Liberty Broadband Earnings 2019-06-30

LBRD 10Q Quarterly Report

Liberty Broadband Corporation Common Stock

Balance Sheet	Income Statement	Cash Flow

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 June 30, 2019

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

For the transition period from to

Commission File Number 001-36713

LIBERTY BROADBAND CORPORATION

(Exact name of Registrant as specified in its charter)


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

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

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

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


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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

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


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

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

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

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

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-3
LIBERTY BROADBAND CORPORATION Condensed Consolidated Statements of Cash Flows (unaudited)	I-4
LIBERTY BROADBAND CORPORATION Condensed Consolidated Statement 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-25
Item 4. Controls and Procedures	I-25

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

I-1

Table of Contents

LIBERTY BROADBAND CORPORATION

Condensed Consolidated Balance Sheets

(unaudited)


	June 30,		December 31,
	2019		2018
	(amounts in thousands)
Assets
Current assets:
Cash and cash equivalents	$	67,134	83,103
Other current assets		7,181	1,471
Total current assets		74,315	84,574
Investment in Charter, accounted for using the equity method (note 4)		12,023,742	12,004,376
Other assets		9,112	9,487
Total assets	$	12,107,169	12,098,437
Liabilities and Equity
Current liabilities:
Accounts payable and accrued liabilities	$	19,429	3,504
Deferred revenue and other current liabilities		9,952	4,691
Total current liabilities		29,381	8,195
Debt (note 5)		523,549	522,928
Deferred income tax liabilities		964,584	965,829
Other liabilities		2,595	2,867
Total liabilities		1,520,109	1,499,819
Equity
Preferred stock, $.01 par value. Authorized 50,000,000 shares; no shares issued		—	—
Series A common stock, $.01 par value. Authorized 500,000,000 shares; issued and outstanding 26,370,787 shares at June 30, 2019 and 26,311,681 shares at December 31, 2018		264	263
Series B common stock, $.01 par value. Authorized 18,750,000 shares; issued and outstanding 2,454,520 shares at June 30, 2019 and December 31, 2018		25	25
Series C common stock, $.01 par value. Authorized 500,000,000 shares; issued and outstanding 152,715,703 shares at June 30, 2019 and 152,591,939 shares at December 31, 2018		1,527	1,526
Additional paid-in capital		7,929,046	7,938,357
Accumulated other comprehensive earnings, net of taxes		7,778	7,778
Retained earnings		2,648,420	2,650,669
Total equity		10,587,060	10,598,618
Commitments and contingencies (note 7)
Total liabilities and equity	$	12,107,169	12,098,437

See accompanying notes to the condensed consolidated financial statements.

I-2

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LIBERTY BROADBAND CORPORATION

Condensed Consolidated Statements of Operations

(unaudited)


	Three months ended			Six months ended
	June 30,			June 30,
	2019		2018	2019	2018
	(amounts in thousands, except per share amounts)
Revenue:
Software sales	$	3,747	3,371	7,205	15,162
Total revenue		3,747	3,371	7,205	15,162
Operating costs and expenses
Operating, including stock-based compensation (note 6)		2,227	2,029	4,480	3,938
Selling, general and administrative, including stock-based compensation (note 6)		8,217	5,514	15,155	12,241
Depreciation and amortization		469	899	937	1,808
		10,913	8,442	20,572	17,987
Operating income (loss)		(7,166)	(5,071)	(13,367)	(2,825)
Other income (expense):
Interest expense		(6,342)	(6,035)	(12,885)	(11,072)
Share of earnings (losses) of affiliates (note 4)		45,400	32,911	80,249	42,213
Gain (loss) on dilution of investment in affiliate (note 4)		(16,322)	(5,205)	(57,725)	(31,962)
Realized and unrealized gains (losses) on financial instruments, net (note 3)		—	(2,019)	—	(2,019)
Other, net		406	193	829	418
Net earnings (loss) before income taxes		15,976	14,774	(2,899)	(5,247)
Income tax benefit (expense)		(3,924)	(4,194)	650	757
Net earnings (loss) attributable to Liberty Broadband shareholders	$	12,052	10,580	(2,249)	(4,490)
Basic net earnings (loss) attributable to Series A, Series B and Series C Liberty Broadband shareholders per common share (note 2)	$	0.07	0.06	(0.01)	(0.02)
Diluted net earnings (loss) attributable to Series A, Series B and Series C Liberty Broadband shareholders per common share (note 2)	$	0.07	0.06	(0.01)	(0.02)

See accompanying notes to the condensed consolidated financial statements.

I-3

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LIBERTY BROADBAND CORPORATION

Condensed Consolidated Statements of Cash Flows

(unaudited)


	Six months ended
	June 30,
	2019		2018
	(amounts in thousands)
Cash flows from operating activities:
Net earnings (loss)	$	(2,249)	(4,490)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization		937	1,808
Stock-based compensation		5,139	2,801
Share of (earnings) losses of affiliates, net		(80,249)	(42,213)
(Gain) loss on dilution of investment in affiliate		57,725	31,962
Realized and unrealized (gains) losses on financial instruments, net		—	2,019
Deferred income tax expense (benefit)		(650)	(756)
Other, net		576	447
Changes in operating assets and liabilities:
Current and other assets		(5,764)	335
Payables and other liabilities		4,461	1,494
Net cash provided (used) by operating activities		(20,074)	(6,593)
Cash flows from investing activities:
Capital expended for property and equipment		(50)	(24)
Net cash provided (used) by investing activities		(50)	(24)
Cash flows from financing activities:
Borrowings of debt		—	25,000
Payments from issuances of financial instruments		—	(94,249)
Proceeds from settlements of financial instruments		—	46,483
Other financing activities, net		4,155	588
Net cash provided (used) by financing activities		4,155	(22,178)
Net increase (decrease) in cash		(15,969)	(28,795)
Cash, cash equivalents and restricted cash, beginning of period		83,103	81,257
Cash, cash equivalents and restricted cash, end of period	$	67,134	52,462

See accompanying notes to the condensed consolidated financial statements.

I-4

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LIBERTY BROADBAND CORPORATION

Condensed Consolidated Statement of Equity

(unaudited)


							Accumulated
						Additional	other
	Preferred		Common stock			paid-in	comprehensive	Retained
	Stock		Series A	Series B	Series C	capital	earnings	earnings	Total equity
	(amounts in thousands)
Balance at January 1, 2019	$	—	263	25	1,526	7,938,357	7,778	2,650,669	10,598,618
Net earnings (loss)		—	—	—	—	—	—	(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.

I-5

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LIBERTY BROADBAND CORPORATION

Condensed Consolidated Statement of Equity (continued)

(unaudited)


							Accumulated
						Additional	other
	Preferred		Common stock			paid-in	comprehensive	Retained
	Stock		Series A	Series B	Series C	capital	earnings	earnings	Total equity
	(amounts in thousands)
Balance at January 1, 2018	$	—	262	25	1,526	7,907,900	8,424	2,568,764	10,486,901
Net earnings (loss)		—	—	—	—	—	—	(4,490)	(4,490)
Other comprehensive earnings (loss)		—	—	—	—	—	(172)	—	(172)
Stock-based compensation		—	—	—	—	2,703	—	—	2,703
Issuance of common stock upon exercise of stock options		—	1	—	—	587	—	—	588
Cumulative effect of accounting change		—	—	—	—	—	—	1,223	1,223
Cumulative effect of accounting change at Charter		—	—	—	—	—	—	5,802	5,802
Noncontrolling interest activity at Charter		—	—	—	—	28,928	—	—	28,928
Balance at June 30, 2018	$	—	263	25	1,526	7,940,118	8,252	2,571,299	10,521,483


							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, 2018	$	—	263	25	1,526	7,940,438	8,424	2,560,719	10,511,395
Net earnings (loss)		—	—	—	—	—	—	10,580	10,580
Other comprehensive earnings (loss)		—	—	—	—	—	(172)	—	(172)
Stock-based compensation		—	—	—	—	1,351	—	—	1,351
Issuance of common stock upon exercise of stock options		—	—	—	—	47	—	—	47
Noncontrolling interest activity at Charter		—	—	—	—	(1,718)	—	—	(1,718)
Balance at June 30, 2018	$	—	263	25	1,526	7,940,118	8,252	2,571,299	10,521,483

See accompanying notes to the condensed consolidated financial statements.

I-6

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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, 2018, 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, 2018. 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.

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.

I-7

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

Spin-Off Arrangements

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

The reorganization agreement provides for, among other things, the principal corporate transactions (including the internal restructuring) required to effect the Broadband Spin-Off, certain conditions to the Broadband Spin-Off and provisions governing the relationship between Liberty Broadband and Liberty with respect to and resulting from the Broadband Spin-Off. The tax sharing agreement provides for the allocation and indemnification of tax liabilities and benefits between Liberty and Liberty Broadband and other agreements related to tax matters. Pursuant to the tax sharing agreement, Liberty Broadband has agreed to indemnify Liberty, subject to certain limited exceptions, for losses and taxes resulting from the Broadband Spin-Off to the extent such losses or taxes result primarily from, individually or in the aggregate, the breach of certain restrictive covenants made by Liberty Broadband (applicable to actions or failures to act by Liberty Broadband and its subsidiaries following the completion of the Broadband Spin-Off). Pursuant to the services agreement, Liberty provides Liberty Broadband with general and administrative services including legal, tax, accounting, treasury and investor relations support. Under the facilities sharing agreement, Liberty Broadband shares office space with Liberty and related amenities at Liberty’s corporate headquarters. Liberty Broadband will reimburse Liberty for direct, out-of-pocket expenses incurred by Liberty in providing these services which will be negotiated semi-annually. Under these various agreements, approximately $17.0 million and $0.9 million was reimbursable to Liberty for the three months ended June 30, 2019 and 2018, respectively, and $17.9 million and $1.8 million was reimbursable to Liberty for the six months ended June 30, 2019 and 2018, respectively.

(2) Earnings (Loss) per Share

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


	Liberty Broadband Common Stock
	Three months	Three months	Six months	Six months
	ended	ended	ended	ended
	June 30, 2019	June 30, 2018	June 30, 2019	June 30, 2018
	(numbers of shares in thousands)
Basic WASO	181,450	181,323	181,409	181,319
Potentially dilutive shares (1)	1,382	1,148	1,340	1,273
Diluted WASO	182,832	182,471	182,749	182,592

(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.

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

(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:

June 30, 2019

December 31, 2018

Quoted prices

Significant

Quoted prices

Significant

in active

other

in active

other

markets for

observable

markets for

observable

identical assets

inputs

identical assets

inputs

Description

Total

(Level 1)

(Level 2)

Total

(Level 1)

(Level 2)

(amounts in thousands)

Cash equivalents

58,129

—

67,329

—

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.

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			Six months ended
	June 30,			June 30,
	2019		2018	2019		2018
	(amounts in thousands)
Derivative instruments (1)	$	—	(2,019)		—	(2,019)
	$	—	(2,019)		—	(2,019)

(1)

In April 2018, the Company entered into a zero-strike call option on 610,325 shares of Liberty Broadband Series C common stock and prepaid a premium of $47.8 million. Liberty Broadband exercised its option to settle the contract in cash in June 2018 for cash proceeds of $46.5 million, and recognized a realized loss on the options as of June 30, 2018. In June 2018, the Company entered into another zero-strike call option on 632,911 shares of Liberty Broadband Series C common stock. The Company recognized an unrealized loss on the options as of June 30, 2018. The Company settled all zero-strike call options during 2018 and had no outstanding zero-strike call options as of June 30, 2019.

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

(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 ownership interest and the board seats held by individuals appointed by Liberty Broadband. As of June 30, 2019, the carrying value of Liberty Broadband’s ownership in Charter was approximately $12,024 million. The market value of Liberty Broadband’s ownership in Charter as of June 30, 2019 was approximately $21,368 million, which represented an approximate economic ownership of 24.4% of the outstanding equity of Charter as of that date.

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

As a result of the A/N Proxy and the GCI Liberty Proxy, Liberty Broadband controls 25.01% of the aggregate voting power of Charter and is Charter’s largest stockholder.

Additionally, so long as the A/N Proxy is in effect, if A/N proposes to transfer common units of Charter Communications Holdings, LLC (which units are exchangeable into Charter shares and which will, under certain circumstances, result in the conversion of certain shares of 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.

Investment in Charter

The excess basis in our investment in Charter of $3,409 million as of June 30, 2019 is allocated within memo accounts used for equity accounting purposes as follows (amounts in millions):


		June 30,	December 31,
		2019	2018
Property and equipment	$	277	328
Customer relationships		754	721
Franchise fees		1,853	1,821
Trademarks		29	29
Goodwill		1,279	1,202
Debt		(74)	(105)
Deferred income tax liability		(709)	(698)
	$	3,409	3,298

Property and equipment and customer relationships have 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, 2019, 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 $30.4 million and $29.2 million, net of related taxes, for the three months ended June 30, 2019 and 2018, respectively, and expenses of $56.0

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LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

million and $57.9 million, net of related taxes, for the six months ended June 30, 2019 and 2018, respectively, due to the amortization of the excess basis related to assets with identifiable useful lives and debt.

The Company had a dilution loss of $16.3 million and $5.2 million during the three months ended June 30, 2019 and 2018, respectively, and a dilution loss of $57.7 million and $32.0 million during the six months ended June 30, 2019 and 2018, respectively. The dilution losses for the periods presented were attributable to stock option exercises by employees and other third parties at prices below Liberty Broadband’s book basis per share.

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

Charter condensed consolidated balance sheets


	June 30, 2019		December 31, 2018
Current assets	$	3,490	2,944
Property and equipment, net		34,475	35,126
Goodwill		29,554	29,554
Intangible assets, net		75,780	76,884
Other assets		2,786	1,622
Total assets	$	146,085	146,130
Current liabilities		9,875	12,095
Deferred income taxes		17,522	17,389
Long-term debt		71,784	69,537
Other liabilities		3,810	2,837
Equity		43,094	44,272
Total liabilities and shareholders’ equity	$	146,085	146,130

Charter condensed consolidated statements of operations


	Three months ended			Six months ended
	June 30,			June 30,
	2019		2018	2019	2018
Revenue	$	11,347	10,854	22,553	21,511
Cost and expenses:
Operating costs and expenses (excluding depreciation and amortization)		7,244	6,873	14,480	13,709
Depreciation and amortization		2,500	2,592	5,050	5,302
Other operating (income) expenses, net		62	29	57	98
		9,806	9,494	19,587	19,109
Operating income		1,541	1,360	2,966	2,402
Interest expense, net		(945)	(878)	(1,870)	(1,729)
Other income (expense), net		(126)	(102)	(190)	(42)
Income tax benefit (expense)		(84)	(41)	(203)	(69)
Net income (loss)		386	339	703	562
Less: Net income attributable to noncontrolling interests		(72)	(66)	(136)	(121)
Net income (loss) attributable to Charter shareholders	$	314	273	567	441

I-11

Table of Contents

LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

(5) Debt

Amended 2017 Margin Loan Facility

On August 24, 2018, a bankruptcy remote wholly owned subsidiary of the Company (“SPV”), entered into Amendment No. 1 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 lenders thereunder. SPV is permitted, subject to certain funding conditions, to borrow term loans up to an aggregate principal amount equal to $1.0 billion. SPV will also have the ability from time to time to request additional loans in an aggregate principal amount of up to $1.0 billion on an uncommitted basis subject to certain conditions. SPV had borrowed $525 million as of June 30, 2019 and December 31, 2018. SPV had $475 million available to be drawn until August 27, 2019. The maturity date of the loans under the Amended 2017 Margin Loan Agreement is August 24, 2020 (except for any incremental loans incurred thereunder to the extent SPV and the incremental lenders agree to a later maturity date). Accordingly, the debt is classified as noncurrent as of June 30, 2019. Borrowings under the Amended 2017 Margin Loan Agreement bear interest at the three-month LIBOR rate plus a per annum spread of 1.5%. Borrowings outstanding under this margin loan bore interest at a rate of 3.83% per annum at June 30, 2019. Interest is payable quarterly in arrears beginning on September 29, 2017. SPV used available cash and a portion of the proceeds of the loans under the Amended 2017 Margin Loan Facility to repay the two margin loan agreements entered into by a wholly-owned special purpose subsidiary of the Company on October 30, 2014 and two margin loan agreements entered into by another wholly-owned special purpose subsidiary of the Company on March 21, 2016.

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

SPV’s obligations under the Amended 2017 Margin Loan Agreement are secured by first priority liens on a portion of the Company’s ownership interest in Charter, sufficient for SPV to meet the loan to value requirements under the Amended 2017 Margin Loan Agreement. The Amended 2017 Margin Loan Agreement indicates that no lender party shall have any voting rights with respect to the shares transferred, except to the extent that a lender party buys any shares in a sale or other disposition made pursuant to the terms of the loan agreements. As of June 30, 2019, 6.8 million shares of Charter with a value of $2.7 billion were pledged as collateral pursuant to the Amended 2017 Margin Loan Agreement.

(6) Stock-Based Compensation

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

I-12

Table of Contents

LIBERTY BROADBAND CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

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, 2019 and 2018 (amounts in thousands):


	Three months			Six months
	ended			ended
	June 30,			June 30,
	2019		2018	2019	2018
Operating expense	$	11	10	48	27
Selling, general and administrative		2,512	1,386	5,091	2,774
	$	2,523	1,396	5,139	2,801

Liberty Broadband – Grants of Stock Options

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

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

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

Liberty Broadband – Outstanding Awards

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

10-Q	2019-06-30	Quarter: 2019-06-30
10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31
10-Q	2015-09-30	Quarter: 2015-09-30
10-Q	2015-06-30	Quarter: 2015-06-30
10-Q	2015-03-31	Quarter: 2015-03-31
10-K	2014-12-31	Annual: 2014-12-31
10-Q	2014-09-30	Quarter: 2014-09-30

8-K	2019-09-20	Regulation FD
8-K	2019-08-19	Off-BS Arrangement
8-K	2019-07-12	Regulation FD, Exhibits
8-K	2019-06-29	Officers
8-K	2019-05-23	Shareholder Vote
8-K	2019-05-07	Regulation FD, Exhibits
8-K	2019-04-09	Regulation FD, Exhibits
8-K	2019-03-04	Regulation FD, Exhibits
8-K	2019-01-28	Regulation FD, Exhibits
8-K	2018-10-12	Regulation FD, Exhibits
8-K	2018-10-08	Regulation FD, Exhibits
8-K	2018-08-24	Off-BS Arrangement
8-K	2018-07-06	Regulation FD, Exhibits
8-K	2018-05-24	Shareholder Vote
8-K	2018-05-07	Regulation FD, Exhibits
8-K	2018-04-24	Regulation FD, Exhibits
8-K	2018-04-10	Regulation FD, Exhibits
8-K	2018-02-26	Regulation FD, Exhibits
8-K	2018-02-01	Regulation FD, Exhibits

SLGG	Super League Gaming	41
WCRS	Western Capital Resources	40
INIS	International Isotopes	34
DBS	Invesco DB Silver Fund	16
RISE	ETF Managers Group Commodity Trust I	14
WAYS	Wave Sync	1
KBSGI	KBS Growth & Income REIT	0
WSCI	WSI Industries	0
CCOH	CCO Holdings	0
ASFT	Appsoft Technologies	0

EX-31.1	lbrd-20190630ex31197ab25.htm
EX-31.2	lbrd-20190630ex312ab0f0e.htm
EX-32	lbrd-20190630xex32.htm