SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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,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 No.
001-38385GCI 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- | 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'sregistrant’s classes of common stock as of October 31, 20192020 was:
101,351,276 shares of Series A common stock; and
TABLE OF CONTENTS
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| | | |||
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| I-3 | ||||
| I-5 | ||||
| I-6 | ||||
| I-7 | ||||
| I-8 | ||||
| I-10 | ||||
| | | |||
I-25 | |||||
I-37 | |||||
I-38 | |||||
| | | |||
II-1 | |||||
II-1 | |||||
II-3 | |||||
II-4 | |||||
| | | |||
II-6 |
I-2
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
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; 0 issued and outstanding at September 30, 2020 and December 31, 2019 | |
| 0 |
| 0 |
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
GCI LIBERTY, INC. AND SUBSIDIARIES | ||||||
Condensed Consolidated Balance Sheets | ||||||
(unaudited) | ||||||
September 30, | December 31, | |||||
2019 | 2018 | |||||
amounts in thousands | ||||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 410,130 | 491,257 | |||
Trade and other receivables, net of allowance for doubtful accounts of $18,248 and $7,555, respectively | 190,779 | 182,600 | ||||
Current portion of tax sharing receivable | 7,813 | 36,781 | ||||
Other current assets | 43,222 | 40,100 | ||||
Total current assets | 651,944 | 750,738 | ||||
Investments in equity securities (note 5) | 2,213,589 | 1,533,517 | ||||
Investments in affiliates, accounted for using the equity method (note 6) | 168,839 | 177,030 | ||||
Investment in Liberty Broadband measured at fair value (note 6) | 4,467,508 | 3,074,373 | ||||
Property and equipment, net | 1,110,080 | 1,184,606 | ||||
Intangible assets not subject to amortization: | ||||||
Goodwill | 855,837 | 855,837 | ||||
Cable certificates | 305,000 | 305,000 | ||||
Wireless licenses | 191,697 | 190,000 | ||||
Other | 16,500 | 16,500 | ||||
1,369,034 | 1,367,337 | |||||
Intangible assets subject to amortization, net (note 7) | 399,043 | 436,006 | ||||
Tax sharing receivable | 76,812 | 65,701 | ||||
Other assets, net | 188,454 | 71,514 | ||||
Total assets | $ | 10,645,303 | 8,660,822 | |||
(Continued) | ||||||
See accompanying notes to interim condensed consolidated financial statements. |
GCI LIBERTY, INC. AND SUBSIDIARIES | ||||||
Condensed Consolidated Balance Sheets | ||||||
(unaudited) | ||||||
September 30, | December 31, | |||||
2019 | 2018 | |||||
amounts in thousands, except share amounts | ||||||
Liabilities and Equity | ||||||
Current liabilities: | ||||||
Accounts payable and accrued liabilities | $ | 83,959 | 100,334 | |||
Deferred revenue | 28,520 | 31,743 | ||||
Current portion of debt, net of deferred financing costs (note 8) | 902,368 | 900,759 | ||||
Other current liabilities | 71,679 | 47,958 | ||||
Total current liabilities | 1,086,526 | 1,080,794 | ||||
Long-term debt, net, including $579,291 and $462,336 measured at fair value, respectively (note 8) | 2,088,015 | 1,985,275 | ||||
Obligations under finance leases and tower obligations, excluding current portion (note 9) | 99,158 | 122,245 | ||||
Long-term deferred revenue | 59,136 | 65,954 | ||||
Deferred income tax liabilities | 1,272,302 | 793,696 | ||||
Preferred stock (note 10) | 177,532 | 177,103 | ||||
Derivative instrument | 78,061 | — | ||||
Indemnification obligation (note 4) | 136,833 | 78,522 | ||||
Other liabilities | 140,971 | 50,543 | ||||
Total liabilities | 5,138,534 | 4,354,132 | ||||
Equity | ||||||
Stockholders’ equity: | ||||||
Series A common stock, $.01 par value. Authorized 500,000,000 shares; issued and outstanding 101,211,071 shares at September 30, 2019 and 102,058,816 shares at December 31, 2018 | 1,012 | 1,021 | ||||
Series B common stock, $.01 par value. Authorized 20,000,000 shares; issued and outstanding 4,439,460 shares at September 30, 2019 and 4,441,609 shares at December 31, 2018 | 44 | 44 | ||||
Series C common stock, $.01 par value. Authorized 1,040,000,000 shares; no shares issued | — | — | ||||
Additional paid-in capital | 3,225,883 | 3,251,957 | ||||
Accumulated other comprehensive earnings (loss), net of taxes | (489 | ) | 168 | |||
Retained earnings | 2,270,837 | 1,043,933 | ||||
Total stockholders' equity | 5,497,287 | 4,297,123 | ||||
Non-controlling interests | 9,482 | 9,567 | ||||
Total equity | 5,506,769 | 4,306,690 | ||||
Commitments and contingencies (note 13) | ||||||
Total liabilities and equity | $ | 10,645,303 | 8,660,822 | |||
See accompanying notes to interim condensed consolidated financial statements. |
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
GCI LIBERTY, INC. AND SUBSIDIARIES | ||||||||||||
Condensed Consolidated Statements of Operations | ||||||||||||
(Unaudited) | ||||||||||||
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
amounts in thousands, except per share amounts | ||||||||||||
Revenue | $ | 227,044 | 210,146 | 662,346 | 504,840 | |||||||
Operating costs and expenses: | ||||||||||||
Operating expense (exclusive of depreciation and amortization shown separately below) | 72,637 | 64,684 | 209,962 | 153,797 | ||||||||
Selling, general and administrative, including stock-based compensation (note 12) | 93,597 | 102,483 | 305,184 | 235,617 | ||||||||
Insurance proceeds and restructuring, net | (1,482 | ) | — | 236 | — | |||||||
Depreciation and amortization expense | 66,466 | 62,848 | 200,035 | 143,257 | ||||||||
231,218 | 230,015 | 715,417 | 532,671 | |||||||||
Operating income (loss) | (4,174 | ) | (19,869 | ) | (53,071 | ) | (27,831 | ) | ||||
Other income (expense): | ||||||||||||
Interest expense (including amortization of deferred loan fees) | (38,353 | ) | (37,614 | ) | (116,357 | ) | (81,304 | ) | ||||
Share of earnings (losses) of affiliates, net (note 6) | 1,921 | 10,856 | (2,443 | ) | 18,714 | |||||||
Realized and unrealized gains (losses) on financial instruments, net (note 4) | 156,165 | 495,509 | 1,844,863 | (4,328 | ) | |||||||
Tax sharing agreement | 2,362 | 2,492 | 18,895 | (25,456 | ) | |||||||
Other, net | (540 | ) | (834 | ) | 13,824 | (982 | ) | |||||
121,555 | 470,409 | 1,758,782 | (93,356 | ) | ||||||||
Earnings (loss) before income taxes | 117,381 | 450,540 | 1,705,711 | (121,187 | ) | |||||||
Income tax (expense) benefit | (28,087 | ) | (133,284 | ) | (478,887 | ) | (35,768 | ) | ||||
Net earnings (loss) | 89,294 | 317,256 | 1,226,824 | (156,955 | ) | |||||||
Less net earnings (loss) attributable to the non-controlling interests | (28 | ) | (127 | ) | (85 | ) | (320 | ) | ||||
Net earnings (loss) attributable to GCI Liberty, Inc. shareholders | $ | 89,322 | 317,383 | 1,226,909 | (156,635 | ) | ||||||
Basic net earnings (loss) attributable to Series A and Series B GCI Liberty, Inc. shareholders per common share (note 3) | $ | 0.85 | 2.95 | 11.71 | (1.45 | ) | ||||||
Diluted net earnings (loss) attributable to Series A and Series B GCI Liberty, Inc. shareholders per common share (note 3) | $ | 0.84 | 2.91 | 11.60 | (1.45 | ) | ||||||
See accompanying notes to interim condensed consolidated financial statements. |
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
GCI LIBERTY, INC. AND SUBSIDIARIES | ||||||||||||
Condensed Consolidated Statements of Comprehensive Earnings (Loss) | ||||||||||||
(Unaudited) | ||||||||||||
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
amounts in thousands | ||||||||||||
Net earnings (loss) | $ | 89,294 | 317,256 | 1,226,824 | (156,955 | ) | ||||||
Other comprehensive earnings (loss), net of taxes: | ||||||||||||
Comprehensive earnings (loss) attributable to debt credit risk adjustments | (5,477 | ) | (5,419 | ) | (657 | ) | (18,537 | ) | ||||
Comprehensive earnings (loss) | 83,817 | 311,837 | 1,226,167 | (175,492 | ) | |||||||
Less comprehensive earnings (loss) attributable to the non-controlling interests | (28 | ) | (127 | ) | (85 | ) | (320 | ) | ||||
Comprehensive earnings (loss) attributable to GCI Liberty, Inc. shareholders | $ | 83,845 | 311,964 | 1,226,252 | (175,172 | ) | ||||||
See accompanying notes to interim condensed consolidated financial statements. |
GCI LIBERTY, INC. AND SUBSIDIARIES | ||||||
Condensed Consolidated Statements of Cash Flows | ||||||
(Unaudited) | ||||||
Nine months ended | ||||||
September 30, | ||||||
2019 | 2018 | |||||
amounts in thousands | ||||||
Cash flows from operating activities: | ||||||
Net earnings (loss) | $ | 1,226,824 | (156,955 | ) | ||
Adjustments to reconcile net earnings (loss) to net cash from operating activities: | ||||||
Depreciation and amortization | 200,035 | 143,257 | ||||
Stock-based compensation expense | 18,153 | 20,926 | ||||
Share of (earnings) losses of affiliates, net | 2,443 | (18,714 | ) | |||
Realized and unrealized (gains) losses on financial instruments, net | (1,844,863 | ) | 4,328 | |||
(Gain) loss on lease modification | (6,468 | ) | — | |||
Deferred income tax expense (benefit) | 478,850 | 36,347 | ||||
Other, net | 3,625 | 10,121 | ||||
Change in operating assets and liabilities: | ||||||
Current and other assets | 39,289 | (73,601 | ) | |||
Payables and other liabilities | (35,774 | ) | 72,854 | |||
Net cash provided (used) by operating activities | 82,114 | 38,563 | ||||
Cash flows from investing activities: | ||||||
Cash and restricted cash from acquisition of GCI Holdings | — | 147,958 | ||||
Capital expended for property and equipment | (108,633 | ) | (89,376 | ) | ||
Purchase of investments | — | (48,581 | ) | |||
Proceeds from derivative instrument | 105,866 | — | ||||
Settlement of derivative instrument | (105,866 | ) | — | |||
Other, net | 6,340 | 2,699 | ||||
Net cash provided (used) by investing activities | (102,293 | ) | 12,700 | |||
Cash flows from financing activities: | ||||||
Borrowings of debt | 325,000 | 1,527,250 | ||||
Repayment of debt, finance lease, and tower obligations | (334,275 | ) | (88,543 | ) | ||
Repurchases of GCI Liberty common stock | (43,910 | ) | (23,893 | ) | ||
Contributions from (distributions to) parent, net | — | (1,122,189 | ) | |||
Indemnification payment to Qurate Retail | — | (132,725 | ) | |||
Derivative payments | — | (80,001 | ) | |||
Other financing activities, net | (7,802 | ) | (14,957 | ) | ||
Net cash provided (used) by financing activities | (60,987 | ) | 64,942 | |||
Net increase (decrease) in cash, cash equivalents and restricted cash | (81,166 | ) | 116,205 | |||
Cash, cash equivalents and restricted cash at beginning of period | 492,032 | 574,148 | ||||
Cash, cash equivalents and restricted cash at end of period | $ | 410,866 | 690,353 |
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, | |||||
2019 | 2018 | |||||
amounts in thousands | ||||||
Cash and cash equivalents | $ | 410,130 | 491,257 | |||
Restricted cash included in other current assets | 736 | 775 | ||||
Total cash and cash equivalents and restricted cash at end of period | $ | 410,866 | 492,032 | |||
See accompanying notes to condensed consolidated financial statements. |
| | | | | | |
|
| 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
GCI LIBERTY, INC. AND SUBSIDIARIES | ||||||||||||||||||||||||
Condensed Consolidated Statements of Equity | ||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
Series A common stock | Series B common stock | Parent's Investment | Additional paid-in capital | Accumulated other comprehensive earnings (loss) | Retained earnings | Non-controlling interest in equity of subsidiaries | Total 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) | — | — | — | — | (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 | ||||||||||||||
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) | — | — | — | — | (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 | ||||||||||||||
Balances at January 1, 2018 | $ | — | — | 2,305,440 | — | — | 1,914,963 | 3,633 | 4,224,036 | |||||||||||||||
Net earnings (loss) | — | — | — | — | — | (156,635 | ) | (320 | ) | (156,955 | ) | |||||||||||||
Other comprehensive earnings (loss) | — | — | — | — | (18,537 | ) | — | — | (18,537 | ) | ||||||||||||||
Stock-based compensation | — | — | — | 18,766 | — | — | — | 18,766 | ||||||||||||||||
Series A GCI Liberty stock repurchases | — | — | — | (23,893 | ) | — | — | — | (23,893 | ) | ||||||||||||||
Contribution of taxes in connection with HoldCo Split-Off | — | — | 1,343,834 | — | — | — | — | 1,343,834 | ||||||||||||||||
Contributions from (distributions to) former parent, net | — | — | (1,122,189 | ) | (2,014 | ) | — | 2,014 | — | (1,122,189 | ) | |||||||||||||
Change in Capitalization in connection with HoldCo Split-Off | 1,041 | 44 | (2,527,085 | ) | 2,526,000 | — | — | 7,000 | 7,000 | |||||||||||||||
Issuance of GCI Liberty Stock in connection with the Transactions | — | — | — | 1,111,206 | — | — | — | 1,111,206 | ||||||||||||||||
Issuance of Indemnification Agreement | — | — | — | (281,255 | ) | — | — | — | (281,255 | ) | ||||||||||||||
Distribution to non-controlling interests | — | — | — | — | — | — | (3,273 | ) | (3,273 | ) | ||||||||||||||
Other | — | — | — | (2,830 | ) | — | 254 | 2,910 | 334 | |||||||||||||||
Balances at September 30, 2018 | $ | 1,041 | 44 | — | 3,345,980 | (18,537 | ) | 1,760,596 | 9,950 | 5,099,074 | ||||||||||||||
Balances at July 1, 2018 | $ | 1,046 | 44 | — | 3,367,534 | (13,118 | ) | 1,441,199 | 7,167 | 4,803,872 | ||||||||||||||
Net earnings (loss) | — | — | — | — | — | 317,383 | (127 | ) | 317,256 | |||||||||||||||
Other comprehensive earnings (loss) | — | — | — | — | (5,419 | ) | — | — | (5,419 | ) | ||||||||||||||
Stock-based compensation | — | — | — | 6,881 | — | — | — | 6,881 | ||||||||||||||||
Series A GCI Liberty stock repurchases | — | — | — | (23,893 | ) | — | — | — | (23,893 | ) | ||||||||||||||
Contribution of taxes in connection with HoldCo Split-Off | — | — | (2,383 | ) | — | — | — | — | (2,383 | ) | ||||||||||||||
Contributions from (distributions to) former parent, net | — | — | 2,471 | (2,014 | ) | — | 2,014 | — | 2,471 | |||||||||||||||
Change in Capitalization in connection with HoldCo Split-Off | (5 | ) | — | (88 | ) | 93 | — | — | — | — | ||||||||||||||
Other | — | — | — | (2,621 | ) | — | — | 2,910 | 289 | |||||||||||||||
Balances at September 30, 2018 | $ | 1,041 | 44 | — | 3,345,980 | (18,537 | ) | 1,760,596 | 9,950 | 5,099,074 | ||||||||||||||
See accompanying notes to interim condensed consolidated financial statements. |
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
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
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, Interactive Corporation, now knownInc. and its controlled subsidiaries, as Qurate Retail, Inc. ("Qurate Retail")well as other equity securities and equity method investments (collectively, “GCI Liberty”, entered into an Agreementthe “Company”, “us”, “we” and Plan“our”). All significant intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements. GCI Liberty is made up of Reorganization (as amended, the "reorganization agreement" and the transactions contemplated thereby, the "Transactions") with General Communication, Inc. ("GCI"), an Alaska corporation and parent company ofits wholly-owned subsidiary, GCI Holdings, LLC ("(“GCI Holdings"Holdings”), and Liberty Interactive LLC, a Delaware limited liability company and a direct wholly‑owned subsidiary of Qurate Retail ("LI LLC"). Pursuant to the reorganization agreement, GCI amended and restated its articles of incorporation (which resulted in GCI being renamed GCI Liberty, Inc. ("GCI Liberty")) and effected a reclassification and auto conversion of its common stock. Following these events, Qurate Retail acquired GCI Liberty on March 9, 2018 through a reorganization in which certain Qurate Retail interests, assets and liabilities attributed to its Ventures Group (following the reattribution by Qurate Retail of certain assets and liabilities from its Ventures Group to its QVC Group), were contributed to GCI Liberty in exchange for a controlling interest in GCI Liberty (the "contribution"Evite, Inc. (“Evite”). Qurate Retail until Evite was sold on September 14, 2020 and LI LLC contributed to GCI Liberty their entire equitynon-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 Evite,Company’s financial results. These assets (other than GCI Holdings) were contributed by Liberty Interactive Corporation, now known as Qurate Retail, Inc. ("Evite") operating business and other assets and liabilities (collectively, "HoldCo"Qurate Retail"), in exchange for, (a) the issuance to LI LLC ofamong other things, a number of shares ofcontrolling interest in GCI Liberty, Class A common stock and a number of shares of GCI Liberty Class B common stock equal to the number of outstanding shares of Qurate Retail's Series A Liberty Ventures common stock and Qurate Retail's Series B Liberty Ventures common stock on March 9, 2018, respectively, (b) cash and (c) the assumption of certain liabilities by GCI Liberty.
