UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from to
Commission File No.
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S Employer | |
incorporation or organization) | Identification No.) | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbols | Name of exchange on which registered |
The Stock Market LLC | ||
The 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.
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.)
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:
| Accelerated Filer ☐ |
| Non- |
| Smaller Reporting Company |
| Emerging Growth |
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
The number of shares outstanding of the registrant’s classes of common stock as of October 31, 2020 was:
TABLE OF CONTENTS
I-2
GCI LIBERTY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)
| September 30, |
| December 31, | ||
| 2020 |
| 2019 | ||
amounts in thousands | |||||
Assets |
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Current assets: |
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Cash and cash equivalents | $ | |
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Trade and other receivables, net of allowance for doubtful accounts of $ |
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Other current assets |
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Total current assets |
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Investments in equity securities (note 4) |
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Investments in affiliates, accounted for using the equity method (note 5) |
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Investment in Liberty Broadband measured at fair value (note 5) |
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Property and equipment, net |
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Intangible assets not subject to amortization (note 6) |
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Goodwill |
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Cable certificates |
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Other |
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Intangible assets subject to amortization, net (note 6) |
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Tax sharing receivable |
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Other assets, net |
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Total assets | $ | |
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See accompanying notes to interim condensed consolidated financial statements.
I-3
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 |
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Current liabilities: |
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Accounts payable and accrued liabilities | $ | |
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Deferred revenue |
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Current portion of debt, including $ |
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Indemnification obligation (note 3) |
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Other current liabilities |
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Total current liabilities |
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Long-term debt, net, including $ |
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Obligations under finance leases and tower obligations, excluding current portion |
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Long-term deferred revenue |
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Deferred income tax liabilities |
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Preferred stock (note 8) |
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Derivative instrument (note 3) |
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Other liabilities |
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Total liabilities |
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Equity |
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Stockholders’ equity: |
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Series A common stock, $ |
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Series B common stock, $ |
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Series C common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive earnings (loss), net of taxes |
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Retained earnings |
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Total stockholders' equity |
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Non-controlling interests |
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Total equity |
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Commitments and contingencies (note 10) |
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Total liabilities and equity | $ | |
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See accompanying notes to interim condensed consolidated financial statements.
I-4
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 | |||||||||||
$ | |
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Operating costs and expenses: |
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Operating expense (exclusive of depreciation and amortization shown separately below) |
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Selling, general and administrative, including stock-based compensation (note 9) |
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Depreciation and amortization expense |
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Insurance proceeds and restructuring, net |
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Operating income (loss) |
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Other income (expense): |
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Interest expense (including amortization of deferred loan fees) |
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Share of earnings (losses) of affiliates, net (note 5) |
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Realized and unrealized gains (losses) on financial instruments, net (note 3) |
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Tax sharing agreement |
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Other, net |
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Earnings (loss) before income taxes |
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Income tax (expense) benefit |
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Net earnings (loss) |
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Less net earnings (loss) attributable to the non-controlling interests |
| ( |
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Net earnings (loss) attributable to GCI Liberty, Inc. shareholders | $ | |
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Basic net earnings (loss) attributable to Series A and Series B GCI Liberty, Inc. shareholders per common share (note 2) | $ | |
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Diluted net earnings (loss) attributable to Series A and Series B GCI Liberty, Inc. shareholders per common share (note 2) | $ | |
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See accompanying notes to interim condensed consolidated financial statements.
I-5
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) | $ | |
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Other comprehensive earnings (loss), net of taxes: |
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Comprehensive earnings (loss) attributable to debt credit risk adjustments |
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Comprehensive earnings (loss) |
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Less comprehensive earnings (loss) attributable to the non-controlling interests |
| ( |
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Comprehensive earnings (loss) attributable to GCI Liberty, Inc. shareholders | $ | |
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See accompanying notes to interim condensed consolidated financial statements.
