(7)  Investment in Affiliates Accounted for Using the Equity Method

Charter

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Through a number of prior years’ transactions and the Combination, Liberty Broadband has acquired an interest in Charter. The investment in Charter is accounted for as an equity method affiliate based on our voting and ownership interest and the board seats held by individuals appointed by Liberty Broadband. As of December 31, 2020, the carrying and market value of Liberty Broadband’s ownership in Charter was approximately $16,179 million and $39,340 million, respectively.  We own an approximate 30.7% economic ownership interest in Charter, based on shares of Charter’s Class A common stock issued and outstanding as of December 31, 2020.

Upon the closing of the Time Warner Cable merger, the Second Amended and Restated Stockholders Agreement, dated as of May 23, 2015, by and among Charter, Liberty Broadband and Advance/Newhouse Partnership ("A/N"), as amended (the “Stockholders Agreement”), became fully effective. Pursuant to the Stockholders Agreement, Liberty Broadband’s equity ownership in Charter (on a fully diluted basis) is capped at the greater of 26% or the Voting Cap (as defined below) (“Equity Cap”). 

Liberty Broadband’s overall voting interest (27.2% at December 31, 2020) is diluted by the outstanding A/N interest in a subsidiary of Charter because the A/N interest has voting rights in Charter. Pursuant to the Stockholders Agreement, Liberty Broadband’s voting interest in Charter is capped at the greater of (x) 25.01% (or 0.01% above the person or group holding the highest voting percentage of Charter) and (y) 23.5% increased one-for-one to a maximum of 35% for each permanent reduction in A/N’s equity interest in Charter below 15% (the “Voting Cap”). Therefore, our voting control of the aggregate voting power of Charter is 25.01% and at any meeting of Charter's stockholders, subject to certain exceptions, any shares held by Liberty Broadband that exceed the Voting Cap are to be voted in the same proportion as all other votes cast with respect to the applicable matter (determined without inclusion of the votes cast by (x) Liberty Broadband or (y) any other person or group that beneficially owns voting securities representing 10% or more of Charter's voting power), subject to the terms and conditions set forth in the Stockholders Agreement. Liberty Broadband is also party to a proxy agreement with A/N (the “A/N Proxy”), but as of December 31, 2020, due to Liberty Broadband's voting interest exceeding the Voting Cap, no shares subject to the A/N Proxy agreement were included in Liberty Broadband's voting power.

In February 2021, Liberty Broadband was notified that its ownership interest, on a fully diluted basis, had exceeded the Equity Cap set forth in the Stockholders Agreement.  On February 23, 2021, Charter and Liberty Broadband entered into a letter agreement in order to implement, facilitate and satisfy the terms of the Stockholders Agreement with respect to the Equity Cap. Pursuant to this letter agreement, following any month during which Charter purchases, redeems or buys back shares of its Class A common stock, and prior to certain meetings of Charter’s stockholders, Liberty Broadband will be obligated to sell to Charter, and Charter will be obligated to purchase, such number of shares of Class A common stock as is necessary (if any) to reduce Liberty Broadband’s percentage equity interest, on a fully diluted basis, to the Equity Cap (such transaction, a “Charter Repurchase”). The per share sale price for each share of Charter will be equal to the volume weighted average price paid by Charter in its repurchases, redemptions and buybacks of its common stock (subject to certain exceptions) during the month prior to the Charter Repurchase (or, if applicable, during the relevant period prior to the relevant meeting of Charter stockholders). Under the terms of the letter agreement, Liberty Broadband expects the first Charter Repurchase to occur in March 2021.

During the year ended December 31, 2020, Liberty Broadband exercised its preemptive right to purchase an aggregate of approximately 35 thousand shares of Charter’s Class A common stock for an aggregate purchase price of $14.9 million.

During the years ended December 31, 2020, 2019 and 2018, there were dilution losses of $184 million, $79 million, and $44 million, respectively, in the Company’s investment in Charter. The dilution losses are attributable to stock option exercises by employees and other third parties at prices below Liberty Broadband’s book basis per share.

During the years ended December 31, 2020, 2019 and 2018, the Company recorded zero, $380 thousand and $172 thousand, respectively, of its share of Charter’s other comprehensive earnings (loss), net of income taxes. Charter records gains and losses related to the fair value of its interest rate swap agreements which qualify as hedging activities in other comprehensive earnings (loss). The pre-tax portion of Liberty Broadband’s share of Charter’s other comprehensive earnings was zero, $0.5 million and $0.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The excess basis has been allocated within memo accounts used for equity method accounting purposes as follows (amounts in millions):

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Property and equipment and customer relationships have weighted average remaining useful lives of approximately 6 years and 10 years, respectively, and indefinite lives to franchise fees, trademarks and goodwill. The excess basis of outstanding debt is amortized over the contractual period using the straight-line method. The increase in excess basis for the year ended December 31, 2020, was primarily due to Charter’s share buyback program and the impact of the Combination. Included in our share of earnings from Charter of $713 million, $286 million and $166 million for the years ended December 31, 2020, 2019 and 2018, respectively, are $144 million, $124 million and $119 million, respectively, of losses, net of taxes, due to the amortization of the excess basis related to assets with identifiable useful lives and debt.

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Accounting Changes

Charter adopted the new leasing standard as of January 1, 2019, using the modified retrospective approach with a cumulative-effect adjustment recorded at the beginning of the period of adoption. The new standard resulted in the recording of leased assets and lease liabilities for Charter’s operating leases of approximately $1.1 billion and $1.2 billion, respectively, as of January 1, 2019.  The difference between the leased assets and lease liabilities primarily represents the prior year end deferred rent liabilities balance, resulting from historical straight-lining of operating leases, which was effectively reclassified upon adoption to reduce the measurement of the leased assets.  The adoption of the standard did not have a material impact on Charter’s shareholders equity, results from operations and cash flows.

Summarized financial information for Charter is as follows:

Consolidated Balance Sheets

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Consolidated Statements of Operations

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