The contribution was treated as a reverse acquisition under the acquisition method of accountingaccompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). For accounting purposes, HoldCo is considered to have acquired GCI Liberty in the contribution based, among other considerations, upon the fact that in exchange for the contribution of HoldCo, Qurate Retail received a controlling interest in the combined company of GCI Liberty.
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 condensed consolidatedCompany’s financial statements refer to the combination of GCI Holdings, non‑controlling interests in Liberty Broadband, Charter and LendingTree, a controlling interest in Evite, and certain other assets and liabilities as "GCI Liberty", the "Company", "us", "we" and "our." Although HoldCo was reported as a combined company until the date of the HoldCo Split-Off, these financial statements present all periods as consolidated by the Company. All significant intercompany accounts and transactions have been eliminated in the condensed consolidated 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'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 HoldCo Split‑Off,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 1 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 GCI Liberty operate asMedia Corporation ("Liberty Media") (or its subsidiary), all of which are separate, publicly traded companies, and neitherin order to govern certain relationships between the companies. None of these entities have any stock ownership, beneficial or otherwise, in the other. In connection with the HoldCo Split‑Off, Qurate Retail, Liberty Media Corporation ("Liberty Media") (or its subsidiary) and GCI Liberty entered into certain agreements in order to govern certain of the ongoing relationships among the companies after the HoldCo Split‑Off and to provide for an orderly transition. 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, the principal corporate transactions (including the internal restructuring) required to effect the Transactions and certain conditions to and provisions governing the relationship between GCI Liberty and Qurate Retail (for accounting purposes a related party of GCI Liberty) with respect to and resulting from the Transactions.. 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‑pocketout-of-pocket expenses incurred by Liberty Media in providing these services and for costs negotiated semi‑annually. semi-annually.
Liberty Media is a related party of GCI Liberty for accounting purposes as a result of the services agreement. Under these agreements, amountsapproximately $2.0 million and $2.3 million was reimbursable to Liberty Media were approximately $2.3 million and $2.1 million for the three months ended September 30, 2020 and 2019, respectively, and 2018,$6.1 million and $6.8 million and $6.0 millionwas reimbursable to Liberty Media for the nine months ended September 30, 2020 and 2019, and 2018, 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.Split-Off. See note 43 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 accountedentered 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 Transactions contemplated under the reorganization agreement using the acquisition method of accounting. Under this method, HoldCo is the acquirer of GCI Liberty. The acquisition price was $1.1 billion (level 1). The application of the acquisition method resulted in the assignment of purchase price to the GCI Liberty assets acquired and liabilities assumed based on our estimates of their acquisition date fair values (primarily level 3). The assets acquired and liabilities assumed, and as discussed within this note, are those assets and liabilities of GCI Liberty prior to the completion of the Transactions. The determination of the fair values of the acquired assets and liabilities (and the determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment.
Cash and cash equivalents including restricted cash | $ | 147,957 | ||
Receivables | 171,014 | |||
Property and equipment | 1,211,392 | |||
Goodwill | 966,044 | |||
Intangible assets not subject to amortization | 572,500 | |||
Intangible assets subject to amortization | 468,737 | |||
Other assets | 83,422 | |||
Deferred revenue | (92,561 | ) | ||
Debt, including capital leases | (1,707,002 | ) | ||
Other liabilities | (251,692 | ) | ||
Deferred income tax liabilities | (276,683 | ) | ||
Preferred stock | (174,922 | ) | ||
Non-controlling interest | (7,000 | ) | ||
$ | 1,111,206 |
Three months ended | Nine months ended | ||||||
September 30, 2018 | |||||||
amounts in thousands, except per share amounts | |||||||
Revenue | $ | 220,737 | 664,287 | ||||
Net earnings (loss) | $ | 327,046 | (157,678 | ) | |||
Net earnings (loss) attributable to GCI Liberty shareholders | $ | 327,173 | (157,242 | ) | |||
Basic net earnings (loss) attributable to Series A and Series B GCI Liberty, Inc. shareholders per common share | $ | 3.04 | (1.46 | ) | |||
Diluted net earnings (loss) attributable to Series A and Series B GCI Liberty, Inc. shareholders per common share | $ | 3.00 | (1.46 | ) |
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. Potentially dilutive shares are excludedExcluded from the computation of diluted EPS during periods in which lossesfor the three months ended September 30, 2020 and 2019 are reported since15 thousand and 0 potential common shares, respectively, because their inclusion would have been antidilutive. Excluded from diluted EPS for the resultnine months ended September 30, 2020 and 2019 are 15 thousand and 0 potential common shares, respectively, because their inclusion would behave 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 |
Three months ended September 30, | Nine months ended September 30, | ||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||
number of shares in thousands | |||||||||||
Basic WASO | 104,819 | 107,631 | 104,800 | 107,693 | |||||||
Diluted WASO | 105,850 | 109,061 | 105,798 | 107,693 | |||||||
Antidilutive shares excluded from diluted WASO | — | — | — | 1,499 |
(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, 2019 | December 31, 2018 | ||||||||||||||||||
Description | Total | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Total | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | |||||||||||||
amounts in thousands | |||||||||||||||||||
Cash equivalents | $ | 363,026 | 363,026 | — | 384,071 | 384,071 | — | ||||||||||||
Equity securities | $ | 2,208,304 | 2,208,304 | — | 1,529,901 | 1,529,901 | — | ||||||||||||
Investment in Liberty Broadband | $ | 4,467,508 | 4,467,508 | — | 3,074,373 | 3,074,373 | — | ||||||||||||
Derivative instrument | $ | 78,061 | — | 78,061 | 20,340 | — | 20,340 | ||||||||||||
Indemnification obligation | $ | 136,833 | — | 136,833 | 78,522 | — | 78,522 | ||||||||||||
Exchangeable senior debentures | $ | 579,291 | — | 579,291 | 462,336 | — | 462,336 |
| | | | | | | | | | | | | |
|
| 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 0 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 an indemnification agreement, GCI Liberty has agreedInteractive LLC ("LI LLC") and pertains to indemnify LI LLC for certain payments made to a holderthe ability of holders of LI LLC'sLLC’s 1.75% exchangeable debentures due 2046 (the "1.75% Exchangeable Debentures"). An indemnity obligation in the amount of $281.3 million was recorded upon completion of the HoldCo Split-Off. In June 2018, Qurate Retail repurchased 417,759 bonds of the 1.75% Exchangeable Debentures for approximately $457 million, including accrued interest, and the Company made a payment under the indemnification agreement to Qurate Retail in the amount of $133 million. The remaining indemnification liability due to LI LLC pertains to the holder’s ability to exercise itstheir 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, 20192020 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, 2019,2020, a holder of the 1.75% Exchangeable Debentures does not havehas the ability to exchange and, accordingly, such indemnification obligation is included as a long-termcurrent liability in the accompanying condensed consolidated balance sheets. Additionally, as of September 30, 2019, 332,241 bonds of the 1.75% Exchangeable Debentures remain outstanding.
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, | ||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||
amounts in thousands | |||||||||||||
Equity securities | $ | 90,770 | 175,359 | 683,808 | (53,681 | ) | |||||||
Investment in Liberty Broadband | 19,207 | 366,211 | 1,393,135 | (36,706 | ) | ||||||||
Derivative instruments | 60,640 | (3,223 | ) | (57,721 | ) | 69,329 | |||||||
Indemnification obligation | (3,485 | ) | (14,937 | ) | (58,311 | ) | 48,671 | ||||||
Exchangeable senior debentures | (10,967 | ) | (27,901 | ) | (116,048 | ) | (31,941 | ) | |||||
$ | 156,165 | 495,509 | 1,844,863 | (4,328 | ) |
| | | | | | | | | | | |
|
| 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 debtsenior debentures using the fair value option. Accordingly, aChanges 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) recognized onattributable to the Company’s exchangeable debt is presentedchange in other comprehensive income as it relates tothe instrument specific credit risk and anyrecognizes such amount in other comprehensive income. The change in the fair value of the exchangeable senior debentures attributable to changes in fair value are presented in the accompanying condensed consolidated statementsinstrument specific credit risk were losses of operations.
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 | |
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
amounts in thousands | ||||||||
Charter (a) | $ | 2,208,304 | 1,526,984 | |||||
Other investments (b) | 5,285 | 6,533 | ||||||
$ | 2,213,589 | 1,533,517 |
(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. |
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, 20192020 and the carrying amount at December 31, 2018:
| | | | | | | | | | | |
|
| September 30, 2020 | | December 31, 2019 | |||||||
|
| Percentage |
| Market |
| Carrying |
| Carrying | |||
| | ownership | | value | | amount | | amount | |||
| | dollars in thousands | |||||||||
LendingTree (a) | | | 26.3 | % | $ | 1,056,926 | | $ | 156,627 | | 166,465 |
Other | | | various | |
| NA | |
| 857 | | 1,178 |
| | | | |
| | | $ | 157,484 | | 167,643 |
September 30, 2019 | December 31, 2018 | ||||||||||||
Percentage ownership | Market value | Carrying amount | Carrying amount | ||||||||||
dollars in thousands | |||||||||||||
LendingTree (a) | 26.6 | % | $ | 1,069,118 | $ | 166,819 | 174,002 | ||||||
Other | various | NA | 2,020 | 3,028 | |||||||||
$ | 168,839 | 177,030 | |||||||||||
(a) Both the Company's ownership interest in LendingTree and the Company's share of LendingTree's earnings (losses) are reported on a three month lag. The market value disclosed is as of September 30, 2019. |
(a) | Both the Company's ownership interest in LendingTree and the Company's share of LendingTree's earnings (losses) are reported on a three month lag. The market value disclosed is as of September 30, 2020. |
The Company’s share of LendingTree’s earnings (losses) was $2.0were losses of $9.1 million and $10.2earnings of $2.0 million for the three months ended September 30, 2020 and 2019, and 2018, respectively.The Company's share of LendingTree's earnings (losses) was $(1.4)were losses of $7.3 million and $15.5$1.4 million for the nine months ended September 30, 2020 and 2019, and 2018, respectively.
Investment in Liberty Broadband
As of September 30, 2019,2020, the Company has a 23.5%23.7% economic ownership interest in Liberty Broadband. Due to overlapping boards of directors and management, the Company has been deemed to have significant influence over Liberty Broadband for accounting purposes, even though the Company does not have any voting rights. The Company has elected to apply the fair value option for its investment in Liberty Broadband (Level 1) as it is believed that investors value this
I-14
GCI LIBERTY, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
investment based on the trading price of Liberty Broadband. The Company recognizes changes in the fair value of its investment in Liberty Broadband in realized and unrealized gains (losses) on financial instruments, net in the accompanying condensed consolidated statements of operations. Summarized financial information for Liberty Broadband is as follows:
| | | | | | |
|
| September 30, | | December 31, | | |
|
| 2020 |
| 2019 | | |
| | amounts in thousands | | |||
Current assets | | $ | 402,492 | | 52,133 | |
Investment in Charter, accounted for using the equity method | |
| 12,450,425 | | 12,194,674 | |
Other assets | |
| 8,772 | | 9,535 | |
Total assets | |
| 12,861,689 | | 12,256,342 | |
Long-term debt | |
| 1,318,664 | | 572,944 | |
Deferred income tax liabilities | |
| 1,036,672 | | 999,757 | |
Other liabilities | |
| 19,103 | | 15,695 | |
Equity | |
| 10,487,250 | | 10,667,946 | |
Total liabilities and shareholders' equity | | $ | 12,861,689 | | 12,256,342 | |
| | | | | | | | | | | |
|
| Three months ended | | Nine months ended | | ||||||
|
| September 30, | | September 30, | | ||||||
|
| 2020 |
| 2019 | | 2020 |
| 2019 | | ||
| | amounts in thousands | | ||||||||
Revenue | | $ | 4,219 | | 3,713 | | | 12,437 | | 10,918 | |
Operating expenses, net | |
| (20,547) | | (11,301) | |
| (45,872) | | (31,873) | |
Operating income (loss) | |
| (16,328) | | (7,588) | |
| (33,435) | | (20,955) | |
Share of earnings (losses) of affiliates | |
| 188,586 | | 61,633 | |
| 408,396 | | 141,882 | |
Gain (loss) on dilution of investment in affiliate | |
| (35,284) | | (11,219) | |
| (140,610) | | (68,944) | |
Realized and unrealized gains (losses) on financial instruments, net | | | (39,324) | | (433) | | | (39,324) | | (433) | |
Other income (expense), net | |
| (3,711) | | (5,773) | |
| (14,512) | | (17,829) | |
Income tax benefit (expense) | |
| (24,979) | | (9,124) | |
| (47,183) | | (8,474) | |
Net earnings (loss) | | $ | 68,960 | | 27,496 | | | 133,332 | | 25,247 | |
(1) |
(2) |
September 30, | December 31, | ||||||
2019 | 2018 | ||||||
amounts in thousands | |||||||
Current assets | $ | 94,951 | 84,574 | ||||
Investment in Charter, accounted for using the equity method | 12,067,329 | 12,004,376 | |||||
Other assets | 9,767 | 9,487 | |||||
Total assets | 12,172,047 | 12,098,437 | |||||
Long-term debt | 572,619 | 522,928 | |||||
Deferred income tax liabilities | 972,005 | 965,829 | |||||
Other liabilities | 15,251 | 11,062 | |||||
Equity | 10,612,172 | 10,598,618 | |||||
Total liabilities and shareholders' equity | $ | 12,172,047 | 12,098,437 |
Three months ended | Nine months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||
amounts in thousands | |||||||||||||
Revenue | $ | 3,713 | 3,518 | 10,918 | 18,680 | ||||||||
Operating expenses, net | (11,301 | ) | (7,614 | ) | (31,873 | ) | (25,601 | ) | |||||
Operating income (loss) | (7,588 | ) | (4,096 | ) | (20,955 | ) | (6,921 | ) | |||||
Share of earnings (losses) of affiliates | 61,633 | 84,739 | 141,882 | 126,952 | |||||||||
Gain (loss) on dilution of investment in affiliate | (11,219 | ) | (3,203 | ) | (68,944 | ) | (35,165 | ) | |||||
Realized and unrealized gains (losses) on financial instruments, net | (433 | ) | 5,678 | (433 | ) | 3,659 | |||||||
Other income (expense), net | (5,773 | ) | (5,717 | ) | (17,829 | ) | (16,371 | ) | |||||
Income tax benefit (expense) | (9,124 | ) | (17,762 | ) | (8,474 | ) | (17,005 | ) | |||||
Net earnings (loss) | $ | 27,496 | 59,639 | 25,247 | 55,149 |
(6) Intangible Assets
Intangible Assets Not Subject to Amortization
The sale of Evite, as discussed in note 1 of the accompanying condensed consolidated financial statements, resulted in a reduction to Goodwill of $25.6 million and a reduction in Other intangible assets not subject to amortization related to tradenames of $4.0 million.
I-15
September 30, 2019 | December 31, 2018 | |||||||||||||||||
Gross | Net | Gross | Net | |||||||||||||||
carrying | Accumulated | carrying | carrying | Accumulated | carrying | |||||||||||||
amount | amortization | amount | amount | amortization | amount | |||||||||||||
amounts in thousands | ||||||||||||||||||
Customer relationships | $ | 408,267 | (85,229 | ) | 323,038 | 408,267 | (55,417 | ) | 352,850 | |||||||||
Other amortizable intangibles | 131,830 | (55,825 | ) | 76,005 | 122,759 | (39,603 | ) | 83,156 | ||||||||||
Total | $ | 540,097 | (141,054 | ) | 399,043 | 531,026 | (95,020 | ) | 436,006 |
GCI LIBERTY, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Intangible Assets Subject to Amortization
| | | | | | | | | | | | | | |
|
| September 30, 2020 |
| December 31, 2019 | ||||||||||
| | Gross | | | | Net | | Gross | | | | Net | ||
| | carrying | | Accumulated | | carrying | | carrying | | Accumulated | | carrying | ||
|
| amount |
| amortization |
| amount |
| amount |
| amortization |
| amount | ||
| | amounts in thousands | ||||||||||||
Customer relationships | | $ | 385,000 |
| (97,438) |
| 287,562 | | | 408,267 |
| (95,167) |
| 313,100 |
Other amortizable intangibles | |
| 119,707 |
| (50,942) |
| 68,765 | |
| 139,721 |
| (60,842) |
| 78,879 |
Total | | $ | 504,707 |
| (148,380) |
| 356,327 | | | 547,988 |
| (156,009) |
| 391,979 |
Amortization expense for intangible assets with finite useful lives was $15.2$13.9 million and $17.1$15.2 million for the three months ended September 30, 20192020 and 2018,2019, respectively. Amortization expense for intangible assets with finite useful lives was $46.5$41.9 million and $38.7$46.5 million for the nine months ended September 30, 20192020 and 2018,2019, respectively. Amortization expense for amortizable intangible assets for each of the five succeeding fiscal years is estimated to be (amounts in thousands):
Remainder of 2019 | $ | 15,448 | |
2020 | $ | 52,633 | |
2021 | $ | 42,250 | |
2022 | $ | 36,496 | |
2023 | $ | 33,603 |
Debt is summarized as follows:
Outstanding | |||||||||||
principal | Carrying value | ||||||||||
September 30, | September 30, | December 31, | |||||||||
2019 | 2019 | 2018 | |||||||||
amounts in thousands | |||||||||||
Margin Loan Facility | $ | 900,000 | 900,000 | 900,000 | |||||||
Exchangeable senior debentures | 477,250 | 579,291 | 462,336 | ||||||||
Senior notes | 775,000 | 796,985 | 803,287 | ||||||||
Senior credit facility | 713,280 | 713,280 | 715,124 | ||||||||
Wells Fargo note payable | 7,197 | 7,197 | 7,554 | ||||||||
Deferred financing costs | — | (6,370 | ) | (2,267 | ) | ||||||
Total debt | $ | 2,872,727 | 2,990,383 | 2,886,034 | |||||||
Debt classified as current (included in other current liabilities) | (902,368 | ) | (900,759 | ) | |||||||
Total long-term debt | $ | 2,088,015 | 1,985,275 |
| | | | | | | | |
|
| Outstanding | |
|
|
|
| |
| | principal | | Carrying value | ||||
| | September 30, | | September 30, | | December 31, | ||
|
| 2020 |
| 2020 |
| 2019 | ||
|
| amounts in thousands | ||||||
Margin Loan Facility | | $ | 1,300,000 | |
| 1,300,000 |
| 1,300,000 |
Exchangeable senior debentures | |
| 477,250 | |
| 820,035 |
| 658,839 |
Senior notes | |
| 775,000 | |
| 793,524 |
| 796,138 |
Senior credit facility | |
| 510,822 | |
| 510,822 |
| 512,666 |
Wells Fargo note payable | |
| 6,608 | |
| 6,608 |
| 7,066 |
Deferred financing costs | |
| — | |
| (8,302) |
| (8,491) |
Total debt | | $ | 3,069,680 | |
| 3,422,687 |
| 3,266,218 |
Debt classified as current | |
| | |
| (823,166) |
| (3,008) |
Total long-term debt | | | | | $ | 2,599,521 |
| 3,263,210 |
Margin Loan
On December 29, 2017,August 12, 2020, Broadband Holdco, LLC ("Broadband Holdco"), a wholly owned subsidiary of, at such time, Qurate Retail, and now the Company, entered into a margin loan agreement with various lender parties consisting of a term loan in an aggregate principal amount of $1 billion (the “Margin Loan”). 42,681,842 shares of Liberty Broadband Series C common stock with a value of $4.5 billion were pledged by Broadband Holdco, LLC as collateral for the loan as of September 30, 2019. This Margin Loan has a term of two years with an interest rate of LIBOR plus 1.85% and contains an undrawn commitment fee of up to 0.75% per annum. Deferred financing costs incurred on the Margin Loan are reflected in current portion of debt, net in the accompanying condensed consolidated balance sheet. In connection with the completion of the Transactions, Broadband Holdco borrowed the full principal amount of the Margin Loan. A portion of the proceeds of the Margin Loan was used to make a distribution to Qurate Retail of $1.1 billion to be used within one year for the repurchase of QVC Group stock (now the Qurate Retail common stock) or to pay down certain debt at Qurate Retail, and for the payment of fees and other costs and expenses, in each case, pursuant to the terms of the reorganization agreement. The distributed loan proceeds constituted a portion of the cash reattributed to the QVC Group.
I-16
GCI LIBERTY, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
aggregate principal amount of up to $200.0 million (the “Revolving Credit Facility”) and the loans thereunder, the “Revolving Loans”). The Revolving Credit Facility established under the Margin Loan Agreement is in addition to the existinga separate term loan credit facility under the Margin Loan Agreementin an aggregate amount of $800.0 million (the “Term“Initial Term Loan Facility” and, together with Revolving Credit Facility, ; the “Margin Loan Facility” and the loans thereunder, the “Loans”). After giving effect to the initial borrowing of Revolving Loans and Term
On December 27, 2019, Broadband Holdco borrowed $100.0 million under the Revolving Credit Facility and $300.0 million under the Delayed Draw Term Loan Facility are subject toFacility. As of September 30, 2020, $1,300.0 million in borrowings were outstanding under the same affirmative and negative covenants and events of default.
Exchangeable Senior Debentures
On June 18, 2018, GCI Liberty issued 1.75% exchangeable senior debentures due 2046 ("Exchangeable Senior Debentures"). Upon an exchange of debentures, GCI Liberty, at its option, may deliver Charter Class A common stock, cash or a combination of Charter Class A common stock and cash. Initially, 2.6989 shares of Charter Class A common stock are attributable to each $1,000 principal amount of debentures, representing an initial exchange price of approximately $370.52 for each share of Charter Class A common stock. A total of 1,288,051 shares of Charter Class A common stock are attributable to the debentures. Interest is payable quarterly on March 31, June 30, September 30 and December 31 of each year. The debentures may be redeemed by GCI Liberty, in whole or in part, on or after October 5, 2023. Holders of debentures also have the right to require GCI Liberty to purchase their debentures on October 5, 2023. The redemption and purchase price will generally equal 100% of the adjusted principal amount of the debentures plus accrued and unpaid interest. The Company has elected to account for the debentures using the fair value option. See note 3 for information related to unrealized gains (losses) on debt measured at fair value. As of September 30, 2020, the holders of the debentures will have the ability to exchange their debentures for the period from October 1, 2020 through at least December 31, 2020 given that the trading value of the reference shares exceeded 130% of the par value for twenty
Senior Notes
On June 6, 2019, GCI, LLC, a wholly owned subsidiary of the Company, issued $325$325.0 million of 6.625% Senior Notes due 2024 at par ("2024 Notes"). The 2024 Notes are unsecured and the net proceeds were used to fund the redemption of $325$325.0 million aggregate outstanding principal amount of GCI, LLC’s 6.75% Senior Notes due 2021. Interest on the 2024 Notes and theGCI, LLC’s 6.875% Senior Notes due 2025 which were issued by GCI, Inc., which is now GCI, LLC (collectively,(the “2025 Notes” and collectively, the “Senior Notes”), is payable semi-annually in arrears. The Senior Notes are redeemable at the Company'sCompany’s option, in whole or in part, at a redemption price defined in the respective indentures, and accrued and unpaid interest (if any) to the date of redemption. The Senior Notes are stated net of an aggregate unamortized premium of $22.0$18.5 million at September 30, 2019.2020. Such premium is being amortized to interest expense in the accompanying condensed consolidated statements of operations. As
I-17
Table of September 30, 2019,Contents
GCI LIBERTY, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
On October 7, 2020, GCI, LLC exceededissued $600.0 million of 4.750% senior notes due 2028 (the “2028 Notes”). The 2028 Notes are unsecured and the maximum leverage threshold, as measured bynet proceeds of the terms of its Senior Notes. Accordingly, the Company, can only access additional fundingoffering, together with cash on hand and net proceeds from incremental borrowings under the revolving portion of the Senior Credit Facility (as defined below) so long as we are in compliance with, were used to fund the redemption of all $450 million aggregate outstanding principal amount of the 2025 Notes and the redemption of all $325 million aggregate outstanding principal amount of the 2024 Notes on October 14, 2020 and October 23, 2020, respectively.
Senior Credit Facility covenants after giving effect to any additional borrowings.
On December 27, 2018, GCI, LLC a wholly-owned subsidiary of the Company, amended and restated the Fifth Amended and Restated Credit Agreement dated as of March 9, 2018 and refinanced the revolving credit facility and term loan A with a new revolving credit facility, leaving the existing Term Loan B in place (the "Senior Credit Facility"). The Senior Credit Facility provides a $240.7 million term loan B ("Term Loan B") and a $550.0 million revolving credit facility.
GCI, LIBERTY, INC. AND SUBSIDIARIES
The revolving credit facility borrowings 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 the total leverage ratio. The full principal revolving credit facility included in the Senior Credit Facility will mature on December 27, 2023 or August 6, 2021 if the Term Loan B is not refinanced or repaid in full prior to such date.
The interest rate for the Term Loan B is LIBOR plus 2.25%. The Term Loan B requires principal payments of 0.25% of the original principal amount on the last day of each calendar quarter with the full amount maturing on February 2, 2022.
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 obligations under the Senior Credit Facility are secured by a security interest on substantially all of the assets of GCI Holdings and the subsidiary guarantors, as defined in the Senior Credit Facility, and on the stock of GCI Holdings.
As of September 30, 2019,2020, there is $238.3was $235.8 million outstanding under the Term Loan B, $475.0$275.0 million outstanding under the revolving portion of the Senior Credit Facility and $8.1$4.0 million in letters of credit under the Senior Credit Facility, which leaves $66.9leaving $271.0 million available for borrowing so long as weborrowing.
On October 15, 2020, GCI, LLC amended the Senior Credit Facility to, among other things, extend the maturity dates of the borrowings and commitments under the revolving credit facility and the Term Loan B and increase the aggregate principal amount of the Term Loan B to $400.0 million (the “Amended Credit Facilities”). The Amended Credit Facilities include a $550 million revolving credit facility, with a $25 million sub-limit for standby letters of credit, and a $400 million Term Loan B. The borrowings under the Amended Credit Facilities bear 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 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 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 B borrowings that are alternate base rate loans bear interest at a per annum rate equal to the alternate base rate plus a margin of 1.75%. Term Loan B borrowings that are LIBOR loans bear interest at a per annum rate equal to the applicable LIBOR plus a margin of 2.75% with a LIBOR floor of 0.75%.
I-18
GCI LIBERTY, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The borrowings under the revolving credit facility and the Term Loan B under the Amended Credit Facilities are scheduled to mature on October 15, 2025; provided that, if the Term Loan B is not refinanced or repaid in compliancefull prior to April 15, 2025, then the borrowings under the revolving credit facility will mature on April 15, 2025.
Incremental borrowings under the revolving credit facility and the Term Loan B were used, along with cash on hand, to redeem all $325 million aggregate outstanding principal amount of the debt covenants after giving effect to any additional borrowings.
Wells Fargo Note Payable
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 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 September 30, 2019.
Fair Value of Debt
The fair value of the Senior Notes was $828.5$814.7 million at September 30, 2019.
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 September 30, 2019.
Three months ended | Nine months ended | ||||||
September 30, 2019 | September 30, 2019 | ||||||
amounts in thousands | |||||||
Operating lease cost (1) | $ | 12,806 | 33,515 | ||||
Finance lease cost | |||||||
Depreciation of leased assets | $ | 722 | 4,321 | ||||
Interest on lease liabilities | 91 | 908 | |||||
Total finance lease cost | $ | 813 | 5,229 |
September 30, | ||||
2019 | ||||
amounts in thousands | ||||
Operating leases: | ||||
Operating lease ROU assets, net (1) | $ | 132,769 | ||
Current operating lease liabilities (2) | $ | 40,638 | ||
Operating lease liabilities (3) | 88,931 | |||
Total operating lease liabilities | $ | 129,569 | ||
Finance Leases: | ||||
Property and equipment, at cost | $ | 18,102 | ||
Accumulated depreciation | (4,574 | ) | ||
Property and equipment, net | $ | 13,528 | ||
Current obligations under finance leases (4) | $ | 4,894 | ||
Obligations under finance leases | 8,614 | |||
Total finance lease liabilities | $ | 13,508 |
Nine months ended | ||||
September 30, 2019 | ||||
amounts in thousands | ||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||
Operating cash flows from operating leases | $ | 33,710 | ||
Operating cash flows from finance leases | $ | 983 | ||
Financing cash flows from finance leases | $ | 6,405 | ||
ROU assets obtained in exchange for lease obligations | ||||
Operating leases | $ | 39,178 | ||
Finance leases | $ | — |
Finance Leases | Operating Leases | Tower Obligations | |||||||
amounts in thousands | |||||||||
Remainder of 2019 | $ | 1,373 | 12,059 | 1,932 | |||||
2020 | 5,491 | 44,512 | 7,797 | ||||||
2021 | 4,076 | 35,435 | 7,953 | ||||||
2022 | 1,973 | 21,683 | 8,112 | ||||||
2023 | 678 | 14,552 | 8,274 | ||||||
Thereafter | 1,734 | 23,185 | 142,825 | ||||||
Total lease payments | 15,325 | 151,426 | 176,893 | ||||||
Less: imputed interest | (1,817 | ) | (21,857 | ) | (85,247 | ) | |||
Total lease liabilities | $ | 13,508 | 129,569 | 91,646 |
(8) Preferred Stock
GCI Liberty Series A Cumulative Redeemable Preferred Stock (the "Preferred Stock") was issued as a result of the auto conversion that occurred on March 8, 2018. The Company is required to redeem all outstanding shares of 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 the twenty-first anniversary of the March 8, 2018 auto conversion. There were 7,500,000 shares of Preferred Stock authorized and 7,211,7597,199,697 shares issued and outstanding at September 30, 2019.2020. An additional 42,500,000 shares of preferred stock of the Company are authorized and are undesignated as to series. The Preferred Stock is accounted for as a liability in the accompanying condensed consolidated balance sheets because it is mandatorily redeemable. As a result, all dividends paid on the Preferred Stock are recorded as interest expense in the accompanying condensed consolidated statements of operations.