I-6
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: |
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Net earnings (loss) | $ | |
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Adjustments to reconcile net earnings (loss) to net cash from operating activities: |
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Depreciation and amortization |
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Stock-based compensation expense |
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Share of (earnings) losses of affiliates, net |
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Realized and unrealized (gains) losses on financial instruments, net |
| ( |
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Deferred income tax expense (benefit) |
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Other, net |
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Change in operating assets and liabilities: |
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Current and other assets |
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Payables and other liabilities |
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Net cash provided (used) by operating activities |
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Cash flows from investing activities: |
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Capital expended for property and equipment |
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Proceeds from derivative instrument |
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Settlement of derivative instrument |
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Other investing activities, net |
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Net cash provided (used) by investing activities |
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Cash flows from financing activities: |
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Borrowings of debt |
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Repayment of debt, finance leases and tower obligations |
| ( |
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Repurchases of GCI Liberty common stock |
| — |
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Other financing activities, net |
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Net cash provided (used) by financing activities |
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Net increase (decrease) in cash, cash equivalents and restricted cash |
| ( |
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Cash, cash equivalents and restricted cash at beginning of period |
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Cash, cash equivalents and restricted cash at end of period | $ | |
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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 | $ | |
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Total cash and cash equivalents and restricted cash at end of period | $ | |
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See accompanying notes to condensed consolidated financial statements.
I-7
GCI LIBERTY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Equity
(Unaudited)
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| Accumulated |
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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 | $ | |
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Net earnings (loss) | — |
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Other comprehensive earnings (loss), net of taxes | — |
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Stock-based compensation | — |
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Issuance of common stock upon exercise of stock options | |
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Withholding taxes on net share settlements of stock-based compensation | — |
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Other | — |
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Balances at September 30, 2020 | $ | |
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| Accumulated |
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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 | $ | |
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Net earnings (loss) |
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Other comprehensive earnings (loss), net of taxes |
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Stock-based compensation |
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Issuance of common stock upon exercise of stock options |
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Withholding taxes on net share settlements of stock-based compensation |
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Other |
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Balances at September 30, 2020 | $ | | | | | | | |
See accompanying notes to interim condensed consolidated financial statements.
I-8
GCI LIBERTY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Equity (continued)
(Unaudited)
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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 | $ | |
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Net earnings (loss) | — |
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Other comprehensive earnings (loss), net of taxes | — |
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Stock-based compensation | — |
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Repurchases of GCI Liberty common stock | ( |
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Issuance of common stock upon exercise of stock options | |
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Withholding taxes on net share settlements of stock-based compensation | — |
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Other | — |
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Balances at September 30, 2019 | $ | |
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| Accumulated |
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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 | $ | |
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Net earnings (loss) |
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Other comprehensive earnings (loss), net of taxes |
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Stock-based compensation |
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Issuance of common stock upon exercise of stock options |
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Withholding taxes on net share settlements of stock-based compensation |
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Other |
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Balances at September 30, 2019 | $ | |
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See accompanying notes to interim condensed consolidated financial statements.
I-9
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
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
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 $
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
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
(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
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 | |
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Potentially dilutive shares (a) | |
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Diluted WASO (a) | |
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(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
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 | ||||||||||
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| Quoted |
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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 | $ | | | — | | | — | ||||||
Equity securities | $ | | | — | | | — | ||||||
Investment in Liberty Broadband | $ | | | — | | | — | ||||||
Derivative instrument liability | $ | | — | | | — | | ||||||
Indemnification obligation | $ | | — | | | — | | ||||||
Exchangeable senior debentures | $ | | — | | | — | |
On April 29, 2019, the Company terminated its previous variable forward and entered into a new
The indemnification liability is due to Liberty Interactive LLC ("LI LLC") and pertains to the ability of holders of LI LLC’s
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 | $ | | | | | ||||||
Investment in Liberty Broadband |
| | | | | ||||||
Derivative instruments |
| ( | | | ( | ||||||
Indemnification obligation |
| ( | ( | ( | ( | ||||||
Exchangeable senior debentures |
| ( | ( | ( | ( | ||||||
$ | | | | |
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
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 $
(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) | $ | | | |||
Other investments (b) |
| | | |||
$ | | |
(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: