CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
The effect of financial instruments on the consolidated statements of operations is presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Gain (Loss) on Financial Instruments, Net:
|
|
|
|
|
|
|
|
Change in fair value of cross-currency derivative instruments
|
(10
|
)
|
|
68
|
|
|
$
|
(63
|
)
|
|
$
|
126
|
|
Foreign currency remeasurement of Sterling Notes to U.S. dollars
|
22
|
|
|
(50
|
)
|
|
63
|
|
|
(141
|
)
|
Other, net
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
$
|
12
|
|
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
(15
|
)
|
9. Fair Value Measurements
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.
|
Financial Assets and Liabilities
The Company has estimated the fair value of its financial instruments as of
September 30, 2018
and
December 31, 2017
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, restricted cash, receivables, payables and other current assets and liabilities approximate fair value because of the short maturity of those instruments.
A portion of the Company’s cash and cash equivalents as of
September 30, 2018
and
December 31, 2017
were invested in money market funds. The money market funds are valued at the closing price reported by the fund sponsor from an actively traded exchange which approximates fair value. The money market funds potentially subject the Company to concentration of credit risk. The amount invested within any one financial instrument did not exceed
$300 million
as of
September 30, 2018
and
December 31, 2017
. As of
September 30, 2018
and
December 31, 2017
, there were no significant concentrations of financial instruments in a single investee, industry or geographic location.
Financial instruments accounted for at fair value on a recurring basis are presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 1
|
|
Level 2
|
Assets
|
|
|
|
|
|
|
|
Money market funds
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
291
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Cross-currency derivative instruments
|
$
|
—
|
|
|
$
|
88
|
|
|
$
|
—
|
|
|
$
|
25
|
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
A summary of the carrying value and fair value of debt as of
September 30, 2018
and
December 31, 2017
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
Senior notes and debentures
|
|
$
|
62,981
|
|
|
$
|
62,966
|
|
|
$
|
60,844
|
|
|
$
|
63,443
|
|
Credit facilities
|
|
$
|
9,493
|
|
|
$
|
9,577
|
|
|
$
|
9,387
|
|
|
$
|
9,440
|
|
The estimated fair value of the Company’s senior notes and debentures as of
September 30, 2018
and
December 31, 2017
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. The carrying amount of the consolidated variable interest entity's mortgage note liability approximates fair value.
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 material impairments were recorded during the
three and nine
months ended
September 30, 2018
and
2017
.
10. 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 September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Programming
|
$
|
2,778
|
|
|
$
|
2,699
|
|
|
$
|
8,333
|
|
|
$
|
7,952
|
|
Regulatory, connectivity and produced content
|
546
|
|
|
523
|
|
|
1,639
|
|
|
1,553
|
|
Costs to service customers
|
1,854
|
|
|
1,823
|
|
|
5,492
|
|
|
5,385
|
|
Marketing
|
790
|
|
|
761
|
|
|
2,310
|
|
|
2,286
|
|
Mobile
|
94
|
|
|
—
|
|
|
135
|
|
|
—
|
|
Other
|
950
|
|
|
897
|
|
|
2,812
|
|
|
2,681
|
|
|
$
|
7,012
|
|
|
$
|
6,703
|
|
|
$
|
20,721
|
|
|
$
|
19,857
|
|
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. Included in regulatory, connectivity and produced content costs is content acquisition costs for the Los Angeles Lakers’ basketball games and Los Angeles Dodgers’ baseball games, which are recorded as games are exhibited over the applicable season. 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 the non-capitalizable portion of installations, service and repairs, maintenance, bad debt expense, 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. Mobile costs represent costs associated with the Company's mobile service such as device and service costs, marketing, sales and commissions, retail stores, personnel costs and taxes, among others. Other includes corporate overhead, advertising sales expenses, indirect costs associated with the Company’s enterprise business customers and regional sports and news networks, property tax and insurance expense and stock compensation expense, among others.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
11. Other Operating Expenses, Net
Other operating expenses, net consist of the following for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Merger and restructuring costs
|
$
|
14
|
|
|
$
|
67
|
|
|
$
|
90
|
|
|
$
|
293
|
|
Special charges, net
|
—
|
|
|
80
|
|
|
35
|
|
|
86
|
|
(Gain) loss on sale of assets, net
|
4
|
|
|
(2
|
)
|
|
(9
|
)
|
|
(5
|
)
|
|
$
|
18
|
|
|
$
|
145
|
|
|
$
|
116
|
|
|
$
|
374
|
|
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 acquisition in 2016 of Time Warner Cable Inc. ("TWC") and Bright House Networks, LLC ("Bright House") and other exit costs. Changes in accruals for merger and restructuring costs are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Retention Costs
|
|
Employee Termination Costs
|
|
Transaction and Advisory Costs
|
|
Other Costs
|
|
Total
|
Liability, December 31, 2016
|
$
|
7
|
|
|
$
|
244
|
|
|
$
|
25
|
|
|
$
|
—
|
|
|
$
|
276
|
|
Costs incurred
|
4
|
|
|
226
|
|
|
4
|
|
|
68
|
|
|
302
|
|
Cash paid
|
(10
|
)
|
|
(298
|
)
|
|
(12
|
)
|
|
(60
|
)
|
|
(380
|
)
|
Remaining liability, December 31, 2017
|
1
|
|
|
172
|
|
|
17
|
|
|
8
|
|
|
198
|
|
Costs incurred
|
—
|
|
|
59
|
|
|
1
|
|
|
25
|
|
|
85
|
|
Cash paid
|
—
|
|
|
(155
|
)
|
|
—
|
|
|
(23
|
)
|
|
(178
|
)
|
Remaining liability, September 30, 2018
|
$
|
1
|
|
|
$
|
76
|
|
|
$
|
18
|
|
|
$
|
10
|
|
|
$
|
105
|
|
In addition to the costs incurred indicated above, the Company recorded
$5 million
of expense related to accelerated vesting of equity awards of terminated employees during the
nine
months ended
September 30, 2018
, and
$6 million
and
$43 million
during the
three and nine
months ended
September 30, 2017
, respectively.
Special charges, net
Special charges, net primarily includes employee termination costs not related to the acquisition of TWC and Bright House and net amounts of litigation settlements. The
nine
months ended
September 30, 2018
includes a
$22 million
charge related to the Company's withdrawal liability from a multiemployer pension plan while the three and nine months ended September 30, 2017 includes an
$83 million
charge related to the Company's withdrawal liability from a multiemployer pension plan.
(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.
12. 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 limited liability companies that are generally 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 income tax. Generally, the taxable income, gains, losses, deductions and credits of Charter Holdings are passed through
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
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 Charter Holdings Limited Liability Company Agreement (“LLC Agreement”) and partnership tax rules and regulations. As a result, Charter's primary deferred tax component recorded in the consolidated balance sheets relates to its excess financial reporting outside basis, excluding amounts attributable to nondeductible goodwill, over Charter's tax basis in the investment in Charter Holdings.
The Company recorded income tax expense of
$109 million
and
$178 million
for the
three and nine
months ended
September 30, 2018
, respectively, and
$26 million
and
$99 million
for the
three and nine
months ended
September 30, 2017
, respectively. Income tax expense increased year over year as a result of higher pretax income offset by the impacts of federal tax reform
.
The Company has reported provisional amounts for the income tax effects of Tax Cuts & Jobs Act (“Tax Reform”) for which the accounting is incomplete but a reasonable estimate could be determined. There were no specific impacts of Tax Reform that could not be reasonably estimated which the Company accounted for under prior tax law. Based on a continued analysis of the estimates and further guidance on the application of the law, it is anticipated that additional revisions may occur throughout the allowable measurement period. During the three months ended September 30, 2018, a
$12 million
income tax benefit was recorded to update existing estimates reflecting more complete information. The final update is expected during the fourth quarter of 2018.
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.
