CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions, except per share and share data)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
REVENUES
|
$
|
6,161
|
|
|
$
|
2,430
|
|
|
$
|
8,691
|
|
|
$
|
4,792
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
Operating costs and expenses (exclusive of items shown separately below)
|
4,004
|
|
|
1,601
|
|
|
5,675
|
|
|
3,182
|
|
Depreciation and amortization
|
1,436
|
|
|
528
|
|
|
1,975
|
|
|
1,042
|
|
Other operating expenses, net
|
31
|
|
|
32
|
|
|
49
|
|
|
50
|
|
|
5,471
|
|
|
2,161
|
|
|
7,699
|
|
|
4,274
|
|
|
|
|
|
|
|
|
|
Income from operations
|
690
|
|
|
269
|
|
|
992
|
|
|
518
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSES:
|
|
|
|
|
|
|
|
Interest expense, net
|
(593
|
)
|
|
(229
|
)
|
|
(1,047
|
)
|
|
(518
|
)
|
Loss on extinguishment of debt
|
(110
|
)
|
|
(128
|
)
|
|
(110
|
)
|
|
(128
|
)
|
Gain (loss) on financial instruments, net
|
(50
|
)
|
|
1
|
|
|
(55
|
)
|
|
(5
|
)
|
Other expense, net
|
(2
|
)
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
(755
|
)
|
|
(356
|
)
|
|
(1,217
|
)
|
|
(651
|
)
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
(65
|
)
|
|
(87
|
)
|
|
(225
|
)
|
|
(133
|
)
|
Income tax benefit (expense)
|
3,179
|
|
|
(35
|
)
|
|
3,151
|
|
|
(70
|
)
|
Consolidated net income (loss)
|
3,114
|
|
|
(122
|
)
|
|
2,926
|
|
|
(203
|
)
|
Less: Net income attributable to noncontrolling interests
|
(47
|
)
|
|
—
|
|
|
(47
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Charter shareholders
|
$
|
3,067
|
|
|
$
|
(122
|
)
|
|
$
|
2,879
|
|
|
$
|
(203
|
)
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO CHARTER SHAREHOLDERS:
|
|
|
|
|
|
|
|
Basic
|
$
|
16.73
|
|
|
$
|
(1.21
|
)
|
|
$
|
20.21
|
|
|
$
|
(2.01
|
)
|
Diluted
|
$
|
15.17
|
|
|
$
|
(1.21
|
)
|
|
$
|
19.00
|
|
|
$
|
(2.01
|
)
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
183,362,776
|
|
|
101,074,644
|
|
|
142,457,435
|
|
|
101,017,146
|
|
Weighted average common shares outstanding, diluted
|
205,214,266
|
|
|
101,074,644
|
|
|
153,959,234
|
|
|
101,017,146
|
|
The accompanying notes are an integral part of these consolidated financial statements.
2
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in millions)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
Consolidated net income (loss)
|
$
|
3,114
|
|
|
$
|
(122
|
)
|
|
$
|
2,926
|
|
|
$
|
(203
|
)
|
Net impact of interest rate derivative instruments, net of tax
|
2
|
|
|
2
|
|
|
4
|
|
|
5
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Charter shareholders
|
$
|
3,116
|
|
|
$
|
(120
|
)
|
|
$
|
2,930
|
|
|
$
|
(198
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
3
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(dollars in millions)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
Class B Common Stock
|
Additional Paid-in Capital
|
Retained Earnings (Accumulated Deficit)
|
Treasury Stock
|
Accumulated Other Comprehensive Loss
|
Total Charter Shareholders' Equity (Deficit)
|
Non-controlling Interests
|
Total Shareholders' Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2014
|
$
|
—
|
|
$
|
—
|
|
$
|
1,930
|
|
$
|
(1,762
|
)
|
$
|
—
|
|
$
|
(22
|
)
|
$
|
146
|
|
$
|
—
|
|
$
|
146
|
|
Net loss
|
—
|
|
—
|
|
—
|
|
(203
|
)
|
—
|
|
—
|
|
(203
|
)
|
—
|
|
(203
|
)
|
Net impact of interest rate derivative instruments, net of tax
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5
|
|
5
|
|
—
|
|
5
|
|
Stock compensation expense, net
|
—
|
|
—
|
|
38
|
|
—
|
|
—
|
|
—
|
|
38
|
|
—
|
|
38
|
|
Exercise of stock options
|
—
|
|
—
|
|
6
|
|
—
|
|
—
|
|
—
|
|
6
|
|
—
|
|
6
|
|
Purchase of treasury stock
|
—
|
|
—
|
|
—
|
|
—
|
|
(23
|
)
|
—
|
|
(23
|
)
|
—
|
|
(23
|
)
|
BALANCE, June 30, 2015
|
$
|
—
|
|
$
|
—
|
|
$
|
1,974
|
|
$
|
(1,965
|
)
|
$
|
(23
|
)
|
$
|
(17
|
)
|
$
|
(31
|
)
|
$
|
—
|
|
$
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2015
|
$
|
—
|
|
$
|
—
|
|
$
|
2,028
|
|
$
|
(2,061
|
)
|
$
|
—
|
|
$
|
(13
|
)
|
$
|
(46
|
)
|
$
|
—
|
|
$
|
(46
|
)
|
Net income
|
—
|
|
—
|
|
—
|
|
2,879
|
|
—
|
|
—
|
|
2,879
|
|
47
|
|
2,926
|
|
Net impact of interest rate derivative instruments, net of tax
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
4
|
|
4
|
|
—
|
|
4
|
|
Stock compensation expense, net
|
—
|
|
—
|
|
87
|
|
—
|
|
—
|
|
—
|
|
87
|
|
—
|
|
87
|
|
Accelerated vesting of equity awards
|
—
|
|
—
|
|
145
|
|
—
|
|
—
|
|
—
|
|
145
|
|
—
|
|
145
|
|
Settlement of restricted stock units
|
—
|
|
—
|
|
(59
|
)
|
—
|
|
—
|
|
—
|
|
(59
|
)
|
—
|
|
(59
|
)
|
Exercise of stock options
|
—
|
|
—
|
|
24
|
|
—
|
|
—
|
|
—
|
|
24
|
|
—
|
|
24
|
|
Purchase of treasury stock
|
—
|
|
—
|
|
—
|
|
—
|
|
(99
|
)
|
—
|
|
(99
|
)
|
—
|
|
(99
|
)
|
Issuance of shares for cash
|
—
|
|
—
|
|
5,000
|
|
—
|
|
—
|
|
—
|
|
5,000
|
|
—
|
|
5,000
|
|
Converted TWC Awards in the TWC Transaction
|
—
|
|
—
|
|
514
|
|
—
|
|
—
|
|
—
|
|
514
|
|
—
|
|
514
|
|
Issuance of shares in TWC Transaction
|
—
|
|
—
|
|
32,164
|
|
—
|
|
—
|
|
—
|
|
32,164
|
|
—
|
|
32,164
|
|
Issuance of subsidiary equity in Bright House Transaction
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
10,134
|
|
10,134
|
|
Partnership formation and change in ownership, net of tax
|
—
|
|
—
|
|
(373
|
)
|
—
|
|
—
|
|
—
|
|
(373
|
)
|
605
|
|
232
|
|
Payment of preferred dividend to noncontrolling interest
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(18
|
)
|
(18
|
)
|
Noncontrolling interests assumed in acquisitions
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
24
|
|
24
|
|
BALANCE, June 30, 2016
|
$
|
—
|
|
$
|
—
|
|
$
|
39,530
|
|
$
|
818
|
|
$
|
(99
|
)
|
$
|
(9
|
)
|
$
|
40,240
|
|
$
|
10,792
|
|
$
|
51,032
|
|
The accompanying notes are an integral part of these consolidated financial statements.
4
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2016
|
|
2015
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
Consolidated net income (loss)
|
|
$
|
2,926
|
|
|
$
|
(203
|
)
|
Adjustments to reconcile consolidated net income (loss) to net cash flows from operating activities:
|
|
|
|
|
Depreciation and amortization
|
|
1,975
|
|
|
1,042
|
|
Stock compensation expense
|
|
87
|
|
|
38
|
|
Accelerated vesting of equity awards
|
|
145
|
|
|
—
|
|
Noncash interest (income) expense, net
|
|
(41
|
)
|
|
15
|
|
Pension curtailment gain and remeasurement loss, net
|
|
(518
|
)
|
|
—
|
|
Loss on extinguishment of debt
|
|
110
|
|
|
128
|
|
Loss on financial instruments, net
|
|
55
|
|
|
5
|
|
Deferred income taxes
|
|
(3,164
|
)
|
|
66
|
|
Other, net
|
|
(2
|
)
|
|
6
|
|
Changes in operating assets and liabilities, net of effects from acquisitions:
|
|
|
|
|
Accounts receivable
|
|
(100
|
)
|
|
(37
|
)
|
Prepaid expenses and other assets
|
|
11
|
|
|
(20
|
)
|
Accounts payable, accrued liabilities and other
|
|
530
|
|
|
19
|
|
Net cash flows from operating activities
|
|
2,014
|
|
|
1,059
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
Purchases of property, plant and equipment
|
|
(1,689
|
)
|
|
(783
|
)
|
Change in accrued expenses related to capital expenditures
|
|
138
|
|
|
(17
|
)
|
Purchases of cable systems, net of cash acquired
|
|
(28,810
|
)
|
|
—
|
|
Change in restricted cash and cash equivalents
|
|
22,264
|
|
|
7,111
|
|
Other, net
|
|
(6
|
)
|
|
(69
|
)
|
Net cash flows from investing activities
|
|
(8,103
|
)
|
|
6,242
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
Borrowings of long-term debt
|
|
5,997
|
|
|
3,313
|
|
Repayments of long-term debt
|
|
(4,070
|
)
|
|
(10,545
|
)
|
Payments for debt issuance costs
|
|
(283
|
)
|
|
(25
|
)
|
Issuance of equity
|
|
5,000
|
|
|
—
|
|
Purchase of treasury stock
|
|
(99
|
)
|
|
(23
|
)
|
Proceeds from exercise of stock options
|
|
24
|
|
|
6
|
|
Payment of preferred dividend to noncontrolling interest
|
|
(18
|
)
|
|
—
|
|
Proceeds from termination of interest rate derivatives
|
|
88
|
|
|
—
|
|
Net cash flows from financing activities
|
|
6,639
|
|
|
(7,274
|
)
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
550
|
|
|
27
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
|
5
|
|
|
3
|
|
CASH AND CASH EQUIVALENTS, end of period
|
|
$
|
555
|
|
|
$
|
30
|
|
|
|
|
|
|
CASH PAID FOR INTEREST
|
|
$
|
1,014
|
|
|
$
|
545
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
1. Organization and Basis of Presentation
Organization
Charter Communications, Inc. (together with its controlled subsidiaries, “Charter,” or the “Company”) is the second largest cable operator in the United States and a leading broadband communications company providing video, Internet and voice services to residential and business customers. The Company also sells video and online advertising inventory to local, regional and national advertising customers, and networking and transport services (including cell tower backhaul services) and enterprise-class, cloud-enabled hosting, managed applications to business customers and owns and operates regional sports networks and local sports, news and lifestyle channels. The Company's residential services also include security and home management services.
Charter is a holding company whose principal asset is a controlling equity interest in Charter Communications Holdings, LLC (“Charter Holdings”), an indirect owner of Charter Communications Operating, LLC ("Charter Operating") under which all of the operations reside. All significant intercompany accounts and transactions among consolidated entities have been eliminated.
The Company’s operations are managed and reported to its Chief Executive Officer ("CEO"), the Company's chief operating decision maker, on a consolidated basis. The CEO assesses performance and allocates resources based on the consolidated results of operations. Under this organizational and reporting structure, the Company has
one
reportable segment, cable services.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnote disclosures typically included in Charter's Annual Report on Form 10-K have been condensed or omitted for this quarterly report. The accompanying consolidated financial statements are unaudited and are subject to review by regulatory authorities. However, in the opinion of management, such financial statements include all adjustments, which consist of only normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. Interim results are not necessarily indicative of results for a full year.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Areas involving significant judgments and estimates include capitalization of labor and overhead costs; depreciation and amortization costs; purchase accounting valuations of assets and liabilities including, but not limited to, property, plant and equipment, intangibles and goodwill; pension benefits; income taxes; contingencies and programming expense. Actual results could differ from those estimates.
2.
Mergers and Acquisitions
TWC Transaction
On May 18, 2016, the transactions contemplated by the Agreement and Plan of Mergers dated as of May 23, 2015 (the “Merger Agreement”), by and among Time Warner Cable Inc. ("Legacy TWC"), Charter Communications, Inc. prior to the closing of the Merger Agreement ("Legacy Charter"), CCH I, LLC, previously a wholly owned subsidiary of Legacy Charter ("New Charter") and certain other subsidiaries of New Charter were completed (the “TWC Transaction,” and together with the Bright House Transaction described below, the "Transactions"). As a result of the TWC Transaction, New Charter became the new public parent company that holds the operations of the combined companies and was renamed Charter Communications, Inc.
Pursuant to the terms of the Merger Agreement, upon consummation of the TWC Transaction, each outstanding share of Legacy TWC common stock (other than Legacy TWC common stock held by Liberty Broadband Corporation ("Liberty Broadband") and Liberty Interactive Corporation ("Liberty Interactive" and, collectively, the "Liberty Parties")), was converted into the right to receive, at the option of each such holder of Legacy TWC common stock, either (a)
$100
in cash and Charter Class A common stock equivalent to
0.5409
shares of Legacy Charter Class A common stock (the "Option A Consideration") or (b)
$115
in cash and Charter Class A common stock equivalent to
0.4562
shares of Legacy Charter common stock (the "Option B Consideration"). The actual number of shares of Charter Class A common stock that Legacy TWC stockholders received, excluding the Liberty
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
Parties, was calculated by multiplying the exchange ratios of
0.5409
or
0.4562
specified above by
0.9042
(the "Parent Merger Exchange Ratio"), which was also the exchange ratio that was used to determine the number of shares of Charter Class A common stock that Legacy Charter stockholders received per share of Legacy Charter Class A common stock. Such exchange ratio did not impact the aggregate value represented by the shares of Charter Class A common stock issued in the TWC Transaction; however, it did impact the actual number of shares issued in the TWC Transaction.
Out of approximately
277 million
shares of TWC common stock outstanding at the closing of the TWC Transaction, excluding TWC common stock held by the Liberty Parties, approximately
274 million
shares were converted into the right to receive the Option A Consideration and approximately
3 million
shares were converted into the right to receive the Option B Consideration. The Liberty Parties received approximately
one
share of Charter Class A common stock for each share of Legacy TWC common stock they owned (equivalent to
1.106
shares of Legacy Charter Class A common stock multiplied by the Parent Merger Exchange Ratio).
As of the date of acquisition, the total value of the TWC Transaction was approximately
$85 billion
, including cash, equity and Legacy TWC assumed debt. The purchase price also includes an estimated pre-combination vesting period fair value of
$514 million
for Legacy TWC equity awards converted into Charter awards upon closing of the TWC Transaction ("Converted TWC Awards") and
$69 million
of cash paid to former Legacy TWC employees and non-employee directors who held equity awards, whether vested or not vested.
Bright House Transaction
Also, on May 18, 2016, Legacy Charter and Advance/Newhouse Partnership (“A/N”), the former parent of Bright House Networks, LLC (“Bright House”), completed their previously announced transaction, pursuant to a definitive Contribution Agreement (the “Contribution Agreement”), under which Charter acquired Bright House (the “Bright House Transaction”). Pursuant to the Bright House Transaction, Charter became the owner of the membership interests in Bright House and the other assets primarily related to Bright House (other than certain excluded assets and liabilities and non-operating cash). As of the date of acquisition, the purchase price totaled approximately
$12.2 billion
consisting of (a)
$2.0 billion
in cash, (b)
25 million
convertible preferred units of Charter Holdings with a face amount of
$2.5 billion
that pay a
6%
annual preferential dividend, (c) approximately
31.0 million
common units of Charter Holdings that are exchangeable into Charter Class A common stock on a one-for-one basis and (d)
one
share of Charter Class B common stock. See Note 9 for conversion features of the Charter Holdings preferred units and common units and Note 8 for the terms of the Charter Class B common stock.
Liberty Transaction and Debt Financing for the Transactions
In connection with the TWC Transaction, Legacy Charter and Liberty Broadband completed their previously announced transactions pursuant to their investment agreement, in which Liberty Broadband purchased for cash approximately
22.0 million
shares of Charter Class A common stock valued at
$4.3 billion
at the closing of the TWC Transaction to partially finance the cash portion of the TWC Transaction consideration, and in connection with the Bright House Transaction, Liberty Broadband purchased approximately
3.7 million
shares of Charter Class A common stock valued at
$700 million
at the closing of the Bright House Transaction (the "Liberty Transaction").
Charter partially financed the cash portion of the purchase price of the Transactions with additional indebtedness and cash on hand. In 2015, the Company issued
$15.5 billion
aggregate principal amount of CCO Safari II, LLC ("CCO Safari II") senior secured notes,
$3.8 billion
aggregate principal amount of CCO Safari III, LLC ("CCO Safari III") senior secured bank loans and
$2.5 billion
aggregate principal amount of CCOH Safari, LLC ("CCOH Safari") senior unsecured notes. The net proceeds were initially deposited into escrow accounts. Upon closing of the TWC Transaction, the proceeds were released from escrow and the CCOH Safari notes became obligations of CCO Holdings, LLC ("CCO Holdings") and CCO Holdings Capital Corp. ("CCO Holdings Capital"), and the CCO Safari II notes and CCO Safari III credit facilities became obligations of Charter Operating and Charter Communications Operating Capital Corp. CCOH Safari merged into CCO Holdings and CCO Safari II and CCO Safari III merged into Charter Operating. In connection with the closing of the Bright House Transaction, Charter Operating closed on a
$2.6 billion
aggregate principal amount term loan A facility ("Term Loan A"). See Note 7.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
Acquisition Accounting
The acquisition of Legacy TWC and Legacy Bright House enables Charter to apply its operating strategy to a larger set of assets, accelerate product development and innovation through greater scale as well as more effectively compete in medium and large commercial markets. The operating results of Legacy TWC and Legacy Bright House have been included in the Company's consolidated statements of operations for the period from the date of acquisition through June 30, 2016. For the three and six months ended June 30, 2016, revenues and net income included in the Company's consolidated statements of operations were
$3.1 billion
and
$236 million
, respectively, for Legacy TWC and
$501 million
and
$41 million
, respectively, for Legacy Bright House. Net income includes non-operating expenses such as interest expense and income taxes based on what is included in the respective legal entities and does not include allocations of additional corporate level non-operating expenses.
The Company applied acquisition accounting to the Transactions. The total purchase price was allocated to the identifiable tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values. The fair values were primarily based on third-party valuations using assumptions developed by management and other information compiled by management including, but not limited to, future expected cash flows. The excess of the purchase price over those fair values was recorded as goodwill. Goodwill recognized in the Transactions is representative of resources that do not meet the definition of an identifiable intangible asset and include buy-side synergies, economies of scale of the combined operations, increased market share, assembled workforces and improved credit rating.
The fair values of the assets acquired and liabilities assumed were preliminarily determined using the income, cost and market approaches. The fair values were primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement, other than long-term debt assumed in the TWC Transaction which represents a Level 1 measurement. See Note 11.
Property, plant and equipment was valued utilizing the cost approach. The cost approach considers the amount required to replace an asset by constructing or purchasing a new asset with similar utility, then adjusts the value in consideration of all forms of depreciation as of the appraisal date as described below:
|
|
•
|
Physical depreciation - the loss in value or usefulness attributable solely to use of the asset and physical causes such as wear and tear and exposure to the elements.
|
|
|
•
|
Functional obsolescence - the loss in value due to factors inherent in the asset itself and due to changes in technology, design or process resulting in inadequacy, overcapacity, lack of functional utility or excess operating costs.
|
|
|
•
|
Economic obsolescence - the loss in value due to unfavorable external conditions such as economics of the industry or geographic area, or change in ordinances.
|
The cost approach relies on assumptions regarding current material and labor costs required to rebuild and repurchase significant components of property, plant and equipment along with assumptions regarding the age and estimated useful lives of property, plant and equipment.
Franchise rights and customer relationships were valued using an income approach model based on the present value of the estimated discrete future cash flows attributable to each of the intangible assets identified. See Note 6 to the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2015 for more information on the income approach model. The weighted average life of customer relationships acquired in the TWC Transaction and Bright House Transaction was
11
years and
10
years, respectively.
The fair value of equity investments was based on either applying implied multiples to estimated cash flows or utilizing a discounted cash flow model. The implied multiples were estimated based on precedent transactions and comparable companies. The discounted cash flow model required estimating the present value of future cash flows of the investee.
Legacy TWC long-term debt assumed was adjusted to fair value based on quoted market prices. At the acquisition date, the quoted market values of all but two of Legacy TWC's bonds were higher than the principal amount of the related debt instrument, which resulted in the recognition of a net debt premium of approximately
$2.4 billion
. The quoted market value of a debt instrument is higher than the principal amount of the debt when the market interest rates are lower than the stated interest rate of the debt. This debt premium is amortized as a reduction to interest expense over the remaining life of the applicable debt.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
Generally, no fair value adjustments were reflected in current assets and current liabilities as carrying value is estimated to approximate fair value because of the short-term nature of the items. However, fair value adjustments were reflected in other noncurrent assets and other long-term liabilities relating to contract-based assets and liabilities, capital lease obligations, deferred liabilities and pension liabilities. Out-of-market contract-based assets and liabilities relating to non-cancelable executory contracts and operating leases were recognized based on discounted cash flow models to the extent the terms of the non-cancelable contracts are favorable or unfavorable compared with the relative market terms of the same or similar contract at the acquisition date. The out-of-market element will be amortized as if the contract were consummated at market terms on the acquisition date. Capital lease obligations were measured at fair value based on the present value of amounts to be paid under the lease agreement using a market participant discount rate. Deferred liabilities were not recorded in acquisition accounting to the extent there was no associated payment obligation or substantive performance obligation. The pension liabilities assumed in the TWC Transaction are measured at fair value based on an actuarially determined projected benefit obligation, less the fair value of pension investments, as of the acquisition date. See Note 19 for fair value assumptions considered in acquisition accounting for the pension liabilities.
An adjustment was recorded for the deferred tax impact of acquisition accounting adjustments primarily related to property, plant and equipment, franchises, customer relationships and assumed Legacy TWC long-term debt. The incremental deferred tax liabilities were calculated primarily based on the tax effect of the step-up in book basis of net assets of Legacy TWC excluding the amount attributable to nondeductible goodwill.
The Charter Class A common stock issued to Legacy TWC stockholders and Charter Holdings common units issued to A/N were valued based on the opening share price of Charter Class A common stock on the acquisition date. The convertible preferred units of Charter Holdings issued to A/N were valued at approximately
$3.2 billion
based on a binomial lattice model for convertible bonds that models the future changes in the common equity value of the Company. The valuation relies on management's assumptions including risk-free interest rate, volatility and discount yield. The pre-combination vesting period fair value of the Converted TWC Awards was based on the portion of the requisite service period completed at the acquisition date by Legacy TWC employee award holders applied to the total fair value of the Converted TWC Awards. See Note 18 for fair value assumptions considered in acquisition accounting for the Converted TWC Awards.
The allocation of the purchase price is preliminary based on initial valuations and is subject to change based on finalization and review of such valuations. During the measurement period, the Company will continue to obtain information to assist in finalizing the fair value of net assets acquired, which may differ materially from the preliminary estimates. The Company will apply any measurement period adjustments, including any related impacts to net income (loss), in the reporting period in which the adjustments are determined. The tables below present the calculation of the purchase price and the preliminary allocation of the purchase price to the assets acquired and liabilities assumed in the Transactions.
TWC Purchase Price
|
|
|
|
|
Shares of Charter Class A common stock issued (including the Liberty Parties) (in millions)
|
143.0
|
|
Charter Class A common stock closing price per share
|
$
|
224.91
|
|
Fair value of Charter Class A common stock issued
|
$
|
32,164
|
|
|
|
Cash paid to Legacy TWC stockholders (excluding the Liberty Parties)
|
$
|
27,770
|
|
Pre-combination vesting period fair value of Converted TWC Awards
|
514
|
|
Cash paid for Legacy TWC non-employee equity awards
|
69
|
|
Total purchase price
|
$
|
60,517
|
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
TWC Preliminary Allocation of Purchase Price
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,058
|
|
Current assets
|
1,309
|
|
Property, plant and equipment
|
21,576
|
|
Franchises
|
53,395
|
|
Customer relationships
|
13,700
|
|
Goodwill
|
28,368
|
|
Other noncurrent assets
|
1,061
|
|
Accounts payable and accrued liabilities
|
(3,727
|
)
|
Debt
|
(24,900
|
)
|
Deferred income taxes
|
(28,152
|
)
|
Other long-term liabilities
|
(3,167
|
)
|
Noncontrolling interests
|
(4
|
)
|
|
$
|
60,517
|
|
Bright House Purchase Price
|
|
|
|
|
Charter Holdings common units issued to A/N (in millions)
|
31.0
|
|
Charter Class A common stock closing price per share
|
$
|
224.91
|
|
Fair value of Charter Holdings common units issued to A/N
|
$
|
6,971
|
|
|
|
Fair value of Charter Holdings convertible preferred units issued to A/N
|
3,163
|
|
Cash paid to A/N
|
2,022
|
|
Total purchase price
|
$
|
12,156
|
|
Bright House Preliminary Allocation of Purchase Price
|
|
|
|
|
Current assets
|
$
|
132
|
|
Property, plant and equipment
|
3,266
|
|
Franchises
|
6,844
|
|
Customer relationships
|
2,040
|
|
Goodwill
|
152
|
|
Other noncurrent assets
|
86
|
|
Accounts payable and accrued liabilities
|
(330
|
)
|
Other long-term liabilities
|
(12
|
)
|
Noncontrolling interests
|
(22
|
)
|
|
$
|
12,156
|
|
Selected Pro Forma Financial Information
The following unaudited pro forma financial information of the Company is based on the historical consolidated financial statements of Legacy Charter, Legacy TWC and Legacy Bright House and is intended to provide information about how the acquisition of Legacy TWC and Legacy Bright House and related financing may have affected the Company's historical consolidated financial statements if they had closed as of January 1, 2015. The pro forma financial information below is based on available information and assumptions that the Company believes are reasonable. The pro forma financial information is for illustrative and informational
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
purposes only and is not intended to represent or be indicative of what the Company's financial condition or results of operations would have been had the transactions described above occurred on the date indicated. The pro forma financial information also should not be considered representative of the Company's future financial condition or results of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenues
|
$
|
9,988
|
|
|
$
|
9,370
|
|
|
$
|
19,751
|
|
|
$
|
18,511
|
|
Net income
|
$
|
280
|
|
|
$
|
107
|
|
|
$
|
525
|
|
|
$
|
157
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
Basic
|
$
|
1.04
|
|
|
$
|
0.40
|
|
|
$
|
2.29
|
|
|
$
|
0.58
|
|
Diluted
|
$
|
0.99
|
|
|
$
|
0.39
|
|
|
$
|
2.26
|
|
|
$
|
0.58
|
|
3. Property, Plant and Equipment
Property, plant and equipment consists of the following as of June 30, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
2016
|
|
2015
|
|
|
|
|
Cable distribution systems
|
$
|
22,675
|
|
|
$
|
8,158
|
|
Customer premise equipment and installations
|
12,045
|
|
|
4,632
|
|
Vehicles and equipment
|
1,069
|
|
|
384
|
|
Buildings and improvements
|
2,662
|
|
|
570
|
|
Furniture, fixtures and equipment
|
2,806
|
|
|
1,119
|
|
|
|
|
|
|
41,257
|
|
|
14,863
|
|
Less: accumulated depreciation
|
(7,899
|
)
|
|
(6,518
|
)
|
|
|
|
|
|
$
|
33,358
|
|
|
$
|
8,345
|
|
The Company periodically evaluates the estimated useful lives used to depreciate its assets and the estimated amount of assets that will be abandoned or have minimal use in the future. A significant change in assumptions about the extent or timing of future asset retirements, or in the Company’s use of new technology and upgrade programs, could materially affect future depreciation expense.
Depreciation expense for the
three and six
months ended
June 30, 2016
was
$1.0 billion
and
$1.5 billion
, respectively, and was
$459 million
and
$904 million
for the
three and six
months ended
June 30, 2015
, respectively. Property, plant and equipment preliminarily increased by
$24.8 billion
as a result of the Transactions. See Note 2.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
4. Franchises, Goodwill and Other Intangible Assets
Indefinite-lived and finite-lived intangible assets consist of the following as of
June 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchises
|
|
$
|
66,245
|
|
|
$
|
—
|
|
|
$
|
66,245
|
|
|
$
|
6,006
|
|
|
$
|
—
|
|
|
$
|
6,006
|
|
Goodwill
|
|
29,692
|
|
|
—
|
|
|
29,692
|
|
|
1,168
|
|
|
—
|
|
|
1,168
|
|
Trademarks
|
|
159
|
|
|
—
|
|
|
159
|
|
|
159
|
|
|
—
|
|
|
159
|
|
Other intangible assets
|
|
4
|
|
|
—
|
|
|
4
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|
|
$
|
96,100
|
|
|
$
|
—
|
|
|
$
|
96,100
|
|
|
$
|
7,337
|
|
|
$
|
—
|
|
|
$
|
7,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
18,356
|
|
|
$
|
2,202
|
|
|
$
|
16,154
|
|
|
$
|
2,616
|
|
|
$
|
1,760
|
|
|
$
|
856
|
|
Other intangible assets
|
|
618
|
|
|
93
|
|
|
525
|
|
|
173
|
|
|
82
|
|
|
91
|
|
|
|
$
|
18,974
|
|
|
$
|
2,295
|
|
|
$
|
16,679
|
|
|
$
|
2,789
|
|
|
$
|
1,842
|
|
|
$
|
947
|
|
Amortization expense related to customer relationships and other intangible assets for the
three and six
months ended
June 30, 2016
was
$403 million
and
$464 million
, respectively, and was
$69 million
and
$138 million
for the
three and six
months ended
June 30, 2015
, respectively. Franchises, goodwill and customer relationships preliminarily increased by
$60.2 billion
,
$28.5 billion
and
$15.7 billion
, respectively, as a result of the Transactions. See Note 2.
The Company expects amortization expense on its finite-lived intangible assets will be as follows:
|
|
|
|
|
|
Six months ended December 31, 2016
|
|
$
|
1,484
|
|
2017
|
|
2,770
|
|
2018
|
|
2,485
|
|
2019
|
|
2,198
|
|
2020
|
|
1,904
|
|
Thereafter
|
|
5,838
|
|
|
|
|
|
|
$
|
16,679
|
|
Actual amortization expense in future periods will differ from these estimates as a result of new intangible asset acquisitions or divestitures, changes in useful lives, impairments and other relevant factors.
5. Investments
On May 1, 2015, the Company acquired a
35%
equity interest in ActiveVideo Networks ("AVN") for
$55 million
in cash, representing the initial investment, a capital call and associated transaction fees. AVN is the developer of CloudTV, a cloud-based software platform enabling service providers, content aggregators, and consumer electronic manufacturers to deploy new services by virtualizing consumer premise equipment functions in the cloud. AVN’s software platform is one of the key technologies enabling the development and deployment of the Company’s cloud-based user interface, Spectrum Guide
®
.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
In connection with the Transactions, the Company acquired approximately
$508 million
of Legacy TWC and Legacy Bright House equity-method and cost-method investments, which were adjusted to fair value as a result of applying acquisition accounting. The equity-method investments include investments in Sterling Entertainment Enterprises, LLC ("Sterling" - d/b/a SportsNet New York -
26.8%
owned), MLB Network, LLC ("MLB Network" -
6.4%
owned), iN Demand L.L.C. ("iN Demand" -
34.0%
owned) and National Cable Communications LLC ("NCC" -
20.0%
owned), among other less significant equity-method and cost-method investments acquired. Sterling and MLB Network are primarily engaged in the development of sports programming services. iNDemand provides programming on a video on demand, pay-per-view and subscription basis. NCC represents multi-video program distributors to advertisers.
The Company applies the equity method of accounting to these and other less significant equity-method investments, all of which are recorded in other noncurrent assets in the consolidated balance sheets as of
June 30, 2016
and
December 31, 2015
. For the
three and six
months ended
June 30, 2016
, the Company recorded net losses from equity-method investments of
$2 million
and
$5 million
, respectively, in other expense, net in the consolidated statements of operations and for the
three and six
months ended
June 30, 2015
, losses from equity-method investments were insignificant.
6. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following as of
June 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
|
|
|
|
|
Accounts payable – trade
|
|
$
|
448
|
|
|
$
|
134
|
|
Accrued capital expenditures
|
|
647
|
|
|
296
|
|
Deferred revenue
|
|
391
|
|
|
96
|
|
Accrued liabilities:
|
|
|
|
|
Interest
|
|
960
|
|
|
445
|
|
Programming costs
|
|
1,745
|
|
|
451
|
|
Franchise-related fees
|
|
246
|
|
|
65
|
|
Compensation
|
|
985
|
|
|
186
|
|
Other
|
|
1,314
|
|
|
299
|
|
|
|
|
|
|
|
|
$
|
6,736
|
|
|
$
|
1,972
|
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
7. Long-Term Debt
Long-term debt consists of the following as of
June 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
|
Principal Amount
|
|
Accreted Value
|
|
Principal Amount
|
|
Accreted Value
|
CCOH Safari, LLC
|
|
|
|
|
|
|
|
5.750% senior notes due February 15, 2026
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,500
|
|
|
$
|
2,499
|
|
CCO Safari II, LLC
|
|
|
|
|
|
|
|
3.579% senior notes due July 23, 2020
|
—
|
|
|
—
|
|
|
2,000
|
|
|
1,999
|
|
4.464% senior notes due July 23, 2022
|
—
|
|
|
—
|
|
|
3,000
|
|
|
2,998
|
|
4.908% senior notes due July 23, 2025
|
—
|
|
|
—
|
|
|
4,500
|
|
|
4,497
|
|
6.384% senior notes due October 23, 2035
|
—
|
|
|
—
|
|
|
2,000
|
|
|
1,999
|
|
6.484% senior notes due October 23, 2045
|
—
|
|
|
—
|
|
|
3,500
|
|
|
3,498
|
|
6.834% senior notes due October 23, 2055
|
—
|
|
|
—
|
|
|
500
|
|
|
500
|
|
CCO Safari III, LLC
|
|
|
|
|
|
|
|
Credit facilities
|
—
|
|
|
—
|
|
|
3,800
|
|
|
3,788
|
|
CCO Holdings, LLC:
|
|
|
|
|
|
|
|
7.000% senior notes due January 15, 2019
|
—
|
|
|
—
|
|
|
600
|
|
|
594
|
|
7.375% senior notes due June 1, 2020
|
—
|
|
|
—
|
|
|
750
|
|
|
744
|
|
5.250% senior notes due March 15, 2021
|
500
|
|
|
496
|
|
|
500
|
|
|
496
|
|
6.500% senior notes due April 30, 2021
|
—
|
|
|
—
|
|
|
1,500
|
|
|
1,487
|
|
6.625% senior notes due January 31, 2022
|
750
|
|
|
741
|
|
|
750
|
|
|
740
|
|
5.250% senior notes due September 30, 2022
|
1,250
|
|
|
1,231
|
|
|
1,250
|
|
|
1,229
|
|
5.125% senior notes due February 15, 2023
|
1,000
|
|
|
991
|
|
|
1,000
|
|
|
990
|
|
5.125% senior notes due May 1, 2023
|
1,150
|
|
|
1,141
|
|
|
1,150
|
|
|
1,140
|
|
5.750% senior notes due September 1, 2023
|
500
|
|
|
495
|
|
|
500
|
|
|
495
|
|
5.750% senior notes due January 15, 2024
|
1,000
|
|
|
991
|
|
|
1,000
|
|
|
990
|
|
5.875% senior notes due April 1, 2024
|
1,700
|
|
|
1,684
|
|
|
—
|
|
|
—
|
|
5.375% senior notes due May 1, 2025
|
750
|
|
|
744
|
|
|
750
|
|
|
744
|
|
5.750% senior notes due February 15, 2026
|
2,500
|
|
|
2,458
|
|
|
—
|
|
|
—
|
|
5.500% senior notes due May 1, 2026
|
1,500
|
|
|
1,486
|
|
|
—
|
|
|
—
|
|
5.875% senior notes due May 1, 2027
|
800
|
|
|
794
|
|
|
800
|
|
|
794
|
|
Charter Communications Operating, LLC:
|
|
|
|
|
|
|
|
3.579% senior notes due July 23, 2020
|
2,000
|
|
|
1,981
|
|
|
—
|
|
|
—
|
|
4.464% senior notes due July 23, 2022
|
3,000
|
|
|
2,971
|
|
|
—
|
|
|
—
|
|
4.908% senior notes due July 23, 2025
|
4,500
|
|
|
4,456
|
|
|
—
|
|
|
—
|
|
6.384% senior notes due October 23, 2035
|
2,000
|
|
|
1,980
|
|
|
—
|
|
|
—
|
|
6.484% senior notes due October 23, 2045
|
3,500
|
|
|
3,466
|
|
|
—
|
|
|
—
|
|
6.834% senior notes due October 23, 2055
|
500
|
|
|
495
|
|
|
—
|
|
|
—
|
|
Credit facilities
|
9,014
|
|
|
8,907
|
|
|
3,552
|
|
|
3,502
|
|
Time Warner Cable, LLC:
|
|
|
|
|
|
|
|
5.850% senior notes due May 1, 2017
|
2,000
|
|
|
2,071
|
|
|
—
|
|
|
—
|
|
6.750% senior notes due July 1, 2018
|
2,000
|
|
|
2,179
|
|
|
—
|
|
|
—
|
|
8.750% senior notes due February 14, 2019
|
1,250
|
|
|
1,449
|
|
|
—
|
|
|
—
|
|
8.250% senior notes due April 1, 2019
|
2,000
|
|
|
2,321
|
|
|
—
|
|
|
—
|
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.000% senior notes due February 1, 2020
|
1,500
|
|
|
1,633
|
|
|
—
|
|
|
—
|
|
4.125% senior notes due February 15, 2021
|
700
|
|
|
744
|
|
|
—
|
|
|
—
|
|
4.000% senior notes due September 1, 2021
|
1,000
|
|
|
1,062
|
|
|
—
|
|
|
—
|
|
5.750% sterling senior notes due June 2, 2031
(a)
|
833
|
|
|
904
|
|
|
—
|
|
|
—
|
|
6.550% senior debentures due May 1, 2037
|
1,500
|
|
|
1,694
|
|
|
—
|
|
|
—
|
|
7.300% senior debentures due July 1, 2038
|
1,500
|
|
|
1,798
|
|
|
—
|
|
|
—
|
|
6.750% senior debentures due June 15, 2039
|
1,500
|
|
|
1,732
|
|
|
—
|
|
|
—
|
|
5.875% senior debentures due November 15, 2040
|
1,200
|
|
|
1,259
|
|
|
—
|
|
|
—
|
|
5.500% senior debentures due September 1, 2041
|
1,250
|
|
|
1,258
|
|
|
—
|
|
|
—
|
|
5.250% sterling senior notes due July 15, 2042
(b)
|
867
|
|
|
835
|
|
|
—
|
|
|
—
|
|
4.500% senior debentures due September 15, 2042
|
1,250
|
|
|
1,134
|
|
|
—
|
|
|
—
|
|
Time Warner Cable Enterprises LLC:
|
|
|
|
|
|
|
|
8.375% senior debentures due March 15, 2023
|
1,000
|
|
|
1,292
|
|
|
—
|
|
|
—
|
|
8.375% senior debentures due July 15, 2033
|
1,000
|
|
|
1,330
|
|
|
—
|
|
|
—
|
|
Total debt
|
60,264
|
|
|
62,203
|
|
|
35,902
|
|
|
35,723
|
|
Less current portion:
|
|
|
|
|
|
|
|
5.850% senior notes due May 1, 2017
|
2,000
|
|
|
2,071
|
|
|
—
|
|
|
—
|
|
Long-term debt
|
$
|
58,264
|
|
|
$
|
60,132
|
|
|
$
|
35,902
|
|
|
$
|
35,723
|
|
|
|
(a)
|
Principal amount includes
£625 million
valued at
$833 million
as of
June 30, 2016
using the exchange rate at that date.
|
|
|
(b)
|
Principal amount includes
£650 million
valued at
$867 million
as of
June 30, 2016
using the exchange rate at that date.
|
The accreted values presented in the table above represent the principal amount of the debt less the original issue discount at the time of sale, deferred financing costs, and, (i) in regards to the Legacy TWC debt assumed, a fair value premium adjustment as a result of applying acquisition accounting plus the accretion of those amounts to the balance sheet date and (ii) in regards to the fixed-rate British pound sterling denominated notes (the "Sterling Notes"), a remeasurement of the principal amount of the debt and any premium or discount into US dollars as of the balance sheet date. See Note 10. However, the amount that is currently payable if the debt becomes immediately due is equal to the principal amount of the debt. The Company has availability under the Charter Operating credit facilities of approximately
$2.8 billion
as of
June 30, 2016
.
CCO Holdings
In February 2016, CCO Holdings and CCO Holdings Capital jointly issued
$1.7 billion
aggregate principal amount of
5.875%
senior notes due 2024 (the "2024 Notes") and, in April 2016, they issued
$1.5 billion
aggregate principal amount of
5.500%
senior notes due 2026 (the "2026 Notes") at a price of
100.075%
of the aggregate principal amount. The net proceeds from both issuances were used to repurchase all of CCO Holdings’
7.000%
senior notes due 2019,
7.375%
senior notes due 2020 and
6.500%
senior notes due 2021 and to pay related fees and expenses and for general corporate purposes. These debt repurchases resulted in a loss on extinguishment of debt of
$110 million
for the
three and six
months ended
June 30, 2016
.
The 2024 Notes and 2026 Notes are senior debt obligations of CCO Holdings and CCO Holdings Capital and rank equally with all other current and future unsecured, unsubordinated obligations of CCO Holdings and CCO Holdings Capital. They are structurally subordinated to all obligations of subsidiaries of CCO Holdings.
CCO Holdings may redeem some or all of the 2024 Notes and 2026 Notes at any time with a make-whole premium. Beginning in 2019 for the 2024 notes and 2021 for the 2026 notes, the optional redemption price declines to
100%
of the respective series’ principal amount, plus accrued and unpaid interest, if any.
In addition, at any time prior to April 1, 2019 in regards to the 2024 Notes and May 1, 2019 in regards to the 2026 Notes, CCO Holdings may redeem up to
40%
of the aggregate principal amount of the 2024 Notes and 2026 Notes at a premium plus accrued and unpaid interest to the redemption date, with the net cash proceeds of one or more equity offerings (as defined in the indenture); provided that certain conditions are met. In the event of specified change of control events, CCO Holdings must offer to purchase
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
the outstanding CCO Holdings notes from the holders at a purchase price equal to
101%
of the total principal amount of the notes, plus any accrued and unpaid interest.
In April 2015, CCO Holdings and CCO Holdings Capital closed on transactions in which they issued
$1.15 billion
aggregate principal amount of
5.125%
senior unsecured notes due 2023 (the "2023 Notes"),
$750 million
aggregate principal amount of
5.375%
senior unsecured notes due 2025 (the "2025 Notes") and
$800 million
aggregate principal amount of
5.875%
senior unsecured notes due 2027 (the "2027 Notes" and collectively, the “Notes”). The net proceeds from the issuance of the 2023 Notes and 2025 Notes were used to finance tender offers and a subsequent call in which
$1.0 billion
aggregate principal amount of CCO Holdings' outstanding
7.250%
senior notes due 2017 and
$700 million
aggregate principal amount of CCO Holdings' outstanding
8.125%
senior notes due 2020 were repurchased, as well as for general corporate purposes. The net proceeds from the issuance of the 2027 Notes were used to call
$800 million
of the
$1.4 billion
aggregate principal amount of CCO Holdings' outstanding
7.000%
senior notes due 2019. These debt repurchases resulted in a loss on extinguishment of debt of
$123 million
for the three and six months ended June 30, 2015.
The Company also recorded a loss on extinguishment of debt of approximately
$5 million
for the three and six months ended June 30, 2015 as a result of the repayment of debt upon termination of the proposed transactions with Comcast Corporation ("Comcast").
Charter Operating
In connection with the closing of the TWC Transaction, Charter Operating replaced its existing revolving credit facility with a new
$3.0 billion
senior secured revolving credit facility under Charter Operating’s Amended and Restated Credit Agreement dated May 18, 2016 (the “Credit Agreement”). As of June 30, 2016,
$224 million
of the revolving credit facility was utilized to collateralize a like principal amount of letters of credit out of
$329 million
of letters of credit issued on the Company's behalf. In connection with the closing of the Bright House Transaction, Charter Operating closed on a
$2.6 billion
aggregate principal amount Term Loan A pursuant to the terms of the Credit Agreement of which
$2.0 billion
was used to fund the cash portion of the Bright House Transaction and of which
$638 million
was used to prepay and terminate Charter Operating's existing Term A-1 Loans. Interest on Term Loan A was set at LIBOR plus
2%
. As of June 30, 2016, the aggregate principal amount of Charter Operating’s credit facilities was
$9.0 billion
,
which includes
$3.8 billion
aggregate principal amount of CCO Safari III credit facilities that became obligations of Charter Operating upon the closing of the TWC Transaction.
The Credit Agreement and the Charter Operating senior notes are guaranteed by CCO Holdings, TWC, LLC (as defined below), TWCE (as defined below) and substantially all of the operating subsidiaries of Charter Operating (collectively, the “Subsidiary Guarantors”). Term Loan A and borrowings under the incremental revolving credit facility are secured by a perfected first priority security interest in substantially all of the assets of Charter Operating and the Subsidiary Guarantors, subject to certain customary exceptions and the liens rank equally with the liens on the collateral securing obligations under the Charter Operating notes and credit facilities and the Time Warner Cable, LLC (the successor to Legacy TWC outstanding debt obligations, "TWC, LLC") senior notes and debentures and the Time Warner Cable Enterprises LLC ("TWCE") senior debentures assumed in the TWC Transaction.
Assumed Legacy TWC Indebtedness
Charter assumed approximately
$22.4 billion
in aggregate principal amount of TWC, LLC senior notes and debentures and TWCE senior debentures with varying maturities. The Company applied acquisition accounting to Legacy TWC, and as a result, the debt assumed was adjusted to fair value using quoted market values as of the closing date. This fair value adjustment resulted in recognition of a net debt premium of approximately
$2.4 billion
.
TWC, LLC Senior Notes and Debentures
The TWC, LLC senior notes and debentures are guaranteed by CCO Holdings, Charter Operating, TWCE and the Subsidiary Guarantors and rank equally with the liens on the collateral securing obligations under the Charter Operating notes and credit facilities. Interest on each series of TWC, LLC senior notes and debentures is payable semi-annually (with the exception of the Sterling Notes, which is payable annually) in arrears.
The TWC, LLC indenture contains customary covenants relating to restrictions on the ability of TWC, LLC or any material subsidiary to create liens and on the ability of TWC, LLC and TWCE to consolidate, merge or convey or transfer substantially all of their assets. The TWC, LLC indenture also contains customary events of default.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
The TWC, LLC senior notes and debentures may be redeemed in whole or in part at any time at TWC, LLC's option at a redemption price equal to the greater of (i) all of the applicable principal amount being redeemed and (ii) the sum of the present values of the remaining scheduled payments on the applicable TWC, LLC senior notes and debentures discounted to the redemption date on a semi-annual basis (with the exception of the Sterling Notes, which are on an annual basis), at a comparable government bond rate plus a designated number of basis points as further described in the indenture and the applicable note or debenture, plus, in each case, accrued but unpaid interest to, but not including, the redemption date.
The Company may offer to redeem all, but not less than all, of the Sterling Notes in the event of certain changes in the tax laws of the U.S. (or any taxing authority in the U.S.). This redemption would be at a redemption price equal to
100%
of the principal amount, together with accrued and unpaid interest on the Sterling Notes to, but not including, the redemption date.
TWCE Senior Debentures
The TWCE senior debentures are guaranteed by CCO Holdings, Charter Operating, TWC, LLC and the Subsidiary Guarantors and rank equally with the liens on the collateral securing obligations under the Charter Operating notes and credit facilities. Interest on each series of TWCE senior debentures is payable semi-annually in arrears. The TWCE senior debentures are not redeemable before maturity.
The TWCE indenture contains customary covenants relating to restrictions on the ability of TWCE or any material subsidiary to create liens and on the ability of TWC, LLC and TWCE to consolidate, merge or convey or transfer substantially all of their assets. The TWCE indenture also contains customary events of default.
Liquidity and Future Principal Payments
The Company continues to have significant amounts of debt, and its business requires significant cash to fund principal and interest payments on its debt, capital expenditures and ongoing operations. As set forth below, the Company has significant future principal payments. The Company continues to monitor the capital markets, and it expects to undertake refinancing transactions and utilize free cash flow and cash on hand to further extend or reduce the maturities of its principal obligations. The timing and terms of any refinancing transactions will be subject to market conditions.
Based on outstanding indebtedness as of
June 30, 2016
, the amortization of term loans, and the maturity dates for all senior and subordinated notes and debentures, total future principal payments on the total borrowings under all debt agreements as of
June 30, 2016
, are as follows:
|
|
|
|
|
|
Year
|
|
Amount
|
|
|
|
Six months ended December 31, 2016
|
|
$
|
98
|
|
2017
|
|
2,197
|
|
2018
|
|
2,197
|
|
2019
|
|
3,546
|
|
2020
|
|
5,216
|
|
Thereafter
|
|
47,010
|
|
|
|
|
|
|
$
|
60,264
|
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
8. Common Stock
The following table summarizes shares outstanding for the six months ended
June 30, 2016
and June 30, 2015:
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
Class B Common Stock
|
|
|
|
|
|
BALANCE, December 31, 2014
|
|
111,999,687
|
|
|
—
|
|
Exercise of stock options
|
|
94,384
|
|
|
—
|
|
Restricted stock issuances, net of cancellations
|
|
6,920
|
|
|
—
|
|
Restricted stock units vesting
|
|
36,702
|
|
|
—
|
|
Treasury stock
|
|
(115,110
|
)
|
|
—
|
|
|
|
|
|
|
BALANCE, June 30, 2015
|
|
112,022,583
|
|
|
—
|
|
|
|
|
|
|
BALANCE, December 31, 2015
|
|
112,438,828
|
|
|
—
|
|
Reorganization of common stock
|
|
(10,771,962
|
)
|
|
—
|
|
Issuance of shares in TWC Transaction
|
|
143,012,155
|
|
|
—
|
|
Issuance of shares to Liberty Broadband for cash
|
|
25,631,339
|
|
|
—
|
|
Issuance of share to A/N in Bright House Transaction
|
|
—
|
|
|
1
|
|
Exercise of stock options
|
|
337,485
|
|
|
—
|
|
Restricted stock issuances, net of cancellations
|
|
9,961
|
|
|
—
|
|
Restricted stock units vesting
|
|
741,886
|
|
|
—
|
|
Treasury stock
|
|
(471,864
|
)
|
|
—
|
|
|
|
|
|
|
BALANCE, June 30, 2016
|
|
270,927,828
|
|
|
1
|
|
The shares outstanding balance shown above as of December 31, 2015 represents historical shares outstanding of Legacy Charter before applying the Parent Merger Exchange Ratio. The
10.8 million
shares associated with the reorganization of Charter Class A common stock represents the reduction to Legacy Charter Class A common shares outstanding as of the acquisition date as a result of applying the Parent Merger Exchange Ratio. See Note 2.
Charter Class B common stock represents the share issued to A/N in connection with the Bright House Transaction. One share of Charter’s Class B common stock has a number of votes reflecting the voting power of the Charter Holdings common units and Charter Holdings convertible preferred units held by A/N as of the applicable record date on an if-converted, if-exchanged basis, and is generally intended to reflect A/N’s economic interests in Charter Holdings.
During the
three and six
months ended
June 30, 2016
, the Company withheld
367,725
and
453,071
shares, respectively, of its Class A common stock in payment of
$83 million
and
$99 million
, respectively, of income tax withholding owed by employees upon vesting of restricted shares and restricted stock units. During the
three and six
months ended
June 30, 2015
, the Company withheld
34,795
and
104,120
shares, respectively, of its Class A common stock in payment of
$7 million
and
$23 million
, respectively, of income tax withholding owed by employees upon vesting of restricted shares and restricted stock units. During the
three and six
months ended
June 30, 2016
, the Company also withheld
1,688
and
18,793
shares, respectively, of its Class A common stock representing the exercise costs owed by employees upon exercise of stock options.
In December 2015, Charter's board of directors approved the retirement of the then currently held treasury stock and those shares were retired as of December 31, 2015. The Company accounts for treasury stock using the cost method and includes treasury stock as a component of total shareholders' equity (deficit).
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
9. Noncontrolling Interests
Noncontrolling interests represents consolidated subsidiaries of which the Company owns less than
100%
. The Company is a holding company whose principal asset is a controlling equity interest in Charter Holdings, the indirect owner of the Company's cable systems. Noncontrolling interests on the Company's balance sheet primarily includes A/N's equity interests in Charter Holdings, which is comprised of a common ownership interest and a convertible preferred ownership interest.
In connection with the closing of the Bright House Transaction, Charter Holdings issued approximately
31.0 million
common units to A/N, which are exchangeable at any time into either Charter Class A common stock on a one-for-one basis, or, at Charter's option, cash, based on the then current market price of Charter Class A common stock. Net income (loss) of Charter Holdings attributable to A/N's common noncontrolling interest for financial reporting purposes is based on the effective common ownership interest of approximately
10%
which was
$29 million
for the three and six months ended June 30, 2016. Charter Holdings also issued approximately
25 million
convertible preferred units to A/N with a face amount of
$2.5 billion
that pay a
6%
annual preferred dividend. The
6%
annual preferred dividend is paid quarterly in cash, if and when declared, provided that, if dividends are suspended at any time, the dividends will accrue until they are paid. Net income (loss) of Charter Holdings attributable to the preferred noncontrolling interest for financial reporting purposes is based on the preferred dividend which was
$18 million
for the three and six months ended June 30, 2016. Each convertible preferred unit is convertible into either
0.37334
of a Charter Holdings common unit (if then held by A/N) or
0.37334
of a share of Charter Class A common stock (if then held by a third party), representing a conversion price of
$267.85
per unit, based on a conversion feature as defined in the Limited Liability Company Agreement of Charter Holdings. After May 18, 2021, Charter may redeem the convertible preferred units if the price of Charter Class A common stock exceeds
130%
of the conversion price. These Charter Holdings common and convertible preferred units held by A/N are recorded in noncontrolling interests as permanent equity on the consolidated balance sheet.
The common units and convertible preferred units issued to A/N as consideration for the Bright House Transaction were initially measured at their fair value of
$7.0 billion
and
$3.2 billion
, respectively, in accordance with acquisition accounting. However, upon formation of Charter Holdings, the carrying amounts of the controlling and noncontrolling interests were adjusted to reflect the relative effective common ownership interest in Charter Holdings. This resulted in an increase to noncontrolling interest of approximately
$605 million
and a corresponding decrease to additional paid-in capital of
$605 million
, net of
$232 million
of deferred income taxes, for the three and six months ended June 30, 2016.
10. Accounting for Derivative Instruments and Hedging Activities
The Company uses derivative instruments to manage interest rate risk on variable debt and foreign exchange risk on the Sterling Notes, and does not hold or issue derivative instruments for speculative trading purposes.
Interest rate derivative instruments are used to manage interest costs and to reduce the Company’s exposure to increases in floating interest rates. The Company manages its exposure to fluctuations in interest rates by maintaining a mix of fixed and variable rate debt. Using interest rate derivative instruments, the Company agrees to exchange, at specified intervals through 2017, the difference between fixed and variable interest amounts calculated by reference to agreed-upon notional principal amounts. As of
June 30, 2016
and
December 31, 2015
, the Company had
$1.1 billion
in notional amounts of interest rate derivative instruments outstanding. The notional amounts of interest rate derivative instruments do not represent amounts exchanged by the parties and, thus, are not a measure of exposure to credit loss. The amounts exchanged were determined by reference to the notional amount and the other terms of the contracts.
Upon closing of the TWC Transaction, the Company acquired interest rate derivative instrument assets with a fair value of
$85 million
(excluding accrued interest), which were settled with their respective counterparties in the second quarter of 2016 with an
$88 million
cash payment to the Company of which
$14 million
was for interest accrued through the date of settlement. The settlement resulted in an
$11 million
loss for the three and six months ended June 30, 2016 which was recorded in gain (loss) on financial instruments, net in the consolidated statements of operations.
Upon closing of the TWC Transaction, the Company assumed cross-currency derivative instrument liabilities with a fair value of
$69 million
(excluding accrued interest). Cross-currency derivative instruments are used to effectively convert
£1.275 billion
aggregate principal amount of fixed-rate British pound sterling denominated debt, including annual interest payments and the payment of principal at maturity, to fixed-rate U.S. dollar denominated debt. The cross-currency swaps have maturities of June 2031 and July 2042. The Company is required to post collateral on the cross-currency derivative instruments when the derivative
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
contracts are in a liability position. In May 2016, the Company entered into a collateral holiday agreement for
80%
of both the 2031 and 2042 cross-currency swaps, which eliminates the requirement to post collateral for
three
years.
The effect of derivative instruments on the consolidated balance sheets is presented in the table below:
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
|
|
|
|
Interest Rate Derivatives
|
|
|
|
Accrued interest
|
$
|
1
|
|
|
$
|
3
|
|
Other long-term liabilities
|
$
|
14
|
|
|
$
|
10
|
|
Accumulated other comprehensive loss
|
$
|
(9
|
)
|
|
$
|
(13
|
)
|
|
|
|
|
Cross-Currency Derivatives
|
|
|
|
Other long-term liabilities
|
$
|
254
|
|
|
$
|
—
|
|
The Company's interest rate and cross-currency derivative instruments are not designated as hedges and are marked to fair value each period, with the impact recorded as a gain or loss on financial instruments, net in the consolidated statements of operations. While these derivative instruments are not designated as cash flow hedges for accounting purposes, management continues to believe such instruments are closely correlated with the respective debt, thus managing associated risk.
The effect of financial instruments on the consolidated statements of operations is presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
Gain (loss) on financial instruments, net:
|
|
|
|
|
|
|
|
Change in fair value of interest rate derivative instruments
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
Change in fair value of cross-currency derivative instruments
|
(185
|
)
|
|
—
|
|
|
(185
|
)
|
|
—
|
|
Remeasurement of Sterling Notes to US dollars
|
147
|
|
|
—
|
|
|
147
|
|
|
—
|
|
Settlement of interest rate derivative instruments assumed in the TWC Transaction
|
(11
|
)
|
|
—
|
|
|
(11
|
)
|
|
—
|
|
Loss reclassified from accumulated other comprehensive loss due to discontinuance of hedge accounting
|
(2
|
)
|
|
(2
|
)
|
|
(4
|
)
|
|
(5
|
)
|
|
$
|
(50
|
)
|
|
$
|
1
|
|
|
$
|
(55
|
)
|
|
$
|
(5
|
)
|
11. Fair Value Measurements
The accounting guidance
establishes a three-level hierarchy for disclosure of fair value measurements, based on the transparency of inputs to the valuation of an asset or liability as of the measurement date, as follows:
|
|
•
|
Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
•
|
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
|
•
|
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
Financial Assets and Liabilities
The Company has estimated the fair value of its financial instruments as of
June 30, 2016
and
December 31, 2015
using available market information or other appropriate valuation methodologies. Considerable judgment, however, is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented in the accompanying consolidated financial statements are not necessarily indicative of the amounts the Company would realize in a current market exchange.
The carrying amounts of cash and cash equivalents, receivables, payables and other current assets and liabilities approximate fair value because of the short maturity of those instruments.
The Company's restricted cash and cash equivalents as of December 31, 2015 were primarily invested in money market funds and 90 day or less commercial paper. The money market funds were valued at the closing price reported by the fund sponsor from an actively traded exchange and commercial paper was valued at cost plus the accretion of the discount on a yield to maturity basis, which approximated fair value. The money market funds and commercial paper potentially subjected the Company to concentration of credit risk. The amount invested within any one financial instrument did not exceed
$1.5 billion
during the year ended
December 31, 2015
. As of
December 31, 2015
, there were no significant concentrations of financial instruments in a single investee, industry or geographic location.
Interest rate derivative instruments are valued using a present value calculation based on an implied forward LIBOR curve (adjusted for Charter Operating’s and counterparties’ credit risk). The weighted average pay rate for the Company’s currently effective interest rate derivative instruments was
1.61%
at
June 30, 2016
and
December 31, 2015
(exclusive of applicable spreads). The cross-currency derivative instruments are valued using a present value calculation based on expected forward interest and exchange rates (adjusted for Charter Operating's and counterparties' credit risk).
Financial instruments accounted for at fair value on a recurring basis are presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14,330
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial paper
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,934
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivative instruments
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13
|
|
|
$
|
—
|
|
Cross-currency derivative instruments
|
|
$
|
—
|
|
|
$
|
254
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
A summary of the carrying value and fair value of debt as of
June 30, 2016
and
December 31, 2015
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
Senior notes and debentures
|
|
$
|
53,296
|
|
|
$
|
56,258
|
|
|
$
|
28,433
|
|
|
$
|
28,744
|
|
Credit facilities
|
|
$
|
8,907
|
|
|
$
|
8,978
|
|
|
$
|
7,290
|
|
|
$
|
7,274
|
|
The estimated fair value of the Company’s senior notes and debentures as of
June 30, 2016
and
December 31, 2015
is based on quoted market prices in active markets and is classified within Level 1 of the valuation hierarchy, while the estimated fair value of the Company's credit facilities is based on quoted market prices in inactive markets and is classified within Level 2.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
Nonfinancial Assets and Liabilities
The Company’s nonfinancial assets such as equity-method investments, franchises, property, plant, and equipment, and other intangible assets are not measured at fair value on a recurring basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence that an impairment may exist. No impairments were recorded during the
three and six
months ended
June 30, 2016
and
2015
. Upon closing of the Transactions, all of Legacy TWC and Legacy Bright House nonfinancial assets and liabilities were recorded at preliminary fair values. See Note 2.
12. Operating Costs and Expenses
Operating costs and expenses, exclusive of items shown separately in the consolidated statements of operations, consist of the following for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
Programming
|
$
|
1,541
|
|
|
$
|
671
|
|
|
$
|
2,244
|
|
|
$
|
1,337
|
|
Regulatory, connectivity and produced content
|
316
|
|
|
109
|
|
|
428
|
|
|
216
|
|
Costs to service customers
|
1,079
|
|
|
424
|
|
|
1,500
|
|
|
847
|
|
Marketing
|
377
|
|
|
158
|
|
|
542
|
|
|
311
|
|
Transition costs
|
25
|
|
|
17
|
|
|
46
|
|
|
38
|
|
Other
|
666
|
|
|
222
|
|
|
915
|
|
|
433
|
|
|
|
|
|
|
|
|
|
|
$
|
4,004
|
|
|
$
|
1,601
|
|
|
$
|
5,675
|
|
|
$
|
3,182
|
|
Programming costs consist primarily of costs paid to programmers for basic, premium, digital, video on demand, and pay-per-view programming. Regulatory, connectivity and produced content costs represent payments to franchise and regulatory authorities, costs directly related to providing video, Internet and voice services as well as payments for sports, local and news content produced by the Company. Costs to service customers include costs related to field operations, network operations and customer care for the Company's residential and small and medium business customers, including internal and third-party labor for installations, service and repairs, maintenance, billing and collection, occupancy and vehicle costs. Marketing costs represent the costs of marketing to current and potential commercial and residential customers including labor costs. Transition costs represent incremental costs incurred to integrate the TWC and Bright House operations and to increase the scale of the Company's business as a result of the Transactions. See Note 2. Other includes bad debt expense, corporate overhead, advertising sales expenses, indirect costs associated with the Company's enterprise business customers and regional sports and news networks, property tax expense and insurance expense and stock compensation expense, among others.
13. Other Operating Expenses, Net
Other operating expenses, net consist of the following for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
Merger and restructuring costs
|
$
|
556
|
|
|
$
|
19
|
|
|
$
|
570
|
|
|
$
|
32
|
|
Other pension benefits
|
(520
|
)
|
|
—
|
|
|
(520
|
)
|
|
—
|
|
Special charges, net
|
2
|
|
|
10
|
|
|
6
|
|
|
12
|
|
(Gain) loss on sale of assets, net
|
(7
|
)
|
|
3
|
|
|
(7
|
)
|
|
6
|
|
|
|
|
|
|
|
|
|
|
$
|
31
|
|
|
$
|
32
|
|
|
$
|
49
|
|
|
$
|
50
|
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
Merger and restructuring costs
Merger and restructuring costs represent costs incurred in connection with merger and acquisition transactions and related restructuring, such as advisory, legal and accounting fees, employee retention costs, employee termination costs related to the Transactions and other exit costs. The Company expects to incur additional merger and restructuring costs in connection with the Transactions. Changes in accruals for merger and restructuring costs from December 31, 2015 through
June 30, 2016
are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Retention Costs
|
|
Employee Termination Costs
|
|
Transaction and Advisory Costs
|
|
Other Costs
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Liability, December 31, 2015
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
33
|
|
|
$
|
—
|
|
|
$
|
33
|
|
Liability assumed in the Transactions
|
80
|
|
|
9
|
|
|
3
|
|
|
—
|
|
|
92
|
|
Costs incurred
|
12
|
|
|
123
|
|
|
280
|
|
|
10
|
|
|
425
|
|
Cash paid
|
(1
|
)
|
|
(12
|
)
|
|
(310
|
)
|
|
(10
|
)
|
|
(333
|
)
|
|
|
|
|
|
|
|
|
|
|
Remaining liability, June 30, 2016
|
$
|
91
|
|
|
$
|
120
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
217
|
|
In addition to the costs incurred indicated above, the Company recorded
$145 million
of expense related to accelerated vesting of equity awards of terminated employees for each of the three and six months ended June 30, 2016.
Other pension benefits
Other pension benefits include the pension curtailment gain, remeasurement loss, net, expected return on plan assets and interest cost components of net periodic pension benefit. See Note 19.
Special charges, net
Special charges, net primarily includes employee termination costs not related to the Transactions and net amounts of litigation settlements.
(Gain) loss on sale of assets, net
(Gain) loss on sale of assets, net represents the net (gain) loss recognized on the sales and disposals of fixed assets and cable systems.
14. Income Taxes
Substantially all of the Company's operations are held through Charter Holdings and its direct and indirect subsidiaries. Charter Holdings and the majority of its subsidiaries are generally limited liability companies that are not subject to income tax. However, certain of these limited liability companies are subject to state income tax. In addition, the subsidiaries that are corporations are subject to state income tax. Generally, the taxable income, gains, losses, deductions and credits of Charter Holdings are passed through to its members, Charter and A/N. Charter is responsible for its share of taxable income or loss of Charter Holdings allocated to it in accordance with the CCH Limited Liability Company Agreement (“LLC Agreement”) and partnership tax rules and regulations. Charter also records financial statement deferred tax assets and liabilities related to its investment, and its underlying net assets, in Charter Holdings.
For each of the three and six months ended June 30, 2016, the Company recorded
$3.2 billion
of income tax benefit. For the three and six months ended June 30, 2015 the Company recorded
$35 million
and
$70 million
of income tax expense, respectively. Income tax benefit for the three and six months ended June 30, 2016 was recognized primarily through the reversal of approximately
$3.3 billion
of valuation allowance (see further discussion below), net of tax effect of permanent differences for estimated
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
nondeductible transaction costs and noncontrolling interest expense, a decrease to the anticipated blended state rate applied to Legacy Charter deferred tax balances as a result of the Transactions, and prior to the closing of the Transactions, increases (decreases) in deferred tax liabilities related to Charter’s franchises which are characterized as indefinite-lived for book financial reporting purposes. Income tax expense for the three and six months ended June 30, 2015 was recognized primarily through increases (decreases) in deferred tax liabilities related to Charter’s franchises which are characterized as indefinite-lived for book financial reporting purposes. The tax provision in future periods will vary based on future operating results, as well as future book versus tax differences.
Charter Holdings, the indirect owner of the Company's cable systems, generally allocates its taxable income, gains, losses, deductions and credits proportionately according to the members' respective ownership interests, except for special allocations required under Section 704(c) of the Internal Revenue Code and the Treasury Regulations ("Section 704(c)"). Pursuant to Section 704(c) and the LLC Agreement, each item of income, gain, loss and deduction with respect to any property contributed to the capital of the partnership shall, solely for tax purposes, be allocated among the members so as to take into account any variation between the adjusted basis of such property to the partnership for U.S. federal income tax purposes and its initial gross asset value using the “traditional method” as described in the Treasury Regulations.
Under the LLC Agreement, A/N has rights to: (1) convert at any time some or all of its preferred units in Charter Holdings for common units in Charter Holdings, and (2) exchange at any time some or all of its common units in Charter Holdings for Charter’s Class A common stock or cash, at Charter's option. Pursuant to a tax receivable agreement between Charter and A/N, Charter must pay to A/N
50%
of the tax benefit when realized by Charter from the step-up in tax basis resulting from any future exchange or sale of the preferred and common units. Charter has not recorded a liability for this obligation since the tax benefit is dependent on uncertain future events that are outside of Charter’s control, such as the timing of a conversion or exchange. A future exchange or sale is not based on a fixed and determinable date and the exchange or sale is not certain to occur. If and when an exchange or sale occurs in the future, the undiscounted value of the obligation is currently estimated to be in the range of
zero
to
$3 billion
depending on measurement of the tax step-up in the future and Charter’s ability to realize the tax benefit in the periods following the exchange or sale. Factors impacting these calculations include, but are not limited to, the fair value of the equity at the time of the exchange and the effective tax rates when the benefits are realized.
Upon closing of the TWC Transaction, Charter experienced a third “ownership change” as defined in Section 382 of the Internal Revenue Code; resulting in a third set of limitations on Charter’s use of its existing federal and state net operating losses, capital losses, and tax credit carryforwards. Both the first ownership change limitations that applied as a result of Legacy Charter's emergence from bankruptcy in 2009 and second ownership change limitations that applied as a result of Liberty Media Corporation’s purchase in 2013 of a
27%
beneficial interest in Legacy Charter will also continue to apply. Since the limitation amounts accumulate for future use to the extent they are not utilized in any given year, Charter believes its loss carryforwards should become fully available to offset future taxable income. Charter’s state loss carryforwards are subject to similar, but varying, limitations on their future use. If Charter was to experience another “ownership change” in the future, its ability to use its loss carryforwards could be subject to further limitations.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. In evaluating the need for a valuation allowance, management takes into account various factors, including the expected level of future taxable income, available tax planning strategies and reversals of existing taxable temporary differences. Due to Legacy Charter's history of losses, Legacy Charter was historically unable to assume future taxable income in its analysis and accordingly valuation allowances were established against the deferred tax assets, net of deferred tax liabilities, from definite-lived assets for book accounting purposes. However, as a result of the TWC Transaction, deferred tax liabilities resulting from the book fair value adjustment increased significantly and future taxable income that will result from the reversal of existing temporary differences for which deferred tax liabilities are recognized, is sufficient to conclude it is more likely than not that the Company will realize substantially all of its deferred tax assets. As a result, Charter has reversed approximately
$3.3 billion
of its valuation allowance and recognized a corresponding income tax benefit in the consolidated statements of operations for the three and six months ended June 30, 2016. Approximately
$15 million
of valuation allowance associated with state loss carryforwards and other miscellaneous deferred tax assets remains on the June 30, 2016 consolidated balance sheet.
In determining the Company’s tax provision for financial reporting purposes, the Company establishes a reserve for uncertain tax positions unless such positions are determined to be “more likely than not” of being sustained upon examination, based on their technical merits. There is considerable judgment involved in making such a determination. In connection with the TWC Transaction, the Company assumed
$218 million
of gross unrecognized tax benefits, including interest and penalties, which are recorded within
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
other long-term liabilities. The net amount of the unrecognized tax benefits that would impact the effective tax rate is
$143 million
. There were
$2 million
of additional increases to the Company’s unrecognized tax benefits during the quarter ended June 30, 2016. The Company does not currently anticipate that its reserve for uncertain tax positions will significantly increase or decrease during 2016; however, various events could cause the Company’s current expectations to change in the future. These uncertain tax positions, if ever recognized in the financial statements, would be recorded in the consolidated statements of operations as part of the income tax provision.
No tax years for Charter, Charter Holdings, or Charter Communications Holding Company, LLC for income tax purposes, are currently under examination by the IRS. Legacy Charter's tax years ending 2012 through the short period return dated May 17, 2016 remain subject to examination and assessment. Years prior to 2012 remain open solely for purposes of examination of Legacy Charter’s loss and credit carryforwards. The IRS is currently examining Legacy TWC’s income tax returns for 2011 and 2012. Legacy TWC's tax years ending 2013 through 2015 remain subject to examination and assessment. Prior to Legacy TWC’s separation from Time Warner Inc. (“Time Warner”) in March 2009 (the “Separation”), Legacy TWC was included in the consolidated U.S. federal and certain state income tax returns of Time Warner. The IRS is currently examining Time Warner’s 2008 through 2010 income tax returns. Time Warner's income tax returns for 2005 to 2007, which are periods prior to the separation, were settled with the exception of an immaterial item that has been referred to the IRS Appeals Division. The Company does not anticipate that these examinations will have a material impact on the Company’s consolidated financial position or results of operations. In addition, the Company is also subject to ongoing examinations of the Company’s tax returns by state and local tax authorities for various periods. Activity related to these state and local examinations did not have a material impact on the Company’s consolidated financial position or results of operations in 2015, nor does the Company anticipate a material impact in the future.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
15. Earnings (Loss) Per Share
Basic earnings (loss) per share is based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share considers the impact of potentially dilutive securities using the treasury stock and if-converted methods. Diluted earnings per common share is based on the weighted average number of shares used for the basic earnings per share calculation, adjusted for the dilutive effect of stock options, restricted stock, restricted stock units, performance stock options, performance restricted stock and Charter Holdings convertible preferred units and common units. Weighted average number of shares outstanding for all periods presented has been recast to reflect the application of the Parent Merger Exchange Ratio. Basic loss per common share equals diluted loss per common share for the three and six months ended June 30, 2015 because the Company incurred a net loss during those periods. The following is the computation of diluted earnings per common share for the three and six months ended June 30, 2016.
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
Numerator:
|
|
|
|
Net income attributable to Charter shareholders
|
$
|
3,067
|
|
|
$
|
2,879
|
|
Effect of dilutive securities:
|
|
|
|
Charter Holdings common units
|
29
|
|
|
29
|
|
Charter Holdings convertible preferred units
|
18
|
|
|
18
|
|
|
|
|
|
Net income attributable to Charter shareholders after assumed conversions
|
$
|
3,114
|
|
|
$
|
2,926
|
|
|
|
|
|
Denominator:
|
|
|
|
Weighted average common shares outstanding, basic
|
183,362,776
|
|
|
142,457,435
|
|
Effect of dilutive securities:
|
|
|
|
Assumed exercise or issuance of shares relating to stock plans
|
2,351,592
|
|
|
1,751,850
|
|
Weighted average Charter Holdings common units
|
14,986,997
|
|
|
7,493,498
|
|
Weighted average Charter Holdings convertible preferred units
|
4,512,901
|
|
|
2,256,451
|
|
|
|
|
|
Weighted average common shares outstanding, diluted
|
205,214,266
|
|
|
153,959,234
|
|
|
|
|
|
Basic earnings per common share attributable to Charter shareholders
|
$
|
16.73
|
|
|
$
|
20.21
|
|
Diluted earnings per common share attributable to Charter shareholders
|
$
|
15.17
|
|
|
$
|
19.00
|
|
16.
Related Party Transactions
On May 23, 2015, in connection with the execution of the Merger Agreement and the amendment of the Contribution Agreement, Charter entered into the Amended and Restated Stockholders Agreement with Liberty Broadband, A/N and Legacy Charter (the “Stockholders Agreement”). As of the closing of the Merger Agreement and the Contribution Agreement on May 18, 2016, the Stockholders Agreement replaced Legacy Charter’s existing stockholders agreement with Liberty Broadband, dated September 29, 2014, and superseded the amended and restated stockholders agreement among Legacy Charter, Charter, Liberty Broadband and A/N, dated March 31, 2015.
Under the terms of the Stockholders Agreement, the number of Charter's directors is fixed at 13, and includes its chief executive officer. Upon the closing of the Bright House Transaction, two designees selected by A/N became members of the board of directors of the Company and three designees selected by Liberty Broadband continued as members of the board of directors of the Company. The remaining eight directors are not affiliated with either A/N or Liberty Broadband. Each of A/N and Liberty Broadband is entitled to nominate at least one director to each of the committees of the Company’s board of directors, subject to applicable stock exchange listing rules and certain specified voting or equity ownership thresholds for each of A/N and Liberty Broadband, and
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
provided that the Nominating and Corporate Governance Committee and the Compensation and Benefit Committee each have at least a majority of directors independent from A/N, Liberty Broadband and the Company (referred to as the “unaffiliated directors”). Each of the Nominating and Corporate Governance Committee and the Compensation and Benefits Committee is currently comprised of three unaffiliated directors, including one designee of each of A/N and Liberty Broadband. A/N and Liberty Broadband also have certain other committee designation and other governance rights. Upon the closing of the Bright House Transaction, Mr. Thomas Rutledge, the Company's Chief Executive Officer ("CEO"), became the chairman of the board of the Company.
The Company is aware that Dr. John Malone may be deemed to have a
36.3%
voting interest in Liberty Interactive and is Chairman of the board of directors, an executive officer position, of Liberty Interactive. Liberty Interactive owns
38.3%
of the common stock of HSN, Inc. (“HSN”) and has the right to elect
20%
of the board members of HSN. Liberty Interactive wholly owns QVC, Inc. (“QVC”). The Company has programming relationships with HSN and QVC which pre-date the transaction with Liberty Media. For the
three and six
months ended
June 30, 2016
, the Company recorded payments in aggregate of approximately
$11 million
and
$15 million
, respectively, and for the
three and six
months ended
June 30, 2015
, the Company recorded payments in aggregate of approximately
$5 million
and
$8 million
, respectively, from HSN and QVC as part of channel carriage fees and revenue sharing arrangements for home shopping sales made to customers in the Company's footprint.
Dr. Malone and Mr. Steven Miron, each a member of Charter’s board of directors, also serve on the board of directors of Discovery Communications, Inc., (“Discovery”) and the Company is aware that Dr. Malone owns
4.9%
in the aggregate of the common stock of Discovery and has a
28.6%
voting interest in Discovery for the election of directors. The Company is aware that Advance/Newhouse Programming Partnership ("A/N PP"), an affiliate of A/N and in which Mr. Miron is the CEO, owns
100%
of the Series A preferred stock of Discovery and
100%
of the Series C preferred stock of Discovery, representing approximately
34.0%
of the outstanding equity of Discovery's stock, on an as-converted basis. A/N PP has the right to appoint three directors out of a total of ten directors to Discovery's board to be elected by the holders of Discovery’s Series A preferred stock. In addition, Dr. Malone owns approximately
6.4%
in the aggregate of the common stock of Starz and has
48.1%
of the voting power, pursuant to certain irrevocable proxies granted by Lions Gate Entertainment Corp. and his ownership of common stock. Mr. Gregory Maffei, a member of Charter's board of directors, is a non-executive Chairman of the board of Starz. The Company purchases programming from both Discovery and Starz pursuant to agreements entered into prior to Dr. Malone, Mr. Maffei and Mr. Miron joining Charter's board of directors. Based on publicly available information, the Company does not believe that either Discovery or Starz would currently be considered related parties. The amounts paid in aggregate to Discovery and Starz represent less than
3%
of total operating costs and expenses for the
three and six
months ended
June 30, 2016
and
2015
.
The Company has agreements with certain equity-method investees (see Note 5) pursuant to which the Company has made or received related party transaction payments. The Company recorded payments to equity-method investees totaling
$37 million
and
$41 million
during the
three and six
months ended
June 30, 2016
, respectively, and
$1 million
during the
three and six
months ended
June 30, 2015
. The Company recorded advertising revenues from transactions with equity-method investees totaling
$1 million
during the
three and six
months ended
June 30, 2016
. The Company has loans outstanding to investees of
$5 million
as of
June 30, 2016
.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
17.
Commitments and Contingencies
Commitments
The following table summarizes the Company’s payment obligations as of
June 30, 2016
for its contractual obligations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital and Operating Lease Obligations (1)
|
|
Programming Minimum Commitments (2)
|
|
Other (3)
|
|
Total
|
|
|
|
|
|
|
|
|
Six months ended December 31, 2016
|
$
|
161
|
|
|
$
|
114
|
|
|
$
|
463
|
|
|
$
|
738
|
|
2017
|
231
|
|
|
223
|
|
|
692
|
|
|
1,146
|
|
2018
|
193
|
|
|
35
|
|
|
567
|
|
|
795
|
|
2019
|
148
|
|
|
24
|
|
|
500
|
|
|
672
|
|
2020
|
110
|
|
|
15
|
|
|
485
|
|
|
610
|
|
Thereafter
|
396
|
|
|
—
|
|
|
10,043
|
|
|
10,439
|
|
|
|
|
|
|
|
|
|
|
$
|
1,239
|
|
|
$
|
411
|
|
|
$
|
12,750
|
|
|
$
|
14,400
|
|
(1) The Company leases certain facilities and equipment under non-cancelable capital and operating leases. Leases and rental costs charged to expense for the three months ended
June 30, 2016
and
2015
were
$44 million
and
$12 million
, respectively, and for the six months ended
June 30, 2016
and
2015
were
$57 million
and
$24 million
, respectively.
(2) The Company pays programming fees under multi-year contracts ranging from
three
to
ten
years, typically based on a flat fee per customer, which may be fixed for the term, or may in some cases escalate over the term. Programming costs included in the statement of operations were
$1.5 billion
and
$671 million
for the three months ended
June 30, 2016
and
2015
, respectively, and
$2.2 billion
and
$1.3 billion
for the six months ended
June 30, 2016
and
2015
, respectively. Certain of the Company’s programming agreements are based on a flat fee per month or have guaranteed minimum payments. The table sets forth the aggregate guaranteed minimum commitments under the Company’s programming contracts.
(3) “Other” represents other guaranteed minimum commitments, including programming rights negotiated directly with content owners for distribution on Company-owned channels or networks and commitments related to the Company’s role as an advertising and distribution sales agent for third party-owned channels or networks as well as commitments to the Company's customer premise equipment vendors.
The following items are not included in the contractual obligation table due to various factors discussed below. However, the Company incurs these costs as part of its operations:
|
|
•
|
The Company rents utility poles used in its operations. Generally, pole rentals are cancelable on short notice, but the Company anticipates that such rentals will recur. Rent expense incurred for pole rental attachments for the three months ended
June 30, 2016
and
2015
were
$25 million
and
$13 million
, respectively, and for the six months ended
June 30, 2016
and
2015
were
$38 million
and
$26 million
, respectively.
|
|
|
•
|
The Company pays franchise fees under multi-year franchise agreements based on a percentage of revenues generated from video service per year. The Company also pays other franchise related costs, such as public education grants, under multi-year agreements. Franchise fees and other franchise-related costs included in the accompanying statement of operations for the three months ended
June 30, 2016
and
2015
were
$125 million
and
$53 million
, respectively, and for the six months ended
June 30, 2016
and
2015
were
$179 million
and
$106 million
, respectively.
|
|
|
•
|
The Company also has
$329 million
in letters of credit, of which
$224 million
is secured under the Charter Operating credit facility, primarily to its various worker’s compensation, property and casualty, and general liability carriers, as collateral for reimbursement of claims.
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
Litigation
In 2014, following an announcement by Comcast and Legacy TWC of their intent to merge, Breffni Barrett and others filed suit in the Supreme Court of the State of New York for the County of New York against Comcast, Legacy TWC and their respective officers and directors. Later five similar class actions were consolidated with this matter (the “NY Actions”). The NY Actions were settled in July 2014, however, such settlement was terminated following the termination of the Comcast and TWC merger in April 2015. In May 2015, Charter and TWC announced their intent to merge. Subsequently, the parties in the NY Actions filed a Second Consolidated Class Action Complaint (the “Second Amended Complaint”), removing Comcast as a defendant and naming TWC, the members of the TWC board of directors, Charter and the merger subsidiaries as defendants. The Second Amended Complaint generally alleges, among other things, that the members of the TWC board of directors breached their fiduciary duties to TWC stockholders during the Charter merger negotiations and by entering into the merger agreement and approving the mergers, and that Charter aided and abetted such breaches of fiduciary duties. The complaint sought, among other relief, injunctive relief enjoining the stockholder vote on the mergers, unspecified declaratory and equitable relief, compensatory damages in an unspecified amount, and costs and attorneys’ fees.
In September 2015, the parties entered into a memorandum of understanding (“MOU”) to settle the action. Pursuant to the MOU, the defendants issued certain supplemental disclosures relating to the mergers on a Form 8-K, and plaintiffs agreed to release with prejudice all claims that could have been asserted against defendants in connection with the mergers. The settlement is conditioned on, among other things, approval by the New York Supreme Court. In the event that the New York Supreme Court does not approve the settlement, the defendants intend to vigorously defend against any further litigation.
In August 2015, a purported stockholder of Charter, Matthew Sciabacucchi, filed a lawsuit in the Delaware Court of Chancery, on behalf of a putative class of Charter stockholders, challenging the transactions between Charter, TWC, A/N, and Liberty Broadband announced by Charter on May 26, 2015 (collectively, the “Transactions”). The lawsuit names as defendants Liberty Broadband, Charter, the board of directors of Charter, and New Charter. Plaintiff alleged that the Transactions improperly benefit Liberty Broadband at the expense of other Charter shareholders, and that Charter issued a false and misleading proxy statement in connection with the Transactions. Plaintiff requested, among other things, that the Delaware Court of Chancery enjoin the September 21, 2015 special meeting of Charter stockholders at which Charter stockholders were asked to vote on the Transactions until the defendants disclosed certain information relating to Charter and the Transactions. The disclosures demanded by the plaintiff included (i) certain unlevered free cash flow projections for Charter and (ii) a Form of Proxy and Right of First Refusal Agreement (“Proxy”) by and among Liberty Broadband, A/N, Charter and New Charter, which was referenced in the description of the Second Amended and Restated Stockholders Agreement, dated May 23, 2015, among Charter, New Charter, Liberty Broadband and A/N. On September 9, 2015, Charter issued supplemental disclosures containing unlevered free cash flow projections for Charter. In return, the plaintiff agreed its disclosure claims were moot and withdrew its application to enjoin the Charter stockholder vote on the Transactions. Charter has filed a motion to dismiss this litigation. Charter denies any liability, believes that it has substantial defenses, and intends to vigorously defend this suit.
The California Attorney General and the Alameda County, California District Attorney are investigating whether certain of Legacy Charter's waste disposal policies, procedures and practices are in violation of the California Business and Professions Code and the California Health and Safety Code. That investigation was commenced in January 2014. A similar investigation involving Legacy TWC was initiated in February 2012. Charter is cooperating with these investigations. While the Company is unable to predict the outcome of these investigations, it does not expect that the outcome will have a material effect on its operations, financial condition, or cash flows.
On December 19, 2011, Sprint Communications Company L.P. (“Sprint”) filed a complaint in the U.S. District Court for the District of Kansas alleging that Legacy TWC infringes 12 patents purportedly relating to Voice over Internet Protocol (“VoIP”) services. The plaintiff is seeking monetary damages as well as injunctive relief. On October 8, 2015, the court stayed this litigation based on a judgment in a parallel case against Cox Communications, Inc. (“Cox Communications”) in the U.S. District Court for the District of Delaware invalidating six of the 12 patents at issue in that litigation. The stay applies to all 12 patents at issue in Sprint’s complaint against Legacy TWC, and Charter expects the stay to remain in effect during the pendency of Sprint’s appeal against Cox Communications. Charter intends to defend against this lawsuit vigorously, but is unable to predict the outcome of this lawsuit or reasonably estimate a range of possible loss.
The Company is a defendant or co-defendant in several lawsuits involving alleged infringement of various patents relating to various aspects of its businesses. Other industry participants are also defendants in certain of these cases. In the event that a court
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
ultimately determines that the Company infringes on any intellectual property rights, the Company may be subject to substantial damages and/or an injunction that could require the Company or its vendors to modify certain products and services the Company offers to its subscribers, as well as negotiate royalty or license agreements with respect to the patents at issue. While the Company believes the lawsuits are without merit and intends to defend the actions vigorously, no assurance can be given that any adverse outcome would not be material to the Company's consolidated financial condition, results of operations, or liquidity. The Company cannot predict the outcome of any such claims nor can it reasonably estimate a range of possible loss.
The Company is party to lawsuits and claims that arise in the ordinary course of conducting its business, including lawsuits claiming violation of wage and hour laws and breach of contract by vendors, including by two programmers. The ultimate outcome of these other legal matters pending against the Company cannot be predicted, and although such lawsuits and claims are not expected individually to have a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity, such lawsuits could have, in the aggregate, a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity. Whether or not the Company ultimately prevails in any particular lawsuit or claim, litigation can be time consuming and costly and injure the Company's reputation.
18.
Stock Compensation Plans
Legacy Charter’s 2009 Stock Incentive Plan (assumed by Charter upon closing of the Transactions) provides for grants of nonqualified stock options, incentive stock options, stock appreciation rights, dividend equivalent rights, performance units and performance shares, share awards, phantom stock, restricted stock units and restricted stock. Directors, officers and other employees of the Company and its subsidiaries, as well as others performing consulting services for the Company, are eligible for grants under the 2009 Stock Incentive Plan. In April 2016, the Company's board of directors and stockholders approved an additional
9 million
shares of Charter Class A common stock (or units convertible into Charter Class A common stock) under the 2009 Stock Incentive Plan.
At the closing of the TWC Transaction, Legacy TWC employee equity awards were converted into Charter Class A common stock equity awards on the same terms and conditions as were applicable under the Legacy TWC equity awards, except that the number of shares covered by each award and the option exercise prices were adjusted for the Stock Award Exchange Ratio (as defined in the Merger Agreement) such that the intrinsic value of the Converted TWC Awards was approximately equal to that of the original awards at the closing of the Transactions. The Converted TWC Awards represent approximately
4 million
Charter restricted stock units and
0.8 million
Charter stock options (
0.5 million
of which are exercisable) and continue to be subject to the terms of the Legacy TWC equity plans. The Converted TWC Awards were measured at their fair value as of the closing of the TWC Transaction. Of that fair value,
$514 million
related to Legacy TWC employee pre-combination service and was treated as consideration transferred in the TWC Transaction (See Note 2), while
$539 million
relates to post-combination service and will be amortized to stock compensation expense over the remaining vesting period of the awards. The fair values of the Converted TWC Awards were based on a valuation using assumptions developed by management and other information compiled by management including, but not limited to, historical volatility and exercise trends of Legacy Charter and Legacy TWC.
The Parent Merger Exchange Ratio was also applied to outstanding Legacy Charter equity awards and option exercise prices; however, the terms of the equity awards did not change as a result of the Transactions. The Company granted the following equity awards, excluding the Converted TWC Awards, for the periods presented after applying the Parent Merger Exchange Ratio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
Stock options
|
4,800,200
|
|
|
24,000
|
|
|
5,679,700
|
|
|
1,144,200
|
|
Restricted stock
|
10,000
|
|
|
6,300
|
|
|
10,000
|
|
|
6,300
|
|
Restricted stock units
|
597,300
|
|
|
6,500
|
|
|
845,600
|
|
|
137,900
|
|
Legacy Charter stock options granted prior to 2014 generally vest annually over
three
or
four
years from either the grant date or delayed vesting commencement dates. Stock options generally expire
ten
years from the grant date. Restricted stock vests annually over a
one
to
four
-year period beginning from the date of grant. Certain stock options and restricted stock units vest based on achievement of stock price hurdles. Restricted stock units have no voting rights, and restricted stock units granted prior to 2014
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
vest ratably over
three
or
four
years from either the grant date or delayed vesting commencement dates. Beginning in 2014, stock options and restricted stock units granted cliff vest upon the
three
year anniversary of each grant. Legacy TWC restricted stock units that were converted into Charter restricted stock units generally vest
50%
on each of the third and fourth anniversary of the grant date. Legacy TWC stock options that were converted into Charter stock options vest ratably over a
four
-year period and expire
ten
years from the grant date.
As of
June 30, 2016
, total unrecognized compensation remaining to be recognized in future periods totaled
$318 million
for stock options,
$1 million
for restricted stock and
$454 million
for restricted stock units and the weighted average period over which they are expected to be recognized is
3
years for stock options,
1
year for restricted stock and
3
years for restricted stock units.
The Company recorded
$63 million
and
$87 million
of stock compensation expense for the
three and six
months ended
June 30, 2016
. The Company also recorded
$145 million
of expense for the
three and six
months ended
June 30, 2016
related to accelerated vesting of equity awards of terminated employees which is recorded in merger and restructuring costs. For the
three and six
months ended
June 30, 2015
, the Company recorded
$19 million
and
$38 million
of stock compensation expense, respectively, which is included in operating costs and expenses. In connection with the TWC Transaction, the Company settled restricted stock units in the amount of
$59 million
for cash to be paid prior to the end of 2016 which amount is recorded in accounts payables and accrued liabilities in the consolidated balance sheets as of June 30, 2016.
19.
Employee Benefit Plans
Upon completion of the TWC Transaction, Charter assumed sponsorship of Legacy TWC’s pension plans. The Company sponsors two qualified defined benefit pension plans, the TWC Pension Plan and the TWC Union Pension Plan, that provide pension benefits to a majority of Legacy TWC employees. The Company also provides a nonqualified defined benefit pension plan for certain employees under the TWC Excess Pension Plan.
Pension benefits are based on formulas that reflect the employees’ years of service and compensation during their employment period. Actuarial gains or losses are changes in the amount of either the benefit obligation or the fair value of plan assets resulting from experience different from that assumed or from changes in assumptions. The Company has elected to follow a mark-to-market pension accounting policy for recording the actuarial gains or losses annually during the fourth quarter, or earlier if a remeasurement event occurs during an interim period.
Pension benefits are recorded as a net asset or liability for the overfunded or underfunded status of defined benefit pension plans and changes in the funded status are recorded in the year in which the changes occur. As of the closing date of the TWC Transaction, the excess of the projected benefit obligation over the fair value of plan assets was recognized as a liability and deferred actuarial losses and prior service credits previously recognized were eliminated in acquisition accounting. As of the closing date of the TWC Transaction, the projected benefit obligation and the fair value of plan assets for the pension plans were
$4.0 billion
and
$2.9 billion
, respectively, and the net underfunded liability of the pension plans was recorded as a
$6 million
current pension liability and
$1.1 billion
long-term pension liability in acquisition accounting.
The rate of compensation increase used to measure the projected benefit obligation as of the closing of the TWC Transaction was an age-graded average increase of
4.25%
. The weighted average of discount rates used to measure the projected benefit obligation at the closing date of the TWC Transaction was
3.99%
. The Company determined the discount rates based on the yield of a large population of high-quality corporate bonds with cash flows sufficient in timing and amount to settle projected future defined benefit payments. The Company also utilized the RP 2015/MP 2015 mortality tables published by the Society of Actuaries to measure the projected benefit obligation as of the closing date of the TWC Transaction. In addition, the expected long-term rate of return on plan assets used to determine a component of net periodic benefit cost was
6.50%
. In developing the expected long-term rate of return on plan assets, the Company considered the pension portfolio’s composition, past average rate of earnings and the Company’s future asset allocation targets.
Pension Plan Assets
The assets of the qualified pension plans are held in a master trust in which the qualified pension plans are the only participating plans. The investment policy for the qualified pension plans is to achieve a reasonable long-term rate of return on plan assets with an acceptable level of risk in order to maintain adequate funding levels. The investment portfolio is a mix of fixed-income and equity securities with the objective of matching plan liability performance, diversifying risk and achieving a target investment
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
return. The Company's allocation of plan assets includes fixed-income and equity securities of
39%
and
61%
, respectively, the substantial majority of which consist of Level 1 or Level 2 fair value measurements.
Net Periodic Pension Benefit
The components of net periodic pension benefit for the three and six months ended June 30, 2016 consisted of the following:
|
|
|
|
|
|
Three and Six Months Ended
|
|
June 30, 2016
|
|
|
Service cost
|
$
|
35
|
|
Interest cost
|
21
|
|
Expected return on plan assets
|
(23
|
)
|
Pension curtailment gain
|
(675
|
)
|
Remeasurement loss, net
|
157
|
|
Net periodic pension benefit
|
$
|
(485
|
)
|
The service cost component of net periodic pension benefit is recorded in operating costs and expenses in the consolidated statements of operations. The effects of the plan amendment made subsequent to the TWC Transaction, discussed below, resulted in a
$675 million
pension curtailment gain and
$157 million
remeasurement loss, net recorded in other operating expenses, net in the consolidated statements of operations during the
three and six
months ended
June 30, 2016
.
Pension Plan Curtailment Amendment
Following the closing of the TWC Transaction, Charter amended the pension plans to freeze future benefit accruals to current active plan participants as of August 31, 2016. Effective September 1, 2016, no future compensation increases or future service will be credited to participants of the pension plans and new hires will not be eligible to participate in the plans. Upon announcement and approval of the plan amendment, the assumptions underlying the pension liability and pension asset values were reassessed utilizing remeasurement date assumptions in accordance with Charter's mark-to-market pension accounting policy to record gains and losses in the period in which a remeasurement event occurs. The
$675 million
curtailment gain recorded during the
three and six
months ended
June 30, 2016
was primarily driven by the reduction of the compensation rate assumption to
zero
in accordance with the terms of the plan amendment, reflecting the pension liability at its accumulated benefit obligation instead of its projected benefit obligation at the remeasurement date. The
$157 million
remeasurement loss recorded during the
three and six
months ended
June 30, 2016
was primarily driven by the effects of a reduction of the discount rate from
3.99%
at the closing date of the TWC Transaction to
3.72%
at remeasurement date, net of a gain to record pension assets at
June 30, 2016
fair values. As of
June 30, 2016
, the accumulated benefit obligation and fair value of plan assets for the pension plans was
$3.6 billion
and
$2.9 billion
, respectively, for a net underfunded liability of
$647 million
of which
$6 million
is recorded in accounts payable and accrued liabilities in the consolidated balance sheets and
$641 million
is recorded in other long-term liabilities.
Pension Plan Contributions
The Company made no cash contributions to the qualified pension plans during the three and six months ended June 30, 2016; however, the Company may make discretionary cash contributions to the qualified pension plans in the future. Such contributions will be dependent on a variety of factors, including current and expected interest rates, asset performance, the funded status of the qualified pension plans and management’s judgment. For the nonqualified unfunded pension plan, the Company will continue to make contributions during the remainder of 2016 to the extent benefits are paid.
Defined Contribution Benefit Plans
Upon completion of the TWC Transaction, Charter assumed Legacy TWC's defined contribution plan, the TWC Savings Plan. In June 2016, the Company announced changes to both the Charter Communications, Inc. 401(k) Plan (the "401(k) Plan") and the TWC Savings Plan that will be effective September 1, 2016. The Company's matching contribution to the 401(k) Plan and the TWC Savings Plan will equal
100%
of the amount of the salary reduction the participant elects to defer up to
6%
of the participant's
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
eligible pay. For employees who are not eligible to participate in the Company's long-term incentive plan and who are not covered by a collective bargaining agreement, the Company also will offer a contribution to a new Retirement Accumulation Plan, equal to
3%
of eligible pay.
20.
Consolidating Schedules
Each of Charter Operating, TWC, LLC, TWCE, CCO Holdings and certain subsidiaries jointly, severally, fully and unconditionally guarantee the outstanding debt securities of the others (other than the CCO Holdings notes) on an unsecured senior basis and the condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10,
Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.
Certain Charter Operating subsidiaries that are regulated telephone entities only become guarantor subsidiaries upon approval by regulators. This information is not intended to present the financial position, results of operations and cash flows of the individual companies or groups of companies in accordance with generally accepted accounting principles.
The "Charter Operating and Restricted Subsidiaries" column is presented to comply with the terms of the Credit Agreement.
The "Safari Escrow Entities" column included in the condensed consolidating financial statements as of December 31, 2015 and for the six months ended June 30, 2016 and 2015 consists of CCOH Safari, CCO Safari II and CCO Safari III. CCOH Safari, CCO Safari II and CCO Safari III issued the CCOH Safari notes, CCO Safari II notes and the CCO Safari III credit facilities, respectively. Upon closing of the TWC Transaction, the CCOH Safari notes became obligations of CCO Holdings and CCO Holdings Capital and the CCO Safari II notes and CCO Safari III credit facilities became obligations of Charter Operating and Charter Communications Operating Capital Corp. CCOH Safari merged into CCO Holdings and CCO Safari II and CCO Safari III merged into Charter Operating.
The "Unrestricted Subsidiary" column included in the condensed consolidating financial statements for the six months ended June 30, 2015 consists of CCO Safari which was a non-recourse subsidiary under the Credit Agreement and held the CCO Safari Term G Loans that were repaid in April 2015.
Condensed consolidating financial statements as of
June 30, 2016
and
December 31, 2015
and for the
six
months ended
June 30, 2016
and
2015
follow.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Communications, Inc. and Subsidiaries
|
Condensed Consolidating Balance Sheets
|
As of June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Guarantor Subsidiaries
|
|
Guarantor Subsidiaries
|
|
|
|
|
|
Charter
|
|
Intermediate Holding Companies
|
|
CCO Holdings
|
|
Charter Operating and Restricted Subsidiaries
|
|
Eliminations
|
|
Charter Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
6
|
|
|
$
|
124
|
|
|
$
|
—
|
|
|
$
|
425
|
|
|
$
|
—
|
|
|
$
|
555
|
|
Accounts receivable, net
|
9
|
|
|
9
|
|
|
—
|
|
|
1,322
|
|
|
—
|
|
|
1,340
|
|
Receivables from related party
|
—
|
|
|
321
|
|
|
57
|
|
|
—
|
|
|
(378
|
)
|
|
—
|
|
Prepaid expenses and other current assets
|
—
|
|
|
32
|
|
|
—
|
|
|
398
|
|
|
—
|
|
|
430
|
|
Total current assets
|
15
|
|
|
486
|
|
|
57
|
|
|
2,145
|
|
|
(378
|
)
|
|
2,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT IN CABLE PROPERTIES:
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
—
|
|
|
226
|
|
|
—
|
|
|
33,132
|
|
|
—
|
|
|
33,358
|
|
Franchises
|
—
|
|
|
—
|
|
|
—
|
|
|
66,245
|
|
|
—
|
|
|
66,245
|
|
Customer relationships, net
|
—
|
|
|
—
|
|
|
—
|
|
|
16,154
|
|
|
—
|
|
|
16,154
|
|
Goodwill
|
—
|
|
|
—
|
|
|
—
|
|
|
29,692
|
|
|
—
|
|
|
29,692
|
|
Total investment in cable properties, net
|
—
|
|
|
226
|
|
|
—
|
|
|
145,223
|
|
|
—
|
|
|
145,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT IN SUBSIDIARIES
|
66,536
|
|
|
76,321
|
|
|
89,255
|
|
|
—
|
|
|
(232,112
|
)
|
|
—
|
|
LOANS RECEIVABLE – RELATED PARTY
|
—
|
|
|
640
|
|
|
494
|
|
|
—
|
|
|
(1,134
|
)
|
|
—
|
|
OTHER NONCURRENT ASSETS
|
—
|
|
|
216
|
|
|
—
|
|
|
1,205
|
|
|
—
|
|
|
1,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
66,551
|
|
|
$
|
77,889
|
|
|
$
|
89,806
|
|
|
$
|
148,573
|
|
|
$
|
(233,624
|
)
|
|
$
|
149,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS'/MEMBER'S EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
15
|
|
|
$
|
527
|
|
|
$
|
233
|
|
|
$
|
5,961
|
|
|
$
|
—
|
|
|
$
|
6,736
|
|
Payables to related party
|
2
|
|
|
—
|
|
|
—
|
|
|
376
|
|
|
(378
|
)
|
|
—
|
|
Current portion of long-term debt
|
—
|
|
|
—
|
|
|
—
|
|
|
2,071
|
|
|
—
|
|
|
2,071
|
|
Total current liabilities
|
17
|
|
|
527
|
|
|
233
|
|
|
8,408
|
|
|
(378
|
)
|
|
8,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT
|
—
|
|
|
—
|
|
|
13,252
|
|
|
46,880
|
|
|
—
|
|
|
60,132
|
|
LOANS PAYABLE – RELATED PARTY
|
—
|
|
|
—
|
|
|
—
|
|
|
1,134
|
|
|
(1,134
|
)
|
|
—
|
|
DEFERRED INCOME TAXES
|
26,293
|
|
|
25
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
26,339
|
|
OTHER LONG-TERM LIABILITIES
|
1
|
|
|
33
|
|
|
—
|
|
|
2,851
|
|
|
—
|
|
|
2,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS'/MEMBER'S EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Controlling interest
|
40,240
|
|
|
66,536
|
|
|
76,321
|
|
|
89,255
|
|
|
(232,112
|
)
|
|
40,240
|
|
Noncontrolling interests
|
—
|
|
|
10,768
|
|
|
—
|
|
|
24
|
|
|
—
|
|
|
10,792
|
|
Total shareholders'/member's equity
|
40,240
|
|
|
77,304
|
|
|
76,321
|
|
|
89,279
|
|
|
(232,112
|
)
|
|
51,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders'/member's equity
|
$
|
66,551
|
|
|
$
|
77,889
|
|
|
$
|
89,806
|
|
|
$
|
148,573
|
|
|
$
|
(233,624
|
)
|
|
$
|
149,195
|
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Communications, Inc. and Subsidiaries
|
Condensed Consolidating Balance Sheets
|
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Guarantor Subsidiaries
|
|
|
|
Guarantor Subsidiaries
|
|
|
|
|
|
Charter
|
|
Intermediate Holding Companies
|
|
Safari Escrow Entities
|
|
CCO Holdings
|
|
Charter Operating and Restricted Subsidiaries
|
|
Eliminations
|
|
Charter Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
5
|
|
Accounts receivable, net
|
8
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
264
|
|
|
—
|
|
|
279
|
|
Receivables from related party
|
51
|
|
|
297
|
|
|
—
|
|
|
14
|
|
|
—
|
|
|
(362
|
)
|
|
—
|
|
Prepaid expenses and other current assets
|
—
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
55
|
|
|
—
|
|
|
61
|
|
Total current assets
|
59
|
|
|
310
|
|
|
—
|
|
|
14
|
|
|
324
|
|
|
(362
|
)
|
|
345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RESTRICTED CASH AND CASH EQUIVALENTS
|
—
|
|
|
—
|
|
|
22,264
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT IN CABLE PROPERTIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
—
|
|
|
28
|
|
|
—
|
|
|
—
|
|
|
8,317
|
|
|
—
|
|
|
8,345
|
|
Franchises
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,006
|
|
|
—
|
|
|
6,006
|
|
Customer relationships, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
856
|
|
|
—
|
|
|
856
|
|
Goodwill
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,168
|
|
|
—
|
|
|
1,168
|
|
Total investment in cable properties, net
|
—
|
|
|
28
|
|
|
—
|
|
|
—
|
|
|
16,347
|
|
|
—
|
|
|
16,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT IN SUBSIDIARIES
|
1,468
|
|
|
816
|
|
|
—
|
|
|
11,303
|
|
|
—
|
|
|
(13,587
|
)
|
|
—
|
|
LOANS RECEIVABLE – RELATED PARTY
|
—
|
|
|
333
|
|
|
—
|
|
|
613
|
|
|
563
|
|
|
(1,509
|
)
|
|
—
|
|
OTHER NONCURRENT ASSETS
|
—
|
|
|
216
|
|
|
—
|
|
|
—
|
|
|
116
|
|
|
—
|
|
|
332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
1,527
|
|
|
$
|
1,703
|
|
|
$
|
22,264
|
|
|
$
|
11,930
|
|
|
$
|
17,350
|
|
|
$
|
(15,458
|
)
|
|
$
|
39,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS'/MEMBER'S EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
11
|
|
|
$
|
203
|
|
|
$
|
282
|
|
|
$
|
165
|
|
|
$
|
1,311
|
|
|
$
|
—
|
|
|
$
|
1,972
|
|
Payables to related party
|
—
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
345
|
|
|
(362
|
)
|
|
—
|
|
Total current liabilities
|
11
|
|
|
203
|
|
|
299
|
|
|
165
|
|
|
1,656
|
|
|
(362
|
)
|
|
1,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT
|
—
|
|
|
—
|
|
|
21,778
|
|
|
10,443
|
|
|
3,502
|
|
|
—
|
|
|
35,723
|
|
LOANS PAYABLE – RELATED PARTY
|
—
|
|
|
—
|
|
|
693
|
|
|
—
|
|
|
816
|
|
|
(1,509
|
)
|
|
—
|
|
DEFERRED INCOME TAXES
|
1,562
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28
|
|
|
—
|
|
|
1,590
|
|
OTHER LONG-TERM LIABILITIES
|
—
|
|
|
32
|
|
|
—
|
|
|
—
|
|
|
45
|
|
|
—
|
|
|
77
|
|
SHAREHOLDERS'/MEMBER'S EQUITY (DEFICIT)
|
(46
|
)
|
|
1,468
|
|
|
(506
|
)
|
|
1,322
|
|
|
11,303
|
|
|
(13,587
|
)
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders'/member's equity
|
$
|
1,527
|
|
|
$
|
1,703
|
|
|
$
|
22,264
|
|
|
$
|
11,930
|
|
|
$
|
17,350
|
|
|
$
|
(15,458
|
)
|
|
$
|
39,316
|
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Communications, Inc. and Subsidiaries
|
Condensed Consolidating Statements of Operations
|
For the six months ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Guarantor Subsidiaries
|
|
|
|
Guarantor Subsidiaries
|
|
|
|
|
|
Charter
|
|
Intermediate Holding Companies
|
|
Safari Escrow Entities
|
|
CCO Holdings
|
|
Charter Operating and Restricted Subsidiaries
|
|
Eliminations
|
|
Charter Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
$
|
162
|
|
|
$
|
391
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,691
|
|
|
$
|
(553
|
)
|
|
$
|
8,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses (exclusive of items shown separately below)
|
162
|
|
|
383
|
|
|
—
|
|
|
—
|
|
|
5,683
|
|
|
(553
|
)
|
|
5,675
|
|
Depreciation and amortization
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1,974
|
|
|
—
|
|
|
1,975
|
|
Other operating expenses, net
|
262
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(213
|
)
|
|
—
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
424
|
|
|
384
|
|
|
—
|
|
|
—
|
|
|
7,444
|
|
|
(553
|
)
|
|
7,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
(262
|
)
|
|
7
|
|
|
—
|
|
|
—
|
|
|
1,247
|
|
|
—
|
|
|
992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
—
|
|
|
5
|
|
|
(390
|
)
|
|
(350
|
)
|
|
(312
|
)
|
|
—
|
|
|
(1,047
|
)
|
Loss on extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
