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, 2022
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 BoulevardEnglewood, 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
Series A Cumulative Redeemable preferred stock
LBRDP
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, 2022 was:
Series A
Series B
Series C
Liberty Broadband Corporation common stock
22,558,925
2,544,548
137,670,912
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-24
Item 3. Quantitative and Qualitative Disclosures about Market Risk
I-36
Item 4. Controls and Procedures
I-37
Part II - Other Information
Item 1. Legal Proceedings
II-1
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
II-2
SIGNATURES
II-3
I-1
Condensed Consolidated Balance Sheets
(unaudited)
March 31,
December 31,
2022
2021
amounts in millions
Assets
Current assets:
Cash and cash equivalents
$
300
191
Trade and other receivables, net of allowance for credit losses of $4 and $4, respectively
169
206
Prepaid and other current assets
77
62
Total current assets
546
459
Investment in Charter, accounted for using the equity method (note 4)
12,902
13,260
Property and equipment, net
1,010
1,031
Intangible assets not subject to amortization
Goodwill
762
Cable certificates
550
Other
37
Intangible assets subject to amortization, net (note 5)
559
573
Tax sharing receivable
63
86
Other assets, net
201
210
Total assets
16,630
16,968
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Balance Sheets (Continued)
amounts in millions,
except share amounts
Liabilities and Equity
Current liabilities:
Accounts payable and accrued liabilities
97
99
Deferred revenue
22
25
Current portion of debt, including $22 and $25 measured at fair value, respectively (note 6)
28
Indemnification obligation (note 3)
239
324
Other current liabilities
154
106
Total current liabilities
537
582
Long-term debt, net, including $1,359 and $1,403 measured at fair value, respectively (note 6)
3,989
3,733
Obligations under finance leases and tower obligations, excluding current portion
88
89
Long-term deferred revenue
35
Deferred income tax liabilities
2,002
1,998
Preferred stock (note 7)
203
Other liabilities
177
189
Total liabilities
7,031
6,829
Equity
Series A common stock, $.01 par value. Authorized 500,000,000 shares; issued and outstanding 22,558,925 and 23,232,342 at March 31, 2022 and December 31, 2021, respectively
—
Series B common stock, $.01 par value. Authorized 18,750,000 shares; issued and outstanding 2,544,548 and 2,544,548 at March 31, 2022 and December 31, 2021, respectively
Series C common stock, $.01 par value. Authorized 500,000,000 shares; issued and outstanding 139,860,028 and 144,854,780 at March 31, 2022 and December 31, 2021, respectively
1
Additional paid-in capital
5,375
6,214
Accumulated other comprehensive earnings, net of taxes
10
14
Retained earnings
4,197
3,898
Total stockholders' equity
9,583
10,127
Non-controlling interests
16
12
Total equity
9,599
10,139
Commitments and contingencies (note 9)
Total liabilities and equity
I-3
Condensed Consolidated Statements of Operations
Three months ended
amounts in millions, except per share amounts
Revenue
238
247
Operating costs and expenses:
Operating expense (exclusive of depreciation and amortization shown separately below)
66
69
Selling, general and administrative, including stock-based compensation (note 8)
101
105
Depreciation and amortization
64
Litigation settlement, net of recoveries (note 9)
110
231
348
Operating income (loss)
7
(101)
Other income (expense):
Interest expense (including amortization of deferred loan fees)
(26)
(33)
Share of earnings (losses) of affiliate (note 4)
303
Gain (loss) on dilution of investment in affiliate (note 4)
(56)
(82)
Realized and unrealized gains (losses) on financial instruments, net (note 3)
137
Other, net
(21)
(8)
Earnings (loss) before income taxes
344
Income tax benefit (expense)
(45)
(12)
Net earnings (loss)
299
52
Less net earnings (loss) attributable to the non-controlling interests
Net earnings (loss) attributable to Liberty Broadband shareholders
Basic net earnings (loss) attributable to Series A, Series B and Series C Liberty Broadband shareholders per common share (note 2)
1.79
0.27
Diluted net earnings (loss) attributable to Series A, Series B and Series C Liberty Broadband shareholders per common share (note 2)
1.77
Condensed Consolidated Statements of Comprehensive Earnings (Loss)
Other comprehensive earnings (loss), net of taxes:
Comprehensive earnings (loss) attributable to debt credit risk adjustments
(4)
Other comprehensive earnings (loss), net of taxes
Comprehensive earnings (loss)
295
Less comprehensive earnings (loss) attributable to the non-controlling interests
Comprehensive earnings (loss) attributable to Liberty Broadband shareholders
Condensed Consolidated Statements of Cash Flows
Cash flows from operating activities:
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Stock-based compensation
9
Litigation settlement, net of recoveries
Share of (earnings) losses of affiliate, net
(303)
(189)
(Gain) loss on dilution of investment in affiliate
56
82
Realized and unrealized (gains) losses on financial instruments, net
(137)
(99)
Deferred income tax expense (benefit)
6
11
(1)
(2)
Changes in operating assets and liabilities:
Current and other assets
65
165
Payables and other liabilities
32
(11)
Net cash provided by (used in) operating activities
90
193
Cash flows from investing activities:
Capital expenditures
(32)
(28)
Cash received for Charter shares repurchased by Charter
602
518
Other investing activities, net
4
Net cash provided by (used in) investing activities
574
490
Cash flows from financing activities:
Borrowings of debt
Repayments of debt, finance leases and tower obligations
(183)
Repurchases of Liberty Broadband common stock
(843)
(738)
Other financing activities, net
(3)
Net cash provided by (used in) financing activities
(548)
(923)
Net increase (decrease) in cash, cash equivalents and restricted cash
116
(240)
Cash, cash equivalents and restricted cash, beginning of period
1,433
Cash, cash equivalents and restricted cash, end of period
322
1,193
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:
Restricted cash included in other current assets
15
Total cash and cash equivalents and restricted cash at end of period
Condensed Consolidated Statements of Equity
Accumulated
Noncontrolling
Additional
other
interest in
Common stock
paid-in
comprehensive
Retained
equity of
capital
earnings
subsidiaries
Balance at January 1, 2022
Withholding taxes on net share settlements of stock-based compensation
Liberty Broadband stock repurchases
Noncontrolling interest activity at Charter and other
2
Balance at March 31, 2022
Balance at January 1, 2021
10,320
3,166
13,515
Balance at March 31, 2021
9,563
3,218
12,810
Notes to Condensed Consolidated Financial Statements
(1) Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of Liberty Broadband Corporation and its controlled subsidiaries (collectively, "Liberty Broadband," the "Company," “us,” “we,” or “our” unless the context otherwise requires). Liberty Broadband Corporation is primarily comprised of GCI Holdings, LLC (“GCI Holdings”), a wholly owned subsidiary, and an equity method investment in Charter Communications, Inc. (“Charter”).
On December 18, 2020, GCI Liberty, Inc. (“GCI Liberty”) was merged with Liberty Broadband (the “Combination”) and Liberty Broadband acquired GCI Holdings, as further described in Liberty Broadband's Annual Reports on Form 10-K for the years ended December 31, 2021 and 2020.
The accompanying (a) condensed consolidated balance sheet as of December 31, 2021, 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, 2021. 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 affiliate, (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 stay-at-home orders, closing public attractions and restaurants, and mandating social distancing practices, which caused a significant disruption to most sectors of the economy at varying levels during the periods covered by the financial statements.
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. The investment in Charter 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.
Skyhook Holdings, Inc. (“Skyhook”) was a wholly owned subsidiary of Liberty Broadband until its sale on May 2, 2022 for net proceeds of approximately $170 million. Skyhook is not presented as held-for-sale as of March 31, 2022 as it is not material to Liberty Broadband’s consolidated financial statements and Skyhook will not be presented as a discontinued operation upon closing of the sale as the sale did not represent a strategic shift that had a major effect on Liberty Broadband’s operations and financial results.
As described in note 4, we are currently participating in Charter’s share buyback program in order to maintain our fully diluted ownership percentage of 26%. The primary use of those proceeds has been to repurchase Liberty Broadband Series A and Series C common stock pursuant to our authorized share repurchase programs. On February 23, 2021, the board of directors authorized the repurchase of $2.23 billion of Liberty Broadband Series A and Series C common stock. Additionally, on August 5, 2021, the board of directors authorized the repurchase of an additional $2.105 billion of Liberty Broadband Series A and Series C common stock. Further, on January 26, 2022, a duly authorized committee of the board of directors authorized the repurchase of an additional $2.215 billion of Liberty Broadband Series A and Series C common stock.
During the three months ended March 31, 2022, we repurchased 5.7 million shares of Series A and Series C common stock for a total purchase price of $843 million. During the three months ended March 31, 2021, we repurchased 4.9 million shares of Series C common stock for a total purchase price of $738 million. As of March 31, 2022, the amount authorized remaining under the authorized repurchase program is approximately $2.0 billion.
Spin-Off Arrangements
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”). 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. 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 33% for the Company but subject to adjustment on an annual basis upon the occurrence of certain events.
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 million and $4 million for the three months ended March 31, 2022 and 2021, respectively. Liberty Broadband had a tax sharing receivable with Qurate Retail of $63 million and $86 million as of March 31, 2022 and December 31, 2021, respectively.
I-9
Recently Announced Accounting Pronouncements
In November 2021, the Financial Accounting Standards Board issued new accounting guidance which will require annual disclosures about certain government transactions that are accounted for by applying a grant or contribution accounting model by analogy, including information about the nature of the transactions, the related policy used to account for the transactions, the amounts applicable to each financial statement line item and any significant terms and conditions of the transactions, including commitments and contingencies. This guidance is effective for financial statements issued for annual periods beginning after December 15, 2021, with early adoption permitted. The Company does not expect a significant impact from the adoption of the standard but is currently evaluating the effect that the updated standard will have on its financial disclosures.
(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 both the three months ended March 31, 2022 and 2021 are 1 million potential common shares because their inclusion would have been antidilutive.
Liberty Broadband Common Stock
Three months
ended
March 31, 2022
March 31, 2021
(numbers of shares in millions)
Basic WASO
167
194
Potentially dilutive shares (1)
Diluted WASO
196
(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.
I-10
The Company’s assets and (liabilities) measured at fair value are as follows:
December 31, 2021
Quoted prices
Significant
in active
markets for
observable
identical assets
inputs
Description
Total
(Level 1)
(Level 2)
Cash equivalents
152
118
Indemnification obligation
Exchangeable senior debentures
1,381
1,428
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 "LI LLC 1.75% Exchangeable Debentures"). An indemnity obligation in the amount of $336 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, 2022 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, 2022, 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 6)) and long-term debt (with the exception of the 1.25% Debentures and the 2.75% Debentures (defined in note 6)). 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 Margin Loan Facility, the Term Loan A and revolving credit facility borrowings under the Senior Credit Facility and the Wells Fargo Note Payable (each as defined in note 6) all bear interest at a variable rate and therefore are also considered to approximate fair value.
I-11
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:
85
Exchangeable senior debentures (1)
47
(4) 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, 2022, the carrying and market value of Liberty Broadband’s ownership in Charter was approximately $12.9 billion and $28.6 billion, respectively. We own an approximate 31.2% economic ownership interest in Charter, based on shares of Charter’s Class A common stock issued and outstanding as of March 31, 2022.
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, 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, 2022, 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
I-12
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 970,241 and 834,576 shares of Charter Class A common stock to Charter for $602 million and $518 million during the three months ended March 31, 2022 and 2021, respectively, to maintain our fully diluted ownership percentage at 26%. Subsequent to March 31, 2022, Liberty Broadband sold 863,719 shares of Charter Class A common stock to Charter for $491 million in April 2022.
Investment in Charter
The excess basis in our investment in Charter of $9,136 million as of March 31, 2022 is allocated within memo accounts used for equity method accounting purposes as follows (amounts in millions):
Property and equipment
676
661
Customer relationships
2,537
Franchise fees
3,935
3,828
Trademarks
29
4,150
4,024
Debt
(534)
(535)
Deferred income tax liability
(1,657)
(1,626)
9,136
8,918
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 three months ended March 31, 2022 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 affiliate line item in the accompanying condensed consolidated statements of operations includes expenses of $67 million and $58 million, net of related taxes, for the three months ended March 31, 2022 and 2021, respectively, due to the amortization of the excess basis related to assets with identifiable useful lives and debt.
The Company had dilution losses of $56 million and $82 million during the three months ended March 31, 2022 and 2021, 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, partially offset by a gain on dilution related to Charter’s repurchase of Liberty Broadband’s Charter shares during both the three months ended March 31, 2022 and 2021.
I-13
Summarized unaudited financial information for Charter is as follows:
Charter condensed consolidated balance sheets
Current assets
5,516
3,566
34,173
34,310
29,563
29,562
Intangible assets, net
71,046
71,406
Other assets
3,650
3,647
143,948
142,491
Current liabilities
13,929
12,458
Deferred income taxes
19,070
19,096
Long-term debt
90,679
88,564
4,326
4,217
15,944
18,156
Total liabilities and shareholders’ equity
Charter condensed consolidated statements of operations
13,200
12,522
Cost and expenses:
Operating costs and expenses (excluding depreciation and amortization)
8,134
7,711
2,294
2,441
Other operating expenses, net
302
10,429
10,454
Operating income
2,771
2,068
Interest expense, net
(1,060)
(983)
Other income (expense), net
23
Income tax (expense) benefit
(345)
(216)
Net income (loss)
1,389
921
Less: Net income attributable to noncontrolling interests
(186)
(114)
Net income (loss) attributable to Charter shareholders
1,203
807
I-14
(5) Intangible Assets
Intangible Assets Subject to Amortization, net
Gross
Net
carrying
amount
amortization
515
(59)
456
(49)
466
Other amortizable intangibles
140
(37)
103
138
(31)
107
655
(96)
653
(80)
Amortization expense for intangible assets with finite useful lives was $17 million and $19 million for the three months ended March 31, 2022 and 2021, respectively. Amortization expense for amortizable intangible assets for each of the five succeeding fiscal years is estimated to be (amounts in millions):
Remainder of 2022
49
2023
59
2024
53
2025
51
2026
48
(6) Debt
Debt is summarized as follows:
Outstanding
principal
Carrying value
Margin Loan Facility
1,600
1,300
2.75% Exchangeable Senior Debentures due 2050
575
569
585
1.25% Exchangeable Senior Debentures due 2050
825
790
818
1.75% Exchangeable Senior Debentures due 2046
Senior notes
600
631
632
Senior credit facility
399
Wells Fargo note payable
Deferred financing costs
Total debt
4,020
4,014
3,761
Debt classified as current
(25)
Total long-term debt
On May 12, 2021, a bankruptcy remote wholly owned subsidiary of the Company (“SPV”) entered into Amendment No. 4 to Margin Loan Agreement and Amendment No. 4 to Collateral Account Control Agreement (the “Fourth Amendment”), which amends SPV’s margin loan agreement, dated as of August 31, 2017 (as amended by the Fourth Amendment, the “Margin Loan Agreement”), with a group of lenders. Upon the effectiveness of the Fourth Amendment (the date on which such effectiveness occurred, the “Fourth Amendment Effective Date”), the Margin Loan Agreement provided
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for (x) a term loan credit facility in an aggregate principal amount of $1.15 billion (the “Term Loan Facility” and proceeds of such facility, the “Term Loans”), (y) a revolving credit facility in an aggregate principal amount of $1.15 billion (the “Revolving Loan Facility” and proceeds of such facility, the “Revolving Loans”; the Revolving Loans, collectively with the Term Loans, the “Loans”) and (z) an uncommitted incremental term loan facility in an aggregate principal amount of up to $200 million (collectively, the “Margin Loan Facility”). No additional borrowings under the Margin Loan Agreement were made on the Fourth Amendment Effective Date and, after giving effect to the transactions occurring on such date, there were (i) $1.15 billion in Term Loans outstanding under the Term Loan Facility and (ii) $0.00 of Revolving Loans outstanding. SPV’s obligations under the Margin Loan Facility are secured by first priority liens on the shares of Charter owned by SPV.
In the three months ended March 31, 2022, SPV drew down $300 million on the Revolving Loans.
Outstanding borrowings under the Margin Loan Agreement were $1.6 billion and $1.3 billion at March 31, 2022 and December 31, 2021, respectively. As of March 31, 2022, SPV was permitted to borrow an additional $700 million under the Margin Loan Agreement, subject to certain funding conditions, which may be drawn until five business days prior to the maturity date. The maturity date of the loans under the Margin Loan Agreement is May 12, 2024 (except for any additional loans incurred thereunder to the extent SPV and the incremental lenders agree to a later maturity date). Prior to the completion of the Combination, borrowings under the Margin Loan Agreement bore interest at the three-month LIBOR rate plus a per annum spread of 1.5%, which increased to a per annum spread of 1.85% from and after the completion of the Combination until the Fourth Amendment Effective Date, when the per annum spread decreased to 1.5%. The Margin Loan Agreement also provides for customary LIBOR replacement provisions.
The Margin Loan Agreement contains various affirmative and negative covenants that restrict the activities of SPV (and, in some cases, the Company and its subsidiaries with respect to shares of Charter owned by the Company and its subsidiaries). The Margin Loan Agreement does not include any financial covenants. The Margin Loan Agreement does contain restrictions related to additional indebtedness and events of default customary for margin loans of this type.
SPV’s obligations under the 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 Margin Loan Agreement. The Margin Loan Agreement indicates that no lender party shall have any voting rights with respect to the shares pledged as collateral, 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 agreement. As of March 31, 2022, 12.3 million shares of Charter with a value of $6.7 billion were pledged as collateral pursuant to the Margin Loan Agreement.
Exchangeable Senior Debentures
The Company has elected to account for all of its exchangeable senior debentures at fair value in its condensed consolidated financial statements. Accordingly, changes in the fair value of these instruments are recognized in unrealized gains (losses) in the accompanying condensed consolidated statements of operations. See note 3 for information related to unrealized gains (losses) on debt measured at fair value. As of March 31, 2022, a holder of the Company’s 2.75% Exchangeable Senior Debentures due 2050 (the “2.75% Debentures”) or a holder of the Company’s 1.25% Exchangeable Senior Debentures due 2050 (the “1.25% Debentures) does not have the ability to exchange and, accordingly, the 2.75% Debentures and 1.25% Debentures are classified as long-term debt in the condensed consolidated balance sheets. As of March 31, 2022, the holders of the 1.75% exchangeable senior debentures due 2046 (the “1.75% Debentures), which were issued by GCI Liberty and assumed in connection with the closing of the Combination, will have the ability to exchange their debentures for the period from April 1, 2022 to June 30, 2022 given that the trading value of the reference shares exceeded 130% of the par value for twenty of the last thirty trading days in the first quarter of 2022. Given the holders’ ability to exchange the debentures within a one-year period from the balance sheet date and the Company’s option to settle any exchange in cash, shares of Charter Class A common stock, or a combination of cash and shares of Charter Class A common stock, the 1.75% Debentures have been classified as current within the condensed consolidated balance sheets as of March 31, 2022. The Company reviews the terms of all the debentures on a quarterly basis to determine whether an event has occurred to require current classification on the condensed consolidated balance sheets.
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Senior Notes
In connection with the closing of the Combination on December 18, 2020, GCI, LLC became an indirect wholly owned subsidiary of the Company. GCI, LLC is the issuer of $600 million 4.75% senior notes due 2028 (the “Senior Notes”). The Senior Notes were issued by GCI, LLC on October 7, 2020 and are unsecured. Interest on the Senior Notes is payable semi-annually in arrears. The Senior Notes are redeemable at the Company’s option, in whole or in part, at a redemption price defined in the indenture, and accrued and unpaid interest (if any) to the date of redemption. The Senior Notes are stated net of an aggregate unamortized premium of $31 million at March 31, 2022. Such premium is being amortized to interest expense in the accompanying condensed consolidated statements of operations.
Senior Credit Facility
In connection with the closing of the Combination on December 18, 2020, GCI, LLC became an indirect wholly owned subsidiary of the Company. GCI, LLC is the borrower under the Senior Credit Facility (as defined below).
On October 15, 2021, GCI, LLC entered into an Eighth Amended and Restated Credit Agreement (the “Senior Credit Facility”), which includes a $550 million revolving credit facility, with a $25 million sublimit for standby letters of credit, that matures on October 15, 2026 and a $250 million Term Loan A that matures on October 15, 2027. Additionally, the $400 million Term Loan B which existed prior to the amendment, was repaid in full using the proceeds from the new Term Loan A together with $150 million in borrowings under the revolving credit facility. The revolving credit facility borrowings under the Senior Credit Facility that are alternate base rate loans bear interest at a per annum rate equal to the alternate base rate plus a margin that varies between 0.50% and 1.75% depending on GCI, LLC’s total leverage ratio. The revolving credit facility borrowings under the Senior Credit Facility that are LIBOR loans bear interest at a per annum rate equal to the applicable LIBOR plus a margin that varies between 1.50% and 2.75% depending on GCI, LLC’s total leverage ratio. Term Loan A borrowings that are alternate base rate loans bear interest at a per annum rate equal to the alternate base rate plus a margin that varies between 1.00% and 2.25% depending on GCI, LLC’s total leverage ratio. Term Loan A borrowings that are LIBOR loans bear interest at a per annum rate equal to the applicable LIBOR plus a margin that varies between 2.00% and 3.25% depending on GCI, LLC’s total leverage ratio. Principal payments are due quarterly on the Term Loan A equal to 0.25% of the original principal amount, which may step up to 1.25% of the original principal amount of the Term Loan A depending on GCI, LLC’s secured leverage ratio. Each loan may be prepaid at any time and from time to time without penalty other than customary breakage costs. Any amounts prepaid on the revolving credit facility may be reborrowed. The Senior Credit Facility also provides for customary LIBOR replacement provisions.
Prior to the amendment, the borrowings under the Senior Credit Facility bore interest at either the alternate base rate or LIBOR (based on an interest period selected by GCI, LLC of one month, two months, three months or six months) at the election of GCI, LLC in each case plus a margin. The revolving credit facility borrowings that were alternate base rate loans bore interest at a per annum rate equal to the alternate base rate plus a margin that varied between 0.50% and 1.75% depending on GCI, LLC’s total leverage ratio. The revolving credit facility borrowings that were LIBOR loans bore interest at a per annum rate equal to the applicable LIBOR plus a margin that varied between 1.50% and 2.75% depending on GCI, LLC’s total leverage ratio. Term Loan B borrowings that were alternate base rate loans bore interest at a per annum rate equal to the alternate base rate plus a margin of 1.75%. Term Loan B borrowings that were LIBOR loans bore interest at a per annum rate equal to the applicable LIBOR plus a margin of 2.75% with a LIBOR floor of 0.75%.
GCI, LLC’s First Lien Leverage Ratio (as defined in the Senior Credit Facility) may not exceed 4.00 to 1.00.
The terms of the Senior Credit Facility include customary representations and warranties, customary affirmative and negative covenants and customary events of default. At any time after the occurrence of an event of default under the Senior Credit Facility, the lenders may, among other options, declare any amounts outstanding under the Senior Credit Facility immediately due and payable and terminate any commitment to make further loans under the Senior Credit Facility. The
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obligations under the Senior Credit Facility are secured by a security interest on substantially all of the assets of GCI, LLC and the subsidiary guarantors, as defined in the Senior Credit Facility, and on the stock of GCI Holdings.
As of March 31, 2022, there was $249 million outstanding under the Term Loan A, $150 million outstanding under the revolving portion of the Senior Credit Facility and $3 million in letters of credit under the Senior Credit Facility, leaving $397 million available for borrowing.
During the three months ended March 31, 2021, GCI, LLC repaid $180 million on its revolving credit facility.
Wells Fargo Note Payable
In connection with the closing of the Combination on December 18, 2020, the Company assumed GCI Holdings’ outstanding $6 million under its Wells Fargo Note Payable (as defined below).
GCI Holdings issued a note to Wells Fargo that matures on July 15, 2029 and is payable in monthly installments of principal and interest (the "Wells Fargo Note Payable"). The interest rate is variable at one month LIBOR plus 2.25%. The note also provides for customary LIBOR replacement provisions.
The note is subject to similar affirmative and negative covenants as the Senior Credit Facility. The obligations under the note are secured by a security interest and lien on the building purchased with the note.
Debt Covenants
GCI, LLC is subject to covenants and restrictions under its Senior Notes and Senior Credit Facility. The Company and GCI, LLC are in compliance with all debt maintenance covenants as of March 31, 2022.
Fair Value of Debt
The fair value of the Senior Notes was $588 million at March 31, 2022.
Due to the variable rate nature of the Margin Loan, Senior Credit Facility and Wells Fargo Note Payable, the Company believes that the carrying amount approximates fair value at March 31, 2022.
(7) Preferred Stock
Liberty Broadband's preferred stock is issuable, from time to time, with such designations, preferences and relative participating, optional or other rights, qualifications, limitations or restrictions thereof, as shall be stated and expressed in a resolution or resolutions providing for the issue of such preferred stock adopted by Liberty Broadband's board of directors.
Liberty Broadband Series A Cumulative Redeemable Preferred Stock (“Liberty Broadband Preferred Stock”) was issued as a result of the Combination on December 18, 2020. Each share of Series A Cumulative Redeemable Preferred Stock of GCI Liberty outstanding immediately prior to the closing of the Combination was converted into one share of newly issued Liberty Broadband Preferred Stock. The Company is required to redeem all outstanding shares of Liberty Broadband Preferred Stock out of funds legally available, at the liquidation price plus all unpaid dividends (whether or not declared) accrued from the most recent dividend payment date through the redemption date, on the first business day following March 8, 2039. There were 7,300,000 shares of Liberty Broadband Preferred Stock authorized and 7,184,124 shares issued and outstanding at March 31, 2022. An additional 42,700,000 shares of preferred stock of the Company are authorized and are undesignated as to series. The Liberty Broadband Preferred Stock is accounted for as a liability on the Company’s condensed consolidated balance sheets because it is mandatorily redeemable. As a result, all dividends paid on the Liberty Broadband
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Preferred Stock are recorded as interest expense in the Company’s condensed consolidated statements of operations. Liberty Broadband Preferred Stock has one-third of a vote per share.
The liquidation price is measured per share and shall mean the sum of (i) $25, plus (ii) an amount equal to all unpaid dividends (whether or not declared) accrued with respect to such share have been added to and then remain part of the liquidation price as of such date. The fair value of Liberty Broadband Preferred Stock of $203 million was recorded at the time of the Combination.
The holders of shares of Liberty Broadband Preferred Stock are entitled to receive, when and as declared by the Liberty Broadband board of directors, out of legally available funds, preferential dividends that accrue and cumulate as provided in the certificate of designations for the Liberty Broadband Preferred Stock.
Dividends on each share of Liberty Broadband Preferred Stock accrue on a daily basis at a rate of 7.00% per annum of the liquidation price.
Accrued dividends are payable quarterly on each dividend payment date, which is January 15, April 15, July 15, and October 15 of each year, commencing January 15, 2021. If Liberty Broadband fails to pay cash dividends on the Liberty Broadband Preferred Stock in full for any four consecutive or non-consecutive dividend periods then the dividend rate shall increase by 2.00% per annum of the liquidation price until cured. On March 14, 2022, the Company announced that its board of directors had declared a quarterly cash dividend of approximately $0.44 per share of Liberty Broadband Preferred Stock which was paid on April 15, 2022 to shareholders of record of the Liberty Broadband Preferred Stock at the close of business on March 31, 2022.
(8) Stock-Based Compensation
Liberty Broadband grants, to certain of its directors, employees and employees of its subsidiaries, restricted stock units 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 re-measures the fair value of the Award at each reporting date.
Included in selling, general and administrative expenses in the accompanying consolidated statements of operations are $9 million and $10 million of stock-based compensation during the three months ended March 31, 2022 and 2021, respectively.
Liberty Broadband – Grants of Awards
During the three months ended March 31, 2022, Liberty Broadband granted 136 thousand options to purchase shares of Series C Liberty Broadband common stock to our CEO in connection with his employment agreement. Such options had a GDFV of $39.10 per share and vest on December 30, 2022.
There were no options to purchase shares of Series A or Series B common stock granted during the three months ended March 31, 2022.
The Company has calculated the GDFV for all of its equity classified awards and any subsequent re-measurement 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
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volatility of Liberty Broadband common stock. The Company uses a zero dividend rate and the risk-free rate for Treasury Bonds with a term similar to that of the subject options.
Liberty Broadband – Outstanding Awards
The following table presents the number and weighted average exercise price (“WAEP”) of Awards to purchase Liberty Broadband common stock granted to certain officers, employees and directors of the Company, as well as the weighted average remaining life and aggregate intrinsic value of the Awards.
Weighted
average
remaining
Aggregate
contractual
intrinsic
WAEP
life
value
(in thousands)
(in years)
(in millions)
Outstanding at January 1, 2022
3,483
96.61
Granted
136
138.26
Exercised
(7)
62.03
Forfeited/cancelled
Outstanding at March 31, 2022
3,612
98.25
4.1
159
Exercisable at March 31, 2022
2,172
67.10
3.2
151
As of March 31, 2022, Liberty Broadband also had 1 thousand Series A options and 315 thousand Series B options outstanding and exercisable at a WAEP of $35.81 and $96.25, respectively, and a weighted average remaining contractual life of 0.7 years and 2.2 years, respectively.
As of March 31, 2022, the total unrecognized compensation cost related to unvested Awards was approximately $66 million. Such amount will be recognized in the Company's condensed consolidated statements of operations over a weighted average period of approximately 1.6 years.
As of March 31, 2022, Liberty Broadband reserved 3.9 million shares of Series A, Series B and Series C common stock for issuance under exercise privileges of outstanding stock Awards.
(9) Commitments and Contingencies
General Litigation
The Company has contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. Although it is reasonably possible the Company may incur losses upon conclusion of such matters, an estimate of any loss or range of loss cannot be made. In the opinion of management, it is expected that amounts, if any, which may be required to satisfy such contingencies will not be material in relation to the accompanying condensed consolidated financial statements.
Hollywood Firefighters’ Pension Fund, et al. v. GCI Liberty, Inc., et al. In October 2020, a putative class action complaint was filed by two purported GCI Liberty stockholders which named as defendants GCI Liberty, as well as the members of the GCI Liberty board of directors. The complaint alleged, among other things, that Mr. Gregory B. Maffei, a director and the President and Chief Executive Officer of Liberty Broadband and, prior to the Combination, GCI Liberty, and Mr. John C. Malone, the Chairman of the board of directors of Liberty Broadband and, prior to the Combination, GCI Liberty, in their purported capacities as controlling stockholders and directors of GCI Liberty, and the other directors of GCI Liberty, breached their fiduciary duties by approving the Combination. The complaint also alleged that various prior and current
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relationships among members of the GCI Liberty special committee, Mr. Malone and Mr. Maffei rendered the members of the GCI Liberty special committee not independent.
During March 2021 and in advance of the expenditure of significant time and costs to conduct the depositions proposed to have been taken in this action, the parties began negotiations with the class of plaintiffs for a potential settlement of this action. On May 5, 2021, the plaintiffs (on behalf of themselves and other members of a proposed settlement class) and defendants entered into an agreement in principle to settle the litigation pursuant to which the parties agreed that the plaintiffs will dismiss their claims with prejudice, with customary releases, in return for a settlement payment of $110 million to be paid by a wholly owned subsidiary of Liberty Broadband (as successor by merger to GCI Liberty) and/or insurers for the defendants and for GCI Liberty, which was recorded as a litigation settlement expense within operating income in the condensed consolidated statements of operations during the first quarter of 2021. This litigation was subsequently settled and paid in accordance with the agreement settlement during 2021. Liberty Broadband also agreed to final settlement amounts with its insurance carriers in the third quarter of 2021.
(10) Segment Information
Liberty Broadband identifies its reportable segments as (A) those consolidated companies that represent 10% or more of its consolidated annual revenue, annual Adjusted OIBDA or total assets and (B) those equity method affiliates whose share of earnings or losses represent 10% or more of Liberty Broadband’s annual pre-tax earnings (losses).
Liberty Broadband evaluates performance and makes decisions about allocating resources to its operating segments based on financial measures such as revenue and Adjusted OIBDA. In addition, Liberty Broadband reviews nonfinancial measures such as subscriber growth.
For the three months ended March 31, 2022, Liberty Broadband has identified the following consolidated company and equity method investment as its reportable segments:
Liberty Broadband’s operating segments are strategic business units that offer different products and services. They are managed separately because each segment requires different technologies, distribution channels and marketing strategies. The accounting policies of the segment that is also a consolidated company are the same as those described in the Company’s summary of significant accounting policies in the Company’s annual financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021. We have included amounts attributable to Charter in the tables below. Although Liberty Broadband owns less than 100% of the outstanding shares of Charter, 100% of the Charter amounts are included in the tables below and subsequently eliminated in order to reconcile the account totals to the Liberty Broadband condensed consolidated financial statements.
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Performance Measures
Revenue by segment from contracts with customers, classified by customer type and significant service offerings follows:
GCI Holdings
Consumer Revenue
Wireless
34
Data
58
Business Revenue
13
19
Lease, grant, and revenue from subsidies
Total GCI Holdings
233
242
Corporate and other
5
Charter revenue totaled $13,200 million and $12,522 million for the three months ended March 31, 2022 and 2021, respectively.
The Company had receivables of $178 million and $217 million at March 31, 2022 and December 31, 2021, respectively, the long-term portion of which are included in Other assets, net. The Company had deferred revenue of $30 million and $32 million at March 31, 2022 and December 31, 2021, respectively. The receivables and deferred revenue are only from contracts with customers, which amounts exclude receivables and deferred revenue arising from leases, grants, and subsidies. GCI Holdings’ customers generally pay for services in advance of the performance obligation and therefore these prepayments are recorded as deferred revenue. The deferred revenue is recognized as revenue in the accompanying condensed consolidated statements of operations as the services are provided. Changes in the contract liability balance for the Company during the three months ended March 31, 2022 were not materially impacted by other factors.
The Company expects to recognize revenue in the future related to performance obligations that are unsatisfied (or partially unsatisfied) of approximately $164 million in the remainder of 2022, $124 million in 2023, $73 million in 2024, $44 million in 2025 and $45 million in 2026 and thereafter.
For segment reporting purposes, Liberty Broadband defines Adjusted OIBDA as revenue less operating expenses and selling, general and administrative expenses excluding stock-based compensation. Liberty Broadband believes this measure is an important indicator of the operational strength and performance of its businesses by identifying those items that are not directly a reflection of each business’ performance or indicative of ongoing business trends. In addition, this measure allows management to view operating results and perform analytical comparisons and benchmarking between businesses and identify strategies to improve performance. This measure of performance excludes depreciation and amortization, stock-based compensation, transaction costs, separately reported litigation settlements and restructuring and impairment charges that are included in the measurement of operating income pursuant to GAAP. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, net earnings, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP. Liberty Broadband generally accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current prices.
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Adjusted OIBDA is summarized as follows:
Three months ended March 31,
87
96
Charter
5,212
4,643
(13)
5,292
4,726
Eliminate equity method affiliate
(5,212)
(4,643)
Consolidated Liberty Broadband
80
83
Other Information
Investments
Capital
assets
in affiliate
expenditures
3,463
1,857
13,167
12,903
160,578
1,889
(143,948)
(1,857)
The following table provides a reconciliation of Adjusted OIBDA to Operating income (loss) and Earnings (loss) before income taxes:
Adjusted OIBDA
(9)
(10)
(64)
(110)
Interest expense
Share of earnings (loss) of affiliate, net
Gain (loss) on dilution of investment in affiliate
Realized and unrealized gains (losses) on financial instruments, net
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding business, product and marketing strategies; new service and product offerings; revenue growth; future expenses; anticipated changes to regulations; the recognition of deferred revenue; competition; the performance, results of operations and cash flows of our equity affiliate, Charter Communications, Inc. (“Charter”); the expansion of Charter’s network; projected sources and uses of cash; the effects of regulatory developments; the impact of COVID-19 (as defined below); the Rural Healthcare Program; indebtedness and the anticipated impact of certain contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. Forward-looking statements inherently involve many risks and uncertainties that could cause actual results to differ materially from those projected in these statements. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but such statements necessarily involve risks and uncertainties and there can be no assurance that the expectation or belief will result or be achieved or accomplished. The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated:
For additional risk factors, please see Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021. These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Quarterly Report, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.
The following discussion and analysis provides information concerning our results of operations and financial condition. This discussion should be read in conjunction with our accompanying condensed consolidated financial statements and the notes thereto and our Annual Report on Form 10-K for the year ended December 31, 2021.
Overview
Liberty Broadband Corporation (“Liberty Broadband,” “the Company,” “us,” “we,” or “our”) is primarily comprised of GCI Holdings, LLC (“GCI Holdings”), a wholly owned subsidiary, and an equity method investment in Charter Communications, Inc. (“Charter”).
Through a number of prior years’ transactions, including the Combination, Liberty Broadband has acquired an interest in Charter. Liberty Broadband controls 25.01% of the aggregate voting power of Charter.
Update on Economic Conditions
GCI Holdings offers wireless and wireline telecommunication services, data services, video services, and managed services to customers primarily throughout Alaska. Because of this geographic concentration, growth of GCI Holdings’ business and operations depends upon economic conditions in Alaska. In December 2019, Chinese officials reported a novel coronavirus outbreak. 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, which caused a significant disruption to most sectors of the economy at varying levels during the periods covered by the financial statements.
Although the COVID-19 pandemic has significantly impacted Alaska, GCI Holdings has continued to deliver services uninterrupted by the pandemic and expects to be able to continue to respond to the increase in network activity. As a major provider of Internet services in Alaska, GCI Holdings believes it plays an instrumental role in enabling social distancing through telecommuting and e-learning across the state and remains focused on its service to customers, as well as the health and safety of its employees and customers.
GCI Holdings cannot predict the ultimate impact of COVID-19 on its business, including the depth and duration of the economic impact to its customers’ ability to pay for products and services including the impact of extended unemployment benefits and other stimulus packages and what assistance may be provided to its customers. There is a risk that GCI Holdings’ accounts receivable and bad debt expense will increase substantially due to the economic impact of the COVID-19 pandemic.
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In addition, there is uncertainty regarding the impact of government emergency declarations, the ability of suppliers and vendors to provide products and services to GCI Holdings and the risk of limitations on the deployment and maintenance of its services.
The Alaska economy is dependent upon the oil industry, state and federal spending, investment earnings and tourism. A decline in oil prices would put significant pressure on the Alaska state government budget. The Alaska state government has significant reserves that GCI Holdings believes will help fund the state government for the next couple of years. The Alaska economy is in a recession that started in late 2015 and has continued as a result of the COVID-19 pandemic. While it is difficult for GCI Holdings to predict the future impact of a renewed or continuing recession on its business, these conditions have had an adverse impact on its business and could adversely affect the affordability of and demand for some of its products and services and cause customers to shift to lower priced products and services or to delay or forgo purchases of its products and services. If the recession continues, it could negatively affect GCI Holdings’ business including its financial position, results of operations, or liquidity, as well as its ability to service debt, pay other obligations and enhance shareholder returns.
Rural Health Care (“RHC”) Program
GCI Holdings receives support from various Universal Service Fund ("USF") programs including the RHC Program. The USF programs are subject to change by regulatory actions taken by the FCC, interpretations of or compliance with USF program rules, or legislative actions. Changes to any of the USF programs that GCI Holdings participates in could result in a material decrease in revenue and accounts receivable, which could have an adverse effect on GCI Holdings’ business and the Company’s financial position, results of operations or liquidity. The following paragraphs describe certain separate matters related to the RHC Program that impact or could impact the revenue earned by the Company. As of March 31, 2022, the Company had net accounts receivable from the RHC Program of approximately $73 million, which is included within Trade and other receivables in the condensed consolidated balance sheets.
The Company disclosed, in additional detail, the following items related to GCI Holdings’ involvement in the RHC Program in its Annual Report on Form 10-K for the year ended December 31, 2021:
FCC Rate Reduction
RHC Program Funding Cap
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Enforcement Bureau and Related Inquiries
Revision of Support Calculations
The Company does not have any significant updates regarding the items noted above except as discussed in the remainder of this paragraph. Subsequent to March 31, 2022, the Wireline Competition Bureau issued an Order further extending the January 19, 2021 waiver regarding use of the database by health care providers seeking support under the RHC Program through the funding year ending June 30, 2024. Also subsequent to March 31, 2022, the DOJ and GCI Holdings held discussions regarding the qui tam action whereby the DOJ clarified that its investigation relates to the years from 2010 through 2019 and alleged that GCI Holdings had submitted false claims under the RHC Program during this time period. GCI Holdings continues to work with the DOJ related to this matter; however, the Company is unable to assess the ultimate outcome of this action and is unable to reasonably estimate a range of possible loss, including any type of fine or penalty that may ultimately be assessed as permitted under the applicable law.
Charter is a leading broadband connectivity company and cable operator serving more than 32 million customers in 41 states through its Spectrum brand.
In 2022, Charter remains focused on driving customer relationship growth. Charter continues to see lower customer move rates and switching behaviors among providers, which has reduced its selling opportunities. Charter’s rural construction initiative is underway which it expects to expand its footprint by approximately 1 million homes and businesses over the next six years. Charter continues to evolve its network to provide increased Internet speeds and reliability with a minimum speed
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of 200 megabits per second now offered to new customers in 100% of its footprint with continued investment in products and customer service platforms. Charter continues to invest in its ability to provide a differentiated Internet connectivity experience for mobile and fixed Internet customers with the availability of Advanced Home WiFi and over 500,000 out of home WiFi access points across its footprint. In addition, Charter continues to work towards the construction of its own 5G mobile data-only network leveraging the Citizens Broadband Radio Service Priority Access Licenses purchased in 2020. By continually improving its product set and offering consumers the opportunity to save money by switching to Charter’s services, Charter believes it can continue to penetrate its expanding footprint and attract more spend on additional products for its existing customers.
Results of Operations—Consolidated—March 31, 2022 and 2021
General. We provide information regarding our consolidated operating results and other income and expenses, as well as information regarding the contribution to those items from our reportable segments in the tables below. The "Corporate and other" category consists of those assets or businesses which do not qualify as a separate reportable segment. See note 10 to the accompanying condensed consolidated financial statements for more discussion regarding our reportable segments. For a more detailed discussion and analysis of GCI Holding’s results, see "Results of Operations-GCI Holdings" below.
Consolidated operating results:
Consolidated
Operating Income (Loss)
21
(14)
(130)
Revenue decreased $9 million for the three months ended March 31, 2022, as compared to the corresponding prior year period. The decrease in revenue was primarily due to decreased revenue from GCI Holdings. See “Results of Operations – GCI Holdings, LLC” below for a more complete discussion of the results of operations of GCI Holdings.
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Revenue for Corporate and other remained flat for the three months ended March 31, 2022, but with the sale of Skyhook in May 2022, we expect Corporate and other revenue to be minimal during the second quarter of 2022 and zero in future periods as all Corporate and other revenue was generated by Skyhook.
Consolidated operating income increased $108 million for the three months ended March 31, 2022, as compared to the corresponding prior year period. Operating loss for Corporate and other for the three months ended March 31, 2021 included $110 million in litigation expense. The additional decrease in operating loss for Corporate and other for the three months ended March 31, 2022, as compared to the corresponding prior year period, was due to decreased professional service fees.
Operating income decreased $8 million at GCI Holdings for the three months ended March 31, 2022, as compared to the corresponding prior year period. See “Results of Operations – GCI Holdings, LLC” below for a more complete discussion of the results of operations of GCI Holdings.
Stock-based compensation expense decreased $1 million for the three months ended March 31, 2022, as compared to the corresponding prior year period. The decrease in stock-based compensation expense was primarily due to a change in the annual grant value allocated to our Company and received by our CEO per his employment agreement and the services agreement arrangement described in note 1 to the accompanying condensed consolidated financial statements.
To provide investors with additional information regarding our financial results, we also disclose Adjusted OIBDA, which is a non-GAAP financial measure. We define Adjusted OIBDA as operating income (loss) plus depreciation and amortization, stock-based compensation, transaction costs, separately reported litigation settlements, restructuring, and impairment charges. Our chief operating decision maker and management team use this measure of performance in conjunction with other measures to evaluate our businesses and make decisions about allocating resources among our businesses. We believe this is an important indicator of the operational strength and performance of our businesses by identifying those items that are not directly a reflection of each business’ performance or indicative of ongoing business trends. In addition, this measure allows us to view operating results, perform analytical comparisons and benchmarking between businesses and identify strategies to improve performance. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with U.S. generally accepted accounting principles. The following table provides a reconciliation of Operating income (loss) to Adjusted OIBDA.
Adjusted OIBDA declined $3 million for the three months ended March 31, 2022, as compared to the corresponding prior year period. The decrease in Adjusted OIBDA was primarily due to the results of operations of GCI Holdings. Corporate and other Adjusted OIBDA improved for the three months ended March 31, 2022 due to the fluctuations in operating income (loss) as discussed above.
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Other Income and Expense
Components of Other income (expense) are presented in the table below.
Share of earnings (losses) of affiliate
337
Interest expense decreased $7 million during the three months ended March 31, 2022, as compared to the corresponding period in the prior year. The decrease was driven by lower amounts outstanding on the Margin Loan Facility (as defined in note 6 to the accompanying condensed consolidated financial statements) and the Senior Credit Facility (as defined in note 6 to the accompanying condensed consolidated financial statements).
Share of earnings of affiliate increased $114 million during the three months ended March 31, 2022, as compared to the corresponding period in the prior year. The Company’s Share of earnings (losses) of affiliate line item in the accompanying condensed consolidated statements of operations includes expenses of $67 million and $58 million, net of related taxes, for the three months ended March 31, 2022 and 2021, respectively, due to the increase in amortization of the excess basis of assets with identifiable useful lives and debt, which was primarily due to Charter’s share buyback program. The change in the share of earnings of affiliate in the three months ended March 31, 2022, as compared to the corresponding period in the prior year, was the result of the corresponding change in net income at Charter.
The following is a discussion of Charter’s results of operations. In order to provide a better understanding of Charter’s operations, we have included a summarized presentation of Charter’s results from operations.
Operating expenses, excluding stock-based compensation
(7,988)
(7,879)
(2,294)
(2,441)
(147)
(134)
Other expenses, net
(1,037)
(931)
Net income (loss) before income taxes
1,734
1,137
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Charter net income increased $468 million for the three months ended March 31, 2022, as compared to the corresponding period in the prior year.
Charter’s revenue increased $678 million for the three months ended March 31, 2022, as compared to the corresponding period in the prior year, primarily due to increases in the number of residential Internet, mobile and commercial customers and price adjustments.
During the three months ended March 31, 2022, operating expenses, excluding stock-based compensation, increased $109 million, as compared to the corresponding period in the prior year. Operating costs increased primarily due to increased mobile costs, costs to service customers and marketing costs, as well as other costs.
Mobile costs were comprised of mobile device costs and mobile service, customer acquisition and operating costs. The increase is attributable to an increase in the number of mobile lines.
Costs to service customers increased during the three months ended March 31, 2022 compared to the corresponding period in 2021 primarily due to unusually low bad debt in the first quarter of 2021 which benefited from government stimulus packages, higher labor costs associated with Charter’s commitment to a minimum $20 per hour wage in 2022, and higher health benefits and fuel costs.
Marketing costs increased during the three months ended March 31, 2022 compared to the corresponding period in 2021 primarily due to higher labor costs driven by the wage rate increase mentioned above and insourcing of inbound sales and retention call centers.
Other corporate operating costs increased during the three months ended March 31, 2022 compared to the corresponding period in 2021 primarily due to higher labor costs including a non-recurring favorable adjustment to bonuses related to COVID-19 during the three months ended March 31, 2021.
Charter’s Adjusted OIBDA for the three months ended March 31, 2022 increased for the reasons described above.
Depreciation and amortization expense decreased $147 million during the three months ended March 31, 2022, as compared to the corresponding period in the prior year, primarily due to certain assets acquired in acquisitions becoming fully depreciated offset by an increase in depreciation as a result of more recent capital expenditures.
Charter’s results were also impacted by other expenses, net which increased $106 million for the three months ended March 31, 2022, as compared to the corresponding period in the prior year. The increase in other expenses, net was primarily due to increased interest expense and a decrease in other income, net.
Income tax expense increased $129 million for the three months ended March 31, 2022, as compared to the corresponding period in the prior year. Income tax expense increased primarily as a result of higher pretax income.
The loss on dilution of investment in affiliate decreased by $26 million during the three months ended March 31, 2022, as compared to the corresponding period in the prior year, primarily due to a decrease in issuance of Charter common stock from the exercise of stock options held by employees and other third parties, at prices below Liberty Broadband’s book basis per share as well as an increased gain on dilution related to Charter’s repurchase of Liberty Broadband’s Charter shares during the three months ended March 31, 2022. As Liberty Broadband’s ownership in Charter changes due to exercises of Charter stock options, a loss is recorded with the effective sale of common stock, because the exercise price of Charter stock options is typically lower than the book value of the Charter shares held by Liberty Broadband.
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Realized and unrealized gains (losses) on financial instruments, net are comprised of changes in the fair value of the following:
The changes in these accounts are primarily due to market factors and changes in the fair value of the underlying stocks or financial instruments to which these related. The increase in realized and unrealized gains for the three months ended March 31, 2022, compared to the corresponding period in the prior year, was primarily due to an increase in unrealized gains on the indemnification obligation (see note 3 in the accompanying condensed consolidated financial statements for additional discussion), as well as the changes in fair value of the 2.75% Exchangeable Senior Debentures due 2050, the 1.25% Exchangeable Senior Debentures due 2050 and the 1.75% Exchangeable Senior Debentures due 2046 related to changes in market price of underlying Charter stock (see notes 3 and 6 in the accompanying condensed consolidated financial statements for additional discussion).
Other, net increased $13 million for the three months ended March 31, 2022, as compared to the corresponding period in the prior year. The increase was primarily due to a tax sharing receivable with Qurate Retail that resulted in an increased loss of $14 million for the three months ended March 31, 2022. See more discussion about the tax sharing agreement with Qurate Retail in note 1 to the accompanying condensed consolidated financial statements.
Income taxes
Earnings (losses) before income taxes and income tax (expense) benefit are as follows:
Effective income tax rate
13.1%
18.8%
The difference between the effective income tax rate of 13.1% and the U.S. Federal income tax rate of 21% for the three months ended March 31, 2022, was primarily due to deferred tax benefits related to tax basis in the stock of a consolidated subsidiary sold during the second quarter of 2022 and non-taxable income from a decrease in the fair value of the indemnification payable owed to Qurate Retail.
The difference between the effective income tax rate of 18.8% and the U.S. Federal income tax rate of 21% for the three months ended March 31, 2021, was primarily due to tax benefits from a change in effective tax rate used to measure deferred taxes on certain Charter shares and non-taxable income from a decrease in the fair value of the indemnification payable owed to Qurate Retail, partially offset by a non-deductible litigation settlement.
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The Company had net earnings of $299 million and $52 million for the three months ended March 31, 2022 and 2021, respectively. The change in net earnings (loss) was the result of the above-described fluctuations in our revenue, expenses and other income and expenses.
Liquidity and Capital Resources
As of March 31, 2022, substantially all of our cash and cash equivalents are invested in U.S. Treasury securities, other government securities or government guaranteed funds, AAA rated money market funds and other highly rated financial and corporate debt instruments.
The following are potential sources of liquidity: available cash balances, cash generated by the operating activities of our privately-owned subsidiaries (to the extent such cash exceeds the working capital needs of the subsidiaries and is not otherwise restricted), monetization of our investments (including Charter Repurchases (as defined in note 4 to the accompanying condensed consolidated financial statement and discussed below)), outstanding or anticipated debt facilities (as defined in note 6 to the accompanying condensed consolidated financial statements), debt and equity issuances, and dividend and interest receipts.
As of March 31, 2022, Liberty Broadband had a cash and cash equivalents balance of $300 million.
Cash flow information
Net cash provided (used) by operating activities
Net cash provided (used) by investing activities
Net cash provided (used) by financing activities
The decrease in cash provided by operating activities in the three months ended March 31, 2022, as compared to the corresponding period in the prior year, was primarily driven by the non-recurring favorable collection of accounts receivable during the first quarter of 2021 from the RHC Program for the funding years that ended on June 30, 2019 and June 30, 2020.
During the three months ended March 31, 2022 and 2021, net cash flows provided by investing activities were primarily related to the sale of 970,241 and 834,576 shares of Charter Class A common stock to Charter for $602 million and $518 million, respectively, to maintain our fully diluted ownership percentage of Charter at 26%. In February 2021, 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 (see more information in note 4 to the accompanying condensed consolidated financial statements). The Company expects the Charter Repurchases to be a significant source of liquidity in future periods. This net inflow of cash was partially offset by capital expenditures of $32 million and $28 million during the three months ended March 31, 2022 and 2021, respectively.
During the three months ended March 31, 2022, net cash flows used in financing activities were primarily repurchases of Series A and Series C Liberty Broadband common stock of $843 million, partially offset by borrowings of debt of $300 million of outstanding Revolving Loans (as defined in note 6 to the accompanying condensed consolidated financial statements) under the Margin Loan Facility. During the three months ended March 31, 2021, net cash flows used in financing activities were primarily repurchases of Series C Liberty Broadband common stock of $738 million, as well as repayment by GCI, LLC of approximately $180 million on its revolving credit facility.
The projected uses of our cash for the remainder of 2022 are the potential buyback of common stock under the approved share buyback program, capital expenditures of approximately $120 million, approximately $90 million for interest payments on outstanding debt, approximately $10 million for preferred stock dividends, funding of any operational needs of our subsidiaries, to reimburse Liberty Media Corporation for amounts due under various agreements and to fund potential
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investment opportunities. We expect corporate cash and other available sources of liquidity to cover corporate expenses for the foreseeable future.
Results of Operations—GCI Holdings, LLC
GCI Holdings provides a full range of wireless, data, video, voice, and managed services to residential, businesses, governmental entities, and educational and medical institutions primarily in Alaska. The following table highlights selected key performance indicators used in evaluating GCI Holdings.
Consumer
Wireless:
Wireless lines in service1
185,900
181,000
Data:
Cable modem subscribers2
153,600
143,900
1 A wireless line in service is defined as a wireless device with a monthly fee for services.
2 A cable modem subscriber is defined by the purchase of cable modem service regardless of the level of service purchased. If one entity purchases multiple cable modem service access points, each access point is counted as a subscriber.
GCI Holdings’ operating results for the three months ended March 31, 2022 and 2021 are as follows:
Operating expenses (excluding stock-based compensation included below):
Operating expense
(63)
(67)
Selling, general and administrative expenses
(83)
(79)
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The components of revenue are as follows:
46
44
Business
20
91
Total revenue
Consumer wireless revenue increased $2 million for the three months ended March 31, 2022, as compared to the corresponding prior year period. The increase was primarily due to increased plan service fee revenue driven by an increase in the number of subscribers and subscribers’ selection of plans with higher recurring monthly charges that offer higher usage limits.
Consumer data revenue increased $6 million for the three months ended March 31, 2022, as compared to the corresponding prior year period. The increase was driven by an increase in the number of subscribers and the subscribers' selection of plans with higher recurring monthly charges that offer higher speeds and higher usage limits.
Consumer other revenue decreased $8 million for the three months ended March 31, 2022, as compared to the corresponding prior year period. Consumer other revenue consists of consumer video and voice revenue. The decrease was primarily due to a decrease in video revenue driven by decreased video subscribers, which was the result of both the transition from traditional linear video delivery to IP delivery and GCI Holding’s decision to discontinue selling bulk video packages for multi-dwelling units. Historically, GCI Holdings has seen declines in video and voice subscribers and revenue and expects a continued decrease as customers potentially choose alternative services.
Business wireless revenue decreased $6 million for the three months ended March 31, 2022, as compared to the corresponding prior year period. The decrease was primarily due to decreases in roaming revenue. The decrease in roaming revenue was driven by a contract amendment signed in the fourth quarter of 2021. Although the contract amendment will result in lower annual roaming revenue, GCI Holdings will benefit from the extension of the agreement for several years as well as continued backhaul revenue.
Business data revenue was relatively flat for the three months ended March 31, 2022, as compared to the corresponding prior year period.
Business other revenue decreased $2 million for the three months ended March 31, 2022, as compared to the corresponding prior year period. Business other revenue consists of business video and voice revenue. The decrease was primarily due to decreased business video revenue. Historically, GCI Holdings has seen declines in subscribers and revenue and has not focused business efforts on growth in these areas.
Operating expenses decreased $4 million for the three months ended March 31, 2022, as compared to the corresponding prior year period. This was primarily due to a decrease in video costs paid to content producers driven by reduced video subscribers, partially offset by an increase in costs to operate our network driven by the increase in demand for data service.
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Selling, general and administrative expenses increased $4 million for the three months ended March 31, 2022, as compared to the corresponding prior year period. The increase was primarily due to increases in labor related costs driven by an increase in contract labor costs, as well as an increase in software costs driven by an increase in software as service arrangements.
Stock-based compensation was relatively flat for the three months ended March 31, 2022, as compared to the corresponding prior year period.
Depreciation and amortization was relatively flat for the three months ended March 31, 2022, as compared to the corresponding prior year period.
We are exposed to market risk in the normal course of business due to our ongoing investing and financial activities. Market risk refers to the risk of loss arising from adverse changes in stock prices and interest rates. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. We have established policies, procedures and internal processes governing our management of market risks and the use of financial instruments to manage our exposure to such risks.
We are exposed to changes in interest rates primarily as a result of our borrowing and investment activities, which could include investments in fixed and floating rate debt instruments and borrowings used to maintain liquidity and to fund business operations. The nature and amount of our long-term and short-term debt are expected to vary as a result of future requirements, market conditions and other factors. We manage our exposure to interest rates by maintaining what we believe is an appropriate mix of fixed and variable rate debt. We believe this best protects us from interest rate risk. We could achieve this mix by (i) issuing fixed rate debt that we believe has a low stated interest rate and significant term to maturity, (ii) issuing variable rate debt with appropriate maturities and interest rates and (iii) entering into interest rate swap arrangements when we deem appropriate.
Liberty Broadband’s borrowings under the Margin Loan Agreement (as defined in note 6 of the accompanying condensed consolidated financial statements) and the Senior Credit Facility (as defined in note 6 of the accompanying condensed consolidated financial statements) carry a variable interest rate based on LIBOR as a benchmark for establishing the rate of interest. LIBOR is the subject of national, international and other regulatory guidance and proposals for reform. In 2017, the United Kingdom's Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that it intends to phase out LIBOR. On March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative: (a) immediately after December 31, 2021, in the case of the one week and two month U.S. dollar settings; and (b) immediately after June 30, 2023, in the case of the remaining U.S. dollar settings. The United States Federal Reserve has also advised banks to cease entering into new contracts that use USD LIBOR as a reference rate. The Alternative Reference Rate Committee, a committee convened by the Federal Reserve that includes major market participants, has identified the Secured Overnight Financing Rate, or SOFR, a new index calculated by short-term repurchase agreements, backed by Treasury securities, as its preferred alternative rate for LIBOR. Additionally, our Margin Loan Agreement and Senior Credit Facility provide for a transition to a SOFR based rate or to other alternative reference rates depending on acceptance in the market of these rates. At this time, it is not possible to predict how markets will respond to SOFR or other alternative reference rates as the transition away from the LIBOR benchmarks is anticipated in coming years. Accordingly, the outcome of these reforms is uncertain and any changes in the methods by which LIBOR is determined or regulatory activity related to LIBOR’s phaseout could cause LIBOR to perform differently than in the past or cease to exist. The consequences of these developments cannot be entirely predicted, but could include an increase in the cost of borrowings under the aforementioned debt instruments.
As of March 31, 2022, our debt is comprised of the following amounts:
Variable rate debt
Fixed rate debt
Principal
Weighted avg
interest rate
dollar amounts in millions
405
2.1
%
4.8
2.5
1,415
1.9
Our investment in Charter (our equity method affiliate) is publicly traded and not reflected at fair value in our balance sheet. Our investment in Charter is also subject to market risk that is not directly reflected in our financial statements.
Disclosure Controls and Procedures
In accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company carried out an evaluation, under the supervision and with the participation of management, including its chief executive officer and its principal accounting and financial officer (the "Executives"), of the effectiveness of its disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Executives concluded that the Company's disclosure controls and procedures were effective as of March 31, 2022 to provide reasonable assurance that information required to be disclosed in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
Changes in Internal Control Over Financial Reporting
There has been no change in the Company's internal control over financial reporting that occurred during the three months ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
PART II—OTHER INFORMATION
Our Annual Report on Form 10-K for the year ended December 31, 2021 includes "Legal Proceedings" under Item 3 of Part I. There have been no material changes from the legal proceedings described in our Form 10-K, except as described below.
Charter and Liberty Broadband - Delaware Litigation
In August 2015, a purported stockholder of Charter, Matthew Sciabacucchi, filed a lawsuit in the Delaware Court of Chancery on behalf of a putative class of Charter stockholders, challenging the transactions involving Charter, Time Warner Cable Inc., Advance/Newhouse Partnership, and Liberty Broadband announced by Charter on May 26, 2015. The lawsuit, which named as defendants Liberty Broadband, Charter and the board of directors of Charter, alleges that the transactions resulted from breaches of fiduciary duty by Charter’s directors and that Liberty Broadband improperly benefited from the challenged transactions at the expense of other Charter stockholders. On May 2, 2022, the Delaware Court of Chancery denied motions for summary judgment that had been filed by all of the defendants, and the case will proceed towards trial. Liberty Broadband denies any liability, believes that it has substantial defenses, and is vigorously defending this lawsuit. Although Liberty Broadband is unable to predict the outcome of this lawsuit, it does not expect the outcome will have a material effect on its operations, financial condition or cash flows. Further, Charter has said that it denies any liability, believes that it has substantial defenses, and is vigorously defending this lawsuit. Charter has also said that although it is unable to predict the outcome of this lawsuit, it does not expect the outcome will have a material effect on its operations, financial condition or cash flows.
Other Charter Proceedings
Sprint Communications Company L.P. (“Sprint”) filed a patent suit against Charter and Bright House Networks, LLC on December 2, 2017 in the United States District Court for the District of Delaware. Charter brought a patent suit against Sprint (TC Tech, LLC v. Sprint) in the United States District Court for the District of Delaware implicating Sprint's LTE technology and a similar suit against T-Mobile in the United States District Court for the Western District of Texas.
Sprint filed a subsequent patent suit against Charter on May 17, 2018. On February 18, 2020, Sprint filed a lawsuit against Charter, Bright House and Time Warner Cable Inc. in the United States District Court for the District of Kansas alleging that Charter misappropriated trade secrets from Sprint years ago through employees hired by Bright House. Charter, T-Mobile and Sprint have reached a settlement of all of the foregoing suits that resulted in a payment of $220 million in 2022 by Charter to T-Mobile, and all of the cases have been dismissed with prejudice.
Share Repurchase Programs
On February 23, 2021, the board of directors authorized the repurchase of $2.23 billion of Liberty Broadband Series A and Series C common stock. Additionally, on August 5, 2021, the board of directors authorized the repurchase of an additional $2.105 billion of Liberty Broadband Series A and Series C common stock. Further, on January 26, 2022, a duly authorized committee of the board of directors authorized the repurchase of an additional $2.215 billion of Liberty Broadband Series A and Series C common stock.
A summary of the repurchase activity for the three months ended March 31, 2022 is as follows:
Series A Common Stock
Series C Common Stock
(c) Total Number
(d) Maximum Number
of Shares
(or Approximate Dollar
Purchased as
Value) of Shares that
(a) Total Number
(b) Average
Part of Publicly
May Yet Be Purchased
Price Paid per
Announced Plans or
Under the Plans or
Period
Purchased
Share
Programs
January 1 - 31, 2022
243,417
160.84
2,515,468
150.44
2,758,885
$2,467
million
February 1 - 28, 2022
-
1,414,074
151.85
$2,252
March 1 - 31, 2022
430,000
135.84
1,096,194
138.63
1,526,194
$2,042
673,417
5,025,736
5,699,153
There were no repurchases of Liberty Broadband Series B common stock or Liberty Broadband Preferred Stock during the three months ended March 31, 2022.
During the three months ended March 31, 2022, zero shares of Liberty Broadband Series A common stock, zero shares of Liberty Broadband Series B common stock, 6,056 shares of Liberty Broadband Series C common stock and 3,127 shares of Liberty Broadband Preferred Stock were surrendered by our officers and employees to pay withholding taxes and other deductions in connection with the vesting of their restricted stock, restricted stock units and options.
Listed below are the exhibits which are filed as a part of this Report (according to the number assigned to them in Item 601 of Regulation S-K):
31.1
Rule 13a-14(a)/15d-14(a) Certification*
31.2
Section 1350 Certification**
101.INS
XBRL Instance Document* - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document*
101.CAL
Inline XBRL Taxonomy Calculation Linkbase Document*
101.LAB
Inline XBRL Taxonomy Label Linkbase Document*
101.PRE
Inline XBRL Taxonomy Presentation Linkbase Document*
101.DEF
Inline XBRL Taxonomy Definition Document*
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)*
* Filed herewith
** Furnished herewith
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 6, 2022
By:
/s/ GREGORY B. MAFFEI
Gregory B. Maffei
President and Chief Executive Officer
/s/ BRIAN J. WENDLING
Brian J. Wendling
Chief Accounting Officer and Principal Financial Officer