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. The Company has recorded unrecognized tax benefits totaling approximately
$171 million
and
$164 million
, excluding interest and penalties, as of
September 30, 2018
and
December 31, 2017
, respectively. The Company does not currently anticipate that its reserve for uncertain tax positions will significantly increase or decrease during 2018; 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 or Charter Communications Holding Company, LLC for income tax purposes, are currently under examination by the Internal Revenue Service ("IRS"). Charter's 2016 and 2017 tax years remain open for examination and assessment. Charter’s tax years ending 2015 through the short period return dated May 17, 2016 (prior to the acquisition of TWC and Bright House) remain subject to examination and assessment. Years prior to 2015 remain open solely for purposes of examination of Charter’s loss and credit carryforwards. The IRS is currently examining Charter Holdings’ income tax return for 2016. Charter Holdings’ 2017 tax year remains open for examination. The IRS is currently examining TWC’s income tax returns for 2011 through 2014. TWC’s tax year 2015 remains subject to examination and assessment. Prior to TWC’s separation from Time Warner Inc. (“Time Warner”) in March 2009 (the “Separation”), 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. 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 during the
three and nine
months ended
September 30, 2018
, nor does the Company anticipate a material impact in the future.
13. Earnings Per Share
Basic earnings per common share is computed by dividing net income attributable to Charter shareholders by 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 and 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
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
stock units, equity awards with market conditions and Charter Holdings convertible preferred units and common units. Charter Holdings common and convertible preferred units of
30 million
and
31 million
for the
three and nine
months ended
September 30, 2018
, respectively, and
35 million
and
37 million
for the
three and nine
months ended
September 30, 2017
, respectively, were not included in the computation of diluted earnings per share as their effect would have been antidilutive. The following is the computation of diluted earnings per common share for the
three and nine
months ended
September 30, 2018
and
2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Numerator:
|
|
|
|
|
|
|
|
Net income attributable to Charter shareholders
|
$
|
493
|
|
|
$
|
48
|
|
|
$
|
934
|
|
|
$
|
342
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
230,554,633
|
|
|
253,923,805
|
|
|
234,159,830
|
|
|
262,074,603
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Assumed exercise or issuance of shares relating to stock plans
|
3,052,781
|
|
|
4,418,046
|
|
|
3,184,094
|
|
|
4,288,999
|
|
Weighted average common shares outstanding, diluted
|
233,607,414
|
|
|
258,341,851
|
|
|
237,343,924
|
|
|
266,363,602
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share attributable to Charter shareholders
|
$
|
2.14
|
|
|
$
|
0.19
|
|
|
$
|
3.99
|
|
|
$
|
1.31
|
|
Diluted earnings per common share attributable to Charter shareholders
|
$
|
2.11
|
|
|
$
|
0.19
|
|
|
$
|
3.93
|
|
|
$
|
1.29
|
|
14.
Related Party Transactions
The following sets forth certain transactions in which the Company and the directors, executive officers, and affiliates of the Company are involved.
Liberty Broadband and A/N
Under the terms of the Amended and Restated Stockholders Agreement with Liberty Broadband Corporation (“Liberty Broadband”), A/N and Charter, dated May 23, 2015, the number of Charter’s directors is fixed at 13, and includes its CEO. Two designees selected by A/N are members of the board of directors of Charter and three designees selected by Liberty Broadband are members of the board of directors of Charter. 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 Charter’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 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 Charter (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 and 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. Mr. Thomas Rutledge, the Company’s CEO, is the chairman of the board of Charter.
In December 2017, Charter and A/N entered into an amendment to the letter agreement (the “Letter Agreement”) that requires A/N to sell to Charter or to Charter Holdings, on a monthly basis, a number of shares of Charter Class A common stock or Charter Holdings common units that represents a pro rata participation by A/N and its affiliates in any repurchases of shares of Charter Class A common stock from persons other than A/N effected by Charter during the immediately preceding calendar month, at a purchase price equal to the average price paid by Charter for the shares repurchased from persons other than A/N during such immediately preceding calendar month. A/N and Charter both have the right to terminate or suspend the pro rata repurchase arrangement on a prospective basis once Charter or Charter Holdings have repurchased shares of Class A common stock or Charter Holdings common units from A/N and its affiliates for an aggregate purchase price of
$400 million
which threshold has been reached.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
The Company is aware that Dr. John Malone, a director emeritus of Charter and Chairman of the board of directors and holder of
47.1%
of voting interest in Liberty Broadband, may be deemed to have a
37.5%
voting interest in Qurate Retail, Inc. ("Qurate," formerly known as Liberty Interactive Corporation) and is on the board of directors of Qurate. Qurate wholly owns HSN, Inc. (“HSN”) and QVC, Inc. (“QVC”). The Company has programming relationships with HSN and QVC. For the
three and nine
months ended
September 30, 2018
, the Company recorded revenue in aggregate of approximately
$18 million
and
$51 million
, respectively, and for the
three and nine
months ended
September 30, 2017
, the Company recorded revenue in aggregate of approximately
$17 million
and
$50 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, a member of Charter’s board of directors, also serve on the board of directors of Discovery Communications, Inc., (“Discovery”). The Company is aware that Dr. Malone owns
93.6%
of the series B common stock of Discovery,
6%
of the series C common stock of Discovery and has a
28%
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 of which Mr. Miron is the CEO, owns
100%
of the Series A-1 preferred stock of Discovery and
100%
of the Series C-1 preferred stock of Discovery and has a
24.2%
voting interest for the election of directors. A/N PP has the right to appoint three directors out of a total of eleven directors to Discovery’s board to be elected by the holders of Discovery’s Series A-1 preferred stock. The Company purchases programming from Discovery pursuant to agreements entered into prior to Dr. Malone and Mr. Miron joining Charter’s board of directors. Based on publicly available information, the Company does not believe that Discovery would currently be considered a related party. The amount paid in the aggregate to Discovery represents less than
3%
of total operating costs and expenses for the
three and nine
months ended
September 30, 2018
and
2017
.
Equity Investments
The Company has agreements with certain equity-method investees pursuant to which the Company has made or received related party transaction payments. The Company recorded payments to equity-method investees totaling
$99 million
and
$248 million
during the
three and nine
months ended
September 30, 2018
, respectively, and
$62 million
and
$208 million
during the
three and nine
months ended
September 30, 2017
, respectively.
15.
Contingencies
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 involving Charter, TWC, A/N, and Liberty Broadband announced by Charter on May 26, 2015. The lawsuit, which named as defendants Charter and its board of directors, alleged that the transactions resulted from breaches of fiduciary duty by Charter’s directors and that Liberty Broadband improperly benefited from the challenged transactions at the expense of other Charter stockholders. The lawsuit has proceeded to the discovery phase. Charter denies any liability, believes that it has substantial defenses, and intends to vigorously defend this lawsuit. Although Charter is unable to predict the outcome of this lawsuit, it does not expect the outcome will have a material effect on its operations, financial condition or cash flows.
The California Attorney General and the Alameda County, California District Attorney are investigating whether certain of 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 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 TWC infringed certain U.S. patents purportedly relating to Voice over Internet Protocol (“VoIP”) services. A trial began on February 13, 2017. On March 3, 2017 the jury returned a verdict of
$140 million
against TWC and further concluded that TWC had willfully infringed Sprint’s patents. The court subsequently declined to enhance the damage award as a result of the purported willful infringement and awarded Sprint an additional
$6 million
, representing pre-judgment interest on the damages award. The Company has appealed the case to the United States Court of Appeals for the Federal Circuit. In addition to its appeal, the Company continues to pursue indemnity from one of its vendors and has brought a patent suit against Sprint (TC Tech, LLC v. Sprint) in the U.S. District Court for the District of Delaware implicating Sprint's LTE technology. The impact of the Sprint verdict was reflected in the measurement period adjustments to net current liabilities. The Company does not
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
expect that the outcome of this litigation will have a material adverse effect on its operations or financial condition. The ultimate outcome of this litigation or the pursuit of indemnity against the Company’s vendor cannot be predicted.
Sprint filed a second suit against Charter on December 2, 2017 in the United States District Court for the District of Delaware. This suit alleges infringement of 15 patents related to the Company's provision of VoIP services (ten of which were already asserted against Legacy TWC in the matter described above). Charter will vigorously defend this case. While the Company is unable to predict the outcome of this Sprint suit, it does not expect that this litigation will have a material effect on its operations, financial condition, or cash flows.
Sprint filed a third suit against Charter on May 17, 2018 in the United States District Court for the Eastern District of Virginia. This suit alleges infringement of three patents related to the Company's video on demand services. The Company will vigorously defend this case. While the Company is unable to predict the outcome of this litigation, it does not expect that this litigation will have a material effect on its operations, financial condition, or cash flows.
The New York Public Service Commission (the “PSC”) has issued multiple orders against Charter including two orders on July 27, 2018 relating to the agreement by which the PSC approved Charter’s merger with TWC. One order finds that Charter had failed to satisfy one of its merger conditions by not extending its high speed broadband network according to the PSC’s recent interpretation of which homes and businesses Charter built to should count, and it directs the initiation of a court action to impose financial and other penalties on Charter. The second order, rescinds the PSC’s January 2016 approval of Charter’s acquisition of TWC’s New York operations and directs Charter to submit a plan to effect an orderly transition to a successor provider or providers for Charter to cease operations in New York within six months of the order. As the PSC and Charter have entered into discussions with the possibility of resolving the PSC related matters, the PSC has extended such deadline on three occasions with the last extension requiring submission of an exit plan by December 24, 2018. On July 30, 2018, the PSC filed a petition for penalties and injunctive relief in the Supreme Court of the State of New York seeking penalties of
$100,000
per day from June 18, 2018 and until Charter complies with the PSC order and also seeks injunctive relief from the court to enjoin failure to comply with the New York Public Service Laws or any regulation or order of the PSC. While the Company believes the actions by the PSC are without merit and intends to defend the actions vigorously and does not believe the results of the proceedings will have a material adverse effect on Charter, no assurance can be given that, should an adverse outcome result, it would not be material to its consolidated financial condition, results of operations or liquidity. The Company cannot predict the outcome of the PSC claims, including any negotiations, nor can it reasonably estimate a range of possible loss in the event of an adverse result.
On October 23, 2015, the New York Office of the Attorney General (the “NY AG”) began an investigation of TWC's advertised Internet speeds and other Internet product advertising. On February 1, 2017, the NY AG filed suit in the Supreme Court for the State of New York alleging that TWC's advertising of Internet speeds was false and misleading. The suit seeks restitution and injunctive relief. The Company continues to defend itself vigorously. Although no assurances can be made that such defenses would ultimately be successful, the Company does not expect that the outcome of this litigation will have a material adverse effect on its operations, financial condition or cash flows.
In addition to the Sprint litigation described above, the Company is a defendant or co-defendant in several additional 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 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 other lawsuits, claims and regulatory inquiries that arise in the ordinary course of conducting its business. 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.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
16.
Stock Compensation Plans
Charter’s 2009 Stock Incentive Plan 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.
Charter granted the following equity awards for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Stock options
|
24,200
|
|
|
20,900
|
|
|
1,490,700
|
|
|
1,167,100
|
|
Restricted stock
|
500
|
|
|
—
|
|
|
10,200
|
|
|
9,500
|
|
Restricted stock units
|
13,500
|
|
|
5,100
|
|
|
518,900
|
|
|
283,000
|
|
Charter stock options and restricted stock units generally cliff vest upon the
three
year anniversary of each grant. Certain stock options and restricted stock units vest based on achievement of stock price hurdles. Stock options generally expire
ten
years from the grant date and restricted stock units have no voting rights. Restricted stock generally vests
one
year from the date of grant. 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.
As of
September 30, 2018
, total unrecognized compensation remaining to be recognized in future periods totaled
$235 million
for stock options,
$2 million
for restricted stock and
$224 million
for restricted stock units and the weighted average period over which they are expected to be recognized is
two
years for stock options,
one
year for restricted stock and
two
years for restricted stock units.
The Company recorded
$71 million
and
$213 million
of stock compensation expense for the
three and nine
months ended
September 30, 2018
, respectively, and
$64 million
and
$198 million
or the
three and nine
months ended and
September 30, 2017
, respectively, which is included in operating costs and expenses. The Company also recorded
$5 million
for the nine months ended
September 30, 2018
, and
$6 million
and
$43 million
for the
three and nine
months ended
September 30, 2017
, respectively, of expense related to accelerated vesting of equity awards of terminated employees, which is recorded in merger and restructuring costs in other operating expenses, net in the consolidated statements of operations.
17.
Employee Benefit 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 employees who were employed by TWC before the acquisition of TWC. 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. No future compensation increases or future service will be credited to participants of the pension plans given the frozen nature of the plans.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
The components of net periodic pension benefit (costs) for the
three and nine
months ended
September 30, 2018
and
2017
are recorded in other pension benefits (costs) in the consolidated statements of operations and consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Interest cost
|
$
|
(32
|
)
|
|
$
|
(33
|
)
|
|
$
|
(96
|
)
|
|
$
|
(101
|
)
|
Expected return on plan assets
|
52
|
|
|
46
|
|
|
156
|
|
|
140
|
|
Remeasurement gain (loss), net
|
187
|
|
|
(30
|
)
|
|
187
|
|
|
(30
|
)
|
Net periodic pension benefit (costs)
|
$
|
207
|
|
|
$
|
(17
|
)
|
|
$
|
247
|
|
|
$
|
9
|
|
During the three and nine months ended September 30, 2018 and 2017, settlements for lump-sum distributions to qualified and nonqualified pension plan participants exceeded the estimated annual interest cost of the plans. As a result, the pension liability and pension asset values were reassessed as of September 30, 2018 and 2017 utilizing remeasurement date assumptions in accordance with the Company's mark-to-market pension accounting policy to record gains and losses in the period in which a remeasurement event occurs. The
$187 million
remeasurement gain recorded during the three and nine months ended September 30, 2018 was primarily driven by the effects of an increase of the discount rate from
3.68%
at December 31, 2017 to
4.24%
at September 30, 2018. This was partially offset by a loss to record pension assets to fair value at September 30, 2018. The
$30 million
remeasurement loss recorded during the three and nine months ended September 30, 2017 was primarily driven by the adoption of the revised lump sum conversion mortality tables published by the Internal Revenue Service effective January 1, 2018, and the effects of a decrease of the discount rate from
4.20%
at December 31, 2016 to
3.88%
at September 30, 2017. The effects of these changes were partially offset by a gain to record pension assets to fair value at September 30, 2017. The expected long-term rate of return on plan assets has decreased from
6.50%
at December 31, 2017 to
5.75%
at September 30, 2018 reflecting changes in the mix of plan assets.
The Company made no cash contributions to the qualified pension plans during the
three and nine
months ended
September 30, 2018
and
2017
; 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 2018 to the extent benefits are paid.
18.
Recently Issued Accounting Standards
Accounting Standards Adopted January 1, 2018
ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”)
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09 which is a comprehensive revenue recognition standard that superseded nearly all revenue recognition guidance under U.S. GAAP. ASU 2014-09 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.
The Company adopted ASU 2014-09 as of January 1, 2018 using the modified retrospective transition method with a cumulative-effect adjustment to equity. The adoption of ASU 2014-09 did not have a material impact on the Company’s financial position or results of operation. Previously reported results will not be restated under this transition method. The adoption results in the deferral of residential and small and medium business installation revenues and enterprise commission expenses over a period of time instead of recognized immediately. The adoption also results in the reclassification of the amortization of up-front fees paid to market and serve customers who reside in residential MDUs to operating costs and expenses instead of amortized as an intangible to depreciation and amortization expense.
