Item 1.
Financial Statements.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions, except share data)
|
|
|
|
|
|
|
|
|
|
September 30,
2013
|
|
December 31,
2012
|
|
(unaudited)
|
|
|
ASSETS
|
|
|
|
CURRENT ASSETS:
|
|
|
|
Cash and cash equivalents
|
$
|
41
|
|
|
$
|
7
|
|
Restricted cash and cash equivalents
|
—
|
|
|
27
|
|
Accounts receivable, less allowance for doubtful accounts of
|
|
|
|
$15 and $14, respectively
|
235
|
|
|
234
|
|
Prepaid expenses and other current assets
|
81
|
|
|
62
|
|
Total current assets
|
357
|
|
|
330
|
|
|
|
|
|
INVESTMENT IN CABLE PROPERTIES:
|
|
|
|
Property, plant and equipment, net of accumulated
|
|
|
|
depreciation of $4,673 and $3,563, respectively
|
7,838
|
|
|
7,206
|
|
Franchises
|
6,009
|
|
|
5,287
|
|
Customer relationships, net
|
1,465
|
|
|
1,424
|
|
Goodwill
|
1,159
|
|
|
953
|
|
Total investment in cable properties, net
|
16,471
|
|
|
14,870
|
|
|
|
|
|
OTHER NONCURRENT ASSETS
|
422
|
|
|
396
|
|
|
|
|
|
Total assets
|
$
|
17,250
|
|
|
$
|
15,596
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
1,382
|
|
|
$
|
1,224
|
|
Total current liabilities
|
1,382
|
|
|
1,224
|
|
|
|
|
|
LONG-TERM DEBT
|
14,306
|
|
|
12,808
|
|
DEFERRED INCOME TAXES
|
1,432
|
|
|
1,321
|
|
OTHER LONG-TERM LIABILITIES
|
69
|
|
|
94
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY:
|
|
|
|
Class A common stock; $.001 par value; 900 million shares authorized;
|
|
|
|
104,246,203 and 101,176,247 shares issued, respectively
|
—
|
|
|
—
|
|
Class B common stock; $.001 par value; 25 million shares authorized;
|
|
|
|
no shares issued and outstanding
|
—
|
|
|
—
|
|
Preferred stock; $.001 par value; 250 million shares authorized;
|
|
|
|
no shares issued and outstanding
|
—
|
|
|
—
|
|
Additional paid-in capital
|
1,720
|
|
|
1,616
|
|
Accumulated deficit
|
(1,600
|
)
|
|
(1,392
|
)
|
Treasury stock at cost; 113,345 and 0 shares, respectively
|
(11
|
)
|
|
—
|
|
Accumulated other comprehensive loss
|
(48
|
)
|
|
(75
|
)
|
Total shareholders’ equity
|
61
|
|
|
149
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
$
|
17,250
|
|
|
$
|
15,596
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions, except per share and share data)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
REVENUES
|
$
|
2,118
|
|
|
$
|
1,880
|
|
|
$
|
6,007
|
|
|
$
|
5,591
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
Operating costs and expenses (excluding depreciation and amortization)
|
1,397
|
|
|
1,242
|
|
|
3,950
|
|
|
3,632
|
|
Depreciation and amortization
|
493
|
|
|
424
|
|
|
1,354
|
|
|
1,247
|
|
Other operating expenses, net
|
8
|
|
|
3
|
|
|
24
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
1,898
|
|
|
1,669
|
|
|
5,328
|
|
|
4,881
|
|
|
|
|
|
|
|
|
|
Income from operations
|
220
|
|
|
211
|
|
|
679
|
|
|
710
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES):
|
|
|
|
|
|
|
|
Interest expense, net
|
(214
|
)
|
|
(229
|
)
|
|
(635
|
)
|
|
(691
|
)
|
Loss on extinguishment of debt
|
—
|
|
|
—
|
|
|
(123
|
)
|
|
(74
|
)
|
Gain (loss) on derivative instruments, net
|
(8
|
)
|
|
—
|
|
|
9
|
|
|
—
|
|
Other expense, net
|
(11
|
)
|
|
—
|
|
|
(14
|
)
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
(233
|
)
|
|
(229
|
)
|
|
(763
|
)
|
|
(766
|
)
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
(13
|
)
|
|
(18
|
)
|
|
(84
|
)
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
Income tax expense
|
(57
|
)
|
|
(69
|
)
|
|
(124
|
)
|
|
(208
|
)
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(70
|
)
|
|
$
|
(87
|
)
|
|
$
|
(208
|
)
|
|
$
|
(264
|
)
|
|
|
|
|
|
|
|
|
LOSS PER COMMON SHARE, BASIC AND DILUTED
|
$
|
(0.68
|
)
|
|
$
|
(0.87
|
)
|
|
$
|
(2.05
|
)
|
|
$
|
(2.65
|
)
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
|
102,924,443
|
|
|
99,694,672
|
|
|
101,293,696
|
|
|
99,542,021
|
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(dollars in millions)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(70
|
)
|
|
$
|
(87
|
)
|
|
$
|
(208
|
)
|
|
$
|
(264
|
)
|
Net impact of gains (losses) on interest rate derivative instruments, net of tax
|
8
|
|
|
(7
|
)
|
|
27
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
$
|
(62
|
)
|
|
$
|
(94
|
)
|
|
$
|
(181
|
)
|
|
$
|
(282
|
)
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2013
|
|
2012
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
Net loss
|
|
$
|
(208
|
)
|
|
$
|
(264
|
)
|
Adjustments to reconcile net loss to net cash flows from operating activities:
|
|
|
|
|
Depreciation and amortization
|
|
1,354
|
|
|
1,247
|
|
Noncash interest expense
|
|
33
|
|
|
33
|
|
Loss on extinguishment of debt
|
|
123
|
|
|
74
|
|
Gain on derivative instruments, net
|
|
(9
|
)
|
|
—
|
|
Deferred income taxes
|
|
112
|
|
|
203
|
|
Other, net
|
|
69
|
|
|
25
|
|
Changes in operating assets and liabilities, net of effects from acquisitions:
|
|
|
|
|
Accounts receivable
|
|
10
|
|
|
18
|
|
Prepaid expenses and other assets
|
|
(13
|
)
|
|
(12
|
)
|
Accounts payable, accrued liabilities and other
|
|
92
|
|
|
67
|
|
Net cash flows from operating activities
|
|
1,563
|
|
|
1,391
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
Purchases of property, plant and equipment
|
|
(1,259
|
)
|
|
(1,296
|
)
|
Change in accrued expenses related to capital expenditures
|
|
21
|
|
|
16
|
|
Sales (purchases) of cable systems, net
|
|
(673
|
)
|
|
19
|
|
Other, net
|
|
(15
|
)
|
|
(18
|
)
|
Net cash flows from investing activities
|
|
(1,926
|
)
|
|
(1,279
|
)
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
Borrowings of long-term debt
|
|
6,569
|
|
|
4,353
|
|
Repayments of long-term debt
|
|
(6,177
|
)
|
|
(3,554
|
)
|
Payments for debt issuance costs
|
|
(50
|
)
|
|
(41
|
)
|
Purchase of treasury stock
|
|
(11
|
)
|
|
(4
|
)
|
Proceeds from exercise of options and warrants
|
|
67
|
|
|
13
|
|
Other, net
|
|
(1
|
)
|
|
(13
|
)
|
Net cash flows from financing activities
|
|
397
|
|
|
754
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
34
|
|
|
866
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
|
7
|
|
|
2
|
|
CASH AND CASH EQUIVALENTS, end of period
|
|
$
|
41
|
|
|
$
|
868
|
|
|
|
|
|
|
CASH PAID FOR INTEREST
|
|
$
|
584
|
|
|
$
|
647
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
1. Organization and Basis of Presentation
Organization
Charter Communications, Inc. (“Charter”) is a holding company whose principal asset is a
100%
common equity interest in Charter Communications Holding Company, LLC (“Charter Holdco”). Charter owns cable systems through its subsidiaries, which are collectively, with Charter, referred to herein as the “Company.” All significant intercompany accounts and transactions among consolidated entities have been eliminated.
The Company is a cable operator providing services in the United States. The Company offers to residential and commercial customers traditional cable video programming, Internet services, and telephone services, as well as advanced video services such as Charter OnDemand™, high definition television, and digital video recorder (“DVR”) service. The Company sells its cable video programming, Internet, telephone, and advanced video services primarily on a subscription basis. The Company also sells local advertising on cable networks and on the Internet and provides fiber connectivity to cellular towers.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnote disclosures typically included in Charter's Annual Report on Form 10-K have been condensed or omitted for this quarterly report. The accompanying condensed consolidated financial statements are unaudited and are subject to review by regulatory authorities. However, in the opinion of management, such financial statements include all adjustments, which consist of only normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. Interim results are not necessarily indicative of results for a full year.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Areas involving significant judgments and estimates include capitalization of labor and overhead costs; depreciation and amortization costs; impairments of and acquisition accounting for property, plant and equipment, intangibles and goodwill; income taxes; contingencies and programming expense. Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform with the 2013 presentation.
Restricted cash and cash equivalents on the accompanying condensed consolidated balance sheets consist of amounts held in an escrow account pending final resolution from the Bankruptcy Court. See Note 13. In April 2013, the restrictions on the cash and cash equivalents were resolved.
2.
Acquisition of Bresnan
On July 1, 2013, Charter and Charter Communications Operating, LLC ("Charter Operating") acquired Bresnan Broadband Holdings, LLC and its subsidiaries (collectively, “Bresnan”) from a wholly owned subsidiary of Cablevision Systems Corporation, for
$1.625 billion
in cash, subject to a working capital adjustment, a reduction for certain funded indebtedness of Bresnan and payment of any post-closing refunds of certain Montana property taxes paid under protest by Bresnan prior to the closing. Bresnan manages cable operating systems in Montana, Wyoming, Colorado and Utah. Charter funded the purchase of Bresnan with a
$1.5 billion
term loan E (see Note 5) and borrowings under the Charter Operating credit facilities. The Company also incurred acquisition related costs of approximately
$16 million
, which are included in other expense, net and interest expense, net in the condensed consolidated statements of operations for the
three and nine
months ended
September 30, 2013
.
The Company applied acquisition accounting to Bresnan, and its results of operations are included in the Company's consolidated results of operations following the acquisition date. The total purchase price was allocated to the identifiable tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values using Level 3 inputs (see Note 8).
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
The excess of the purchase price over those fair values was recorded as goodwill. The fair value assigned to certain identifiable tangible and intangible assets acquired and liabilities assumed were based upon a third party valuation using the assumptions developed by management and other information compiled by management including, but not limited to, future expected cash flows. Certain liabilities assumed were based upon quoted market prices.
The tables below present the calculation of the purchase price and the preliminary allocation of the purchase price to the assets and liabilities acquired.
Purchase Price:
|
|
|
|
|
|
Purchase price
|
$
|
1,625
|
|
Bresnan debt assumed (including accrued interest)
|
(962
|
)
|
Working capital adjustment
|
10
|
|
|
Cash purchase price, net of cash acquired
|
$
|
673
|
|
Preliminary
Purchase Price Allocation:
|
|
|
|
|
|
Property, plant and equipment
|
$
|
515
|
|
Franchises
|
722
|
|
Customer relationships
|
249
|
|
Goodwill
|
206
|
|
Other noncurrent assets
|
4
|
|
Current assets
|
16
|
|
Current liabilities
|
(54
|
)
|
Long-term debt (including accrued interest)
|
(985
|
)
|
|
Cash purchase price, net of cash acquired
|
$
|
673
|
|
Concurrent with the closing of the acquisition, Charter Operating repaid
$711 million
principal amount outstanding under the Bresnan credit facility and purchased
$250 million
aggregate principal amount of the
8.00%
senior notes due 2018 issued by Bresnan (the “2018 Notes”) pursuant to a tender offer for an amount, including approximately
$23 million
of tender premium, of
$274 million
. The 2018 Notes were initially recorded on the balance sheet at fair value, which approximated the principal amount plus the tender premium, with the offset to goodwill.
Charter condensed consolidated statements of operations for each of the
three and nine
months ended
September 30, 2013
included
$134 million
of revenue and
$16 million
of net loss, including
$16 million
of acquisition related costs described above, from the acquisition of Bresnan.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
The following unaudited pro forma financial information of Charter is based on the historical consolidated financial statements of Charter and the historical consolidated financial statements of Bresnan and is intended to provide information about how the acquisition of Bresnan and related financing may have affected Charter's historical consolidated financial statements if they had closed as of January 1, 2012. The pro forma financial information below is based on available information and assumptions that the Company believes are reasonable. The pro forma financial information is for illustrative and informational purposes only and is not intended to represent or be indicative of what Charter's financial condition or results of operations would have been had the transactions described above occurred on the date indicated. The pro forma financial information also should not be considered representative of Charter's future financial condition or results of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2012
|
|
2013
|
|
2012
|
Revenues
|
$
|
2,009
|
|
|
$
|
6,271
|
|
|
$
|
5,972
|
|
Net loss
|
$
|
(103
|
)
|
|
$
|
(233
|
)
|
|
$
|
(319
|
)
|
Loss per common share, basic and diluted
|
$
|
(1.03
|
)
|
|
$
|
(2.30
|
)
|
|
$
|
(3.20
|
)
|
3. Franchises, Goodwill and Other Intangible Assets
As of
September 30, 2013
and
December 31, 2012
, indefinite lived and finite-lived intangible assets are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
December 31, 2012
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchises
|
|
$
|
6,009
|
|
|
$
|
—
|
|
|
$
|
6,009
|
|
|
$
|
5,287
|
|
|
$
|
—
|
|
|
$
|
5,287
|
|
Goodwill
|
|
1,159
|
|
|
—
|
|
|
1,159
|
|
|
953
|
|
|
—
|
|
|
953
|
|
Trademarks
|
|
158
|
|
|
—
|
|
|
158
|
|
|
158
|
|
|
—
|
|
|
158
|
|
Other intangible assets
|
|
4
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,330
|
|
|
$
|
—
|
|
|
$
|
7,330
|
|
|
$
|
6,398
|
|
|
$
|
—
|
|
|
$
|
6,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
2,617
|
|
|
$
|
1,152
|
|
|
$
|
1,465
|
|
|
$
|
2,368
|
|
|
$
|
944
|
|
|
$
|
1,424
|
|
Other intangible assets
|
|
126
|
|
|
40
|
|
|
86
|
|
|
105
|
|
|
29
|
|
|
76
|
|
|
|
$
|
2,743
|
|
|
$
|
1,192
|
|
|
$
|
1,551
|
|
|
$
|
2,473
|
|
|
$
|
973
|
|
|
$
|
1,500
|
|
Amortization expense related to customer relationships and other intangible assets for the three months ended
September 30, 2013
and
2012
was
$82 million
and
$74 million
, respectively, and for the
nine
months ended
September 30, 2013
and
2012
was
$219 million
and
$222 million
, respectively. Franchises, customer relationships and goodwill increased by
$722 million
,
$249 million
and
$206 million
, respectively, as a result of the acquisition of Bresnan completed during the
three and nine
months ended
September 30, 2013
(See Note 2).
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
The Company expects amortization expense on its finite-lived intangible assets will be as follows.
|
|
|
|
|
|
Three months ended December 31, 2013
|
|
$
|
80
|
|
2014
|
|
297
|
|
2015
|
|
264
|
|
2016
|
|
230
|
|
2017
|
|
197
|
|
Thereafter
|
|
483
|
|
|
|
|
|
|
$
|
1,551
|
|
Actual amortization expense in future periods will differ from these estimates as a result of new intangible asset acquisitions or divestitures, changes in useful lives, impairments and other relevant factors.
4. Accounts Payable and Accrued Liabilities
Accounts payable and accrued expenses consist of the following as of
September 30, 2013
and
December 31, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
December 31, 2012
|
|
|
|
|
|
Accounts payable – trade
|
|
$
|
81
|
|
|
$
|
107
|
|
Accrued capital expenditures
|
|
180
|
|
|
156
|
|
Deferred revenue
|
|
90
|
|
|
81
|
|
Accrued liabilities:
|
|
|
|
|
Interest
|
|
176
|
|
|
155
|
|
Programming costs
|
|
389
|
|
|
323
|
|
Franchise related fees
|
|
56
|
|
|
52
|
|
Compensation
|
|
143
|
|
|
145
|
|
Other
|
|
267
|
|
|
205
|
|
|
|
|
|
|
|
|
$
|
1,382
|
|
|
$
|
1,224
|
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
5. Long-Term Debt
Long-term debt consists of the following as of
September 30, 2013
and
December 31, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
December 31, 2012
|
|
Principal Amount
|
|
Accreted Value
|
|
Principal Amount
|
|
Accreted Value
|
CCO Holdings, LLC:
|
|
|
|
|
|
|
|
7.250% senior notes due October 30, 2017
|
$
|
1,000
|
|
|
$
|
1,000
|
|
|
$
|
1,000
|
|
|
$
|
1,000
|
|
7.875% senior notes due April 30, 2018
|
—
|
|
|
—
|
|
|
900
|
|
|
900
|
|
7.000% senior notes due January 15, 2019
|
1,400
|
|
|
1,393
|
|
|
1,400
|
|
|
1,392
|
|
8.125% senior notes due April 30, 2020
|
700
|
|
|
700
|
|
|
700
|
|
|
700
|
|
7.375% senior notes due June 1, 2020
|
750
|
|
|
750
|
|
|
750
|
|
|
750
|
|
5.250% senior notes due March 15, 2021
|
500
|
|
|
500
|
|
|
—
|
|
|
—
|
|
6.500% senior notes due April 30, 2021
|
1,500
|
|
|
1,500
|
|
|
1,500
|
|
|
1,500
|
|
6.625% senior notes due January 31, 2022
|
750
|
|
|
747
|
|
|
750
|
|
|
746
|
|
5.250% senior notes due September 30, 2022
|
1,250
|
|
|
1,239
|
|
|
1,250
|
|
|
1,238
|
|
5.125% senior notes due February 15, 2023
|
1,000
|
|
|
1,000
|
|
|
1,000
|
|
|
1,000
|
|
5.750% senior notes due September 1, 2023
|
500
|
|
|
500
|
|
|
—
|
|
|
—
|
|
5.750% senior notes due January 15, 2024
|
1,000
|
|
|
1,000
|
|
|
—
|
|
|
—
|
|
Credit facility due September 6, 2014
|
350
|
|
|
339
|
|
|
350
|
|
|
332
|
|
Charter Communications Operating, LLC:
|
|
|
|
|
|
|
|
Credit facilities
|
3,679
|
|
|
3,638
|
|
|
3,337
|
|
|
3,250
|
|
Long-Term Debt
|
$
|
14,379
|
|
|
$
|
14,306
|
|
|
$
|
12,937
|
|
|
$
|
12,808
|
|
The accreted values presented above represent the principal amount of the debt less the original issue discount at the time of sale, plus the accretion to the balance sheet date. However, the amount that is currently payable if the debt becomes immediately due is equal to the principal amount of the debt. The Company has availability under its credit facilities of approximately
$978 million
as of
September 30, 2013
and as such, debt maturing in the next twelve months is classified as long-term.
In January 2012, CCO Holdings, LLC ("CCO Holdings") and CCO Holdings Capital Corp. closed on transactions in which they issued
$750 million
aggregate principal amount of
6.625%
senior notes due 2022. The notes were issued at a price of
99.5%
of the aggregate principal amount. The net proceeds of the notes were used, along with a draw on the
$500 million
delayed draw portion of the Charter Operating term loan A facility, to repurchase
$300 million
aggregate principal amount of Charter Operating's outstanding
8.000%
senior second-lien notes due 2012,
$294 million
aggregate principal amount of Charter Operating's
10.875%
senior second-lien notes due 2014 and
$334 million
aggregate principal amount of CCH II, LLC's ("CCH II")
13.500%
senior notes due 2016, as well as to repay amounts outstanding under the Company's revolving credit facility. The tender offers closed in January and February 2012 and the Company recorded a loss on extinguishment of debt of approximately
$15 million
on this transaction for the
nine
months ended
September 30, 2012
.
In April 2012, Charter Operating entered into a senior secured term loan D facility pursuant to the terms of the Charter Operating credit agreement providing for
$750 million
of term loans with a final maturity date of May 15, 2019. Pricing on the new term loan D was set at LIBOR plus
3%
with a LIBOR floor of
1%
, and issued at a price of
99.5%
of the aggregate principal amount. The proceeds were used to refinance Charter Operating's existing term loan B-1 and term loan B-2, both due 2014, with the remaining amount used to pay down a portion of its existing term loan C due 2016. Charter Operating concurrently amended and restated its existing
$1.3 billion
revolving credit facility with a new
$1.15 billion
revolving credit facility due 2017 at the interest rate of LIBOR plus
2.25%
and amended and restated its existing credit agreement dated March 31, 2010. The Company recorded a loss on extinguishment of debt of approximately
$59 million
during the
nine
months ended
September 30, 2012
related to these transactions.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
In March 2013, CCO Holdings and CCO Holdings Capital Corp. closed on transactions in which they issued
$500 million
aggregate principal amount of
5.25%
senior notes due 2021 (the "2021 Notes") and
$500 million
aggregate principal amount of
5.750%
senior notes due 2023 (the "2023 Notes") (collectively, the "Notes"). The proceeds from the Notes were used for repaying amounts outstanding under the Charter Operating term loan C facility. The Company recorded a loss on extinguishment of debt of approximately
$42 million
for the
nine
months ended
September 30, 2013
related to these transactions.
The Notes are guaranteed by Charter. They 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. The Notes are structurally subordinated to all obligations of subsidiaries of CCO Holdings, including the Charter Operating credit facilities.
CCO Holdings may redeem some or all of the 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 2016 through 2019 (in regards to the 2021 Notes) or 2018 through 2021 (in regards to the 2023 Notes).
In addition, at any time prior to March 15, 2016 (in regards to the 2021 Notes) or March 1, 2016 (in regards to the 2023 Notes), CCO Holdings may redeem up to
35%
of the aggregate principal amount of the Notes at a redemption price 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 Notes from the holders at a purchase price equal to
101%
of the total principal amount of the notes, plus any accrued and unpaid interest.
In March 2013, Charter Operating entered into an amendment to its credit agreement. The amendment, among other things, eliminated the
$7.5 billion
cap on the incurrence of first lien debt; and eliminated the requirement for providing Charter Operating financial statements and instead allowing for Charter financial statements with consolidating information.
In April 2013, Charter Operating entered into an amendment to its credit agreement extending the maturity of its term loan A and revolver one year to 2018, decreasing the applicable LIBOR margin for the term loan A and revolver to
2%
, decreasing the undrawn commitment fee on the revolver to
0.35%
and increasing the revolver capacity to
$1.3 billion
. The Company recorded a loss on extinguishment of debt of approximately
$2 million
for the
nine
months ended
September 30, 2013
related to these transactions.
In May 2013, Charter Operating entered into a new term loan F facility pursuant to the terms of the Charter Operating credit agreement providing for a
$1.2 billion
term loan maturing in 2021. Pricing on the new term loan F was set at LIBOR plus
2.25%
with a LIBOR floor of
0.75%
, and issued at a price of
99.75%
of the aggregate principal amount. The Company used the proceeds to repay Charter Operating's existing term loan C due 2016 and term loan D due 2019. The Company recorded a loss on extinguishment of debt of approximately
$14 million
for the
nine
months ended
September 30, 2013
related to these transactions.
In May 2013, CCO Holdings and CCO Holdings Capital Corp. closed on transactions in which they issued
$1.0 billion
aggregate principal amount of
5.75%
senior notes due 2024 (the "2024 Notes"). Concurrently with the pricing of the
5.75%
senior notes, a tender offer was launched to purchase any and all of the CCO Holdings
7.875%
senior notes due 2018. The Company used the proceeds from the issuance to purchase the notes tendered in the tender offer. Any notes not tendered were subsequently called in June. The Company recorded a loss on extinguishment of debt of approximately
$65 million
for the
nine
months ended
September 30, 2013
related to these transactions.
The 2024 Notes are guaranteed by Charter. They 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. The 2024 Notes are structurally subordinated to all obligations of subsidiaries of CCO Holdings, including the Charter Operating credit facilities.
CCO Holdings may redeem some or all of the 2024 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 2018 through 2021.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
In addition, at any time prior to July 15, 2016, CCO Holdings may redeem up to
35%
of the aggregate principal amount of the 2024 Notes at a redemption price 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 2024 Notes from the holders at a purchase price equal to
101%
of the total principal amount of the 2024 Notes, plus any accrued and unpaid interest.
In June 2013, Charter Operating entered into an amendment to its credit agreement. The amendment, among other things: (i) modified the restricted payments covenant to permit expanded flexibility for acquisitions; (ii) modified the events of default under the credit agreement to permit change of control offers with respect to assumed indebtedness subject to certain restrictions; (iii) modified the transactions with affiliates covenant; (iv) permits the granting of equal and ratable security on certain assumed indebtedness subject to pro forma compliance with certain financial tests; (v) permits incremental term loans to amortize equivalent to the existing term loan A-1; and (vi) allows for an increase in revolving commitments based on Charter Operating's annualized operating cash flow.
In July 2013, Charter Operating activated the previously committed term loan E facility pursuant to the terms of the Charter Operating credit agreement providing for a
$1.5 billion
term loan maturing in seven years. Pricing on the new term loan E was set at LIBOR plus
2.25%
with a LIBOR floor of
0.75%
, and the term loan was issued at a price of
99.5%
of the aggregate principal amount.
6. Common Stock
In January 2012, the Company purchased, in a private transaction with a shareholder,
49,332
shares of its common stock at
$55.18
for a total of
$3 million
. These shares were retired in January 2012.
During the
three and nine
months ended
September 30, 2013
, the Company withheld
7,245
and
113,345
, respectively, shares of its common stock in payment of
$1 million
and
$11 million
income tax withholding owed by employees upon vesting of restricted shares, respectively. During the
three and nine
months ended
September 30, 2012
, the Company withheld
4,632
and
15,556
shares, respectively, of its common stock in payment of
$1 million
income tax withholding owed by employees upon vesting of restricted shares. In December 2012, Charter's board of directors approved the retirement of the then currently held treasury stock and those shares were retired as of December 31, 2012. The Company accounts for treasury stock using the cost method and includes treasury stock as a component of total shareholders' equity.
In July 2013, the Company issued approximately
2.3 million
shares of Charter Class A common stock to Paul G. Allen, the Company's former principal stockholder, pursuant to Mr. Allen's exercise of warrants with an exercise price of
$19.80
. The exercise resulted in proceeds to the Company of approximately
$46 million
. Mr. Allen had originally received the warrants pursuant to the Joint Plan of Reorganization (the "Plan") upon the Company's emergence from bankruptcy.
7. Accounting for Derivative Instruments and Hedging Activities
The Company uses interest rate derivative instruments to manage its interest costs and reduce the Company’s exposure to increases in floating interest rates. The Company manages its exposure to fluctuations in interest rates by maintaining a mix of fixed and variable rate debt. Using interest rate derivative instruments, the Company agrees to exchange, at specified intervals through 2017, the difference between fixed and variable interest amounts calculated by reference to agreed-upon notional principal amounts.
The Company does not hold or issue derivative instruments for speculative trading purposes. The Company, until de-designating in the three months ended March 31, 2013, had certain interest rate derivative instruments that were designated as cash flow hedging instruments for GAAP purposes. Such instruments effectively converted variable interest payments on certain debt instruments into fixed payments. For qualifying hedges, realized derivative gains and losses offset related results on hedged items in the condensed consolidated statements of operations. The Company formally documented, designated and assessed the effectiveness of transactions that received hedge accounting.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
The effect of interest rate derivative instruments on the Company’s condensed consolidated balance sheets is presented in the table below:
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
December 31, 2012
|
|
|
|
|
Other long-term liabilities:
|
|
|
|
Fair value of interest rate derivatives designated as hedges
|
$
|
—
|
|
|
$
|
67
|
|
Fair value of interest rate derivatives not designated as hedges
|
$
|
27
|
|
|
$
|
—
|
|
|
|
|
|
Accrued interest:
|
|
|
|
Fair value of interest rate derivatives designated as hedges
|
$
|
—
|
|
|
$
|
8
|
|
Fair value of interest rate derivatives not designated as hedges
|
$
|
12
|
|
|
$
|
—
|
|
|
|
|
|
Accumulated other comprehensive loss:
|
|
|
|
Fair value of interest rate derivatives designated as hedges
|
$
|
—
|
|
|
$
|
(75
|
)
|
Fair value of interest rate derivatives not designated as hedges
|
$
|
(48
|
)
|
|
$
|
—
|
|
Changes in the fair value of interest rate derivative instruments that were designated as hedging instruments of the variability of cash flows associated with floating-rate debt obligations, and that met effectiveness criteria were reported in accumulated other comprehensive loss. The amounts were subsequently reclassified as an increase or decrease to interest expense in the same periods in which the related interest on the floating-rate debt obligations affected earnings (losses).
Due to repayment of variable rate credit facility debt without a LIBOR floor, certain interest rate derivative instruments were de-designated as cash flow hedges during the three months ended March 31, 2013, as they no longer met the criteria for cash flow hedging specified by GAAP. In addition, on March 31, 2013, the remaining interest rate derivative instruments that continued to be highly effective cash flow hedges for GAAP purposes were electively de-designated. On the date of de-designation, the Company completed a final measurement test for each interest rate derivative instrument to determine any ineffectiveness and such amount was reclassified from accumulated other comprehensive loss into gain (loss) on derivative instruments, net in the Company's condensed consolidated statements of operations. While these interest rate derivative instruments are no longer designated as cash flow hedges for accounting purposes, management continues to believe such instruments are closely correlated with the respective debt, thus managing associated risk. Interest rate derivative instruments not designated as hedges are marked to fair value, with the impact recorded as a gain or loss on derivative instruments, net in the Company's condensed consolidated statements of operations. The balance that remains in accumulated other comprehensive loss for these interest rate derivative instruments will be amortized over the respective lives of the contracts and recorded as a loss within gain (loss) on derivative instruments, net in the Company's condensed consolidated statements of operations. The estimated net amount of existing losses that are reported in accumulated other comprehensive loss as of
September 30, 2013
that is expected to be reclassified into earnings within the next twelve months is approximately
$23 million
.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
The effects of interest rate derivative instruments on the Company’s condensed consolidated statements of operations is presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
Gain (loss) on derivative instruments, net:
|
|
|
|
|
|
|
|
Change in fair value of interest rate derivative instruments not designated as cash flow hedges
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
29
|
|
|
$
|
—
|
|
Loss reclassified from accumulated other comprehensive loss into earnings as a result of cash flow hedge discontinuance
|
$
|
(8
|
)
|
|
$
|
—
|
|
|
$
|
(20
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
Loss reclassified from accumulated other comprehensive loss into interest expense
|
$
|
—
|
|
|
$
|
(10
|
)
|
|
$
|
(10
|
)
|
|
$
|
(27
|
)
|
As of
September 30, 2013
and
December 31, 2012
, the Company had
$2.2 billion
and
$3.1 billion
in notional amounts of interest rate derivative instruments outstanding. This includes
$550 million
in delayed start interest rate derivative instruments that become effective in March 2014 through March 2015. In any future quarter in which a portion of these delayed start interest rate derivative instruments first becomes effective, an equal or greater notional amount of the currently effective interest rate derivative instruments are scheduled to mature. Therefore, the
$1.7 billion
notional amount of currently effective interest rate derivative instruments will gradually step down over time as current interest rate derivative instruments mature and an equal or lesser amount of delayed start interest rate derivative instruments become effective.
The notional amounts of interest rate instruments do not represent amounts exchanged by the parties and, thus, are not a measure of exposure to credit loss. The amounts exchanged were determined by reference to the notional amount and the other terms of the contracts.
8. Fair Value Measurements
The accounting guidance
establishes a three-level hierarchy for disclosure of fair value measurements, based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date, as follows:
|
|
•
|
Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
•
|
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
|
•
|
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
Financial Assets and Liabilities
The Company has estimated the fair value of its financial instruments as of
September 30, 2013
and
December 31, 2012
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 condensed consolidated financial statements are not necessarily indicative of the amounts the Company would realize in a current market exchange.
The carrying amounts of cash and cash equivalents, receivables, payables and other current assets and liabilities approximate fair value because of the short maturity of those instruments.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
The estimated fair value of the Company’s debt at
September 30, 2013
and
December 31, 2012
are based on quoted market prices and is classified within Level 1 of the valuation hierarchy.
A summary of the carrying value and fair value of the Company’s debt at
September 30, 2013
and
December 31, 2012
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2013
|
|
December 31, 2012
|
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
Debt
|
|
|
|
|
|
|
|
|
CCO Holdings senior notes
|
|
$
|
10,329
|
|
|
$
|
10,356
|
|
|
$
|
9,226
|
|
|
$
|
9,933
|
|
Credit facilities
|
|
$
|
3,977
|
|
|
$
|
3,971
|
|
|
$
|
3,582
|
|
|
$
|
3,695
|
|
The interest rate derivative instruments were valued as
$39 million
and
$75 million
liabilities as of
September 30, 2013
and
December 31, 2012
, respectively, using a present value calculation based on an implied forward LIBOR curve (adjusted for Charter Operating’s or counterparties’ credit risk) and were classified within Level 2 of the valuation hierarchy. The weighted average pay rate for the Company’s currently effective interest rate derivative instruments was
2.17%
and
2.25%
at
September 30, 2013
and
December 31, 2012
, respectively (exclusive of applicable spreads).
Nonfinancial Assets and Liabilities
The Company’s nonfinancial assets such as franchises, property, plant, and equipment, and other intangible assets are not measured at fair value on a recurring basis; however they are subject to fair value adjustments in certain circumstances, such as when there is evidence that an impairment may exist. No impairments were recorded during the
three and nine
months ended
September 30, 2013
and
2012
.
9. Operating Costs and Expenses
Operating costs and expenses consist of the following for the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Programming
|
$
|
558
|
|
|
$
|
497
|
|
|
$
|
1,596
|
|
|
$
|
1,484
|
|
Franchise, regulatory and connectivity
|
100
|
|
|
92
|
|
|
285
|
|
|
277
|
|
Costs to service customers
|
399
|
|
|
356
|
|
|
1,131
|
|
|
1,006
|
|
Marketing
|
128
|
|
|
105
|
|
|
352
|
|
|
324
|
|
Other
|
212
|
|
|
192
|
|
|
586
|
|
|
541
|
|
|
|
|
|
|
|
|
|
|
$
|
1,397
|
|
|
$
|
1,242
|
|
|
$
|
3,950
|
|
|
$
|
3,632
|
|
Programming costs consist primarily of costs paid to programmers for basic, premium, digital, OnDemand, and pay-per-view programming. Franchise, regulatory and connectivity costs represent payments to franchise and regulatory authorities and costs directly related to providing Internet and telephone services. Costs to service customers include residential and commercial costs related to field operations, network operations and customer care including labor, reconnects, maintenance, billing, occupancy and vehicle costs. Marketing costs represents the costs of marketing to our current and potential commercial and residential customers including labor costs. Other includes bad debt and collections expense, corporate overhead, commercial and advertising sales expenses, property tax and insurance and stock compensation expense, among others.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
10. Other Operating Expenses, Net
Other operating expenses, net consist of the following for the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
(Gain)/loss on sale of assets, net
|
$
|
5
|
|
|
$
|
1
|
|
|
$
|
6
|
|
|
$
|
(12
|
)
|
Special charges, net
|
3
|
|
|
2
|
|
|
18
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
$
|
8
|
|
|
$
|
3
|
|
|
$
|
24
|
|
|
$
|
2
|
|
Gain (loss) on sale of assets, net
Gain (loss) on sale of assets represents the gain or loss recognized on the sales and disposals of fixed assets and cable systems.
