’s wholly owned subsidiaries or (iii) Liberty Broadband or its wholly owned subsidiaries.

The accompanying (a) condensed consolidated balance sheet as of December 31, 2020, 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, 2020. 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 (i) the application of the equity method of accounting for its affiliates, (ii) non-recurring fair value measurements of non-financial instruments and (iii) 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

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

stay-at-home orders, closing public attractions and restaurants, and mandating social distancing practices, which has caused a significant disruption to most sectors of the economy.

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 condensed consolidated financial statements. Actual results could differ from estimates, and any such differences may be material to our financial statements.

Through a number of prior years’ transactions, including the Combination, Liberty Broadband has acquired an interest in Charter.  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 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.

Spin-Off Arrangements

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 and to provide for an orderly transition, including a services agreement and a facilities sharing agreement.    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.

Pursuant to the services agreement, Liberty provides Liberty Broadband with general and administrative services including legal, tax, accounting, treasury and investor relations support.  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 would either be paid directly to him by each of the Company, Liberty TripAdvisor Holdings, Inc., GCI Liberty, and Qurate Retail, Inc. (“Qurate Retail”) (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 but subject to adjustment on an annual basis upon the occurrence of certain events. Following the Combination, GCI Liberty no longer participates in the services agreement arrangement.

Additionally, in connection with a prior transaction, GCI Liberty and Qurate Retail (for accounting purposes a related party of the Company) entered into a tax sharing agreement, which was assumed by Liberty Broadband as a result of the Combination.  The tax sharing agreement provides for the allocation and indemnification of tax liabilities and benefits between Qurate Retail and Liberty Broadband and other agreements related to tax matters.

Under these various agreements, amounts reimbursable to Liberty were approximately $3.5 million and $1.1 million for the three months ended March 31, 2021 and 2020, respectively.  Liberty Broadband had a tax sharing receivable with Qurate Retail of $110.0 million and $119.0 million as of March 31, 2021 and December 31, 2020, respectively, of which $23.7 million and $24.4 million was in Other current assets as of March 31, 2021 and December 31, 2020, respectively.

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

(2) Earnings Attributable to Liberty Broadband Stockholders Per Common 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.  Excluded from diluted EPS for the three months ended March 31, 2021 and 2020 are 893 thousand and zero potential common shares, respectively, because their inclusion would have been antidilutive.

Liberty Broadband Common Stock

Three months

Three months

 

ended

ended

    

March 31, 2021

    

March 31, 2020

 

(numbers of shares in thousands)

Basic WASO

 

194,433

 

181,902

Potentially dilutive shares (1)

 

1,681

 

906

Diluted WASO

 

196,114

 

182,808

(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) Acquisition

On December 18, 2020, the Company completed the Combination with GCI Liberty.  The Company accounted for the Combination using the acquisition method of accounting.  

The following details the acquisition consideration as of December 18, 2020 (amounts in thousands), which is primarily based on level 1 inputs:

Fair value of newly issued Liberty Broadband Series C and B common stock 1

$

9,695,184

Fair value of newly issued Liberty Broadband Preferred Stock 2

202,944

Fair value of share-based payment replacement awards 3

104,683

Total fair value of consideration

10,002,811

Less: Fair value of Liberty Broadband shares attributable to share repurchase 4

(6,738,609)

Total fair value of consideration attributable to business combination

3,264,202

Less: Fair value of newly issued Liberty Broadband Preferred Stock2

(202,944)

Less: Fair value of share-based payment replacement awards accounted for as liability awards

(1,309)

Total fair value of acquisition consideration to be allocated

$

3,059,949

(1)The fair value of newly issued Series C and B Liberty Broadband common stock was calculated by multiplying (i) the outstanding shares of GCI Liberty Series A and B common stock as of December 18, 2020 (ii) the exchange ratio of 0.580, and (iii) the closing share price of Liberty Broadband Series C and B common stock on December 18, 2020. Liberty Broadband issued 61.3 million shares of Series C common stock and 98 thousand shares of Series B common stock.

(2)The fair value of the newly issued Liberty Broadband Preferred Stock was calculated by multiplying (i) the outstanding shares of GCI Liberty Preferred Stock as of December 18, 2020, and (ii) the closing share price of GCI

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

Liberty Preferred Stock on December 18, 2020.  The GCI Liberty Preferred Stock was converted on a one to one ratio into Liberty Broadband Preferred Stock.  

(3)This amount represents the fair value of share-based payment replacement awards.

(4)GCI Liberty owned approximately 42.7 million shares of Liberty Broadband Series C common stock.  The acquisition of Liberty Broadband Series C common stock is accounted for as a share repurchase by Liberty Broadband.  This amount was calculated by multiplying (i) the number of shares of Liberty Broadband Series C common stock owned by GCI Liberty as of December 18, 2020 and (ii) the closing share price of Liberty Broadband Series C common stock on December 18, 2020.

The application of the acquisition method resulted in the assignment of purchase price to the GCI Liberty assets acquired and liabilities assumed based on preliminary estimates of their acquisition date fair values (primarily level 3). The determination of the fair values of the acquired assets and liabilities (and the determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment.

The preliminary acquisition purchase price allocation for GCI Liberty is as follows (amounts in thousands):

Cash and cash equivalents including restricted cash

    

$

592,240

Receivables

 

339,061

Property and equipment

 

1,108,588

Goodwill

 

758,189

Investment in Charter

3,493,677

Intangible assets not subject to amortization

 

586,500

Intangible assets subject to amortization

 

638,855

Other assets

 

302,570

Deferred revenue

 

(60,292)

Debt, including obligations under tower and finance leases

 

(2,772,147)

Indemnification liability

(336,141)

Deferred income tax liabilities

 

(1,018,993)

Preferred stock

 

(202,944)

Non-controlling interest

 

(11,771)

Other liabilities

 

(357,443)

$

3,059,949

Goodwill is calculated as the excess of the consideration transferred over the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce, value associated with future customers, continued innovation and non-contractual relationships. Amortizable intangible assets of $638.9 million were acquired and are comprised of customer relationships with a weighted average useful life of approximately 14 years and right-to-use assets with a weighted average useful life of approximately 12 years. Approximately $134.3 million of the acquired goodwill will be deductible for income tax purposes. As of March 31, 2021, the valuation related to the acquisition of GCI Liberty is not final, and the acquisition price allocation is preliminary and subject to revision.  The primary areas of our acquisition price allocation that changed from the initial allocation relate to an increase to property and equipment of $3.5 million, an increase to goodwill of $19.1 million, an increase to intangible assets not subject to amortization of $5.0 million, a decrease to intangible assets subject to amortization of $35.0 million and an increase to deferred income tax liabilities of $7.4 million. The primary areas of the acquisition price allocation that are not yet finalized are related to property and equipment, intangible assets, liabilities, deferred income tax liabilities, and discount rates used to determine the fair value of intangible assets.  

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

The unaudited pro forma revenue, net earnings and basic and diluted net earnings per common share of Liberty Broadband, prepared utilizing the historical financial statements of Liberty Broadband, giving effect to acquisition accounting related adjustments made at the time of acquisition, as if the acquisition discussed above occurred on January 1, 2019, are as follows:

Three months ended 

March 31, 2020

amounts in thousands,

except per share amounts

Revenue

$

238,383

Net earnings (loss)

$

12,318

Net earnings (loss) attributable to Liberty Broadband shareholders

$

12,343

Basic net earnings (loss) attributable to Series A, Series B and Series C Liberty Broadband shareholders per common share

$

0.07

Diluted net earnings (loss) attributable to Series A, Series B and Series C Liberty Broadband shareholders per common share

$

0.07

The pro forma results include adjustments directly attributable to the business combination including adjustments related to the amortization of acquired tangible and intangible assets, revenue, interest expense, stock-based compensation, and the exclusion of transaction related costs. The pro forma information is not representative of the Company’s future results of operations nor does it reflect what the Company’s results of operations would have been if the acquisition had occurred previously and the Company consolidated the results of GCI Liberty during the period presented.

(4) 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:

March 31, 2021

December 31, 2020

 

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

$

1,108,784

1,108,784

1,368,176

1,368,176

Indemnification obligation

$

292,873

292,873

344,643

344,643

Exchangeable senior debentures

$

1,424,341

1,424,341

1,472,125

1,472,125

Pursuant to an indemnification agreement initially entered into by GCI Liberty and assumed by Liberty Broadband in connection with the Combination,  Liberty Broadband has agreed to indemnify Liberty Interactive LLC (“LI LLC”), a subsidiary of Qurate Retail, for certain payments made to holders of LI LLC’s 1.75% exchangeable debentures due 2046 (the

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Table of Contents

LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

"LI LLC 1.75% Exchangeable Debentures"). An indemnity obligation in the amount of $336.1 million was recorded upon completion of the Combination. The indemnification liability due to LI LLC pertains to the holders’ ability to exercise their exchange right according to the terms of the LI LLC 1.75% Exchangeable Debentures on or before October 5, 2023. Such amount will equal the difference between the exchange value and par value of the LI LLC 1.75% Exchangeable Debentures at the time the exchange occurs. The indemnification obligation recorded in the condensed consolidated balance sheets as of March 31, 2021 represents the fair value of the estimated exchange feature included in the LI LLC 1.75% Exchangeable Debentures primarily based on observable market data as significant inputs (Level 2). As of March 31, 2021, a holder of the LI LLC 1.75% Exchangeable Debentures has the ability to exchange and, accordingly, such indemnification obligation is included as a current liability in the Company’s condensed consolidated balance sheets.

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

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 (with the exception of the 1.75% Debentures (defined in note 7)) and long-term debt (with the exception of the 1.25% Debentures and the 2.75% Debentures (defined in note 7)). 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.

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

 

March 31,

 

2021

2020

 

amounts in thousands

 

Indemnification obligation

$

51,770

Exchangeable senior debentures (1)

47,578

$

99,348

(1)The Company has elected to account for its exchangeable senior debentures 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 gain of $205 thousand and zero for the three months ended March 31, 2021 and 2020, respectively.  The cumulative change was a gain of $8.8 million as of March 31, 2021.

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

Through a number of prior years’ transactions and the Combination, 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 March 31, 2021, the carrying and market value of Liberty Broadband’s ownership in Charter was approximately $15,735 million and $36,177 million, respectively.  

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

We own an approximate 31.1% economic ownership interest in Charter, based on shares of Charter’s Class A common stock issued and outstanding as of March 31, 2021.  

Upon the closing of the Time Warner Cable merger, the Second Amended and Restated Stockholders Agreement, dated as of May 23, 2015, by and among Charter, Liberty Broadband and Advance/Newhouse Partnership ("A/N"), as amended (the “Stockholders Agreement”), became fully effective. Pursuant to the Stockholders Agreement, Liberty Broadband’s equity ownership in Charter (on a fully diluted basis) is capped at the greater of 26% or the voting cap (“Equity Cap”).  As of March 31, 2021, due to Liberty Broadband’s voting interest exceeding the current voting cap of 25.01%, our voting control of the aggregate voting power of Charter is 25.01%. Under the Stockholders Agreement, Liberty Broadband has agreed to vote (subject to certain exceptions) all voting securities beneficially owned by it, or over which it has voting discretion or control that are in excess of the voting cap in the same proportion as all other votes cast by public stockholders of Charter with respect to the applicable matter.

In February 2021, Liberty Broadband was notified that its ownership interest, on a fully diluted basis, had exceeded the Equity Cap set forth in the Stockholders Agreement.  On February 23, 2021, Charter and Liberty Broadband entered into a letter agreement in order to implement, facilitate and satisfy the terms of the Stockholders Agreement with respect to the Equity Cap. Pursuant to this letter agreement, following any month during which Charter purchases, redeems or buys back shares of its Class A common stock, and prior to certain meetings of Charter’s stockholders, Liberty Broadband will be obligated to sell to Charter, and Charter will be obligated to purchase, such number of shares of Class A common stock as is necessary (if any) to reduce Liberty Broadband’s percentage equity interest, on a fully diluted basis, to the Equity Cap (such transaction, a “Charter Repurchase”). The per share sale price for each share of Charter will be equal to the volume weighted average price paid by Charter in its repurchases, redemptions and buybacks of its common stock (subject to certain exceptions) during the month prior to the Charter Repurchase (or, if applicable, during the relevant period prior to the relevant meeting of Charter stockholders). Under the terms of the letter agreement, Liberty Broadband sold 834,576 shares of Charter Class A common stock to Charter for $518.4 million in March 2021 to maintain our fully diluted ownership percentage at 26%.  Subsequent to March 31, 2021, Liberty Broadband sold 735,209 shares of Charter Class A common stock to Charter for $459.7 million in April 2021.