The January 1, 2018 adoption cumulative-effect adjustment consisted of an increase to other noncurrent assets of
$120 million
, an increase to accounts payable and accrued liabilities of
$71 million
, an increase to deferred income tax liabilities of
$11 million
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
and an increase to total shareholders’ equity of
$38 million
. The Company applied the cumulative-effect adjustment to all contracts as of January 1, 2018. Operating results for the
three and nine
months ended
September 30, 2018
are not materially different than results that would have been reported under guidance in effect before application of ASU 2014-09.
Nature of Services
Residential Services
Residential customers are offered video, Internet and voice services primarily on a subscription basis. Residential customers may generally cancel their subscriptions at any time without penalty. Each subscription service provided is accounted for as a distinct performance obligation and revenue is recognized ratably over a one month service period as the subscription services are delivered. Each optional service purchased is generally accounted for as a distinct performance obligation when purchased and revenue is recognized when the service is provided.
Residential video customers have the option to purchase additional tiers of services, as well as video-on-demand (“VOD”) programming and pay-per-view programming on a per-event basis. Video revenues consist primarily of revenues from the selected programming service tier, as well as VOD fees, pay-per-view fees, retransmission fees, regulatory fees, equipment service fees and video installation fees.
Residential Internet customers receive data download and upload services with speeds dependent on the selected tier of service. Customers are also offered a security suite, an in-home WiFi product, and an out-of-home WiFi service. Internet revenues consist primarily of data services, WiFi service fees and Internet installation fees.
Residential voice customers receive unlimited local and long distance calling to United States, Canada, Mexico, and Puerto Rico, voicemail, call waiting, caller ID, call forward and other features. Customers may also purchase international calling either by the minute, or through packages of minutes per month. Voice revenues consist primarily of voice services and regulatory fees.
Small and Medium Business
Small and medium business customers are offered video, Internet and voice services similar to those provided to residential customers. Small and medium business customers may generally cancel their subscriptions at any time without penalty. Each subscription service provided is accounted for as a distinct performance obligation and revenue is recognized ratably over a one month service period as the subscription services are delivered.
Enterprise Solutions
Enterprise Solutions include fiber-delivered communications and managed information technology solutions to larger businesses, as well as high-capacity last-mile data connectivity services to mobile and wireline carriers, Internet service providers, and other competitive carriers on a wholesale basis. Services are primarily offered on a subscription basis with a contractually specified and non-cancelable service period. The non-cancelable contract terms for enterprise services generally range from two to seven years. Each subscription service provided is accounted for as a distinct performance obligation and revenue is recognized ratably over the contract period as the subscription services are delivered. Enterprise subscription services are billed as monthly recurring charges to customers and related installation services, if applicable, are billed upon completion of the customer installation. Installation services are not accounted for as distinct performance obligations, but rather a component of the connectivity services, and therefore upfront installation fees are deferred and recognized as revenue over the related contract period.
Advertising Services
The Company offers local, regional and national businesses the opportunity to advertise in individual and multiple markets on cable television networks and digital outlets. Placement of advertising is accounted for as a distinct performance obligation and revenue is recognized at the point in time when the advertising is distributed. In some markets, the Company has formed advertising interconnects or entered into representation agreements with other video distributors, under which the Company sells advertising on behalf of those distributors. In other markets, the Company has entered into representation agreements under which another operator in the area will sell advertising on the Company’s behalf. For representation arrangements in which the Company controls the sale of advertising and acts as the principal to the transaction, the Company recognizes revenue earned from the advertising
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
customer on a gross basis and the amount remitted to the distributor as an operating expense. For other representation arrangements in which the Company does not control the sale of advertising and acts as an agent to the transaction, the Company recognizes revenue net of any fee remitted to the distributor.
Mobile
At the end of the second quarter of 2018, the Company launched its mobile product which is available to residential customers subscribing to its Internet service. Mobile services are sold under an unlimited data plan or a by-the-gig data usage plan and revenue is recognized as the services are provided. Customers can purchase mobile devices and accessory products and have the option to pay for devices under an installment plan. Revenue is recognized from the sale of devices at the time of shipment.
The Company’s revenues by product line are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Video
|
$
|
4,332
|
|
|
$
|
4,208
|
|
|
$
|
12,987
|
|
|
$
|
12,401
|
|
Internet
|
3,809
|
|
|
3,555
|
|
|
11,286
|
|
|
10,464
|
|
Voice
|
512
|
|
|
611
|
|
|
1,599
|
|
|
1,955
|
|
Residential revenue
|
8,653
|
|
|
8,374
|
|
|
25,872
|
|
|
24,820
|
|
|
|
|
|
|
|
|
|
Small and medium business
|
922
|
|
|
896
|
|
|
2,737
|
|
|
2,652
|
|
Enterprise
|
632
|
|
|
594
|
|
|
1,881
|
|
|
1,761
|
|
Commercial revenue
|
1,554
|
|
|
1,490
|
|
|
4,618
|
|
|
4,413
|
|
|
|
|
|
|
|
|
|
Advertising sales
|
440
|
|
|
373
|
|
|
1,223
|
|
|
1,091
|
|
Mobile
|
17
|
|
|
—
|
|
|
17
|
|
|
—
|
|
Other
|
228
|
|
|
221
|
|
|
673
|
|
|
655
|
|
|
$
|
10,892
|
|
|
$
|
10,458
|
|
|
$
|
32,403
|
|
|
$
|
30,979
|
|
Fees imposed on the Company by various governmental authorities are passed through on a monthly basis to the Company’s customers and are periodically remitted to authorities. Fees of
$239 million
and
$730 million
for the
three and nine
months ended
September 30, 2018
, respectively, and
$244 million
and
$717 million
for the
three and nine
months ended
September 30, 2017
, respectively, are reported in video, voice, mobile and commercial revenues, on a gross basis with a corresponding operating expense because the Company is acting as a principal. Certain taxes, such as sales taxes imposed on the Company’s customers, collected and remitted to state and local authorities, are recorded on a net basis because the Company is acting as an agent in such situation.
A significant portion of our revenue is derived from customers who may generally cancel their subscriptions at any time without penalty. As such, the amount of revenue related to unsatisfied performance obligations is not necessarily indicative of the future revenue to be recognized from our existing customer base. Revenue from customers with a contractually specified term and non-cancelable service period will be recognized over the term of such contracts, which is generally two to seven years for our enterprise contracts.
Significant Judgments
The Company often provides multiple services to a customer. Provision of customer premise equipment, installation services, and additional service tiers may have a significant level of integration and interdependency with the subscription video, Internet, voice, or connectivity services provided. Judgment is required to determine whether provision of customer premise equipment, installation services, and additional service tiers are considered distinct and accounted for separately, or not distinct and accounted for together with the subscription services.
Allocation of the transaction price to the distinct performance obligations in bundled residential service subscriptions requires judgment. The transaction price for a bundle of residential services is frequently less than the sum of the standalone selling prices of each individual service. The Company allocates the residential services bundle discount among the services to which the
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
discount relates based on the relative standalone selling prices of those services. Standalone selling prices for the Company’s residential video and Internet services are directly observable, while standalone selling price for the Company’s residential voice service is estimated using the adjusted market assessment approach which relies upon information from peers and competitors who sell residential voice services individually.
The Company believes residential and small and medium business non-refundable upfront installation fees charged to customers result in a material right to renew the contract as such fees are not required to be paid upon subsequent renewals. The residential and small and medium business upfront fee is deferred over the period the fee remains material to the customer, which the Company has estimated to be approximately six months. Estimation of the period the fee remains material to the customer requires consideration of both quantitative and qualitative factors including average installation fee, average revenue per customer, and customer behavior, among others.
Contract Liabilities
Timing of revenue recognition may differ from the timing of invoicing to customers. Residential, small and medium business, and enterprise customers are invoiced for subscription services in advance of the service period. Deferred revenue liabilities, or contract liabilities, are recorded when the Company collects payments in advance of performing the services. Deferred revenue liabilities, or contract liabilities, are also recorded when the Company invoices customers upfront for installation services that are recognized as revenue over time. Residential and small and medium business installation revenues are deferred over the period the fee remains material to the customer. Enterprise installation revenues are deferred using a portfolio approach over the average contract life of each enterprise service category. As of
September 30, 2018
, current deferred revenue liabilities consisting of refundable customer prepayments of
$410 million
and upfront installation fees of
$88 million
were included in accounts payable and accrued liabilities. As of
September 30, 2018
, long-term deferred revenue liabilities consisting of enterprise upfront installation fees of
$34 million
were included in other long-term liabilities.
Contract Costs
The Company recognizes an asset for incremental costs of obtaining a contract with a customer if the amortization period of those costs is expected to be longer than one year and the costs are expected to be recovered. Enterprise sales commission costs meet the requirements to be deferred and, as a result, are recognized using a portfolio approach over a commission expense weighted-average enterprise contract period. Deferred enterprise commission costs are included in other noncurrent assets in the consolidated balance sheet and totaled
$138 million
as of
September 30, 2018
. As the amortization period of residential and small and medium business commissions costs is less than one year, the Company applies the practical expedient that allows such costs to be expensed as incurred. The Company has determined that the amortization period associated with residential and small and medium business commission costs is less than one year based on qualitative and quantitative factors.
The Company recognizes an asset for costs incurred to fulfill a contract when those costs are directly related to services provided under the contract, generate or enhance resources of the entity that will be used in performing service obligations under the contract, and are expected to be recovered. Up-front fees paid to MDUs, such as apartment building owners, in order to gain access to market and serve tenants who reside within the MDU meet the requirements to be deferred and, as a result, are recognized over the term of the MDU contract. Deferred upfront MDU fees are amortized on a straight-line basis and are included in other noncurrent assets in the consolidated balance sheet and totaled
$266 million
as of
September 30, 2018
. Amortization expense of
$16 million
and
$46 million
was included in regulatory, connectivity and produced content within operating expenses in the consolidated statements of operations for the
three and nine
months ended
September 30, 2018
, respectively. Residential and small and medium business installation costs not capitalized into property, plant and equipment are expensed as incurred under cable industry-specific guidance.
ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
(“ASU 2016-15”)
In August 2016, the FASB issued ASU 2016-15 which clarifies how entities should classify cash receipts and cash payments related to eight specific cash flow matters on the statement of cash flows, with the objective of reducing existing diversity in practice. The Company adopted ASU 2016-15 on January 1, 2018. The adoption of ASU 2016-15 did not have a material impact to the Company’s consolidated financial statements.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory ("ASU 2016-16")
In October 2016, the FASB issued ASU 2016-16 which requires both the selling entity and the buying entity in an intra-entity asset transfer (other than the transfer of inventory) to immediately recognize the current and deferred income tax consequences of the transaction. Income tax effects of intra-entity transfers of inventory will continue to be deferred until the inventory has been sold to a third party. The Company adopted the standard on January 1, 2018, using a modified retrospective approach, with the cumulative-effect adjustment recognized directly to shareholders equity for the income tax effects of intra-entity asset transfers (other than transfers of inventory) that happened before the adoption date. The Company identified a
$31 million
increase to total shareholders' equity and corresponding increase to deferred tax assets related to the adoption, which was recorded during the three months ended September 30, 2018.
ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”)
In November 2016, the FASB issued ASU 2016-18 which requires that amounts generally described as restricted cash to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 does not provide a definition of restricted cash or restricted cash equivalents. The Company adopted ASU 2016-18 on January 1, 2018. The new guidance will only be applicable to amounts described by the Company as restricted cash. As a result of the adoption of ASU 2016-18,
$48 million
of restricted cash was included in ending period cash, cash equivalents and restricted cash in the Company's consolidated statement of cash flow for the
nine
months ended
September 30, 2018
. The Company's consolidated statement of cash flows for the year ended December 31, 2016 will also be recast to present
$22.3 billion
of restricted cash as beginning of period cash, cash equivalents and restricted cash.
ASU No. 2017-09, Scope of Modification Accounting (“ASU 2017-09”)
In May 2017, the FASB issued ASU 2017-09 which amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. ASU 2017-09 is applied prospectively to awards modified on or after the effective date. The Company adopted ASU 2017-09 on January 1, 2018. The adoption of ASU 2017-09 did not have a material impact to the Company’s consolidated financial statements.
Accounting Standards Not Yet Adopted
ASU No. 2016-02, Leases (“ASU 2016-02”)
In February 2016, the FASB issued 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.
The Company plans to adopt ASU 2016-02 using the modified retrospective approach with a cumulative-effect adjustment recorded at the beginning of the period of adoption (January 1, 2019). Therefore, upon adoption, the Company will recognize and measure operating leases on the consolidated balance sheet without revising comparative period information or disclosure. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. The Company anticipates electing the transition package practical expedient which would eliminate the reassessment of past leases, classification and initial direct costs. The Company anticipates adopting the land easements practical expedient which allows adopters the ability not to retrospectively treat land easements as leases; however, must apply lease accounting prospectively to land easements if they meet the definition of a lease.
The Company’s adoption process of ASU 2016-02 is ongoing, including evaluating and quantifying the impact on its consolidated financial statements, identifying the population of leases (and embedded leases), implementing a selected technology solution and collecting and validating lease data. Although the Company has not yet completed the evaluation of the new standard, or quantified its impact, the Company expects its lease obligations designated as operating leases (as disclosed in Note 20 to the audited consolidated financial statements in its most recent Annual Report on Form 10-K) will be reported on the consolidated balance sheet upon adoption.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
ASU No. 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”)
In January 2017, the FASB issued ASU 2017-04 which eliminates step two from the goodwill impairment test. Under the new standard, to the extent the carrying amount of a reporting unit exceeds the fair value, the Company will record an impairment charge equal to the difference. The impairment charge recognized should not exceed the total amount of goodwill allocated to the reporting unit. ASU 2017-04 will be effective for interim and annual periods beginning after December 15, 2019 (January 1, 2020 for the Company). Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. The Company is currently in the process of evaluating the impact that the adoption of ASU 2017-04 will have on its consolidated financial statements.
ASU No. 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13")
In August 2018, the FASB issued ASU 2018-13 which amends fair value measurement disclosure requirements aiming to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing the disclosures. ASU 2018-13 will be effective for interim and annual periods beginning after December 15, 2019 (January 1, 2020 for the Company). Early adoption is permitted. The Company does not expect the adoption of ASU 2017-13 to have a material impact on its consolidated financial statements.
ASU No. 2018-14, Changes to the Disclosure Requirements for Defined Benefit Plans ("ASU 2018-14")
In August 2018, the FASB issued ASU 2018-14 which amends Accounting Standards Codification 715 to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. ASU 2018-14 will be effective for interim and annual periods beginning after December 15, 2021 (January 1, 2022 for the Company). Early adoption is permitted. The Company does not expect the adoption of ASU 2017-14 to have a material impact on its consolidated financial statements.
ASU No. 2018-15, Customer’s Accounting for Implementation Costs in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15")
In August 2018, the FASB issued ASU 2018-15 which requires upfront implementation costs incurred in a cloud computing arrangement (or hosting arrangement) that is a service contract to be amortized to hosting expense over the term of the arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. ASU 2018-15 will be effective for annual and interim periods beginning after December 15, 2019 (January 1, 2020 for the Company). Early adoption is permitted. The Company is currently in the process of evaluating the impact that the adoption of ASU 2018-15 will have on its consolidated financial statements.
19.
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 "Intermediate Holding Companies" column includes the assets and liabilities of the captive insurance company, a company wholly-owned by Charter outside of Charter Holdings and which does not, directly or indirectly, own any interest in Charter Holdings. The “Charter Operating and Restricted Subsidiaries” column is presented to comply with the terms of the Credit Agreement.
Condensed consolidating financial statements as of
September 30, 2018
and
December 31, 2017
and for the
nine
months ended
September 30, 2018
and
2017
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 September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
$
|
—
|
|
|
$
|
261
|
|
|
$
|
—
|
|
|
$
|
351
|
|
|
$
|
—
|
|
|
$
|
612
|
|
Accounts receivable, net
|
—
|
|
|
29
|
|
|
—
|
|
|
1,707
|
|
|
—
|
|
|
1,736
|
|
Receivables from related party
|
25
|
|
|
498
|
|
|
53
|
|
|
—
|
|
|
(576
|
)
|
|
—
|
|
Prepaid expenses and other current assets
|
7
|
|
|
39
|
|
|
—
|
|
|
335
|
|
|
—
|
|
|
381
|
|
Total current assets
|
32
|
|
|
827
|
|
|
53
|
|
|
2,393
|
|
|
(576
|
)
|
|
2,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RESTRICTED CASH
|
—
|
|
|
48
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT IN CABLE PROPERTIES:
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
—
|
|
|
447
|
|
|
—
|
|
|
34,293
|
|
|
—
|
|
|
34,740
|
|
Customer relationships, net
|
—
|
|
|
—
|
|
|
—
|
|
|
10,136
|
|
|
—
|
|
|
10,136
|
|
Franchises
|
—
|
|
|
—
|
|
|
—
|
|
|
67,319
|
|
|
—
|
|
|
67,319
|
|
Goodwill
|
—
|
|
|
—
|
|
|
—
|
|
|
29,554
|
|
|
—
|
|
|
29,554
|
|
Total investment in cable properties, net
|
—
|
|
|
447
|
|
|
—
|
|
|
141,302
|
|
|
—
|
|
|
141,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT IN SUBSIDIARIES
|
54,440
|
|
|
61,513
|
|
|
79,969
|
|
|
—
|
|
|
(195,922
|
)
|
|
—
|
|
LOANS RECEIVABLE – RELATED PARTY
|
246
|
|
|
674
|
|
|
526
|
|
|
—
|
|
|
(1,446
|
)
|
|
—
|
|
OTHER NONCURRENT ASSETS
|
—
|
|
|
215
|
|
|
—
|
|
|
1,347
|
|
|
(3
|
)
|
|
1,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
54,718
|
|
|
$
|
63,724
|
|
|
$
|
80,548
|
|
|
$
|
145,042
|
|
|
$
|
(197,947
|
)
|
|
$
|
146,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’/MEMBER’S EQUITY
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
4
|
|
|
$
|
861
|
|
|
$
|
311
|
|
|
$
|
7,335
|
|
|
$
|
—
|
|
|
$
|
8,511
|
|
Payables to related party
|
—
|
|
|
—
|
|
|
—
|
|
|
576
|
|
|
(576
|
)
|
|
—
|
|
Current portion of long-term debt
|
—
|
|
|
—
|
|
|
—
|
|
|
3,339
|
|
|
—
|
|
|
3,339
|
|
Total current liabilities
|
4
|
|
|
861
|
|
|
311
|
|
|
11,250
|
|
|
(576
|
)
|
|
11,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT
|
—
|
|
|
—
|
|
|
18,724
|
|
|
50,411
|
|
|
—
|
|
|
69,135
|
|
LOANS PAYABLE – RELATED PARTY
|
—
|
|
|
—
|
|
|
—
|
|
|
1,446
|
|
|
(1,446
|
)
|
|
—
|
|
DEFERRED INCOME TAXES
|
17,408
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
17,421
|
|
OTHER LONG-TERM LIABILITIES
|
201
|
|
|
308
|
|
|
—
|
|
|
1,942
|
|
|
—
|
|
|
2,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’/MEMBER’S EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Controlling interest
|
37,105
|
|
|
54,440
|
|
|
61,513
|
|
|
79,969
|
|
|
(195,922
|
)
|
|
37,105
|
|
Noncontrolling interests
|
—
|
|
|
8,099
|
|
|
—
|
|
|
24
|
|
|
—
|
|
|
8,123
|
|
Total shareholders’/member’s equity
|
37,105
|
|
|
62,539
|
|
|
61,513
|
|
|
79,993
|
|
|
(195,922
|
)
|
|
45,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’/member’s equity
|
$
|
54,718
|
|
|
$
|
63,724
|
|
|
$
|
80,548
|
|
|
$
|
145,042
|
|
|
$
|
(197,947
|
)
|
|
$
|
146,085
|
|
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, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
$
|
—
|
|
|
$
|
291
|
|
|
$
|
—
|
|
|
$
|
330
|
|
|
$
|
—
|
|
|
$
|
621
|
|
Accounts receivable, net
|
—
|
|
|
24
|
|
|
—
|
|
|
1,611
|
|
|
—
|
|
|
1,635
|
|
Receivables from related party
|
22
|
|
|
613
|
|
|
55
|
|
|
—
|
|
|
(690
|
)
|
|
—
|
|
Prepaid expenses and other current assets
|
22
|
|
|
34
|
|
|
—
|
|
|
243
|
|
|
—
|
|
|
299
|
|
Total current assets
|
44
|
|
|
962
|
|
|
55
|
|
|
2,184
|
|
|
(690
|
)
|
|
2,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT IN CABLE PROPERTIES:
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
—
|
|
|
336
|
|
|
—
|
|
|
33,552
|
|
|
—
|
|
|
33,888
|
|
Customer relationships, net
|
—
|
|
|
—
|
|
|
—
|
|
|
11,951
|
|
|
—
|
|
|
11,951
|
|
Franchises
|
—
|
|
|
—
|
|
|
—
|
|
|
67,319
|
|
|
—
|
|
|
67,319
|
|
Goodwill
|
—
|
|
|
—
|
|
|
—
|
|
|
29,554
|
|
|
—
|
|
|
29,554
|
|
Total investment in cable properties, net
|
—
|
|
|
336
|
|
|
—
|
|
|
142,376
|
|
|
—
|
|
|
142,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT IN SUBSIDIARIES
|
56,263
|
|
|
63,558
|
|
|
81,980
|
|
|
—
|
|
|
(201,801
|
)
|
|
—
|
|
LOANS RECEIVABLE – RELATED PARTY
|
233
|
|
|
655
|
|
|
511
|
|
|
—
|
|
|
(1,399
|
)
|
|
—
|
|
OTHER NONCURRENT ASSETS
|
—
|
|
|
223
|
|
|
—
|
|
|
1,133
|
|
|
—
|
|
|
1,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
56,540
|
|
|
$
|
65,734
|
|
|
$
|
82,546
|
|
|
$
|
145,693
|
|
|
$
|
(203,890
|
)
|
|
$
|
146,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’/MEMBER’S EQUITY
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
4
|
|
|
$
|
900
|
|
|
$
|
280
|
|
|
$
|
7,861
|
|
|
$
|
—
|
|
|
$
|
9,045
|
|
Payables to related party
|
—
|
|
|
—
|
|
|
—
|
|
|
690
|
|
|
(690
|
)
|
|
—
|
|
Current portion of long-term debt
|
—
|
|
|
—
|
|
|
—
|
|
|
2,045
|
|
|
—
|
|
|
2,045
|
|
Total current liabilities
|
4
|
|
|
900
|
|
|
280
|
|
|
10,596
|
|
|
(690
|
)
|
|
11,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT
|
—
|
|
|
—
|
|
|
18,708
|
|
|
49,478
|
|
|
—
|
|
|
68,186
|
|
LOANS PAYABLE – RELATED PARTY
|
—
|
|
|
—
|
|
|
—
|
|
|
1,399
|
|
|
(1,399
|
)
|
|
—
|
|
DEFERRED INCOME TAXES
|
17,268
|
|
|
14
|
|
|
—
|
|
|
32
|
|
|
—
|
|
|
17,314
|
|
OTHER LONG-TERM LIABILITIES
|
184
|
|
|
134
|
|
|
—
|
|
|
2,184
|
|
|
—
|
|
|
2,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’/MEMBER’S EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Controlling interest
|
39,084
|
|
|
56,263
|
|
|
63,558
|
|
|
81,980
|
|
|
(201,801
|
)
|
|
39,084
|
|
Noncontrolling interests
|
—
|
|
|
8,423
|
|
|
—
|
|
|
24
|
|
|
—
|
|
|
8,447
|
|
Total shareholders’/member’s equity
|
39,084
|
|
|
64,686
|
|
|
63,558
|
|
|
82,004
|
|
|
(201,801
|
)
|
|
47,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’/member’s equity
