(5) 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 December 31, 2019, the carrying value of Liberty Broadband’s ownership in Charter was approximately $12,195 million. The market value of Liberty Broadband’s ownership in Charter as of December 31, 2019 was approximately $26,229 million, which represented an approximate economic ownership of 26% of the outstanding equity of Charter as of that date.

Pursuant to the proxy agreements with GCI Liberty, Inc. and A/N, Liberty Broadband has an irrevocable proxy to vote certain shares of Charter common stock owned beneficially or of record by GCI Liberty, Inc. and A/N following the closing of the Time Warner Cable Merger, for a five year term subject to extension upon the mutual agreement of both parties, subject to certain limitations.

Liberty Broadband’s overall voting interest is diluted by the outstanding A/N interest in a subsidiary of Charter because the A/N interest has voting rights in Charter. As a result of the A/N Proxy and the GCI Liberty, Inc. Agreement, Liberty Broadband controls 25.01% of the aggregate voting power of Charter following the completion of the Time Warner Cable Merger and the Bright House Transaction and is Charter’s largest stockholder.

Additionally, so long as the A/N Proxy is in effect, if A/N proposes to transfer common units of Charter Communications Holdings, LLC (which units are exchangeable into Charter shares and which will, under certain circumstances, result in the conversion of certain shares of Charter class B common stock into Charter shares) or Charter shares, in each case, constituting either (i) shares representing the first 7.0% of the outstanding voting power of Charter held by A/N or (ii) shares representing the last 7.0% of the outstanding voting power of Charter held by A/N, Liberty Broadband will have a right of first refusal (“ROFR”) to purchase all or a portion of any such securities A/N proposes to transfer. The purchase price per share for any securities sold to Liberty Broadband pursuant to the ROFR will be the volume-weighted average price of Charter shares for the two trading day period before the notice of a proposed sale by A/N, payable in cash. 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 years ended December 31, 2019, 2018 and 2017, there was a dilution loss of $79 million, $44 million, and $18 million, respectively, in the Company’s investment in Charter. The dilution losses are attributable to stock option exercises by employees and other third parties at prices below Liberty Broadband’s book basis per share.

During the years ended December 31, 2019, 2018 and 2017, the Company recorded $380 thousand, $172 thousand and $768 thousand, respectively, of its share of Charter’s other comprehensive earnings (loss), net of income taxes. Charter records gains and losses related to the fair value of its interest rate swap agreements which qualify as hedging activities in other comprehensive earnings (loss). The pre-tax portion of Liberty Broadband’s share of Charter’s other comprehensive earnings was $0.5 million, $0.2 million and $1.2 million for the years ended December 31, 2019, 2018 and 2017, respectively.

The excess basis has been allocated within memo accounts used for equity method accounting purposes as follows (amounts in millions):

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Property and equipment and customer relationships have weighted average remaining useful lives of approximately 5 years and 10 years, respectively, and indefinite lives to franchise fees, trademarks and goodwill. The excess basis of outstanding debt is amortized over the contractual period using the straight-line method. The increase in excess basis for the year ended December 31, 2019, was primarily due to Charter’s share buyback program. Included in our share of earnings from Charter of $286 million, $166 million and $2,509 million for the years ended December 31, 2019, 2018 and 2017, respectively, are $124 million, $119 million and $277 million, respectively, of losses, net of taxes, due to the amortization of the excess basis related to assets with identifiable useful lives and debt.

Accounting Changes

Charter adopted the new leasing standard as of January 1, 2019, using the modified retrospective approach with a cumulative-effect adjustment recorded at the beginning of the period of adoption. The new standard resulted in the recording of leased assets and lease liabilities for Charter’s operating leases of approximately $1.1 billion and $1.2 billion, respectively, as of January 1, 2019.  The difference between the leased assets and lease liabilities primarily represents the prior year end deferred rent liabilities balance, resulting from historical straight-lining of operating leases, which was effectively reclassified upon adoption to reduce the measurement of the leased assets.  The adoption of the standard did not have an impact on Charter’s shareholders equity, results from operations and cash flows.

Charter adopted several new accounting standards during the year ended December 31, 2018, including the new revenue guidance and guidance related to tax consequences of intra-entity asset transfers (other than the transfer of inventory). Upon adoption of the standards, Charter recognized an increase to total shareholders’ equity of $69 million during the year ended December 31, 2018.

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Summarized financial information for Charter is as follows:

Consolidated Balance Sheets

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Consolidated Statements of Operations

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