During the three months ended March 31, 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 $9,210 million as of March 31, 2021 is allocated within memo accounts used for equity method accounting purposes as follows (amounts in millions):

March 31,

December 31,

2021

2020

Property and equipment

    

$

766

733

Customer relationships

 

2,769

2,726

Franchise fees

 

3,849

3,693

Trademarks

 

29

29

Goodwill

 

4,116

3,934

Debt

 

(626)

(602)

Deferred income tax liability

 

(1,693)

(1,641)

$

9,210

8,872

Property and equipment and customer relationships have weighted average remaining useful lives of approximately 6 years and 10 years, respectively, and franchise fees, trademarks and goodwill have indefinite lives. The excess basis of

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Table of Contents

LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

outstanding debt is amortized over the contractual period using the straight-line method. The increase in excess basis for the three months ended March 31, 2021 was primarily due to Charter’s share buyback program, partially offset by Liberty Broadband’s participation in 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 $57.9 million and $40.1 million, net of related taxes, for the three months ended March 31, 2021 and 2020, 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 $82.2 million and $59.3 million during the three months ended March 31, 2021 and 2020, 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, slightly offset by a gain on dilution related to Charter’s repurchase of Liberty Broadband’s Charter shares during the three months ended March 31, 2021.

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

Charter condensed consolidated balance sheets

    

March 31, 2021

December 31, 2020

 

Current assets

$

3,663

3,909

Property and equipment, net

 

34,184

34,357

Goodwill

 

29,554

29,554

Intangible assets, net

 

72,507

72,937

Other assets

 

3,531

3,449

Total assets

$

143,439

144,206

Current liabilities

$

9,916

9,875

Deferred income taxes

 

18,227

18,108

Long-term debt

 

83,882

81,744

Other liabilities

 

4,233

4,198

Equity

 

27,181

30,281

Total liabilities and shareholders’ equity

$

143,439

144,206

Charter condensed consolidated statements of operations

Three months ended

March 31,

2021

2020

Revenue

$

12,522

11,738

Cost and expenses:

Operating costs and expenses (excluding depreciation and amortization)

 

7,711

7,432

Depreciation and amortization

 

2,441

2,497

Other operating expenses, net

 

302

7

10,454

9,936

Operating income

2,068

1,802

Interest expense, net

 

(983)

(980)

Other income (expense), net

52

(326)

Income tax (expense) benefit

 

(216)

(29)

Net income (loss)

921

467

Less: Net income attributable to noncontrolling interests

(114)

(71)

Net income (loss) attributable to Charter shareholders

$

807

396

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Table of Contents

LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

(6) Intangible Assets

Intangible Assets Subject to Amortization, net

    

March 31, 2021

    

December 31, 2020

Gross

Net

Gross

Net

carrying

Accumulated

carrying

carrying

Accumulated

carrying

    

amount

    

amortization

    

amount

    

amount

    

amortization

    

amount

amounts in thousands

Customer relationships

$

515,000

(14,975)

500,025

560,212

(13,687)

546,525

Other amortizable intangibles

 

133,840

(8,909)

124,931

 

137,315

(9,791)

127,524

Total

$

648,840

(23,884)

624,956

697,527

(23,478)

674,049

Amortization expense for intangible assets with finite useful lives was $18.6 million and $437.0 thousand for the three months ended March 31, 2021 and 2020, respectively. Amortization expense for amortizable intangible assets for each of the five succeeding fiscal years is estimated to be (amounts in thousands):

Remainder of 2021

$

55,172

2022

$

63,880

2023

$

57,570

2024

$

51,698

2025

$

50,246

(7) Debt

Debt is summarized as follows: