Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Reference is made to “Part I. Item 1A. Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements,” which describe important factors that could cause actual results to differ from expectations and non-historical information contained herein. In addition, the following discussion should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto of Charter included in “Part II. Item 8. Financial Statements and Supplementary Data.”

Overview

We are the second largest cable operator in the United States and a leading broadband communications services company providing video, Internet and voice services to approximately 28.1 million residential and small and medium business customers at December 31, 2018. We also recently launched our Spectrum mobile service to residential customers. In addition, we sell video and online advertising inventory to local, regional and national advertising customers and fiber-delivered communications and managed IT solutions to large enterprise customers. We also own and operate regional sports networks and local sports, news and community channels. See “Part I. Item 1. Business — Products and Services” for further description of these services, including customer statistics for different services.

Since the close of the Transactions in 2016, we have been focused on integrating the practices and systems of Legacy Charter, Legacy TWC and Legacy Bright House, centralizing our product, marketing, sales and service operations, insourcing the Legacy TWC and Legacy Bright House workforces in our call centers and field operations, and rolling out SPP to Legacy TWC and

Legacy Bright House service areas. In 2018, we completed the conversion of the remaining Legacy TWC and Legacy Bright House analog service areas to an all-digital platform enabling us to deliver more HD channels and higher Internet speeds. As of December 31, 2018, nearly all of our footprint was all-digital. Additionally, we have doubled minimum Internet speeds to 200 Mbps in a number of service areas at no additional cost to new and existing Internet customers. In 2018, leveraging DOCSIS 3.1 technology, we also expanded the availability of our Spectrum Internet Gig service to nearly all of our footprint. With our integration nearly complete, we are focused on operating as one company, with a unified product, marketing and service infrastructure, which will allow us to accelerate growth and innovate faster. With significantly less customer-facing change expected in 2019, we are focused on deploying superior products and service with minimal service disruptions. We expect our growing levels of productivity will result in lower customer churn, longer customer lifetimes and improved productivity with fewer customer calls and truck rolls. With over 75% of our residential customer base currently in SPP packages, we expect additional benefits from higher SPP penetration and as current SPP customers roll off introductory pricing combined with modest price increases. Further, we expect to continue to drive customer relationship growth through sales of video, Internet, and wireline and mobile voice packaged services. Additionally, with the completion of our all-digital conversion, roll-out of DOCSIS 3.1 technology across our footprint, and the integration of Legacy TWC and Legacy Bright House mostly complete, we expect a meaningful reduction in capital expenditures in dollars and as a percent of revenue in 2019.

At the end of the second quarter of 2018, we launched our mobile product, Spectrum Mobile, under our MVNO reseller agreement with Verizon. Our Spectrum Mobile service is offered to our residential customers subscribing to our Internet service and runs on Verizon's mobile network combined with our existing network of in-home and outdoor WiFi hotspots. We began mass market advertising of Spectrum Mobile in September 2018. We also continue to explore ways to manage our own network and drive even more mobile traffic to our network through our continued deployment of in-home and outdoor WiFi hotspots. In 2018, we invested in our mobile operating partnership with Comcast Corporation, with a portion representing our equity investment in the partnership and a portion representing a prepayment of software development and related services for the mobile back office platform. As the partnership delivers services, we will reflect such services as capital or operating expense depending on the nature of services delivered.

We believe Spectrum-branded mobile services will drive higher sales of our core products, create longer customer lives and increase profitability and cash flow over time. As a result of growth costs associated with our new mobile product line, we cannot be certain that we will be able to grow revenues or maintain our margins at recent historical rates. During the year ended December 31, 2018, our mobile product line increased revenues by $106 million, and reduced Adjusted EBITDA and free cash flow by approximately $240 million and $594 million, respectively. As we continue to launch our mobile service and scale the business, we expect continued negative impacts to Adjusted EBITDA, as well as negative working capital impacts from the timing of device-related cash flows when we provide the handset or tablet to customers pursuant to equipment installment plans. In 2019, we intend to expand our Spectrum Mobile bring-your-own-device ("BYOD") program across our key sales channels to include a broader set of devices. We believe our BYOD program will lower the cost for consumers of switching mobile carriers, and will reduce the short-term working capital impact of selling new mobile devices on installment plans.

The Company realized revenue, Adjusted EBITDA and income from operations during the periods presented as follows (in millions; all percentages are calculated using whole numbers. Minor differences may exist due to rounding).

	Years ended December 31,
	Actual																		Pro Forma
	2018				2017				2016				2018 vs. 2017 Growth			2017 vs. 2016 Growth			2016				2017 vs. 2016 Growth
Revenues	$	43,634			$	41,581			$	29,003			4.9	%		43.4	%		$	37,394			3.9	%
Adjusted EBITDA	$	16,059			$	15,301			$	10,592			5.0	%		44.5	%		$	13,004			5.8	%
Income from operations(a)	$	5,221			$	4,106			$	2,456			27.2	%		67.2	%		$	3,323			5.7	%

(a)	Income from operations for the year ended December 31, 2016 has been reduced from what was previously reported to reflect the adoption of pension accounting guidance by $899 million and $915 million on an actual and pro forma basis, respectively.

Adjusted EBITDA is defined as consolidated net income plus net interest expense, income taxes, depreciation and amortization, stock compensation expense, loss on extinguishment of debt, (gain) loss on financial instruments, net, other pension benefits, other (income) expense, net and other operating (income) expenses, such as merger and restructuring costs, special charges and (gain) loss on sale or retirement of assets. See “—Use of Adjusted EBITDA and Free Cash Flow” for further information on Adjusted EBITDA and free cash flow.

Growth in total revenue, Adjusted EBITDA and income from operations was primarily due to growth in our residential Internet and commercial business customers as well as an increase in advertising sales revenue primarily due to an increase in political revenue. Adjusted EBITDA growth was additionally affected by increases in operating costs and expenses primarily programming and, in 2018, mobile. Income from operations was also affected by changes in depreciation and amortization as well as decreases in merger and restructuring costs.

Approximately 91%, 91% and 90% of our revenues for years ended December 31, 2018, 2017 and 2016, respectively, are attributable to monthly subscription fees charged to customers for our video, Internet, voice and commercial services provided by our cable systems. Generally, these customer subscriptions may be discontinued by the customer at any time subject to a fee for certain commercial customers. The remaining 9%, 9% and 10% of revenue for fiscal years 2018, 2017 and 2016, respectively, is derived primarily from advertising revenues, franchise and other regulatory fee revenues (which are collected by us but then paid to local authorities), VOD and pay-per-view programming, installation, processing fees or reconnection fees charged to customers to commence or reinstate service, revenue from regional sports and news channels and commissions related to the sale of merchandise by home shopping services.

Critical Accounting Policies and Estimates

Certain of our accounting policies require our management to make difficult, subjective and/or complex judgments. Management has discussed these policies with the Audit Committee of Charter’s board of directors, and the Audit Committee has reviewed the following disclosure. We consider the following policies to be the most critical in understanding the estimates, assumptions and judgments that are involved in preparing our financial statements, and the uncertainties that could affect our results of operations, financial condition and cash flows:

•	Property, plant and equipment

•	Capitalization of labor and overhead costs

•	Valuation and impairment of property, plant and equipment

•	Useful lives of property, plant and equipment

•	Intangible assets

•	Valuation and impairment of franchises

•	Valuation and impairment of goodwill

•	Valuation, impairment and amortization of customer relationships

•	Income taxes

•	Litigation

•	Programming agreements

•	Pension plans

In addition, there are other items within our financial statements that require estimates or judgment that are not deemed critical, such as the allowance for doubtful accounts and valuations of our financial instruments, but changes in estimates or judgment in these other items could also have a material impact on our financial statements.

Property, plant and equipment

The cable industry is capital intensive, and a large portion of our resources are spent on capital activities associated with extending, rebuilding, and upgrading our cable network. As of December 31, 2018 and 2017, the net carrying amount of our property, plant and equipment (consisting primarily of cable distribution systems) was approximately $35.1 billion (representing 24% of total assets) and $33.9 billion (representing 23% of total assets), respectively. Total capital expenditures for the years ended December 31, 2018, 2017 and 2016 were approximately $9.1 billion, $8.7 billion and $5.3 billion, respectively.

Capitalization of labor and overhead costs. Costs associated with network construction or upgrades, initial placement of the customer drop to the dwelling and the initial placement of outlets within a dwelling along with the costs associated with the initial deployment of customer premise equipment necessary to provide video, Internet or voice services, are capitalized. Costs capitalized include materials, direct labor and certain indirect costs. These indirect costs are associated with the activities of personnel who assist in installation activities, and consist of compensation and overhead costs associated with these support functions. While our capitalization is based on specific activities, once capitalized, we track these costs on a composite basis by fixed asset category at the cable system level, and not on a specific asset basis. For assets that are sold or retired, we remove the estimated applicable cost and accumulated depreciation. The costs of disconnecting service and removing customer premise equipment from a dwelling and the costs to reconnect a customer drop or to redeploy previously installed customer premise equipment are charged to operating

expense as incurred. Costs for repairs and maintenance are charged to operating expense as incurred, while plant and equipment replacement, including replacement of certain components, betterments, and replacement of cable drops and outlets, are capitalized.

We make judgments regarding the installation and construction activities to be capitalized. We capitalize direct labor and overhead using standards developed from actual costs and applicable operational data. We calculate standards annually (or more frequently if circumstances dictate) for items such as the labor rates, overhead rates, and the actual amount of time required to perform a capitalizable activity. For example, the standard amounts of time required to perform capitalizable activities are based on studies of the time required to perform such activities. Overhead rates are established based on an analysis of the nature of costs incurred in support of capitalizable activities, and a determination of the portion of costs that is directly attributable to capitalizable activities. The impact of changes that resulted from these studies were not material in the periods presented.

Labor costs directly associated with capital projects are capitalized. Capitalizable activities performed in connection with installations include such activities as:

•	dispatching a “truck roll” to the customer’s dwelling or business for service connection or placement of new equipment;

•	verification of serviceability to the customer’s dwelling or business (i.e., determining whether the customer’s dwelling is capable of receiving service by our cable network);

•	customer premise activities performed by in-house field technicians and third-party contractors in connection with the installation, replacement and betterment of equipment and materials to enable video, Internet or voice services; and

•	verifying the integrity of the customer’s network connection by initiating test signals downstream from the headend to the customer premise equipment, as well as testing signal levels at the utility pole or pedestal.

Judgment is required to determine the extent to which overhead costs incurred result from specific capital activities, and therefore should be capitalized. The primary costs that are included in the determination of the overhead rate are (i) employee benefits and payroll taxes associated with capitalized direct labor, (ii) direct variable costs associated with capitalizable activities, (iii) the cost of support personnel, such as care personnel and dispatchers, who assist with capitalizable installation activities, and (iv) indirect costs directly attributable to capitalizable activities.

While we believe our existing capitalization policies are appropriate, a significant change in the nature or extent of our system activities could affect management’s judgment about the extent to which we should capitalize direct labor or overhead in the future. We monitor the appropriateness of our capitalization policies, and perform updates to our internal studies on an ongoing basis to determine whether facts or circumstances warrant a change to our capitalization policies. We capitalized direct labor and overhead of $1.8 billion, $1.7 billion and $991 million, respectively, for the years ended December 31, 2018, 2017 and 2016.

Valuation and impairment of property, plant and equipment. We evaluate the recoverability of our property, plant and equipment upon the occurrence of events or changes in circumstances indicating that the carrying amount of an asset may not be recoverable. Such events or changes in circumstances could include such factors as the impairment of our indefinite life assets, changes in technological advances, fluctuations in the fair value of such assets, adverse changes in relationships with local franchise authorities, adverse changes in market conditions, or a deterioration of current or expected future operating results. A long-lived asset is deemed impaired when the carrying amount of the asset exceeds the projected undiscounted future cash flows associated with the asset. No impairments of long-lived assets held for use were recorded in the years ended December 31, 2018, 2017 and 2016.

We utilize the cost approach as the primary method used to establish fair value for our property, plant and equipment in connection with business combinations. 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 physical depreciation and functional and economic obsolescence as of the valuation date. The cost approach relies on management’s assumptions regarding current material and labor costs required to rebuild and repurchase significant components of our property, plant and equipment along with assumptions regarding the age and estimated remaining useful lives of our property, plant and equipment.

Useful lives of property, plant and equipment. We evaluate the appropriateness of estimated useful lives assigned to our property, plant and equipment, based on annual analysis of such useful lives, and revise such lives to the extent warranted by changing facts and circumstances. Any changes in estimated useful lives as a result of this analysis are reflected prospectively beginning in the period in which the study is completed. Our analysis of useful lives in 2018 did not indicate any significant changes in useful lives of our fixed assets. The effect of a one-year decrease in the weighted average remaining useful life of our property, plant and equipment as of December 31, 2018 would be an increase in annual depreciation expense of approximately $571 million. The effect of a one-year increase in the weighted average remaining useful life of our property, plant and equipment as of December 31, 2018 would be a decrease in annual depreciation expense of approximately $854 million.

Depreciation expense related to property, plant and equipment totaled $7.9 billion, $7.8 billion and $5.0 billion for the years ended December 31, 2018, 2017 and 2016, respectively, representing approximately 21%, 21% and 19% of costs and expenses, respectively. Depreciation is recorded using the straight-line composite method over management’s estimate of the useful lives of the related assets as listed below:

Cable distribution systems	8-21 years
Customer premise equipment and installations	3-8 years
Vehicles and equipment	4-9 years
Buildings and improvements	15-40 years
Furniture, fixtures and equipment	2-10 years

Intangible assets

Valuation and impairment of franchises. The net carrying value of franchises as of both December 31, 2018 and 2017 was approximately $67.3 billion (representing 46% of total assets). For more information and a complete discussion of how we value and test franchise assets for impairment, see Note 5 to the accompanying consolidated financial statements contained in “Part II. Item 8. Financial Statements and Supplementary Data.”

We perform an impairment assessment of franchise assets annually or more frequently as warranted by events or changes in circumstances. We performed a qualitative assessment in 2018. Our assessment included consideration of a fair value appraisal performed for tax purposes in the beginning of 2018 as of a December 31, 2017 valuation date (the "Appraisal") along with a multitude of factors that affect the fair value of our franchise assets. Examples of such factors include environmental and competitive changes within our operating footprint, actual and projected operating performance, the consistency of our operating margins, equity and debt market trends, including changes in our market capitalization, and changes in our regulatory and political landscape, among other factors. Based on our assessment, we concluded that it was more likely than not that the estimated fair values of our franchise assets equals or exceeds their carrying values and that a quantitative impairment test is not required.

The Appraisal indicated that the fair value of our franchise assets exceeded carrying value by approximately 69% in the aggregate. At our unit of accounting level for franchise asset impairment testing, the amount by which fair value exceeded carrying value varied based on the extent to which the unit of accounting was comprised of operations acquired in 2016. For units of accounting comprised entirely or substantially of newly-acquired operations, the Appraisal fair value exceeded carrying value by a range of 21% to 70% due to the recency of the Transactions, while fair value for units of accounting comprised of at least 25% Legacy Charter operations, exceeded carrying value by a range of 54% to 289%.

Valuation and impairment of goodwill. The net carrying value of goodwill as of both December 31, 2018 and 2017 was approximately $29.6 billion (representing 20% of total assets). For more information and a complete discussion on how we test goodwill for impairment, see Note 5 to the accompanying consolidated financial statements contained in “Part II. Item 8. Financial Statements and Supplementary Data.” We perform our impairment assessment of goodwill annually as of November 30. As with our franchise impairment testing, we elected to perform a qualitative assessment of goodwill in 2018 which included the fair value Appraisal and other factors described above. Based on the Appraisal, we determined that the fair value of our goodwill exceeded carrying value by approximately 18%. Given the completion of the assessment and absence of significant adverse changes in factors impacting our fair value estimates, we concluded that it is more likely than not that our goodwill is not impaired.

Valuation, impairment and amortization of customer relationships. The net carrying value of customer relationships as of December 31, 2018 and 2017 was approximately $9.6 billion (representing 7% of total assets) and $12.0 billion (representing 8% of total assets), respectively. Amortization expense related to customer relationships for the years ended December 31, 2018, 2017 and 2016 was approximately $2.4 billion, $2.7 billion and $1.9 billion, respectively. No impairment of customer relationships was recorded in the years ended December 31, 2018, 2017 and 2016. For more information and a complete discussion on our valuation methodology and amortization method, see Note 5 to the accompanying consolidated financial statements contained in “Part II. Item 8. Financial Statements and Supplementary Data.”