|
$
|
56,540
|
|
|
$
|
65,734
|
|
|
$
|
82,546
|
|
|
$
|
145,693
|
|
|
$
|
(203,890
|
)
|
|
$
|
146,623
|
|
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 nine months ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Guarantor Subsidiaries
|
|
Guarantor Subsidiaries
|
|
|
|
|
|
Charter
|
|
Intermediate Holding Companies
|
|
CCO Holdings
|
|
Charter Operating and Restricted Subsidiaries
|
|
Eliminations
|
|
Charter Consolidated
|
REVENUES
|
$
|
37
|
|
|
$
|
844
|
|
|
$
|
—
|
|
|
$
|
32,390
|
|
|
$
|
(868
|
)
|
|
$
|
32,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses (exclusive of items shown separately below)
|
37
|
|
|
810
|
|
|
—
|
|
|
20,742
|
|
|
(868
|
)
|
|
20,721
|
|
Depreciation and amortization
|
—
|
|
|
8
|
|
|
—
|
|
|
7,776
|
|
|
—
|
|
|
7,784
|
|
Other operating expenses, net
|
—
|
|
|
4
|
|
|
—
|
|
|
112
|
|
|
—
|
|
|
116
|
|
|
37
|
|
|
822
|
|
|
—
|
|
|
28,630
|
|
|
(868
|
)
|
|
28,621
|
|
Income from operations
|
—
|
|
|
22
|
|
|
—
|
|
|
3,760
|
|
|
—
|
|
|
3,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net
|
7
|
|
|
21
|
|
|
(762
|
)
|
|
(1,896
|
)
|
|
—
|
|
|
(2,630
|
)
|
Other pension benefits
|
—
|
|
|
—
|
|
|
—
|
|
|
247
|
|
|
—
|
|
|
247
|
|
Other expense, net
|
—
|
|
|
(26
|
)
|
|
—
|
|
|
(49
|
)
|
|
—
|
|
|
(75
|
)
|
Equity in income of subsidiaries
|
1,085
|
|
|
1,286
|
|
|
2,048
|
|
|
—
|
|
|
(4,419
|
)
|
|
—
|
|
|
1,092
|
|
|
1,281
|
|
|
1,286
|
|
|
(1,698
|
)
|
|
(4,419
|
)
|
|
(2,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
1,092
|
|
|
1,303
|
|
|
1,286
|
|
|
2,062
|
|
|
(4,419
|
)
|
|
1,324
|
|
Income tax expense
|
(158
|
)
|
|
(7
|
)
|
|
—
|
|
|
(13
|
)
|
|
—
|
|
|
(178
|
)
|
Consolidated net income
|
934
|
|
|
1,296
|
|
|
1,286
|
|
|
2,049
|
|
|
(4,419
|
)
|
|
1,146
|
|
Less: Net income attributable to noncontrolling interests
|
—
|
|
|
(211
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(212
|
)
|
Net income
|
$
|
934
|
|
|
$
|
1,085
|
|
|
$
|
1,286
|
|
|
$
|
2,048
|
|
|
$
|
(4,419
|
)
|
|
$
|
934
|
|
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 nine months ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Guarantor Subsidiaries
|
|
Guarantor Subsidiaries
|
|
|
|
|
|
Charter
|
|
Intermediate Holding Companies
|
|
CCO Holdings
|
|
Charter Operating and Restricted Subsidiaries
|
|
Eliminations
|
|
Charter Consolidated
|
REVENUES
|
$
|
79
|
|
|
$
|
897
|
|
|
$
|
—
|
|
|
$
|
30,979
|
|
|
$
|
(976
|
)
|
|
$
|
30,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses (exclusive of items shown separately below)
|
79
|
|
|
883
|
|
|
—
|
|
|
19,871
|
|
|
(976
|
)
|
|
19,857
|
|
Depreciation and amortization
|
—
|
|
|
7
|
|
|
—
|
|
|
7,839
|
|
|
—
|
|
|
7,846
|
|
Other operating expenses, net
|
—
|
|
|
—
|
|
|
—
|
|
|
374
|
|
|
—
|
|
|
374
|
|
|
79
|
|
|
890
|
|
|
—
|
|
|
28,084
|
|
|
(976
|
)
|
|
28,077
|
|
Income from operations
|
—
|
|
|
7
|
|
|
—
|
|
|
2,895
|
|
|
—
|
|
|
2,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net
|
4
|
|
|
14
|
|
|
(631
|
)
|
|
(1,637
|
)
|
|
—
|
|
|
(2,250
|
)
|
Loss on extinguishment of debt
|
—
|
|
|
—
|
|
|
(33
|
)
|
|
(2
|
)
|
|
—
|
|
|
(35
|
)
|
Loss on financial instruments, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
|
—
|
|
|
(15
|
)
|
Other pension benefits
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
9
|
|
Other expense, net
|
—
|
|
|
(12
|
)
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(14
|
)
|
Equity in income of subsidiaries
|
390
|
|
|
548
|
|
|
1,212
|
|
|
—
|
|
|
(2,150
|
)
|
|
—
|
|
|
394
|
|
|
550
|
|
|
548
|
|
|
(1,647
|
)
|
|
(2,150
|
)
|
|
(2,305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
394
|
|
|
557
|
|
|
548
|
|
|
1,248
|
|
|
(2,150
|
)
|
|
597
|
|
Income tax expense
|
(52
|
)
|
|
(12
|
)
|
|
—
|
|
|
(35
|
)
|
|
—
|
|
|
(99
|
)
|
Consolidated net income
|
342
|
|
|
545
|
|
|
548
|
|
|
1,213
|
|
|
(2,150
|
)
|
|
498
|
|
Less: Net income attributable to noncontrolling interests
|
—
|
|
|
(155
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(156
|
)
|
Net income
|
$
|
342
|
|
|
$
|
390
|
|
|
$
|
548
|
|
|
$
|
1,212
|
|
|
$
|
(2,150
|
)
|
|
$
|
342
|
|
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
|
For the nine months ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Guarantor Subsidiaries
|
|
Guarantor Subsidiaries
|
|
|
|
|
|
Charter
|
|
Intermediate Holding Companies
|
|
CCO Holdings
|
|
Charter Operating and Restricted Subsidiaries
|
|
Eliminations
|
|
Charter Consolidated
|
Consolidated net income
|
$
|
934
|
|
|
$
|
1,296
|
|
|
$
|
1,286
|
|
|
$
|
2,049
|
|
|
$
|
(4,419
|
)
|
|
$
|
1,146
|
|
Foreign currency translation adjustment
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
3
|
|
|
(1
|
)
|
Consolidated comprehensive income
|
933
|
|
|
1,295
|
|
|
1,285
|
|
|
2,048
|
|
|
(4,416
|
)
|
|
1,145
|
|
Less: Comprehensive income attributable to noncontrolling interests
|
—
|
|
|
(211
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(212
|
)
|
Comprehensive income
|
$
|
933
|
|
|
$
|
1,084
|
|
|
$
|
1,285
|
|
|
$
|
2,047
|
|
|
$
|
(4,416
|
)
|
|
$
|
933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Communications, Inc. and Subsidiaries
|
Condensed Consolidating Statements of Comprehensive Income
|
For the nine months ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Guarantor Subsidiaries
|
|
Guarantor Subsidiaries
|
|
|
|
|
|
Charter
|
|
Intermediate Holding Companies
|
|
CCO Holdings
|
|
Charter Operating and Restricted Subsidiaries
|
|
Eliminations
|
|
Charter Consolidated
|
Consolidated net income
|
$
|
342
|
|
|
$
|
545
|
|
|
$
|
548
|
|
|
$
|
1,213
|
|
|
$
|
(2,150
|
)
|
|
$
|
498
|
|
Net impact of interest rate derivative instruments
|
4
|
|
|
4
|
|
|
4
|
|
|
4
|
|
|
(12
|
)
|
|
4
|
|
Foreign currency translation adjustment
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
(3
|
)
|
|
1
|
|
Consolidated comprehensive income
|
347
|
|
|
550
|
|
|
553
|
|
|
1,218
|
|
|
(2,165
|
)
|
|
503
|
|
Less: Comprehensive income attributable to noncontrolling interests
|
—
|
|
|
(155
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(156
|
)
|
Comprehensive income
|
$
|
347
|
|
|
$
|
395
|
|
|
$
|
553
|
|
|
$
|
1,217
|
|
|
$
|
(2,165
|
)
|
|
$
|
347
|
|
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 nine months ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Guarantor Subsidiaries
|
|
Guarantor Subsidiaries
|
|
|
|
|
|
Charter
|
|
Intermediate Holding Companies
|
|
CCO Holdings
|
|
Charter Operating and Restricted Subsidiaries
|
|
Eliminations
|
|
Charter Consolidated
|
NET CASH FLOWS FROM OPERATING ACTIVITIES
|
$
|
4
|
|
|
$
|
91
|
|
|
$
|
(728
|
)
|
|
$
|
9,232
|
|
|
$
|
—
|
|
|
$
|
8,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,692
|
)
|
|
—
|
|
|
(6,692
|
)
|
Change in accrued expenses related to capital expenditures
|
—
|
|
|
—
|
|
|
—
|
|
|
(620
|
)
|
|
—
|
|
|
(620
|
)
|
Real estate investments through variable interest entities
|
—
|
|
|
(15
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
Contributions to subsidiaries
|
(56
|
)
|
|
(127
|
)
|
|
(127
|
)
|
|
—
|
|
|
310
|
|
|
—
|
|
Distributions from subsidiaries
|
3,217
|
|
|
3,763
|
|
|
4,491
|
|
|
—
|
|
|
(11,471
|
)
|
|
—
|
|
Other, net
|
—
|
|
|
(10
|
)
|
|
—
|
|
|
(93
|
)
|
|
—
|
|
|
(103
|
)
|
Net cash flows from investing activities
|
3,161
|
|
|
3,611
|
|
|
4,364
|
|
|
(7,405
|
)
|
|
(11,161
|
)
|
|
(7,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of long-term debt
|
—
|
|
|
—
|
|
|
—
|
|
|
11,552
|
|
|
—
|
|
|
11,552
|
|
Repayments of long-term debt
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,964
|
)
|
|
—
|
|
|
(8,964
|
)
|
Borrowings (repayments) loans payable - related parties
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
—
|
|
Payments for debt issuance costs
|
—
|
|
|
—
|
|
|
—
|
|
|
(29
|
)
|
|
—
|
|
|
(29
|
)
|
Purchase of treasury stock
|
(3,214
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,214
|
)
|
Proceeds from exercise of stock options
|
56
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
56
|
|
Purchase of noncontrolling interest
|
—
|
|
|
(473
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(473
|
)
|
Distributions to noncontrolling interest
|
—
|
|
|
(113
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(114
|
)
|
Contributions from parent
|
—
|
|
|
56
|
|
|
127
|
|
|
127
|
|
|
(310
|
)
|
|
—
|
|
Distributions to parent
|
—
|
|
|
(3,217
|
)
|
|
(3,763
|
)
|
|
(4,491
|
)
|
|
11,471
|
|
|
—
|
|
Borrowings for real estate investments through variable interest entities
|
—
|
|
|
170
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
170
|
|
Distributions to variable interest entities noncontrolling interest
|
—
|
|
|
(107
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(107
|
)
|
Other, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
(7
|
)
|
Net cash flows from financing activities
|
(3,165
|
)
|
|
(3,684
|
)
|
|
(3,636
|
)
|
|
(1,806
|
)
|
|
11,161
|
|
|
(1,130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
|
—
|
|
|
18
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
39
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period
|
—
|
|
|
291
|
|
|
—
|
|
|
330
|
|
|
—
|
|
|
621
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
|
$
|
—
|
|
|
$
|
309
|
|
|
$
|
—
|
|
|
$
|
351
|
|
|
$
|
—
|
|
|
$
|
660
|
|
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 nine months ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Guarantor Subsidiaries
|
|
Guarantor Subsidiaries
|
|
|
|
|
|
Charter
|
|
Intermediate Holding Companies
|
|
CCO Holdings
|
|
Charter Operating and Restricted Subsidiaries
|
|
Eliminations
|
|
Charter Consolidated
|
NET CASH FLOWS FROM OPERATING ACTIVITIES
|
$
|
95
|
|
|
$
|
80
|
|
|
$
|
(504
|
)
|
|
$
|
9,025
|
|
|
$
|
—
|
|
|
$
|
8,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,096
|
)
|
|
—
|
|
|
(6,096
|
)
|
Change in accrued expenses related to capital expenditures
|
—
|
|
|
—
|
|
|
—
|
|
|
276
|
|
|
—
|
|
|
276
|
|
Contribution to subsidiary
|
(111
|
)
|
|
—
|
|
|
(693
|
)
|
|
—
|
|
|
804
|
|
|
—
|
|
Distributions from subsidiaries
|
7,759
|
|
|
8,641
|
|
|
5,912
|
|
|
—
|
|
|
(22,312
|
)
|
|
—
|
|
Other, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(63
|
)
|
|
—
|
|
|
(63
|
)
|
Net cash flows from investing activities
|
7,648
|
|
|
8,641
|
|
|
5,219
|
|
|
(5,883
|
)
|
|
(21,508
|
)
|
|
(5,883
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of long-term debt
|
—
|
|
|
—
|
|
|
4,747
|
|
|
7,368
|
|
|
—
|
|
|
12,115
|
|
Repayments of long-term debt
|
—
|
|
|
—
|
|
|
(775
|
)
|
|
(4,759
|
)
|
|
—
|
|
|
(5,534
|
)
|
Borrowings (repayments) loans payable - related parties
|
(163
|
)
|
|
—
|
|
|
—
|
|
|
163
|
|
|
—
|
|
|
—
|
|
Payments for debt issuance costs
|
—
|
|
|
—
|
|
|
(46
|
)
|
|
(37
|
)
|
|
—
|
|
|
(83
|
)
|
Purchase of treasury stock
|
(7,748
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,748
|
)
|
Proceeds from exercise of stock options
|
111
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
111
|
|
Purchase of noncontrolling interest
|
—
|
|
|
(922
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(922
|
)
|
Distributions to noncontrolling interest
|
—
|
|
|
(115
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(115
|
)
|
Contributions from parent
|
—
|
|
|
111
|
|
|
—
|
|
|
693
|
|
|
(804
|
)
|
|
—
|
|
Distributions to parent
|
—
|
|
|
(7,759
|
)
|
|
(8,641
|
)
|
|
(5,912
|
)
|
|
22,312
|
|
|
—
|
|
Other, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
(8
|
)
|
Net cash flows from financing activities
|
(7,800
|
)
|
|
(8,685
|
)
|
|
(4,715
|
)
|
|
(2,492
|
)
|
|
21,508
|
|
|
(2,184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
|
(57
|
)
|
|
36
|
|
|
—
|
|
|
650
|
|
|
—
|
|
|
629
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period
|
57
|
|
|
154
|
|
|
—
|
|
|
1,324
|
|
|
—
|
|
|
1,535
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
|
$
|
—
|
|
|
$
|
190
|
|
|
$
|
—
|
|
|
$
|
1,974
|
|
|
$
|
—
|
|
|
$
|
2,164
|
|