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 that have been added to and then remain part of the liquidation price as of such date.
The holders of shares of Preferred Stock are entitled to receive, when and as declared by the GCI Liberty Board of Directors, out of legally available funds, preferential dividends that accrue and cumulate as provided in the restated GCI Liberty certificate of incorporation.
Dividends on each share of Preferred Stock accrued on a daily basis at an initial rate of 5.00% per annum of the liquidation price, and increased to 7.00% per annum of the liquidation price effective July 16, 2018 as a result2018.
I-19
GCI LIBERTY, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 on the first such date following the auto conversion, which occurred immediately after the market closed on March 8, 2018. If GCI Liberty fails to pay cash dividends on the Preferred Stock in full for any 4 consecutive or non-consecutive dividend periods then the dividend rate shall increase by 2.00% per annum of the liquidation price until cured. On September 16, 2019,August 31, 2020, the Company announced that it declared a quarterly cash dividend of approximately $0.44 per share of Preferred Stock which was paid on October 15, 20192020 to shareholders of record of the Preferred Stock at the close of business on September 30, 2019.
Financing Arrangement | Investment Funds | Transaction Date | Loan Amount | Interest Rate on Loan to Investment Fund | Maturity Date | US Bancorp Investment | Loan to Unicom | Interest Rate on Loan(s) to Unicom | Expected Put Option Exercise |
NMTC #2 | TIF 2 & TIF 2-USB | October 3, 2012 | $37.7 million | 1% | October 2, 2042 | $17.5 million | $52.0 million | 0.71% to 0.77% | October 2019 |
NMTC #3 | TIF 3 | December 11, 2012 | $8.2 million | 1% | December 10, 2042 | $3.8 million | $12.0 million | 1.35% | December 2019 |
NMTC #4 | TIF 4 | March 21, 2017 | $6.7 million | 1% | March 21, 2040 | $3.3 million | $9.8 million | 0.73% | March 2024 |
NMTC #5 | TIF 5-1 and TIF 5-2 | December 22, 2017 | $10.4 million | 1% | December 22, 2047 | $5.1 million | $14.7 million | 0.67% to 1.24% | December 2024 |
(9) Stock-Based Compensation
GCI Liberty has granted to certain directors, employees and employees of its subsidiaries, restricted shares (“RSAs”), restricted stock units (“RSUs”) and options to purchase shares of GCI Liberty’s common stock (collectively, "Awards"). The Company measures the cost of employee services received in exchange for an equity classified Award (such as stock options, RSAs and RSUs) based on the grant-date fair value (“GDFV”) of the Award, and recognizes that cost over the period during which the employee is required to provide service (usually the vesting period of the Award). The Company measures the cost of employee services received in exchange for a liability classified Award based on the current fair value of the Award, and remeasures the fair value of the Award at each reporting date.
Included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations are $4.5 million and $5.8 million and $7.8 million of stock basedstock-based compensation during the three months ended September 30, 20192020 and 2018,2019, respectively, and $18.2$11.4 million and $20.9$18.2 million during the nine months ended September 30, 2020 and 2019, and 2018, respectively.
During the nine months ended September 30, 2019,2020, and in connection with our CEO'sCEO’s new employment agreement, GCI Liberty granted 22to our CEO 359 thousand options to purchase shares of GCI Liberty Series BA common stock and 51 thousand performance-based RSUsas part of GCI Liberty Series B common stock to our CEO.CEO’s upfront term award detailed in his employment agreement. Such options had a GDFV of $18.27$16.60 per share.share and vest on December 31, 2023. Also during the nine months ended September 30, 2020, GCI Liberty granted to our CEO 148 thousand options to purchase shares of GCI Liberty Series A common stock in conjunction with our CEO’s annual awards as detailed in his employment agreement. Such options had a GDFV of $13.21 per share and vest on December 31, 2020.
Also during the nine months ended September 30, 2020, GCI Liberty granted 3 thousand time-based RSUs of GCI Liberty Series A common stock to our CEO. The RSUs had a GDFV of $53.78$59.80 per share at the time they were granted. The options cliff vested immediately upon grant, and the RSUs cliff vest on December 10, 2020. This RSU grant was issued in onelieu of our CEO receiving 50% of his remaining base salary for the last three quarters of calendar year from2020, and he has waived his right to receive the month of grant, subject to the satisfaction of certain performance objectives. Performance objectives, which are subjective, are consideredother 50%, in determining the timing and amounteach case, in light of the compensation expense recognized. When the satisfactionongoing financial impact of the performance objectives becomes probable, the Company records compensation expense. The probability of satisfying the performance objectives is assessed at the end of each reporting period.
The Company has calculated the GDFV for all of its equity classified Awards and any subsequent remeasurement of its liability classified Awards using the Black-Scholes-Merton Model. The Company estimates the expected term of the Awards based on historical exercise and forfeiture data. The volatility used in the calculation for Awards is based on the historical volatility of GCI Liberty'sLiberty’s stock and the implied volatility of publicly traded GCI Liberty options. The Company uses a 0 dividend rate and the risk-free rate for Treasury Bonds with a term similar to that of the subject options.
I-20
GCI LIBERTY, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following tables presenttable presents the number and weighted average exercise price ("WAEP") of Awards to purchase GCI Liberty 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.
| | | | | | | | | | | | |
| | Series A | ||||||||||
| | | | | | | Weighted | | Aggregate | |||
| | | | | | | average | | intrinsic | |||
| | Awards | | | | | remaining | | value | |||
|
| (000's) |
| WAEP |
| life |
| (millions) | ||||
Outstanding at January 1, 2020 |
| 604 | | $ | 48.67 |
|
|
|
|
| |
|
Granted |
| 528 | | $ | 67.49 |
|
|
|
|
| |
|
Exercised |
| (98) | | $ | 44.52 |
|
|
|
|
| |
|
Forfeited/Cancelled |
| — | | $ | — |
|
|
|
|
| |
|
Outstanding at September 30, 2020 |
| 1,034 | | $ | 58.67 |
| 5.1 |
| years | | $ | 24 |
Exercisable at September 30, 2020 |
| 328 | | $ | 47.09 |
| 3.5 |
| years | | $ | 11 |
There were 0 changes to outstanding options of GCI LIBERTY, INC. AND SUBSIDIARIES
Series A | ||||||||||||||
Weighted | Aggregate | |||||||||||||
average | intrinsic | |||||||||||||
Awards | remaining | value | ||||||||||||
(000's) | WAEP | life | (millions) | |||||||||||
Outstanding at January 1, 2019 | 1,650 | $ | 47.61 | |||||||||||
Granted | — | $ | — | |||||||||||
Exercised | (275 | ) | $ | 24.66 | ||||||||||
Forfeited/Cancelled | (49 | ) | $ | 55.65 | ||||||||||
Outstanding at September 30, 2019 | 1,326 | $ | 52.08 | 1.1 | years | $ | 13 | |||||||
Exercisable at September 30, 2019 | 1,053 | $ | 54.02 | 0.6 | years | $ | 8 |
Series B | ||||||||||||||
Weighted | Aggregate | |||||||||||||
average | intrinsic | |||||||||||||
Awards | remaining | value | ||||||||||||
(000's) | WAEP | life | (millions) | |||||||||||
Outstanding at January 1, 2019 | 1,223 | $ | 56.10 | |||||||||||
Granted | 22 | $ | 58.11 | |||||||||||
Exercised | — | $ | — | |||||||||||
Forfeited/Cancelled | — | $ | — | |||||||||||
Outstanding at September 30, 2019 | 1,245 | $ | 56.14 | 3.3 | years | $ | 8 | |||||||
Exercisable at September 30, 2019 | 926 | $ | 56.05 | 3.7 | years | $ | 6 |
As of September 30, 2019,2020, the total unrecognized compensation cost related to unvested options and RSA/RSUs was approximately $4$7.0 million and $20$13.0 million, respectively. Such amounts will be recognized in the Company'sCompany’s consolidated statements of operations over a weighted average period of approximately 1.42.6 years and 2.51.9 years, respectively.
As of September 30, 2019,2020, GCI Liberty had 485427 thousand RSUs outstanding.
As of September 30, 2019,2020, GCI Liberty reserved for issuance upon exercise of outstanding stock options approximately 1.31.0 million shares of GCI Liberty Series A common stock and 1.2 million shares of GCI Liberty Series B common stock.
(10) Commitments and Contingencies
Litigation, Disputes and Regulatory Matters
The Company is involved in various lawsuits, billing disputes, legal proceedings, and regulatory matters that have arisen from time to time in the normal course of GCI Holdings receive supportbusiness. Management believes there are no proceedings from various Universal Service Fund ("USF") programs includingasserted and unasserted claims which if determined adversely would have a material adverse effect on the RHC Program. The USF programs are subject to change by regulatory actions taken byCompany’s financial position, results of operations or liquidity, other than those described in the Federal Communications Commission ("FCC") or legislative actions. The following paragraphs describe certain separate matters relatedCompany’s commitments and contingencies discussion in note 16 to the RHC Program that impact or could impact the revenue earned by the Company.
(11) Information About the Company'sCompany’s Operating Segments
The Company, through its interests in subsidiaries and other companies, is primarily engaged in the broadband communications services industry. The Company identifies its reportable segments as (A) those consolidated companies that represent 10% or more of its consolidated annual revenue, annual Adjusted OIBDA (as defined below) or total assets and (B) those equity method affiliates whose share of earnings represent 10% or more of the Company’s annual pre‑taxpre-tax earnings.
I-21
GCI LIBERTY, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company evaluates performance and makes decisions about allocating resources to its operating segments based on financial measures such as revenue, Adjusted OIBDA (as defined below), and subscriber metrics.
For the three and nine months ended September 30, 2019,2020, the Company has identified the following subsidiary as a reportable segment:
● | 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. |
For presentation purposes the Company is providing financial information for Liberty Broadband. While the Company’s equity method investment in Liberty Broadband does not meet the reportable segment threshold defined above, the Company believes that the inclusion of such information is relevant to users of these financial statements.
● | Liberty Broadband - an equity method affiliate of the Company, accounted for at fair value, has a non-controlling interest in Charter, and a wholly-owned subsidiary, Skyhook Wireless, Inc. ("Skyhook"). Charter is the second largest cable operator in the United States and a leading broadband communications services company providing video, Internet and voice services. Skyhook provides a Wi-Fi based location platform focused on providing positioning technology and contextual location intelligence solutions. |
The Company’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 consolidated subsidiaries included in the segments are the same as those described in the Company’s Summary of Significant Accounting Policies in note 2 to the accompanying consolidated financial statements to theour Annual Report on Form 10-K for the year ended December 31, 2018.
Performance Measures
Revenue by segment from contracts with customers, classified by customer type and significant service offerings follows:
| | | | | | | | | | |
| | Three months ended | | Nine months ended | ||||||
|
| September 30, | | September 30, | ||||||
| | 2020 | | 2019 | | 2020 | | 2019 | ||
| | amounts in thousands | ||||||||
GCI Holdings |
| | |
| | | | |
| |
Consumer Revenue | | | | | | | | | | |
Wireless | | $ | 31,334 | | 29,509 | | | 89,598 | | 84,506 |
Data | | | 47,852 | | 42,920 | | | 137,562 | | 125,555 |
Video | | | 23,927 | | 21,194 | | | 65,141 | | 63,255 |
Voice | | | 3,654 | | 4,051 | | | 11,169 | | 12,833 |
Business Revenue | | | | | | | | | | |
Wireless | | | 20,019 | | 20,060 | | | 58,873 | | 57,837 |
Data | | | 89,549 | | 69,960 | | | 245,871 | | 201,803 |
Video | | | 2,277 | | 4,115 | | | 10,726 | | 11,928 |
Voice | | | 6,614 | | 6,747 | | | 20,077 | | 19,587 |
Lease, grant, and subsidies revenue | | | 19,040 | | 22,472 | | | 59,391 | | 67,914 |
Total GCI Holdings | | | 244,266 | | 221,028 | | | 698,408 | | 645,218 |
Corporate and other | | | 2,626 | | 6,016 | | | 9,103 | | 17,128 |
Total | | $ | 246,892 | | 227,044 | | | 707,511 | | 662,346 |
I-22
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
amounts in thousands | ||||||||||||
GCI Holdings | ||||||||||||
Consumer Revenue | ||||||||||||
Wireless | $ | 29,509 | 25,584 | 84,506 | 62,312 | |||||||
Data | 42,920 | 39,652 | 125,555 | 88,921 | ||||||||
Video | 21,194 | 22,272 | 63,255 | 50,180 | ||||||||
Voice | 4,051 | 4,368 | 12,833 | 10,246 | ||||||||
Business Revenue | ||||||||||||
Wireless | 20,060 | 18,071 | 57,837 | 44,889 | ||||||||
Data | 69,960 | 59,585 | 201,803 | 154,239 | ||||||||
Video | 4,115 | 4,927 | 11,928 | 9,436 | ||||||||
Voice | 6,747 | 6,361 | 19,587 | 14,282 | ||||||||
Lease, grant, and revenue from subsidies | 22,472 | 24,226 | 67,914 | 55,114 | ||||||||
Total GCI Holdings | 221,028 | 205,046 | 645,218 | 489,619 | ||||||||
Corporate and other | 6,016 | 5,100 | 17,128 | 15,221 | ||||||||
Total | $ | 227,044 | 210,146 | 662,346 | 504,840 |
GCI LIBERTY, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Liberty Broadband revenue totaled $3.7$4.2 million and $3.5$3.7 million for the three months ended September 30, 20192020 and 2018,2019, respectively and $10.9$12.4 million and $18.7$10.9 million for the nine months ended September 30, 2020 and 2019, and 2018, respectively.
The Company had gross receivables of $216$329.6 million and deferred revenue of $38$36.5 million at September 30, 20192020 from contracts with customers, which amounts exclude receivables and deferred revenue arising from leases, grants, and subsidies. Our 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 and nine months ended September 30, 20192020 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 $63$80.0 million in the remainder of 2019, $2332020, $250.6 million in 2020, $1642021, $157.3 million in 2021, $1122022, $59.0 million in 20222023 and $97$72.1 million in 20232024 and thereafter.
The Company applies certain practical expedients as permitted under ASC 606 and does not disclose information about remaining performance obligations that have original expected durations of one year or less, information about revenue remaining from usage based performance obligations that are recognized over time as-invoiced, or variable consideration allocated to wholly unsatisfied performance obligations.
For segment reporting purposes, the Company defines Adjusted OIBDA as revenue less cost of sales, operating expenses, and selling, general and administrative expenses (excluding stock‑basedstock-based compensation). The Company 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'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‑basedstock-based compensation, separately reported litigation settlements, insurance proceeds and restructuring and impairment charges that are included in the measurement of operating income pursuant to GAAP. Accordingly, Adjusted OIBDA should be considered in
Although GCI Liberty owns less than 100% of the outstanding shares of Liberty Broadband, 100% of the Liberty Broadband amounts are included in the tables below and subsequently eliminated in order to reconcile the account totals to the GCI Liberty condensed consolidated financial statements.
Adjusted OIBDA is summarized as follows:
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | Three months ended | | Nine months ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
| | 2020 | | 2019 | | 2020 | | 2019 | | ||||
| | amounts in thousands | | ||||||||||
GCI Holdings |
| $ | 91,617 |
| | 71,960 |
| | 256,057 |
| | 182,552 |
|
Liberty Broadband | |
| (14,270) | |
| (4,586) | | | (26,658) | |
| (11,877) | |
Corporate and other | |
| (16,336) | |
| (5,382) | | | (36,497) | |
| (17,199) | |
| |
| 61,011 | |
| 61,992 | | | 192,902 | |
| 153,476 | |
Eliminate Liberty Broadband | |
| 14,270 | |
| 4,586 | | | 26,658 | |
| 11,877 | |
| | $ | 75,281 | | | 66,578 | | | 219,560 | | | 165,353 | |
I-23
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
amounts in thousands | ||||||||||||
GCI Holdings | $ | 71,960 | 57,945 | 182,552 | 156,608 | |||||||
Liberty Broadband | (4,586 | ) | (2,198 | ) | (11,877 | ) | (414 | ) | ||||
Corporate and other | (5,382 | ) | (7,205 | ) | (17,199 | ) | (20,256 | ) | ||||
61,992 | 48,542 | 153,476 | 135,938 | |||||||||
Eliminate Liberty Broadband | 4,586 | 2,198 | 11,877 | 414 | ||||||||
$ | 66,578 | 50,740 | 165,353 | 136,352 |
GCI LIBERTY, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2019 | ||||||||||
Total | Investments | Capital | ||||||||
assets | in affiliates | expenditures | ||||||||
amounts in thousands | ||||||||||
GCI Holdings | $ | 3,346,168 | 580 | 107,431 | ||||||
Liberty Broadband | 12,172,047 | 12,067,329 | 75 | |||||||
Corporate and other | 7,299,135 | 168,259 | 1,202 | |||||||
Eliminate Liberty Broadband | (12,172,047 | ) | (12,067,329 | ) | (75 | ) | ||||
Consolidated | $ | 10,645,303 | 168,839 | 108,633 |
| | | | | | | | |
| | September 30, 2020 | | |||||
| | Total | | Investments | | Capital | | |
| | assets | | in affiliates | | expenditures | | |
| | amounts in thousands | | |||||
GCI Holdings |
| $ | 3,195,906 |
| 528 |
| 106,370 |
|
Liberty Broadband | |
| 12,861,689 |
| 12,450,425 |
| 42 | |
Corporate and other | |
| 10,163,936 |
| 156,956 |
| 877 | |
| |
| 26,221,531 |
| 12,607,909 |
| 107,289 | |
Eliminate Liberty Broadband | |
| (12,861,689) |
| (12,450,425) |
| (42) | |
Consolidated | | $ | 13,359,842 |
| 157,484 |
| 107,247 | |
The following table provides a reconciliation of Adjusted OIBDA to operatingOperating income (loss) and earningsEarnings (loss) from continuing operations before income taxes:
| | | | | | | | | | | |
|
| Three months ended |
| Nine months ended |
| ||||||
| | September 30, | | September 30, | | ||||||
| | 2020 | | 2019 | | 2020 | | 2019 | | ||
| | amounts in thousands | | ||||||||
Adjusted OIBDA | | $ | 75,281 |
| 66,578 | | | 219,560 |
| 165,353 | |
Stock‑based compensation | |
| (4,521) |
| (5,768) | | | (11,389) |
| (18,153) | |
Depreciation and amortization | |
| (60,688) |
| (66,466) | | | (184,856) |
| (200,035) | |
Insurance proceeds and restructuring, net | |
| — |
| 1,482 | | | — |
| (236) | |
Operating income (loss) | |
| 10,072 |
| (4,174) | | | 23,315 |
| (53,071) | |
Interest expense | |
| (29,722) |
| (38,353) | | | (100,364) |
| (116,357) | |
Share of earnings (loss) of affiliates, net | |
| (9,035) |
| 1,921 | | | (7,504) |
| (2,443) | |
Realized and unrealized gains (losses) on financial instruments, net | |
| 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 | |
Earnings (loss) before income taxes | | $ | 1,162,832 |
| 117,381 | | | 1,139,888 |
| 1,705,711 | |
(4) | |
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Three months ended September 30, | Nine months ended September 30, | |||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
amounts in thousands | ||||||||||||
Adjusted OIBDA | $ | 66,578 | 50,740 | 165,353 | 136,352 | |||||||
Stock‑based compensation | (5,768 | ) | (7,761 | ) | (18,153 | ) | (20,926 | ) | ||||
Depreciation and amortization | (66,466 | ) | (62,848 | ) | (200,035 | ) | (143,257 | ) | ||||
Insurance proceeds and restructuring, net | 1,482 | — | (236 | ) | — | |||||||
Operating income (loss) | (4,174 | ) | (19,869 | ) | (53,071 | ) | (27,831 | ) | ||||
Interest expense | (38,353 | ) | (37,614 | ) | (116,357 | ) | (81,304 | ) | ||||
Share of earnings (loss) of affiliates, net | 1,921 | 10,856 | (2,443 | ) | 18,714 | |||||||
Realized and unrealized gains (losses) on financial instruments, net | 156,165 | 495,509 | 1,844,863 | (4,328 | ) | |||||||
Tax Sharing Agreement | 2,362 | 2,492 | 18,895 | (25,456 | ) | |||||||
Other, net | (540 | ) | (834 | ) | 13,824 | (982 | ) | |||||
Earnings (loss) from continuing operations before income taxes | $ | 117,381 | 450,540 | 1,705,711 | (121,187 | ) |
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 the recoverability of the Company'sCompany’s goodwill and other long-lived assets; the Company'sCompany’s projected sources and uses of cash; the Rural Healthcare Program; the impact of the Alaskan recession andrecession; the remediation of a material weakness; regulatory developments; the anticipated impact of COVID-19 (as defined below); the Combination (as defined below); and certain contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. 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 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 (as they relate to our consolidated subsidiaries and equity affiliates) that could cause actual results or events to differ materially from those anticipated:
● | The impact of the novel coronavirus ("COVID-19") pandemic and local, state and federal governmental responses to the pandemic on the economy, our customers, our vendors and our businesses generally; |
● | the satisfaction of conditions to the Combination; |
● | customer demand for the Company’s products and services and the Company’s ability to adapt to changes in demand; |
● | competitor responses to the Company’s and its businesses’ products and services; |
● | changes in, or failure or inability to comply with, government regulations, including, without limitation, regulations of the Federal Communications Commission (the "FCC"), and adverse outcomes from regulatory proceedings; |
● | uncertainties inherent in the development and integration of new business lines and business strategies; |
● | future financial performance, including availability, terms and deployment of capital; |
● | the ability of suppliers and vendors to deliver products, equipment, software and services; |
● | cyberattacks or other network disruptions; |
● | the outcome of any pending or threatened litigation; |
● | availability of qualified personnel; |
● | changes in the nature of key strategic relationships with partners, distributors, suppliers and vendors; |
● | domestic and international economic and business conditions and industry trends, specifically the state of the Alaska economy, including the impacts of the COVID-19 pandemic to unemployment levels; |
● | consumer spending levels, including the availability and amount of individual consumer debt; |
● | rapid technological changes; |
● | failure to protect the security of personal information about the Company’s and its businesses’ customers; and |
● | the regulatory and competitive environment of the industries in which the Company operates. |
For additional risk factors, please see Part I, Item 1A1A. Risk Factors of theour Annual Report on Form 10-K for the year ended December 31, 20182019 and Part II, Item 1A1A. Risk Factors in theour Quarterly ReportReports on Form 10-Q for the three monthsquarters ended March 31, 2020 and June 30, 2019.2020 and this Quarterly Report on Form 10-Q. Any 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.
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Overview
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”). 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. These assets (other than GCI Holdings) were contributed by Liberty Interactive Corporation, now known as Qurate Retail, Inc. ("Qurate Retail"), entered into an Agreement and Plan of Reorganization (as amended, the "reorganization agreement"
On August 6, 2020, GCI Liberty their entire equity interests inand Liberty Broadband
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'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 has caused a significant disruption to most sectors of the economy.
As the COVID-19 pandemic develops and significantly impacts 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. The economymajority of GCI Holdings’ workforce has transitioned to working at home full time and it expects to keep those employees working from home through early next year.
The State of Alaska has placed restrictions on public utilities, such as GCI Holdings, from charging late fees or disconnecting service from residential customers who are experiencing financial hardship as a result of the COVID-19 crisis. These state-level restrictions will remain in place until November 15, 2020. 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
I-26
unemployment benefits and other stimulus packages and what assistance may be provided to its customers. GCI Holdings expects its accounts receivable and bad debt expense to increase substantially due to the restrictions on GCI Holdings’ ability to collect from its customers. 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 government spending, United States military spending, investment earnings and tourism. Prolonged periodsThe price of Alaska North Slope Crude oil has remained low oil prices adversely impactsand large tourism companies have decided not to operate during 2020 due to the Alaska economy, which in turn can have an adverse impact on the demand for GCI Holdings' products and services and on its results of operations and financial condition.
The Alaska economy iswas in a recession that started in late 2015. At the end of 2019, the Alaska economy showed signs of emerging from this recession, however, the recession has continued as a result of the COVID-19 pandemic and continued low oil prices. While it is difficult for GCI Holdings to predict the future impact of thea renewed or continuing recession on its business, these conditions have had an adverse impact on its business and could continue to 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. Additionally, GCI Holdings'Holdings’ customers may not be able to obtain adequate access to credit, which could affect their ability to make timely payments to GCI Holdings. If that were to occur, GCI Holdings could be required to increase its allowance for doubtful accounts, and the number of days outstanding for its accounts receivable could increase. If the recession continues, it could continue to negatively affect GCI Holdings'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 receivereceives 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
I-27
The Company disclosed the following items related to itsGCI Holdings’ involvement in the RHC Program in its Annual Report on Form 10-K for the year ended December 31, 2018:
● | The FCC reduced the rates charged to RHC customers by approximately 26%. |
● | The FCC increased the RHC Program funding cap for multiple funding years. |
● | GCI Holdings received a letter of inquiry and request for information from the Enforcement Bureau of the FCC (the “Enforcement Bureau”) in March 2018. |
● | GCI Holdings received multiple funding denial notices from Universal Service Administrative Company ("USAC") which originally denied the RHC funding requests that had been submitted by a rural health customer. |
● | The FCC released an order adopting changes to the RHC Program that will revise the manner in which support issued under the RHC Program will be calculated and approved. |
● | GCI Holdings became aware of potential RHC Program compliance issues related to certain of its currently active and expired contracts with certain of its RHC customers. |
The Company has additional significant information regarding the (i) rates charged to RHC customers, by approximately 26%.
On October 20, 2020, the Wireline Competition Bureau of the FCC issued two separate letters approving the cost-based rural rates GCI Holdings applied when recognizing revenue for services provided to its RHC customers for the funding years that ended on July 5,June 30, 2019 but resolution and June 30, 2020. In consideration of receiving these letters, we anticipate that we will collect approximately $175 million in accounts receivable related to these two funding years within one year and historical experience would lead us to believe collection will likely occur within three to six months from the timingdate of receipt of the appealletters.
On October 19, 2020, the FCC issued an order stating that total RHC Program demand for the funding year that will end June 30, 2021 is less than available program funding and, further, waiving the yearly sub-cap for upfront and multi-year payments to ensure that no RHC Program requests are unknown at this time. As of March 31, 2019, GCI Holdings hadsubject to prioritized or pro rata reductions based on the annual caps.
The multiple funding denial notices resulted in a $21.3 million accounts receivable of approximately $21.3 million outstanding associated with these two service contracts, which is dependent upon receipt of funding from USAC. Given that USAC has denied the Customer’s appeal as specifically outlined in the May 6, 2019 letter received by the Customer, it is probable that GCI Holdings has incurred a loss and an accounts receivable reserve has been recorded in the amount of $21.3 million and an associated bad debt expense has been recorded during the first quarter of 2019 and included within selling, general, and administrative expense in the condensed consolidated statements of operations. Additionally, because2019. Because of the uncertainty ofcaused by the Customer’s future appeals processfunding denial notices and the uncertainty relating to our ability to recover payment directly from the Customer,rural healthcare customer, we no longer believebelieved revenue associated with the two service contracts should be recognized due to the unpredictability surrounding the collection of consideration under these two service contracts currently being denied by USAC. Historical annualsuch that no revenue associated with the two service contracts was approximately $12 million in total and was expected to be the same in future periods. Revenue has not been recognized beyond the first quarter of 2019. On February 19, 2020, an FCC order granted the appeal of the rural health customer and reversed the FCC’s previous funding denials, resulting in the reversal of the previously recorded $21.3 million accounts receivable reserve in the fourth quarter of 2019. Because GCI Holdings was unable to conclude at any time prior to December 31, 2019 and willthat collection of consideration for services provided to the rural healthcare customer was probable, we concluded that revenue should not be recognized until an adequate levelfor any period subsequent to the first quarter of clarity is reached on2019 even though we continued to provide services to the matter andrural healthcare customer.
In light of the FCC order, we evaluated the applicable revenue recognition criteria are met.in the first quarter of 2020 and concluded that we met the applicable revenue recognition criteria and could recognize revenue for the services provided subsequent to the first quarter of 2019. The result of meeting the applicable revenue recognition criteria in the first quarter of 2020 was to record revenue of approximately $9 million related to the services provided during 2019 for which revenue had not been previously recognized and to begin recording revenue in the first quarter of 2020 for services provided to the rural healthcare customer.
On May 28, 2020, GCI Holdings received a second letter of inquiry from the Enforcement Bureau in the same matter noted above. This second letter, which was in response to a voluntary disclosure made by GCI Holdings to the FCC, extended the scope of the original inquiry to also include various questions regarding compliance with the records retention requirements related to the (i) original inquiry and (ii) RHC Program. While the letter expands the scope of review, it does not alter the Company’s assessment of the Enforcement Bureau inquiry.
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On August 20, 2019, the FCC released an order adopting changes to the RHC Program that will revise the manner in which support issued under the RHC Program will be calculated and approved. Some of these changes will become effective beginning with the funding year ending June 30, 2021, while others will apply beginning with the funding year ending June 30, 2022. On October 21, 2019, GCI Holdings appealed the order to the United States Court of Appeals for the District of Columbia Circuit. On December 6, 2019, that appeal was held in abeyance for nine months due to pending Petitions for Reconsideration filed by other parties at the FCC, and on September 25, 2020, the period of abeyance was extended through March 8, 2021. At the direction of the FCC, USAC has released a database that purports to determine a median rate which will cap the amount of support available for each service sold under the program, starting in the funding year ending June 30, 2022. On September 30, 2020, USAC released a refreshed version of the database incorporating limited changes submitted by interested parties. GCI Holdings anticipates pursuing a cost-based waiver to support rates charged for numerous services sold under the program. The waiver process is not yet fully developed and it is uncertain what the outcome of GCI Holdings’ cost-based waiver request will be. In addition, on July 30, 2020, GCI Holdings filed an administrative appeal of certain parameters prescribed for the USAC database by the FCC’s Wireline Competition Bureau, and anticipates filing an additional administrative appeal related to the September 30, 2020 refreshed USAC database. Because the outcome of GCI Holdings’ administrative appeals and anticipated waiver request remain undetermined, GCI Holdings cannot assess at this time the impact that these changes adopted by the FCC will have on funding.
Results of Operations - Consolidated
General.We provide in the tables below 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.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. For a more detailed discussion and analysis of the financial results of our principal reportable segment see "Results of Operations-GCI Holdings"Holdings, LLC" below.