Income taxes

As of December 31, 2018, Charter had approximately $10.2 billion of federal tax net operating loss carryforwards resulting in a gross deferred tax asset of approximately $2.1 billion. These losses resulted from the operations of Charter Holdco and its subsidiaries and from loss carryforwards received as a result of the TWC Transaction. Federal tax net operating loss carryforwards expire in the years 2019 through 2035. In addition, as of December 31, 2018, Charter had state tax net operating loss carryforwards,

resulting in a gross deferred tax asset (net of federal tax benefit) of approximately $309 million. State tax net operating loss carryforwards generally expire in the years 2019 through 2038. Such tax loss carryforwards can accumulate and be used to offset Charter’s future taxable income. After December 31, 2018, $1.1 billion of Charter's federal tax loss carryforwards are subject to Section 382 and other restrictions. Pursuant to these restrictions, Charter estimates that approximately $226 million annually over each of the next five years of federal tax loss carryforwards, should become unrestricted and available for Charter’s use. An additional $184 million is currently subject to a valuation allowance. Charter’s state tax loss carryforwards are subject to similar but varying restrictions.

Income tax benefit for the year ended December 31, 2017 was recognized primarily as a result of the enactment of the Tax Cuts & Jobs Act (“Tax Reform”) in December 2017. Among other things, the primary provisions of Tax Reform impacting us are the reductions to the U.S. corporate income tax rate from 35% to 21% and temporary 100% bonus depreciation for certain assets. The change in tax law required us to remeasure existing net deferred tax liabilities using the lower rate in the period of enactment resulting in an income tax benefit of approximately $9.3 billion to reflect these changes in the year ended December 31, 2017.

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 in 2016, deferred tax liabilities resulting from the acquisition accounting 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 we will realize substantially all of our deferred tax assets. As a result, in 2016 Charter reversed approximately $3.3 billion of its valuation allowance and recognized a corresponding income tax benefit in the consolidated statements of operations for the year ended December 31, 2016. Approximately $39 million of valuation allowance associated with federal tax net operating loss carryforwards and approximately $50 million of valuation allowance associated with state tax loss carryforwards and other miscellaneous deferred tax assets remains on the December 31, 2018 consolidated balance sheet.

In determining our tax provision for financial reporting purposes, we establish 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. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, we presume the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to be recognized in our financial statements. The tax position is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized when the position is ultimately resolved. There is considerable judgment involved in determining whether positions taken on the tax return are “more likely than not” of being sustained. We adjust our uncertain tax reserve estimates periodically because of ongoing examinations by, and settlements with, the various taxing authorities, as well as changes in tax laws, regulations and interpretations.

No tax years for Charter or Charter Holdco for income tax purposes, are currently under examination by the IRS. Charter's 2016 through 2018 tax years remain open for examination and assessment. Legacy Charter’s tax years ending 2015 through the short period return dated May 17, 2016 remain subject to examination and assessment. Years prior to 2015 remain open solely for purposes of examination of Legacy Charter’s loss and credit carryforwards. The IRS is currently examining Charter Holdings' income tax returns for 2016. Charter Holdings’ 2017 and 2018 tax years remain open for examination and assessment. The IRS is currently examining Legacy TWC’s income tax returns for 2011 through 2014. Legacy TWC’s tax year 2015 remains 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. We do not anticipate that these examinations will have a material impact on our consolidated financial position or results of operations. In addition, we are also subject to ongoing examinations of our 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 our consolidated financial position or results of operations during the year ended December 31, 2018, nor do we anticipate a material impact in the future.

Litigation

Legal contingencies have a high degree of uncertainty. When a loss from a contingency becomes estimable and probable, a reserve is established. The reserve reflects management’s best estimate of the probable cost of ultimate resolution of the matter and is revised as facts and circumstances change. A reserve is released when a matter is ultimately brought to closure or the statute of limitations lapses. We have established reserves for certain matters. Although these matters are not expected individually to have

a material adverse effect on our consolidated financial condition, results of operations or liquidity, such matters could have, in the aggregate, a material adverse effect on our consolidated financial condition, results of operations or liquidity.

Programming agreements

We exercise judgment in estimating programming expense associated with certain video programming contracts. Our policy is to record video programming costs based on the substance of our contractual agreements with our programming vendors, which are generally multi-year agreements that provide for us to make payments to the programming vendors at agreed upon market rates based on the number of customers to which we provide the programming service. If a programming contract expires prior to the parties’ entry into a new agreement and we continue to distribute the service, we estimate the programming costs during the period there is no contract in place. In doing so, we consider the previous contractual rates, inflation and the status of the negotiations in determining our estimates. When the programming contract terms are finalized, an adjustment to programming expense is recorded, if necessary, to reflect the terms of the new contract. We also make estimates in the recognition of programming expense related to other items including the allocation of consideration exchanged between the parties among the various items in multiple-element transactions.

Judgment is also involved when we enter into agreements that result in us receiving cash consideration from the programming vendor, usually in the form of advertising sales, channel positioning fees, launch support or marketing support. In these situations, we must determine based upon facts and circumstances if such cash consideration should be recorded as revenue, a reduction in programming expense or a reduction in another expense category (e.g., marketing).

Pension plans

We sponsor two qualified defined benefit pension plans, the TWC Pension Plan and the TWC Union Pension Plan (collectively, the “TWC Pension Plans”), that provide pension benefits to a majority of Legacy TWC employees. We also provide a nonqualified defined benefit pension plan for certain employees under the TWC Excess Pension Plan. As of December 31, 2018, the accumulated benefit obligation and fair value of plan assets for the TWC Pension Plans was $3.0 billion and $2.9 billion, respectively, and the net underfunded liability of the TWC Pension Plans was recorded as a $1 million noncurrent asset, $4 million current liability and $95 million long-term liability. As of December 31, 2017, the accumulated benefit obligation and fair value of plan assets for the TWC Pension Plans was $3.6 billion and $3.3 billion, respectively, and the net underfunded liability of the TWC Pension Plans was recorded as a $1 million noncurrent asset, $5 million current liability and $292 million long-term liability.

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. We have 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. We use a December 31 measurement date for our pension plans.

We recognized net periodic pension benefits of $192 million, $1 million and $813 million in 2018, 2017 and 2016, respectively. Net periodic pension benefit or expense is determined using certain assumptions, including the expected long-term rate of return on plan assets, discount rate and mortality assumptions. We determined the discount rate used to compute pension expense 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. In developing the expected long-term rate of return on assets, we considered the current pension portfolio’s composition, past average rate of earnings, and our asset allocation targets. We used a discount rate of 3.68% from January 1, 2018 to September 30, 2018 and 4.24% from October 1, 2018 to December 31, 2018 to compute 2018 pension expense. A decrease in the discount rate of 25 basis points would result in a $137 million increase in our pension plan benefit obligation as of December 31, 2018 and net periodic pension expense recognized in 2018 under our mark-to-market accounting policy. Our expected long-term rate of return on plan assets used to compute 2018 pension expense was 5.75%. A decrease in the expected long-term rate of return of 25 basis points, from 5.75% to 5.50%, while holding all other assumptions constant, would result in an increase in our 2019 net periodic pension expense of approximately $7 million. See Note 20 to the accompanying consolidated financial statements contained in “Part II. Item 8. Financial Statements and Supplementary Data” for additional discussion on these assumptions.

Results of Operations

The following table sets forth the consolidated statements of operations for the periods presented (dollars in millions, except per share data):

	Year Ended December 31,
	2018				2017				2016
Revenues	$	43,634			$	41,581			$	29,003
Costs and Expenses:
Operating costs and expenses (exclusive of items shown separately below)	27,860				26,541				18,655
Depreciation and amortization	10,318				10,588				6,907
Other operating expenses, net	235				346				985
	38,413				37,475				26,547
Income from operations	5,221				4,106				2,456
Other Expenses:
Interest expense, net	(3,540		)		(3,090		)		(2,499		)
Loss on extinguishment of debt	—				(40		)		(111		)
Gain (loss) on financial instruments, net	(110		)		69				89
Other pension benefits	192				1				899
Other expense, net	(77		)		(18		)		(14		)
	(3,535		)		(3,078		)		(1,636		)
Income before income taxes	1,686				1,028				820
Income tax benefit (expense)	(180		)		9,087				2,925
Consolidated net income	1,506				10,115				3,745
Less: Net income attributable to noncontrolling interests	(276		)		(220		)		(223		)
Net income attributable to Charter shareholders	$	1,230			$	9,895			$	3,522
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CHARTER SHAREHOLDERS:
Basic	$	5.29			$	38.55			$	17.05
Diluted	$	5.22			$	34.09			$	15.94
Weighted average common shares outstanding, basic	232,356,665				256,720,715				206,539,100
Weighted average common shares outstanding, diluted	235,525,226				296,703,956				234,791,439

Revenues. Total revenues grew $2.1 billion or 4.9% during the year ended December 31, 2018 as compared to 2017 and grew $12.6 billion or 43.4% during the year ended December 31, 2017 as compared to 2016. Revenue growth primarily reflects increases in the number of residential Internet and commercial business customers, price adjustments as well as the launch of our mobile service in 2018 offset by a decrease in limited basic video customers. The Transactions increased revenues for the year ended 2017 as compared to 2016 by approximately $11.4 billion. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, total revenue growth was 3.9% for the year ended December 31, 2017 as compared to the year ended December 31, 2016.

Revenues by service offering were as follows (dollars in millions; all percentages are calculated using whole numbers. Minor differences may exist due to rounding):

	Years ended December 31,
	Actual																		Pro Forma
	2018				2017				2016				2018 vs. 2017 Growth			2017 vs. 2016 Growth			2016				2017 vs. 2016 Growth
Video	$	17,348			$	16,621			$	11,955			4.4	%		39.0	%		$	16,370			1.5	%
Internet	15,181				14,101				9,270				7.7	%		52.1	%		12,684				11.2	%
Voice	2,114				2,542				2,005				(16.8	)%		26.8	%		2,905				(12.5	)%
Residential revenue	34,643				33,264				23,230				4.1	%		43.2	%		31,959				4.1	%
Small and medium business	3,665				3,547				2,384				3.3	%		48.8	%		3,283				8.0	%
Enterprise	2,528				2,373				1,539				6.5	%		54.1	%		2,175				9.1	%
Commercial revenue	6,193				5,920				3,923				4.6	%		50.9	%		5,458				8.5	%
Advertising sales	1,785				1,510				1,235				18.2	%		22.3	%		1,696				(10.9	)%
Mobile	106				—				—				NM			NM			—				NM
Other	907				887				615				2.3	%		44.1	%		910				(2.6	)%
	$	43,634			$	41,581			$	29,003			4.9	%		43.4	%		$	40,023			3.9	%

Video revenues consist primarily of revenues from basic and digital video services provided to our residential customers, as well as franchise fees, equipment service fees and video installation revenue. The increases in video revenues are attributable to the following (dollars in millions):

	2018 compared to 2017				2017 compared to 2016
Increase related to rate changes	$	1,089			$	408
Decrease in average residential video customers	(298		)		(205		)
Increase (decrease) in VOD and pay-per-view	(64		)		35
TWC Transaction	—				3,800
Bright House Transaction	—				628
	$	727			$	4,666

The increases related to rate changes were primarily due to price adjustments including promotional roll-off, service level changes and bundle revenue allocation. Residential video customers decreased by 296,000 and 301,000 in 2018 and 2017, respectively.

On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, the increase in video revenues is attributable to the following (dollars in millions):

	2017 compared to 2016
Increase related to rate changes	$	513
Increase in VOD and pay-per-view	32
Decrease in average residential video customers	(294		)
	$	251

The increases in Internet revenues from our residential customers are attributable to the following (dollars in millions):

	2018 compared to 2017				2017 compared to 2016
Increase in average residential Internet customers	$	695			$	574
Increase related to rate changes	385				418
TWC Transaction	—				3,267
Bright House Transaction	—				572
	$	1,080			$	4,831

Residential Internet customers grew by 1,107,000 and 1,159,000 in 2018 and 2017, respectively. The increases related to rate changes were primarily due to price adjustments including promotional roll-off and bundle revenue allocation.

On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, the increase in Internet revenues is attributable to the following (dollars in millions):

	2017 compared to 2016
Increase in average residential Internet customers	$	818
Increase related to rate changes	599
	$	1,417

The changes in voice revenues from our residential customers are attributable to the following (dollars in millions):

	2018 compared to 2017				2017 compared to 2016
Decrease related to rate changes	$	(408	)		$	(312	)
Increase (decrease) in average residential voice customers	(20		)		20
TWC Transaction	—				707
Bright House Transaction	—				122
	$	(428	)		$	537

The decreases related to rate changes were primarily due to value-based pricing and bundle revenue allocation. Residential voice customers decreased by 289,000 and grew by 93,000 in 2018 and 2017, respectively.

On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, the decrease in voice revenues is attributable to the following (dollars in millions):

	2017 compared to 2016
Decrease related to rate changes	$	(412	)
Increase in average residential voice customers	49
	$	(363	)

The increases in small and medium business commercial revenues are attributable to the following (dollars in millions):

	2018 compared to 2017				2017 compared to 2016
Increase in small and medium business customers	$	377			$	279
Decrease related to rate changes	(259		)		(109		)
TWC Transaction	—				860
Bright House Transaction	—				133
	$	118			$	1,163

Small and medium business PSUs increased by 337,000 and 340,000 in 2018 and 2017, respectively. The decreases related to rate changes were primarily due to value pricing related to SPP, net of promotional roll-off and price adjustments.

On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, the increase in small and medium business commercial revenues is attributable to the following (dollars in millions):

	2017 compared to 2016
Increase in small and medium business customers	$	373
Decrease related to rate changes	(109		)
	$	264

Enterprise revenues increased $155 million during the year ended December 31, 2018 as compared to the corresponding period in 2017 primarily due to growth in customers. Enterprise PSUs increased by 28,000 and 29,000 in 2018 and 2017, respectively. The Transactions increased enterprise commercial revenues for year ended December 31, 2017 as compared to the corresponding prior period by approximately $655 million. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, enterprise revenues increased $198 million during the year ended December 31, 2017 as compared to the corresponding prior period.

Advertising sales revenues consist primarily of revenues from commercial advertising customers, programmers and other vendors, as well as local cable and advertising on regional sports and news channels. Advertising sales revenues increased $275 million during the year ended December 31, 2018 as compared to the corresponding period in 2017 primarily due to an increase in political and continued roll-out of addressability and newer advanced advertising products that allows for more targeted media purchases using our inventory. Advertising sales revenues increased in 2017 as compared to 2016 primarily due to the Transactions. The Transactions increased advertising sales revenues for the year ended December 31, 2017 as compared to the corresponding prior period by $425 million. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, advertising sales revenues decreased $186 million during 2017 as compared to 2016 primarily due to a decrease in political advertising.

Mobile revenues represent approximately $97 million of device revenues and approximately $9 million of service revenues related to our mobile service. As of December 31, 2018, we had 134,000 mobile lines.

Other revenues consist of revenue from regional sports and news channels (excluding intercompany charges or advertising sales on those channels), home shopping, late payment fees, wire maintenance fees and other miscellaneous revenues. The increase during the year ended December 31, 2018 as compared to the corresponding period in 2017 was primarily due to an increase in late payment fees. Other revenues increased in 2017 as compared to 2016 primarily due to the Transactions. The Transactions increased other revenues for the year ended December 31, 2017 as compared to the corresponding prior period by $255 million. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, other revenues decreased $23 million during 2017 as compared to the corresponding prior period primarily due to a settlement incurred in 2016 related to an early contract termination at Legacy TWC and Legacy Bright House.

Operating costs and expenses. The increases in our operating costs and expenses, exclusive of items shown separately in the consolidated statements of operations, are attributable to the following (dollars in millions):

	2018 compared to 2017				2017 compared to 2016
Programming	$	528			$	3,562
Regulatory, connectivity and produced content	146				597
Costs to service customers	92				1,928
Marketing	6				900
Mobile	346				—
Other	201				899
	$	1,319			$	7,886

Programming costs were approximately $11.1 billion, $10.6 billion and $7.0 billion, representing 40%, 40% and 38% of operating costs and expenses for the years ended December 31, 2018, 2017 and 2016, respectively. Programming costs consist primarily of costs paid to programmers for basic, digital, premium, VOD, and pay-per-view programming. The increase in programming costs is primarily a result of contractual rate adjustments, including renewals and increases in amounts paid for retransmission consents partly offset by lower video customers, pay-per-view and one-time programming benefits during the year ended December 31, 2018. We expect programming expenses will continue to increase due to a variety of factors, including annual increases imposed by programmers with additional selling power as a result of media consolidation, increased demands by owners of broadcast stations for payment for retransmission consent or linking carriage of other services to retransmission consent, and additional programming, particularly new services. We have been unable to fully pass these increases on to our customers and do not expect to be able to do so in the future without a potential loss of customers.

Regulatory, connectivity and produced content increased $146 million during the year ended December 31, 2018 compared to the corresponding period in 2017 primarily due to the adoption of Accounting Standards Update 2014-09 as of January 1, 2018, which results in the reclassification of expenses related to the amortization of up-front fees paid to market and serve customers who reside in MDUs that were recorded in depreciation and amortization expense in the prior-year period to regulatory, connectivity and produced content expenses, as well as higher regulatory fees related to higher revenue. For more information, see Note 21 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”

Costs to service customers increased $92 million during 2018 as compared to 2017 primarily due to an increase in bad debt expense.

Mobile costs of $346 million for the year ended December 31, 2018 were comprised of mobile launch costs, mobile device costs and mobile service and operating costs.

The increases in other expense are attributable to the following (dollars in millions):

	2018 compared to 2017				2017 compared to 2016
Advertising sales expense	$	99			$	242
Property tax and insurance	40				108
Stock compensation expense	24				17
Corporate costs	17				190
Enterprise	13				246
Other	8				96
	$	201			$	899

The increases in all categories of operating costs and expenses in 2017 as compared to 2016 was primarily due to the Transactions.

On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, the increase in our operating costs and expenses in 2017 as compared to 2016, exclusive of items shown separately in the consolidated statements of operations, is attributable to the following (dollars in millions):

	2017 compared to 2016
Programming	$	982
Regulatory, connectivity and produced content	(29		)
Costs to service customers	(173		)
Marketing	72
Other	(165		)
	$	687

On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, programming costs were approximately $9.6 billion, representing 37% of total operating costs and expenses for the year ended December 31, 2016. The increase in programming costs on a pro forma basis is primarily a result of contractual rate adjustments, including renewals and increases in amounts paid for retransmission consents and higher pay-per-view events offset by synergies as a result of the Transactions.

Costs to service customers decreased $173 million during 2017 as compared to 2016, on a pro forma basis, assuming the Transactions occurred as of January 1, 2015, primarily due to benefits from combining Legacy TWC and Legacy Bright House into Charter, including lower employee benefit and maintenance costs, higher labor and material capitalization with increases in placement of new customer equipment and improved productivity.

On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, the change in other expense is attributable to the following (dollars in millions):

	2017 compared to 2016
Corporate costs	$	(174	)
Stock compensation expense	(34		)
Property tax and insurance	(22		)
Advertising sales expense	34
Enterprise	26
Other	5
	$	(165	)

Corporate costs and stock compensation expense decreased in 2017 as compared to 2016 primarily as a result of lower headcount as a result of integration synergies.

Depreciation and amortization. Depreciation and amortization expense decreased by $270 million and increased by $3.7 billion in 2018 and 2017 as compared to the corresponding prior periods. The decrease during the year ended December 31, 2018 as compared to 2017 was primarily due to a decrease in depreciation and amortization as certain assets acquired from Legacy TWC and Legacy Bright House become fully depreciated offset by an increase in depreciation as a result of more recent capital expenditures. The increase during the year ended December 31, 2017 as compared to 2016 was impacted by additional depreciation and amortization related to the Transactions, inclusive of the incremental amounts as a result of the higher fair values recorded in acquisition accounting.

Other operating expenses, net. The changes in other operating expenses, net are attributable to the following (dollars in millions):

	2018 compared to 2017				2017 compared to 2016
Merger and restructuring costs	$	(254	)		$	(619	)
Special charges, net	74				(38		)
(Gain) loss on sale of assets, net	69				18
	$	(111	)		$	(639	)

The changes in merger and restructuring costs is primarily due to $70 million, $279 million and $611 million of employee retention and employee termination costs incurred during 2018, 2017 and 2016, respectively, as well as approximately $262 million of contingent financing and advisory transaction fees paid at the closing of the Transactions in 2016.

The changes in special charges, net is primarily due to changes in employee termination costs not related to the Transactions and net amounts of litigation settlements. In 2018, special charges, net also includes a $22 million charge related to a withdrawal liability from a multiemployer pension plan. In 2017, special charges, net includes a $101 million benefit related to the remeasurement of the Tax Receivable Agreement liability as a result of the enactment of Tax Reform in December 2017 offset by an $83 million charge related to a withdrawal liability from a multiemployer pension plan.

The increase in loss on sale of assets, net for the year ended December 31, 2018 as compared to the year ended December 31, 2017 is primarily due to an impairment of non-strategic assets. For more information, see Note 14 to the accompanying consolidated financial statements contained in “Part II. Item 8. Financial Statements and Supplementary Data.”

Interest expense, net. Net interest expense increased by $450 million in 2018 from 2017 and by $591 million in 2017 from 2016. The increases in 2018 and 2017 as compared to the corresponding prior periods are primarily due to an increase in weighted average debt outstanding of approximately $6.6 billion and $11.6 billion, respectively, primarily as a result of the issuance of notes in 2018 and 2017 for general corporate purposes including stock buybacks. Interest expense associated with debt assumed from Legacy TWC also increased interest expense during the year ended December 31, 2017 compared to the corresponding period in 2016 by approximately $336 million.

Loss on extinguishment of debt. Loss on extinguishment of debt of $40 million and $111 million for the years ended December 31, 2017 and 2016, respectively, primarily represents losses recognized as a result of the repurchase of CCO Holdings notes and amendments to Charter Operating's credit facilities. For more information, see Note 8 to the accompanying consolidated financial statements contained in “Part II. Item 8. Financial Statements and Supplementary Data.”

Gain (loss) on financial instruments, net. Gains and losses on financial instruments are recognized due to changes in the fair value of our interest rate and our cross currency derivative instruments, and the foreign currency remeasurement of the fixed-rate British pound sterling denominated notes (the “Sterling Notes”) into U.S. dollars. For more information, see Note 11 to the accompanying consolidated financial statements contained in “Part II. Item 8. Financial Statements and Supplementary Data.”

Other pension benefits. Other pension benefits increased by $191 million during 2018 compared to 2017 primarily due to a net remeasurement gain of $122 million recognized in 2018 as opposed to remeasurement losses of $55 million recognized in 2017. Other pension benefits decreased $898 million during 2017 compared to 2016 primarily due to remeasurement losses of $55 million recognized in 2017 as opposed to a pension curtailment gain of $675 million and remeasurement gain of $195 million recognized in 2016. For more information, see Note 20 to the accompanying consolidated financial statements contained in “Part II. Item 8. Financial Statements and Supplementary Data.”

Other expense, net. Other expense, net primarily represents equity losses on our equity-method investments. For more information, see Note 6 to the accompanying consolidated financial statements contained in “Part II. Item 8. Financial Statements and Supplementary Data.”

Income tax benefit (expense). We recognized income tax expense of $180 million for the year ended December 31, 2018 and income tax benefits of $9.1 billion and $2.9 billion for the years ended December 31, 2017 and 2016, respectively. The income tax benefit for the year ended December 31, 2017 was recognized primarily through the enactment of Tax Reform which resulted in an income tax benefit of approximately $9.3 billion.

Income tax benefit for the year ended December 31, 2016 was the result of a reduction of substantially all of Legacy Charter's preexisting valuation allowance associated with its deferred tax assets of approximately $3.3 billion as certain of the deferred tax liabilities that were assumed in connection with the closing of the TWC Transaction will reverse and provide a source of future taxable income. For more information, see Note 16 to the accompanying consolidated financial statements contained in “Part II. Item 8. Financial Statements and Supplementary Data.”

Net income attributable to noncontrolling interest. Net income attributable to noncontrolling interest for financial reporting purposes represents A/N’s portion of Charter Holdings’ net income based on its effective common unit ownership interest and on the preferred dividend of $150 million, $150 million and $93 million for the years ended December 31, 2018, 2017 and 2016, respectively. For more information, see Note 10 to the accompanying consolidated financial statements contained in “Part II. Item 8. Financial Statements and Supplementary Data.”

Net income attributable to Charter shareholders. Net income attributable to Charter shareholders was $1.2 billion, $9.9 billion and $3.5 billion for the years ended December 31, 2018, 2017 and 2016, respectively, primarily as a result of the factors described above. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, net income attributable to Charter shareholders was $1.1 billion for the year ended December 31, 2016.

Use of Adjusted EBITDA and Free Cash Flow

We use certain measures that are not defined by U.S. generally accepted accounting principles (“GAAP”) to evaluate various aspects of our business. Adjusted EBITDA and free cash flow are non-GAAP financial measures and should be considered in addition to, not as a substitute for, consolidated net income and net cash flows from operating activities reported in accordance with GAAP. These terms, as defined by us, may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA and free cash flow are reconciled to consolidated net income and net cash flows from operating activities, respectively, below.

Adjusted EBITDA eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of our businesses as well as other non-cash or special items, and is unaffected by our capital structure or investment activities. However, this measure is limited in that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues and our cash cost of financing. These costs are evaluated through other financial measures.

Free cash flow is defined as net cash flows from operating activities, less capital expenditures and changes in accrued expenses related to capital expenditures.

Management and Charter’s board of directors use Adjusted EBITDA and free cash flow to assess our performance and our ability to service our debt, fund operations and make additional investments with internally generated funds. In addition, Adjusted EBITDA generally correlates to the leverage ratio calculation under our credit facilities or outstanding notes to determine compliance with the covenants contained in the facilities and notes (all such documents have been previously filed with the SEC). For the purpose of calculating compliance with leverage covenants, we use Adjusted EBITDA, as presented, excluding certain expenses paid by our operating subsidiaries to other Charter entities. Our debt covenants refer to these expenses as management fees, which fees were in the amount of $1.1 billion, $1.1 billion and $930 million for the years ended December 31, 2018, 2017 and 2016, respectively.

	Years ended December 31,
	2018				2017				2016
	Actual
Consolidated net income	$	1,506			$	10,115			$	3,745
Plus: Interest expense, net	3,540				3,090				2,499
Income tax (benefit) expense	180				(9,087		)		(2,925		)
Depreciation and amortization	10,318				10,588				6,907
Stock compensation expense	285				261				244
Loss on extinguishment of debt	—				40				111
(Gain) loss on financial instruments, net	110				(69		)		(89		)
Other pension benefits	(192		)		(1		)		(899		)
Other, net	312				364				999
Adjusted EBITDA	$	16,059			$	15,301			$	10,592
Net cash flows from operating activities	$	11,767			$	11,954			$	8,041
Less: Purchases of property, plant and equipment	(9,125		)		(8,681		)		(5,325		)
Change in accrued expenses related to capital expenditures	(470		)		820				603
Free cash flow	$	2,172			$	4,093			$	3,319

	Year Ended December 31, 2016
	Pro Forma
Consolidated net income	$	1,399
Plus: Interest expense, net	2,883
Income tax expense	498
Depreciation and amortization	9,555
Stock compensation expense	295
Loss on extinguishment of debt	111
Gain on financial instruments, net	(89		)
Other pension benefits	(915		)
Other, net	727
Adjusted EBITDA	$	14,464

Liquidity and Capital Resources

Overview

We have significant amounts of debt. The principal amount of our debt as of December 31, 2018 was $72.0 billion, consisting of $10.0 billion of credit facility debt, $43.0 billion of investment grade senior secured notes and $18.9 billion of high-yield senior unsecured notes. Our business requires significant cash to fund principal and interest payments on our debt.

Our projected cash needs and projected sources of liquidity depend upon, among other things, our actual results, and the timing and amount of our expenditures. As we launch our new mobile services, we expect an initial funding period to grow a new product as well as negative working capital impacts from the timing of device-related cash flows when we provide the handset or tablet to customers pursuant to equipment installment plans. Free cash flow was $2.2 billion, $4.1 billion and $3.3 billion for the years ended December 31, 2018, 2017 and 2016, respectively. The decrease in free cash flow in 2018 as compared to 2017 is primarily due to an unfavorable change in working capital as well as an increase in cash paid for interest and capital expenditures. As of December 31, 2018, the amount available under our credit facilities was approximately $2.8 billion and cash on hand was approximately $551 million. We expect to utilize free cash flow, cash on hand and availability under our credit facilities as well as future refinancing transactions to further extend the maturities of our obligations. The timing and terms of any refinancing transactions will be subject to market conditions among other considerations. Additionally, we may, from time to time, and depending on market conditions and other factors, use cash on hand and the proceeds from securities offerings or other borrowings to retire our debt through open market purchases, privately negotiated purchases, tender offers or redemption provisions. We

believe we have sufficient liquidity from cash on hand, free cash flow and Charter Operating’s revolving credit facility as well as access to the capital markets to fund our projected cash needs.

We continue to evaluate the deployment of our cash on hand and anticipated future free cash flow including to invest in our business growth and other strategic opportunities, including mergers and acquisitions as well as stock repurchases and dividends. Charter's target leverage of net debt to the last twelve months Adjusted EBITDA remains at 4 to 4.5 times, and up to 3.5 times at the Charter Operating level. Our leverage ratio was 4.5 as of December 31, 2018. We expect to increase the total amount of our indebtedness to maintain leverage within Charter's target leverage range. During the years ended December 31, 2018, 2017 and 2016, Charter purchased approximately 14.1 million, 33.4 million and 5.1 million shares, respectively, of Charter Class A common stock for approximately $4.3 billion, $11.6 billion and $1.3 billion, respectively.

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 Holdings purchased from A/N 2.1 million, 4.8 million and 0.8 million Charter Holdings common units at an average price per unit of $308.90, $347.03 and $289.83, or $656 million, $1.7 billion and $218 million during the years ended December 31, 2018, 2017 and 2016, respectively.

As of December 31, 2018, Charter had remaining board authority to purchase an additional $480 million of Charter’s Class A common stock and/or Charter Holdings common units. Charter is not obligated to acquire any particular amount of common stock, and the timing of any purchases that may occur cannot be predicted and will largely depend on market conditions and other potential uses of capital. Purchases may include open market purchases, tender offers or negotiated transactions.

As possible acquisitions, swaps or dispositions arise, we actively review them against our objectives including, among other considerations, improving the operational efficiency, geographic clustering of assets, product development or technology capabilities of our business and achieving appropriate return targets, and we may participate to the extent we believe these possibilities present attractive opportunities. However, there can be no assurance that we will actually complete any acquisitions, dispositions or system swaps, or that any such transactions will be material to our operations or results.

Recent Events

In January 2019, Charter Operating and Charter Communications Operating Capital Corp. jointly issued $1.25 billion aggregate principal amount of 5.050% senior notes due 2029 at a price of 99.935% of the aggregate principal amount and an additional $750 million aggregate principal amount of 5.75% senior notes due 2048 at a price of 94.970% of the aggregate principal amount. The net proceeds will be used to pay related fees and expenses and for general corporate purposes, including funding buybacks of Charter Class A common stock and Charter Holdings common units as well as to repay certain indebtedness, including to repay at maturity Time Warner Cable, LLC's 8.75% senior notes due 2019.

In January 2019, Charter Operating entered into an amendment to its Credit Agreement raising an additional $1.7 billion term loan A-3 and increasing revolving loan capacity to $4.75 billion as well as extending the maturities on a portion of the term loan A-2 and a portion of the revolving loan to 2024. Pricing on the new term loan A-3 is LIBOR plus 1.50%.

Free Cash Flow

Free cash flow decreased $1.9 billion and increased $774 million during the years ended December 31, 2018 and 2017 compared to the corresponding prior periods, respectively, due to the following.

	2018 compared to 2017				2017 compared to 2016
Increase in Adjusted EBITDA	$	758			$	4,709
Decrease in merger and restructuring costs	210				420
Decrease in working capital, excluding change in accrued interest, net of effects from acquisitions	(1,899		)		(361		)
Increase in cash paid for interest, net	(447		)		(761		)
Increase in capital expenditures	(444		)		(3,356		)
Other, net	(99		)		123
	$	(1,921	)		$	774

Free cash flow was reduced by $594 million due to mobile during the year ended December 31, 2018 compared to the corresponding prior period with impacts negatively affecting working capital, capital expenditures and Adjusted EBITDA. The decrease in working capital during the year ended December 31, 2018 compared to the corresponding prior period, excluding change in accrued interest, is primarily due to the timing of fourth quarter 2017 capital expenditures and other payments.

Contractual Obligations

The following table summarizes our payment obligations as of December 31, 2018 under our long-term debt and certain other contractual obligations and commitments (dollars in millions.)

			Payments by Period
			Total				Less than 1 year				1-3 years				3-5 years				More than 5 years
Long-Term Debt Principal Payments (a)			$	71,961			$	3,457			$	6,114			$	11,847			$	50,543
Long-Term Debt Interest Payments (b)			44,573				3,800				7,035				6,329				27,409
Capital and Operating Lease Obligations (c)			1,611				296				479				332				504
Programming Minimum Commitments (d)			191				124				67				—				—
Other (e)			16,278				2,209				4,693				1,047				8,329
			$	134,614			$	9,886			$	18,388			$	19,555			$	86,785

(a)	The table presents maturities of long-term debt outstanding as of December 31, 2018. Refer to Notes 8 and 19 to our accompanying consolidated financial statements contained in “Part II. Item 8. Financial Statements and Supplementary Data” for a description of our long-term debt and other contractual obligations and commitments.

(b)	Interest payments on variable debt are estimated using amounts outstanding at December 31, 2018 and the average implied forward LIBOR rates applicable for the quarter during the interest rate reset based on the yield curve in effect at December 31, 2018. Actual interest payments will differ based on actual LIBOR rates and actual amounts outstanding for applicable periods.

(c)	We lease certain facilities and equipment under noncancelable capital and operating leases. Capital lease obligations represented $111 million of total capital and operating lease obligations as of December 31, 2018. Lease and rental costs charged to expense for the years ended December 31, 2018, 2017 and 2016, were $382 million, $321 million and $215 million, respectively.

(d)

We pay programming fees under multi-year contracts 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 accompanying statement of operations were approximately $11.1 billion, $10.6 billion and $7.0 billion, for the years ended December 31, 2018, 2017 and 2016, respectively. Certain of our 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 our programming contracts.

(e)	“Other” represents other guaranteed minimum commitments, including rights negotiated directly with content owners for distribution on company-owned channels or networks, commitments related to our role as an advertising and distribution

sales agent for third party-owned channels or networks, commitments to our customer premise equipment and device vendors and contractual obligations related to third-party network augmentation.

The following items are not included in the contractual obligations table because the obligations are not fixed and/or determinable due to various factors discussed below. However, we incur these costs as part of our operations:

•	We rent utility poles used in our operations. Generally, pole rentals are cancelable on short notice, but we anticipate that such rentals will recur. Rent expense incurred for pole rental attachments for the years ended December 31, 2018, 2017 and 2016 was $171 million, $167 million and $115 million, respectively.

•

We pay franchise fees under multi-year franchise agreements based on a percentage of revenues generated from video service per year. We also pay 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 were $747 million, $705 million and $534 million for the years ended December 31, 2018, 2017 and 2016, respectively.

•	We have $358 million in letters of credit, of which $138 million is secured under the Charter Operating credit facility, primarily to our various casualty carriers as collateral for reimbursement of workers' compensation, auto liability and general liability claims.

•

Minimum pension funding requirements have not been presented in the table above as such amounts have not been determined beyond 2018. We made no cash contributions to the qualified pension plans in 2018; however, we are permitted to make discretionary cash contributions to the qualified pension plans in 2019. For the nonqualified pension plan, we contributed $6 million during 2018 and will continue to make contributions in 2019 to the extent benefits are paid.

See "Part I. Item 1. Business — Transaction-Related Commitments" for a listing of commitments as a result of the Transactions.

Historical Operating, Investing, and Financing Activities

Cash and Cash Equivalents. We held $551 million and $621 million in cash and cash equivalents as of December 31, 2018 and 2017, respectively. We also held $214 million in restricted cash as of December 31, 2018 representing escrowed funds of a consolidated variable interest entity. See Note 6 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”

Operating Activities. Net cash provided by operating activities decreased $187 million during the year ended December 31, 2018 compared to the year ended December 31, 2017, primarily due to changes in working capital, excluding the change in accrued interest and accrued expenses related to capital expenditures, that used $609 million more cash and an increase in cash paid for interest, net of $447 million and cash paid for taxes of $65 million offset by an increase in Adjusted EBITDA of $758 million and a decrease in merger and restructuring costs of $210 million.

Net cash provided by operating activities increased $3.9 billion during the year ended December 31, 2017 compared to the year ended December 31, 2016, primarily due to an increase in Adjusted EBITDA of $4.7 billion offset by an increase in cash paid for interest, net of $761 million as a result of the Transactions and long-term debt issued for general corporate purposes including stock buybacks.

Investing Activities. Net cash used in investing activities for the years ended December 31, 2018, 2017 and 2016, was $9.7 billion, $8.1 billion and $33.6 billion, respectively. The changes in cash used were primarily due to increases in capital expenditures and changes in accrued expenses related to capital expenditures and the acquisition of Legacy TWC and Legacy Bright House in 2016.

Financing Activities. Net cash used in financing activities decreased $2.9 billion during the year ended December 31, 2018 compared to the year ended December 31, 2017 primarily due to a decrease in the purchase of treasury stock and noncontrolling interest offset by a decrease in the amount by which borrowings of long-term debt exceeded repayments.

Net cash used in financing activities increased $9.5 billion during the year ended December 31, 2017 compared to the year ended December 31, 2016 primarily due to increases in the purchase of treasury stock and noncontrolling interest as well as a decrease in equity issued offset by an increase in borrowings of long-term debt exceeding repayments.

Capital Expenditures

We have significant ongoing capital expenditure requirements. Capital expenditures were $9.1 billion, $8.7 billion and $5.3 billion for the years ended December 31, 2018, 2017 and 2016, respectively. The increase in 2018 compared to 2017 was primarily due to higher scalable infrastructure related to the timing of spend and planned product improvements, higher support capital investments due to the timing of spend and mobile and higher line extensions as a result of regulatory merger conditions, offset by a decrease

in CPE expenditures due to timing. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, the increase during 2017 as compared to 2016 was driven by higher CPE purchases for SPP, our all-digital initiative and early inventory purchases to operationally stage 2018 activity, higher support capital investments and line extensions. See the table below for more details.

We currently expect capital expenditures, excluding capital expenditures related to mobile, to be approximately $7 billion in 2019, versus $8.9 billion in 2018. Our expectation for lower capital expenditures in 2019 versus 2018, is primarily driven by our expectation for lower customer premise equipment spend with the completion of our all-digital conversion, lower scalable infrastructure spend with the completion of the roll-out of DOCSIS 3.1 technology across our footprint and lower support capital spend with the substantial completion of the integration of Legacy TWC and Legacy Bright House. The actual amount of our capital expenditures in 2019 will depend on a number of factors including further spend related to product development and growth rates of both our residential and commercial businesses.

Our capital expenditures are funded primarily from cash flows from operating activities and borrowings on our credit facility. In addition, our accrued liabilities related to capital expenditures decreased $470 million and increased $820 million and $603 million for the years ended December 31, 2018, 2017 and 2016, respectively.

The following tables present our major capital expenditures categories on an actual and pro forma basis, assuming the Transactions occurred as of January 1, 2015, in accordance with National Cable and Telecommunications Association (“NCTA”) disclosure guidelines for the years ended December 31, 2018, 2017 and 2016. These disclosure guidelines are not required disclosures under GAAP, nor do they impact our accounting for capital expenditures under GAAP (dollars in millions):

	Year ended December 31,
	2018				2017				2016
	Actual
Customer premise equipment (a)	$	3,124			$	3,385			$	1,864
Scalable infrastructure (b)	2,227				2,007				1,390
Line extensions (c)	1,373				1,176				721
Upgrade/rebuild (d)	704				572				456
Support capital (e)	1,697				1,541				894
Total capital expenditures	$	9,125			$	8,681			$	5,325
Capital expenditures included in total related to:
Commercial services	$	1,313			$	1,305			$	824
All-digital transition	$	344			$	122			$	—
Mobile	$	242			$	—			$	—

	Year ended December 31, 2016
	Pro Forma
Customer premise equipment (a)	$	2,761
Scalable infrastructure (b)	2,009
Line extensions (c)	1,005
Upgrade/rebuild (d)	610
Support capital (e)	1,160
Total capital expenditures	$	7,545

(a)	Customer premise equipment includes costs incurred at the customer residence to secure new customers and revenue generating units, including customer installation costs and customer premise equipment (e.g., set-top boxes and cable modems).

(b)	Scalable infrastructure includes costs not related to customer premise equipment, to secure growth of new customers and revenue generating units, or provide service enhancements (e.g., headend equipment).

(c)	Line extensions include network costs associated with entering new service areas (e.g., fiber/coaxial cable, amplifiers, electronic equipment, make-ready and design engineering).

(d)	Upgrade/rebuild includes costs to modify or replace existing fiber/coaxial cable networks, including betterments.

(e)	Support capital includes costs associated with the replacement or enhancement of non-network assets due to technological and physical obsolescence (e.g., non-network equipment, land, buildings and vehicles).

Debt

As of December 31, 2018, the accreted value of our total debt was approximately $72.8 billion, as summarized below (dollars in millions):

	December 31, 2018
	Principal Amount				Accreted Value (a)				Interest Payment Dates		Maturity Date (b)
CCO Holdings, LLC:
5.250% senior notes due 2021	$	500			$	498			3/15 & 9/15		3/15/2021
5.250% senior notes due 2022	1,250				1,238				3/30 & 9/30		9/30/2022
5.125% senior notes due 2023	1,000				994				2/15 & 8/15		2/15/2023
4.000% senior notes due 2023	500				496				3/1 & 9/1		3/1/2023
5.125% senior notes due 2023	1,150				1,144				5/1 & 11/1		5/1/2023
5.750% senior notes due 2023	500				497				3/1 & 9/1		9/1/2023
5.750% senior notes due 2024	1,000				993				1/15 & 7/15		1/15/2024
5.875% senior notes due 2024	1,700				1,688				4/1 & 10/1		4/1/2024
5.375% senior notes due 2025	750				745				5/1 & 11/1		5/1/2025
5.750% senior notes due 2026	2,500				2,467				2/15 & 8/15		2/15/2026
5.500% senior notes due 2026	1,500				1,490				5/1 & 11/1		5/1/2026
5.875% senior notes due 2027	800				795				5/1 & 11/1		5/1/2027
5.125% senior notes due 2027	3,250				3,219				5/1 & 11/1		5/1/2027
5.000% senior notes due 2028	2,500				2,466				2/1 & 8/1		2/1/2028
Charter Communications Operating, LLC:
3.579% senior notes due 2020	2,000				1,992				1/23 & 7/23		7/23/2020
4.464% senior notes due 2022	3,000				2,982				1/23 & 7/23		7/23/2022
Senior floating rate notes due 2024	900				903				2/1, 5/1, 8/1 & 11/1		2/1/2024
4.500% senior notes due 2024	1,100				1,091				2/1 & 8/1		2/1/2024
4.908% senior notes due 2025	4,500				4,466				1/23 & 7/23		7/23/2025
3.750% senior notes due 2028	1,000				986				2/15 & 8/15		2/15/2028
4.200% senior notes due 2028	1,250				1,240				3/15 & 9/15		3/15/2028
6.384% senior notes due 2035	2,000				1,982				4/23 & 10/23		10/23/2035
5.375% senior notes due 2038	800				785				4/1 & 10/1		4/1/2038
6.484% senior notes due 2045	3,500				3,467				4/23 & 10/23		10/23/2045
5.375% senior notes due 2047	2,500				2,506				5/1 & 11/1		5/1/2047
5.750% senior notes due 2048	1,700				1,683				4/1 & 10/1		4/1/2048
6.834% senior notes due 2055	500				495				4/23 & 10/23		10/23/2055
Credit facilities	10,038				9,959						Varies
Time Warner Cable, LLC:
8.750% senior notes due 2019	1,250				1,260				2/14 & 8/14		2/14/2019
8.250% senior notes due 2019	2,000				2,030				4/1 & 10/1		4/1/2019
5.000% senior notes due 2020	1,500				1,541				2/1 & 8/1		2/1/2020
4.125% senior notes due 2021	700				721				2/15 & 8/15		2/15/2021
4.000% senior notes due 2021	1,000				1,033				3/1 & 9/1		9/1/2021
5.750% sterling senior notes due 2031 (c)	796				855				6/2		6/2/2031
6.550% senior debentures due 2037	1,500				1,680				5/1 & 11/1		5/1/2037
7.300% senior debentures due 2038	1,500				1,780				1/1 & 7/1		7/1/2038
6.750% senior debentures due 2039	1,500				1,719				6/15 & 12/15		6/15/2039
5.875% senior debentures due 2040	1,200				1,256				5/15 & 11/15		11/15/2040
5.500% senior debentures due 2041	1,250				1,258				3/1 & 9/1		9/1/2041
5.250% sterling senior notes due 2042 (d)	827				798				7/15		7/15/2042

4.500% senior debentures due 2042	1,250				1,140				3/15 & 9/15		9/15/2042
Time Warner Cable Enterprises LLC:
8.375% senior debentures due 2023	1,000				1,191				3/15 & 9/15		3/15/2023
8.375% senior debentures due 2033	1,000				1,298				7/15 & 1/15		7/15/2033
	$	71,961			$	72,827

(a)

The accreted values presented in the table above represent the principal amount of the debt adjusted for original issue discount or premium at the time of sale, deferred financing costs, and, in regards to the Legacy TWC debt assumed, fair value premium adjustments as a result of applying acquisition accounting plus the accretion of those amounts to the balance sheet date. However, the amount that is currently payable if the debt becomes immediately due is equal to the principal amount of the debt. In regards to the Sterling Notes, the principal amount of the debt and any premium or discount is remeasured into US dollars as of each balance sheet date. We have availability under our credit facilities of approximately $2.8 billion as of December 31, 2018.

(b)	In general, the obligors have the right to redeem all of the notes set forth in the above table in whole or in part at their option, beginning at various times prior to their stated maturity dates, subject to certain conditions, upon the payment of the outstanding principal amount (plus a specified redemption premium) and all accrued and unpaid interest.

(c)	Principal amount includes £625 million valued at $796 million as of December 31, 2018 using the exchange rate as of December 31, 2018.

(d)	Principal amount includes £650 million valued at $827 million as of December 31, 2018 using the exchange rate as of December 31, 2018.

See Note 8 to the accompanying consolidated financial statements contained in “Part II. Item 8. Financial Statements and Supplementary Data” for further details regarding our outstanding debt and other financing arrangements, including certain information about maturities, covenants and restrictions related to such debt and financing arrangements. The agreements and instruments governing our debt and financing arrangements are complicated and you should consult such agreements and instruments which are filed with the SEC for more detailed information.

At December 31, 2018, Charter Operating had a consolidated leverage ratio of approximately 3.1 to 1.0 and a consolidated first lien leverage ratio of 3.0 to 1.0. Both ratios are in compliance with the ratios required by the Charter Operating credit facilities of 5.0 to 1.0 consolidated leverage ratio and 4.0 to 1.0 consolidated first lien leverage ratio. A failure by Charter Operating to maintain the financial covenants would result in an event of default under the Charter Operating credit facilities and the debt of CCO Holdings. See “Part I. Item 1A. Risk Factors — The agreements and instruments governing our debt contain restrictions and limitations that could significantly affect our ability to operate our business, as well as significantly affect our liquidity.”

Recently Issued Accounting Standards

See Note 21 to the accompanying consolidated financial statements contained in “Part II. Item 8. Financial Statements and Supplementary Data” for a discussion of recently issued accounting standards.