Special charges, net
Special charges, net for the
three and nine
months ended
September 30, 2013
and
2012
primarily include severance charges and net amounts of litigation settlements.
11. Income Taxes
All of Charter’s operations are held through Charter Holdco and its direct and indirect subsidiaries. Charter Holdco 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 indirect subsidiaries that are corporations are subject to federal and state income tax. All of the remaining taxable income, gains, losses, deductions and credits of Charter Holdco are passed through to Charter and its direct subsidiaries.
For the
three and nine
months ended
September 30, 2013
, the Company recorded
$57 million
and
$124 million
of income tax expense, respectively. For the
three and nine
months ended
September 30, 2012
, the Company recorded
$69 million
and
$208 million
of income tax expense, respectively. Income tax expense is recognized primarily through increases in deferred tax liabilities related to our investment in Charter Holdco, as well as through current federal and state income tax expense and increases in the deferred tax liabilities of certain of our indirect corporate subsidiaries. Income tax expense for the
nine
months ended
September 30, 2013
decreased compared to the corresponding prior period, primarily as a result of a step-up in basis of indefinite-lived assets for tax, but not GAAP purposes, which decreased the Company's net deferred tax liability related to indefinite-lived assets by
$58 million
.
The step-up for tax purposes corresponds to gains recognized by corporate subsidiaries of Charter, which are partners in Charter Holdco, and resulted primarily from the repayment of Charter Operating credit facility debt with proceeds from the CCO Holdings notes issued in March 2013, see Note 5. The repayment of Charter Operating credit facility debt, which is not guaranteed by Charter, with proceeds from the Notes, which are guaranteed by Charter, had the effect of reducing the amount of debt allocable to the non-guarantor corporate subsidiaries of Charter. For partnership tax purposes, the reduction in the amount of non-guaranteed debt available to allocate to these corporate subsidiaries caused them to recognize gains due to limited basis in their partnership interests in Charter Holdco. The tax provision in future periods will vary based on various factors including changes in its deferred tax liabilities attributable to indefinite-lived intangibles, as well as future operating results, however the Company does not anticipate having such a large reduction in tax expense attributable to this item unless it enters into similar future financing transactions.
As of
September 30, 2013
and
December 31, 2012
, the Company had net deferred income tax liabilities of approximately
$1.4 billion
and
$1.3 billion
, respectively. Net current deferred tax assets of
$17 million
and
$18 million
as of
September 30, 2013
and
December 31, 2012
, respectively, are included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets of the Company. Net deferred tax liabilities included approximately
$221 million
and
$219 million
at
September 30, 2013
and
December 31, 2012
, respectively, relating to certain indirect subsidiaries of Charter Holdco that file
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
separate federal or state income tax returns. The remainder of the Company's net deferred tax liability arose from Charter's investment in Charter Holdco, and was largely attributable to the characterization of franchises for financial reporting purposes as indefinite-lived.
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 determining whether positions taken on the tax return are “more likely than not” of being sustained. A reconciliation of the beginning and ending amount of unrecognized tax benefits included in deferred income taxes on the accompanying consolidated balance sheets of the Company is as follows:
|
|
|
|
|
|
Balance at December 31, 2012
|
|
$
|
202
|
|
Reductions due to tax positions related to prior year
|
|
(201
|
)
|
|
|
|
Balance at September 30, 2013
|
|
$
|
1
|
|
The Company's entire reserve for uncertain tax positions includes tax positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the character of the deductibility. The balance at
September 30, 2013
reflects
$201 million
of net reductions related to losses which would be offset by gains discussed above. The change in character of the deduction would not impact the annual effective tax rate after consideration of the valuation allowance. The deductions for the uncertain tax positions are included with the loss carryforwards in the deferred tax assets and therefore there is no impact to the financial statements.
On May 1, 2013, Liberty Media Corporation (“Liberty Media”) completed its purchase of a
27%
beneficial interest in Charter (see Note 12). Upon closing, Charter experienced a second “ownership change” as defined in Section 382 of the Internal Revenue Code resulting in a second set of limitations on Charter’s use of its existing federal and state net operating losses, capital losses, and tax credit carryforwards. The first ownership change limitations that applied as a result of our emergence from bankruptcy in 2009 will also continue to apply. Pursuant to these Section 382 limitations, approximately
$1.1 billion
,
$2.0 billion
,
$2.1 billion
and
$300 million
in the years 2013 to 2016, respectively, and
$226 million
annually in 2017 and thereafter, of Charter’s federal loss carryforwards become unrestricted and available for Charter's use. Since the limitation amounts accumulate for future use to the extent they are not utilized in any given year, Charter believes its loss carryforwards should become fully available to offset future taxable income, if any. Charter’s state loss carryforwards and indirect corporate subsidiaries’ loss carryforwards are subject to similar, but varying limitations on their future use. If the Company was to experience another “ownership change” in the future, its ability to use its loss carryforwards could be subject to further limitations.
No tax years for Charter or Charter Holdco are currently under examination by the IRS. Tax years ending 2010 through 2012 remain subject to examination and assessment. Years prior to 2010 remain open solely for purposes of examination of Charter’s loss and credit carryforwards.
12.
Related Party Transactions
On May 1, 2013, Liberty Media completed its purchase from investment funds managed by, or affiliated with, Apollo Global Management, LLC, Oaktree Capital Management, L.P. and Crestview Partners of approximately
26.9 million
shares and warrants to purchase approximately
1.1 million
shares in Charter for approximately
$2.6 billion
(the "Liberty Media Transaction"), which represents an approximate
27%
beneficial ownership in Charter and a price per share of
$95.50
.
In connection with the Liberty Media Transaction, Charter entered into a stockholders agreement with Liberty Media that, among other things, provided Liberty Media with the right to designate four directors for appointment to Charter's board of directors in connection with the closing. Liberty Media designated John Malone, Chairman of Liberty Media, Gregory Maffei, president and chief executive officer of Liberty Media, Balan Nair, executive vice president and chief technology officer of Liberty Global plc, and Michael Huseby, president of Barnes & Noble, Inc. Charter’s board of directors appointed these directors effective upon the resignations of Stan Parker, Darren Glatt, Bruce Karsh and Edgar Lee in connection with the closing of the Liberty Media Transaction on May 1, 2013. Subject to Liberty Media’s continued ownership level in Charter, the stockholders agreement also provides that Liberty Media can designate up to four directors as nominees for election to Charter’s board of directors at least through Charter’s 2015 annual meeting of stockholders, and that up to one of these individuals may serve on each of the Audit Committee, the Nominating and Corporate Governance Committee, and Compensation and Benefits Committee of Charter’s board of directors.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
Consistent with these provisions, the board appointed Dr. Malone to serve on the Nominating and Corporate Governance Committee, Mr. Maffei to serve on the Finance Committee and the Compensation and Benefits Committee and Mr. Huseby to serve on the Audit Committee.
In addition, Liberty Media agreed to not increase its beneficial ownership in Charter above
35%
until January 2016, at which point such limit increases to
39.99%
. Liberty Media is also, subject to certain exceptions, subject to certain customary standstill provisions that prohibit Liberty Media from, among other things, engaging in proxy or consent solicitations relating to the election of directors. The standstill limitations apply through the 2015 shareholder meeting and continue to apply as long as Liberty Media's designees are nominated to the Charter board, unless the agreement is earlier terminated. Charter approved Liberty Media as an interested stockholder under the business combination provisions of the Delaware General Corporation Law.
The Company is aware that Dr. Malone may be deemed to have a
34.5%
voting interest in Liberty Interactive Corp. (“Liberty Interactive”) and is Chairman of the board of directors, an executive officer position, of Liberty Interactive. Liberty Interactive owns
36.9%
of the common stock of HSN, Inc. (“HSN”) and has the right to elect
20%
of the board members of HSN. Liberty Interactive wholly owns QVC, Inc (“QVC”). The Company has programming relationships with HSN and QVC which pre-date the Liberty Media Transaction. For the three and six months ended
September 30, 2013
, the Company received payments in aggregate of approximately
$3 million
and
$6 million
, respectively, from HSN and QVC as part of channel carriage fees and revenue sharing arrangements for home shopping sales made to customers in Charter's footprint.
Dr. Malone also serves on the board of directors of Discovery Communications, Inc., (“Discovery”) and the Company is aware that Dr. Malone owns
4.3%
in the aggregate of the common stock of Discovery and has a
29.2%
voting interest in Discovery for the election of directors. In addition, Dr. Malone owns
9.2%
in the aggregate of the common stock of Starz and has
42.8%
of the voting power. Mr. Maffei is a non-executive Chairman of the board of Starz. The Company purchases programming from both Discovery and Starz pursuant to agreements entered into prior to the Liberty Media Transaction and Dr. Malone and Mr. Maffei joining Charter's board of directors. Based on publicly available information, the Company does not believe that either Discovery or Starz would currently be considered related parties. The amounts paid in aggregate to Discovery and Starz represent less than
3%
of total operating costs and expenses for the three and six months ended
September 30, 2013
.
13.
Contingencies
On March 27, 2009, Charter filed a Chapter 11 petition in the United States Bankruptcy Court for the Southern District of New York. On November 17, 2009, the Bankruptcy Court issued its Order and Opinion confirming the Plan over the objections of various objectors. Charter consummated the Plan on November 30, 2009.
Two appeals were pending relating to confirmation of the Plan, the appeals by (i) Law Debenture Trust Company of New York (“LDT”) (as the Trustee with respect to the
$479 million
in aggregate principal amount of
6.50%
convertible senior notes due 2027 issued by Charter which are no longer outstanding following consummation of the Plan and the holders of which already received distributions of approximately
$168 million
pursuant to the Plan); and (ii) R
2
Investments, LDC (“R
2
Investments”) (a former equity interest holder in Charter). On January 10, 2013, R
2
Investments and LDT filed a petition for a writ of certiorari with the United States Supreme Court, asking that court to review the 2
nd
Circuit's decision. On April 29, 2013, the Supreme Court issued its order that the writ of certiorari has been denied.
The Company is also a defendant or co-defendant in several lawsuits claiming infringement of various patents relating to various aspects of its businesses. Other industry participants are also defendants in certain of these cases. In the event that a court ultimately determines that the Company infringes on any intellectual property rights, the Company may be subject to substantial damages and/or an injunction that could require the Company or its vendors to modify certain products and services the Company offers to its subscribers, as well as negotiate royalty or license agreements with respect to the patents at issue. While the Company believes the lawsuits are without merit and intends to defend the actions vigorously, no assurance can be given that any adverse outcome would not be material to the Company's consolidated financial condition, results of operations, or liquidity. The Company cannot predict the outcome of any such claims nor can it reasonably estimate a range of possible loss.
The Company is party to lawsuits and claims that arise in the ordinary course of conducting its business, including lawsuits claiming violation of wage and hour laws. 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
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
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.
14.
Stock Compensation Plans
Charter’s 2009 Stock Incentive Plan provides for grants of nonqualified stock options, incentive stock options, stock appreciation rights, dividend equivalent rights, performance units and performance shares, share awards, phantom stock, restricted stock units and restricted stock. Directors, officers and other employees of the Company and its subsidiaries, as well as others performing consulting services for the Company, are eligible for grants under the 2009 Stock Incentive Plan. In April 2013, Charter's board of directors and shareholders approved an additional
6 million
shares of Charter Class A common stock (or units convertible into Charter Class A common stock) under the 2009 Stock Incentive Plan.
The Company granted the following equity awards for the years presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
Stock options
|
71,600
|
|
|
121,500
|
|
|
225,200
|
|
|
575,200
|
|
Restricted stock
|
—
|
|
|
—
|
|
|
12,700
|
|
|
243,800
|
|
Restricted stock units
|
19,200
|
|
|
31,900
|
|
|
59,000
|
|
|
94,300
|
|
Stock options generally vest annually over
four
years from either the grant date or delayed vesting commencement dates. Stock options generally expire
ten
years from the grant date. Restricted stock vests annually over a
one
to
four
-year period beginning from the date of grant. A portion of stock options and restricted stock vest based on achievement of stock price hurdles. Restricted stock units have no voting rights and vest ratably over
four
years from either the grant date or delayed vesting commencement dates. As of
September 30, 2013
, total unrecognized compensation remaining to be recognized in future periods totaled
$36 million
for stock options,
$21 million
for restricted stock and
$18 million
for restricted stock units and the weighted average period over which they are expected to be recognized is
2
years for stock options,
2
years for restricted stock and
3
years for restricted stock units.
The Company recorded
$11 million
and
$37 million
of stock compensation expense for the
three and nine
months ended
September 30, 2013
, respectively, and
$13 million
and
$37 million
of stock compensation expense for the
three and nine
months ended
September 30, 2012
, respectively, which is included in operating costs and expenses.
15.
Consolidating Schedules
The CCO Holdings notes and the CCO Holdings credit facility are obligations of CCO Holdings. However, the CCO Holdings notes are also jointly, severally, fully and unconditionally guaranteed on an unsecured senior basis by Charter.
The accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10,
Financial Statements of Guarantors and Affiliates Whose Securities Collateralize an Issue Registered or Being Registered.
This information is not intended to present the financial position, results of operations and cash flows of the individual companies or groups of companies in accordance with generally accepted accounting principles.
Condensed consolidating financial statements as of
September 30, 2013
and
December 31, 2012
and for the
nine
months ended
September 30, 2013
and
2012
follow.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Communications, Inc.
|
Condensed Consolidating Balance Sheet
|
As of September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter
|
|
Intermediate Holding Companies
|
|
CCO Holdings
|
|
Charter Operating and Subsidiaries
|
|
Eliminations
|
|
Charter Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
37
|
|
|
$
|
—
|
|
|
$
|
41
|
|
Accounts receivable, net
|
—
|
|
|
6
|
|
|
—
|
|
|
229
|
|
|
—
|
|
|
235
|
|
Receivables from related party
|
62
|
|
|
164
|
|
|
8
|
|
|
—
|
|
|
(234
|
)
|
|
—
|
|
Prepaid expenses and other current assets
|
16
|
|
|
11
|
|
|
—
|
|
|
54
|
|
|
—
|
|
|
81
|
|
Total current assets
|
82
|
|
|
181
|
|
|
8
|
|
|
320
|
|
|
(234
|
)
|
|
357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT IN CABLE PROPERTIES:
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
—
|
|
|
30
|
|
|
—
|
|
|
7,808
|
|
|
—
|
|
|
7,838
|
|
Franchises
|
—
|
|
|
—
|
|
|
—
|
|
|
6,009
|
|
|
—
|
|
|
6,009
|
|
Customer relationships, net
|
—
|
|
|
—
|
|
|
—
|
|
|
1,465
|
|
|
—
|
|
|
1,465
|
|
Goodwill
|
—
|
|
|
—
|
|
|
—
|
|
|
1,159
|
|
|
—
|
|
|
1,159
|
|
Total investment in cable properties, net
|
—
|
|
|
30
|
|
|
—
|
|
|
16,441
|
|
|
—
|
|
|
16,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CC VIII PREFERRED INTEREST
|
114
|
|
|
267
|
|
|
—
|
|
|
—
|
|
|
(381
|
)
|
|
—
|
|
INVESTMENT IN SUBSIDIARIES
|
1,086
|
|
|
245
|
|
|
10,486
|
|
|
—
|
|
|
(11,817
|
)
|
|
—
|
|
LOANS RECEIVABLE – RELATED PARTY
|
—
|
|
|
318
|
|
|
461
|
|
|
—
|
|
|
(779
|
)
|
|
—
|
|
OTHER NONCURRENT ASSETS
|
—
|
|
|
161
|
|
|
122
|
|
|
139
|
|
|
—
|
|
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
1,282
|
|
|
$
|
1,202
|
|
|
$
|
11,077
|
|
|
$
|
16,900
|
|
|
$
|
(13,211
|
)
|
|
$
|
17,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’/MEMBER’S EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
11
|
|
|
$
|
110
|
|
|
$
|
164
|
|
|
$
|
1,097
|
|
|
$
|
—
|
|
|
$
|
1,382
|
|
Payables to related party
|
—
|
|
|
—
|
|
|
—
|
|
|
234
|
|
|
(234
|
)
|
|
—
|
|
Total current liabilities
|
11
|
|
|
110
|
|
|
164
|
|
|
1,331
|
|
|
(234
|
)
|
|
1,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT
|
—
|
|
|
—
|
|
|
10,668
|
|
|
3,638
|
|
|
—
|
|
|
14,306
|
|
LOANS PAYABLE – RELATED PARTY
|
—
|
|
|
—
|
|
|
—
|
|
|
779
|
|
|
(779
|
)
|
|
—
|
|
DEFERRED INCOME TAXES
|
1,210
|
|
|
—
|
|
|
—
|
|
|
222
|
|
|
—
|
|
|
1,432
|
|
OTHER LONG-TERM LIABILITIES
|
—
|
|
|
6
|
|
|
—
|
|
|
63
|
|
|
—
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’/Member’s equity
|
61
|
|
|
1,086
|
|
|
245
|
|
|
10,486
|
|
|
(11,817
|
)
|
|
61
|
|
Noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
381
|
|
|
(381
|
)
|
|
—
|
|
Total shareholders’/member’s equity
|
61
|
|
|
1,086
|
|
|
245
|
|
|
10,867
|
|
|
(12,198
|
)
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’/member’s equity
|
$
|
1,282
|
|
|
$
|
1,202
|
|
|
$
|
11,077
|
|
|
$
|
16,900
|
|
|
$
|
(13,211
|
)
|
|
$
|
17,250
|
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Communications, Inc.
|
Condensed Consolidating Balance Sheet
|
As of December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter
|
|
Intermediate Holding Companies
|
|
CCO Holdings
|
|
Charter Operating and Subsidiaries
|
|
Eliminations
|
|
Charter Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
7
|
|
Restricted cash and cash equivalents
|
—
|
|
|
—
|
|
|
—
|
|
|
27
|
|
|
—
|
|
|
27
|
|
Accounts receivable, net
|
1
|
|
|
3
|
|
|
—
|
|
|
230
|
|
|
—
|
|
|
234
|
|
Receivables from related party
|
59
|
|
|
176
|
|
|
11
|
|
|
—
|
|
|
(246
|
)
|
|
—
|
|
Prepaid expenses and other current assets
|
16
|
|
|
8
|
|
|
—
|
|
|
38
|
|
|
—
|
|
|
62
|
|
Total current assets
|
77
|
|
|
187
|
|
|
11
|
|
|
301
|
|
|
(246
|
)
|
|
330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT IN CABLE PROPERTIES:
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
—
|
|
|
32
|
|
|
—
|
|
|
7,174
|
|
|
—
|
|
|
7,206
|
|
Franchises
|
—
|
|
|
—
|
|
|
—
|
|
|
5,287
|
|
|
—
|
|
|
5,287
|
|
Customer relationships, net
|
—
|
|
|
—
|
|
|
—
|
|
|
1,424
|
|
|
—
|
|
|
1,424
|
|
Goodwill
|
—
|
|
|
—
|
|
|
—
|
|
|
953
|
|
|
—
|
|
|
953
|
|
Total investment in cable properties, net
|
—
|
|
|
32
|
|
|
—
|
|
|
14,838
|
|
|
—
|
|
|
14,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CC VIII PREFERRED INTEREST
|
104
|
|
|
242
|
|
|
—
|
|
|
—
|
|
|
(346
|
)
|
|
—
|
|
INVESTMENT IN SUBSIDIARIES
|
1,081
|
|
|
269
|
|
|
9,485
|
|
|
—
|
|
|
(10,835
|
)
|
|
—
|
|
LOANS RECEIVABLE – RELATED PARTY
|
—
|
|
|
309
|
|
|
359
|
|
|
—
|
|
|
(668
|
)
|
|
—
|
|
OTHER NONCURRENT ASSETS
|
—
|
|
|
163
|
|
|
118
|
|
|
115
|
|
|
—
|
|
|
396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
1,262
|
|
|
$
|
1,202
|
|
|
$
|
9,973
|
|
|
$
|
15,254
|
|
|
$
|
(12,095
|
)
|
|
$
|
15,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’/MEMBER’S EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
12
|
|
|
$
|
121
|
|
|
$
|
146
|
|
|
$
|
945
|
|
|
$
|
—
|
|
|
$
|
1,224
|
|
Payables to related party
|
—
|
|
|
—
|
|
|
—
|
|
|
246
|
|
|
(246
|
)
|
|
—
|
|
Total current liabilities
|
12
|
|
|
121
|
|
|
146
|
|
|
1,191
|
|
|
(246
|
)
|
|
1,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT
|
—
|
|
|
—
|
|
|
9,558
|
|
|
3,250
|
|
|
—
|
|
|
12,808
|
|
LOANS PAYABLE – RELATED PARTY
|
—
|
|
|
—
|
|
|
—
|
|
|
668
|
|
|
(668
|
)
|
|
—
|
|
DEFERRED INCOME TAXES
|
1,101
|
|
|
—
|
|
|
—
|
|
|
220
|
|
|
—
|
|
|
1,321
|
|
OTHER LONG-TERM LIABILITIES
|
—
|
|
|
—
|
|
|
—
|
|
|
94
|
|
|
—
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’/Member’s equity
|
149
|
|
|
1,081
|
|
|
269
|
|
|
9,485
|
|
|
(10,835
|
)
|
|
149
|
|
Noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
346
|
|
|
(346
|
)
|
|
—
|
|
Total shareholders’/member’s equity
|
149
|
|
|
1,081
|
|
|
269
|
|
|
9,831
|
|
|
(11,181
|
)
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’/member’s equity
|
$
|
1,262
|
|
|
$
|
1,202
|
|
|
$
|
9,973
|
|
|
$
|
15,254
|
|
|
$
|
(12,095
|
)
|
|
$
|
15,596
|
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Communications, Inc.
|
Condensed Consolidating Statement of Operations
|
For the nine months ended September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter
|
|
Intermediate Holding Companies
|
|
CCO
Holdings
|
|
Charter Operating and Subsidiaries
|
|
Eliminations
|
|
Charter Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
$
|
18
|
|
|
$
|
133
|
|
|
$
|
—
|
|
|
$
|
6,007
|
|
|
$
|
(151
|
)
|
|
$
|
6,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses (excluding depreciation and amortization)
|
18
|
|
|
133
|
|
|
—
|
|
|
3,950
|
|
|
(151
|
)
|
|
3,950
|
|
Depreciation and amortization
|
—
|
|
|
—
|
|
|
—
|
|
|
1,354
|
|
|
—
|
|
|
1,354
|
|
Other operating expenses, net
|
—
|
|
|
—
|
|
|
—
|
|
|
24
|
|
|
—
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
133
|
|
|
—
|
|
|
5,328
|
|
|
(151
|
)
|
|
5,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
—
|
|
|
—
|
|
|
—
|
|
|
679
|
|
|
—
|
|
|
679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net
|
—
|
|
|
6
|
|
|
(511
|
)
|
|
(130
|
)
|
|
—
|
|
|
(635
|
)
|
Loss on extinguishment of debt
|
—
|
|
|
—
|
|
|
(65
|
)
|
|
(58
|
)
|
|
—
|
|
|
(123
|
)
|
Gain on derivative instruments, net
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
9
|
|
Other expense, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
|
—
|
|
|
(14
|
)
|
Equity in income (loss) of subsidiaries
|
(101
|
)
|
|
(130
|
)
|
|
446
|
|
|
—
|
|
|
(215
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(101
|
)
|
|
(124
|
)
|
|
(130
|
)
|
|
(193
|
)
|
|
(215
|
)
|
|
(763
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
(101
|
)
|
|
(124
|
)
|
|
(130
|
)
|
|
486
|
|
|
(215
|
)
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE
|
(117
|
)
|
|
(2
|
)
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
(124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss)
|
(218
|
)
|
|
(126
|
)
|
|
(130
|
)
|
|
481
|
|
|
(215
|
)
|
|
(208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net (income) loss – noncontrolling interest
|
10
|
|
|
25
|
|
|
—
|
|
|
(35
|
)
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(208
|
)
|
|
$
|
(101
|
)
|
|
$
|
(130
|
)
|
|
$
|
446
|
|
|
$
|
(215
|
)
|
|
$
|
(208
|
)
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Communications, Inc.
|
Condensed Consolidating Statement of Operations
|
For the nine months ended September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter
|
|
Intermediate Holding Companies
|
|
CCO
Holdings
|
|
Charter Operating and Subsidiaries
|
|
Eliminations
|
|
Charter Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
$
|
19
|
|
|
$
|
113
|
|
|
$
|
—
|
|
|
$
|
5,591
|
|
|
$
|
(132
|
)
|
|
$
|
5,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses (excluding depreciation and amortization)
|
19
|
|
|
113
|
|
|
—
|
|
|
3,632
|
|
|
(132
|
)
|
|
3,632
|
|
Depreciation and amortization
|
—
|
|
|
—
|
|
|
—
|
|
|
1,247
|
|
|
—
|
|
|
1,247
|
|
Other operating expenses, net
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
113
|
|
|
—
|
|
|
4,881
|
|
|
(132
|
)
|
|
4,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
—
|
|
|
—
|
|
|
—
|
|
|
710
|
|
|
—
|
|
|
710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
—
|
|
|
(93
|
)
|
|
(398
|
)
|
|
(200
|
)
|
|
—
|
|
|
(691
|
)
|
Loss on extinguishment of debt
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
(68
|
)
|
|
—
|
|
|
(74
|
)
|
Other expense, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Equity in income (loss) of subsidiaries
|
(73
|
)
|
|
4
|
|
|
402
|
|
|
—
|
|
|
(333
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(73
|
)
|
|
(95
|
)
|
|
4
|
|
|
(269
|
)
|
|
(333
|
)
|
|
(766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
(73
|
)
|
|
(95
|
)
|
|
4
|
|
|
441
|
|
|
(333
|
)
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE
|
(200
|
)
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
(208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss)
|
(273
|
)
|
|
(95
|
)
|
|
4
|
|
|
433
|
|
|
(333
|
)
|
|
(264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net (income) loss – noncontrolling interest
|
9
|
|
|
22
|
|
|
—
|
|
|
(31
|
)
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(264
|
)
|
|
$
|
(73
|
)
|
|
$
|
4
|
|
|
$
|
402
|
|
|
$
|
(333
|
)
|
|
$
|
(264
|
)
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Communications, Inc.
|
Condensed Consolidating Statement of Comprehensive Income (Loss)
|
For the nine months ended September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter
|
|
Intermediate Holding Companies
|
|
CCO
Holdings
|
|
Charter Operating and Subsidiaries
|
|
Eliminations
|
|
Charter Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss)
|
$
|
(218
|
)
|
|
$
|
(126
|
)
|
|
$
|
(130
|
)
|
|
$
|
481
|
|
|
$
|
(215
|
)
|
|
$
|
(208
|
)
|
Net impact of gains on interest rate derivative instruments, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
27
|
|
|
—
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
$
|
(218
|
)
|
|
$
|
(126
|
)
|
|
$
|
(130
|
)
|
|
$
|
508
|
|
|
$
|
(215
|
)
|
|
$
|
(181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Communications, Inc.