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
amounts in thousands | ||||||||||||
Revenue | ||||||||||||
GCI Holdings | $ | 221,028 | 205,047 | 645,218 | 489,620 | |||||||
Corporate and other | 6,016 | 5,099 | 17,128 | 15,220 | ||||||||
Consolidated | $ | 227,044 | 210,146 | 662,346 | 504,840 | |||||||
Operating Income (Loss) | ||||||||||||
GCI Holdings | $ | 3,663 | (8,859 | ) | (27,516 | ) | 4,661 | |||||
Corporate and other | (7,837 | ) | (11,010 | ) | (25,555 | ) | (32,492 | ) | ||||
Consolidated | $ | (4,174 | ) | (19,869 | ) | (53,071 | ) | (27,831 | ) | |||
Adjusted OIBDA | ||||||||||||
GCI Holdings | $ | 71,960 | 57,945 | 182,552 | 156,608 | |||||||
Corporate and other | (5,382 | ) | (7,205 | ) | (17,199 | ) | (20,256 | ) | ||||
Consolidated | $ | 66,578 | 50,740 | 165,353 | 136,352 |
| | | | | | | | | | | |
| | Three months ended | | Nine months ended | | ||||||
| | September 30, | | September 30, | | ||||||
|
| 2020 |
| 2019 | | 2020 |
| 2019 | | ||
| | amounts in thousands | |||||||||
Revenue |
| |
|
|
| | |
|
|
| |
GCI Holdings | | $ | 244,266 |
| 221,028 | | | 698,408 |
| 645,218 | |
Corporate and other | |
| 2,626 |
| 6,016 | | | 9,103 |
| 17,128 | |
Consolidated | | $ | 246,892 |
| 227,044 | | | 707,511 |
| 662,346 | |
| | | | | | | | | | | |
Operating Income (Loss) | |
|
|
|
| | |
|
|
| |
GCI Holdings | | $ | 28,048 |
| 3,663 | | | 66,040 |
| (27,516) | |
Corporate and other | |
| (17,976) |
| (7,837) | | | (42,725) |
| (25,555) | |
Consolidated | | $ | 10,072 |
| (4,174) | | | 23,315 |
| (53,071) | |
| | | | | | | | | | | |
Adjusted OIBDA | |
|
|
|
| | |
|
|
| |
GCI Holdings | | $ | 91,617 |
| 71,960 | | | 256,057 |
| 182,552 | |
Corporate and other | |
| (16,336) |
| (5,382) | | | (36,497) |
| (17,199) | |
Consolidated | | $ | 75,281 |
| 66,578 | | | 219,560 |
| 165,353 | |
Revenue. Our consolidated revenue increased $16.9$19.8 million and $157.5$45.2 million for the three and nine months ended September 30, 20192020, respectively, as compared to the corresponding periods in the prior year, respectively.year. The increaseincreases in revenue for the three month period is due to a $16.0 million increase at GCI Holdings for the same period. The increase for theand nine month period isperiods were primarily due to an increaseincreases of $155.6$23.2 million and $53.2 million, respectively, at GCI Holdings as a result of the acquisition of GCI Holdings on March 9, 2018, which resulted in a partial quarter of activity for the first quarter of 2018 and a full quarter of activity for the first quarter of 2019.Holdings. See “Results of Operations-GCI Holdings, LLC” below for a more complete discussion of the results of operations of GCI Holdings.
Operating Income (Loss). Our consolidated operating loss decreased $15.7income increased $14.2 million and increased $25.2$76.4 million for the three and nine months ended September 30, 20192020, respectively, as compared to the corresponding periods in the prior year, respectively.year. The decreaseincreases in the operating lossincome for the three and nine month period isperiods were primarily due to a $12.5increases of $24.4 million decrease in the operating loss for
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and $93.6 million, respectively, at GCI Holdings. The increase in the operating loss for the nine month period is primarily due to a $32.2 million increase in the operating loss at GCI Holdings as a result of the acquisition of GCI Holdings on March 9, 2018 and associated depreciation and amortization as a result of acquisition accounting. See “Results of Operations-GCI Holdings, LLC” below for a more complete discussion of the results of operations of GCI Holdings.
Operating losses for corporateCorporate and other decreased $3.2increased $10.1 million and $6.9$17.2 million for the three and nine months ended September 30, 2019,2020, respectively, as compared to the corresponding periods in the prior year, due to a decrease in costs associated withincreased professional service fees at the Transactions.
Stock-based compensation. Stock based compensation includes compensation related to restricted shares of GCI Liberty'sLiberty’s common stock and preferred stock, restricted stock units with respect to GCI Liberty'sLiberty’s common stock, and options to purchase shares of GCI Liberty'sLiberty’s common stock granted to certain of the Company'sCompany’s directors, employees, and employees of its subsidiaries. We recorded $5.8The decreases in stock-based compensation of $1.2 million and $7.8 million of stock compensation expense for the three months ended September 30, 2019 and 2018, respectively, and $18.2 million and $20.9 million of stock compensation expense for the nine months ended September 30, 2019 and 2018, respectively. The decrease of $2.0 million and $2.7$6.8 million for the three and nine months ended September 30, 2019,2020, respectively, waswere primarily due to decreases in stock compensation at Corporate and other of $1.3 million and $3.7 million for the three and nine month periods, respectively, and a decrease at GCI Holdings of $0.7 million and an increase of $1.0$5.1 million for the three and nine month periods, respectively. As of September 30, 2019,2020, the total unrecognized compensation cost related to unvested options and RSAs was approximately $4$7.0 million and $20$13.0 million, respectively. Such amounts will be recognized in the Company'sCompany’s consolidated statements of operations over a weighted average period of approximately 1.42.6 years and 2.51.9 years, respectively.
Adjusted OIBDA. To provide investors with additional information regarding our financial results, the Company also discloses Adjusted OIBDA, which is a non-GAAP financial measure. The Company defines Adjusted OIBDA as operating income (loss) plus depreciation and amortization, stock-based compensation, separately reported litigation settlements, insurance proceeds, restructuring, acquisition and other related costs and impairment charges. The Company'sCompany’s chief operating decision maker and
Three months ended September 30, | Nine months ended September 30, | ||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||
amounts in thousands | |||||||||||||
Operating income (loss) | $ | (4,174 | ) | (19,869 | ) | (53,071 | ) | (27,831 | ) | ||||
Depreciation and amortization | 66,466 | 62,848 | 200,035 | 143,257 | |||||||||
Stock-based compensation | 5,768 | 7,761 | 18,153 | 20,926 | |||||||||
Insurance proceeds and restructuring, net | (1,482 | ) | — | 236 | — | ||||||||
Adjusted OIBDA | $ | 66,578 | 50,740 | 165,353 | 136,352 |
| | | | | | | | | | | |
| | Three months ended | | Nine months ended | | ||||||
| | September 30, | | September 30, | | ||||||
|
| 2020 |
| 2019 | | 2020 |
| 2019 | | ||
| | amounts in thousands | | ||||||||
Operating income (loss) | | $ | 10,072 |
| (4,174) | | | 23,315 |
| (53,071) | |
Depreciation and amortization | |
| 60,688 |
| 66,466 | | | 184,856 |
| 200,035 | |
Stock-based compensation | |
| 4,521 |
| 5,768 | | | 11,389 |
| 18,153 | |
Insurance proceeds and restructuring, net | |
| — |
| (1,482) | | | — |
| 236 | |
Adjusted OIBDA | | $ | 75,281 |
| 66,578 | | | 219,560 |
| 165,353 | |
Consolidated Adjusted OIBDA increased $15.8$8.7 million and $29.0$54.2 million for the three and nine months ended September 30, 20192020, respectively, as compared to the corresponding periods in the prior year, respectively.year. The increaseincreases for the three and nine month period isperiods were primarily due to an increaseincreases in revenue at GCI Holdings. The increaseand, for the nine month period is primarily due to the acquisition ofmonths ended September 30, 2020, decreases in selling, general and administrative expenses at GCI Holdings on March 9, 2018.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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Other Income and Expense
Components of Other income (expense) are presented in the table below.
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
amounts in thousands | ||||||||||||
Interest expense | ||||||||||||
GCI Holdings | $ | (22,765 | ) | (21,266 | ) | (68,248 | ) | (47,455 | ) | |||
Corporate and other | (15,588 | ) | (16,348 | ) | (48,109 | ) | (33,849 | ) | ||||
Consolidated | $ | (38,353 | ) | (37,614 | ) | (116,357 | ) | (81,304 | ) | |||
Share of earnings (losses) of affiliates, net | ||||||||||||
GCI Holdings | $ | (28 | ) | (36 | ) | (139 | ) | (86 | ) | |||
Corporate and other | 1,949 | 10,892 | (2,304 | ) | 18,800 | |||||||
Consolidated | $ | 1,921 | 10,856 | (2,443 | ) | 18,714 | ||||||
Realized and unrealized gains (losses) on financial instruments, net | ||||||||||||
GCI Holdings | $ | — | — | 1,669 | — | |||||||
Corporate and other | 156,165 | 495,509 | 1,843,194 | (4,328 | ) | |||||||
Consolidated | $ | 156,165 | 495,509 | 1,844,863 | (4,328 | ) | ||||||
Tax sharing agreement | ||||||||||||
GCI Holdings | $ | — | — | — | — | |||||||
Corporate and other | 2,362 | 2,492 | 18,895 | (25,456 | ) | |||||||
Consolidated | $ | 2,362 | 2,492 | 18,895 | (25,456 | ) | ||||||
Other, net | ||||||||||||
GCI Holdings | $ | 319 | (198 | ) | 13,081 | 620 | ||||||
Corporate and other | (859 | ) | (636 | ) | 743 | (1,602 | ) | |||||
Consolidated | $ | (540 | ) | (834 | ) | 13,824 | (982 | ) |
| | | | | | | | | | | |
| | Three months ended | | Nine months ended | | ||||||
| | September 30, | | September 30, | | ||||||
|
| 2020 |
| 2019 | | 2020 |
| 2019 | | ||
| | amounts in thousands | | ||||||||
Interest expense |
| |
|
|
| | |
|
|
| |
GCI Holdings | | $ | (17,074) |
| (22,765) | | | (53,244) |
| (68,248) | |
Corporate and other | |
| (12,648) |
| (15,588) | | | (47,120) |
| (48,109) | |
Consolidated | | $ | (29,722) |
| (38,353) | | | (100,364) |
| (116,357) | |
| | | | | | | | | | | |
Share of earnings (losses) of affiliates, net | |
|
|
|
| | |
|
|
| |
GCI Holdings | | $ | 53 |
| (28) | | | (57) |
| (139) | |
Corporate and other | |
| (9,088) |
| 1,949 | | | (7,447) |
| (2,304) | |
Consolidated | | $ | (9,035) |
| 1,921 | | | (7,504) |
| (2,443) | |
| | | | | | | | | | | |
Realized and unrealized gains (losses) on financial instruments, net | |
|
|
|
| | |
|
|
| |
GCI Holdings | | $ | — |
| — | | | — |
| 1,669 | |
Corporate and other | |
| 1,172,685 |
| 156,165 | | | 1,199,560 |
| 1,843,194 | |
Consolidated | | $ | 1,172,685 |
| 156,165 | | | 1,199,560 |
| 1,844,863 | |
| | | | | | | | | | | |
Tax sharing agreement | |
|
|
|
| | |
|
|
| |
GCI Holdings | | $ | — |
| — | | | — |
| — | |
Corporate and other | |
| 26,146 |
| 2,362 | | | 30,057 |
| 18,895 | |
Consolidated | | $ | 26,146 |
| 2,362 | | | 30,057 |
| 18,895 | |
| | | | | | | | | | | |
Other, net | |
|
|
|
| | |
|
|
| |
GCI Holdings | | $ | 16,089 |
| 319 | | | 17,532 |
| 13,081 | |
Corporate and other | |
| (23,403) |
| (859) | | | (22,708) |
| 743 | |
Consolidated | | $ | (7,314) |
| (540) | | | (5,176) |
| 13,824 | |
Interest Expense. Consolidated interest expense increased $0.7decreased $8.6 million and $35.1$16.0 million for the three and nine months ended September 30, 20192020, respectively, as compared to the corresponding periods in the prior year. The decreases were primarily due to lower amounts outstanding on the Senior Credit Facility (as defined in note 7 of the accompanying condensed consolidated financial statements), as well as lower interest rates. This decrease was partially offset by increased amounts outstanding under the Margin Loan Facility (as defined in note 7 of the accompanying condensed consolidated financial statements).
Share of earnings (losses) of affiliates, net. Share of earnings (losses) of affiliates, net decreased $11.0 million and $5.1 million for the three and nine months ended September 30, 2020, respectively, as compared to the corresponding periods in the prior year respectively. The increase for the three month period was primarily due to higher interest rates partially offset by a decreasean increase in amounts owed under the Senior Credit Facility and Margin Loan (each as defined in note 8 of the accompanying condensed consolidated financial statements). The increase for the nine month period was primarily due to the acquisition of GCI Holdings on March 9, 2018, the Margin Loan and the Exchangeable Senior Debentures (as defined in note 8 of the accompanying condensed consolidated financial statements) that were issued on June 18, 2018.
I-31
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 September 30, | Nine months ended September 30, | ||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||
amounts in thousands | |||||||||||||
Equity securities | $ | 90,770 | 175,359 | 683,808 | (53,681 | ) | |||||||
Investment in Liberty Broadband | 19,207 | 366,211 | 1,393,135 | (36,706 | ) | ||||||||
Derivative instruments | 60,640 | (3,223 | ) | (57,721 | ) | 69,329 | |||||||
Indemnification obligation | (3,485 | ) | (14,937 | ) | (58,311 | ) | 48,671 | ||||||
Exchangeable senior debentures | (10,967 | ) | (27,901 | ) | (116,048 | ) | (31,941 | ) | |||||
$ | 156,165 | 495,509 | 1,844,863 | (4,328 | ) |
| | | | | | | | | | | |
| | 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 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 decreaseincrease for the three months ended September 30, 20192020 as compared to the corresponding period in the prior year was primarily driven by increases in the unrealized gains for our investment in Liberty Broadband and Charter. The decrease for the nine months ended September 30, 2020 as compared to the corresponding period in the prior year was primarily driven by a decrease in the unrealized gain for our investment in Liberty Broadband and Charter. The increase for the nine months ended September 30, 2019 as compared to the corresponding period in the prior year was primarily driven by an unrealized gain in our investments in Liberty Broadband and Charter.
Tax sharing agreement. The change in the tax sharing receivable due from Qurate Retail resulted in gains of $2.4$26.1 million and $2.5$2.4 million for the three months ended September 30, 2020 and 2019, respectively, and 2018, respectively, and a gaingains of $18.9$30.1 million and a loss of $25.5$18.9 million for the nine months ended September 30, 2020 and 2019, and 2018, respectively.respectively. The change in the tax sharing receivable for 2019all periods was primarily the result of the tax effect of the movement in the fair value of Qurate Retail’s 1.75% exchangeable senior debentures due 2046. The change in the tax sharing receivable for 2018 was primarily the result of the tax effect of the movement in the fair value of Qurate Retail's 1.75% exchangeable senior debentures due 2046 and an increase in the valuation allowance recorded against Qurate Retail's Colorado net operating loss deferred tax asset as a result of a Colorado tax law change in the second quarter of 2018.
Other, net. The change in Other, net at GCI Holdings for the three months ended September 30, 2020 was primarily due to a gain on sale of certain assets of $15.4 million. The change in Other, net for GCI Holdings for the nine months ended September 30, 2019 is2020 was primarily due to a $6.5gain on sale of certain assets of $15.4 million, compared to $10.7 million of gain for an amendment maderelated to a finance lease amendment and a $3.2 million gain for thepremium write-off of the premium recorded for the senior notes that were refinanced duringin the second quarter of 2019. The change in Other, net at Corporate and other for the three and nine months ended September 30, 2019 is2020 was primarily due to investment gains or losses.
Income taxes. Earnings (losses) before income taxes and income tax (expense) benefit are as follows:
Three months ended September 30, | Nine months ended September 30, | ||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||
amounts in thousands | |||||||||||||
Earnings (loss) before income taxes | $ | 117,381 | 450,540 | 1,705,711 | (121,187 | ) | |||||||
Income tax (expense) benefit | $ | (28,087 | ) | (133,284 | ) | (478,887 | ) | (35,768 | ) | ||||
Effective income tax rate | 24 | % | 30 | % | 28 | % | 30 | % |
| | | | | | | | | | | |
| | Three months ended | | Nine months ended | | ||||||
| | | September 30, | | September 30, | | |||||
|
| 2020 |
| 2019 | | 2020 |
| 2019 | | ||
| | amounts in thousands | | ||||||||
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) | |
Effective income tax rate | |
| 29% | | 24% | |
| 30% | | 28% | |
For the three and nine months ended September 30, 2020 and 2019, the Company recognized income tax expense in excess of expected federal tax expense, for the three and nine months ended September 30, 2019, primarily due to state income tax expense.
Net earnings (loss). The Company had net earnings of $89.3$824.4 million and $317.3$89.3 million for the three months ended September 30, 20192020 and 2018,2019, respectively. The Company had net earnings of $803.1 million and $1,226.8 million and a net loss of $157.0 million
I-32
Liquidity and Capital Resources
As of September 30, 2019,2020, substantially all of ourthe Company’s cash and cash equivalents were invested in U.S. Treasury securities, securities of other government agencies, AAA rated money market funds and other highly rated financial and corporate debt instruments.
The following are potential sources of liquidity: available cash balances, proceeds from asset sales, monetization of our investments, outstanding or anticipated debt facilities, and debt and equity issuances. The available sources of liquidity discussed above provideTo the extent that the Company adequate options to addressrecognizes any taxable gains from the Margin Loan prior to maturity. Assale of September 30, 2019, GCI, LLC exceeded the maximum leverage threshold, as measured by the terms of its Senior Notes. Accordingly,assets, the Company can only access additional funding under the revolving portion of the Senior Credit Facility so long as we are in compliance with the Senior Credit Facility covenants after giving effectmay incur tax expense and be required to make tax payments, thereby reducing any additional borrowings. We believe we havecash proceeds. The Company believes it has sufficient cash from operating activities and cash on hand to fund ourits business.
As of September 30, 2019,2020, the Company had a cash and cash equivalents balance of $410.1$552.6 million.
Nine months ended September 30, | |||||||
2019 | 2018 | ||||||
amounts in thousands | |||||||
Cash flow information | |||||||
Net cash provided (used) by operating activities | $ | 82,114 | 38,563 | ||||
Net cash provided (used) by investing activities | (102,293 | ) | 12,700 | ||||
Net cash provided (used) by financing activities | (60,987 | ) | 64,942 | ||||
$ | (81,166 | ) | 116,205 |
| | | | | | |
| | Nine months ended | | |||
| | September 30, | | |||
|
| 2020 |
| 2019 | | |
| | amounts in thousands | | |||
Cash flow information |
| |
|
|
| |
Net cash provided (used) by operating activities | | $ | 67,899 |
| 82,114 | |
Net cash provided (used) by investing activities | |
| (81,613) |
| (102,293) | |
Net cash provided (used) by financing activities | |
| (9,656) |
| (60,987) | |
| | $ | (23,370) |
| (81,166) | |
During the nine months ended September 30, 2020, the Company’s primary use of cash was capital expenditures. During the nine months ended September 30, 2019, the Company’s primary uses of cash included capital expenditures and repurchases of GCI Liberty Series A common stock.stock and capital expenditures. The Company'sCompany’s significant recurring investing activity has been capital expenditures and is expected to continue in the future. A significant portion of our capital expenditures are based on the level of customer growth and updated technology. The Company’s primary sources of cash included cash from operations and cash on hand.
Proceeds from borrowings fluctuate from year to year based on our liquidity needs. We may use excess cash to make optional repayments on our debt or repurchase our common stock depending on various factors, such as market conditions.
The projected uses of the Company'sCompany’s cash for the remainder of 20192020 are capital expenditures of approximately $33$35 million, approximately $48$40 million for interest payments on outstanding debt, paymentsapproximately $5 million for preferred stock dividends repurchases of GCI Liberty Series A common stock under the approved share buyback program, and potential additional investments in existing or new businesses.
I-33
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. We have seen a general decrease in subscriber metrics primarily due to the recession in Alaska as discussed in the Overview section. The following table highlights selected key performance indicators used in evaluating GCI Holdings as of September 30, 20192020 and 2018.
| | | | | |
| | September 30, | | ||
|
| 2020 |
| 2019 | |
Consumer |
|
|
|
| |
Wireless: |
|
|
|
| |
Revenue generating wireless lines in service1 |
| 179,600 |
| 180,100 | |
Non-revenue generating wireless lines in service2 |
| 2,700 |
| 8,300 | |
Wireless lines in service |
| 182,300 |
| 188,400 | |
Data: |
|
|
|
| |
Revenue generating cable modem subscribers3 | | 138,200 | | 124,600 | |
Non-revenue generating cable modem subscribers4 | | — | | — | |
Cable modem subscribers |
| 138,200 |
| 124,600 | |
Video: |
|
|
|
| |
Basic subscribers5 |
| 76,000 |
| 82,200 | |
Homes passed6 |
| 253,400 |
| 253,400 | |
Voice: |
|
|
|
| |
Total local access lines in service7 |
| 37,300 |
| 40,800 | |
Business |
|
|
|
| |
Wireless: |
|
|
|
| |
Revenue generating wireless lines in service1 | | 25,200 | | 21,100 | |
Data: |
|
|
| | |
Revenue generating cable modem subscribers3 | | 12,800 | | 9,000 | |
Voice: |
|
|
|
| |
Total local access lines in service7 |
| 33,400 |
| 34,800 | |
September 30, | |||||
2019 | 2018 | ||||
Consumer | |||||
Wireless: | |||||
Wireless lines in service1 | 188,400 | 197,800 | |||
Data: | |||||
Cable modem subscribers2 | 124,600 | 125,300 | |||
Video: | |||||
Basic subscribers3 | 82,200 | 90,300 | |||
Homes passed | 253,400 | 253,400 | |||
Voice: | |||||
Total local access lines in service4 | 40,800 | 45,800 | |||
Business | |||||
Wireless: | |||||
Wireless lines in service1 | 21,100 | 22,000 | |||
Data: | |||||
Cable modem subscribers2 | 9,000 | 9,200 | |||
Voice: | |||||
Total local access lines in service4 | 34,800 | 36,600 | |||
1 A wireless line in service is defined as a revenue generating wireless device. | |||||
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. | |||||
3 A basic subscriber is defined as one basic tier of service delivered to an address or separate subunits thereof regardless of the number of outlets purchased. | |||||
4 A local access line in service is defined as a revenue generating circuit or channel connecting a customer to the public switched telephone network. |
1A revenue generating wireless line in notes 1 and service is defined as a wireless device with a monthly fee for services.
2A non-revenue generating wireless line in service is defined as a data-only line with no monthly fee for services.
3 A revenue generating 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.
4 A non-revenue generating cable modem subscriber is defined by the provision of basic cable modem service as a promotion to aid those impacted by COVID-19.
5A basic subscriber is defined by the purchase of basic video service.
6A home passed is defined as a dwelling unit that can be connected to GCI Holdings’ network without the need of otherwise extending its network.
7A local access line in service is defined as a revenue generating circuit or channel connecting a customer to the accompanying condensed consolidated financial statements, for accounting purposes, HoldCo is considered to have acquired GCI Liberty in the contribution. Although GCI Holdings’ results are only included in the Company’s results beginning on March 9, 2018, we believe a discussionpublic switched telephone network.
I-34
GCI Holdings’ operating results for the three and nine months ended September 30, 2020 and 2019 and pro forma operating results for the three and nine months ended September 30, 2018 wereare as follows:
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
amounts in thousands | ||||||||||||
Revenue | $ | 221,028 | 215,636 | 645,218 | 649,066 | |||||||
Operating expenses (excluding stock-based compensation included below): | ||||||||||||
Operating expense | (67,722 | ) | (61,201 | ) | (195,666 | ) | (190,020 | ) | ||||
Selling, general and administrative expenses | (81,346 | ) | (86,044 | ) | (267,000 | ) | (253,400 | ) | ||||
Adjusted OIBDA | 71,960 | 68,391 | 182,552 | 205,646 | ||||||||
Stock-based compensation | (4,017 | ) | (1,667 | ) | (11,940 | ) | (5,010 | ) | ||||
Legal settlement | — | — | — | (3,600 | ) | |||||||
Insurance proceeds and restructuring, net | 1,482 | — | (236 | ) | — | |||||||
Depreciation and amortization | (65,762 | ) | (62,081 | ) | (197,892 | ) | (178,743 | ) | ||||
Operating income (loss) | $ | 3,663 | 4,643 | (27,516 | ) | 18,293 |
| | | | | | | | | | | | |
| | Three months ended | | Nine months ended | |
| ||||||
| | September 30, | | September 30, | | | ||||||
|
| 2020 |
| 2019 | | 2020 |
| 2019 | |
| ||
| | amounts in thousands | |
| ||||||||
Revenue | | $ | 244,266 |
| 221,028 | | | 698,408 |
| 645,218 | | |
Operating expenses (excluding stock-based compensation included below): | |
|
|
|
| | |
|
|
| | |
Operating expense | |
| (67,053) |
| (67,722) | | | (198,873) |
| (195,666) | | |
Selling, general and administrative expenses | |
| (85,596) |
| (81,346) | | | (243,478) |
| (267,000) | | |
Adjusted OIBDA | |
| 91,617 |
| 71,960 | | | 256,057 |
| 182,552 | | |
Stock-based compensation | |
| (3,285) |
| (4,017) | | | (6,829) |
| (11,940) | | |
Insurance proceeds and restructuring, net | |
| — |
| 1,482 | | | — |
| (236) | | |
Depreciation and amortization | |
| (60,284) |
| (65,762) | | | (183,188) |
| (197,892) | | |
Operating income (loss) | | $ | 28,048 |
| 3,663 | | | 66,040 |
| (27,516) | | |
| | | | | | | | | | | | |
Revenue
The components of revenue for the three and nine months ended September 30, 20192020 and 2018, respectively,2019, are as follows:
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||
amounts in thousands | ||||||||||||
Consumer | ||||||||||||
Wireless | $ | 41,929 | 38,552 | 121,751 | 121,477 | |||||||
Data | 42,920 | 39,652 | 125,555 | 117,957 | ||||||||
Video | 21,198 | 22,276 | 63,268 | 66,903 | ||||||||
Voice | 4,275 | 4,897 | 13,306 | 15,586 | ||||||||
Business | ||||||||||||
Wireless | 24,393 | 24,392 | 70,876 | 72,680 | ||||||||
Data | 70,813 | 69,592 | 204,476 | 208,167 | ||||||||
Video | 4,115 | 4,927 | 11,928 | 12,100 | ||||||||
Voice | 11,385 | 11,348 | 34,058 | 34,196 | ||||||||
Total | $ | 221,028 | 215,636 | 645,218 | 649,066 |
| | | | | | | | | | | |
| | Three months ended | | Nine months ended | | ||||||
| | September 30, | | September 30, | | ||||||
|
| 2020 |
| 2019 | | 2020 |
| 2019 | | ||
| | amounts in thousands | | ||||||||
Consumer |
| |
|
|
| | |
|
|
| |
Wireless | | $ | 43,749 |
| 41,929 | | | 126,849 |
| 121,751 | |
Data | |
| 47,852 |
| 42,920 | | | 137,562 |
| 125,555 | |
Video | |
| 23,931 |
| 21,198 | | | 65,154 |
| 63,268 | |
Voice | |
| 3,795 |
| 4,275 | | | 11,643 |
| 13,306 | |
Business | |
| |
| | | | |
|
| |
Wireless | |
| 21,440 |
| 24,393 | | | 64,964 |
| 70,876 | |
Data | |
| 90,377 |
| 70,813 | | | 248,347 |
| 204,476 | |
Video | |
| 2,277 |
| 4,115 | | | 10,726 |
| 11,928 | |
Voice | |
| 10,845 |
| 11,385 | | | 33,163 |
| 34,058 | |
Total | | $ | 244,266 |
| 221,028 | | | 698,408 |
| 645,218 | |
Consumer wireless revenue increased $3.4$1.8 million and $0.3$5.1 million for the three and nine months ended September 30, 20192020, respectively, as compared to the corresponding periods in the prior year, respectively.year. The increase in revenue duringincreases for the three and nine month periods waswere primarily due to increased plan service fee revenue of $3.9$1.3 million and $4.2$4.3 million, respectively, driven by the absence in 2019 of the forgiveness of a month of service for the Company's wireless customers, which occurred in 2018, and subscribers'subscribers’ selection of plans with higher recurring monthly charges that offer higher usage limits. During the third quarter of 2018, the Company implemented a new billing system that included a transition of wireless customers from billing in arrearsAdditionally, equipment sales revenue increased $0.4 million and $0.8 million due to billing in advance. To ease the transition for customers, the Company forgave one month of service for those customers who would have otherwise received an invoice for two months of service. The increase in revenuethe number of handsets sold for the three and nine month periods, was partially offset by a decrease in the number of subscribers, a decrease in USF high cost support ("High Cost Support") of $0.6 million and $1.8 million, respectively, due to the previously disclosed end of High Cost Support for urban areas as of December 31, 2018 and a $0.3 million and $1.1 million decrease in the subsidy for Lifeline subscribers for the three and nine month periods, respectively, due to a reduction of the subsidy provided by the State of Alaska.
Consumer data revenue increased $3.3$4.9 million and $7.6$12.0 million for the three and nine months ended September 30, 20192020, respectively, as compared to the corresponding periods in the prior year, respectively.year. The increase wasincreases were driven by subscribers'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. The increase was partially offset by a decrease driven by the loss of subscribers.
Consumer video revenue decreased $1.1 increased $2.7 million and $3.6$1.9 million for the three and nine months ended September 30, 20192020, respectively, as compared to the corresponding periods in the prior year, respectively.year. The decrease was primarilyincreases were due to a 9%$4.1 million increase in advertising revenue driven by a reorganization effective August 1, 2020. The Company transitioned its advertising sales to Consumer video following the sale of the Company’s broadcast television station. The increase was partially offset by a decrease in plan fee revenue driven by a decrease in the number of subscribers partially offset by customers choosing plans with higher recurring monthly charges that offer more channels.subscribers.
I-35
Consumer voice revenue decreased $0.6$0.5 million and $2.3$1.7 million for the three and nine months ended September 30, 20192020, respectively, as compared to the corresponding periods in the prior year, respectively.year. The decreases were primarily due to a $0.3 million and $1.0 million decrease in High Cost Support due to a scheduled decrease in funding for urban areas for the three and nine months ended September 30, 2019, respectively, and a decrease in long distance plan fee revenue driven by a reduction in the number of customers.
Business wireless revenuewas flatdecreased $3.0 million and decreased $1.8$5.9 million for the three and nine months ended September 30, 20192020, respectively, as compared to the corresponding periods in the prior year, respectively.year. The decrease in the nine month period isdecreases were primarily due to wholesale customers removing backhaul circuits from our network.
Business data revenue increased $1.2$19.6 million and decreased $3.7$43.9 million for the three and nine months ended September 30, 20192020, respectively, as compared to the corresponding periods in the prior year, respectively.year. The increase for the three month period isincreases were due to a $2.2$21.6 million increaseand $53.4 million increases in data and transport revenue driven by an increase in the price of business cable modems and higherincreased sales to school and medical customers.customers for service upgrades for the three and nine month periods, respectively. The increase for the threenine month period also included $9 million associated with prior periods for an RHC customer whose funding was initially denied but subsequently approved in the first quarter of 2020. The increases were partially offset by a $0.9$2.0 million decreaseand $9.6 million decreases in professional services revenue driven by a reduction in time and materials project work for the three and nine month periods, respectively.
Business video revenue decreased $1.8 million and $1.2 million for the three and nine months ended September 30, 2020, respectively, as compared to the corresponding periods in the prior year. The decreases were primarily due to the sale of the Company’s broadcast television station.
Business voice revenue decreased $0.5 million and $0.9 million for the three and nine months ended September 30, 2020 as compared to the corresponding periods in the prior year. The decreases were driven by a decrease in speciallocal service lines partially offset by an increase in long distance and conferencing services.
Operating expenses decreased $0.7 million and increased $3.2 million for the three and nine months ended September 30, 2020, respectively, as compared to the corresponding periods in the prior year. The decrease for the three month period is primarily due to a $2.0 million decrease in professional services costs driven by a reduction in time and materials project work and a reduction of revenue from$0.9 million decrease in video costs paid to content producers driven by a healthcare customer whose funding was denied as discusseddecrease in the Overview section above.video subscribers. The decrease for the three month period is partially offset by a $1.7 million increase in wireless handset costs and $0.5 million in costs to operate our network. The increase for the nine month period is primarily due to a reduction of revenue from a healthcare customer whose funding was denied as discussed in the Overview section above partially offset by increased revenue from school and medical customers and the increase in business cable modem prices.
