SEC Filing | Liberty Broadband Corporation

View:

Download DOC

Download PDF

Download XLS

Download XBRL

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 September 30, 2020

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

For the transition period from to

Commission File No. 001-38385

GCI LIBERTY, INC.

(Exact name of Registrant as specified in its charter)


Delaware		92-0072737
(State or other jurisdiction of		(I.R.S Employer
incorporation or organization)		Identification No.)

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

Registrant’s telephone number, including area code: (720) 875-5900

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


Title of each class	Trading Symbols	Name of exchange on which registered
Series A Common Stock	GLIBA	The Nasdaq Stock Market LLC
Series A Cumulative Redeemable preferred stock	GLIBP	The Nasdaq Stock Market LLC

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

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

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


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

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

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

The number of shares outstanding of the registrant’s classes of common stock as of October 31, 2020 was:

101,351,276 shares of Series A common stock; and

4,488,568 shares of Series B common stock

Table of Contents

TABLE OF CONTENTS


Part I. Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets (unaudited)	I-3
	Condensed Consolidated Statements of Operations (unaudited)	I-5
	Condensed Consolidated Statements of Comprehensive Earnings (Loss) (unaudited)	I-6
	Condensed Consolidated Statements of Cash Flows (unaudited)	I-7
	Condensed Consolidated Statements of Equity (unaudited)	I-8
	Notes to Condensed Consolidated Financial Statements (unaudited)	I-10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	I-25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	I-37
Item 4.	Controls and Procedures	I-38

Part II. Other Information
Item 1.	Legal Proceedings	II-1
Item 1A.	Risk Factors	II-1
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	II-3
Item 6.	Exhibits	II-4

SIGNATURES		II-6

I-2

Table of Contents

GCI LIBERTY, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited)


	September 30,		December 31,
	2020		2019
	amounts in thousands
Assets
Current assets:
Cash and cash equivalents	$	552,604	569,520
Trade and other receivables, net of allowance for doubtful accounts of $6,916 and $7,516, respectively		283,687	114,435
Other current assets		61,593	43,868
Total current assets		897,884	727,823
Investments in equity securities (note 4)		3,350,749	2,605,293
Investments in affiliates, accounted for using the equity method (note 5)		157,484	167,643
Investment in Liberty Broadband measured at fair value (note 5)		6,097,955	5,367,242
Property and equipment, net		1,045,585	1,090,901
Intangible assets not subject to amortization (note 6)
Goodwill		830,268	855,837
Cable certificates		305,000	305,000
Other		37,500	41,500
		1,172,768	1,202,337
Intangible assets subject to amortization, net (note 6)		356,327	391,979
Tax sharing receivable		88,349	84,534
Other assets, net		192,741	295,693
Total assets	$	13,359,842	11,933,445

See accompanying notes to interim condensed consolidated financial statements.

I-3

Table of Contents

GCI LIBERTY, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Continued)

(unaudited)


	September 30,		December 31,
	2020		2019
	amounts in thousands,
	except share amounts
Liabilities and Equity
Current liabilities:
Accounts payable and accrued liabilities	$	117,728	92,893
Deferred revenue		26,748	27,886
Current portion of debt, including $820,035 and $0 measured at fair value, respectively (note 7)		823,166	3,008
Indemnification obligation (note 3)		309,541	202,086
Other current liabilities		84,161	69,149
Total current liabilities		1,361,344	395,022
Long-term debt, net, including $0 and $658,839 measured at fair value, respectively (note 7)		2,599,521	3,263,210
Obligations under finance leases and tower obligations, excluding current portion		93,742	97,507
Long-term deferred revenue		48,724	57,986
Deferred income tax liabilities		1,865,998	1,527,109
Preferred stock (note 8)		178,066	178,002
Derivative instrument (note 3)		63,456	71,305
Other liabilities		116,301	133,020
Total liabilities		6,327,152	5,723,161
Equity
Stockholders’ equity:
Series A common stock, $0.01 par value. Authorized 500,000,000 shares; issued and outstanding 101,350,710 shares at September 30, 2020 and 101,306,716 shares at December 31, 2019		1,014	1,013
Series B common stock, $0.01 par value. Authorized 20,000,000 shares; issued and outstanding 4,488,568 shares at September 30, 2020 and 4,437,593 shares at December 31,2019		45	44
Series C common stock, $0.01 par value. Authorized 1,040,000,000 shares; no issued and outstanding at September 30, 2020 and December 31, 2019		—	—
Additional paid-in capital		3,231,926	3,221,885
Accumulated other comprehensive earnings (loss), net of taxes		8,148	(4,084)
Retained earnings		3,782,834	2,982,626
Total stockholders' equity		7,023,967	6,201,484
Non-controlling interests		8,723	8,800
Total equity		7,032,690	6,210,284
Commitments and contingencies (note 10)
Total liabilities and equity	$	13,359,842	11,933,445

See accompanying notes to interim condensed consolidated financial statements.

I-4

Table of Contents

GCI LIBERTY, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)


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

	amounts in thousands, except per share amounts
Revenue	$	246,892	227,044		707,511	662,346
Operating costs and expenses:
Operating expense (exclusive of depreciation and amortization shown separately below)		69,561	72,637		210,062	209,962
Selling, general and administrative, including stock-based compensation (note 9)		106,571	93,597		289,278	305,184
Depreciation and amortization expense		60,688	66,466		184,856	200,035
Insurance proceeds and restructuring, net		—	(1,482)		—	236
		236,820	231,218		684,196	715,417
Operating income (loss)		10,072	(4,174)		23,315	(53,071)
Other income (expense):
Interest expense (including amortization of deferred loan fees)		(29,722)	(38,353)		(100,364)	(116,357)
Share of earnings (losses) of affiliates, net (note 5)		(9,035)	1,921		(7,504)	(2,443)
Realized and unrealized gains (losses) on financial instruments, net (note 3)		1,172,685	156,165		1,199,560	1,844,863
Tax sharing agreement		26,146	2,362		30,057	18,895
Other, net		(7,314)	(540)		(5,176)	13,824
		1,152,760	121,555		1,116,573	1,758,782
Earnings (loss) before income taxes		1,162,832	117,381		1,139,888	1,705,711
Income tax (expense) benefit		(338,446)	(28,087)		(336,776)	(478,887)
Net earnings (loss)		824,386	89,294		803,112	1,226,824
Less net earnings (loss) attributable to the non-controlling interests		(26)	(28)		(77)	(85)
Net earnings (loss) attributable to GCI Liberty, Inc. shareholders	$	824,412	89,322		803,189	1,226,909
Basic net earnings (loss) attributable to Series A and Series B GCI Liberty, Inc. shareholders per common share (note 2)	$	7.81	0.85		7.61	11.71
Diluted net earnings (loss) attributable to Series A and Series B GCI Liberty, Inc. shareholders per common share (note 2)	$	7.74	0.84		7.55	11.60

See accompanying notes to interim condensed consolidated financial statements.

I-5

Table of Contents

GCI LIBERTY, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Earnings (Loss)

(Unaudited)


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

	amounts in thousands
Net earnings (loss)	$	824,386	89,294		803,112	1,226,824
Other comprehensive earnings (loss), net of taxes:
Comprehensive earnings (loss) attributable to debt credit risk adjustments		(6,619)	(5,477)		12,232	(657)
Comprehensive earnings (loss)		817,767	83,817		815,344	1,226,167
Less comprehensive earnings (loss) attributable to the non-controlling interests		(26)	(28)		(77)	(85)
Comprehensive earnings (loss) attributable to GCI Liberty, Inc. shareholders	$	817,793	83,845		815,421	1,226,252

See accompanying notes to interim condensed consolidated financial statements.

I-6

Table of Contents

GCI LIBERTY, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine months ended
	September 30,
	2020		2019
	amounts in thousands
Cash flows from operating activities:
Net earnings (loss)	$	803,112	1,226,824
Adjustments to reconcile net earnings (loss) to net cash from operating activities:
Depreciation and amortization		184,856	200,035
Stock-based compensation expense		11,389	18,153
Share of (earnings) losses of affiliates, net		7,504	2,443
Realized and unrealized (gains) losses on financial instruments, net		(1,199,560)	(1,844,863)
Deferred income tax expense (benefit)		336,874	478,850
Other, net		9,232	(2,843)
Change in operating assets and liabilities:
Current and other assets		(81,460)	39,289
Payables and other liabilities		(4,048)	(35,774)
Net cash provided (used) by operating activities		67,899	82,114
Cash flows from investing activities:
Capital expended for property and equipment		(107,247)	(108,633)
Proceeds from derivative instrument		—	105,866
Settlement of derivative instrument		—	(105,866)
Other investing activities, net		25,634	6,340
Net cash provided (used) by investing activities		(81,613)	(102,293)
Cash flows from financing activities:
Borrowings of debt		—	325,000
Repayment of debt, finance leases and tower obligations		(6,596)	(334,275)
Repurchases of GCI Liberty common stock		—	(43,910)
Other financing activities, net		(3,060)	(7,802)
Net cash provided (used) by financing activities		(9,656)	(60,987)
Net increase (decrease) in cash, cash equivalents and restricted cash		(23,370)	(81,166)
Cash, cash equivalents and restricted cash at beginning of period		576,150	492,032
Cash, cash equivalents and restricted cash at end of period	$	552,780	410,866

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:


	September 30,		December 31,
	2020		2019
	amounts in thousands
Cash and cash equivalents	$	552,604	569,520
Restricted cash included in other current assets		176	6,630
Total cash and cash equivalents and restricted cash at end of period	$	552,780	576,150

See accompanying notes to condensed consolidated financial statements.

I-7

Table of Contents

GCI LIBERTY, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Equity

(Unaudited)


					Accumulated
	Series A		Series B	Additional	other		Non-controlling
	common		common	paid-in	comprehensive	Retained	interest in equity	Total
	stock		stock	capital	earnings (loss)	earnings	of subsidiaries	equity

	amounts in thousands
Balances at January 1, 2020	$	1,013	44	3,221,885	(4,084)	2,982,626	8,800	6,210,284
Net earnings (loss)		—	—	—	—	803,189	(77)	803,112
Other comprehensive earnings (loss), net of taxes		—	—	—	12,232	—	—	12,232
Stock-based compensation		—	—	11,477	—	—	—	11,477
Issuance of common stock upon exercise of stock options		1	1	427	—	—	—	429
Withholding taxes on net share settlements of stock-based compensation		—	—	(1,811)	—	—	—	(1,811)
Other		—	—	(52)	—	(2,981)	—	(3,033)
Balances at September 30, 2020	$	1,014	45	3,231,926	8,148	3,782,834	8,723	7,032,690


					Accumulated
	Series A		Series B	Additional	other		Non-controlling
	common		common	paid-in	comprehensive	Retained	interest in equity	Total
	stock		stock	capital	earnings (loss)	earnings	of subsidiaries	equity

	amounts in thousands
Balances at July 1, 2020	$	1,013	45	3,227,258	14,767	2,958,423	8,749	6,210,255
Net earnings (loss)		—	—	—	—	824,412	(26)	824,386
Other comprehensive earnings (loss), net of taxes		—	—	—	(6,619)	—	—	(6,619)
Stock-based compensation		—	—	4,822	—	—	—	4,822
Issuance of common stock upon exercise of stock options		1	—	400	—	—	—	401
Withholding taxes on net share settlements of stock-based compensation		—	—	(555)	—	—	—	(555)
Other		—	—	1	—	(1)	—	—
Balances at September 30, 2020	$	1,014	45	3,231,926	8,148	3,782,834	8,723	7,032,690

See accompanying notes to interim condensed consolidated financial statements.

I-8

Table of Contents

GCI LIBERTY, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Equity (continued)

(Unaudited)


					Accumulated
	Series A		Series B	Additional	other		Non-controlling
	common		common	paid-in	comprehensive	Retained	interest in equity	Total
	stock		stock	capital	earnings (loss)	earnings	of subsidiaries	equity

	amounts in thousands
Balances at January 1, 2019	$	1,021	44	3,251,957	168	1,043,933	9,567	4,306,690
Net earnings (loss)		—	—	—	—	1,226,909	(85)	1,226,824
Other comprehensive earnings (loss), net of taxes		—	—	—	(657)	—	—	(657)
Stock-based compensation		—	—	19,539	—	—	—	19,539
Repurchases of GCI Liberty common stock		(10)	—	(43,900)	—	—	—	(43,910)
Issuance of common stock upon exercise of stock options		1	—	1,696	—	—	—	1,697
Withholding taxes on net share settlements of stock-based compensation		—	—	(3,501)	—	—	—	(3,501)
Other		—	—	92	—	(5)	—	87
Balances at September 30, 2019	$	1,012	44	3,225,883	(489)	2,270,837	9,482	5,506,769


					Accumulated
	Series A		Series B	Additional	other		Non-controlling
	common		common	paid-in	comprehensive	Retained	interest in equity	Total
	stock		stock	capital	earnings (loss)	earnings	of subsidiaries	equity

	amounts in thousands
Balances at July 1, 2019	$	1,012	44	3,219,710	4,988	2,181,515	9,510	5,416,779
Net earnings (loss)		—	—	—	—	89,322	(28)	89,294
Other comprehensive earnings (loss), net of taxes		—	—	—	(5,477)	—	—	(5,477)
Stock-based compensation		—	—	5,775	—	—	—	5,775
Issuance of common stock upon exercise of stock options		—	—	391	—	—	—	391
Withholding taxes on net share settlements of stock-based compensation		—	—	(70)	—	—	—	(70)
Other		—	—	77	—	—	—	77
Balances at September 30, 2019	$	1,012	44	3,225,883	(489)	2,270,837	9,482	5,506,769

See accompanying notes to interim condensed consolidated financial statements.

I-9

Table of Contents

GCI LIBERTY, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(1) Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of GCI Liberty, Inc. and its controlled subsidiaries, as well as other equity securities and equity method investments (collectively, “GCI Liberty”, the “Company”, “us”, “we” and “our”). All significant intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements. GCI Liberty is made up of its wholly-owned subsidiary, GCI Holdings, LLC (“GCI Holdings”), a controlling interest in Evite, Inc. (“Evite”) until Evite was sold on September 14, 2020 and non-controlling interests in Liberty Broadband Corporation ("Liberty Broadband"), Charter Communications, Inc. ("Charter"), and LendingTree, Inc. ("LendingTree"). The sale of Evite did not have a material impact to the Company’s financial results. These assets (other than GCI Holdings) were contributed by Liberty Interactive Corporation, now known as Qurate Retail, Inc. ("Qurate Retail"), in exchange for, among other things, a controlling interest in GCI Liberty, which was subsequently split-off (the "Holdco Split-Off").

The accompanying 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 the periods presented 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. 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.

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 has caused a significant disruption to most sectors of the economy.

COVID-19 has not had a material impact on GCI Liberty’s operating results for the three and nine months ended September 30, 2020, however, management has increased certain estimates, including but not limited to, allowance for doubtful accounts. Other than these changes, the Company is not presently aware of any events or circumstances arising from the COVID-19 pandemic that would require us to update the Company’s estimates or judgments or revise the carrying value of its assets or liabilities. The Company’s estimates may change, however, as new events occur and additional information is obtained, and any such changes will be recognized in the consolidated financial statements. Actual results could differ from estimates, and any such differences may be material to the Company’s financial statements.

The Company, through its ownership of interests in subsidiaries and other companies, is primarily engaged in providing a full range of wireless, data, video, voice, and managed services to residential customers, businesses, governmental entities, and educational and medical institutions primarily in Alaska.

The Company holds investments that are accounted for using the equity method. The Company does not control the decision making process or business management practices of these affiliates. Accordingly, the Company relies on management of these affiliates 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, the Company relies on audit reports that are provided by the affiliates’ independent auditors on the financial statements of such affiliates. The Company is not aware, however, of any errors in or possible misstatements of the financial information provided by its equity affiliates that would have a material effect on its condensed consolidated financial statements.

I-10

Table of Contents

GCI LIBERTY, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

GCI Liberty has entered into certain agreements with Qurate Retail and Liberty Media Corporation ("Liberty Media") (or its subsidiary), all of which are separate, publicly traded companies, in order to govern certain relationships between the companies. None of these entities have any stock ownership, beneficial or otherwise, in the other. These agreements include an indemnification agreement, a reorganization agreement, a services agreement, a facilities sharing agreement and a tax sharing agreement.

The reorganization agreement provides for, among other things, provisions governing the relationship between GCI Liberty and Qurate Retail (for accounting purposes a related party of GCI Liberty). The tax sharing agreement provides for the allocation and indemnification of tax liabilities and benefits between Qurate Retail and GCI Liberty and other agreements related to tax matters. Pursuant to the tax sharing agreement, GCI Liberty has agreed to indemnify Qurate Retail for taxes and tax-related losses resulting from the Holdco Split-Off to the extent such taxes or tax-related losses (i) result primarily from, individually or in the aggregate, the breach of certain restrictive covenants made by GCI Liberty (applicable to actions or failures to act by GCI Liberty and its subsidiaries following the completion of the Holdco Split-Off), or (ii) result from Section 355(e) of the Internal Revenue Code applying to the Holdco Split-Off as a result of the Holdco Split-Off being part of a plan (or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, a 50-percent or greater interest (measured by vote or value) in the stock of GCI Liberty (or any successor corporation). Pursuant to the services agreement, Liberty Media provides GCI Liberty with general and administrative services including legal, tax, accounting, treasury and investor relations support. See below for a description of an amendment to the services agreement entered into in December 2019. Under the facilities sharing agreement, GCI Liberty shares office space with Liberty Media and related amenities at its corporate headquarters. GCI Liberty reimburses Liberty Media for direct, out-of-pocket expenses incurred by Liberty Media in providing these services and for costs negotiated semi-annually.

Liberty Media is a related party of GCI Liberty for accounting purposes as a result of the services agreement. Under these agreements, approximately $2.0 million and $2.3 million was reimbursable to Liberty Media for the three months ended September 30, 2020 and 2019, respectively, and $6.1 million and $6.8 million was reimbursable to Liberty Media for the nine months ended September 30, 2020 and 2019, respectively.

In addition, Qurate Retail and GCI Liberty have agreed to indemnify each other with respect to certain potential losses in respect of the HoldCo Split-Off. See note 3 for information related to the indemnification agreement.

I-11

Table of Contents

GCI LIBERTY, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

In December 2019, the Company entered into an amendment to the services agreement with Liberty Media in connection with Liberty Media’s entry into a new employment arrangement with Gregory B. Maffei, the Company’s President and Chief Executive Officer ("CEO"). Under the amended services agreement, components of his compensation will either be paid directly to him by each of the Company, Liberty TripAdvisor Holdings, Inc., Liberty Broadband, and Qurate Retail (collectively, the “Service Companies”) or reimbursed to Liberty Media, in each case, based on allocations among Liberty Media and the Service Companies set forth in the amended services agreement, currently set at 14% for the Company.

(2) Earnings Attributable to GCI Liberty Stockholders Per Common Share

Basic earnings (loss) per common share ("EPS") is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding ("WASO") for the period. Diluted EPS presents the dilutive effect on a per share basis of potential common shares as if they had been converted at the beginning of the periods presented. Excluded from diluted EPS for the three months ended September 30, 2020 and 2019 are 15 thousand and zero potential common shares, respectively, because their inclusion would have been antidilutive. Excluded from diluted EPS for the nine months ended September 30, 2020 and 2019 are 15 thousand and zero potential common shares, respectively, because their inclusion would have been antidilutive.

Series A and Series B Common Stock



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

	number of shares in thousands
Basic WASO	105,564	104,819	105,536	104,800
Potentially dilutive shares (a)	993	1,031	797	998
Diluted WASO (a)	106,557	105,850	106,333	105,798

(a)

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, other than quoted market prices included within Level 1, 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-12

Table of Contents

GCI LIBERTY, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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


	September 30, 2020				December 31, 2019
			Quoted			Quoted
			prices			prices
			in active	Significant		in active	Significant
			markets	other		markets	other
			for identical	observable		for identical	observable
			assets	inputs		assets	inputs
Description	Total		(Level 1)	(Level 2)	Total	(Level 1)	(Level 2)
	amounts in thousands
Cash equivalents	$	438,545	438,545	—	533,484	533,484	—
Equity securities	$	3,345,464	3,345,464	—	2,600,008	2,600,008	—
Investment in Liberty Broadband	$	6,097,955	6,097,955	—	5,367,242	5,367,242	—
Derivative instrument liability	$	63,456	—	63,456	71,305	—	71,305
Indemnification obligation	$	309,541	—	309,541	202,086	—	202,086
Exchangeable senior debentures	$	820,035	—	820,035	658,839	—	658,839

On April 29, 2019, the Company terminated its previous variable forward and entered into a new 3-year variable forward with respect to 642,850 LendingTree shares. The variable forward was executed at the LendingTree closing price on April 29, 2019 of $376.35 per share and has a floor price of zero and has a cap price of $254.00 per share. The fair value of the variable forward was derived from a Black-Scholes-Merton model using observable market data as the significant inputs.

The indemnification liability is due to Liberty Interactive LLC ("LI LLC") and pertains to the ability of holders of LI LLC’s 1.75% exchangeable debentures due 2046 (the "1.75% Exchangeable Debentures") to exercise their exchange right according to the terms of the 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 1.75% Exchangeable Debentures at the time the exchange occurs. The indemnification obligation recorded in the accompanying condensed consolidated balance sheets as of September 30, 2020 represents the fair value of the estimated exchange feature included in the 1.75% Exchangeable Debentures primarily based on observable market data as significant inputs (Level 2). As of September 30, 2020, a holder of the 1.75% Exchangeable Debentures has the ability to exchange and, accordingly, such indemnification obligation is included as a current liability in the accompanying condensed consolidated balance sheets.

Realized and Unrealized Gains (Losses) on Financial Instruments, net

Realized and unrealized gains (losses) on financial instruments, net are comprised of changes in the fair value of the following:


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

	amounts in thousands
Equity securities	$	612,465	90,770		746,406	683,808
Investment in Liberty Broadband		807,114	19,207		730,713	1,393,135
Derivative instruments		(2,019)	60,640		7,849	(57,721)
Indemnification obligation		(94,871)	(3,485)		(107,456)	(58,311)
Exchangeable senior debentures		(150,004)	(10,967)		(177,952)	(116,048)
	$	1,172,685	156,165		1,199,560	1,844,863

The Company has elected to account for its exchangeable senior debentures using the fair value option. Changes in the fair value of the exchangeable senior debentures recognized in the condensed consolidated statements of operations are primarily due to market factors primarily driven by changes in the fair value of the underlying shares into which the

I-13

Table of Contents

GCI LIBERTY, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

debt is exchangeable. The Company isolates the portion of the unrealized gain (loss) attributable to the change in the instrument specific credit risk and recognizes such amount in other comprehensive income. The change in the fair value of the exchangeable senior debentures attributable to changes in the instrument specific credit risk were losses of $9.0 million and $7.5 million for the three months ended September 30, 2020 and 2019, respectively, and a gain of $16.8 million and a loss of $0.9 million for the nine months ended September 30, 2020 and 2019, respectively. The cumulative change was a gain of $11.2 million as of September 30, 2020.

(4) Investments in Equity Securities

Investments in equity securities, the majority of which are carried at fair value, are summarized as follows:


	September 30,		December 31,
	2020		2019
	amounts in thousands
Charter (a)	$	3,345,464	2,599,253
Other investments (b)		5,285	6,040
	$	3,350,749	2,605,293

(a)

A portion of the Charter equity securities are considered covered shares and subject to certain contractual restrictions in accordance with the indemnification agreement. See note 3 for additional discussion of the indemnification agreement.

(b)

The Company has elected the measurement alternative for a portion of these securities where the fair value is not readily determinable.

(5) Investments in Affiliates Accounted for Using the Equity Method

The Company has various investments accounted for using the equity method. The following table includes the Company’s carrying amount and percentage ownership of the more significant investments in affiliates at September 30, 2020 and the carrying amount at December 31, 2019: