filings.toolsItem 16. Form 10-K Summary.
278K characters. Original on sec.gov · Markdown
Item 16. Form 10-K Summary.
None.
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/ Christopher L. Winfrey | |||||||||||||
| Christopher L. Winfrey | ||||||||||||||
| President and Chief Executive Officer | ||||||||||||||
| Date: January 27, 2023 |
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/ Christopher L. Winfrey | President and Chief Executive Officer | January 27, 2023 | ||||||
| Christopher L. Winfrey | (Principal Executive Officer) | |||||||
| /s/ Jessica M. Fischer | Chief Financial Officer (Principal Financial Officer) | January 27, 2023 | ||||||
| Jessica M. Fischer | ||||||||
| /s/ Kevin D. Howard | Executive Vice President, Chief Accounting Officer | January 27, 2023 | ||||||
| Kevin D. Howard | and Controller (Principal Accounting Officer) | |||||||
| /s/ Thomas M. Rutledge | Executive Chairman and Director | January 27, 2023 | ||||||
| Thomas M. Rutledge | ||||||||
| /s/ Eric L. Zinterhofer | Director | January 27, 2023 | ||||||
| Eric L. Zinterhofer | ||||||||
| /s/ W. Lance Conn | Director | January 27, 2023 | ||||||
| W. Lance Conn | ||||||||
| /s/ Kim C. Goodman | Director | January 27, 2023 | ||||||
| Kim C. Goodman | ||||||||
| /s/ Craig A. Jacobson | Director | January 27, 2023 | ||||||
| Craig A. Jacobson | ||||||||
| /s/ Gregory Maffei | Director | January 27, 2023 | ||||||
| Gregory Maffei | ||||||||
| /s/ John D. Markley, Jr. | Director | January 27, 2023 | ||||||
| John D. Markley, Jr. | ||||||||
| /s/ David C. Merritt | Director | January 27, 2023 | ||||||
| David C. Merritt | ||||||||
| /s/ James E. Meyer | Director | January 27, 2023 | ||||||
| James E. Meyer | ||||||||
| /s/ Steve Miron | Director | January 27, 2023 | ||||||
| Steve Miron | ||||||||
| /s/ Balan Nair | Director | January 27, 2023 | ||||||
| Balan Nair | ||||||||
| /s/ Michael Newhouse | Director | January 27, 2023 | ||||||
| Michael Newhouse | ||||||||
| /s/ Mauricio Ramos | Director | January 27, 2023 | ||||||
| Mauricio Ramos |
S-2
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
E-11
- Filed herewith
- Management compensatory plan or arrangement
E-12
INDEX TO FINANCIAL STATEMENTS
| Page | |||||
| Audited Financial Statements | |||||
| Report of Independent Registered Public Accounting Firm | F-2 | ||||
| Auditor Name: KPMG LLP | |||||
| Auditor Location: St. Louis, MO | |||||
| Auditor Firm ID: 185 | |||||
| Consolidated Balance Sheets as of December 31, 2022 and 2021 | F-4 | ||||
| Consolidated Statements of Operations for the Years Ended December 31, 2022, 2021 and 2020 | F-5 | ||||
| Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2022, 2021 and 2020 | F-6 | ||||
| Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020 | F-7 | ||||
| Notes to Consolidated Financial Statements | F-8 |
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, 2022 and 2021, 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, 2022, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, 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, 2022 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
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 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.
F-2
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 judgments. 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.
Testing of residential and commercial revenue
As discussed in Note 12 to the consolidated financial statements, the Company recorded residential and commercial revenue of $48.2 billion for the year ended December 31, 2022. This revenue is derived primarily from monthly subscription charges from its Internet, video, and voice services. Revenue is recognized as the services are provided to a customer on a monthly basis. The processing and recording of revenue are reliant upon multiple information technology (IT) systems.
We identified the evaluation of the sufficiency of audit evidence over residential and commercial revenue as a critical audit matter. Subjective auditor judgment was required in evaluating the sufficiency of audit evidence over residential and commercial revenue due to the volume of data and the number of accounting systems. Specifically, obtaining an understanding of the systems and processes used in the Company’s recognition of residential and commercial revenue and evaluating the related internal controls required significant audit effort, including specialized skills and knowledge related to IT.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s residential and commercial revenue processes. This included manual and automated controls over the IT systems used for the processing and recording of residential and commercial revenue. We involved IT professionals with specialized skills and knowledge, who assisted in testing certain IT applications that are used by the Company in its recognition of residential and commercial revenue. We assessed recorded residential and commercial revenue by comparing the cash received related to residential and commercial revenue transactions during the year to the revenue recorded in the consolidated financial statements. We evaluated the sufficiency of audit evidence obtained by assessing the results of procedures performed.
(signed) KPMG LLP
We have served as the Company’s auditor since 2002.
St. Louis, Missouri
January 26, 2023
F-3
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except share data)
| December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS: | |||||||||||
| Cash and cash equivalents | $ | 645 | $ | 601 | |||||||
| Accounts receivable, less allowance for doubtful accounts of $219 and $157, respectively | 2,921 | 2,579 | |||||||||
| Prepaid expenses and other current assets | 451 | 386 | |||||||||
| Total current assets | 4,017 | 3,566 | |||||||||
| INVESTMENT IN CABLE PROPERTIES: | |||||||||||
| Property, plant and equipment, net of accumulated depreciation of $36,164 and $34,253, respectively | 36,039 | 34,310 | |||||||||
| Customer relationships, net | 2,772 | 4,060 | |||||||||
| Franchises | 67,363 | 67,346 | |||||||||
| Goodwill | 29,563 | 29,562 | |||||||||
| Total investment in cable properties, net | 135,737 | 135,278 | |||||||||
| OTHER NONCURRENT ASSETS | 4,769 | 3,647 | |||||||||
| Total assets | $ | 144,523 | $ | 142,491 | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| CURRENT LIABILITIES: | |||||||||||
| Accounts payable and accrued liabilities | $ | 10,555 | $ | 9,461 | |||||||
| Current portion of long-term debt | 1,510 | 2,997 | |||||||||
| Total current liabilities | 12,065 | 12,458 | |||||||||
| LONG-TERM DEBT | 96,093 | 88,564 | |||||||||
| DEFERRED INCOME TAXES | 19,058 | 19,096 | |||||||||
| OTHER LONG-TERM LIABILITIES | 4,758 | 4,217 | |||||||||
| SHAREHOLDERS’ EQUITY: | |||||||||||
| Class A common stock; $0.001 par value; 900 million shares authorized; | |||||||||||
| 152,651,396 and 172,741,236 shares issued and outstanding, respectively | — | — | |||||||||
| Class B common stock; $0.001 par value; 1,000 shares authorized; | |||||||||||
| 1 share issued and outstanding | — | — | |||||||||
| Preferred stock; $0.001 par value; 250 million shares authorized; no shares issued and outstanding | — | — | |||||||||
| Additional paid-in capital | 23,940 | 26,725 | |||||||||
| Accumulated deficit | (14,821) | (12,675) | |||||||||
| Total Charter shareholders’ equity | 9,119 | 14,050 | |||||||||
| Noncontrolling interests | 3,430 | 4,106 | |||||||||
| Total shareholders’ equity | 12,549 | 18,156 | |||||||||
| Total liabilities and shareholders’ equity | $ | 144,523 | $ | 142,491 |
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, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| REVENUES | $ | 54,022 | $ | 51,682 | $ | 48,097 | |||||||||||
| COSTS AND EXPENSES: | |||||||||||||||||
| Operating costs and expenses (exclusive of items shown separately below) | 32,876 | 31,482 | 29,930 | ||||||||||||||
| Depreciation and amortization | 8,903 | 9,345 | 9,704 | ||||||||||||||
| Other operating expenses, net | 281 | 329 | 58 | ||||||||||||||
| 42,060 | 41,156 | 39,692 | |||||||||||||||
| Income from operations | 11,962 | 10,526 | 8,405 | ||||||||||||||
| OTHER INCOME (EXPENSES): | |||||||||||||||||
| Interest expense, net | (4,556) | (4,037) | (3,848) | ||||||||||||||
| Other income (expenses), net | 56 | (101) | (255) | ||||||||||||||
| (4,500) | (4,138) | (4,103) | |||||||||||||||
| Income before income taxes | 7,462 | 6,388 | 4,302 | ||||||||||||||
| Income tax expense | (1,613) | (1,068) | (626) | ||||||||||||||
| Consolidated net income | 5,849 | 5,320 | 3,676 | ||||||||||||||
| Less: Net income attributable to noncontrolling interests | (794) | (666) | (454) | ||||||||||||||
| Net income attributable to Charter shareholders | $ | 5,055 | $ | 4,654 | $ | 3,222 | |||||||||||
| EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CHARTER SHAREHOLDERS: | |||||||||||||||||
| Basic | $ | 31.30 | $ | 25.34 | $ | 15.85 | |||||||||||
| Diluted | $ | 30.74 | $ | 24.47 | $ | 15.40 | |||||||||||
| Weighted average common shares outstanding, basic | 161,501,355 | 183,669,369 | 203,316,483 | ||||||||||||||
| Weighted average common shares outstanding, diluted | 164,433,596 | 193,042,948 | 209,273,247 |
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 Deficit) | Total Charter Shareholders’ Equity | Noncontrolling Interests | Total Shareholders’ Equity | |||||||||||||||||
| BALANCE, December 31, 2019 | $ | — | $ | — | $ | 31,405 | $ | 40 | $ | 31,445 | $ | 7,366 | $ | 38,811 | |||||||||
| Consolidated net income | — | — | — | 3,222 | 3,222 | 454 | 3,676 | ||||||||||||||||
| Stock compensation expense | — | — | 351 | — | 351 | — | 351 | ||||||||||||||||
| Exercise of stock options | — | — | 184 | — | 184 | — | 184 | ||||||||||||||||
| Issuance of equity | — | — | 23 | — | 23 | — | 23 | ||||||||||||||||
| Purchases and retirement of treasury stock | — | — | (2,760) | (8,457) | (11,217) | — | (11,217) | ||||||||||||||||
| Purchase of noncontrolling interest, net of tax | — | — | (606) | — | (606) | (656) | (1,262) | ||||||||||||||||
| Change in noncontrolling interest ownership, net of tax | — | — | 403 | — | 403 | (534) | (131) | ||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (154) | (154) | ||||||||||||||||
| BALANCE, December 31, 2020 | — | — | 29,000 | (5,195) | 23,805 | 6,476 | 30,281 | ||||||||||||||||
| Consolidated net income | — | — | — | 4,654 | 4,654 | 666 | 5,320 | ||||||||||||||||
| Stock compensation expense | — | — | 430 | — | 430 | — | 430 | ||||||||||||||||
| Exercise of stock options | — | — | 44 | — | 44 | — | 44 | ||||||||||||||||
| Purchases and retirement of treasury stock | — | — | (3,297) | (12,134) | (15,431) | — | (15,431) | ||||||||||||||||
| Purchase of noncontrolling interest, net of tax | — | — | (1,077) | — | (1,077) | (808) | (1,885) | ||||||||||||||||
| Preferred unit conversion and change in noncontrolling interest ownership, net of tax | — | — | 1,625 | — | 1,625 | (2,153) | (528) | ||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (75) | (75) | ||||||||||||||||
| BALANCE, December 31, 2021 | — | — | 26,725 | (12,675) | 14,050 | 4,106 | 18,156 | ||||||||||||||||
| Consolidated net income | — | — | — | 5,055 | 5,055 | 794 | 5,849 | ||||||||||||||||
| Stock compensation expense | — | — | 470 | — | 470 | — | 470 | ||||||||||||||||
| Exercise of stock options | — | — | 5 | — | 5 | — | 5 | ||||||||||||||||
| Purchases and retirement of treasury stock | — | — | (3,076) | (7,201) | (10,277) | — | (10,277) | ||||||||||||||||
| Purchase of noncontrolling interest, net of tax | — | — | (681) | — | (681) | (700) | (1,381) | ||||||||||||||||
| Change in noncontrolling interest ownership, net of tax | — | — | 497 | — | 497 | (659) | (162) | ||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (111) | (111) | ||||||||||||||||
| BALANCE, December 31, 2022 | $ | — | $ | — | $ | 23,940 | $ | (14,821) | $ | 9,119 | $ | 3,430 | $ | 12,549 |
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, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||||||||
| Consolidated net income | $ | 5,849 | $ | 5,320 | $ | 3,676 | |||||||||||
| Adjustments to reconcile consolidated net income to net cash flows from operating activities: | |||||||||||||||||
| Depreciation and amortization | 8,903 | 9,345 | 9,704 | ||||||||||||||
| Stock compensation expense | 470 | 430 | 351 | ||||||||||||||
| Noncash interest income, net | (17) | (23) | (41) | ||||||||||||||
| Deferred income taxes | 87 | 826 | 465 | ||||||||||||||
| Other, net | 29 | 181 | 214 | ||||||||||||||
| Changes in operating assets and liabilities, net of effects from acquisitions and dispositions: | |||||||||||||||||
| Accounts receivable | (342) | (35) | (67) | ||||||||||||||
| Prepaid expenses and other assets | (202) | (167) | (31) | ||||||||||||||
| Accounts payable, accrued liabilities and other | 148 | 362 | 291 | ||||||||||||||
| Net cash flows from operating activities | 14,925 | 16,239 | 14,562 | ||||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||||
| Purchases of property, plant and equipment | (9,376) | (7,635) | (7,415) | ||||||||||||||
| Change in accrued expenses related to capital expenditures | 553 | 80 | (77) | ||||||||||||||
| Purchases of wireless spectrum licenses | — | — | (464) | ||||||||||||||
| Other, net | (291) | (199) | (201) | ||||||||||||||
| Net cash flows from investing activities | (9,114) | (7,754) | (8,157) | ||||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||||
| Borrowings of long-term debt | 25,643 | 20,976 | 15,754 | ||||||||||||||
| Repayments of long-term debt | (19,311) | (12,146) | (12,094) | ||||||||||||||
| Payments for debt issuance costs | (71) | (102) | (125) | ||||||||||||||
| Issuance of equity | — | — | 23 | ||||||||||||||
| Purchase of treasury stock | (10,277) | (15,431) | (11,217) | ||||||||||||||
| Proceeds from exercise of stock options | 5 | 44 | 184 | ||||||||||||||
| Purchase of noncontrolling interest | (1,602) | (2,234) | (1,462) | ||||||||||||||
| Distributions to noncontrolling interest | (111) | (75) | (154) | ||||||||||||||
| Other, net | (43) | 83 | 138 | ||||||||||||||
| Net cash flows from financing activities | (5,767) | (8,885) | (8,953) | ||||||||||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 44 | (400) | (2,548) | ||||||||||||||
| CASH AND CASH EQUIVALENTS, beginning of period | 601 | 1,001 | 3,549 | ||||||||||||||
| CASH AND CASH EQUIVALENTS, end of period | $ | 645 | $ | 601 | $ | 1,001 | |||||||||||
| CASH PAID FOR INTEREST | $ | 4,509 | $ | 4,043 | $ | 3,866 | |||||||||||
| CASH PAID FOR TAXES | $ | 1,321 | $ | 157 | $ | 123 |
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, 2022, 2021 AND 2020
(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 a leading broadband connectivity company and cable operator. Over an advanced high-capacity, two-way telecommunications network, the Company offers a full range of state-of-the-art residential and business services including Spectrum Internet®, TV, Mobile and Voice. For small and medium-sized companies, Spectrum Business® delivers the same suite of broadband products and services coupled with special features and applications to enhance productivity, while for larger businesses and government entities, Spectrum Enterprise™ provides highly customized, fiber-based solutions. Spectrum Reach® delivers tailored advertising and production for the modern media landscape. The Company also distributes award-winning news coverage and sports programming to its customers through Spectrum Networks.
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.
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, pension benefits and income taxes. Actual results could differ from those estimates. Certain prior period amounts have been reclassified to conform with the 2022 presentation.
Comprehensive income equaled net income attributable to Charter shareholders for the years ended December 31, 2022, 2021 and 2020.
2. Summary of Significant Accounting Policies
Information on other accounting policies and methods that the Company uses in the preparation of its consolidated financial statements are included, where applicable, in their respective footnotes. Below is a discussion of accounting policies and methods used in the Company's consolidated financial statements that are not presented within other footnotes.
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 10. 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.
F-8
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
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 2022, 2021 and 2020. For non-strategic long-lived assets held for sale, the Company recorded impairments of approximately $36 million during the year ended December 31, 2021 to other operating expenses, net (see Note 14).
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.
The Company estimates the fair value of its financial instruments using available market information or other appropriate valuation methodologies. Considerable judgment, however, is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented in the accompanying consolidated financial statements are not necessarily indicative of the amounts the Company would realize in a current market exchange.
The 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.
The carrying amounts of cash and cash equivalents, receivables, payables and other current assets and liabilities approximate fair value because of the short maturity of those instruments.
Government Assistance
The Company's government assistance during the year ending December 31, 2022 primarily consists of federal subsidies from the Rural Development Opportunity Fund (“RDOF”) and state broadband grants primarily funded by the American Rescue Plan Act of 2021 (“ARPA”). The Company was a winning bidder in phase I of the RDOF auction of approximately $1.2 billion in federal subsidies to be received monthly over ten years to deploy and operate broadband services to unserved communities to more than one million estimated passings. For accounting purposes, RDOF subsidies are recorded as other revenue since the primary conditions for the receipt of the subsidies are the build out and operation of the broadband network over the ten years. During the year ended December 31, 2022, other revenues included approximately $107 million of RDOF subsidy revenue. The Company has also been awarded broadband grants to construct broadband infrastructure to unserved and underserved communities by various state and local governments. For accounting purposes state broadband grants are recorded as a reduction to property, plant and equipment, since the primary conditions for these grants are to build out the broadband network. During the year ended December 31, 2022, the amount of state broadband grants recorded in the consolidated financial statements was not material.
F-9
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
Advertising Costs
Advertising costs associated with marketing the Company’s products and services are generally expensed as costs are incurred.
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.
3. 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 and consist of compensation and other indirect costs associated with 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 | 6-22 years | |||||||
| Customer premise equipment and installations | 3-8 years | |||||||
| Vehicles and equipment | 6-21 years | |||||||
| Buildings and improvements | 8-40 years | |||||||
| Furniture, fixtures and equipment | 2-10 years |
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, 2022, 2021 and 2020 was $7.6 billion, $7.7 billion, and $7.8 billion, respectively.
F-10
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
Property, plant and equipment consists of the following as of December 31, 2022 and 2021:
| December 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Cable distribution systems | $ | 38,606 | $ | 35,907 | ||||||||||
| Customer premise equipment and installations | 18,196 | 17,893 | ||||||||||||
| Vehicles and equipment | 2,068 | 2,019 | ||||||||||||
| Buildings and improvements | 5,833 | 5,729 | ||||||||||||
| Furniture, fixtures and equipment | 7,500 | 7,015 | ||||||||||||
| 72,203 | 68,563 | |||||||||||||
| Less: accumulated depreciation | (36,164) | (34,253) | ||||||||||||
| $ | 36,039 | $ | 34,310 |
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.
4. 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 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 franchise units of accounting are geographical clustering of cable systems representing the highest and best use groupings if sold to market participants. 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 its franchise assets. Examples of such factors include environmental and competitive changes within the Company's operating footprint, actual and projected operating performance, the consistency of its operating margins, equity and debt market trends, including changes in its market capitalization, and changes in its regulatory and political landscape, among other factors. The Company performed a qualitative assessment in 2022. After consideration of the qualitative factors in 2022, 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 may 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 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.
F-11
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
The Company has determined that it has one reporting unit for purposes of the assessment of goodwill impairment. 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 2022 the Company elected to perform a qualitative goodwill impairment assessment, which incorporated 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.
Customer relationships are recorded at fair value as of the date acquired less accumulated amortization. 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, 2022, 2021 or 2020.
The Company owns approximately $464 million of Citizens Broadband Radio Service ("CBRS") priority access licenses. The wireless spectrum licenses are considered indefinite life intangible assets recorded in other noncurrent assets on the Company's consolidated balance sheets and payments (including deposits) are presented as an investing cash outflow on the Company’s statements of cash flows. The Company elected to perform a qualitative impairment assessment in 2022 and concluded that its CBRS priority access licenses are not impaired.
As of December 31, 2022 and 2021, indefinite-lived and finite-lived intangible assets are presented in the following table:
| December 31, | ||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||||||||||
| Indefinite-lived intangible assets: | ||||||||||||||||||||||||||||||||||||||
| Franchises | $ | 67,363 | $ | — | $ | 67,363 | $ | 67,346 | $ | — | $ | 67,346 | ||||||||||||||||||||||||||
| Goodwill | 29,563 | — | 29,563 | 29,562 | — | 29,562 | ||||||||||||||||||||||||||||||||
| Wireless spectrum licenses | 464 | — | 464 | 464 | — | 464 | ||||||||||||||||||||||||||||||||
| Trademarks | 159 | — | 159 | 159 | — | 159 | ||||||||||||||||||||||||||||||||
| $ | 97,549 | $ | — | $ | 97,549 | $ | 97,531 | $ | — | $ | 97,531 | |||||||||||||||||||||||||||
| Finite-lived intangible assets: | ||||||||||||||||||||||||||||||||||||||
| Customer relationships | $ | 18,250 | $ | (15,478) | $ | 2,772 | $ | 18,240 | $ | (14,180) | $ | 4,060 | ||||||||||||||||||||||||||
| Other intangible assets | 440 | (236) | 204 | 430 | (196) | 234 | ||||||||||||||||||||||||||||||||
| $ | 18,690 | $ | (15,714) | $ | 2,976 | $ | 18,670 | $ | (14,376) | $ | 4,294 |
Amortization expense related to customer relationships and other intangible assets for the years ended December 31, 2022, 2021 and 2020 was $1.3 billion, $1.6 billion and $1.9 billion, respectively.
F-12
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(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.
| 2023 | $ | 1,083 | ||||||
| 2024 | 831 | |||||||
| 2025 | 582 | |||||||
| 2026 | 324 | |||||||
| 2027 | 96 | |||||||
| Thereafter | 60 | |||||||
| $ | 2,976 |
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.
5. Investments
Investments are accounted for under the equity method of accounting or as equity securities, all of which are recorded in other noncurrent assets in the consolidated balance sheets as of December 31, 2022 and 2021. 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 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.
Investments consisted of the following as of December 31, 2022 and 2021:
| December 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Equity-method investments | $ | 991 | $ | 112 | ||||||||||
| Other investments | 164 | 91 | ||||||||||||
| Total investments | $ | 1,155 | $ | 203 |
In June 2022, the Company and Comcast Corporation ("Comcast") entered into a 50/50 joint venture to develop and offer a next-generation streaming platform on a variety of streaming devices and smart TVs. Comcast licensed its streaming platform and hardware to the joint venture and contributed the retail business for XClass TVs and Xumo, a streaming service it acquired in 2020. The Company's investment is approximately $981 million with $271 million paid in 2022 and with the remaining non-cancelable required contributions to be paid over multiple years and recorded as liabilities as of December 31, 2022. The Company accounts for the investment as an equity method investment and records investment income (loss) on its share of the joint venture income (loss).
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 $432 million and $40 million as of December 31, 2022 and 2021, respectively.
For the years ended December 31, 2022, 2021 and 2020, net losses from investments were $100 million, $176 million and $31 million, respectively, which were recorded in other income (expenses), net in the consolidated statements of operations.
F-13
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
6. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following as of December 31, 2022 and 2021:
| December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Accounts payable – trade | $ | 952 | $ | 724 | |||||||
| Deferred revenue | 511 | 461 | |||||||||
| Accrued liabilities: | |||||||||||
| Programming costs | 1,914 | 2,036 | |||||||||
| Labor | 1,314 | 1,304 | |||||||||
| Capital expenditures | 1,792 | 1,281 | |||||||||
| Interest | 1,165 | 1,099 | |||||||||
| Taxes and regulatory fees | 667 | 592 | |||||||||
| Property and casualty | 505 | 490 | |||||||||
| Operating lease liabilities | 295 | 269 | |||||||||
| Other | 1,440 | 1,205 | |||||||||
| $ | 10,555 | $ | 9,461 |
7. 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.
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.
Operating lease expenses were $482 million, $463 million and $439 million for the years ended December 31, 2022, 2021 and 2020, respectively, inclusive of both short-term lease costs and variable lease costs that were not included in the measurement of operating lease liabilities.
Cash paid for amounts included in the measurement of operating lease liabilities, recorded as operating cash flows in the statements of cash flows, were $345 million, $327 million and $300 million for the years ended December 31, 2022, 2021 and 2020, respectively. Operating lease right-of-use assets obtained in exchange for operating lease obligations were $221 million, $368 million and $378 million for the years ended December 31, 2022, 2021 and 2020, respectively.
F-14
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
Supplemental balance sheet information related to leases is as follows.
| December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Operating lease right-of-use assets: | |||||||||||
| Included within other noncurrent assets | $ | 1,235 | $ | 1,306 | |||||||
| Operating lease liabilities: | |||||||||||
| Current portion included within accounts payable and accrued liabilities | $ | 295 | $ | 269 | |||||||
| Long-term portion included within other long-term liabilities | 1,083 | 1,182 | |||||||||
| $ | 1,378 | $ | 1,451 | ||||||||
| Weighted average remaining lease term for operating leases | 5.6 years | 5.9 years | |||||||||
| Weighted average discount rate for operating leases | 3.7 | % | 3.4 | % |
Maturities of operating lease liabilities as of December 31, 2022 are as follows.
| 2023 | $ | 365 | |||
| 2024 | 324 | ||||
| 2025 | 266 | ||||
| 2026 | 191 | ||||
| 2027 | 149 | ||||
| Thereafter | 290 | ||||
| Undiscounted lease cash flow commitments | 1,585 | ||||
| Reconciling impact from discounting | (207) | ||||
| Lease liabilities on consolidated balance sheet as of December 31, 2022 | $ | 1,378 |
8. Long-Term Debt
A summary of our debt as of December 31, 2022 and 2021 is as follows:
| December 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Principal Amount | Carrying Value | Fair Value | Weighted Average Interest Rate | Principal Amount | Carrying Value | Fair Value | Weighted Average Interest Rate | ||||||||||||||||||||||||||||||||||||||||
| Senior unsecured notes | $ | 26,650 | $ | 26,567 | $ | 22,426 | 4.8 | % | $ | 23,950 | $ | 23,882 | $ | 24,630 | 4.7 | % | |||||||||||||||||||||||||||||||
| Senior secured notes and debentures(a) | 56,841 | 57,213 | 46,905 | 5.1 | % | 56,525 | 57,011 | 64,346 | 5.0 | % | |||||||||||||||||||||||||||||||||||||
| Credit facilities(b) | 13,877 | 13,823 | 13,467 | 5.9 | % | 10,723 | 10,668 | 10,665 | 1.6 | % | |||||||||||||||||||||||||||||||||||||
| Total debt | $ | 97,368 | $ | 97,603 | $ | 82,798 | 5.1 | % | $ | 91,198 | $ | 91,561 | $ | 99,641 | 4.5 | % |
(a)Includes the Company's £625 million aggregate principal amount of fixed-rate British pound sterling denominated notes (the “Sterling Notes”) (remeasured at $755 million and $846 million as of December 31, 2022 and 2021, respectively, using the exchange rate at the respective dates) and the Company's £650 million aggregate principal amount of Sterling Notes (remeasured at $786 million and $879 million as of December 31, 2022 and 2021, respectively, using the exchange rate at the respective dates).
(b)The Company has availability under the Charter Operating credit facilities of approximately $4.0 billion as of December 31, 2022.
F-15
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
The estimated fair value of the Company’s senior unsecured and secured notes and debentures as of December 31, 2022 and 2021 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.
In 2022, CCO Holdings, LLC ("CCO Holdings") and CCO Holdings Capital Corp. jointly issued $2.7 billion aggregate principal amount of senior unsecured notes and Charter Operating and Charter Communications Operating Capital Corp. jointly issued $3.5 billion aggregate principal amount of senior secured notes. The notes were issued at varying rates, prices and maturity dates and 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, 2022, 2021 and 2020, the Company repurchased $3.0 billion, $5.1 billion and $10.7 billion, respectively, of various series of senior notes. Losses on extinguishment of debt are recorded in other income (expenses), net in the consolidated statements of operations and consisted of the following.
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| CCO Holdings notes redemption | $ | — | $ | (146) | $ | (145) | |||||||||||
| Time Warner Cable, LLC notes redemption | — | 2 | 2 | ||||||||||||||
| Charter Operating notes redemption | (1) | — | — | ||||||||||||||
| Charter Operating credit facility refinancing | (2) | — | — | ||||||||||||||
| Loss on extinguishment of debt | $ | (3) | $ | (144) | $ | (143) |
CCO Holdings Notes
The CCO Holdings notes are senior debt obligations of CCO Holdings and CCO Holdings Capital Corp. and rank equally with all other current and future unsecured, unsubordinated obligations of CCO Holdings and CCO Holdings Capital Corp. 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 2023 through 2031.
In addition, at any time prior to varying dates in 2023 through 2025, 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.
The indentures governing the CCO Holdings notes contain certain covenants that restrict the ability of CCO Holdings, CCO Holdings Capital Corp. and all of their restricted subsidiaries to:
-
incur additional debt;
-
pay dividends on equity or repurchase equity;
-
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 (with respect to only CCO Holdings).
F-16
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
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 maximum total leverage ratio under the indentures is 6.0 to 1.0. The leverage ratio was 4.2 as of December 31, 2022.
Charter Operating Notes
The Charter Operating notes are guaranteed by CCO Holdings and substantially all of the 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 and substantially all of its subsidiaries 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 indentures governing the Charter Operating notes. The Charter Operating notes indentures contain customary representations and warranties and affirmative covenants with customary negative covenants, including restrictions on the ability of Charter Operating or any of its material subsidiaries to incur liens securing indebtedness for borrowed money and on the ability of Charter Operating to consolidate, merge or convey or transfer substantially all of their assets. The Charter Operating indentures also contain customary events of default.
Charter Operating Credit Facilities
In May 2022, Charter Operating entered into an amendment to its credit agreement. The Charter Operating credit facilities have an outstanding principal amount of $13.9 billion at December 31, 2022 as follows:
-
term loan A-5 with a remaining principal amount of approximately $5.9 billion, which is repayable in quarterly installments and aggregating $303 million in each loan year, with the remaining balance due at final maturity on August 31, 2027. Pricing on term loan A-5 is Secured Overnight Financing Rate (“SOFR”) plus 1.25%;
-
term loan A-6 with a remaining principal amount of approximately $487 million, which is repayable in quarterly installments and aggregating $25 million in each loan year, with the remaining balance due at final maturity on August 31, 2028. Pricing on term loan A-6 is SOFR plus 1.50%;
-
term loan B-1 with a remaining principal amount of approximately $2.3 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 $3.7 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 with an outstanding balance of $1.5 billion and allowing for borrowings of up to $5.5 billion maturing on August 31, 2027. Pricing on the revolving loan is SOFR plus 1.25% with a commitment fee based on Charter's corporate family rating and not to exceed 0.20%. As of December 31, 2022, $37 million of the revolving loan was utilized to collateralize a like principal amount of letters of credit out of $484 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, SOFR or LIBOR, as defined, plus an applicable margin. SOFR and LIBOR were both 4.4% as of December 31, 2022 and as of December 31, 2021, LIBOR was 0.10%.
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 or what amount of incremental term loans would be allowable at any given time under the terms of the Charter Operating credit facilities.
F-17
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
The obligations of Charter Operating under the Charter Operating credit facilities are guaranteed by CCO Holdings and substantially all of the subsidiaries of Charter Operating. The obligations are also secured by (i) a lien on substantially all of the assets of Charter Operating and substantially all of 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 of the equity interests directly or indirectly owned by Charter Operating in substantially all of its subsidiaries, as well as intercompany obligations owing to it and the guarantor subsidiaries by any of their affiliates.
The Charter Operating credit facilities contain representations and warranties, and customary affirmative and negative covenants, including restrictions on the ability of Charter Operating or any of its subsidiaries to incur liens securing indebtedness for borrowed money and on the ability of Charter Operating to consolidate, merge or convey or transfer substantially all of its assets. 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 also contain customary events of default and the right to cure with respect to any defaults or 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, Charter Operating and substantially all of the subsidiaries of Charter Operating (other than 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 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 indentures contain customary covenants relating to restrictions on the ability of TWC, LLC or any of its material subsidiaries to incur liens securing indebtedness for borrowed money 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 indentures also contain 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, Charter Operating, and substantially all of the subsidiaries of Charter Operating (other than TWCE) 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 indentures contain customary covenants relating to restrictions on the ability of TWC, TWCE or any of its subsidiaries to incur liens securing indebtedness for borrowed money and on the ability of TWC, LLC and TWCE to consolidate, merge or convey or transfer substantially all of their assets. The TWCE indentures also contain customary events of default.
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 CCO Holdings indentures discussed above, unless there is no default under the applicable indenture, and unless CCO Holdings’ leverage ratio test is met at the time of such distribution. As of December 31, 2022, there was no default
F-18
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
under any of these indentures and CCO Holdings met its applicable leverage ratio tests based on December 31, 2022 financial results. There can be no assurance that CCO Holdings will satisfy these tests at the time of the contemplated distribution.
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 and Interest 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 and interest 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.
Interest payments on variable debt are estimated using amounts outstanding at December 31, 2022 and the average implied forward LIBOR or SOFR rates applicable for the quarter during the interest rate reset based on the yield curve in effect at December 31, 2022. Actual interest payments will differ based on actual LIBOR and SOFR rates and actual amounts outstanding for applicable periods. Based upon outstanding indebtedness as of December 31, 2022, the amortization of term loans, and the maturity dates for all senior and subordinated notes, total future principal and interest payments on the total borrowings under all debt agreements are as follows.
| Principal | Interest | ||||||||||
| 2023 | $ | 1,890 | $ | 5,021 | |||||||
| 2024 | 2,390 | 4,764 | |||||||||
| 2025 | 7,161 | 4,536 | |||||||||
| 2026 | 1,116 | 4,234 | |||||||||
| 2027 | 12,957 | 3,858 | |||||||||
| Thereafter | 71,854 | 43,940 | |||||||||
| $ | 97,368 | $ | 66,353 |
F-19
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
9. 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 held by A/N as of the applicable record date on an as-exchanged basis, and is generally intended to reflect A/N’s economic interests in Charter Holdings.
The following table summarizes our shares outstanding for the three years ended December 31, 2022:
| Class A Common Stock | Class B Common Stock | ||||||||||
| BALANCE, December 31, 2019 | 209,975,963 | 1 | |||||||||
| Issuance of equity | 55,294 | — | |||||||||
| Exercise of stock options | 3,160,065 | — | |||||||||
| Restricted stock issuances, net of cancellations | 5,992 | — | |||||||||
| Restricted stock unit vesting | 753,139 | — | |||||||||
| Purchase of treasury stock | (20,219,461) | — | |||||||||
| BALANCE, December 31, 2020 | 193,730,992 | 1 | |||||||||
| Exercise of stock options | 1,568,488 | — | |||||||||
| Restricted stock issuances, net of cancellations | 4,627 | — | |||||||||
| Restricted stock unit vesting | 664,771 | — | |||||||||
| Purchase of treasury stock | (23,227,642) | — | |||||||||
| BALANCE, December 31, 2021 | 172,741,236 | 1 | |||||||||
| Exercise of stock options | 552,442 | — | |||||||||
| Restricted stock issuances, net of cancellations | 6,845 | — | |||||||||
| Restricted stock unit vesting | 591,647 | — | |||||||||
| Purchase of treasury stock | (21,240,774) | — | |||||||||
| BALANCE, December 31, 2022 | 152,651,396 | 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, 2022, 2021 and 2020.
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||||||
| Shares | $ | Shares | $ | Shares | $ | ||||||||||||||||||||||||||||||
| Share buybacks | 20,628,464 | $ | 10,095 | 22,015,125 | $ | 15,038 | 18,444,203 | $ | 10,639 | ||||||||||||||||||||||||||
| Income tax withholding | 310,391 | 182 | 586,008 | 393 | 1,022,783 | 578 | |||||||||||||||||||||||||||||
| Exercise cost | 301,919 | 626,509 | 752,475 | ||||||||||||||||||||||||||||||||
| 21,240,774 | $ | 10,277 | 23,227,642 | $ | 15,431 | 20,219,461 | $ | 11,217 |
Share buybacks above include shares of Charter Class A common stock purchased from Liberty Broadband Corporation (“Liberty Broadband”) pursuant to the LBB Letter Agreement as follows (see Note 19).
F-20
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
| Year Ended December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Number of shares purchased | 6,168,174 | 6,077,664 | |||||||||
| Amount of shares purchased | $ | 3,034 | $ | 4,179 |
In January 2023, the Company purchased from Liberty Broadband an additional 0.1 million shares of Charter Class A common stock for approximately $42 million.
As of December 31, 2022, Charter had remaining board authority to purchase an additional $414 million of Charter’s Class A common stock and/or Charter Holdings common units, excluding purchases from Liberty Broadband. 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.
In March 2020, pursuant to the terms of the Amended and Restated Stockholders Agreement among Liberty Broadband, A/N and Charter, dated May 23, 2015 (the "Stockholders Agreement"), Charter, Liberty and A/N closed on transactions in which Liberty Broadband and A/N exercised their preemptive right to purchase 35,112 and 20,182 shares, respectively, of Charter Class A common stock for a total purchase price of approximately $23 million.
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, 2022 and 2021. 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 (accumulated deficit) based on the cost of original issue included in additional paid-in capital.
10. Noncontrolling Interests
Noncontrolling interests represents consolidated subsidiaries of which the Company owns less than 100%. The Company is a holding company whose principal asset is a controlling equity interest in Charter Holdings, the indirect owner of the Company’s cable systems. Noncontrolling interests on the Company’s balance sheet primarily includes A/N’s equity interests in Charter Holdings, which is comprised of a common ownership interest and prior to June 18, 2021, a convertible preferred ownership interest.
On June 18, 2021, the Company caused the conversion of all of A/N's 25 million Charter Holdings convertible preferred units into Charter Holdings common units. Each preferred unit was converted into 0.37334 Charter Holdings common unit, 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, resulting in the issuance of a total of 9.3 million common units to A/N. The convertible preferred units had a face amount of $2.5 billion and paid a 6% annual preferred dividend which was paid quarterly in cash. Net income of Charter Holdings attributable to A/N's preferred noncontrolling interest for financial reporting purposes was based on the preferred dividend which was $70 million for the year ended December 31, 2021 and $150 million for the year ended December 31, 2020.
As of December 31, 2022, A/N held 18.2 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 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 11% during 2022, 7% prior to the conversion of the preferred units and 11% after conversion during 2021 and 8% during 2020, and was $792 million, $594 million and $303 million for the years ended December 31, 2022, 2021 and 2020, 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 $110 million, $4 million and $3 million to A/N as a pro rata tax distribution on its common units during the years ended December 31, 2022, 2021 and 2020, respectively.
F-21
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
The following table represents Charter Holdings' purchase of Charter Holdings common units from A/N pursuant to the A/N Letter Agreement (see Note 19) and the effect on total shareholders' equity during the years ended December 31, 2022, 2021 and 2020.
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Number of units purchased | 3,171,681 | 3,274,391 | 2,637,483 | ||||||||||||||
| Amount of units purchased | $ | 1,602 | $ | 2,234 | $ | 1,462 | |||||||||||
| Decrease in noncontrolling interest based on carrying value | $ | (700) | $ | (808) | $ | (656) | |||||||||||
| Decrease in additional paid-in-capital, net of tax | $ | (681) | $ | (1,077) | $ | (606) |
Total shareholders' equity was also adjusted during the years ended December 31, 2022, 2021 and 2020 due to changes in Charter Holdings' ownership, including the impact of the preferred unit conversion discussed above, as follows.
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Decrease in noncontrolling interest | $ | (659) | $ | (2,153) | $ | (534) | |||||||||||
| Increase in additional paid-in-capital, net of tax | $ | 497 | $ | 1,625 | $ | 403 |
As a result of the preferred unit conversion, the preferred noncontrolling interest carrying amount of $3.2 billion was reclassified to common noncontrolling interest and remeasured to $2.0 billion representing the relative effective Charter Holdings common ownership amount in all Charter Holdings partnership capital account balances resulting in a $1.2 billion reclass from noncontrolling interest to additional paid-in capital. A deferred tax liability of $300 million was recorded with the offset to additional paid-in capital as part of the Charter Holdings ownership change equity adjustments.
11. Accounting for Derivative Instruments and Hedging Activities
Cross-currency derivative instruments are used to manage foreign exchange risk on the Sterling Notes by effectively converting £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’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 in the consolidated statements of operations in other income (expenses), net. 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 fair value of the Company's cross-currency derivatives, which are classified within Level 2 of the valuation hierarchy, was $570 million and $290 million and is included in other long-term liabilities on its consolidated balance sheets as of December 31, 2022 and 2021, respectively.
The effect of financial instruments are recorded in other income (expenses), net in the consolidated statements of operations and consisted of the following.
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Change in fair value of cross-currency derivative instruments | $ | (280) | $ | (106) | $ | 40 | |||||||||||
| Foreign currency remeasurement of Sterling Notes to U.S. dollars | 185 | 20 | (55) | ||||||||||||||
| Loss on financial instruments, net | $ | (95) | $ | (86) | $ | (15) |
F-22
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
12. Revenues
The Company’s revenues by product line are as follows:
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Internet | $ | 22,222 | $ | 21,094 | $ | 18,521 | |||||||||||
| Video | 17,460 | 17,630 | 17,432 | ||||||||||||||
| Voice | 1,559 | 1,598 | 1,806 | ||||||||||||||
| Residential revenue | 41,241 | 40,322 | 37,759 | ||||||||||||||
| Small and medium business | 4,301 | 4,170 | 3,964 | ||||||||||||||
| Enterprise | 2,677 | 2,573 | 2,468 | ||||||||||||||
| Commercial revenue | 6,978 | 6,743 | 6,432 | ||||||||||||||
| Advertising sales | 1,882 | 1,594 | 1,699 | ||||||||||||||
| Mobile | 3,042 | 2,178 | 1,364 | ||||||||||||||
| Other | 879 | 845 | 843 | ||||||||||||||
| $ | 54,022 | $ | 51,682 | $ | 48,097 |
Residential Services
Residential customers are offered Internet, video, voice and mobile services primarily on a subscription basis. Mobile services are sold under unlimited data plans or by-the-gig data usage plans. The Company often provides multiple services to a customer. The transaction price for a bundle of services may be less than the sum of the standalone selling prices of each individual service. The Company allocates the bundle discount among the services to which the discount relates based on the relative standalone selling prices of those services. Generally, directly observable standalone selling prices are used for the revenue allocation. Customers are invoiced for subscription services in advance of the service period. 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. Residential customers may generally cancel their subscriptions at the end of their monthly service period without penalty. Each optional service purchased is generally accounted for as a distinct performance obligation when purchased and revenue is recognized when the service is provided. For customer premise equipment ("CPE") where such CPE would qualify as a lease, the Company combines the operating lease with the subscription service revenue as a single performance obligation as the subscription service is the predominant component. Installation fees are deferred over the period the fee remains material to the customer, which the Company has estimated to be approximately six months. Sales commission costs are expensed as incurred as the amortization period is less than one year. 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 are deferred as contract fulfillment costs and recognized over the term of the contracts.
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 Company does not impute interest on equipment installment plans sold through its direct channel as the inherent financing component is not considered significant based on the commercial objective of the plans, interest rates prevailing in the marketplace and credit risks of the Company's customers. The sale of equipment is a separate performance obligation, therefore, revenue is recognized from the sale of equipment upon delivery and acceptance by the customer.
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 for each of the years ended December 31, 2022, 2021 and 2020 are reported in 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.
F-23
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
Commercial Services
Small and medium business ("SMB") customers are offered Internet, video voice and mobile services similar to those provided to residential customers. SMB 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.
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, which is generally one to seven years with a weighted average term of approximately three years. Each subscription service provided is accounted for as a distinct performance obligation and revenue is recognized ratably over the contract period as the subscription services are delivered. Enterprise subscription services are billed as monthly recurring charges to customers and related installation services, if applicable, are billed upon completion of the customer installation. Installation services are not accounted for as distinct performance obligations, but rather a component of the connectivity services, and therefore upfront installation fees are deferred and recognized as revenue over the related contract period. Enterprise sales commission costs are deferred and recognized using a portfolio approach over a weighted-average 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.
Other balances that are not separately presented on the consolidated balance sheets that relate to the recognition of revenue and collection of the related cash, as well as the deferred costs associated with our contracts with customers consist of the following for the periods presented:
| December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Accounts receivable, net: | |||||||||||
| Equipment installment plan receivables, net | $ | 577 | $ | 391 | |||||||
| Other noncurrent assets: | |||||||||||
| Equipment installment plan receivables, net | $ | 261 | $ | 189 | |||||||
| Contract acquisition and fulfillment costs | $ | 505 | $ | 496 | |||||||
| Accounts payables and accrued liabilities: | |||||||||||
| Customer prepayments and upfront deferred installation fees | $ | 511 | $ | 461 |
F-24
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
Activity in the allowance for doubtful accounts is summarized as follows for the years presented:
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Balance, beginning of period | $ | 157 | $ | 217 | $ | 180 | |||||||||||
| Charged to expense | 758 | 484 | 560 | ||||||||||||||
| Uncollected balances written off, net of recoveries | (696) | (544) | (523) | ||||||||||||||
| Balance, end of period | $ | 219 | $ | 157 | $ | 217 |
13. 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, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Programming | $ | 11,620 | $ | 11,844 | $ | 11,401 | |||||||||||
| Regulatory, connectivity and produced content | 2,303 | 2,494 | 2,183 | ||||||||||||||
| Costs to service customers | 7,772 | 7,393 | 7,472 | ||||||||||||||
| Marketing | 3,339 | 3,071 | 3,031 | ||||||||||||||
| Mobile | 3,385 | 2,489 | 1,765 | ||||||||||||||
| Other | 4,457 | 4,191 | 4,078 | ||||||||||||||
| $ | 32,876 | $ | 31,482 | $ | 29,930 |
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 are content acquisition costs for the Los Angeles Lakers’ basketball games and Los Angeles Dodgers’ baseball games, which are recorded as games are exhibited over the contract period. Costs to service customers include costs related to field operations, network operations and customer care for the Company’s residential and SMB 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 residential and commercial 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.
14. Other Operating Expenses, Net
Other operating expenses, net consist of the following for the years presented:
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Special charges, net | $ | 273 | $ | 249 | $ | 90 | |||||||||||
| (Gain) loss on sale of assets, net | 8 | 80 | (32) | ||||||||||||||
| $ | 281 | $ | 329 | $ | 58 |
F-25
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
Special charges, net
Special charges, net primarily includes net amounts of litigation settlements and employee termination costs. For the year ended December 31, 2022, special charges, net also includes an impairment on non-strategic assets and is offset by a gain related to the settlement of a multiemployer pension plan. For the year ended December 31, 2021, special charges, net also includes the $220 million settlement with Sprint Communications Company L.P. and T-Mobile USA, Inc.
(Gain) loss on sale of assets, net
(Gain) loss on sale of assets, net includes a $36 million impairment of non-strategic assets held for sale during the year ended December 31, 2021.
15. Other Income (Expenses), Net
Other income (expenses), net consist of the following for the periods presented:
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Loss on extinguishment of debt (see Note 8) | $ | (3) | $ | (144) | $ | (143) | |||||||||||
| Loss on financial instruments, net (see Note 11) | (95) | (86) | (15) | ||||||||||||||
| Other pension benefits (costs), net (see Note 21) | 254 | 305 | (66) | ||||||||||||||
| Loss on equity investments, net (see Note 5) | (100) | (176) | (31) | ||||||||||||||
| $ | 56 | $ | (101) | $ | (255) |
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).
Restricted stock, restricted stock units and stock options are measured at the grant date fair value and amortized to stock compensation expense over the requisite service period. The fair value of stock options is estimated on the date of grant using the Black-Scholes option-pricing model. The grant date weighted average assumptions used during the years ended December 31, 2022, 2021 and 2020 were: risk-free interest rate of 1.7%, 0.7% and 1.4%, respectively; expected lives of 5.7 years, 5.9 years and 5.5 years, respectively; and expected volatility of 28% during the year ended December 31, 2022 and 27% during each of the years ended December 31, 2021 and 2020. The Company’s volatility assumptions represent management’s best estimate and were based on a review of historical and implied 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.
Stock options and restricted stock units generally cliff vest three years from the date of grant. 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.
As of December 31, 2022, total unrecognized compensation remaining to be recognized in future periods totaled $211 million for stock options, $1.0 million for restricted stock and $275 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 $470 million, $430 million and $351 million of stock compensation expense for the years ended December 31, 2022, 2021 and 2020, respectively, which is included in operating costs and expenses.
F-26
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
A summary of the activity for Charter’s stock options for the years ended December 31, 2022, 2021 and 2020, is as follows (shares in thousands, except per share data):
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 | 8,433 | $ | 362.26 | 8,842 | $ | 312.95 | 10,549 | $ | 241.14 | ||||||||||||||||||||||||||||||||||||||||||||
| Granted | 1,469 | $ | 577.64 | 1,295 | $ | 629.57 | 1,672 | $ | 536.27 | ||||||||||||||||||||||||||||||||||||||||||||
| Exercised | (552) | $ | 295.51 | $ | 133 | (1,568) | $ | 295.46 | $ | 606 | (3,160) | $ | 191.43 | $ | 1,176 | ||||||||||||||||||||||||||||||||||||||
| Canceled | (170) | $ | 570.44 | (136) | $ | 476.90 | (219) | $ | 312.94 | ||||||||||||||||||||||||||||||||||||||||||||
| Outstanding, end of period | 9,180 | $ | 396.89 | $ | 468 | 8,433 | $ | 362.26 | 8,842 | $ | 312.95 | ||||||||||||||||||||||||||||||||||||||||||
| Weighted average remaining contractual life | 6 | years | 6 | years | 7 | years | |||||||||||||||||||||||||||||||||||||||||||||||
| Options exercisable, end of period | 5,320 | $ | 266.78 | $ | 467 | 4,102 | $ | 237.45 | 2,940 | $ | 220.78 | ||||||||||||||||||||||||||||||||||||||||||
| Options expected to vest, end of period | 3,860 | $ | 576.23 | $ | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted average fair value of options granted | $ | 172.24 | $ | 171.21 | $ | 148.02 |
A summary of the activity for Charter’s restricted stock for the years ended December 31, 2022, 2021 and 2020, is as follows (shares in thousands, except per share data):
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||||||
| Shares | Weighted Average Grant Price | Shares | Weighted Average Grant Price | Shares | Weighted Average Grant Price | ||||||||||||||||||||||||||||||
| Outstanding, beginning of period | 5 | $ | 654.33 | 6 | $ | 504.53 | 8 | $ | 359.33 | ||||||||||||||||||||||||||
| Granted | 7 | $ | 494.72 | 5 | $ | 654.33 | 6 | $ | 504.53 | ||||||||||||||||||||||||||
| Vested | (5) | $ | 654.33 | (6) | $ | 504.53 | (8) | $ | 359.33 | ||||||||||||||||||||||||||
| Canceled | — | $ | — | — | $ | — | — | $ | — | ||||||||||||||||||||||||||
| Outstanding, end of period | 7 | $ | 494.72 | 5 | $ | 654.33 | 6 | $ | 504.53 |
F-27
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
A summary of the activity for Charter’s restricted stock units for the years ended December 31, 2022, 2021 and 2020, is as follows (shares in thousands, except per share data):
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||||||
| Shares | Weighted Average Grant Price | Shares | Weighted Average Grant Price | Shares | Weighted Average Grant Price | ||||||||||||||||||||||||||||||
| Outstanding, beginning of period | 1,294 | $ | 449.03 | 1,651 | $ | 337.82 | 2,059 | $ | 249.45 | ||||||||||||||||||||||||||
| Granted | 638 | $ | 522.45 | 367 | $ | 629.47 | 423 | $ | 509.64 | ||||||||||||||||||||||||||
| Vested | (592) | $ | 307.67 | (665) | $ | 269.88 | (753) | $ | 194.40 | ||||||||||||||||||||||||||
| Canceled | (74) | $ | 569.11 | (59) | $ | 467.26 | (78) | $ | 317.45 | ||||||||||||||||||||||||||
| Outstanding, end of period | 1,266 | $ | 545.00 | 1,294 | $ | 449.03 | 1,651 | $ | 337.82 |
17. 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. 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. 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. 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. The Company recognizes interest and penalties accrued on uncertain income tax positions as part of the income tax provision.
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-28
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
Income Tax Expense
For the years ended December 31, 2022, 2021, and 2020, the Company recorded deferred income tax 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, | ||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||
| Current benefit (expense): | ||||||||||||||||||||
| Federal income taxes | $ | (1,178) | $ | (12) | $ | 7 | ||||||||||||||
| State income taxes | (348) | (230) | (168) | |||||||||||||||||
| Current income tax expense | (1,526) | (242) | (161) | |||||||||||||||||
| Deferred benefit (expense): | ||||||||||||||||||||
| Federal income taxes | (55) | (1,049) | (536) | |||||||||||||||||
| State income taxes | (32) | 223 | 71 | |||||||||||||||||
| Deferred income tax expense | (87) | (826) | (465) | |||||||||||||||||
| Income tax expense | $ | (1,613) | $ | (1,068) | $ | (626) |
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, 2022, 2021 and 2020 as follows:
| Year Ended December 31, | ||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||
| Statutory federal income taxes | $ | (1,567) | $ | (1,341) | $ | (903) | ||||||||||||||
| Statutory state income taxes, net | (257) | (193) | (122) | |||||||||||||||||
| Change in uncertain tax positions | (163) | (79) | (57) | |||||||||||||||||
| Nondeductible expenses | (42) | (27) | (15) | |||||||||||||||||
| Net income attributable to noncontrolling interest | 195 | 163 | 112 | |||||||||||||||||
| Excess stock compensation | 59 | 163 | 290 | |||||||||||||||||
| Federal tax credits | 76 | 46 | 35 | |||||||||||||||||
| Tax rate changes | 47 | 191 | 33 | |||||||||||||||||
| Other | 39 | 9 | 1 | |||||||||||||||||
| Income tax expense | $ | (1,613) | $ | (1,068) | $ | (626) |
F-29
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(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, 2022 and 2021 are presented below.
| December 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Deferred tax assets: | ||||||||||||||
| Carryforwards | $ | 375 | $ | 325 | ||||||||||
| Accrued and other | 512 | 612 | ||||||||||||
| Total gross deferred tax assets | 887 | 937 | ||||||||||||
| Less: valuation allowance | (40) | (36) | ||||||||||||
| Deferred tax assets | 847 | 901 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Investment in partnership | (19,899) | (19,986) | ||||||||||||
| Accrued and other | (6) | (11) | ||||||||||||
| Deferred tax liabilities | (19,905) | (19,997) | ||||||||||||
| Net deferred tax liabilities | $ | (19,058) | $ | (19,096) |
The deferred tax liabilities on the investment in partnership above includes approximately $54 million and $57 million net deferred tax liabilities relating to certain indirect subsidiaries that file separate state income tax returns at December 31, 2022 and 2021, respectively.
Carryforwards
Charter has federal tax net operating loss carryforwards that expire in 2035 resulting from the operations of Charter Communications Holdings Company, LLC ("Charter Holdco") and its subsidiaries and from loss carryforwards received as a result of the merger with Time Warner Cable Inc. ("TWC"). In addition, Charter has state tax net operating loss carryforwards that generally expire in the years 2023 through 2042. Charter's federal tax loss carryforwards are subject to Section 382 and other restrictions. Also included in carryforwards is Charter's Section 163(j) interest limitation, which is based on interest expense that is not deductible in the current year due to taxable income limitations. The limited interest carryforward has an indefinite carryforward period and will become deductible when Charter generates taxable income sufficient to overcome the limitation.
Tax Receivable Agreement
Under the LLC Agreement, A/N has the right to exchange at any time some or all of its common units in Charter Holdings for Charter’s Class A common stock or cash, at Charter’s option. Pursuant to a Tax Receivable Agreement ("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 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 $3.5 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.
Uncertain Tax Positions
The net amount of the unrecognized tax benefits recorded as of December 31, 2022 that could impact the effective tax rate is $430 million. The Company has determined that it is reasonably possible that its existing reserve for uncertain tax positions as
F-30
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
of December 31, 2022 could decrease by approximately $37 million during the year ended December 31, 2023 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, 2020 | $ | 298 | |||
| Activity on prior year tax positions | (5) | ||||
| Additions on current year tax positions | 94 | ||||
| Reductions on settlements and expirations with taxing authorities | (10) | ||||
| BALANCE, December 31, 2021 | 377 | ||||
| Activity on prior year tax positions | (20) | ||||
| Additions on current year tax positions | 166 | ||||
| Reductions on settlements and expirations with taxing authorities | (8) | ||||
| BALANCE, December 31, 2022 | $ | 515 |
Charter is currently under examination by the Internal Revenue Service ("IRS") for income tax purposes for 2016 and 2019. Charter's 2020 and 2021 tax years remain open for examination and assessment. Charter’s 2017 and 2018 tax years remain open solely for purposes of loss and credit carryforwards. Charter’s short period return dated May 17, 2016 (prior to the merger with TWC and acquisition of Bright House Networks, LLC ("Bright House")) and prior years 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, 2019 and 2021. Charter Holdings’ 2020 tax year remains open for examination and assessment, while 2017 and 2018 remain open solely for purposes of credit carryforwards. The IRS is currently examining TWC’s income tax returns for 2011 through 2015. 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 appeal results are being evaluated. 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, 2022, 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 units of 20 million and 19 million for the years ended December 31, 2022 and 2021, respectively, and Charter Holdings common and convertible preferred units of 26 million for the year ended December 31, 2020
F-31
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
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, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Numerator: | |||||||||||||||||
| Net income attributable to Charter shareholders | $ | 5,055 | $ | 4,654 | $ | 3,222 | |||||||||||
| Effect of dilutive securities: | |||||||||||||||||
| Charter Holdings convertible preferred units | — | 70 | — | ||||||||||||||
| Net income attributable to Charter shareholders after assumed conversions | $ | 5,055 | $ | 4,724 | $ | 3,222 | |||||||||||
| Denominator: | |||||||||||||||||
| Weighted average common shares outstanding, basic | 161,501,355 | 183,669,369 | 203,316,483 | ||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||
| Assumed exercise or issuance of shares relating to stock plans | 2,932,241 | 5,052,041 | 5,956,764 | ||||||||||||||
| Weighted average Charter Holdings convertible preferred units | — | 4,321,538 | — | ||||||||||||||
| Weighted average common shares outstanding, diluted | 164,433,596 | 193,042,948 | 209,273,247 | ||||||||||||||
| Basic earnings per common share attributable to Charter shareholders | $ | 31.30 | $ | 25.34 | $ | 15.85 | |||||||||||
| Diluted earnings per common share attributable to Charter shareholders | $ | 30.74 | $ | 24.47 | $ | 15.40 |
19. Related Party Transactions
The following sets forth certain transactions in which the Company and the directors, executive officers, and other related parties 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 its subsidiary, 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 2022, 2021 and 2020.
Liberty Broadband and A/N
Under the terms of the Stockholders Agreement, the number of Charter’s directors is fixed at 13. 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 designated by 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 governance rights. Mr. Thomas Rutledge is the Executive Chairman of the board of Charter and Mr. Christopher Winfrey, the Company’s President and CEO, is a non-voting board observer.
F-32
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
In December 2016, Charter and A/N entered into a letter agreement, as amended in December 2017 (the “A/N 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 common units. See Note 17 for more information.
In February 2021, Charter and Liberty Broadband entered into a letter agreement (the “LBB Letter Agreement”). The LBB Letter Agreement implements Liberty Broadband’s obligations under the Stockholders Agreement to participate in share repurchases by Charter. Under the LBB Letter Agreement, Liberty Broadband will sell to Charter, generally on a monthly basis, a number of shares of Charter Class A common stock representing an amount sufficient for Liberty Broadband’s ownership of Charter to be reduced such that it does not exceed the ownership cap then applicable to Liberty Broadband under the Stockholders Agreement at a purchase price per share equal to the volume weighted average price per share paid by Charter for shares repurchased during such immediately preceding calendar month other than (i) purchases from A/N, (ii) purchases in privately negotiated transactions or (iii) purchases for the withholding of shares of Charter Class A common stock pursuant to equity compensation programs of Charter.
Gregory Maffei, a director of Charter and President and CEO and director and holder of 7.5% voting interest in Liberty Broadband, is Chairman of the board of directors of Qurate Retail, Inc. ("Qurate") and Dr. John Malone, a director emeritus of Charter, Chairman of the board of directors of Liberty Broadband and holder of 49.0% of voting interest in Liberty Broadband, also serves on the Qurate board of directors. As reported in SEC filings of Qurate, Mr. Maffei and Dr. Malone, Mr. Maffei has ownership of an approximate 19.8% voting interest in Quarate and Dr. Malone has ownership of an approximate 6.7% voting interest in 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, 2022, 2021 and 2020, the Company recorded revenue in aggregate of approximately $43 million, $48 million and $50 million, respectively, from HSN and QVC as part of channel carriage fees and revenue sharing arrangements for home shopping sales made to customers in the Company’s footprint.
Equity Investments
The Company has agreements with certain equity investees (see Note 5) pursuant to which the Company has made or received related party transaction payments for the receipt of goods or services. The Company recorded payments to equity investees totaling $213 million, $229 million and $225 million during the years ended December 31, 2022, 2021 and 2020, respectively.
20. Commitments and Contingencies
Commitments
The following table summarizes the Company’s payment obligations as of December 31, 2022 for its contractual obligations.
| Total | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | |||||||||||||||||||||||||||||||||||
| Programming Minimum Commitments (a) | $ | 55 | $ | 55 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||
| Other (b) | 13,398 | 2,707 | 2,202 | 820 | 753 | 739 | 6,177 | ||||||||||||||||||||||||||||||||||
| $ | 13,453 | $ | 2,762 | $ | 2,202 | $ | 820 | $ | 753 | $ | 739 | $ | 6,177 |
(a)The Company pays programming fees under multi-year contracts, typically based on a flat fee per customer, which may be fixed for the term, or may in some cases escalate over the term. Programming costs included in the statements of operations were $11.6 billion, $11.8 billion and $11.4 billion for the years ended December 31, 2022, 2021 and 2020 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.
F-33
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
(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, 2022, 2021 and 2020 was $207 million, $200 million and $192 million, respectively.
-
The Company pays franchise fees under multi-year franchise agreements based on a percentage of revenues generated from video service per year. The Company also pays other franchise related costs, such as public education grants, under multi-year agreements. Franchise fees and other franchise-related costs included in the accompanying statement of operations were $730 million, $733 million and $741 million for the years ended December 31, 2022, 2021 and 2020 respectively.
-
The Company has $484 million in letters of credit, of which $37 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, as well as $346 million of surety bonds.
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. On January 12, 2023, the parties reached a tentative agreement to settle the lawsuit. The settlement is subject to preliminary and final approval by the court and will result in a net payment to Charter as a result of the settlement of the derivative claims by the plaintiffs. The Company cannot provide assurance that this tentative settlement will be finalized and approved by the court. Pending finalization of the settlement and in the event the settlement is not finalized and approved by the court, the Company will continue to vigorously defend this lawsuit. Although Charter is unable to predict the outcome of this lawsuit, it does not expect the outcome will have a material effect on its operations, financial condition or cash flows.
The California Attorney General and the Alameda County, California District Attorney are investigating whether certain of Charter’s waste disposal policies, procedures and practices are in violation of the California Business and Professions Code and the California Health and Safety Code. That investigation was commenced in January 2014. A similar investigation involving TWC was initiated in February 2012. Charter is cooperating with these investigations. While the Company is unable to predict the outcome of these investigations, it does not expect that the outcome will have a material effect on its operations, financial condition, or cash flows.
In March 2020, Charter Communications, LLC (“CC, LLC”), an indirect subsidiary of the Company, was named as a defendant in a lawsuit filed in Dallas, Texas related to the fatal stabbing of an individual in her home by an off duty CC, LLC technician: William Goff, as Personal Representative of Betty Jo McClain Thomas, deceased, et al. v. Roy James Holden, Jr. and Charter Communications, LLC, Case No. CC-20-01579-E, pending in County Court at Law No. 5 for Dallas County, Texas. The complaint alleged that CC, LLC was responsible for Mrs. Thomas' death. Following a two phase trial, the jury returned a verdict finding CC, LLC ninety percent at fault for Mrs. Thomas’ death, and awarded compensatory damages of $375 million to plaintiffs and then awarded $7.0 billion in punitive damages to plaintiffs on July 26, 2022. On October 7, 2022, plaintiffs filed a motion for a judgment that proposed a reduced total award of $1.1 billion. The trial judge signed the judgment, and CC, LLC posted a $25 million bond to stay the judgment pending appeals. On January 11, 2023, and after issuing a series of decreasing settlement demands over several months, the plaintiffs issued a new, lower settlement demand to CC, LLC and its insurers, and then on January 18, 2023, plaintiffs also filed a notice of remittitur with the court to further reduce the judgment to $262 million, comprised of $87 million in actual damages, and $175 million in punitive damages. On January 24, 2023 and upon the insistence and demand of its insurers, CC, LLC reached a tentative settlement of this lawsuit at an amount substantially less than the reduced judgment and within CC, LLC’s insurance coverage. In the event the settlement is not ultimately finalized, CC, LLC will continue to vigorously defend this lawsuit including pursuing all available appeals.
F-34
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
The Company is a defendant or co-defendant in several 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 or related 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.
21. Employee Benefit Plans
Pension Plans
The Company sponsors qualified and unqualified defined benefit pension plans that provide pension benefits to a majority of employees who were employed by 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.
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:
| 2022 | 2021 | ||||||||||
| Projected benefit obligation at beginning of year | $ | 3,374 | $ | 3,688 | |||||||
| Interest cost | 103 | 97 | |||||||||
| Actuarial gain | (1,032) | (183) | |||||||||
| Settlement | (146) | (173) | |||||||||
| Benefits paid | (56) | (55) | |||||||||
| Projected benefit obligation at end of year | $ | 2,243 | $ | 3,374 | |||||||
| Accumulated benefit obligation at end of year | $ | 2,243 | $ | 3,374 | |||||||
| Fair value of plan assets at beginning of year | $ | 3,457 | $ | 3,462 | |||||||
| Actual return on plan assets | (675) | 219 | |||||||||
| Employer contributions | 3 | 4 | |||||||||
| Settlement | (146) | (173) | |||||||||
| Benefits paid | (56) | (55) | |||||||||
| Fair value of plan assets at end of year | $ | 2,583 | $ | 3,457 | |||||||
| Funded status | $ | 340 | $ | 83 |
F-35
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
The components of net periodic benefit (cost) for the years ended December 31, 2022, 2021 and 2020 consisted of the following:
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Interest cost | $ | (103) | $ | (97) | $ | (110) | |||||||||||
| Expected return on plan assets | 156 | 165 | 156 | ||||||||||||||
| Remeasurement gain (loss) | 201 | 237 | (112) | ||||||||||||||
| Net periodic pension benefit (cost) | $ | 254 | $ | 305 | $ | (66) |
The remeasurement gains (losses) recorded during the years ended December 31, 2022, 2021 and 2020 were primarily driven by changes in the discount rate as well as gains or losses to record pension assets to fair value.
The discount rates used to determine benefit obligations as of December 31, 2022 and 2021 were 5.46% and 3.01%, respectively. The Company utilized the Pri-2012/MP 2020 mortality table published by the Society of Actuaries to measure the benefit obligations as of December 31, 2022 and 2021.
Weighted average assumptions used to determine net periodic benefit costs consisted of the following:
| Year ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Expected long-term rate of return on plan assets | 5.00 | % | 5.00 | % | 5.00 | % | |||||||||||
| Discount rate | 3.01 | % | 2.70 | % | 3.48 | % |
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 (cost) for the year ended December 31, 2023 are expected to be 5.00% and 5.46%, respectively. The Company determined the discount rates used to determine benefit obligations and net periodic pension benefit (cost) 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 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. As of December 31, 2022, the target investment allocation for return-seeking securities was 20%-40%, with the remaining in liability-matching securities. The actual investment allocation as of December 31, 2022 was 42.1% return-seeking and 57.9% liability-matching.
F-36
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
The following tables set forth the investment assets of the qualified pension plans by level within the fair value hierarchy as of December 31, 2022 and 2021:
| December 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| Fair Value | Level 1 | Level 2 | Fair Value | Level 1 | Level 2 | ||||||||||||||||||||||||||||||
| Cash | $ | 6 | $ | 6 | $ | — | $ | 2 | $ | 2 | $ | — | |||||||||||||||||||||||
| Collective trust funds(a) | 1,858 | — | 1,858 | 2,708 | — | 2,708 | |||||||||||||||||||||||||||||
| Total investment assets | 1,864 | $ | 6 | $ | 1,858 | 2,710 | $ | 2 | $ | 2,708 | |||||||||||||||||||||||||
| Accrued investment income and other receivables | 42 | 247 | |||||||||||||||||||||||||||||||||
| Accrued liabilities | (25) | (46) | |||||||||||||||||||||||||||||||||
| Investments measured at net asset value(b) | 702 | 546 | |||||||||||||||||||||||||||||||||
| Fair value of plan assets | $ | 2,583 | $ | 3,457 |
(a)Collective trust funds consist of bond funds with corporate and U.S. treasury debt securities, equity funds with global equity index, infrastructure and real estate securities and 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.
(b)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. The primary investment classes include alternative, fixed income and real estate funds. Certain investments report NAV per share on a month or quarter lag. There are no material unfunded commitments with respect to these investment classes.
Pension Plan Contributions
The Company made no cash contributions to the qualified pension plans during the years ended December 31, 2022, 2021 and 2020; 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 2023 to the extent benefits are paid.
Benefit payments for the pension plans are expected to be $191 million in 2023, $180 million in 2024, $173 million in 2025, $167 million in 2026, $162 million in 2027 and $746 million in 2028 to 2032.
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 IRS. 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.
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 401(k) plan and RAP totaling $506 million, $495 million and $493 million for the years ended December 31, 2022, 2021 and 2020, respectively.
22. Recently Issued Accounting Standards
ASU No. 2021-10, Disclosures by Business Entities about Government Assistance ("ASU 2021-10")
F-37
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
In November 2021, the FASB issued ASU 2021-10, which requires business entities to disclose information about certain government assistance they receive. Such disclosure requirements include the nature of the transactions and the related accounting policy used, the line items on the balance sheet and income statement that are affected and the amounts applicable to each financial statement line item and significant terms and conditions of the transactions. ASU 2021-10 is effective for annual periods beginning after December 15, 2021 (year ending December 31, 2022 for the Company). The Company adopted ASU 2021-10 for the year ended December 31, 2022 as discussed in Note 2.
23. Parent Company Only Financial Statements
As the result of limitations on, and prohibitions of, distributions, substantially all of the net assets of the consolidated subsidiaries are restricted from distribution to Charter, the parent company. The following condensed parent-only financial statements of Charter account for the investment in Charter Holdco under the equity method of accounting. Comprehensive income equaled net income for the years ended December 31, 2022, 2021 and 2020. The financial statements should be read in conjunction with the consolidated financial statements of the Company and notes thereto.
| Charter Communications, Inc. (Parent Company Only) | |||||||||||
| Condensed Balance Sheets | |||||||||||
| December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| ASSETS | |||||||||||
| Accounts receivable, net | $ | — | $ | 1 | |||||||
| Receivables from related party | 28 | 33 | |||||||||
| Prepaid expenses and other current assets | 24 | 24 | |||||||||
| Investment in subsidiaries | 28,729 | 33,129 | |||||||||
| Loans receivable - related party | 1 | 284 | |||||||||
| Total assets | $ | 28,782 | $ | 33,471 | |||||||
| LIABILITIES AND SHAREHOLDER'S EQUITY | |||||||||||
| Current liabilities | $ | 138 | $ | 45 | |||||||
| Deferred income taxes | 18,998 | 19,020 | |||||||||
| Loans payable - related party | 16 | — | |||||||||
| Other long-term liabilities | 511 | 356 | |||||||||
| Shareholder's equity | 9,119 | 14,050 | |||||||||
| Total liabilities and shareholder's equity | $ | 28,782 | $ | 33,471 |
F-38
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2022, 2021 AND 2020
(dollars in millions, except share or per share data or where indicated)
| Charter Communications, Inc. (Parent Company Only) | |||||||||||||||||
| Condensed Statements of Operations | |||||||||||||||||
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| INCOME | |||||||||||||||||
| Revenues | $ | 4 | $ | 5 | $ | 64 | |||||||||||
| Interest income | 2 | 7 | 12 | ||||||||||||||
| Equity in income of subsidiaries | 6,587 | 5,632 | 3,771 | ||||||||||||||
| Total income | 6,593 | 5,644 | 3,847 | ||||||||||||||
| EXPENSES | |||||||||||||||||
| Operating costs and expenses | 4 | 5 | 64 | ||||||||||||||
| Income before income taxes | 6,589 | 5,639 | 3,783 | ||||||||||||||
| Income tax expense | (1,534) | (985) | (561) | ||||||||||||||
| Net income | $ | 5,055 | $ | 4,654 | $ | 3,222 |
| Charter Communications, Inc. (Parent Company Only) | |||||||||||||||||
| Condensed Statements of Cash Flows | |||||||||||||||||
| Year Ended December 31, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| NET CASH FLOWS FROM OPERATING ACTIVITIES | $ | (1,247) | $ | (84) | $ | (49) | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||||
| Contribution to subsidiaries | (33) | (44) | (208) | ||||||||||||||
| Distributions from subsidiaries | 11,246 | 15,516 | 11,268 | ||||||||||||||
| Net cash flows from investing activities | 11,213 | 15,472 | 11,060 | ||||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||||
| Proceeds from exercise of stock options | 5 | 44 | 184 | ||||||||||||||
| Issuance of equity | — | — | 23 | ||||||||||||||
| Purchase of treasury stock | (10,277) | (15,431) | (11,217) | ||||||||||||||
| Net cash flows from related party loans | 306 | (1) | (1) | ||||||||||||||
| Net cash flows from financing activities | (9,966) | (15,388) | (11,011) | ||||||||||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | — | — | — | ||||||||||||||
| CASH AND CASH EQUIVALENTS, beginning of period | — | — | — | ||||||||||||||
| CASH AND CASH EQUIVALENTS, end of period | $ | — | $ | — | $ | — |
F-39
Previous: Item 15. Exhibits and Financial Statement Schedules.