(110
|
)
|
|
—
|
|
|
—
|
|
|
(110
|
)
|
Loss on financial instruments, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(55
|
)
|
|
—
|
|
|
(55
|
)
|
Other expense, net
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
Equity in income (loss) of subsidiaries
|
(19
|
)
|
|
23
|
|
|
—
|
|
|
873
|
|
|
—
|
|
|
(877
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
|
23
|
|
|
(390
|
)
|
|
413
|
|
|
(367
|
)
|
|
(877
|
)
|
|
(1,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
(281
|
)
|
|
30
|
|
|
(390
|
)
|
|
413
|
|
|
880
|
|
|
(877
|
)
|
|
(225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX BENEFIT (EXPENSE)
|
3,160
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
3,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss)
|
2,879
|
|
|
28
|
|
|
(390
|
)
|
|
413
|
|
|
873
|
|
|
(877
|
)
|
|
2,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to noncontrolling interests
|
—
|
|
|
(47
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
2,879
|
|
|
$
|
(19
|
)
|
|
$
|
(390
|
)
|
|
$
|
413
|
|
|
$
|
873
|
|
|
$
|
(877
|
)
|
|
$
|
2,879
|
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Communications, Inc. and Subsidiaries
|
Condensed Consolidating Statements of Operations
|
For the six months ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Guarantor Subsidiaries
|
|
|
|
Guarantor Subsidiaries
|
|
|
|
|
|
|
|
Charter
|
|
Intermediate Holding Companies
|
|
Safari Escrow Entities
|
|
CCO Holdings
|
|
Charter Operating and Restricted Subsidiaries
|
|
Unrestricted Subsidiary
|
|
Eliminations
|
|
Charter Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
$
|
12
|
|
|
$
|
142
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,792
|
|
|
$
|
—
|
|
|
$
|
(154
|
)
|
|
$
|
4,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses (exclusive of items shown separately below)
|
12
|
|
|
142
|
|
|
—
|
|
|
—
|
|
|
3,182
|
|
|
—
|
|
|
(154
|
)
|
|
3,182
|
|
Depreciation and amortization
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,042
|
|
|
—
|
|
|
—
|
|
|
1,042
|
|
Other operating expenses, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
50
|
|
|
—
|
|
|
—
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
142
|
|
|
—
|
|
|
—
|
|
|
4,274
|
|
|
—
|
|
|
(154
|
)
|
|
4,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
518
|
|
|
—
|
|
|
—
|
|
|
518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
—
|
|
|
3
|
|
|
(65
|
)
|
|
(331
|
)
|
|
(78
|
)
|
|
(47
|
)
|
|
—
|
|
|
(518
|
)
|
Loss on extinguishment of debt
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
(123
|
)
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
(128
|
)
|
Loss on financial instruments, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
Equity in income (loss) of subsidiaries
|
(140
|
)
|
|
(164
|
)
|
|
—
|
|
|
357
|
|
|
(50
|
)
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(140
|
)
|
|
(161
|
)
|
|
(67
|
)
|
|
(97
|
)
|
|
(133
|
)
|
|
(50
|
)
|
|
(3
|
)
|
|
(651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
(140
|
)
|
|
(161
|
)
|
|
(67
|
)
|
|
(97
|
)
|
|
385
|
|
|
(50
|
)
|
|
(3
|
)
|
|
(133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE
|
(63
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss)
|
(203
|
)
|
|
(161
|
)
|
|
(67
|
)
|
|
(97
|
)
|
|
378
|
|
|
(50
|
)
|
|
(3
|
)
|
|
(203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income (loss) attributable to noncontrolling interests
|
—
|
|
|
21
|
|
|
—
|
|
|
—
|
|
|
(21
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(203
|
)
|
|
$
|
(140
|
)
|
|
$
|
(67
|
)
|
|
$
|
(97
|
)
|
|
$
|
357
|
|
|
$
|
(50
|
)
|
|
$
|
(3
|
)
|
|
$
|
(203
|
)
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Communications, Inc. and Subsidiaries
|
Condensed Consolidating Statements of Comprehensive Income (Loss)
|
For the six months ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Guarantor Subsidiaries
|
|
|
|
Guarantor Subsidiaries
|
|
|
|
|
|
Charter
|
|
Intermediate Holding Companies
|
|
Safari Escrow Entities
|
|
CCO Holdings
|
|
Charter Operating and Restricted Subsidiaries
|
|
Eliminations
|
|
Charter Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss)
|
$
|
2,879
|
|
|
$
|
28
|
|
|
$
|
(390
|
)
|
|
$
|
413
|
|
|
$
|
873
|
|
|
$
|
(877
|
)
|
|
$
|
2,926
|
|
Net impact of interest rate derivative instruments, net of tax
|
4
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|
4
|
|
|
(12
|
)
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
$
|
2,883
|
|
|
$
|
32
|
|
|
$
|
(390
|
)
|
|
$
|
417
|
|
|
$
|
877
|
|
|
$
|
(889
|
)
|
|
$
|
2,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Communications, Inc. and Subsidiaries
|
Condensed Consolidating Statements of Comprehensive Income (Loss)
|
For the six months ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Guarantor Subsidiaries
|
|
|
|
Guarantor Subsidiaries
|
|
|
|
|
|
|
|
Charter
|
|
Intermediate Holding Companies
|
|
Safari Escrow Entities
|
|
CCO Holdings
|
|
Charter Operating and Restricted Subsidiaries
|
|
Unrestricted Subsidiary
|
|
Eliminations
|
|
Charter Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss)
|
$
|
(203
|
)
|
|
$
|
(161
|
)
|
|
$
|
(67
|
)
|
|
$
|
(97
|
)
|
|
$
|
378
|
|
|
$
|
(50
|
)
|
|
$
|
(3
|
)
|
|
$
|
(203
|
)
|
Net impact of interest rate derivative instruments, net of tax
|
5
|
|
|
5
|
|
|
5
|
|
|
5
|
|
|
5
|
|
|
—
|
|
|
(20
|
)
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
$
|
(198
|
)
|
|
$
|
(156
|
)
|
|
$
|
(62
|
)
|
|
$
|
(92
|
)
|
|
$
|
383
|
|
|
$
|
(50
|
)
|
|
$
|
(23
|
)
|
|
$
|
(198
|
)
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Communications, Inc. and Subsidiaries
|
Condensed Consolidating Statements of Cash Flows
|
For the six months ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Guarantor Subsidiaries
|
|
|
|
Guarantor Subsidiaries
|
|
|
|
|
|
Charter
|
|
Intermediate Holding Companies
|
|
Safari Escrow Entities
|
|
CCO Holdings
|
|
Charter Operating and Restricted Subsidiaries
|
|
Eliminations
|
|
Charter Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS FROM OPERATING ACTIVITIES
|
$
|
(258
|
)
|
|
$
|
(13
|
)
|
|
$
|
(463
|
)
|
|
$
|
(321
|
)
|
|
$
|
3,069
|
|
|
$
|
—
|
|
|
$
|
2,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,689
|
)
|
|
—
|
|
|
(1,689
|
)
|
Change in accrued expenses related to capital expenditures
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
138
|
|
|
—
|
|
|
138
|
|
Purchases of cable systems, net of cash assumed
|
(26,781
|
)
|
|
(2,021
|
)
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
(28,810
|
)
|
Contributions to subsidiaries
|
(949
|
)
|
|
(478
|
)
|
|
—
|
|
|
(437
|
)
|
|
—
|
|
|
1,864
|
|
|
—
|
|
Distributions from subsidiaries
|
23,069
|
|
|
25,072
|
|
|
—
|
|
|
2,878
|
|
|
—
|
|
|
(51,019
|
)
|
|
—
|
|
Change in restricted cash and cash equivalents
|
—
|
|
|
—
|
|
|
22,264
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22,264
|
|
Other, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities
|
(4,661
|
)
|
|
22,573
|
|
|
22,264
|
|
|
2,441
|
|
|
(1,565
|
)
|
|
(49,155
|
)
|
|
(8,103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of long-term debt
|
—
|
|
|
—
|
|
|
—
|
|
|
3,201
|
|
|
2,796
|
|
|
—
|
|
|
5,997
|
|
Repayments of long-term debt
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,937
|
)
|
|
(1,133
|
)
|
|
—
|
|
|
(4,070
|
)
|
Borrowings (repayments) loans payable - related parties
|
—
|
|
|
(300
|
)
|
|
553
|
|
|
(71
|
)
|
|
(182
|
)
|
|
—
|
|
|
—
|
|
Payments for debt issuance costs
|
—
|
|
|
—
|
|
|
—
|
|
|
(73
|
)
|
|
(210
|
)
|
|
—
|
|
|
(283
|
)
|
Issuance of equity
|
5,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,000
|
|
Purchase of treasury stock
|
(99
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(99
|
)
|
Payment of preferred dividend to noncontrolling interest
|
—
|
|
|
(18
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(18
|
)
|
Proceeds from exercise of stock options
|
24
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
24
|
|
Proceeds from termination of interest rate derivatives
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
88
|
|
|
—
|
|
|
88
|
|
Contributions from parent
|
—
|
|
|
949
|
|
|
—
|
|
|
478
|
|
|
437
|
|
|
(1,864
|
)
|
|
—
|
|
Distributions to parent
|
—
|
|
|
(23,069
|
)
|
|
(22,353
|
)
|
|
(2,719
|
)
|
|
(2,878
|
)
|
|
51,019
|
|
|
—
|
|
Other, net
|
—
|
|
|
2
|
|
|
(1
|
)
|
|
1
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing activities
|
4,925
|
|
|
(22,436
|
)
|
|
(21,801
|
)
|
|
(2,120
|
)
|
|
(1,084
|
)
|
|
49,155
|
|
|
6,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
6
|
|
|
124
|
|
|
—
|
|
|
—
|
|
|
420
|
|
|
—
|
|
|
550
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period
|
$
|
6
|
|
|
$
|
124
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
425
|
|
|
$
|
—
|
|
|
$
|
555
|
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Communications, Inc. and Subsidiaries
|
Condensed Consolidating Statements of Cash Flows
|
For the six months ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Guarantor Subsidiaries
|
|
|
|
Guarantor Subsidiaries
|
|
|
|
|
|
|
|
Charter
|
|
Intermediate Holding Companies
|
|
Safari Escrow Entities
|
|
CCO Holdings
|
|
Charter Operating and Restricted Subsidiaries
|
|
Unrestricted Subsidiary
|
|
Eliminations
|
|
Charter Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FLOWS FROM OPERATING ACTIVITIES
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
(82
|
)
|
|
$
|
(349
|
)
|
|
$
|
1,548
|
|
|
$
|
(55
|
)
|
|
$
|
—
|
|
|
$
|
1,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(783
|
)
|
|
—
|
|
|
—
|
|
|
(783
|
)
|
Change in accrued expenses related to capital expenditures
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17
|
)
|
|
—
|
|
|
—
|
|
|
(17
|
)
|
Contribution to subsidiary
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
(31
|
)
|
|
(24
|
)
|
|
—
|
|
|
60
|
|
|
—
|
|
Distributions from subsidiaries
|
19
|
|
|
330
|
|
|
—
|
|
|
360
|
|
|
—
|
|
|
—
|
|
|
(709
|
)
|
|
—
|
|
Change in restricted cash and cash equivalents
|
—
|
|
|
—
|
|
|
3,598
|
|
|
—
|
|
|
—
|
|
|
3,513
|
|
|
—
|
|
|
7,111
|
|
Other, net
|
—
|
|
|
(54
|
)
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
|
—
|
|
|
—
|
|
|
(69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities
|
14
|
|
|
276
|
|
|
3,598
|
|
|
329
|
|
|
(839
|
)
|
|
3,513
|
|
|
(649
|
)
|
|
6,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of long-term debt
|
—
|
|
|
—
|
|
|
—
|
|
|
2,700
|
|
|
613
|
|
|
—
|
|
|
—
|
|
|
3,313
|
|
Repayments of long-term debt
|
—
|
|
|
—
|
|
|
(3,500
|
)
|
|
(2,599
|
)
|
|
(964
|
)
|
|
(3,482
|
)
|
|
—
|
|
|
(10,545
|
)
|
Borrowings (payments) loans payable - related parties
|
—
|
|
|
—
|
|
|
(16
|
)
|
|
16
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Payments for debt issuance costs
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(24
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25
|
)
|
Purchase of treasury stock
|
(23
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(23
|
)
|
Proceeds from exercise of stock options
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
Contributions from parent
|
—
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
31
|
|
|
24
|
|
|
(60
|
)
|
|
—
|
|
Distributions to parent
|
—
|
|
|
(276
|
)
|
|
—
|
|
|
(73
|
)
|
|
(360
|
)
|
|
—
|
|
|
709
|
|
|
—
|
|
Other, net
|
1
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing activities
|
(16
|
)
|
|
(273
|
)
|
|
(3,516
|
)
|
|
20
|
|
|
(680
|
)
|
|
(3,458
|
)
|
|
649
|
|
|
(7,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29
|
|
|
—
|
|
|
—
|
|
|
27
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
29
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
30
|
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
21.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09,
Revenue from Contracts with Customers
("ASU 2014-09"), which is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The new standard provides a single principles-based, five-step model to be applied to all contracts with customers, which steps are to (1) identify the contract(s) with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when each performance obligation is satisfied. More specifically, revenue will be recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services. ASU 2014-09 will be effective, reflecting the one-year deferral, for interim and annual periods beginning after December 15, 2017 (January 1, 2018 for the Company). Early adoption of the standard is permitted but not before the original effective date. Companies can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is currently in the process of evaluating the impact that the adoption of ASU 2014-09 will have on its consolidated financial statements and the selected method of transition to the new standard.
In April 2015, the FASB issued ASU No. 2015-05,
Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement
("ASU 2015-05"), which provides guidance in determining whether fees for purchasing cloud computing services (or hosted software solutions) are considered internal-use software or should be considered a service contract. The cloud computing agreement that includes a software license should be accounted for in the same manner as internal-use software if customer has contractual right to take possession of the software during the hosting period without significant penalty and it is feasible to either run the software on customer’s hardware or contract with another vendor to host the software. Arrangements that don’t meet the requirements for internal-use software should be accounted for as a service contract. ASU 2015-05 was effective for interim and annual periods beginning after December 15, 2015 (January 1, 2016 for the Company). The adoption of ASU 2015-05 did not have a material impact on the Company's financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
Leases
(“ASU 2016-02”), which requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. Lessees are allowed to account for short-term leases (i.e., leases with a term of 12 months or less) off-balance sheet, consistent with current operating lease accounting. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. ASU 2016-02 will be effective for interim and annual periods beginning after December 15, 2018 (January 1, 2019 for the Company). Early adoption is permitted. The new standard requires a modified retrospective transition through a cumulative-effect adjustment as of the beginning of the earliest period presented in the financial statements. The Company is currently in the process of evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09,
Improvements to Employee Share-Based Payment Accounting
(“ASU 2016-09”), which includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. The new standard (1) requires all excess tax benefits and deficiencies to be recognized as income tax expense or benefit in the income statement in the period in which they occur regardless of whether the benefit reduces taxes payable in the current period, (2) requires classification of excess tax benefits as an operating activity on the statements of cash flows, (3) allows an entity to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur and (4) causes the threshold under which employee share-based awards partially settled in cash can qualify for equity classification to increase to the maximum statutory tax rates in the applicable jurisdiction. ASU 2016-09 will be effective for interim and annual periods after December 15, 2016 (January 1, 2017 for the Company). Early adoption of the standard is permitted but requires adoption of all provisions included in the amendment in the same period. The new standard generally requires a modified retrospective transition through a cumulative-effect adjustment as of the beginning of the period of adoption, with certain provisions requiring either a prospective or retrospective transition. The Company is currently in the process of evaluating the impact that the adoption of ASU 2016-09 will have on its consolidated financial statements.