filings.toolsItem 15. Exhibits and Financial Statement Schedules.
337K characters. Original on sec.gov · Markdown
Item 15. Exhibits and Financial Statement Schedules.
| (a) | The following documents are filed as part of this annual report: |
| (1) | Financial Statements. |
A listing of the financial statements, notes and reports of independent public accountants required by "Part II. Item 8. Financial Statements and Supplementary Data" begins on page F-1 of this annual report.
| (2) | Financial Statement Schedules. |
No financial statement schedules are required to be filed by Items 8 and 15(c) because they are not required or are not applicable, or the required information is set forth in the applicable financial statements or notes thereto.
| (3) | The index to the exhibits begins on page E-1 of this annual report. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Charter Communications, Inc. has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CHARTER COMMUNICATIONS, INC., | ||||
| Registrant | ||||
| By: | /s/ Thomas M. Rutledge | |||
| Thomas M. Rutledge | ||||
| Chairman and Chief Executive Officer | ||||
| Date: January 31, 2020 |
S- 1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Richard R. Dykhouse and Kevin D. Howard, and each of them (with full power to each of them to act alone), his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign on his or her behalf individually and in each capacity stated below any and all amendments (including post-effective amendments) to this annual report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents and either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Charter Communications, Inc. and in the capacities and on the dates indicated.
| Signature | Title | Date |
| /s/ Thomas M. Rutledge Thomas M. Rutledge | Chairman, Chief Executive Officer, Director (Principal Executive Officer) | January 31, 2020 |
| /s/ Christopher L. Winfrey Christopher L. Winfrey | Chief Financial Officer (Principal Financial Officer) | January 31, 2020 |
| /s/ Kevin D. Howard Kevin D. Howard | Executive Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) | January 31, 2020 |
| /s/ Eric L. Zinterhofer Eric L. Zinterhofer | Director | January 31, 2020 |
| /s/ W. Lance Conn W. Lance Conn | Director | January 31, 2020 |
| /s/ Kim C. Goodman Kim C. Goodman | Director | January 31, 2020 |
| /s/ Craig A. Jacobson Craig A. Jacobson | Director | January 31, 2020 |
| /s/ Gregory Maffei Gregory Maffei | Director | January 31, 2020 |
| /s/ John D. Markley, Jr. John D. Markley, Jr. | Director | January 31, 2020 |
| /s/ David C. Merritt David C. Merritt | Director | January 31, 2020 |
| /s/ James E. Meyer James E. Meyer | Director | January 31, 2020 |
| /s/ Steven Miron Steven Miron | Director | January 31, 2020 |
| /s/ Balan Nair Balan Nair | Director | January 31, 2020 |
| /s/ Michael Newhouse Michael Newhouse | Director | January 31, 2020 |
| /s/ Mauricio Ramos Mauricio Ramos | Director | January 31, 2020 |
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Exhibit Index
Exhibits are listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation S-K.
E- 1
E- 2
E- 3
E- 4
E- 5
E- 6
E- 7
E- 8
E- 9
E- 10
- Filed herewith
- Management compensatory plan or arrangement
E- 11
INDEX TO FINANCIAL STATEMENTS
F- 1
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Charter Communications, Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Charter Communications, Inc. and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Change in Accounting Principle
As discussed in Note 23 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standard Codification Topic 842, Leases.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
F- 2
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of capitalization of installation direct labor and overhead costs
As discussed in Note 2 to the consolidated financial statements, the Company capitalizes direct labor and overhead costs using standards developed from actual costs and applicable operational data associated with certain activities. The Company calculates the standards annually (or more frequently when circumstances dictate) for items such as direct labor and overhead and the estimate of the average amount of time required to perform a capitalizable activity. For the year ended December 31, 2019, the Company capitalized $1.6 billion of direct labor and overhead costs, which included costs relating to installation activities.
We identified the evaluation of capitalization of installation direct labor and overhead costs as a critical audit matter. Evaluating the Company’s determination of the relevant installation activities and the extent to which costs incurred are capitalized required complex and subjective auditor judgment. Specifically, the complexity relates to the evaluation of the methodology, including the development and accumulation of data within the methodology, used by the Company to estimate the installation direct labor and overhead standards. The subjectivity relates to estimating the average length of time to complete specific installation activities.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company's capitalization of installation direct labor and overhead costs process. The controls tested related to the development and accumulation of data used within the methodology to estimate installation direct labor and overhead cost, and the estimation of the average amount of time required to perform a capitalizable activity. We assessed the methodology, including the development and accumulation of data used within the methodology for the inclusion of certain costs in the installation direct labor and overhead standards. We selected a sample of the data used to develop the installation direct labor standard and overhead standard to test the key data attributes used in the estimates by comparing such data to contracts with third parties and internal documentation of wages and costs. We selected a sample to test the average length of time to complete specific installation activities by (1) evaluating underlying key attributes of the data through inquiry of personnel who supervise installation activities and (2) assessing the time required to complete certain activities through observation of personnel who perform installation activities.
(signed) KPMG LLP
We have served as the Company’s auditor since 2002.
St. Louis, Missouri
January 30, 2020
F- 3
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in millions, except share data)
| December 31, | |||||||
| 2019 | 2018 | ||||||
| ASSETS | |||||||
| CURRENT ASSETS: | |||||||
| Cash and cash equivalents | $ | 3,483 | $ | 551 | |||
| Accounts receivable, less allowance for doubtful accounts of $151 and $129, respectively | 2,227 | 1,733 | |||||
| Prepaid expenses and other current assets | 761 | 446 | |||||
| Total current assets | 6,471 | 2,730 | |||||
| RESTRICTED CASH | 66 | 214 | |||||
| INVESTMENT IN CABLE PROPERTIES: | |||||||
| Property, plant and equipment, net of accumulated depreciation of $27,656 and $23,075, respectively | 34,591 | 35,126 | |||||
| Customer relationships, net | 7,453 | 9,565 | |||||
| Franchises | 67,322 | 67,319 | |||||
| Goodwill | 29,554 | 29,554 | |||||
| Total investment in cable properties, net | 138,920 | 141,564 | |||||
| OPERATING LEASE RIGHT-OF-USE ASSETS | 1,092 | — | |||||
| OTHER NONCURRENT ASSETS | 1,639 | 1,622 | |||||
| Total assets | $ | 148,188 | $ | 146,130 | |||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
| CURRENT LIABILITIES: | |||||||
| Accounts payable and accrued liabilities | $ | 8,671 | $ | 8,805 | |||
| Operating lease liabilities | 214 | — | |||||
| Current portion of long-term debt | 3,500 | 3,290 | |||||
| Total current liabilities | 12,385 | 12,095 | |||||
| LONG-TERM DEBT | 75,578 | 69,537 | |||||
| DEFERRED INCOME TAXES | 17,711 | 17,389 | |||||
| LONG-TERM OPERATING LEASE LIABILITIES | 979 | — | |||||
| OTHER LONG-TERM LIABILITIES | 2,724 | 2,837 | |||||
| SHAREHOLDERS’ EQUITY: | |||||||
| Class A common stock; $.001 par value; 900 million shares authorized; | |||||||
| 209,975,963 and 225,353,807 shares issued and outstanding, respectively | — | — | |||||
| Class B common stock; $.001 par value; 1,000 shares authorized; | |||||||
| 1 share issued and outstanding | — | — | |||||
| Preferred stock; $.001 par value; 250 million shares authorized; no shares issued and outstanding | — | — | |||||
| Additional paid-in capital | 31,405 | 33,507 | |||||
| Retained earnings | 40 | 2,780 | |||||
| Accumulated other comprehensive loss | — | (2 | ) | ||||
| Total Charter shareholders’ equity | 31,445 | 36,285 | |||||
| Noncontrolling interests | 7,366 | 7,987 | |||||
| Total shareholders’ equity | 38,811 | 44,272 | |||||
| Total liabilities and shareholders’ equity | $ | 148,188 | $ | 146,130 |
The accompanying notes are an integral part of these consolidated financial statements.
F- 4
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in millions, except per share and share data)
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| REVENUES | $ | 45,764 | $ | 43,634 | $ | 41,581 | |||||
| COSTS AND EXPENSES: | |||||||||||
| Operating costs and expenses (exclusive of items shown separately below) | 29,224 | 27,860 | 26,541 | ||||||||
| Depreciation and amortization | 9,926 | 10,318 | 10,588 | ||||||||
| Other operating expenses, net | 103 | 235 | 346 | ||||||||
| 39,253 | 38,413 | 37,475 | |||||||||
| Income from operations | 6,511 | 5,221 | 4,106 | ||||||||
| OTHER INCOME (EXPENSES): | |||||||||||
| Interest expense, net | (3,797 | ) | (3,540 | ) | (3,090 | ) | |||||
| Loss on extinguishment of debt | (25 | ) | — | (40 | ) | ||||||
| Gain (loss) on financial instruments, net | (54 | ) | (110 | ) | 69 | ||||||
| Other pension benefits (costs), net | (69 | ) | 192 | 1 | |||||||
| Other expense, net | (135 | ) | (77 | ) | (18 | ) | |||||
| (4,080 | ) | (3,535 | ) | (3,078 | ) | ||||||
| Income before income taxes | 2,431 | 1,686 | 1,028 | ||||||||
| Income tax benefit (expense) | (439 | ) | (180 | ) | 9,087 | ||||||
| Consolidated net income | 1,992 | 1,506 | 10,115 | ||||||||
| Less: Net income attributable to noncontrolling interests | (324 | ) | (276 | ) | (220 | ) | |||||
| Net income attributable to Charter shareholders | $ | 1,668 | $ | 1,230 | $ | 9,895 | |||||
| EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CHARTER SHAREHOLDERS: | |||||||||||
| Basic | $ | 7.60 | $ | 5.29 | $ | 38.55 | |||||
| Diluted | $ | 7.45 | $ | 5.22 | $ | 34.09 | |||||
| Weighted average common shares outstanding, basic | 219,506,735 | 232,356,665 | 256,720,715 | ||||||||
| Weighted average common shares outstanding, diluted | 223,786,380 | 235,525,226 | 296,703,956 |
The accompanying notes are an integral part of these consolidated financial statements.
F- 5
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(dollars in millions)
| Class A Common Stock | Class B Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Charter Shareholders’ Equity | Non-controlling Interests | Total Shareholders’ Equity | |||||||||||||||||
| BALANCE, December 31, 2016 | $ | — | $ | — | $ | 39,413 | $ | 733 | $ | (7 | ) | $ | 40,139 | $ | 10,227 | $ | 50,366 | |||||||
| Consolidated net income | — | — | — | 9,895 | — | 9,895 | 220 | 10,115 | ||||||||||||||||
| Stock compensation expense | — | — | 261 | — | — | 261 | — | 261 | ||||||||||||||||
| Accelerated vesting of equity awards | — | — | 49 | — | — | 49 | — | 49 | ||||||||||||||||
| Exercise of stock options | — | — | 116 | — | — | 116 | — | 116 | ||||||||||||||||
| Changes in accumulated other comprehensive loss, net | — | — | — | — | 6 | 6 | — | 6 | ||||||||||||||||
| Cumulative effect of accounting change | — | — | 9 | 131 | — | 140 | — | 140 | ||||||||||||||||
| Purchases and retirement of treasury stock | — | — | (4,788 | ) | (6,927 | ) | — | (11,715 | ) | — | (11,715 | ) | ||||||||||||
| Purchase of noncontrolling interest, net of tax | — | — | (295 | ) | — | — | (295 | ) | (1,187 | ) | (1,482 | ) | ||||||||||||
| Exchange of Charter Holdings units held by A/N, net of tax and TRA effects | — | — | 265 | — | — | 265 | (298 | ) | (33 | ) | ||||||||||||||
| Change in noncontrolling interest ownership, net of tax | — | — | 223 | — | — | 223 | (362 | ) | (139 | ) | ||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | — | (153 | ) | (153 | ) | ||||||||||||||
| BALANCE, December 31, 2017 | — | — | 35,253 | 3,832 | (1 | ) | 39,084 | 8,447 | 47,531 | |||||||||||||||
| Consolidated net income | — | — | — | 1,230 | — | 1,230 | 276 | 1,506 | ||||||||||||||||
| Stock compensation expense | — | — | 285 | — | — | 285 | — | 285 | ||||||||||||||||
| Accelerated vesting of equity awards | — | — | 5 | — | — | 5 | — | 5 | ||||||||||||||||
| Exercise of stock options | — | — | 69 | — | — | 69 | — | 69 | ||||||||||||||||
| Changes in accumulated other comprehensive loss, net | — | — | — | — | (1 | ) | (1 | ) | — | (1 | ) | |||||||||||||
| Cumulative effect of accounting changes | — | — | — | 62 | — | 62 | 7 | 69 | ||||||||||||||||
| Purchases and retirement of treasury stock | — | — | (2,055 | ) | (2,344 | ) | — | (4,399 | ) | — | (4,399 | ) | ||||||||||||
| Purchase of noncontrolling interest, net of tax | — | — | (104 | ) | — | — | (104 | ) | (518 | ) | (622 | ) | ||||||||||||
| Change in noncontrolling interest ownership, net of tax | — | — | 54 | — | — | 54 | (72 | ) | (18 | ) | ||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | — | (153 | ) | (153 | ) | ||||||||||||||
| BALANCE, December 31, 2018 | $ | — | $ | — | $ | 33,507 | $ | 2,780 | $ | (2 | ) | $ | 36,285 | $ | 7,987 | $ | 44,272 | |||||||
| Consolidated net income | — | — | — | 1,668 | — | 1,668 | 324 | 1,992 | ||||||||||||||||
| Stock compensation expense | — | — | 315 | — | — | 315 | — | 315 | ||||||||||||||||
| Exercise of stock options | — | — | 118 | — | — | 118 | — | 118 | ||||||||||||||||
| Changes in accumulated other comprehensive loss, net | — | — | — | — | 2 | 2 | — | 2 | ||||||||||||||||
| Purchases and retirement of treasury stock | — | — | (2,465 | ) | (4,408 | ) | — | (6,873 | ) | — | (6,873 | ) | ||||||||||||
| Purchase of noncontrolling interest, net of tax | — | — | (240 | ) | — | — | (240 | ) | (565 | ) | (805 | ) | ||||||||||||
| Change in noncontrolling interest ownership, net of tax | — | — | 170 | — | — | 170 | (226 | ) | (56 | ) | ||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | — | (154 | ) | (154 | ) | ||||||||||||||
| BALANCE, December 31, 2019 | $ | — | $ | — | $ | 31,405 | $ | 40 | $ | — | $ | 31,445 | $ | 7,366 | $ | 38,811 |
The accompanying notes are an integral part of these consolidated financial statements.
F- 6
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in millions)
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Consolidated net income | $ | 1,992 | $ | 1,506 | $ | 10,115 | |||||
| Adjustments to reconcile consolidated net income to net cash flows from operating activities: | |||||||||||
| Depreciation and amortization | 9,926 | 10,318 | 10,588 | ||||||||
| Stock compensation expense | 315 | 285 | 261 | ||||||||
| Accelerated vesting of equity awards | — | 5 | 49 | ||||||||
| Noncash interest income, net | (106 | ) | (307 | ) | (370 | ) | |||||
| Other pension (benefits) costs, net | 69 | (192 | ) | (1 | ) | ||||||
| Loss on extinguishment of debt | 25 | — | 40 | ||||||||
| (Gain) loss on financial instruments, net | 54 | 110 | (69 | ) | |||||||
| Deferred income taxes | 320 | 110 | (9,116 | ) | |||||||
| Other, net | 158 | 175 | 16 | ||||||||
| Changes in operating assets and liabilities, net of effects from acquisitions and dispositions: | |||||||||||
| Accounts receivable | (505 | ) | (98 | ) | (84 | ) | |||||
| Prepaid expenses and other assets | (397 | ) | (270 | ) | 76 | ||||||
| Accounts payable, accrued liabilities and other | (103 | ) | 125 | 449 | |||||||
| Net cash flows from operating activities | 11,748 | 11,767 | 11,954 | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Purchases of property, plant and equipment | (7,195 | ) | (9,125 | ) | (8,681 | ) | |||||
| Change in accrued expenses related to capital expenditures | 55 | (470 | ) | 820 | |||||||
| Real estate investments through variable interest entities | (148 | ) | (21 | ) | (105 | ) | |||||
| Other, net | (43 | ) | (120 | ) | (132 | ) | |||||
| Net cash flows from investing activities | (7,331 | ) | (9,736 | ) | (8,098 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Borrowings of long-term debt | 19,685 | 13,820 | 25,276 | ||||||||
| Repayments of long-term debt | (13,309 | ) | (10,769 | ) | (16,507 | ) | |||||
| Payments for debt issuance costs | (103 | ) | (29 | ) | (111 | ) | |||||
| Purchase of treasury stock | (6,873 | ) | (4,399 | ) | (11,715 | ) | |||||
| Proceeds from exercise of stock options | 118 | 69 | 116 | ||||||||
| Purchase of noncontrolling interest | (885 | ) | (656 | ) | (1,665 | ) | |||||
| Distributions to noncontrolling interest | (154 | ) | (153 | ) | (153 | ) | |||||
| Borrowings for real estate investments through variable interest entities | — | 342 | — | ||||||||
| Distributions to variable interest entities noncontrolling interest | — | (107 | ) | — | |||||||
| Other, net | (112 | ) | (5 | ) | (11 | ) | |||||
| Net cash flows from financing activities | (1,633 | ) | (1,887 | ) | (4,770 | ) | |||||
| NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 2,784 | 144 | (914 | ) | |||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period | 765 | 621 | 1,535 | ||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period | $ | 3,549 | $ | 765 | $ | 621 | |||||
| CASH PAID FOR INTEREST | $ | 3,963 | $ | 3,865 | $ | 3,421 | |||||
| CASH PAID FOR TAXES | $ | 71 | $ | 45 | $ | 41 |
The accompanying notes are an integral part of these consolidated financial statements.
F- 7
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
1. Organization and Basis of Presentation
Organization
Charter Communications, Inc. (together with its controlled subsidiaries, “Charter,” or the “Company”) is the second largest cable operator in the United States and a leading broadband communications services company providing video, Internet and voice services to residential and small and medium business customers. The Company also offers mobile service to residential customers and recently launched mobile service to small and medium business customers. In addition, the Company sells video and online advertising inventory to local, regional and national advertising customers and tailored communications and managed solutions to larger enterprise customers. The Company also owns and operates regional sports networks and local sports, news and community channels.
Charter is a holding company whose principal asset is a controlling equity interest in Charter Communications Holdings, LLC (“Charter Holdings”), an indirect owner of Charter Communications Operating, LLC (“Charter Operating”) under which substantially all of the operations reside. All significant intercompany accounts and transactions among consolidated entities have been eliminated.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”).
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Areas involving significant judgments and estimates include capitalization of labor and overhead costs, impairments of franchises and goodwill, pension benefits and income taxes. Actual results could differ from those estimates.
Certain prior period amounts have been reclassified to conform with the 2019 presentation.
2. Summary of Significant Accounting Policies
Consolidation
The accompanying consolidated financial statements include the accounts of Charter and all entities in which Charter has a controlling interest, including variable interest entities ("VIEs") where Charter is the primary beneficiary. The Company consolidates based upon evaluation of the Company’s power, through voting rights or similar rights, to direct the activities of another entity that most significantly impact the entity’s economic performance; its obligation to absorb the expected losses of the entity; and its right to receive the expected residual returns of the entity. Charter controls and consolidates Charter Holdings. The noncontrolling interest on the Company’s balance sheet primarily represents Advance/Newhouse Partnership's (“A/N”) minority equity interests in Charter Holdings. See Note 11. All significant intercompany accounts and transactions among consolidated entities have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. These investments are carried at cost, which approximates market value.
Restricted Cash
Restricted cash represents amounts held in escrow related to the Company's build-to-suit lease arrangement with a VIE. See Note 6. The amounts held in escrow are classified as noncurrent restricted cash in the Company's consolidated balance sheets. The Company's restricted cash was primarily invested in a federal funds deposit account.
F- 8
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
Property, Plant and Equipment
Additions to property, plant and equipment are recorded at cost, including all material, labor and certain indirect costs associated with the construction of cable transmission and distribution facilities. While the Company’s capitalization is based on specific activities, once capitalized, costs are tracked 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, the estimated historical cost and related accumulated depreciation is removed. Costs associated with the placement of the customer drop to the dwelling and the placement of outlets within a dwelling along with the costs associated with the deployment of new customer premise equipment necessary to provide video, Internet or voice services are capitalized. Costs capitalized include materials, direct labor and overhead costs. The Company capitalizes direct labor and overhead using standards developed from actual costs and applicable operational data. The Company calculates 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. Overhead costs are associated with the activities of the Company’s personnel who assist in installation activities and consist of compensation and other indirect costs associated with these support functions. Indirect costs primarily include employee benefits and payroll taxes, and vehicle and occupancy costs. 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, including replacement of cable drops and outlets, are capitalized.
Depreciation is recorded using the straight-line composite method over management’s estimate of the useful lives of the related assets as follows:
| Cable distribution systems | 8-20 years | |
| Customer premise equipment and installations | 3-8 years | |
| Vehicles and equipment | 6-21 years | |
| Buildings and improvements | 10-40 years | |
| Furniture, fixtures and equipment | 2-10 years |
Asset Retirement Obligations
Certain of the Company’s franchise agreements and leases contain provisions requiring the Company to restore facilities or remove equipment in the event that the franchise or lease agreement is not renewed. The Company expects to continually renew its franchise agreements and therefore cannot reasonably estimate any liabilities associated with such agreements. A remote possibility exists that franchise agreements could be terminated unexpectedly, which could result in the Company incurring significant expense in complying with restoration or removal provisions. The Company does not have any significant liabilities related to asset retirements recorded in its consolidated financial statements.
Valuation of Long-Lived Assets
The Company evaluates the recoverability of long-lived assets (e.g., property, plant and equipment and finite-lived intangible assets) to be held and used when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such events or changes in circumstances could include such factors as impairment of the Company’s 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. If a review indicates that the carrying value of such asset is not recoverable from estimated undiscounted cash flows, the carrying value of such asset is reduced to its estimated fair value. While the Company believes that its estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect its evaluations of asset recoverability. No impairments of long-lived assets held for use were recorded in 2019, 2018 and 2017. For non-strategic long-lived assets held for sale and ultimately sold, the Company recorded impairments of approximately $41 million and $75 million during the years ended December 31, 2019 and 2018, respectively, to other operating expenses, net.
F- 9
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
Leases
The primary leased asset classes of the Company include real estate, dark fiber, colocation facilities and other equipment. The lease agreements include both lease and non-lease components, which the Company accounts for separately depending on the election made for each leased asset class. For real estate and dark fiber leased asset classes, the Company accounts for lease and non-lease components as a single lease component and includes all fixed payments in the measurement of lease liabilities and lease assets. For colocation facilities leased asset class, the Company accounts for lease and non-lease components separately including only the fixed lease payment component in the measurement of lease liabilities and lease assets.
In addition to fixed lease payments, certain of the Company’s lease agreements include variable lease payments which are tied to an index or rate such as the change in the Consumer Price Index. These variable payments are not included in the measurement of the lease liabilities and lease assets.
Lease assets and lease liabilities are initially recognized based on the present value of the future lease payments over the expected lease term. As for most leases the implicit rate is not readily determinable, the Company uses a discount rate in determining the present value of future payments based on the yield-to-maturity of the Company’s secured publicly traded United States dollars denominated debt instruments interpolating the duration of the debt to the term of the executed lease.
The Company’s leases have base rent periods and some with optional renewal periods. Leases with base rent periods of less than 12 months are not recorded on the balance sheet. For purposes of measurement of lease liabilities, the expected lease terms may include renewal options when it is reasonably certain that the Company will exercise such options. Based on conditions of the Company's existing leases and its overall business strategies, the majority of the Company's renewal options are not reasonably certain in determining the expected lease term. The Company will periodically reassess expected lease terms (and purchase options, if applicable) based on significant triggering events or compelling economic reasons to exercise such options.
The Company’s primary lease income represents sublease income on certain real estate leases. Sublease income is included in other revenue and presented gross from rent expense. For customer premise equipment ("CPE") where such CPE would qualify as a lease, the Company applies the practical expedient to combine the operating lease with the subscription service revenue as a single performance obligation in accordance with revenue recognition accounting guidance as the subscription service is the predominant component.
Other Noncurrent Assets
Other noncurrent assets primarily include investments, trademarks, customer contract costs and other intangible assets. The Company accounts for its investments in less than majority owned investees under either the equity method or as equity securities. The Company applies the equity method to investments when it has the ability to exercise significant influence over the operating and financial policies of the investee. The Company’s share of the investee’s earnings (losses) is included in other expense, net in the consolidated statements of operations. The Company monitors its investments for indicators that a decrease in investment value has occurred that is other than temporary. If it has been determined that an investment has sustained an other than temporary decline in value, the investment is written down to fair value with a charge to earnings. Investments acquired are measured at fair value utilizing the acquisition method of accounting. The difference between the fair value and the amount of underlying equity in net assets for most equity method investments is due to previously unrecognized intangible assets at the investee. These amounts are amortized as a component of equity earnings (losses), recorded within other expense, net over the estimated useful life of the asset. Trademarks have been determined to have an indefinite life and are tested annually for impairment. Customer contract costs are deferred in other noncurrent assets for upfront costs incurred to obtain a customer contract and upfront costs to fulfill a customer contract, as further discussed below under the Customer Contract Costs accounting policy.
Revenue Recognition
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 the end of their monthly service period without penalty. Each subscription service provided
F- 10
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
is accounted for as a distinct performance obligation and revenue is recognized ratably over the monthly 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 the end of their monthly service period without penalty. Each subscription service provided is accounted for as a distinct performance obligation and revenue is recognized ratably over the monthly service period as the subscription services are delivered.
Enterprise
Services to enterprise clients include more tailored communications products and managed service solutions to larger businesses, as well as high-capacity last-mile data connectivity services to mobile and wireline carriers on a wholesale basis. Services are primarily offered on a subscription basis with a contractually specified and non-cancelable service period. 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 service areas 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 service areas, 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 service areas, 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 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
We also offer mobile service to residential customers and recently launched mobile service to small and medium business customers. Mobile services are sold under an unlimited data plan or a by-the-gig data usage plan and revenue is recognized ratably over the monthly service period as the services are delivered. Customers can purchase mobile equipment, including devices and accessory products, and have the option to pay for devices under interest-free monthly installment plans. The sale of equipment is a separate
F- 11
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
performance obligation. Revenue is recognized from the sale of equipment upon delivery and acceptance by the customer, as this is when control passes to the customer.
The Company’s revenues by product line are as follows:
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Video | $ | 17,607 | $ | 17,348 | $ | 16,621 | |||||
| Internet | 16,667 | 15,181 | 14,101 | ||||||||
| Voice | 1,920 | 2,114 | 2,542 | ||||||||
| Residential revenue | 36,194 | 34,643 | 33,264 | ||||||||
| Small and medium business | 3,868 | 3,665 | 3,547 | ||||||||
| Enterprise | 2,556 | 2,528 | 2,373 | ||||||||
| Commercial revenue | 6,424 | 6,193 | 5,920 | ||||||||
| Advertising sales | 1,568 | 1,785 | 1,510 | ||||||||
| Mobile | 726 | 106 | — | ||||||||
| Other | 852 | 907 | 887 | ||||||||
| $ | 45,764 | $ | 43,634 | $ | 41,581 |
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 $1.1 billion, $1.0 billion and $961 million for the years ended December 31, 2019, 2018 and 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 situations.
A significant portion of our revenue is derived from customers who may generally cancel their monthly 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 with a weighted average term of approximately three years.
Significant Judgments in Evaluating Revenue Recognition
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 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
F- 12
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
consideration of both quantitative and qualitative factors including average installation fee, average revenue per customer, and customer behavior, among others.
Deferred Revenue 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 December 31, 2019 and 2018, current deferred revenue liabilities consisting of customer prepayments of $366 million and $410 million, respectively, and upfront installation fees of $94 million and $84 million, respectively, were included in accounts payable and accrued liabilities. As of December 31, 2019 and 2018, long-term deferred revenue liabilities consisting of enterprise upfront installation fees of $34 million were included in other long-term liabilities.
Customer 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 $143 million and $142 million as of December 31, 2019 and 2018, respectively. 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. Right-of-entry costs represent upfront costs incurred related to agreements entered into with multiple dwelling units (“MDUs”) including landlords, real estate companies or owners to gain access to a building in order to market and service customers who reside in the building. Right-of-entry costs meet the requirements to be deferred and, as a result, are recognized over the term of the contracts. Deferred right-of-entry costs are included in other noncurrent assets in the consolidated balance sheet and totaled $284 million and $273 million as of December 31, 2019 and 2018, respectively. Amortization expense of $67 million and $62 million was included in regulatory, connectivity and produced content within operating costs and expenses in the consolidated statements of operations for the year ended December 31, 2019 and 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.
Programming Costs
The Company has various contracts to obtain video programming from vendors whose compensation is typically based on a flat fee per customer. The cost of the right to exhibit network programming under such arrangements is recorded in operating expenses in the month the programming is available for exhibition. Programming costs are paid each month based on calculations performed by the Company and are subject to periodic audits performed by the programmers. Certain programming contracts contain cash and non-cash consideration from the programmers. If consideration received does not relate to a separate product or service, the Company recognizes the consideration on a straight-line basis over the life of the programming agreement as a reduction of programming expense. Programming costs included in the statements of operations were $11.3 billion, $11.1 billion and $10.6 billion for the years ended December 31, 2019, 2018 and 2017, respectively.
Advertising Costs
Advertising costs associated with marketing the Company’s products and services are generally expensed as costs are incurred.
F- 13
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
Multiple-Element Transactions
In the normal course of business, the Company enters into multiple-element transactions where it is simultaneously both a customer and a vendor with the same counterparty or in which it purchases multiple products and/or services, or settles outstanding items contemporaneous with the purchase of a product or service from a single counterparty. Transactions, although negotiated contemporaneously, may be documented in one or more contracts. The Company’s policy for accounting for each transaction negotiated contemporaneously is to record each element of the transaction based on the respective estimated fair values of the products or services purchased and the products or services sold. In determining the fair value of the respective elements, the Company refers to quoted market prices (where available), historical transactions or comparable cash transactions. Cash consideration received from a vendor is recorded as a reduction in the price of the vendor’s product unless (i) the consideration is for the reimbursement of a specific, incremental, identifiable cost incurred, in which case the cash consideration received would be recorded as a reduction in such cost (e.g., marketing costs), or (ii) an identifiable benefit in exchange for the consideration is provided, in which case revenue would be recognized for this element.
Stock-Based Compensation
Restricted stock, restricted stock units, stock options as well as equity awards with market conditions are measured at the grant date fair value and amortized to stock compensation expense over the requisite service period. The fair value of options is estimated on the date of grant using the Black-Scholes option-pricing model and the fair value of equity awards with market conditions is estimated on the date of grant using Monte Carlo simulations. The grant date weighted average assumptions used during the years ended December 31, 2019, 2018 and 2017, respectively, were: risk-free interest rate of 2.5%, 2.4% and 1.8%; expected volatility of 27%, 25% and 25%; and expected lives of 4.9 years, 5.1 years and 4.6 years. The Company’s volatility assumptions represent management’s best estimate and were based on historical volatility. Expected lives were estimated using historical exercise data. The valuations assume no dividends are paid. The Company has elected an accounting policy to assume zero forfeitures for stock awards grants and account for forfeitures when they occur.
Defined Benefit Pension Plans
The Company sponsors three qualified defined benefit pension plans and one nonqualified defined benefit pension plan that provide pension benefits to a majority of employees who were employed by Time Warner Cable Inc. ("TWC") before the merger with TWC. 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.
Income Taxes
The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities and expected benefits of utilizing loss carryforwards. Since substantially all the Company’s operations are held through its partnership interest in Charter Holdings, the primary deferred tax component recorded in the consolidated balance sheet relates to the excess financial reporting outside basis, excluding amounts attributable to nondeductible goodwill, over Charter’s tax basis in its investment in the partnership. Valuation allowances are established when management determines that it is more likely than not that some portion or the entire deferred tax asset will not be realized. The impact on deferred taxes of changes in tax rates and tax law, if any, applied to the years during which temporary differences are expected to be settled, are reflected in the consolidated financial statements in the period of enactment. 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. Interest and penalties are recognized on uncertain income tax positions as part of the income tax provision. See Note 17.
F- 14
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
Segments
The Company’s operations are managed and reported to its Chief Executive Officer (“CEO”), the Company’s chief operating decision maker, on a consolidated basis. The CEO assesses performance and allocates resources based on the consolidated results of operations. Under this organizational and reporting structure, the Company has one reportable segment, cable services.
3. Allowance for Doubtful Accounts
Activity in the allowance for doubtful accounts is summarized as follows for the years presented:
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Balance, beginning of period | $ | 129 | $ | 113 | $ | 124 | |||||
| Charged to expense | 659 | 570 | 469 | ||||||||
| Uncollected balances written off, net of recoveries | (637 | ) | (554 | ) | (480 | ) | |||||
| Balance, end of period | $ | 151 | $ | 129 | $ | 113 |
4. Property, Plant and Equipment
Property, plant and equipment consists of the following as of December 31, 2019 and 2018:
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Cable distribution systems | $ | 31,542 | $ | 29,249 | ||||
| Customer premise equipment and installations | 17,492 | 17,241 | ||||||
| Vehicles and equipment | 1,879 | 1,724 | ||||||
| Buildings and improvements | 4,843 | 4,360 | ||||||
| Furniture, fixtures and equipment | 6,491 | 5,627 | ||||||
| 62,247 | 58,201 | |||||||
| Less: accumulated depreciation | (27,656 | ) | (23,075 | ) | ||||
| $ | 34,591 | $ | 35,126 |
The Company periodically evaluates the estimated useful lives used to depreciate its assets and the estimated amount of assets that will be abandoned or have minimal use in the future. A significant change in assumptions about the extent or timing of future asset retirements, or in the Company’s use of new technology and upgrade programs, could materially affect future depreciation expense.
Depreciation expense for the years ended December 31, 2019, 2018 and 2017 was $7.8 billion, $7.9 billion, and $7.8 billion, respectively.
5. Franchises, Goodwill and Other Intangible Assets
Franchise rights represent the value attributed to agreements or authorizations with local and state authorities that allow access to homes in cable service areas. For valuation purposes, they are defined as the future economic benefits of the right to solicit and service potential customers (customer marketing rights), and the right to deploy and market new services to potential customers (service marketing rights).
Management estimates the fair value of franchise rights at the date of acquisition and determines if the franchise has a finite life or an indefinite life. The Company has concluded that all of its franchises qualify for indefinite life treatment given that there are no legal, regulatory, contractual, competitive, economic or other factors which limit the period over which these rights will contribute
F- 15
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
to the Company's cash flows. The Company reassesses this determination periodically or whenever events or substantive changes in circumstances occur.
All franchises are tested for impairment annually or more frequently as warranted by events or changes in circumstances. Franchise assets are aggregated into essentially inseparable units of accounting to conduct valuations. The units of accounting generally represent geographical clustering of the Company's cable systems into groups. The Company assesses qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that an indefinite lived intangible asset has been impaired. If, after this optional qualitative assessment, the Company determines that it is not more likely than not that an indefinite lived intangible asset has been impaired, then no further quantitative testing is necessary. In completing the qualitative impairment testing, the Company evaluates 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. The Company performed a qualitative assessment in 2019, which also included consideration of a fair value appraisal performed for tax purposes in the beginning of 2019 as of a December 31, 2018 valuation date (the "Appraisal"). After consideration of the qualitative factors in 2019, including the results of the Appraisal, the Company concluded that it is more likely than not that the fair value of the franchise assets in each unit of accounting exceeds the carrying value of such assets and therefore did not perform a quantitative analysis at the assessment date. Periodically, the Company will elect to perform a quantitative analysis for impairment testing. If the Company elects or is required to perform a quantitative analysis to test its franchise assets for impairment, the methodology described below is utilized.
If a quantitative analysis is performed, the estimated fair value of franchises is determined utilizing an income approach model based on the present value of the estimated discrete future cash flows attributable to each of the intangible assets identified assuming a discount rate. The fair value of franchises is determined based on estimated discrete discounted future cash flows using assumptions consistent with internal forecasts. The franchise after-tax cash flow is calculated as the after-tax cash flow generated by the potential customers obtained. The sum of the present value of the franchises’ after-tax cash flow in years 1 through 10 and the continuing value of the after-tax cash flow beyond year 10 yields the fair value of the franchises.
This approach makes use of unobservable factors such as projected revenues, expenses, capital expenditures, customer trends, and a discount rate applied to the estimated cash flows. The determination of the franchise discount rate is derived from the Company’s weighted average cost of capital, which uses a market participant’s cost of equity and after-tax cost of debt and reflects the risks inherent in the cash flows. The Company estimates discounted future cash flows using reasonable and appropriate assumptions including among others, penetration rates; revenue growth rates; operating margins; and capital expenditures. The assumptions are based on the Company’s and its peers’ historical operating performance adjusted for current and expected competitive and economic factors surrounding the cable industry. The estimates and assumptions made in the Company’s valuations are inherently subject to significant uncertainties, many of which are beyond its control, and there is no assurance that these results can be achieved. The primary assumptions for which there is a reasonable possibility of the occurrence of a variation that would significantly affect the measurement value include the assumptions regarding revenue growth, programming expense growth rates, the amount and timing of capital expenditures, actual customer trends and the discount rate utilized.
The Company has determined that it has one reporting unit for purposes of the assessment of goodwill impairment. The fair value of the reporting unit is determined using both an income approach and market approach. The Company’s income approach model used for its reporting unit valuation is consistent with that used for its franchise valuation noted above except that cash flows from the entire business enterprise are used for the reporting unit valuation. The Company’s market approach model estimates the fair value of the reporting unit based on market prices in actual precedent transactions of similar businesses and market valuations of guideline public companies. Goodwill is tested for impairment as of November 30 of each year, or more frequently as warranted by events or changes in circumstances. Accounting guidance also permits an optional qualitative assessment for goodwill to determine whether it is more likely than not that the carrying value of a reporting unit exceeds its fair value. If, after this qualitative assessment, the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount then no further quantitative testing would be necessary. A quantitative assessment is performed if the qualitative assessment results in a more likely than not determination or if a qualitative assessment is not performed. The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value, in which case an impairment charge is recorded to the extent the reporting unit’s carrying value exceeds its fair value. As with the Company’s franchise impairment testing, in 2019 the Company elected to perform a qualitative goodwill impairment assessment, which incorporated the results of the Appraisal and consideration of the same qualitative factors relevant to the Company's franchise impairment testing. As a result of that assessment, the Company concluded that goodwill is not impaired.
F- 16
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
Customer relationships are recorded at fair value as of the date acquired less accumulated amortization. Customer relationships, for valuation purposes, represent the value of the business relationship with existing customers, and are calculated by projecting the discrete future after-tax cash flows from these customers, including the right to deploy and market additional services to these customers. The present value of these after-tax cash flows yields the fair value of the customer relationships. The use of different valuation assumptions or definitions of franchises or customer relationships, such as our inclusion of the value of selling additional services to our current customers within customer relationships versus franchises, could significantly impact our valuations and any resulting impairment. Customer relationships are amortized on an accelerated sum of years’ digits method over useful lives of 8-15 years based on the period over which current customers are expected to generate cash flows. The Company periodically evaluates the remaining useful lives of its customer relationships to determine whether events or circumstances warrant revision to the remaining periods of amortization. Customer relationships are evaluated for impairment upon the occurrence of events or changes in circumstances indicating that the carrying amount of an asset may not be recoverable. Customer relationships are deemed impaired when the carrying value exceeds the projected undiscounted future cash flows associated with the customer relationships. No impairment of customer relationships was recorded in the years ended December 31, 2019, 2018 or 2017.
The fair value of trademarks is determined using the relief-from-royalty method, a variation of the income approach, which applies a fair royalty rate to estimated revenue derived under the Company’s trademarks. The fair value of the intangible is estimated to be the present value of the royalty saved because the Company owns the trademarks. Royalty rates are estimated based on a review of market royalty rates in the communications and entertainment industries. As the Company expects to continue to use each trademark indefinitely, trademarks have been assigned an indefinite life and are tested annually for impairment using either a qualitative analysis or quantitative analysis as elected by management. As with the Company’s franchise impairment testing, in 2019 the Company elected to perform a qualitative trademark impairment assessment and concluded that trademarks are not impaired.
As of December 31, 2019 and 2018, indefinite-lived and finite-lived intangible assets are presented in the following table:
| December 31, | ||||||||||||||||||||||||
| 2019 | 2018 | |||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||
| Indefinite-lived intangible assets: | ||||||||||||||||||||||||
| Franchises | $ | 67,322 | $ | — | $ | 67,322 | $ | 67,319 | $ | — | $ | 67,319 | ||||||||||||
| Goodwill | 29,554 | — | 29,554 | 29,554 | — | 29,554 | ||||||||||||||||||
| Trademarks | 159 | — | 159 | 159 | — | 159 | ||||||||||||||||||
| $ | 97,035 | $ | — | $ | 97,035 | $ | 97,032 | $ | — | $ | 97,032 | |||||||||||||
| Finite-lived intangible assets: | ||||||||||||||||||||||||
| Customer relationships | $ | 18,230 | $ | (10,777 | ) | $ | 7,453 | $ | 18,229 | $ | (8,664 | ) | $ | 9,565 | ||||||||||
| Other intangible assets | 405 | (122 | ) | 283 | 409 | (92 | ) | 317 | ||||||||||||||||
| $ | 18,635 | $ | (10,899 | ) | $ | 7,736 | $ | 18,638 | $ | (8,756 | ) | $ | 9,882 |
Amortization expense related to customer relationships and other intangible assets for the years ended December 31, 2019, 2018 and 2017 was $2.2 billion, $2.4 billion and $2.7 billion, respectively.
F- 17
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
The Company expects amortization expense on its finite-lived intangible assets will be as follows.
| 2020 | $ | 1,874 | ||
| 2021 | 1,599 | |||
| 2022 | 1,329 | |||
| 2023 | 1,072 | |||
| 2024 | 821 | |||
| Thereafter | 1,041 | |||
| $ | 7,736 |
Actual amortization expense in future periods could differ from these estimates as a result of new intangible asset acquisitions or divestitures, changes in useful lives, impairments, adoption of new accounting standards and other relevant factors.
6. Investments
Investments consisted of the following as of December 31, 2019 and 2018:
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Equity-method investments | $ | 309 | $ | 454 | ||||
| Other investments | 21 | 22 | ||||||
| Total investments | $ | 330 | $ | 476 |
The Company’s equity-method investments consist of investments in companies that develop sports programming services, develop applications to improve the security, control and privacy of connected devices in homes and businesses for broadband network operators, distribute multi-video programs to national advertisers, provide programming on a video on demand, pay-per-view and subscription basis and develop and deploy cloud-based software video user interfaces.
The Company's equity-method investments balances reflected in the table above includes differences between the acquisition date fair value of certain investments acquired and the underlying equity in the net assets of the investee, referred to as a basis difference. This basis difference is amortized as a component of equity earnings. The remaining unamortized basis difference was $203 million and $396 million as of December 31, 2019 and 2018, respectively.
The Company applies the equity method of accounting to these and other less significant equity-method investments, all of which are recorded in other noncurrent assets in the consolidated balance sheets as of December 31, 2019 and 2018. For the years ended December 31, 2019, 2018 and 2017, net losses from equity-method investments were $137 million, $77 million and $18 million, respectively, which were recorded in other expense, net in the consolidated statements of operations. Net losses from equity-method investments for the years ended December 31, 2019 and 2018 included impairments on equity investments of approximately $121 million and $58 million, respectively.
F- 18
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
Real Estate Investments through Variable Interest Entities
In July 2018, the Company's build-to-suit lease arrangement with a single-asset special purpose entity ("SPE") to build a new Charter headquarters in Stamford, Connecticut obtained all approvals and was made effective. The SPE obtained a first-lien mortgage note to finance the construction with fixed monthly payments through July 15, 2035 with a 5.612% coupon interest rate. All payments of the mortgage note are guaranteed by Charter. The initial term of the lease is 15 years commencing August 1, 2020, with no termination options. At the end of the lease term there is a mirrored put option for the SPE to sell the property to Charter and call option for Charter to purchase the property for a fixed purchase price. As the Company has determined the SPE is a VIE of which it became the primary beneficiary upon the effectiveness of the arrangement, the Company has consolidated the assets and liabilities of the SPE in its consolidated balance sheet as of December 31, 2019 and 2018 as follows.
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Assets | |||||||
| Current assets | $ | — | $ | 2 | |||
| Restricted cash | $ | 66 | $ | 214 | |||
| Property, plant and equipment | $ | 295 | $ | 130 | |||
| Liabilities | |||||||
| Current liabilities | $ | 11 | $ | — | |||
| Other long-term liabilities | $ | 350 | $ | 346 |
Property, plant and equipment includes land, a parking garage and building construction costs, including the capitalization of qualifying interest. As of December 31, 2019 and 2018, other long-term liabilities include $339 million and $342 million, respectively, in VIE's mortgage note liability and $11 million and $4 million, respectively, in liability-classified noncontrolling interest recorded at amortized cost with accretion towards settlement of the put/call option in the lease.
The consolidated statement of cash flows for the year ended December 31, 2019 includes a decrease to restricted cash of $148 million primarily related to building construction costs. The consolidated statement of cash flows for the year ended December 31, 2018 includes an increase to restricted cash of $214 million as a result of activity in the VIE including borrowings of $342 million by the VIE on the mortgage note liability offset by distributions by the VIE to the noncontrolling interest of $107 million for the contributed land and parking garage and $21 million incurred by the VIE for building construction costs.
In October 2017, the Company acquired a defaulted mortgage loan issued to a single-asset SPE. The consolidated statement of cash flows for the year ended December 31, 2017 includes $105 million related to the acquisition of the mortgage loan. As the Company has determined the SPE is a VIE of which it is the primary beneficiary, the Company has consolidated the assets and liabilities of the SPE in its consolidated balance sheet which are primarily comprised of the building securing the mortgage loan.
F- 19
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
7. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following as of December 31, 2019 and 2018:
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Accounts payable – trade | $ | 786 | $ | 758 | |||
| Deferred revenue | 460 | 494 | |||||
| Accrued liabilities: | |||||||
| Programming costs | 2,042 | 2,044 | |||||
| Labor | 1,028 | 1,052 | |||||
| Capital expenditures | 1,441 | 1,472 | |||||
| Interest | 1,052 | 1,045 | |||||
| Taxes and regulatory fees | 537 | 526 | |||||
| Property and casualty | 458 | 424 | |||||
| Other | 867 | 990 | |||||
| $ | 8,671 | $ | 8,805 |
8. Leases
The components of lease related expenses, net are as follows.
| Year Ended December 31, 2019 | |||
| Operating lease expense (a) | $ | 428 | |
| Finance lease expense: | |||
| Amortization of right-of-use assets | 12 | ||
| Interest on lease liabilities | 5 | ||
| Total finance lease expense | 17 | ||
| Sublease income | (27 | ) | |
| Total lease related expenses, net | $ | 418 |
| (a) | Includes short-term leases and variable leases costs of $130 million for the year ended December 31, 2019. |
F- 20
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
Supplemental cash flow information related to leases is as follows.
| Year Ended December 31, 2019 | |||
| Cash paid for amounts included in the measurement of lease liabilities: | |||
| Operating cash flows from operating leases | $ | 288 | |
| Operating cash flows from finance leases | $ | 4 | |
| Financing cash flows from finance leases | $ | 6 | |
| Right-of-use assets obtained in exchange for lease obligations: | |||
| Operating leases | $ | 257 | |
| Finance leases | $ | 35 |
Supplemental balance sheet information related to leases is as follows.
| December 31, 2019 | |||
| Operating leases: | |||
| Operating lease right-of-use assets | $ | 1,092 | |
| Current operating lease liabilities | $ | 214 | |
| Long-term operating lease liabilities | 979 | ||
| Total operating lease liabilities | $ | 1,193 | |
| Finance leases: | |||
| Finance lease right-of-use assets (included within property, plant and equipment, net) | $ | 172 | |
| Current finance lease liabilities (included within accounts payable and accrued liabilities) | $ | 4 | |
| Long-term finance lease liabilities (included within other long-term liabilities) | 58 | ||
| Total finance lease liabilities | $ | 62 | |
| Weighted average remaining lease term | |||
| Operating leases | 6.6 years | ||
| Finance leases | 16.6 years | ||
| Weighted average discount rate | |||
| Operating leases | 4.4 | % | |
| Finance leases | 5.7 | % |
F- 21
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
Maturities of lease liabilities are as follows.
| Operating leases | Finance leases | ||||||
| 2020 | $ | 265 | $ | 7 | |||
| 2021 | 259 | 6 | |||||
| 2022 | 221 | 6 | |||||
| 2023 | 193 | 6 | |||||
| 2024 | 155 | 6 | |||||
| Thereafter | 406 | 64 | |||||
| Undiscounted lease cash flow commitments | 1,499 | 95 | |||||
| Reconciling impact from discounting | (306 | ) | (33 | ) | |||
| Lease liabilities on consolidated balance sheet as of December 31, 2019 | $ | 1,193 | $ | 62 |
The following table presents the Company’s unadjusted lease commitments as of December 31, 2018 as a required disclosure for companies adopting the lease standard prospectively without revising comparative period information.
| Operating leases | Capital leases | ||||||
| 2019 | $ | 286 | $ | 10 | |||
| 2020 | 254 | 9 | |||||
| 2021 | 207 | 9 | |||||
| 2022 | 170 | 9 | |||||
| 2023 | 143 | 10 | |||||
| Thereafter | 440 | 64 | |||||
| $ | 1,500 | $ | 111 |
9. Long-Term Debt
Long-term debt consists of the following as of December 31, 2019 and 2018:
| December 31, | |||||||||||||||
| 2019 | 2018 | ||||||||||||||
| Principal Amount | Accreted Value | Principal Amount | Accreted Value | ||||||||||||
| CCO Holdings, LLC: | |||||||||||||||
| 5.250% senior notes due March 15, 2021 | $ | — | $ | — | $ | 500 | $ | 498 | |||||||
| 5.250% senior notes due September 30, 2022 | 1,250 | 1,241 | 1,250 | 1,238 | |||||||||||
| 5.125% senior notes due February 15, 2023 | 1,000 | 995 | 1,000 | 994 | |||||||||||
| 4.000% senior notes due March 1, 2023 | 500 | 497 | 500 | 496 | |||||||||||
| 5.125% senior notes due May 1, 2023 | 1,150 | 1,145 | 1,150 | 1,144 | |||||||||||
| 5.750% senior notes due September 1, 2023 | 500 | 497 | 500 | 497 | |||||||||||
| 5.750% senior notes due January 15, 2024 | 150 | 149 | 1,000 | 993 | |||||||||||
| 5.875% senior notes due April 1, 2024 | 1,700 | 1,690 | 1,700 | 1,688 | |||||||||||
| 5.375% senior notes due May 1, 2025 | 750 | 746 | 750 | 745 | |||||||||||
| 5.750% senior notes due February 15, 2026 | 2,500 | 2,471 | 2,500 | 2,467 | |||||||||||
| 5.500% senior notes due May 1, 2026 | 1,500 | 1,491 | 1,500 | 1,490 | |||||||||||
| 5.875% senior notes due May 1, 2027 | 800 | 796 | 800 | 795 | |||||||||||
| 5.125% senior notes due May 1, 2027 | 3,250 | 3,222 | 3,250 | 3,219 |
F- 22
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
| 5.000% senior notes due February 1, 2028 | 2,500 | 2,469 | 2,500 | 2,466 | |||||||||||
| 5.375% senior notes due June 1, 2029 | 1,500 | 1,501 | — | — | |||||||||||
| 4.750% senior notes due March 1, 2030 | 3,050 | 3,041 | — | — | |||||||||||
| Charter Communications Operating, LLC: | |||||||||||||||
| 3.579% senior notes due July 23, 2020 | 2,000 | 1,997 | 2,000 | 1,992 | |||||||||||
| 4.464% senior notes due July 23, 2022 | 3,000 | 2,987 | 3,000 | 2,982 | |||||||||||
| Senior floating rate notes due February 1, 2024 | 900 | 902 | 900 | 903 | |||||||||||
| 4.500% senior notes due February 1, 2024 | 1,100 | 1,093 | 1,100 | 1,091 | |||||||||||
| 4.908% senior notes due July 23, 2025 | 4,500 | 4,471 | 4,500 | 4,466 | |||||||||||
| 3.750% senior notes due February 15, 2028 | 1,000 | 987 | 1,000 | 986 | |||||||||||
| 4.200% senior notes due March 15, 2028 | 1,250 | 1,240 | 1,250 | 1,240 | |||||||||||
| 5.050% senior notes due March 30, 2029 | 1,250 | 1,241 | — | — | |||||||||||
| 6.384% senior notes due October 23, 2035 | 2,000 | 1,982 | 2,000 | 1,982 | |||||||||||
| 5.375% senior notes due April 1, 2038 | 800 | 786 | 800 | 785 | |||||||||||
| 6.484% senior notes due October 23, 2045 | 3,500 | 3,467 | 3,500 | 3,467 | |||||||||||
| 5.375% senior notes due May 1, 2047 | 2,500 | 2,506 | 2,500 | 2,506 | |||||||||||
| 5.750% senior notes due April 1, 2048 | 2,450 | 2,391 | 1,700 | 1,683 | |||||||||||
| 5.125% senior notes due July 1, 2049 | 1,250 | 1,240 | — | — | |||||||||||
| 4.800% senior notes due March 1, 2050 | 2,800 | 2,798 | — | — | |||||||||||
| 6.834% senior notes due October 23, 2055 | 500 | 495 | 500 | 495 | |||||||||||
| Credit facilities | 10,427 | 10,345 | 10,038 | 9,959 | |||||||||||
| Time Warner Cable, LLC: | |||||||||||||||
| 8.750% senior notes due February 14, 2019 | — | — | 1,250 | 1,260 | |||||||||||
| 8.250% senior notes due April 1, 2019 | — | — | 2,000 | 2,030 | |||||||||||
| 5.000% senior notes due February 1, 2020 | 1,500 | 1,503 | 1,500 | 1,541 | |||||||||||
| 4.125% senior notes due February 15, 2021 | 700 | 711 | 700 | 721 | |||||||||||
| 4.000% senior notes due September 1, 2021 | 1,000 | 1,021 | 1,000 | 1,033 | |||||||||||
| 5.750% sterling senior notes due June 2, 2031 (a) | 828 | 886 | 796 | 855 | |||||||||||
| 6.550% senior debentures due May 1, 2037 | 1,500 | 1,675 | 1,500 | 1,680 | |||||||||||
| 7.300% senior debentures due July 1, 2038 | 1,500 | 1,772 | 1,500 | 1,780 | |||||||||||
| 6.750% senior debentures due June 15, 2039 | 1,500 | 1,713 | 1,500 | 1,719 | |||||||||||
| 5.875% senior debentures due November 15, 2040 | 1,200 | 1,255 | 1,200 | 1,256 | |||||||||||
| 5.500% senior debentures due September 1, 2041 | 1,250 | 1,258 | 1,250 | 1,258 | |||||||||||
| 5.250% sterling senior notes due July 15, 2042 (b) | 861 | 831 | 827 | 798 | |||||||||||
| 4.500% senior debentures due September 15, 2042 | 1,250 | 1,142 | 1,250 | 1,140 | |||||||||||
| Time Warner Cable Enterprises LLC: | |||||||||||||||
| 8.375% senior debentures due March 15, 2023 | 1,000 | 1,148 | 1,000 | 1,191 | |||||||||||
| 8.375% senior debentures due July 15, 2033 | 1,000 | 1,284 | 1,000 | 1,298 | |||||||||||
| Total debt | 78,416 | 79,078 | 71,961 | 72,827 | |||||||||||
| Less current portion: | |||||||||||||||
| 8.750% senior notes due February 14, 2019 | — | — | (1,250 | ) | (1,260 | ) | |||||||||
| 8.250% senior notes due April 1, 2019 | — | — | (2,000 | ) | (2,030 | ) | |||||||||
| 5.000% senior notes due February 1, 2020 | (1,500 | ) | (1,503 | ) | — | — | |||||||||
| 3.579% senior notes due July 23, 2020 | (2,000 | ) | (1,997 | ) | — | — | |||||||||
| Long-term debt | $ | 74,916 | $ | 75,578 | $ | 68,711 | $ | 69,537 |
F- 23
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
| (a) | Principal amount includes £625 million valued at $828 million and $796 million as of December 31, 2019 and 2018, respectively, using the exchange rate at that date. |
| (b) | Principal amount includes £650 million valued at $861 million and $827 million as of December 31, 2019 and 2018, respectively, using the exchange rate at that date. |
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 debt assumed in acquisitions, 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 fixed-rate British pound sterling denominated notes (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. See Note 12. The Company has availability under the Charter Operating credit facilities of approximately $4.7 billion as of December 31, 2019.
In 2019, CCO Holdings and CCO Holdings Capital Corp. jointly issued $4.55 billion aggregate principal amount of senior unsecured notes at varying rates, prices and maturity dates, and Charter Operating and Charter Communications Operating Capital Corp. jointly issued $6.05 billion aggregate principal amount of senior secured notes at varying rates, prices and maturity dates. The net proceeds were 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 repaying certain indebtedness.
During the years ended December 31, 2019 and 2017, the Company repurchased $1.35 billion and $2.8 billion, respectively, of various series of senior notes. Loss on extinguishment of debt consisted of the following for the years ended December 31, 2019 and 2017.
| Year Ended December 31, | |||||||
| 2019 | 2017 | ||||||
| CCO Holdings notes redemption | $ | (22 | ) | $ | (33 | ) | |
| Time Warner Cable, LLC notes redemption | — | (1 | ) | ||||
| Charter Operating credit facility refinancing | (3 | ) | (6 | ) | |||
| $ | (25 | ) | $ | (40 | ) |
CCO Holdings Notes
The CCO Holdings notes are senior debt obligations of CCO Holdings and CCO Holdings Capital and rank equally with all other current and future unsecured, unsubordinated obligations of CCO Holdings and CCO Holdings Capital. They are structurally subordinated to all obligations of subsidiaries of CCO Holdings.
CCO Holdings may redeem some or all of the CCO Holdings notes at any time at a premium. The optional redemption price declines to 100% of the respective series’ principal amount, plus accrued and unpaid interest, if any, on or after varying dates in 2020 through 2027.
In addition, at any time prior to varying dates in 2020 through 2022, CCO Holdings may redeem up to 40% of the aggregate principal amount of certain notes at a premium plus accrued and unpaid interest to the redemption date, with the net cash proceeds of one or more equity offerings (as defined in the indenture); provided that certain conditions are met. In the event of specified change of control events, CCO Holdings must offer to purchase the outstanding CCO Holdings notes from the holders at a purchase price equal to 101% of the total principal amount of the notes, plus any accrued and unpaid interest.
High-Yield Restrictive Covenants; Limitation on Indebtedness.
The indentures governing the CCO Holdings notes contain certain covenants that restrict the ability of CCO Holdings, CCO Holdings Capital and all of their restricted subsidiaries to:
| • | incur additional debt; |
| • | pay dividends on equity or repurchase equity; |
F- 24
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
| • | make investments; |
| • | sell all or substantially all of their assets or merge with or into other companies; |
| • | sell assets; |
| • | in the case of restricted subsidiaries, create or permit to exist dividend or payment restrictions with respect to CCO Holdings, guarantee their parent companies debt, or issue specified equity interests; |
| • | engage in certain transactions with affiliates; and |
| • | grant liens. |
The above limitations in certain circumstances regarding incurrence of debt, payment of dividends and making investments contained in the indentures of CCO Holdings permit CCO Holdings and its restricted subsidiaries to perform the above, so long as, after giving pro forma effect to the above, the leverage ratio would be below a specified level for the issuer. The leverage ratio under the indentures is 6.0 to 1.0. The leverage ratio was 4.2 as of December 31, 2019.
Charter Operating Notes
The Charter Operating notes are guaranteed by CCO Holdings and substantially all of the operating subsidiaries of Charter Operating. In addition, the Charter Operating notes are secured by a perfected first priority security interest in substantially all of the assets of Charter Operating to the extent such liens can be perfected under the Uniform Commercial Code by the filing of a financing statement and the liens rank equally with the liens on the collateral securing obligations under the Charter Operating credit facilities. Charter Operating may redeem some or all of the Charter Operating notes at any time at a premium.
The Charter Operating notes are subject to the terms and conditions of the indenture governing the Charter Operating notes. The Charter Operating notes contain customary representations and warranties and affirmative covenants with limited negative covenants. The Charter Operating indenture also contains customary events of default.
Charter Operating Credit Facilities
The Charter Operating credit facilities have an outstanding principal amount of $10.4 billion at December 31, 2019 as follows:
| • | term loan A-2 with a remaining principal amount of approximately $205 million, which is repayable in quarterly installments and aggregating $11 million in each loan year, with the remaining balance due at final maturity on March 31, 2023. Pricing on term loan A-2 is LIBOR plus 1.50%; |
| • | term loan A-4 with a remaining principal amount of approximately $4.0 billion, which is repayable in quarterly installments and aggregating $202 million in each loan year, with the remaining balance due at final maturity on February 1, 2025. Pricing on term loan A-4 is LIBOR plus 1.25%; |
| • | term loan B-1 with a remaining principal amount of approximately $2.4 billion, which is repayable in equal quarterly installments and aggregating $25 million in each loan year, with the remaining balance due at final maturity on April 30, 2025. Pricing on term loan B-1 is LIBOR plus 1.75%; |
| • | term loan B-2 with a remaining principal amount of approximately $3.8 billion, which is repayable in equal quarterly installments and aggregating $38 million in each loan year, with the remaining balance due at final maturity on February 1, 2027. Pricing on term loan B-2 is LIBOR plus 1.75%; and |
| • | a revolving loan allowing for borrowings of up to $4.75 billion, $249 million maturing on March 31, 2023 and $4.5 billion maturing on February 1, 2025. Pricing on the revolving loan is LIBOR plus 1.50% with a commitment fee of 0.30% on the portion maturing in 2023 and LIBOR plus 1.25% with a commitment fee of 0.20% on the portion maturing in 2025. As of December 31, 2019, $36 million of the revolving loan was utilized to collateralize a like principal amount of letters of credit out of $363 million of letters of credit issued on the Company’s behalf. |
Amounts outstanding under the Charter Operating credit facilities bear interest, at Charter Operating’s election, at a base rate or LIBOR (1.73% and 2.50% as of December 31, 2019 and December 31, 2018, respectively), as defined, plus an applicable margin.
The Charter Operating credit facilities also allow us to enter into incremental term loans in the future, with amortization as set forth in the notices establishing such term loans. Although the Charter Operating credit facilities allow for the incurrence of a certain amount of incremental term loans subject to pro forma compliance with its financial maintenance covenants, no assurance can be given that the Company could obtain additional incremental term loans in the future if Charter Operating sought to do so
F- 25
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
or what amount of incremental term loans would be allowable at any given time under the terms of the Charter Operating credit facilities.
The obligations of Charter Operating under the Charter Operating credit facilities are guaranteed by CCO Holdings and substantially all of the operating subsidiaries of Charter Operating. The obligations are also secured by (i) a lien on substantially all of the assets of Charter Operating and its subsidiaries, to the extent such lien can be perfected under the Uniform Commercial Code by the filing of a financing statement, and (ii) a pledge by CCO Holdings of the equity interests owned by it in any of Charter Operating’s subsidiaries, as well as intercompany obligations owing to it by any of such entities.
Restrictive Covenants
The Charter Operating credit facilities contain representations and warranties, and affirmative and negative covenants customary for financings of this type. The financial covenants measure performance against standards set for leverage to be tested as of the end of each quarter. The Charter Operating credit facilities contain provisions requiring mandatory loan prepayments under specific circumstances, including in connection with certain sales of assets, so long as the proceeds have not been reinvested in the business. Additionally, the Charter Operating credit facilities provisions contain an allowance for restricted payments with certain limitations. The Charter Operating credit facilities permit Charter Operating and its subsidiaries to make distributions to pay interest on the currently outstanding subordinated and parent company indebtedness, provided that, among other things, no default has occurred and is continuing under the Charter Operating credit facilities. The Charter Operating credit facilities also contain customary events of default.
Time Warner Cable, LLC Notes and Debentures
The Time Warner Cable, LLC ("TWC, LLC") senior notes and debentures are guaranteed by CCO Holdings and substantially all of the operating subsidiaries of Charter Operating and rank equally with the liens on the collateral securing obligations under the Charter Operating notes and credit facilities. Interest on each series of TWC, LLC senior notes and debentures is payable semi-annually (with the exception of the Sterling Notes, which is payable annually) in arrears.
The TWC, LLC indenture contains customary covenants relating to restrictions on the ability of TWC, LLC or any material subsidiary to create liens and on the ability of TWC, LLC and Time Warner Cable Enterprises LLC ("TWCE") to consolidate, merge or convey or transfer substantially all of their assets. The TWC, LLC indenture also contains customary events of default.
The TWC, LLC senior notes and debentures may be redeemed in whole or in part at any time at TWC, LLC’s option at a redemption price equal to the greater of (i) all of the applicable principal amount being redeemed and (ii) the sum of the present values of the remaining scheduled payments on the applicable TWC, LLC senior notes and debentures discounted to the redemption date on a semi-annual basis (with the exception of the Sterling Notes, which are on an annual basis), at a comparable government bond rate plus a designated number of basis points as further described in the indenture and the applicable note or debenture, plus, in each case, accrued but unpaid interest to, but not including, the redemption date.
The Company may offer to redeem all, but not less than all, of the Sterling Notes in the event of certain changes in the tax laws of the U.S. (or any taxing authority in the U.S.). This redemption would be at a redemption price equal to 100% of the principal amount, together with accrued and unpaid interest on the Sterling Notes to, but not including, the redemption date.
TWCE Debentures
The TWCE senior debentures are guaranteed by CCO Holdings, substantially all of the operating subsidiaries of Charter Operating and TWC, LLC and rank equally with the liens on the collateral securing obligations under the Charter Operating notes and credit facilities. Interest on each series of TWCE senior debentures is payable semi-annually in arrears. The TWCE senior debentures are not redeemable before maturity.
The TWCE indenture contains customary covenants relating to restrictions on the ability of TWCE or any material subsidiary to create liens and on the ability of TWC, LLC and TWCE to consolidate, merge or convey or transfer substantially all of their assets. The TWCE indenture also contains customary events of default.
F- 26
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
Limitations on Distributions
Distributions by the Company’s subsidiaries to a parent company for payment of principal on parent company notes are restricted under the indentures and credit facilities discussed above, unless there is no default under the applicable indenture and credit facilities, and unless each applicable subsidiary’s leverage ratio test is met at the time of such distribution. As of December 31, 2019, there was no default under any of these indentures or credit facilities and each subsidiary met its applicable leverage ratio tests based on December 31, 2019 financial results. There can be no assurance that they will satisfy these tests at the time of the contemplated distribution. Distributions by Charter Operating for payment of principal on parent company (CCO Holdings) notes are further restricted by the covenants in its credit facilities.
However, without regard to leverage, during any calendar year or any portion thereof during which the borrower is a flow-through entity for tax purposes, and so long as no event of default exists, the borrower may make distributions to the equity interests of the borrower in an amount sufficient to make permitted tax payments.
In addition to the limitation on distributions under the various indentures, distributions by the Company’s subsidiaries may be limited by applicable law, including the Delaware Limited Liability Company Act, under which the Company’s subsidiaries may make distributions if they have “surplus” as defined in the act.
Liquidity and Future Principal Payments
The Company continues to have significant amounts of debt, and its business requires significant cash to fund principal and interest payments on its debt, capital expenditures and ongoing operations. As set forth below, the Company has significant future principal payments. The Company continues to monitor the capital markets, and it expects to undertake refinancing transactions and utilize free cash flow and cash on hand to further extend or reduce the maturities of its principal obligations. The timing and terms of any refinancing transactions will be subject to market conditions.
Based upon outstanding indebtedness as of December 31, 2019, the amortization of term loans, and the maturity dates for all senior and subordinated notes, total future principal payments on the total borrowings under all debt agreements are as follows:
| Year | Amount | |||
| 2020 | $ | 3,777 | ||
| 2021 | 1,977 | |||
| 2022 | 4,527 | |||
| 2023 | 4,586 | |||
| 2024 | 4,115 | |||
| Thereafter | 59,434 | |||
| $ | 78,416 |
10. Common Stock
Charter’s Class A common stock and Class B common stock are identical except with respect to certain voting, transfer and conversion rights. Holders of Class A common stock are entitled to one vote per share. Charter’s Class B common stock represents the share issued to A/N. One share of Charter’s Class B common stock has a number of votes reflecting the voting power of the Charter Holdings common units and Charter Holdings convertible preferred units held by A/N as of the applicable record date on an if-converted, if-exchanged basis, and is generally intended to reflect A/N’s economic interests in Charter Holdings.
F- 27
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
The following table summarizes our shares outstanding for the three years ended December 31, 2019:
| Class A Common Stock | Class B Common Stock | ||||
| BALANCE, December 31, 2016 | 268,897,792 | 1 | |||
| Exchange of Charter Holdings units held by A/N (see Note 11) | 1,263,497 | — | |||
| Exercise of stock options | 1,044,526 | — | |||
| Restricted stock issuances, net of cancellations | 9,517 | — | |||
| Restricted stock unit vesting | 1,159,083 | — | |||
| Purchase of treasury stock | (33,868,356 | ) | — | ||
| BALANCE, December 31, 2017 | 238,506,059 | 1 | |||
| Exercise of stock options | 576,583 | — | |||
| Restricted stock issuances, net of cancellations | 10,223 | — | |||
| Restricted stock unit vesting | 618,649 | — | |||
| Purchase of treasury stock | (14,357,707 | ) | — | ||
| BALANCE, December 31, 2018 | 225,353,807 | 1 | |||
| Exercise of stock options | 1,271,419 | — | |||
| Restricted stock issuances, net of cancellations | 8,284 | — | |||
| Restricted stock unit vesting | 728,553 | — | |||
| Purchase of treasury stock | (17,386,100 | ) | — | ||
| BALANCE, December 31, 2019 | 209,975,963 | 1 |
Share Repurchases
The following represents the Company's purchase of Charter Class A common stock and the effect on the consolidated statements of cash flows during the years ended December 31, 2019, 2018 and 2017.
| Year Ended December 31, | ||||||||||||||||||||
| 2019 | 2018 | 2017 | ||||||||||||||||||
| Shares | $ | Shares | $ | Shares | $ | |||||||||||||||
| Share buybacks | 16,697,458 | $ | 6,734 | 14,108,919 | $ | 4,322 | 33,375,878 | $ | 11,570 | |||||||||||
| Income tax withholding | 380,797 | 139 | 224,319 | 77 | 447,455 | 145 | ||||||||||||||
| Exercise cost | 307,845 | 24,469 | 45,023 | |||||||||||||||||
| 17,386,100 | $ | 6,873 | 14,357,707 | $ | 4,399 | 33,868,356 | $ | 11,715 |
As of December 31, 2019, Charter had remaining board authority to purchase an additional $1.4 billion of Charter’s Class A common stock and/or Charter Holdings common units. The Company also withholds shares of its Class A common stock in payment of income tax withholding owed by employees upon vesting of equity awards as well as exercise costs owed by employees upon exercise of stock options.
At the end of each fiscal year, Charter’s board of directors approves the retirement of the then currently outstanding treasury stock and those shares were retired as of December 31, 2019 and 2018. The Company accounts for treasury stock using the cost method and includes treasury stock as a component of total shareholders’ equity. Upon retirement, these treasury shares are allocated between additional paid-in capital and retained earnings based on the cost of original issue included in additional paid-in capital.
11. Noncontrolling Interests
Noncontrolling interests represents consolidated subsidiaries of which the Company owns less than 100%. The Company is a holding company whose principal asset is a controlling equity interest in Charter Holdings, the indirect owner of the Company’s
F- 28
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
cable systems. Noncontrolling interests on the Company’s balance sheet primarily includes A/N’s equity interests in Charter Holdings, which is comprised of a common ownership interest and a convertible preferred ownership interest.
As of December 31, 2019, A/N held 17.9 million Charter Holdings common units which are exchangeable at any time into either Charter Class A common stock on a one-for-one basis, or, at Charter’s option, cash, based on the then current market price of Charter Class A common stock. Net income (loss) of Charter Holdings attributable to A/N’s common noncontrolling interest for financial reporting purposes is based on the weighted average effective common ownership interest of approximately 8%, 8% and 9% and was $173 million, $125 million and $69 million for the years ended December 31, 2019, 2018 and 2017, respectively. Charter Holdings is required to make quarterly cash tax distributions (with annual true-ups) on a pro rata basis to its partners based on the partner with the highest proportionate cash tax requirement. To the extent such tax distributions would exceed Charter’s cash tax requirements, it may waive its entitlement to tax distributions and, instead, issue a non-pro rata "advance" to A/N, which will accrue interest at a money market rate and will reduce A/N’s exchange value into cash or Charter Class A common stock. Charter Holdings distributed $2 million to A/N as a pro rata tax distribution on its common units during the year ended December 31, 2019 and $3 million during each of the years ended December 31, 2018 and 2017.
The following table represents Charter Holdings' purchase of Charter Holdings common units from A/N pursuant to the Letter Agreement (see Note 20) and the effect on total shareholders' equity during the years ended December 31, 2019, 2018 and 2017.
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Number of units purchased | 2,276,906 | 2,125,190 | 4,798,367 | ||||||||
| Average price per unit | $ | 388.72 | $ | 308.90 | $ | 347.03 | |||||
| Amount of units purchased | $ | 885 | $ | 656 | $ | 1,665 | |||||
| Decrease in noncontrolling interest based on carrying value | $ | (565 | ) | $ | (518 | ) | $ | (1,187 | ) | ||
| Decrease in additional paid-in-capital, net of tax | $ | (240 | ) | $ | (104 | ) | $ | (295 | ) |
Total shareholders' equity was also adjusted during the years ended December 31, 2019, 2018 and 2017 due to changes in Charter Holdings' ownership as follows.
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Decrease in noncontrolling interest | $ | (226 | ) | $ | (72 | ) | $ | (362 | ) | ||
| Increase in additional paid-in-capital, net of tax | $ | 170 | $ | 54 | $ | 223 |
The following table represents the exchange of Charter Holdings common units held by A/N for shares of Charter Class A common stock pursuant to the Letter Agreement (see Note 20) and the effect on total shareholders' equity during the year ended December 31, 2017. The exchange of A/N common units resulted in a step-up in the tax-basis of the assets of Charter Holdings which is further discussed in Note 17.
| Year Ended December 31, 2017 | |||
| Number of units exchanged | 1,263,497 | ||
| Amount of units exchanged | $ | 400 | |
| Decrease in noncontrolling interest based on carrying value | $ | (298 | ) |
| Increase in additional paid-in-capital, net of tax and TRA effects | $ | 265 |
As of December 31, 2019, A/N also held 25 million Charter Holdings convertible preferred units with a face amount of $2.5 billion that pays a 6% annual preferred dividend. The 6% annual preferred dividend is paid quarterly in cash, if and when declared, provided that, if dividends are suspended at any time, the dividends will accrue until they are paid. Net income (loss) of Charter
F- 29
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
Holdings attributable to A/N's preferred noncontrolling interest for financial reporting purposes is based on the preferred dividend which was $150 million for each of the years ended December 31, 2019, 2018 and 2017. Each convertible preferred unit is convertible into either 0.37334 of a Charter Holdings common unit (if then held by A/N) or 0.37334 of a share of Charter Class A common stock (if then held by a third party), representing a conversion price of $267.85 per unit, based on a conversion feature as defined in the Limited Liability Company Agreement of Charter Holdings. After May 18, 2021, Charter may redeem the convertible preferred units if the price of Charter Class A common stock exceeds 130% of the conversion price, or $348.205 per unit. These Charter Holdings common and convertible preferred units held by A/N are recorded in noncontrolling interests as permanent equity in the consolidated balance sheet.
12. Accounting for Derivative Instruments and Hedging Activities
The Company uses derivative instruments to manage foreign exchange risk on the Sterling Notes, and does not hold or issue derivative instruments for speculative trading purposes.
Cross-currency derivative instruments are used to effectively convert £1.275 billion aggregate principal amount of fixed-rate British pound sterling denominated debt, including annual interest payments and the payment of principal at maturity, to fixed-rate U.S. dollar denominated debt. The cross-currency swaps have maturities of June 2031 and July 2042. The Company is required to post collateral on the cross-currency derivative instruments when the derivative contracts are in a liability position. In April 2019, the Company entered into a collateral holiday agreement for 60% of both the 2031 and 2042 cross-currency swaps, which eliminates the requirement to post collateral for three years, as well as a ten year collateral cap on the remaining 40% of the cross-currency swaps which limits the required collateral posting on that 40% of the cross-currency swaps to $150 million. The fair value of the Company's cross-currency derivatives included in other long-term liabilities on the Company's consolidated balance sheets was $224 million and $237 million as of December 31, 2019 and 2018, respectively.
The Company’s derivative instruments are not designated as hedges and are marked to fair value each period, with the impact recorded as a gain or loss on financial instruments, net in the consolidated statements of operations. While these derivative instruments are not designated as hedges for accounting purposes, management continues to believe such instruments are closely correlated with the respective debt, thus managing associated risk.
The effect of financial instruments on the consolidated statements of operations is presented in the table below.
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Gain (Loss) on Financial Instruments, Net: | |||||||||||
| Change in fair value of cross-currency derivative instruments | $ | 13 | $ | (212 | ) | $ | 226 | ||||
| Foreign currency remeasurement of Sterling Notes to U.S. dollars | (67 | ) | 102 | (157 | ) | ||||||
| $ | (54 | ) | $ | (110 | ) | $ | 69 |
13. 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 December 31, 2019 and 2018 using available market information or other appropriate valuation methodologies. Considerable judgment, however, is required in interpreting market
F- 30
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
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.
Financial instruments accounted for at fair value on a recurring basis and classified within Level 2 of the valuation hierarchy include the Company's cross-currency derivative instruments and were valued at $224 million and $237 million as of December 31, 2019 and December 31, 2019, respectively.
The estimated fair value of the Company’s senior notes and debentures as of December 31, 2019 and 2018 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.
A summary of the carrying value and fair value of the Company’s debt at December 31, 2019 and 2018 is as follows:
| December 31, | |||||||||||||||
| 2019 | 2018 | ||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||
| Debt | |||||||||||||||
| Senior notes and debentures | $ | 68,733 | $ | 74,938 | $ | 62,868 | $ | 61,087 | |||||||
| Credit facilities | $ | 10,345 | $ | 10,448 | $ | 9,959 | $ | 9,608 |
Non-financial 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. When such impairments are recorded, fair values are generally classified within Level 3 of the valuation hierarchy.
14. 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:
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Programming | $ | 11,290 | $ | 11,124 | $ | 10,596 | |||||
| Regulatory, connectivity and produced content | 2,366 | 2,210 | 2,064 | ||||||||
| Costs to service customers | 7,277 | 7,327 | 7,235 | ||||||||
| Marketing | 3,044 | 3,042 | 3,036 | ||||||||
| Mobile | 1,246 | 346 | — | ||||||||
| Other | 4,001 | 3,811 | 3,610 | ||||||||
| $ | 29,224 | $ | 27,860 | $ | 26,541 |
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
F- 31
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
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, 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.
15. Other Operating Expenses, Net
Other operating expenses, net consist of the following for the years presented:
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Merger and restructuring costs | $ | 10 | $ | 97 | $ | 351 | |||||
| Special charges, net | 51 | 53 | (21 | ) | |||||||
| Loss on sale of assets, net | 42 | 85 | 16 | ||||||||
| $ | 103 | $ | 235 | $ | 346 |
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 and employee termination costs related to acquisitions. Changes in accruals for merger and restructuring costs from January 1, 2017 through December 31, 2019 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 | ) | |||||||||
| Liability, December 31, 2017 | 1 | 172 | 17 | 8 | 198 | ||||||||||||||
| Costs incurred | 1 | 64 | 2 | 25 | 92 | ||||||||||||||
| Cash paid | (1 | ) | (179 | ) | (8 | ) | (27 | ) | (215 | ) | |||||||||
| Liability, December 31, 2018 | 1 | 57 | 11 | 6 | 75 | ||||||||||||||
| Costs incurred | — | 1 | 8 | 1 | 10 | ||||||||||||||
| Cash paid | (1 | ) | (51 | ) | (12 | ) | (4 | ) | (68 | ) | |||||||||
| Remaining liability, December 31, 2019 | $ | — | $ | 7 | $ | 7 | $ | 3 | $ | 17 |
In addition to the costs indicated above, the Company recorded $5 million and $49 million of expense related to accelerated vesting of equity awards of terminated employees for the years ended December 31, 2018 and 2017, respectively.
Special charges, net
Special charges, net primarily includes employee termination costs not related to acquisitions and net amounts of litigation settlements. During 2018, special charges, net also includes a $22 million charge related to the Company's withdrawal liability from a multiemployer pension plan. In 2017, special charges, net also includes a $101 million benefit related to the remeasurement of the Tax Receivable Agreement ("TRA") liability as a result of the enactment of the Tax Cuts & Jobs Act (“Tax Reform”) in
F- 32
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
December 2017 (see Note 17) offset by an $83 million charge related to the Company's withdrawal liability from a multiemployer pension plan.
Loss on sale of assets, net
Loss on sale of assets, net represents the net loss recognized on the sales and disposals of fixed assets including a $42 million and $75 million impairment of non-strategic assets during the years ended December 31, 2019 and 2018, respectively.
16. Stock Compensation Plans
Charter’s 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 stock incentive plan. The stock incentive plan allows for the issuance of up to 16 million shares of Charter Class A common stock (or units convertible into Charter Class A common stock).
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 in 2016 generally vest 50% on each of the third and fourth anniversary of the grant date.
As of December 31, 2019, total unrecognized compensation remaining to be recognized in future periods totaled $175 million for stock options, $0.9 million for restricted stock and $205 million for restricted stock units and the weighted average period over which they are expected to be recognized is 2 years for stock options, 4 months for restricted stock and 2 years for restricted stock units. The Company recorded $315 million, $285 million and $261 million of stock compensation expense for the years ended December 31, 2019, 2018 and 2017, respectively, which is included in operating costs and expenses. The Company also recorded $5 million and $49 million of expense for the years ended December 31, 2018 and 2017, respectively, 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.
F- 33
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
A summary of the activity for the Company’s stock options for the years ended December 31, 2019, 2018 and 2017, is as follows (shares in thousands, except per share data):
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2019 | 2018 | 2017 | |||||||||||||||||||||||||||||||||
| Shares | Weighted Average Exercise Price | Aggregate Intrinsic Value | Shares | Weighted Average Exercise Price | Aggregate Intrinsic Value | Shares | Weighted Average Exercise Price | Aggregate Intrinsic Value | |||||||||||||||||||||||||||
| Outstanding, beginning of period | 10,410 | $ | 225.53 | 9,649 | $ | 201.83 | 9,592 | $ | 181.39 | ||||||||||||||||||||||||||
| Granted | 1,847 | $ | 298.84 | 1,507 | $ | 350.40 | 1,175 | $ | 302.87 | ||||||||||||||||||||||||||
| Exercised | (1,271 | ) | $ | 186.90 | $ | 247 | (577 | ) | $ | 133.35 | $ | 114 | (1,044 | ) | $ | 124.32 | $ | 219 | |||||||||||||||||
| Canceled | (437 | ) | $ | 270.94 | (169 | ) | $ | 300.46 | (74 | ) | $ | 251.63 | |||||||||||||||||||||||
| Outstanding, end of period | 10,549 | $ | 241.14 | $ | 2,573 | 10,410 | $ | 225.53 | 9,649 | $ | 201.83 | ||||||||||||||||||||||||
| Weighted average remaining contractual life | 7 | years | 7 | years | 8 | years | |||||||||||||||||||||||||||||
| Options exercisable, end of period | 3,119 | $ | 161.13 | $ | 1,011 | 2,194 | $ | 122.19 | 1,734 | $ | 90.56 | ||||||||||||||||||||||||
| Options expected to vest, end of period | 7,430 | $ | 274.74 | $ | 1,563 | ||||||||||||||||||||||||||||||
| Weighted average fair value of options granted | $ | 84.39 | $ | 94.70 | $ | 73.67 |
A summary of the activity for the Company’s restricted stock for the years ended December 31, 2019, 2018 and 2017, is as follows (shares in thousands, except per share data):
| Year Ended December 31, | ||||||||||||||||||||
| 2019 | 2018 | 2017 | ||||||||||||||||||
| Shares | Weighted Average Grant Price | Shares | Weighted Average Grant Price | Shares | Weighted Average Grant Price | |||||||||||||||
| Outstanding, beginning of period | 10 | $ | 297.86 | 10 | $ | 343.10 | 10 | $ | 231.81 | |||||||||||
| Granted | 8 | $ | 359.33 | 10 | $ | 297.86 | 10 | $ | 343.10 | |||||||||||
| Vested | (10 | ) | $ | 297.86 | (10 | ) | $ | 343.10 | (10 | ) | $ | 231.81 | ||||||||
| Canceled | — | $ | — | — | $ | — | — | $ | — | |||||||||||
| Outstanding, end of period | 8 | $ | 359.33 | 10 | $ | 297.86 | 10 | $ | 343.10 |
F- 34
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
A summary of the activity for the Company’s restricted stock units for the years ended December 31, 2019, 2018 and 2017, is as follows (shares in thousands, except per share data):
| Year Ended December 31, | ||||||||||||||||||||
| 2019 | 2018 | 2017 | ||||||||||||||||||
| Shares | Weighted Average Grant Price | Shares | Weighted Average Grant Price | Shares | Weighted Average Grant Price | |||||||||||||||
| Outstanding, beginning of period | 2,211 | $ | 219.61 | 2,391 | $ | 192.96 | 3,313 | $ | 192.41 | |||||||||||
| Granted | 704 | $ | 298.22 | 526 | $ | 348.75 | 285 | $ | 302.76 | |||||||||||
| Vested | (729 | ) | $ | 206.88 | (619 | ) | $ | 216.27 | (1,159 | ) | $ | 216.21 | ||||||||
| Canceled | (127 | ) | $ | 250.85 | (87 | ) | $ | 286.41 | (48 | ) | $ | 234.99 | ||||||||
| Outstanding, end of period | 2,059 | $ | 249.45 | 2,211 | $ | 219.61 | 2,391 | $ | 192.96 |
17. Income Taxes
Substantially all of the Company’s operations are held through Charter Holdings and its direct and indirect subsidiaries. Charter Holdings and the majority of its subsidiaries are generally limited liability companies that are not subject to income tax. However, certain of these limited liability companies are subject to state income tax. In addition, the subsidiaries that are corporations are subject to income tax. Generally, the taxable income, gains, losses, deductions and credits of Charter Holdings are passed through to its members, Charter and A/N. Charter is responsible for its share of taxable income or loss of Charter Holdings allocated to it in accordance with the 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.
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.
F- 35
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
Income Tax Benefit (Expense)
For the years ended December 31, 2019, 2018, and 2017, the Company recorded deferred income tax benefit (expense) as shown below. The tax provision in future periods will vary based on current and future temporary differences, as well as future operating results.
| Year Ended December 31, | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| Current expense: | ||||||||||||
| Federal income taxes | $ | (6 | ) | $ | (23 | ) | $ | (4 | ) | |||
| State income taxes | (113 | ) | (47 | ) | (25 | ) | ||||||
| Current income tax expense | (119 | ) | (70 | ) | (29 | ) | ||||||
| Deferred benefit (expense): | ||||||||||||
| Federal income taxes | (358 | ) | (204 | ) | 9,082 | |||||||
| State income taxes | 38 | 94 | 34 | |||||||||
| Deferred income tax benefit (expense) | (320 | ) | (110 | ) | 9,116 | |||||||
| Income tax benefit (expense) | $ | (439 | ) | $ | (180 | ) | $ | 9,087 |
Income tax benefit for the year ended December 31, 2017 was recognized primarily as a result of the enactment of Tax Reform in December 2017. Among other things, the primary provisions of Tax Reform impacting the Company 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 the Company 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.
The Company’s effective tax rate differs from that derived by applying the applicable federal income tax rate of 21% for the years ended December 31, 2019 and 2018 and 35% for the year ended December 31, 2017, respectively, as follows:
| Year Ended December 31, | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| Statutory federal income taxes | $ | (510 | ) | $ | (354 | ) | $ | (360 | ) | |||
| Statutory state income taxes, net | (57 | ) | (54 | ) | (34 | ) | ||||||
| Change in uncertain tax positions | (64 | ) | (24 | ) | 3 | |||||||
| Nondeductible expenses | (24 | ) | (25 | ) | (21 | ) | ||||||
| Net income attributable to noncontrolling interest | 80 | 68 | 84 | |||||||||
| Excess stock compensation | 63 | 34 | 88 | |||||||||
| Federal tax credits | 46 | 77 | 21 | |||||||||
| Tax rate changes | 15 | 107 | 9,293 | |||||||||
| Other | 12 | (9 | ) | 13 | ||||||||
| Income tax benefit (expense) | $ | (439 | ) | $ | (180 | ) | $ | 9,087 |
F- 36
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
Deferred Tax Assets (Liabilities)
The tax effects of these temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2019 and 2018 are presented below.
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Deferred tax assets: | ||||||||
| Loss carryforwards | $ | 1,839 | $ | 2,453 | ||||
| Accrued and other | 664 | 578 | ||||||
| Total gross deferred tax assets | 2,503 | 3,031 | ||||||
| Less: valuation allowance | (46 | ) | (89 | ) | ||||
| Deferred tax assets | $ | 2,457 | $ | 2,942 | ||||
| Deferred tax liabilities: | ||||||||
| Investment in partnership | $ | (20,159 | ) | $ | (20,319 | ) | ||
| Accrued and other | (9 | ) | (12 | ) | ||||
| Deferred tax liabilities | (20,168 | ) | (20,331 | ) | ||||
| Net deferred tax liabilities | $ | (17,711 | ) | $ | (17,389 | ) |
The deferred tax liabilities on the investment in partnership above includes approximately $55 million net deferred tax liabilities and $3 million net deferred tax assets relating to certain indirect subsidiaries that file separate state income tax returns at December 31, 2019 and 2018, respectively.
Valuation Allowance
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. As of December 31, 2019, approximately $9 million of the valuation allowance is associated with federal capital loss carryforwards and $37 million is associated with state tax loss carryforwards and other miscellaneous deferred tax assets. As of December 31, 2018, approximately $39 million of the valuation allowance is associated with federal tax net operating loss carryforwards acquired in acquisitions and approximately $50 million is associated with state tax loss carryforwards and tax credits.
Net Operating Loss Carryforwards
As of December 31, 2019, Charter had approximately $7.5 billion of federal tax net operating loss carryforwards resulting in a gross deferred tax asset of approximately $1.6 billion. Federal tax net operating loss carryforwards expire in the years 2020 through 2035. These losses resulted from the operations of Charter Communications Holdings Company, LLC ("Charter Holdco") and its subsidiaries. In addition, as of December 31, 2019, Charter had state tax net operating loss carryforwards, resulting in a gross deferred tax asset (net of federal tax benefit) of approximately $257 million. State tax net operating loss carryforwards generally expire in the years 2020 through 2039.
Upon closing of the merger with TWC in 2016, Charter experienced a third “ownership change” as defined in Section 382 of the Internal Revenue Code; resulting in a third set of limitations on Charter’s use of its existing federal and state net operating losses, capital losses, and tax credit carryforwards. Both the first ownership change limitations that applied as a result of Charter’s emergence from bankruptcy in 2009 and second ownership change limitations that applied as a result of Liberty Media Corporation’s purchase in 2013 of a 27% beneficial interest in Charter will also continue to apply. After December 31, 2019, $905 million 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 four years of federal tax loss carryforwards should become unrestricted and available for Charter’s use. Since the limitation amounts accumulate for future use to the extent they are not utilized in any given year, Charter believes its loss carryforwards should become fully available to offset future taxable income.
F- 37
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
Charter’s state loss carryforwards are subject to similar, but varying, limitations on their future use. If Charter was to experience another “ownership change” in the future, its ability to use its loss carryforwards could be subject to further limitations.
Tax Receivable Agreement
Under the LLC Agreement, A/N has rights to: (1) convert at any time some or all of its preferred units in Charter Holdings for common units in Charter Holdings, and (2) exchange at any time some or all of its common units in Charter Holdings for Charter’s Class A common stock or cash, at Charter’s option. Pursuant to a TRA between Charter and A/N, Charter must pay to A/N 50% of the tax benefit when realized by Charter from the step-up in tax basis resulting from any future exchange or sale of the preferred and common units. Charter did not record a liability for this obligation as of the acquisition date since the tax benefit is dependent on uncertain future events that are outside of Charter’s control, such as the timing of a conversion or exchange. A future exchange or sale is not based on a fixed and determinable date and the exchange or sale is not certain to occur. If all of A/N's partnership units were to be exchanged or sold in the future, the undiscounted value of the obligation is currently estimated to be in the range of zero to $3 billion depending on measurement of the tax step-up in the future and Charter’s ability to realize the tax benefit in the periods following the exchange or sale. Factors impacting these calculations include, but are not limited to, the fair value of the equity at the time of the exchange and the effective tax rates when the benefits are realized.
In connection with the Letter Agreement between Charter and A/N (see Note 20) whereby 1.3 million Charter Holdings common units held by A/N during the year ended December 31, 2017 were exchanged for shares of Charter Class A common stock for an aggregate purchase price of $400 million, an immediate step-up of $487 million in the tax basis of the assets of Charter Holdings occurred. As it relates to the exchange and tax step-up, a net deferred tax asset of approximately $85 million was recorded and a resulting TRA liability owed to A/N of $118 million which, as a transaction with a shareholder, was recorded directly to additional paid in capital, net of tax during the year ended December 31, 2017. The TRA liability is recorded on an iterative, undiscounted basis. During the year ended December 31, 2017, the TRA liability was remeasured as a result of the enactment of Tax Reform resulting in a $101 million benefit recorded to other operating expenses, net. See Note 15. Following such remeasurement, the TRA liability of $150 million and $151 million is reflected in other long-term liabilities on the consolidated balance sheets as of December 31, 2019 and 2018, respectively.
Uncertain Tax Positions
The net amount of the unrecognized tax benefits recorded as of December 31, 2019 that could impact the effective tax rate is $242 million. The Company has determined that it is reasonably possible that its existing reserve for uncertain tax positions as of December 31, 2019 could decrease by approximately $31 million during the year ended December 31, 2020 related to various ongoing audits, settlement discussions and expiration of statute of limitations with various state and local agencies; 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. A reconciliation of the beginning and ending amount of unrecognized tax benefits, exclusive of interest and penalties, included in other long-term liabilities on the accompanying consolidated balance sheets of the Company is as follows:
| BALANCE, December 31, 2017 | $ | 164 | |
| Additions on prior year tax positions | 7 | ||
| Additions on current year tax positions | 25 | ||
| Reductions on settlements and expirations with taxing authorities | (16 | ) | |
| BALANCE, December 31, 2018 | $ | 180 | |
| Additions on prior year tax positions | 15 | ||
| Additions on current year tax positions | 44 | ||
| Reductions on settlements and expirations with taxing authorities | (9 | ) | |
| BALANCE, December 31, 2019 | $ | 230 |
The Company recognizes interest and penalties accrued on uncertain income tax positions as part of the income tax provision. Interest and penalties included in other long-term liabilities on the accompanying consolidated balance sheets of the Company were $56 million and $45 million as of December 31, 2019 and 2018, respectively.
F- 38
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
No tax years for Charter are currently under examination by the Internal Revenue Service ("IRS") for income tax purposes. Charter's 2016 through 2019 tax years remain open for examination and assessment. Charter’s short period return dated May 17, 2016 (prior to the TWC and Bright House Networks, LLC transactions) remain subject to examination and assessment. Years prior to 2016 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 through 2019 tax years remain open for examination and assessment. 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, TWC was included in the consolidated U.S. federal and certain state income tax returns of Time Warner. The IRS has examined Time Warner’s 2008 through 2010 income tax returns and the results are under appeal. 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 year ended December 31, 2019, nor does the Company anticipate a material impact in the future.
18. 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 stock units, equity awards with market conditions and Charter Holdings convertible preferred units and common units. Charter Holdings common and convertible preferred units of 29 million and 31 million for the years ended December 31, 2019 and 2018 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 years presented.
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Numerator: | |||||||||||
| Net income attributable to Charter shareholders | $ | 1,668 | $ | 1,230 | $ | 9,895 | |||||
| Effect of dilutive securities: | |||||||||||
| Charter Holdings common units | — | — | 69 | ||||||||
| Charter Holdings convertible preferred units | — | — | 150 | ||||||||
| Net income attributable to Charter shareholders after assumed conversions | $ | 1,668 | $ | 1,230 | $ | 10,114 | |||||
| Denominator: | |||||||||||
| Weighted average common shares outstanding, basic | 219,506,735 | 232,356,665 | 256,720,715 | ||||||||
| Effect of dilutive securities: | |||||||||||
| Assumed exercise or issuance of shares relating to stock plans | 4,279,645 | 3,168,561 | 4,012,145 | ||||||||
| Weighted average Charter Holdings common units | — | — | 26,637,596 | ||||||||
| Weighted average Charter Holdings convertible preferred units | — | — | 9,333,500 | ||||||||
| Weighted average common shares outstanding, diluted | 223,786,380 | 235,525,226 | 296,703,956 | ||||||||
| Basic earnings per common share attributable to Charter shareholders | $ | 7.60 | $ | 5.29 | $ | 38.55 | |||||
| Diluted earnings per common share attributable to Charter shareholders | $ | 7.45 | $ | 5.22 | $ | 34.09 |
F- 39
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
19. Comprehensive Income
The following table sets forth the consolidated statements of comprehensive income for the years ended December 31, 2019, 2018 and 2017.
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Consolidated net income | $ | 1,992 | $ | 1,506 | $ | 10,115 | |||||
| Net impact of interest rate derivative instruments | — | — | 5 | ||||||||
| Foreign currency translation adjustment | 2 | (1 | ) | 1 | |||||||
| Consolidated comprehensive income | 1,994 | 1,505 | 10,121 | ||||||||
| Less: Comprehensive income attributable to noncontrolling interests | (324 | ) | (276 | ) | (220 | ) | |||||
| Comprehensive income attributable to Charter shareholders | $ | 1,670 | $ | 1,229 | $ | 9,901 |
20. 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 or, in the case of the management arrangements, subsidiaries that are debt issuers that pay certain of their parent companies for services.
Charter is a party to management arrangements with one of its subsidiaries, Spectrum Management Holding Company, LLC ("Spectrum Management") and certain of their subsidiaries. Under these agreements, Charter, Spectrum Management and Charter Holdco provide management services for the cable systems owned or operated by their subsidiaries. Costs associated with providing these services are charged directly to the Company’s operating subsidiaries. All other costs incurred on behalf of Charter’s operating subsidiaries are considered a part of the management fee. These costs are recorded as a component of operating costs and expenses, in the accompanying consolidated financial statements. The management fee charged to the Company’s operating subsidiaries approximated the expenses incurred by Spectrum Management, Charter Holdco and Charter on behalf of the Company’s operating subsidiaries in 2019, 2018 and 2017.
Liberty Broadband and A/N
Under the terms of the Amended and Restated Stockholders Agreement with Liberty Broadband, A/N and Legacy Charter, dated May 23, 2015, (the “Stockholders Agreement”), 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. Pursuant to the TRA between Charter and A/N, Charter must pay to A/N 50% of the tax benefit when realized by Charter from the step-up in tax basis resulting from any future exchange or sale of the preferred and common units. See Note 17 for more information.
F- 40
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or 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 49.0% of voting interest in Liberty Broadband, may be deemed to have a 39.9% voting interest in Qurate Retail, Inc. ("Qurate") 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 years ended December 31, 2019, 2018 and 2017, the Company recorded revenue in aggregate of approximately $50 million, $73 million and $77 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 1.2% of the series A common stock, 93.6% of the series B common stock and 2.6% of the series C common stock of Discovery and has a 28.2% voting interest in Discovery for the election of directors. The Company is aware that Advance/Newhouse Programming Partnership (“A/N PP”), an affiliate of A/N and in which Mr. Miron is the CEO, owns 100% of the Series A-1 preferred stock of Discovery and 100% of the Series C-1 preferred stock of Discovery and has a 24.1% voting interest for matters other than the election of directors. A/N PP also has the right to appoint three directors out of a total of twelve directors to Discovery’s board. 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 to Discovery represents less than 3% of total operating costs and expenses for the years ended December 31, 2019, 2018 and 2017.
Equity Investments
The Company has agreements with certain equity investees (see Note 6) pursuant to which the Company has made or received related party transaction payments. The Company recorded payments to equity investees totaling $314 million, $361 million and $317 million during the years ended December 31, 2019, 2018 and 2017, respectively.
21. Commitments and Contingencies
Commitments
The following table summarizes the Company’s payment obligations as of December 31, 2019 for its contractual obligations.
| Total | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | |||||||||||||||||||||
| Programming Minimum Commitments (a) | $ | 276 | $ | 216 | $ | 37 | $ | 12 | $ | 11 | $ | — | $ | — | |||||||||||||
| Other (b) | 12,658 | 2,536 | 2,598 | 436 | 366 | 526 | 6,196 | ||||||||||||||||||||
| $ | 12,934 | $ | 2,752 | $ | 2,635 | $ | 448 | $ | 377 | $ | 526 | $ | 6,196 |
| (a) | The Company pays programming fees under multi-year contracts ranging from three to ten years, typically based on a flat fee per customer, which may be fixed for the term, or may in some cases escalate over the term. Programming costs included in the statement of operations were 11.3 billion, 11.1 billion and 10.6 billion for the years ended December 31, 2019, 2018 and 2017 respectively. Certain of the Company’s programming agreements are based on a flat fee per month or have guaranteed minimum payments. The table sets forth the aggregate guaranteed minimum commitments under the Company’s programming contracts. |
| (b) | “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 obligation table due to various factors discussed below. However, the Company incurs these costs as part of its operations:
| • | The Company rents utility poles used in its operations. Generally, pole rentals are cancelable on short notice, but the Company anticipates that such rentals will recur. Rent expense incurred for pole rental attachments for the years ended December 31, 2019, 2018 and 2017 was $180 million, $171 million and $167 million, respectively. |
F- 41
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
| • | The Company pays franchise fees under multi-year franchise agreements based on a percentage of revenues generated from video service per year. The Company also pays other franchise related costs, such as public education grants, under multi-year agreements. Franchise fees and other franchise-related costs included in the accompanying statement of operations were $750 million, $747 million and $705 million for the years ended December 31, 2019, 2018 and 2017 respectively. |
| • | The Company has $363 million in letters of credit, of which $36 million is secured under the Charter Operating credit facility, primarily to its 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 2019. The Company made no cash contributions to the qualified pension plans in 2019; however, the Company is permitted to make discretionary cash contributions to the qualified pension plans in 2020. For the nonqualified pension plan, the Company contributed $4 million during 2019 and will continue to make contributions in 2020 to the extent benefits are paid. |
Legal Proceedings
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 is vigorously defending 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. At the trial, 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 appealed the case to the United States Court of Appeals for the Federal Circuit where the Company lost the appeal. The Company filed a petition for writ of certiorari with the United States Supreme Court which was denied on November 4, 2019. The Company has now paid the verdict, interest and costs in full. 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 ultimate outcomes of the pursuit of indemnity against the Company’s vendor and the TC Tech litigation cannot be predicted. The Company does not expect the outcome of its indemnity claim nor the outcome of the TC Tech litigation will have a material adverse effect on its operations or financial condition.
Sprint filed a second suit against Charter and Bright House Networks, LLC 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 Voice over Internet Protocol (“VoIP”) services (ten of which were asserted against Legacy TWC in the matter described above). Charter is vigorously defending 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 is vigorously defending this case. The court transferred this case to the United States District Court for the District of Delaware on December 20, 2018 pursuant to an agreement between the parties. 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.
F- 42
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
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 intellectual property 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, 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 intellectual property 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.
22. Employee Benefit Plans
Pension Plans
The Company sponsors three qualified defined benefit pension plans and one nonqualified defined benefit pension plan that provide pension benefits to a majority of employees who were employed by TWC before the merger with TWC.
Changes in the projected benefit obligation, fair value of plan assets and funded status of the pension plans from January 1 through December 31 are presented below:
| 2019 | 2018 | ||||||
| Projected benefit obligation at beginning of year | $ | 3,041 | $ | 3,569 | |||
| Interest cost | 129 | 128 | |||||
| Actuarial (gain) loss | 499 | (438 | ) | ||||
| Settlement | (257 | ) | (169 | ) | |||
| Benefits paid | (51 | ) | (49 | ) | |||
| Projected benefit obligation at end of year (a) | $ | 3,361 | $ | 3,041 | |||
| Accumulated benefit obligation at end of year (a) | $ | 3,361 | $ | 3,041 | |||
| Fair value of plan assets at beginning of year | $ | 2,943 | $ | 3,273 | |||
| Actual return on plan assets | 559 | (118 | ) | ||||
| Employer contributions | 4 | 6 | |||||
| Settlement | (257 | ) | (169 | ) | |||
| Benefits paid | (51 | ) | (49 | ) | |||
| Fair value of plan assets at end of year (b) | $ | 3,198 | $ | 2,943 | |||
| Funded status | $ | (163 | ) | $ | (98 | ) |
| (a) | As of December 31, 2019 and 2018, qualified pension plans represented $3.3 billion and $3.0 billion, respectively, of both the projected benefit obligation and accumulated benefit obligation while the Company’s nonqualified pension plan represented $35 million and $34 million, respectively. |
| (b) | The fair value of plan assets consists entirely of the Company’s qualified pension plans. |
F- 43
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
Pretax amounts recognized in the consolidated balance sheet as of December 31, 2019 and 2018 consisted of the following:
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Noncurrent asset | $ | 1 | $ | 1 | |||
| Current liability | (4 | ) | (4 | ) | |||
| Long-term liability | (160 | ) | (95 | ) | |||
| Net amounts recognized in consolidated balance sheet | $ | (163 | ) | $ | (98 | ) |
The components of net periodic benefit (cost) for the years ended December 31, 2019, 2018 and 2017 consisted of the following:
| Year Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| Interest cost | $ | (129 | ) | $ | (128 | ) | $ | (133 | ) | ||
| Expected return on plan assets | 164 | 198 | 189 | ||||||||
| Remeasurement gain (loss) | (104 | ) | 122 | (55 | ) | ||||||
| Net periodic pension benefit (cost) | $ | (69 | ) | $ | 192 | $ | 1 |
The remeasurement gains (losses) recorded during the years ended December 31, 2019, 2018 and 2017 were primarily driven by changes in the discount rate as well as gains or losses to record pension assets to fair value. The remeasurement loss recorded during the year ended December 31, 2017 was also impacted by the adoption of the revised lump sum conversion mortality tables published by the IRS effective January 1, 2018.
The discount rates used to determine benefit obligations as of December 31, 2019 and 2018 were 3.48% and 4.37%, respectively. The Company utilized the RP 2015/MP2015 mortality tables published by the Society of Actuaries to measure the benefit obligations as of December 31, 2019 and 2018.
Weighted average assumptions used to determine net periodic benefit costs consisted of the following:
| Year ended December 31, | ||||||||
| 2019 | 2018 | 2017 | ||||||
| Expected long-term rate of return on plan assets | 5.75 | % | 5.75 | % | 6.50 | % | ||
| Discount rate | 4.37 | % | 4.24 | % | 3.88 | % |
In developing the expected long-term rate of return on plan assets, the Company considered the pension portfolio’s composition, past average rate of earnings and the Company’s future asset allocation targets. The weighted average expected long-term rate of return on plan assets and discount rate used to determine net periodic pension benefit for the year ended December 31, 2020 are expected to be 5.00% and 3.48%, respectively. The Company determined the discount rates used to determine benefit obligations and net periodic pension benefit 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.
Pension Plan Assets
The assets of the qualified pension plans are held in a master trust in which the qualified pension plans are the only participating plans (the “Master Trust”). The investment policy for the qualified pension plans is to manage the assets of the Master Trust with the objective to provide for pension liabilities to be met, maintaining retirement income security for the participants of the plans and their beneficiaries. The investment portfolio is a mix of pooled funds invested in fixed income securities, equity securities and certain alternative investments with the objective of matching plan liability performance, diversifying risk and achieving a
F- 44
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
target investment return. Pension assets are managed in a balanced portfolio comprised of two major components: a return-seeking portion and a liability-matching portion.
The Company uses an investment strategy designed to increase the fixed income allocation as the funded status of the qualified pension plans improves. As the qualified pension plans reach set funded status milestones, the assets will be rebalanced to shift more assets from equity to fixed income. Based on the progress with this strategy, the target investment allocation for pension fund assets is permitted to vary within specified ranges subject to Investment Committee approval for return-seeking securities and liability-matching securities. The target and actual investment allocation of the qualified pension plans by asset category consisted of the following:
| December 31, 2019 | December 31, 2018 | ||||||||||
| Target Allocation | Actual Allocation | Target Allocation | Actual Allocation | ||||||||
| Return-seeking securities | 60.0 | % | 56.2 | % | 60.0 | % | 54.6 | % | |||
| Liability-matching securities | 40.0 | % | 43.7 | % | 40.0 | % | 45.1 | % | |||
| Other investments | — | % | 0.1 | % | — | % | 0.3 | % |
The following tables set forth the investment assets of the qualified pension plans by level within the fair value hierarchy as of December 31, 2019 and 2018:
| December 31, 2019 | December 31, 2018 | ||||||||||||||||||||||
| Fair Value | Level 1 | Level 2 | Fair Value | Level 1 | Level 2 | ||||||||||||||||||
| Cash | $ | 4 | $ | 4 | $ | — | $ | 4 | $ | 4 | $ | — | |||||||||||
| Commingled bond funds(a) | 1,335 | — | 1,335 | 1,270 | — | 1,270 | |||||||||||||||||
| Commingled equity funds(a) | 1,135 | — | 1,135 | 952 | — | 952 | |||||||||||||||||
| Collective trust funds(b) | 139 | — | 139 | 113 | — | 113 | |||||||||||||||||
| Total investment assets | 2,613 | $ | 4 | $ | 2,609 | 2,339 | $ | 4 | $ | 2,335 | |||||||||||||
| Accrued investment income and other receivables | 1 | 11 | |||||||||||||||||||||
| Investments measured at net asset value(c) | 584 | 593 | |||||||||||||||||||||
| Fair value of plan assets | $ | 3,198 | $ | 2,943 |
| (a) | Commingled funds include bond funds with corporate and U.S. treasury debt securities and equity funds with global equity index, infrastructure and real estate securities that have a readily determinable fair value and are valued using the net assets provided by the administrator of the fund. The value of each fund is based on the fair value of underlying securities in the portfolio, which represents the amount that the fund might reasonably expect to receive for the securities upon a sale, less liabilities, and then divided by the number of units outstanding. Equity securities within the funds are valued using observable inputs on either a daily or weekly basis and the resulting per share value serves as a basis for current redemption value. Debt securities within the funds are valued based on observable prices from the new issue market, benchmark quotes, secondary trading and dealer quotes. |
| (b) | Collective trust funds consist of short-term investment strategies comprised of instruments issued or fully guaranteed by the U.S. government and/or its agencies and multi-strategy funds, which are valued using the net assets provided by the administrator of the fund. The value of each fund is based on the readily determinable fair value of the underlying assets owned by the fund, less liabilities, and then divided by the number of units outstanding. |
| (c) | As a practical expedient, certain investment classes which hold securities that are not readily available for redemption and are measured at fair value using the net asset value ("NAV") per share (or its equivalent) have not been classified in the fair value hierarchy. |
F- 45
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
Investments Measured at Net Asset Value per Share Practical Expedient
The following table summarizes the investment classes for which fair value is measured using the NAV per share (or its equivalent) practical expedient as of December 31, 2019 and 2018. These investment classes are not readily available for redemption. The NAV of each fund is based on the fair value of underlying assets in the portfolio. Certain investments report NAV per share on a month or quarter lag. There are no material unfunded commitments with respect to these investment classes.
| Fair Value | |||||||||||
| December 31, | Redemption Frequency (if currently eligible) | Redemption Notice Period | |||||||||
| 2019 | 2018 | ||||||||||
| Alternative funds(a) | $ | 271 | $ | 301 | weekly, monthly, quarterly | 1-180 days | |||||
| Fixed income funds(b) | 177 | 164 | daily, monthly | 10-40 days | |||||||
| Real estate funds(c) | 136 | 128 | quarterly | 45-90 days | |||||||
| Investments measured at NAV | $ | 584 | $ | 593 |
| (a) | The alternative fund investment class includes funds with various securities selected to provide complimentary sources of return with our equity and bond portfolios that better manage risk. The Company’s alternative fund investments include holdings such as public equities, exchange traded derivatives, and corporate bonds, among others. A portion of the alternative funds cannot be redeemed until the one year anniversary of the purchase date. |
| (b) | Fixed income funds invest in residential and commercial mortgages, as well as global sovereign securities. |
| (c) | Real estate funds are not publicly traded and invest primarily in unlisted direct core real estate, including super-regional malls, shopping centers, and commercial real estate (e.g. education, healthcare and storage). |
Pension Plan Contributions
The Company made no cash contributions to the qualified pension plans during the years ended December 31, 2019, 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 2020 to the extent benefits are paid.
Benefit payments for the pension plans are expected to be $183 million in 2020, $186 million in 2021, $188 million in 2022, $190 million in 2023, $190 million in 2024 and $929 million in 2025 to 2029.
Multiemployer Plans
The Company contributes to multiemployer plans under the terms of collective-bargaining agreements that cover its union-represented employees. Such multiemployer plans provide medical, pension and retirement savings benefits to active employees and retirees. The Company made contributions to multiemployer plans of $9 million, $9 million and $18 million for the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019 and 2018, other long-term liabilities includes approximately $101 million and $104 million, respectively, related to the Company's withdrawal from a multiemployer pension plan.
Defined Contribution Benefit Plans
The Company’s employees may participate in the Charter Communications, Inc. 401(k) Savings Plan (the “401(k) Plan”). Employees that qualify for participation can contribute up to 50% of their salary, on a pre-tax basis, subject to a maximum contribution limit as determined by the Internal Revenue Service. The Company’s matching contribution is discretionary and is equal to 100% of the amount of the salary reduction the participant elects to defer (up to 6% of the participant’s eligible compensation), excluding any catch-up contributions and is paid by the Company on a per pay period basis. The Company made contributions to the 401(k) plan totaling $303 million, $290 million and $274 million for the years ended December 31, 2019, 2018 and 2017, respectively.
F- 46
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
For employees who are not eligible to participate in the Company’s long-term incentive plan and who are not covered by a collective bargaining agreement, the Company offers a contribution to the Retirement Accumulation Plan ("RAP"), equal to 3% of eligible pay. The Company made contributions to the RAP totaling $152 million, $151 million and $139 million for the years ended December 31, 2019, 2018 and 2017, respectively.
23. Recently Issued Accounting Standards
Accounting Standards Adopted in Prior Periods
ASU 2016-09, Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09")
Upon adoption of ASU 2016-09, the Company recorded a cumulative-effect adjustment which included an increase to total shareholders’ equity of $140 million as of January 1, 2017 and the recognition of excess tax benefits in deferred tax assets that were previously not recognized.
ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”)
Upon adoption of ASU 2014-09, the Company recorded a cumulative-effect adjustment which included an increase to total shareholders’ equity of $38 million as of January 1, 2018.
ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory ("ASU 2016-16")
The Company identified a $31 million increase to total shareholders' equity and corresponding increase to deferred tax assets related to the adoption of ASU 2016-16, which was recorded during the year ended December 31, 2018.
Accounting Standards Adopted January 1, 2019
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 lease asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification is based on criteria largely similar to the criteria applied under legacy lease accounting, but without explicit bright lines.
The Company adopted 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, the Company recognized and measured operating leases on the consolidated balance sheet without revising comparative period information or disclosure. At transition, the Company elected the package of practical expedients permitted under the transition guidance within the standard, which eliminates the reassessment of past leases, classification and initial direct costs. The Company did not elect to use hindsight to reassess lease terms or impairment at the adoption date. The Company elected the land easements practical expedient which allows the Company 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 implemented internal controls and key system functionality to enable the preparation of financial information on adoption. The new standard resulted in the recording of leased assets and lease liabilities for the Company’s operating leases of approximately $1.1 billion and $1.2 billion, respectively, as of January 1, 2019. The difference between the leased assets and lease liabilities primarily represents the prior year end deferred rent liabilities balance, resulting from historical straight-lining of operating leases, which was effectively reclassified upon adoption to reduce the measurement of the leased assets. The adoption of the standard did not have an impact on the Company’s shareholders equity, results from operations and cash flows. The adoption of the new standard resulted in additional interim and annual lease disclosures. See Note 8.
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 to eliminate, add and modify certain disclosures to improve the effectiveness of such disclosure in the notes to the financial statements. ASU 2018-13
F- 47
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
will be effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted. The Company early adopted ASU 2018-13 on January 1, 2019. The adoption of ASU 2018-13 did not have a material impact to the Company's 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 defined benefit plan disclosure requirements to eliminate, add and modify certain disclosures to improve the effectiveness of such disclosure in the notes to the financial statements. ASU 2018-14 will be effective for interim and annual periods beginning after December 15, 2021. Early adoption is permitted. The Company early adopted ASU 2018-14 on January 1, 2019. The adoption of ASU 2018-14 did not have a material impact to the Company's consolidated financial statements.
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. ASU 2017-04 will be effective for interim and annual periods beginning after December 15, 2019. The Company elected to early adopt ASU 2017-04 in connection with the completion of its November 30, 2019 annual impairment assessment. The adoption of ASU 2017-04 did not have a material impact to the Company's consolidated financial statements.
Accounting Standards Adopted January 1, 2020
ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”)
In June 2016, the FASB issued ASU 2016-13, which requires a financial asset (or a group of financial assets) measured at amortized cost basis to be assessed for impairment under the current expected credit loss model rather than an incurred loss model. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. The primary financial assets of the Company in scope of ASU 2016-13 include accounts receivables and equipment installment plan notes receivables. The Company adopted ASU 2016-13 on January 1, 2020. The adoption of ASU 2016-13 did not have a material impact to the Company's 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. The Company adopted ASU 2018-15 on January 1, 2020. The adoption of ASU 2018-15 did not have a material impact to the Company's consolidated financial statements.
ASU No. 2019-02, Improvements to Accounting for Costs of Films and License Agreements for Program Materials ("ASU 2019-02")
In March 2019, the FASB issued ASU 2019-02 which aligns the accounting for production costs of an episodic television series with the accounting for production costs of films regarding cost capitalization, amortization, impairment, presentation and disclosure. The Company adopted ASU 2019-02 on January 1, 2020. The adoption of ASU 2019-02 did not have a material impact to the Company's consolidated financial statements.
Accounting Standards Not Yet Adopted
ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”)
In December 2019, the FASB issued ASU 2019-12, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing
F- 48
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
guidance to improve consistent application. ASU 2019-12 will be effective for interim and annual periods beginning after December 15, 2020 (January 1, 2021 for the Company). Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2019-12 will have on its consolidated financial statements.
24. Unaudited Quarterly Financial Data
The following table presents quarterly data for the periods presented in the consolidated statement of operations:
| Year Ended December 31, 2019 | |||||||||||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
| Revenues | $ | 11,206 | $ | 11,347 | $ | 11,450 | $ | 11,761 | |||||||
| Income from operations | $ | 1,425 | $ | 1,541 | $ | 1,586 | $ | 1,959 | |||||||
| Net income attributable to Charter shareholders | $ | 253 | $ | 314 | $ | 387 | $ | 714 | |||||||
| Earnings per common share attributable to Charter shareholders: | |||||||||||||||
| Basic | $ | 1.13 | $ | 1.41 | $ | 1.77 | $ | 3.36 | |||||||
| Diluted | $ | 1.11 | $ | 1.39 | $ | 1.74 | $ | 3.28 | |||||||
| Weighted average common share outstanding: | |||||||||||||||
| Basic | 224,630,122 | 222,392,274 | 218,499,213 | 212,648,072 | |||||||||||
| Diluted | 227,595,365 | 225,942,172 | 222,355,867 | 217,778,099 |
| Year Ended December 31, 2018 | |||||||||||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
| Revenues | $ | 10,657 | $ | 10,854 | $ | 10,892 | $ | 11,231 | |||||||
| Income from operations | $ | 1,042 | $ | 1,360 | $ | 1,380 | $ | 1,439 | |||||||
| Net income attributable to Charter shareholders | $ | 168 | $ | 273 | $ | 493 | $ | 296 | |||||||
| Earnings per common share attributable to Charter shareholders: | |||||||||||||||
| Basic | $ | 0.71 | $ | 1.17 | $ | 2.14 | $ | 1.31 | |||||||
| Diluted | $ | 0.70 | $ | 1.15 | $ | 2.11 | $ | 1.29 | |||||||
| Weighted average common share outstanding: | |||||||||||||||
| Basic | 237,762,295 | 234,241,769 | 230,554,633 | 227,005,966 | |||||||||||
| Diluted | 241,420,722 | 237,073,566 | 233,607,414 | 230,131,933 |
25. 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.
F- 49
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
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 December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017 follow.
F- 50
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
| Charter Communications, Inc. and Subsidiaries | |||||||||||||||||||||||
| Condensed Consolidating Balance Sheet | |||||||||||||||||||||||
| As of December 31, 2019 | |||||||||||||||||||||||
| 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 | $ | — | $ | 234 | $ | 500 | $ | 2,749 | $ | — | $ | 3,483 | |||||||||||
| Accounts receivable, net | 1 | 31 | — | 2,195 | — | 2,227 | |||||||||||||||||
| Receivables from related party | 34 | 264 | 59 | — | (357 | ) | — | ||||||||||||||||
| Prepaid expenses and other current assets | 10 | 40 | — | 711 | — | 761 | |||||||||||||||||
| Total current assets | 45 | 569 | 559 | 5,655 | (357 | ) | 6,471 | ||||||||||||||||
| RESTRICTED CASH | — | 66 | — | — | — | 66 | |||||||||||||||||
| INVESTMENT IN CABLE PROPERTIES: | |||||||||||||||||||||||
| Property, plant and equipment, net | — | 683 | — | 33,908 | — | 34,591 | |||||||||||||||||
| Customer relationships, net | — | — | — | 7,453 | — | 7,453 | |||||||||||||||||
| Franchises | — | — | — | 67,322 | — | 67,322 | |||||||||||||||||
| Goodwill | — | — | — | 29,554 | — | 29,554 | |||||||||||||||||
| Total investment in cable properties, net | — | 683 | — | 138,237 | — | 138,920 | |||||||||||||||||
| INVESTMENT IN SUBSIDIARIES | 49,024 | 55,266 | 76,409 | — | (180,699 | ) | — | ||||||||||||||||
| OPERATING LEASE RIGHT-OF-USE ASSETS | — | 167 | — | 925 | — | 1,092 | |||||||||||||||||
| LOANS RECEIVABLE – RELATED PARTY | 260 | 699 | 545 | — | (1,504 | ) | — | ||||||||||||||||
| OTHER NONCURRENT ASSETS | 2 | 211 | — | 1,426 | — | 1,639 | |||||||||||||||||
| Total assets | $ | 49,331 | $ | 57,661 | $ | 77,513 | $ | 146,243 | $ | (182,560 | ) | $ | 148,188 | ||||||||||
| LIABILITIES AND SHAREHOLDERS’/MEMBER’S EQUITY | |||||||||||||||||||||||
| CURRENT LIABILITIES: | |||||||||||||||||||||||
| Accounts payable and accrued liabilities | $ | 18 | $ | 695 | $ | 296 | $ | 7,662 | $ | — | $ | 8,671 | |||||||||||
| Operating lease liabilities | — | 30 | — | 184 | — | 214 | |||||||||||||||||
| Payables to related party | — | — | — | 357 | (357 | ) | — | ||||||||||||||||
| Current portion of long-term debt | — | — | — | 3,500 | — | 3,500 | |||||||||||||||||
| Total current liabilities | 18 | 725 | 296 | 11,703 | (357 | ) | 12,385 | ||||||||||||||||
| LONG-TERM DEBT | — | — | 21,951 | 53,627 | — | 75,578 | |||||||||||||||||
| LOANS PAYABLE – RELATED PARTY | — | — | — | 1,504 | (1,504 | ) | — | ||||||||||||||||
| DEFERRED INCOME TAXES | 17,641 | 15 | — | 55 | — | 17,711 | |||||||||||||||||
| LONG-TERM OPERATING LEASE LIABILITIES | — | 191 | — | 788 | — | 979 | |||||||||||||||||
| OTHER LONG-TERM LIABILITIES | 227 | 363 | — | 2,134 | — | 2,724 | |||||||||||||||||
| SHAREHOLDERS’/MEMBER’S EQUITY | |||||||||||||||||||||||
| Controlling interest | 31,445 | 49,024 | 55,266 | 76,409 | (180,699 | ) | 31,445 | ||||||||||||||||
| Noncontrolling interests | — | 7,343 | — | 23 | — | 7,366 | |||||||||||||||||
| Total shareholders’/member’s equity | 31,445 | 56,367 | 55,266 | 76,432 | (180,699 | ) | 38,811 | ||||||||||||||||
| Total liabilities and shareholders’/member’s equity | $ | 49,331 | $ | 57,661 | $ | 77,513 | $ | 146,243 | $ | (182,560 | ) | $ | 148,188 |
F- 51
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
| Charter Communications, Inc. and Subsidiaries | |||||||||||||||||||||||
| Condensed Consolidating Balance Sheet | |||||||||||||||||||||||
| As of December 31, 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 | $ | — | $ | 251 | $ | — | $ | 300 | $ | — | $ | 551 | |||||||||||
| Accounts receivable, net | 1 | 33 | — | 1,699 | — | 1,733 | |||||||||||||||||
| Receivables from related party | 27 | 518 | 57 | — | (602 | ) | — | ||||||||||||||||
| Prepaid expenses and other current assets | 14 | 32 | — | 400 | — | 446 | |||||||||||||||||
| Total current assets | 42 | 834 | 57 | 2,399 | (602 | ) | 2,730 | ||||||||||||||||
| RESTRICTED CASH | — | 214 | — | — | — | 214 | |||||||||||||||||
| INVESTMENT IN CABLE PROPERTIES: | |||||||||||||||||||||||
| Property, plant and equipment, net | — | 468 | — | 34,658 | — | 35,126 | |||||||||||||||||
| Customer relationships, net | — | — | — | 9,565 | — | 9,565 | |||||||||||||||||
| Franchises | — | — | — | 67,319 | — | 67,319 | |||||||||||||||||
| Goodwill | — | — | — | 29,554 | — | 29,554 | |||||||||||||||||
| Total investment in cable properties, net | — | 468 | — | 141,096 | — | 141,564 | |||||||||||||||||
| INVESTMENT IN SUBSIDIARIES | 53,592 | 60,530 | 78,960 | — | (193,082 | ) | — | ||||||||||||||||
| LOANS RECEIVABLE – RELATED PARTY | 251 | 674 | 526 | — | (1,451 | ) | — | ||||||||||||||||
| OTHER NONCURRENT ASSETS | — | 222 | — | 1,403 | (3 | ) | 1,622 | ||||||||||||||||
| Total assets | $ | 53,885 | $ | 62,942 | $ | 79,543 | $ | 144,898 | $ | (195,138 | ) | $ | 146,130 | ||||||||||
| LIABILITIES AND SHAREHOLDERS’/MEMBER’S EQUITY | |||||||||||||||||||||||
| CURRENT LIABILITIES: | |||||||||||||||||||||||
| Accounts payable and accrued liabilities | $ | 9 | $ | 893 | $ | 283 | $ | 7,620 | $ | — | $ | 8,805 | |||||||||||
| Payables to related party | — | — | — | 602 | (602 | ) | — | ||||||||||||||||
| Current portion of long-term debt | — | — | — | 3,290 | — | 3,290 | |||||||||||||||||
| Total current liabilities | 9 | 893 | 283 | 11,512 | (602 | ) | 12,095 | ||||||||||||||||
| LONG-TERM DEBT | — | — | 18,730 | 50,807 | — | 69,537 | |||||||||||||||||
| LOANS PAYABLE – RELATED PARTY | — | — | — | 1,451 | (1,451 | ) | — | ||||||||||||||||
| DEFERRED INCOME TAXES | 17,376 | 16 | — | — | (3 | ) | 17,389 | ||||||||||||||||
| OTHER LONG-TERM LIABILITIES | 215 | 478 | — | 2,144 | — | 2,837 | |||||||||||||||||
| SHAREHOLDERS’/MEMBER’S EQUITY | |||||||||||||||||||||||
| Controlling interest | 36,285 | 53,592 | 60,530 | 78,960 | (193,082 | ) | 36,285 | ||||||||||||||||
| Noncontrolling interests | — | 7,963 | — | 24 | — | 7,987 | |||||||||||||||||
| Total shareholders’/member’s equity | 36,285 | 61,555 | 60,530 | 78,984 | (193,082 | ) | 44,272 | ||||||||||||||||
| Total liabilities and shareholders’/member’s equity | $ | 53,885 | $ | 62,942 | $ | 79,543 | $ | 144,898 | $ | (195,138 | ) | $ | 146,130 |
F- 52
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
| Charter Communications, Inc. and Subsidiaries | |||||||||||||||||||||||
| Condensed Consolidating Statement of Operations | |||||||||||||||||||||||
| For the year ended December 31, 2019 | |||||||||||||||||||||||
| Non-Guarantor Subsidiaries | Guarantor Subsidiaries | ||||||||||||||||||||||
| Charter | Intermediate Holding Companies | CCO Holdings | Charter Operating and Restricted Subsidiaries | Eliminations | Charter Consolidated | ||||||||||||||||||
| REVENUES | $ | 52 | $ | 1,170 | $ | — | $ | 45,756 | $ | (1,214 | ) | $ | 45,764 | ||||||||||
| COSTS AND EXPENSES: | |||||||||||||||||||||||
| Operating costs and expenses (exclusive of items shown separately below) | 52 | 1,114 | — | 29,275 | (1,217 | ) | 29,224 | ||||||||||||||||
| Depreciation and amortization | — | 15 | — | 9,911 | — | 9,926 | |||||||||||||||||
| Other operating (income) expenses, net | — | (11 | ) | — | 111 | 3 | 103 | ||||||||||||||||
| 52 | 1,118 | — | 39,297 | (1,214 | ) | 39,253 | |||||||||||||||||
| Income from operations | — | 52 | — | 6,459 | — | 6,511 | |||||||||||||||||
| OTHER INCOME (EXPENSES): | |||||||||||||||||||||||
| Interest income (expense), net | 10 | 32 | (1,067 | ) | (2,772 | ) | — | (3,797 | ) | ||||||||||||||
| Loss on extinguishment of debt | — | — | (22 | ) | (3 | ) | — | (25 | ) | ||||||||||||||
| Loss on financial instruments, net | — | — | — | (54 | ) | — | (54 | ) | |||||||||||||||
| Other pension costs, net | — | — | — | (69 | ) | — | (69 | ) | |||||||||||||||
| Other expense, net | — | (4 | ) | — | (131 | ) | — | (135 | ) | ||||||||||||||
| Equity in income of subsidiaries | 1,998 | 2,251 | 3,340 | — | (7,589 | ) | — | ||||||||||||||||
| 2,008 | 2,279 | 2,251 | (3,029 | ) | (7,589 | ) | (4,080 | ) | |||||||||||||||
| Income before income taxes | 2,008 | 2,331 | 2,251 | 3,430 | (7,589 | ) | 2,431 | ||||||||||||||||
| Income tax expense | (340 | ) | (10 | ) | — | (89 | ) | — | (439 | ) | |||||||||||||
| Consolidated net income | 1,668 | 2,321 | 2,251 | 3,341 | (7,589 | ) | 1,992 | ||||||||||||||||
| Less: Net income attributable to noncontrolling interests | — | (323 | ) | — | (1 | ) | — | (324 | ) | ||||||||||||||
| Net income | $ | 1,668 | $ | 1,998 | $ | 2,251 | $ | 3,340 | $ | (7,589 | ) | $ | 1,668 |
F- 53
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
| Charter Communications, Inc. and Subsidiaries | |||||||||||||||||||||||
| Condensed Consolidating Statement of Operations | |||||||||||||||||||||||
| For the year ended December 31, 2018 | |||||||||||||||||||||||
| Non-Guarantor Subsidiaries | Guarantor Subsidiaries | ||||||||||||||||||||||
| Charter | Intermediate Holding Companies | CCO Holdings | Charter Operating and Restricted Subsidiaries | Eliminations | Charter Consolidated | ||||||||||||||||||
| REVENUES | $ | 46 | $ | 1,141 | $ | — | $ | 43,620 | $ | (1,173 | ) | $ | 43,634 | ||||||||||
| COSTS AND EXPENSES: | |||||||||||||||||||||||
| Operating costs and expenses (exclusive of items shown separately below) | 46 | 1,096 | — | 27,891 | (1,173 | ) | 27,860 | ||||||||||||||||
| Depreciation and amortization | — | 11 | — | 10,307 | — | 10,318 | |||||||||||||||||
| Other operating expenses, net | — | 5 | — | 230 | — | 235 | |||||||||||||||||
| 46 | 1,112 | — | 38,428 | (1,173 | ) | 38,413 | |||||||||||||||||
| Income from operations | — | 29 | — | 5,192 | — | 5,221 | |||||||||||||||||
| OTHER INCOME (EXPENSES): | |||||||||||||||||||||||
| Interest income (expense), net | 9 | 30 | (1,016 | ) | (2,563 | ) | — | (3,540 | ) | ||||||||||||||
| Loss on financial instruments, net | — | — | — | (110 | ) | — | (110 | ) | |||||||||||||||
| Other pension benefits, net | — | — | — | 192 | — | 192 | |||||||||||||||||
| Other expense, net | — | (31 | ) | — | (46 | ) | — | (77 | ) | ||||||||||||||
| Equity in income of subsidiaries | 1,377 | 1,632 | 2,648 | — | (5,657 | ) | — | ||||||||||||||||
| 1,386 | 1,631 | 1,632 | (2,527 | ) | (5,657 | ) | (3,535 | ) | |||||||||||||||
| Income before income taxes | 1,386 | 1,660 | 1,632 | 2,665 | (5,657 | ) | 1,686 | ||||||||||||||||
| Income tax expense | (156 | ) | (8 | ) | — | (16 | ) | — | (180 | ) | |||||||||||||
| Consolidated net income | 1,230 | 1,652 | 1,632 | 2,649 | (5,657 | ) | 1,506 | ||||||||||||||||
| Less: Net income attributable to noncontrolling interests | — | (275 | ) | — | (1 | ) | — | (276 | ) | ||||||||||||||
| Net income | $ | 1,230 | $ | 1,377 | $ | 1,632 | $ | 2,648 | $ | (5,657 | ) | $ | 1,230 |
F- 54
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
| Charter Communications, Inc. and Subsidiaries | |||||||||||||||||||||||
| Condensed Consolidating Statement of Operations | |||||||||||||||||||||||
| For the year ended December 31, 2017 | |||||||||||||||||||||||
| Non-Guarantor Subsidiaries | Guarantor Subsidiaries | ||||||||||||||||||||||
| Charter | Intermediate Holding Companies | CCO Holdings | Charter Operating and Restricted Subsidiaries | Eliminations | Charter Consolidated | ||||||||||||||||||
| REVENUES | $ | 90 | $ | 1,186 | $ | — | $ | 41,578 | $ | (1,273 | ) | $ | 41,581 | ||||||||||
| COSTS AND EXPENSES: | |||||||||||||||||||||||
| Operating costs and expenses (exclusive of items shown separately below) | 90 | 1,164 | — | 26,560 | (1,273 | ) | 26,541 | ||||||||||||||||
| Depreciation and amortization | — | 9 | — | 10,579 | — | 10,588 | |||||||||||||||||
| Other operating (income) expenses, net | (101 | ) | 3 | — | 444 | — | 346 | ||||||||||||||||
| (11 | ) | 1,176 | — | 37,583 | (1,273 | ) | 37,475 | ||||||||||||||||
| Income from operations | 101 | 10 | — | 3,995 | — | 4,106 | |||||||||||||||||
| OTHER INCOME (EXPENSES): | |||||||||||||||||||||||
| Interest income (expense), net | 5 | 20 | (883 | ) | (2,232 | ) | — | (3,090 | ) | ||||||||||||||
| Loss on extinguishment of debt | — | — | (34 | ) | (6 | ) | — | (40 | ) | ||||||||||||||
| Gain on financial instruments, net | — | — | — | 69 | — | 69 | |||||||||||||||||
| Other pension benefits | — | — | — | 1 | — | 1 | |||||||||||||||||
| Other expense, net | — | (14 | ) | — | (4 | ) | — | (18 | ) | ||||||||||||||
| Equity in income of subsidiaries | 680 | 882 | 1,799 | — | (3,361 | ) | — | ||||||||||||||||
| 685 | 888 | 882 | (2,172 | ) | (3,361 | ) | (3,078 | ) | |||||||||||||||
| Income before income taxes | 786 | 898 | 882 | 1,823 | (3,361 | ) | 1,028 | ||||||||||||||||
| Income tax benefit (expense) | 9,109 | 1 | — | (23 | ) | — | 9,087 | ||||||||||||||||
| Consolidated net income | 9,895 | 899 | 882 | 1,800 | (3,361 | ) | 10,115 | ||||||||||||||||
| Less: Net income attributable to noncontrolling interests | — | (219 | ) | — | (1 | ) | — | (220 | ) | ||||||||||||||
| Net income | $ | 9,895 | $ | 680 | $ | 882 | $ | 1,799 | $ | (3,361 | ) | $ | 9,895 |
F- 55
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
| Charter Communications, Inc. and Subsidiaries | |||||||||||||||||||||||
| Condensed Consolidating Statement of Comprehensive Income | |||||||||||||||||||||||
| For the year ended December 31, 2019 | |||||||||||||||||||||||
| Non-Guarantor Subsidiaries | Guarantor Subsidiaries | ||||||||||||||||||||||
| Charter | Intermediate Holding Companies | CCO Holdings | Charter Operating and Restricted Subsidiaries | Eliminations | Charter Consolidated | ||||||||||||||||||
| Consolidated net income | $ | 1,668 | $ | 2,321 | $ | 2,251 | $ | 3,341 | $ | (7,589 | ) | $ | 1,992 | ||||||||||
| Foreign currency translation adjustment | 2 | 2 | 2 | 2 | (6 | ) | 2 | ||||||||||||||||
| Consolidated comprehensive income | 1,670 | 2,323 | 2,253 | 3,343 | (7,595 | ) | 1,994 | ||||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | — | (323 | ) | — | (1 | ) | — | (324 | ) | ||||||||||||||
| Comprehensive income | $ | 1,670 | $ | 2,000 | $ | 2,253 | $ | 3,342 | $ | (7,595 | ) | $ | 1,670 |
| Charter Communications, Inc. and Subsidiaries | |||||||||||||||||||||||
| Condensed Consolidating Statement of Comprehensive Income | |||||||||||||||||||||||
| For the year ended December 31, 2018 | |||||||||||||||||||||||
| Non-Guarantor Subsidiaries | Guarantor Subsidiaries | ||||||||||||||||||||||
| Charter | Intermediate Holding Companies | CCO Holdings | Charter Operating and Restricted Subsidiaries | Eliminations | Charter Consolidated | ||||||||||||||||||
| Consolidated net income | $ | 1,230 | $ | 1,652 | $ | 1,632 | $ | 2,649 | $ | (5,657 | ) | $ | 1,506 | ||||||||||
| Foreign currency translation adjustment | (1 | ) | (1 | ) | (1 | ) | (1 | ) | 3 | (1 | ) | ||||||||||||
| Consolidated comprehensive income | 1,229 | 1,651 | 1,631 | 2,648 | (5,654 | ) | 1,505 | ||||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | — | (275 | ) | — | (1 | ) | — | (276 | ) | ||||||||||||||
| Comprehensive income | $ | 1,229 | $ | 1,376 | $ | 1,631 | $ | 2,647 | $ | (5,654 | ) | $ | 1,229 |
| Charter Communications, Inc. and Subsidiaries | |||||||||||||||||||||||
| Condensed Consolidating Statement of Comprehensive Income | |||||||||||||||||||||||
| For the year ended December 31, 2017 | |||||||||||||||||||||||
| Non-Guarantor Subsidiaries | Guarantor Subsidiaries | ||||||||||||||||||||||
| Charter | Intermediate Holding Companies | CCO Holdings | Charter Operating and Restricted Subsidiaries | Eliminations | Charter Consolidated | ||||||||||||||||||
| Consolidated net income | $ | 9,895 | $ | 899 | $ | 882 | $ | 1,800 | $ | (3,361 | ) | $ | 10,115 | ||||||||||
| Net impact of interest rate derivative instruments | 5 | 5 | 5 | 5 | (15 | ) | 5 | ||||||||||||||||
| Foreign currency translation adjustment | 1 | 1 | 1 | 1 | (3 | ) | 1 | ||||||||||||||||
| Consolidated comprehensive income | 9,901 | 905 | 888 | 1,806 | (3,379 | ) | 10,121 | ||||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | — | (219 | ) | — | (1 | ) | — | (220 | ) | ||||||||||||||
| Comprehensive income | $ | 9,901 | $ | 686 | $ | 888 | $ | 1,805 | $ | (3,379 | ) | $ | 9,901 |
F- 56
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
| Charter Communications, Inc. and Subsidiaries | |||||||||||||||||||||||
| Condensed Consolidating Statement of Cash Flows | |||||||||||||||||||||||
| For the year ended December 31, 2019 | |||||||||||||||||||||||
| + | |||||||||||||||||||||||
| 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 | $ | (36 | ) | $ | 76 | $ | (1,051 | ) | $ | 12,759 | $ | — | $ | 11,748 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||||||||||
| Purchases of property, plant and equipment | — | (67 | ) | — | (7,195 | ) | 67 | (7,195 | ) | ||||||||||||||
| Change in accrued expenses related to capital expenditures | — | — | — | 55 | — | 55 | |||||||||||||||||
| Real estate investments through variable interest entities | — | (148 | ) | — | — | — | (148 | ) | |||||||||||||||
| Contribution to subsidiaries | (119 | ) | (59 | ) | (2,860 | ) | — | 3,038 | — | ||||||||||||||
| Distributions from subsidiaries | 6,910 | 7,891 | 9,068 | — | (23,869 | ) | — | ||||||||||||||||
| Other, net | — | (30 | ) | — | 54 | (67 | ) | (43 | ) | ||||||||||||||
| Net cash flows from investing activities | 6,791 | 7,587 | 6,208 | (7,086 | ) | (20,831 | ) | (7,331 | ) | ||||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||||||||||
| Borrowings of long-term debt | — | — | 4,584 | 15,101 | — | 19,685 | |||||||||||||||||
| Repayments of long-term debt | — | — | (1,366 | ) | (11,943 | ) | — | (13,309 | ) | ||||||||||||||
| Payment for debt issuance costs | — | — | (43 | ) | (60 | ) | — | (103 | ) | ||||||||||||||
| Purchase of treasury stock | (6,873 | ) | — | — | — | — | (6,873 | ) | |||||||||||||||
| Proceeds from exercise of stock options | 118 | — | — | — | — | 118 | |||||||||||||||||
| Purchase of noncontrolling interest | — | (885 | ) | — | — | — | (885 | ) | |||||||||||||||
| Distributions to noncontrolling interest | — | (152 | ) | — | (2 | ) | — | (154 | ) | ||||||||||||||
| Contributions from parent | — | 119 | 59 | 2,860 | (3,038 | ) | — | ||||||||||||||||
| Distributions to parent | — | (6,910 | ) | (7,891 | ) | (9,068 | ) | 23,869 | — | ||||||||||||||
| Other, net | — | — | — | (112 | ) | — | (112 | ) | |||||||||||||||
| Net cash flows from financing activities | (6,755 | ) | (7,828 | ) | (4,657 | ) | (3,224 | ) | 20,831 | (1,633 | ) | ||||||||||||
| NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | — | (165 | ) | 500 | 2,449 | — | 2,784 | ||||||||||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period | — | 465 | — | 300 | — | 765 | |||||||||||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period | $ | — | $ | 300 | $ | 500 | $ | 2,749 | $ | — | $ | 3,549 |
F- 57
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
| Charter Communications, Inc. and Subsidiaries | |||||||||||||||||||||||
| Condensed Consolidating Statement of Cash Flows | |||||||||||||||||||||||
| For the year ended December 31, 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 | $ | (10 | ) | $ | 120 | $ | (1,009 | ) | $ | 12,666 | $ | — | $ | 11,767 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||||||||||
| Purchases of property, plant and equipment | — | (16 | ) | — | (9,109 | ) | — | (9,125 | ) | ||||||||||||||
| Change in accrued expenses related to capital expenditures | — | — | — | (470 | ) | — | (470 | ) | |||||||||||||||
| Real estate investments through variable interest entities | — | (21 | ) | — | — | — | (21 | ) | |||||||||||||||
| Contribution to subsidiaries | (69 | ) | (142 | ) | (142 | ) | — | 353 | — | ||||||||||||||
| Distributions from subsidiaries | 4,421 | 5,178 | 6,187 | — | (15,786 | ) | — | ||||||||||||||||
| Other, net | — | (20 | ) | — | (100 | ) | — | (120 | ) | ||||||||||||||
| Net cash flows from investing activities | 4,352 | 4,979 | 6,045 | (9,679 | ) | (15,433 | ) | (9,736 | ) | ||||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||||||||||
| Borrowings of long-term debt | — | — | — | 13,820 | — | 13,820 | |||||||||||||||||
| Repayments of long-term debt | — | — | — | (10,769 | ) | — | (10,769 | ) | |||||||||||||||
| Borrowings (repayments) of loans payable - related parties | (12 | ) | — | — | 12 | — | — | ||||||||||||||||
| Payment for debt issuance costs | — | — | — | (29 | ) | — | (29 | ) | |||||||||||||||
| Purchase of treasury stock | (4,399 | ) | — | — | — | — | (4,399 | ) | |||||||||||||||
| Proceeds from exercise of stock options | 69 | — | — | — | — | 69 | |||||||||||||||||
| Purchase of noncontrolling interest | — | (656 | ) | — | — | — | (656 | ) | |||||||||||||||
| Distributions to noncontrolling interest | — | (152 | ) | — | (1 | ) | — | (153 | ) | ||||||||||||||
| Contributions from parent | — | 69 | 142 | 142 | (353 | ) | — | ||||||||||||||||
| Distributions to parent | — | (4,421 | ) | (5,178 | ) | (6,187 | ) | 15,786 | — | ||||||||||||||
| Borrowings for real estate investments through variable interest entities | — | 342 | — | — | — | 342 | |||||||||||||||||
| Distributions to variable interest entities noncontrolling interest | — | (107 | ) | — | — | — | (107 | ) | |||||||||||||||
| Other, net | — | — | — | (5 | ) | — | (5 | ) | |||||||||||||||
| Net cash flows from financing activities | (4,342 | ) | (4,925 | ) | (5,036 | ) | (3,017 | ) | 15,433 | (1,887 | ) | ||||||||||||
| NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | — | 174 | — | (30 | ) | — | 144 | ||||||||||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period | — | 291 | — | 330 | — | 621 | |||||||||||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period | $ | — | $ | 465 | $ | — | $ | 300 | $ | — | $ | 765 |
F- 58
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019, 2018 AND 2017
(dollars in millions, except share or per share data or where indicated)
| Charter Communications, Inc. and Subsidiaries | |||||||||||||||||||||||
| Condensed Consolidating Statement of Cash Flows | |||||||||||||||||||||||
| For the year ended December 31, 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: | $ | 159 | $ | 187 | $ | (814 | ) | $ | 12,422 | $ | — | $ | 11,954 | ||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||||||||||
| Purchases of property, plant and equipment | — | — | — | (8,681 | ) | — | (8,681 | ) | |||||||||||||||
| Change in accrued expenses related to capital expenditures | — | — | — | 820 | — | 820 | |||||||||||||||||
| Real estate investments through variable interest entities | — | (105 | ) | — | — | — | (105 | ) | |||||||||||||||
| Contribution to subsidiaries | (115 | ) | — | (693 | ) | — | 808 | — | |||||||||||||||
| Distributions from subsidiaries | 11,732 | 13,488 | 9,598 | — | (34,818 | ) | — | ||||||||||||||||
| Other, net | — | — | — | (132 | ) | — | (132 | ) | |||||||||||||||
| Net cash flows from investing activities | 11,617 | 13,383 | 8,905 | (7,993 | ) | (34,010 | ) | (8,098 | ) | ||||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||||||||||
| Borrowings of long-term debt | — | — | 6,231 | 19,045 | — | 25,276 | |||||||||||||||||
| Repayments of long-term debt | — | — | (775 | ) | (15,732 | ) | — | (16,507 | ) | ||||||||||||||
| Borrowings (repayments) of loans payable - related parties | (234 | ) | — | — | 234 | — | — | ||||||||||||||||
| Payment for debt issuance costs | — | — | (59 | ) | (52 | ) | — | (111 | ) | ||||||||||||||
| Purchase of treasury stock | (11,715 | ) | — | — | — | — | (11,715 | ) | |||||||||||||||
| Proceeds from exercise of stock options | 116 | — | — | — | — | 116 | |||||||||||||||||
| Purchase of noncontrolling interest | — | (1,665 | ) | — | — | — | (1,665 | ) | |||||||||||||||
| Distributions to noncontrolling interest | — | (151 | ) | — | (2 | ) | — | (153 | ) | ||||||||||||||
| Contributions from parent | — | 115 | — | 693 | (808 | ) | — | ||||||||||||||||
| Distributions to parent | — | (11,732 | ) | (13,488 | ) | (9,598 | ) | 34,818 | — | ||||||||||||||
| Other, net | — | — | — | (11 | ) | — | (11 | ) | |||||||||||||||
| Net cash flows from financing activities | (11,833 | ) | (13,433 | ) | (8,091 | ) | (5,423 | ) | 34,010 | (4,770 | ) | ||||||||||||
| NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (57 | ) | 137 | — | (994 | ) | — | (914 | ) | ||||||||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period | 57 | 154 | — | 1,324 | — | 1,535 | |||||||||||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period | $ | — | $ | 291 | $ | — | $ | 330 | $ | — | $ | 621 |
F- 59
Previous: Item 14. Principal Accounting Fees and Services.