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Investment in Charter Accounted for Using the Equity Method | 6 Months Ended
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Jun. 30, 2019
Investment in Charter Accounted for Using the Equity Method |
Investment in Charter Accounted for Using the Equity Method | (4) Investment in Charter Accounted for Using the Equity Method Through a number of prior years’ transactions, Liberty Broadband has acquired an interest in Charter. The investment in Charter is accounted for as an equity method affiliate based on our ownership interest and the board seats held by individuals appointed by Liberty Broadband. As of June 30, 2019, the carrying value of Liberty Broadband’s ownership in Charter was approximately $12,024 million. The market value of Liberty Broadband’s ownership in Charter as of June 30, 2019 was approximately $21,368 million, which represented an approximate economic ownership of 24.4% of the outstanding equity of Charter as of that date. Pursuant to proxy agreements with GCI Liberty and A/N (the “GCI Liberty Proxy” and “A/N Proxy”, respectively), Liberty Broadband has an irrevocable proxy to vote certain shares of Charter common stock owned beneficially or of record by GCI Liberty and A/N, for a five year term expiring May 18, 2021, subject to extension upon the mutual agreement of both parties, subject to certain limitations. As a result of the A/N Proxy and the GCI Liberty Proxy, Liberty Broadband controls 25.01% of the aggregate voting power of Charter and is Charter’s largest stockholder. Additionally, so long as the A/N Proxy is in effect, if A/N proposes to transfer common units of Charter Communications Holdings, LLC (which units are exchangeable into Charter shares and which will, under certain circumstances, result in the conversion of certain shares of Class B Common Stock into Charter shares) or Charter shares, in each case, constituting either (i) shares representing the first 7.0% of the outstanding voting power of Charter held by A/N or (ii) shares representing the last 7.0% of the outstanding voting power of Charter held by A/N, Liberty Broadband will have a right of first refusal (“ROFR”) to purchase all or a portion of any such securities A/N proposes to transfer. The purchase price per share for any securities sold to Liberty Broadband pursuant to the ROFR will be the volume-weighted average price of Charter shares for the two trading day period before the notice of a proposed sale by A/N, payable in cash. Certain transfers are permitted to affiliates of A/N, subject to the transferee entity entering into an agreement assuming the transferor’s obligations under the A/N Proxy. Investment in Charter The excess basis in our investment in Charter of $3,409 million as of June 30, 2019 is allocated within memo accounts used for equity accounting purposes as follows (amounts in millions):
​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | June 30, | ​ | December 31,
​ | ​ | ​ | 2019 | ​ | 2018
Property and equipment |  | $ | 277 | ​ | 328
Customer relationships | ​ |  | 754 | ​ | 721
Franchise fees | ​ |  | 1,853 | ​ | 1,821
Trademarks | ​ |  | 29 | ​ | 29
Goodwill | ​ |  | 1,279 | ​ | 1,202
Debt | ​ |  | (74) | ​ | (105)
Deferred income tax liability | ​ |  | (709) | ​ | (698)
​ | ​ | $ | 3,409 | ​ | 3,298
​ Property and equipment and customer relationships have remaining useful lives of approximately 5 years and 9 years, respectively, and franchise fees, trademarks and goodwill have indefinite lives. The excess basis of outstanding debt is amortized over the contractual period using the straight-line method. The increase in excess basis for the six months ended June 30, 2019, was primarily due to Charter’s share buyback program. The Company’s share of earnings (losses) of affiliates line item in the accompanying condensed consolidated statements of operations includes expenses of $30.4 million and $29.2 million, net of related taxes, for the three months ended June 30, 2019 and 2018, respectively, and expenses of $56.0 million and $57.9 million, net of related taxes, for the six months ended June 30, 2019 and 2018, respectively, due to the amortization of the excess basis related to assets with identifiable useful lives and debt. The Company had a dilution loss of $16.3 million and $5.2 million during the three months ended June 30, 2019 and 2018, respectively, and a dilution loss of $57.7 million and $32.0 million during the six months ended June 30, 2019 and 2018, respectively. The dilution losses for the periods presented were attributable to stock option exercises by employees and other third parties at prices below Liberty Broadband’s book basis per share. Summarized unaudited financial information for Charter is as follows (amounts in millions): Charter condensed consolidated balance sheets ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | June 30, 2019 | ​ | December 31, 2018 |
Current assets | ​ | $ | 3,490 | ​ | 2,944 | ​
Property and equipment, net | ​ |  | 34,475 | ​ | 35,126 | ​
Goodwill | ​ |  | 29,554 | ​ | 29,554 | ​
Intangible assets, net | ​ |  | 75,780 | ​ | 76,884 | ​
Other assets | ​ |  | 2,786 | ​ | 1,622 | ​
Total assets | ​ | $ | 146,085 | ​ | 146,130 | ​
Current liabilities | ​ | ​ | 9,875 | ​ | 12,095 | ​
Deferred income taxes | ​ |  | 17,522 | ​ | 17,389 | ​
Long-term debt | ​ |  | 71,784 | ​ | 69,537 | ​
Other liabilities | ​ |  | 3,810 | ​ | 2,837 | ​
Equity | ​ |  | 43,094 | ​ | 44,272 | ​
Total liabilities and shareholders’ equity | ​ | $ | 146,085 | ​ | 146,130 | ​
Charter condensed consolidated statements of operations ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | Three months ended |  | Six months ended
​ | June 30, | ​ | June 30,
​ | 2019 | ​ | 2018 | ​ | 2019 | ​ | 2018
Revenue | $ | 11,347 | ​ | 10,854 | ​ | 22,553 | ​ | 21,511
Cost and expenses: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Operating costs and expenses (excluding depreciation and amortization) |  | 7,244 | ​ | 6,873 | ​ | 14,480 | ​ | 13,709
Depreciation and amortization |  | 2,500 | ​ | 2,592 | ​ | 5,050 | ​ | 5,302
Other operating (income) expenses, net |  | 62 | ​ | 29 | ​ | 57 | ​ | 98
​ | ​ | 9,806 | ​ | 9,494 | ​ | 19,587 | ​ | 19,109
Operating income | ​ | 1,541 | ​ | 1,360 | ​ | 2,966 | ​ | 2,402
Interest expense, net |  | (945) | ​ | (878) | ​ | (1,870) | ​ | (1,729)
Other income (expense), net | ​ | (126) | ​ | (102) | ​ | (190) | ​ | (42)
Income tax benefit (expense) |  | (84) | ​ | (41) | ​ | (203) | ​ | (69)
Net income (loss) | ​ | 386 | ​ | 339 | ​ | 703 | ​ | 562
Less: Net income attributable to noncontrolling interests | ​ | (72) | ​ | (66) | ​ | (136) | ​ | (121)
Net income (loss) attributable to Charter shareholders | $ | 314 | ​ | 273 | ​ | 567 | ​ | 441
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- Definition The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -SubTopic 10 -Section S99 -Paragraph 4 -Subparagraph (SX 210.3A-04) -URI http://asc.fasb.org/extlink&oid=116822174&loc=d3e355119-122828 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -URI http://asc.fasb.org/topic&trid=2196965 + Details
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