Selling, general and administrative expenses decreased $4.7 increased $4.3 million and increased $13.6decreased $23.5 million for the three and nine months ended September 30, 2019,2020, respectively, as compared to the corresponding periods in the prior year, respectively.year. The decreaseincrease for the three month period was primarily due to a decrease$5.1 million increase in labor related expense driven by an increase in employee incentive compensation and a $1.8 million increase in legal and compliance costs. The increase for the Company'sthree month period is partially offset by a $1.8 million decrease in bad debt expense and the Company’s cost cutting efforts. The increasedecrease for the nine month period was driven by aprimarily due to the absence of $21.3 million increase in the allowance for receivables as a result of USAC denying an appeal from one of our customers whichthat was recorded during first quarter of 2019, a $2.7 million decrease in labor related expense driven by reduced healthcare costs due to reduced healthcare interactions as employees limit doctor appointments, hospital visits and elective procedures due to COVID-19 and the Company’s cost cutting efforts. The decrease for the nine month period was partially offset by a $6.3$4.4 million decreaseincrease in laborlegal and contract laborcompliance costs. See Rural Health Care Program in the Overview section above for more information.
Stock based compensation increased $2.4decreased $0.7 million and $6.9$5.1 million for the three and nine months ended September 30, 20192020, respectively, as compared to the corresponding periods in the prior year, respectively,year. The decrease for the three month period was primarily due to the reversal of expense for employees who left the company prior to the vesting of their awards grantedand a reduction in the fourth quarternumber of 2018outstanding awards. The decrease for the nine month period was primarily due to
I-36
the reversal of expense for performance-based awards that did not vest due to a shortfall in certain financial metrics and first quarterqualitative criteria and for employees who left the company prior to the vesting of 2019.
Depreciation and amortization increased $3.7decreased $5.5 million and $19.1$14.7 million or 6% and 11% for the three and nine months ended September 30, 20192020, respectively, as compared to the corresponding periods in the prior year, respectively.year. The increasedecrease for the three and nine months ended September 30, 20192020 was primarily due to newassets which became fully depreciated prior to the three and nine month periods in 2020, a decrease in assets placed in service since March 9, 2018, partially offset by assets which became fully depreciated since March 9, 2018January 1, 2019, and lower amortization expense because of an accelerated recognition pattern for amortizing intangibles.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk in the normal course of business due to its 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. The Company has established policies, procedures and internal processes governing its management of market risks and the use of financial instruments to manage its exposure to such risks.
The Company is exposed to changes in interest rates primarily as a result of its borrowing and investment activities, which 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 its long-term and short-term debt are expected to vary as a result of future requirements, market conditions and other factors. The Company manages its exposure to interest rates by maintaining what it believes is an appropriate mix of fixed and variable rate debt. The Company believes this best protects it from interest rate risk. The Company has achieved this mix by (i) issuing fixed rate debt that it believes 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 it deems appropriate.
As of September 30, 2019,2020, the Company'sCompany’s debt is comprised of the following amounts:
Variable rate debt | Fixed rate debt | ||||||||||||
Principal amount | Weighted average interest rate | Principal amount | Weighted average interest rate | ||||||||||
dollar amounts in thousands | |||||||||||||
GCI Holdings | $ | 720,477 | 4.7 | % | $ | 775,000 | 6.8 | % | |||||
Corporate and other | $ | 900,000 | 4.0 | % | $ | 477,250 | 1.8 | % |
| | | | | | | | | | | | |
| | Variable rate debt | | | Fixed rate debt |
| ||||||
|
| | |
| Weighted |
| | | |
| Weighted |
|
| | | | | average | | | | | | average |
|
| | Principal | | interest | | | Principal | | interest |
| ||
| | amount | | rate | | | amount | | rate |
| ||
|
| dollar amounts in thousands | | |||||||||
GCI Holdings | | $ | 517,430 |
| 2.1 | % | | $ | 775,000 |
| 6.8 | % |
Corporate and other | | $ | 1,300,000 |
| 2.1 | % | | $ | 477,250 |
| 1.8 | % |
GCI Liberty’s borrowings under the Margin Loan Agreement (as defined in note 7 of the accompanying condensed consolidated financial statements) and the Senior Credit Facility 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. On July 27, 2017, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is unclear if at that time LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. The consequences of these developments cannot be entirely predicted, but could include an increase in the cost of borrowings under the aforementioned debt instruments. In preparation for the expected phase out of LIBOR, and to the extent alternate reference rates were not included in existing debt agreements, GCI Liberty has incorporated alternative reference rates when amending these facilities.
The Company is exposed to changes in stock prices primarily as a result of its significant holdings in publicly traded securities. The Company continually monitors changes in stock markets, in general, and changes in the stock prices of its holdings, specifically. The Company believes that changes in stock prices can be expected to vary as a result of general market conditions, technological changes, specific industry changes and other factors. The Company periodically uses equity collars and other financial instruments to manage market risk associated with certain investment positions. These instruments are recorded at fair value based on option pricing models.
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At September 30, 2019,2020, the fair value of the Company'sCompany’s equity securities was $2.2$3.3 billion. Had the market price of such securities been 10% lower at September 30, 2019,2020, the aggregate value of such securities would have been $221$335 million lower. At September 30, 2019,2020, the fair value of our investment in Liberty Broadband was $4.5$6.1 billion. Had the market price of such security been 10% lower at September 30, 2019,2020, the fair value of such security would have been $447$610 million lower.
Item 4. Controls and Procedures
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'sCompany’s disclosure controls and procedures were not effective as of September 30, 20192020 because of the material weaknessesweakness in our internal control over financial reporting as discussed in more detail in our Annual Report on Form 10-K for the year ended December 31, 20182019 (the “2018“2019 Form 10-K”). Management has continued to monitor the implementation of the remediation plan described in the 20182019 Form 10-K, as described below.
Changes in Internal Control Over Financial Reporting
During the third quarter of 2019,2020, we continued to review the design of our controls, made adjustments and continued implementing controls to alleviate the noted control deficiencies. Other than these items, there has been no change in the Company'sCompany’s internal control over financial reporting that occurred during the three months ended September 30, 20192020 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
Remediation Plan for Material WeaknessesWeakness in Internal Control Over Financial Reporting
In response to the material weaknessesweakness identified in Management’s Report on Internal Control Over Financial Reporting as set forth in Part II, Item 9A in the 20182019 Form 10-K, the Company, with oversight from the Audit Committee of the Board of Directors, developed a plan to remediate the material weaknessesweakness at GCI Holdings. The remediation actions included the following:
● | Continue to hire, train and retain individuals with appropriate skills and experience related to designing, operating and documenting internal control over financial reporting. |
● | Communicate expectations, monitor for compliance with expectations, and hold individuals accountable for their roles related to internal control over financial reporting. |
● | Design and implement a comprehensive and continuous risk assessment process to identify and assess financial statement risks and ensure that the financial reporting process and related internal controls are in place to respond to those risks. |
● | Enhance the design of and implement additional process-level control activities and ensure they are properly evidenced and operating effectively. |
The Company believes the foregoing efforts remediatedwill effectively remediate the technical components of the two material weaknesses disclosedweakness described in “Management’s Report on Internal Control Over Financial Reporting” in the 2018 Form 10-K after the assessment date and prior to the filing of the 20182019 Form 10-K. However, becauseBecause the reliability of the internal control process requires repeatable execution, the successful on-going remediation of thesethe material weaknessesweakness will require on-going training, continued monitoring, additional control enhancementsreview and evidence of effectiveness prior to concluding that the controls are effective.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Our Annual Report on Form 10-K for the year ended December 31, 2019 includes “Legal Proceedings” under Item 3 of Part I. There have been no material changes from the legal proceedings and regulatory matters that have arisen from time to timedescribed in the normal courseForm 10-K, except as described below.
On October 9, 2020, a putative class action complaint was filed by two purported GCI Liberty stockholders in the Court of business. Chancery of the State of Delaware under the caption Hollywood Firefighters' Pension Fund, et al. v. GCI Liberty, Inc., et al. On October 11, 2020, a new version of the complaint was filed, and the case has been assigned Case No. 2020-0880. The lawsuit names as defendants GCI Liberty, as well as the members of the GCI Liberty board of directors. The lawsuit alleges, among other things, that Messrs. Maffei and Malone 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 lawsuit also alleges that various prior and current relationships between the members of the GCI Liberty special committee and Mr. Malone and Mr. Maffei render the members of the GCI Liberty special committee not independent. The lawsuit further alleges that the Combination violates Section 203 of the General Corporation Law of the State of Delaware (“DGCL”) and that the joint proxy statement/prospectus that was filed in connection with the Combination misstates and omits material information. The lawsuit seeks certification of a class action, declarations that Messrs. Maffei and Malone and the other directors of GCI Liberty breached their fiduciary duties and that the Combination violates Section 203 of the DGCL, an injunction barring the stockholder vote and the Combination, and the recovery of damages and other relief. On October 15, 2020, the plaintiffs filed a motion for expedited proceedings. On October 27, 2020, after a hearing, the Court granted the motion.
GCI Liberty believes this lawsuit is without merit. However, the outcome of this lawsuit or any other lawsuit that may be filed challenging the Combination or the other transactions contemplated by the transaction documents is uncertain.
On October 23, 2020, a lawsuit was filed by a purported GCI Liberty stockholder in the United States District Court for the District of Delaware under the caption Lewis Baker v. GCI Liberty, Inc., et al., Case No. 1:20-cv-01425-UNA. The lawsuit named as defendants GCI Liberty, the members of the GCI Liberty board of directors, Liberty Broadband and certain subsidiaries of Liberty Broadband. The lawsuit asserted claims under Section 14(a) of the Exchange Act and Rule 14a-9 under the Exchange Act, as well as Section 20(a) of the Exchange Act. The lawsuit alleged that the defendants caused a registration statement that omitted material information to be filed in connection with the combination, which allegedly rendered the registration statement false and misleading. The lawsuit further alleged that the members of the GCI Liberty board of directors and Liberty Broadband acted as controlling persons of GCI Liberty and had knowledge of the allegedly false and misleading statements contained in the registration statement. The lawsuit sought an injunction barring the combination, rescission of the combination in the event it had been consummated, an order directing the GCI Liberty board of directors to disseminate a registration statement that did not contain any allegedly untrue statements or omit material facts, a declaration that defendants violated the Exchange Act, costs and attorneys’ fees, and other relief.
GCI Liberty believes this lawsuit was without merit. On October 29, 2020, the plaintiff voluntarily dismissed the lawsuit with prejudice.
Item 1A. Risk Factors
Except as discussed below, there have been no material changes in the Company's risk factors from those disclosed in Part I, Item 1A. Risk Factors of its Annual Report on Form 10-K for the year ended December 31, 2019 and Part II, Item 1A. Risk Factors of its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020.
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GCI Liberty will incur direct and indirect costs as a result of the Combination.
GCI Liberty will incur substantial expenses in connection with and as a result of completing the Combination, including advisory, legal and other transaction costs, and, following the completion of the Combination, Liberty Broadband expects to incur additional expenses in connection with combining the companies. A majority of these costs have already been incurred or will be incurred regardless of whether the Combination is completed. Factors beyond GCI Liberty’s control could affect the total amount or timing of these expenses, many of which, by their nature, are difficult to estimate accurately. Management believes there areof GCI Liberty continues to assess the magnitude of these costs, and additional unanticipated costs may be incurred in connection with the Combination. Although GCI Liberty expects that the realization of benefits related to the Combination will offset such costs and expenses over time, no proceedings from asserted and unasserted claimsassurances can be made that this net benefit will be achieved in the near term, or at all.
The Combination is subject to conditions, some or all of which may not be satisfied, or completed on a timely basis, if determined adversely wouldat all. Failure to complete the Combination could have a material adverse effecteffects on ourGCI Liberty.
The completion of the Combination is subject to a number of conditions, including, among other things, receipt of the required Liberty Broadband and GCI Liberty stockholder approvals, including approval of the merger agreement by the affirmative vote of holders of a majority of the aggregate voting power of outstanding shares of each company that are not owned by John C. Malone and certain other persons for each company. While the parties have agreed in the merger agreement to use reasonable best efforts to satisfy the closing conditions, the parties may not be successful in their efforts to do so. The failure to satisfy all of the required conditions could delay the completion of the Combination for a significant period of time or prevent it from occurring at all. Any delay in completing the Combination could cause GCI Liberty not to realize some or all of the benefits, or realize them on a different timeline than expected, that GCI Liberty expects to achieve if the Combination is successfully completed within the expected timeframe. There can be no assurance that the conditions to the closing of the Combination will be satisfied or (to the extent permitted) waived or that the Combination will be completed. Also, subject to limited exceptions, either Liberty Broadband or GCI Liberty may terminate the merger agreement if the Combination has not been completed by August 6, 2021, subject to possible extension as set forth in the merger agreement.
If the Combination is not completed, GCI Liberty may be materially adversely affected and, without realizing any of the benefits of having completed the Combination, and GCI Liberty will be subject to a number of risks, including the following:
● | the market price of GCI Liberty capital stock could decline; |
● | GCI Liberty could owe a substantial termination fee to Liberty Broadband under certain circumstances; |
● | if the merger agreement is terminated and GCI Liberty seeks another business combination, GCI Liberty may not find a party willing to enter into a transaction on terms equivalent to or more attractive than the terms agreed to in the merger agreement; |
● | time and resources, financial and other, committed by GCI Liberty’s and its subsidiaries’ management to matters relating to the Combination could otherwise have been devoted to pursuing other beneficial opportunities; |
● | GCI Liberty and its subsidiaries may experience negative reactions from the financial markets or from its customers, suppliers or employees; |
● | GCI Liberty will be required to pay its costs relating to the Combination, such as legal, accounting, financial advisory and printing fees, whether or not the Combination is completed; and |
● | reputational harm due to the adverse perception of any failure to successfully complete the Combination. |
In addition, if the Combination is not completed, GCI Liberty could be subject to litigation related to any failure to complete the Combination or related to any enforcement proceeding commenced against it to perform its obligations under the merger agreement. Any of these risks could materially and adversely impact GCI Liberty’s financial position,condition, financial results and stock price.
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Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Share Repurchase Programs
On March 9, 2018, the board of directors authorized a share repurchase program for $650 million of GCI Liberty Class A and Class B common stock. On June 25, 2018, the board of directors of GCI Liberty reapproved such repurchase program with respect to GCI Liberty'sLiberty’s Series A and Series B common stock. There were no repurchases of GCI Liberty capital stock under the authorized share repurchase program during the three months ended September 30, 2019.2020. As of September 30, 2020, $494.4 million of GCI Liberty’s Series A and Series B common stock may be purchased under the repurchase program.
No shares of GCI Liberty Series A and Series B common stock and no shares of GCI Liberty 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 and restricted stock units during the three months ended September 30, 2020.
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Item 6. Exhibits
Listed below are the exhibits that are filed as a part of this Report (according to the number assigned to them in Item 601 of Regulation S-K):
| | | |
| | | |
Exhibit No. | Description | ||
2.1 | | ||
4.1 | | Form of Amendment No. 3 to Margin Loan Agreement, dated as of August 12, 2020.* | |
10.1 | | ||
10.2 | | ||
10.3 | | ||
10.4 | | ||
10.5 | | ||
10.6 | | ||
10.7 | | ||
10.8 | | ||
10.9 | | ||
10.10 | | ||
10.11 | | ||
10.12 | | ||
10.13 | | ||
31.1 | |
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31.2 | | |
32 | | |
101.INS | | Inline 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 |
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SIGNATURES
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.
| | | | ||||
| | | | ||||
| GCI LIBERTY, INC. | ||||||
| | | |||||
Date: November 5, 2020 | | By: | /s/ GREGORY B. MAFFEI | ||||
| | | Gregory B. Maffei | Chief Executive Officer | | ||
| | | | ||||
Date: November 5, 2020 | | By: | /s/ BRIAN J. WENDLING | ||||
| | | Brian J. Wendling | Chief Accounting Officer and Principal Financial Officer | |||
|
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