|
Condensed Consolidating Statement of Comprehensive Income (Loss)
|
For the nine months ended September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter
|
|
Intermediate Holding Companies
|
|
CCO
Holdings
|
|
Charter Operating and Subsidiaries
|
|
Eliminations
|
|
Charter Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss)
|
$
|
(273
|
)
|
|
$
|
(95
|
)
|
|
$
|
4
|
|
|
$
|
433
|
|
|
$
|
(333
|
)
|
|
$
|
(264
|
)
|
Net impact of losses on interest rate derivative instruments, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(18
|
)
|
|
—
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
$
|
(273
|
)
|
|
$
|
(95
|
)
|
|
$
|
4
|
|
|
$
|
415
|
|
|
$
|
(333
|
)
|
|
$
|
(282
|
)
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Communications, Inc.
|
Condensed Consolidating Statement of Cash Flows
|
For the nine months ended September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter
|
|
Intermediate Holding Companies
|
|
CCO
Holdings
|
|
Charter Operating and Subsidiaries
|
|
Eliminations
|
|
Charter Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss)
|
$
|
(218
|
)
|
|
$
|
(126
|
)
|
|
$
|
(130
|
)
|
|
$
|
481
|
|
|
$
|
(215
|
)
|
|
$
|
(208
|
)
|
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
—
|
|
|
—
|
|
|
—
|
|
|
1,354
|
|
|
—
|
|
|
1,354
|
|
Noncash interest expense
|
—
|
|
|
—
|
|
|
20
|
|
|
13
|
|
|
—
|
|
|
33
|
|
Loss on extinguishment of debt
|
—
|
|
|
—
|
|
|
65
|
|
|
58
|
|
|
—
|
|
|
123
|
|
Gain on derivative instruments, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
(9
|
)
|
Deferred income taxes
|
110
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
112
|
|
Equity in (income) losses of subsidiaries
|
101
|
|
|
130
|
|
|
(446
|
)
|
|
—
|
|
|
215
|
|
|
—
|
|
Other, net
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
70
|
|
|
—
|
|
|
69
|
|
Changes in operating assets and liabilities, net of effects from acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
12
|
|
|
—
|
|
|
10
|
|
Prepaid expenses and other assets
|
—
|
|
|
—
|
|
|
—
|
|
|
(13
|
)
|
|
—
|
|
|
(13
|
)
|
Accounts payable, accrued liabilities and other
|
—
|
|
|
(7
|
)
|
|
18
|
|
|
81
|
|
|
—
|
|
|
92
|
|
Receivables from and payables to related party
|
8
|
|
|
5
|
|
|
(7
|
)
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities
|
1
|
|
|
(1
|
)
|
|
(480
|
)
|
|
2,043
|
|
|
—
|
|
|
1,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,259
|
)
|
|
—
|
|
|
(1,259
|
)
|
Change in accrued expenses related to capital expenditures
|
—
|
|
|
—
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
21
|
|
Purchases of cable systems
|
—
|
|
|
—
|
|
|
—
|
|
|
(673
|
)
|
|
—
|
|
|
(673
|
)
|
Contribution to subsidiary
|
(54
|
)
|
|
(324
|
)
|
|
(987
|
)
|
|
—
|
|
|
1,365
|
|
|
—
|
|
Distributions from subsidiary
|
—
|
|
|
6
|
|
|
487
|
|
|
—
|
|
|
(493
|
)
|
|
—
|
|
Other, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
|
—
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities
|
(54
|
)
|
|
(318
|
)
|
|
(500
|
)
|
|
(1,926
|
)
|
|
872
|
|
|
(1,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of long-term debt
|
—
|
|
|
—
|
|
|
2,000
|
|
|
4,569
|
|
|
—
|
|
|
6,569
|
|
Repayments of long-term debt
|
—
|
|
|
—
|
|
|
(955
|
)
|
|
(5,222
|
)
|
|
—
|
|
|
(6,177
|
)
|
Borrowings (payments) loans payable - related parties
|
—
|
|
|
—
|
|
|
(93
|
)
|
|
93
|
|
|
—
|
|
|
—
|
|
Payments for debt issuance costs
|
—
|
|
|
—
|
|
|
(25
|
)
|
|
(25
|
)
|
|
—
|
|
|
(50
|
)
|
Purchase of treasury stock
|
(11
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
Proceeds from exercise of options and warrants
|
67
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
67
|
|
Contributions from parent
|
—
|
|
|
324
|
|
|
54
|
|
|
987
|
|
|
(1,365
|
)
|
|
—
|
|
Distributions to parent
|
—
|
|
|
(5
|
)
|
|
(1
|
)
|
|
(487
|
)
|
|
493
|
|
|
—
|
|
Other, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing activities
|
56
|
|
|
319
|
|
|
980
|
|
|
(86
|
)
|
|
(872
|
)
|
|
397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
3
|
|
|
—
|
|
|
—
|
|
|
31
|
|
|
—
|
|
|
34
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
1
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
37
|
|
|
$
|
—
|
|
|
$
|
41
|
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Communications, Inc.
|
Condensed Consolidating Statement of Cash Flows
|
For the nine months ended September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter
|
|
Intermediate Holding Companies
|
|
CCO
Holdings
|
|
Charter Operating and Subsidiaries
|
|
Eliminations
|
|
Charter Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income (loss)
|
$
|
(273
|
)
|
|
$
|
(95
|
)
|
|
$
|
4
|
|
|
$
|
433
|
|
|
$
|
(333
|
)
|
|
$
|
(264
|
)
|
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
—
|
|
|
—
|
|
|
—
|
|
|
1,247
|
|
|
—
|
|
|
1,247
|
|
Noncash interest expense
|
—
|
|
|
(21
|
)
|
|
18
|
|
|
36
|
|
|
—
|
|
|
33
|
|
Loss on extinguishment of debt
|
—
|
|
|
6
|
|
|
—
|
|
|
68
|
|
|
—
|
|
|
74
|
|
Deferred income taxes
|
200
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
203
|
|
Equity in (income) losses of subsidiaries
|
73
|
|
|
(4
|
)
|
|
(402
|
)
|
|
—
|
|
|
333
|
|
|
—
|
|
Other, net
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
26
|
|
|
—
|
|
|
25
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
—
|
|
|
—
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
18
|
|
Prepaid expenses and other assets
|
1
|
|
|
11
|
|
|
—
|
|
|
(24
|
)
|
|
—
|
|
|
(12
|
)
|
Accounts payable, accrued liabilities and other
|
—
|
|
|
(90
|
)
|
|
81
|
|
|
76
|
|
|
—
|
|
|
67
|
|
Receivables from and payables to related party
|
1
|
|
|
22
|
|
|
(7
|
)
|
|
(16
|
)
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities
|
2
|
|
|
(172
|
)
|
|
(306
|
)
|
|
1,867
|
|
|
—
|
|
|
1,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,296
|
)
|
|
—
|
|
|
(1,296
|
)
|
Change in accrued expenses related to capital expenditures
|
—
|
|
|
—
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
16
|
|
Sales of cable systems
|
—
|
|
|
—
|
|
|
—
|
|
|
19
|
|
|
—
|
|
|
19
|
|
Contribution to subsidiary
|
—
|
|
|
—
|
|
|
(1,244
|
)
|
|
—
|
|
|
1,244
|
|
|
—
|
|
Distributions from subsidiary
|
3
|
|
|
582
|
|
|
870
|
|
|
—
|
|
|
(1,455
|
)
|
|
—
|
|
Other, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(18
|
)
|
|
—
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities
|
3
|
|
|
582
|
|
|
(374
|
)
|
|
(1,279
|
)
|
|
(211
|
)
|
|
(1,279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of long-term debt
|
—
|
|
|
—
|
|
|
1,984
|
|
|
2,369
|
|
|
—
|
|
|
4,353
|
|
Repayments of long-term debt
|
—
|
|
|
(386
|
)
|
|
—
|
|
|
(3,168
|
)
|
|
—
|
|
|
(3,554
|
)
|
Borrowings (payments) loans payable - related parties
|
—
|
|
|
—
|
|
|
(314
|
)
|
|
314
|
|
|
—
|
|
|
—
|
|
Payments for debt issuance costs
|
—
|
|
|
—
|
|
|
(27
|
)
|
|
(14
|
)
|
|
—
|
|
|
(41
|
)
|
Purchase of treasury stock
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
Proceeds from exercise of options and warrants
|
13
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13
|
|
Contributions from parent
|
—
|
|
|
—
|
|
|
—
|
|
|
1,244
|
|
|
(1,244
|
)
|
|
—
|
|
Distributions to parent
|
—
|
|
|
(18
|
)
|
|
(567
|
)
|
|
(870
|
)
|
|
1,455
|
|
|
—
|
|
Other, net
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
(10
|
)
|
|
—
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing activities
|
9
|
|
|
(407
|
)
|
|
1,076
|
|
|
(135
|
)
|
|
211
|
|
|
754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
14
|
|
|
3
|
|
|
396
|
|
|
453
|
|
|
—
|
|
|
866
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of period
|
$
|
14
|
|
|
$
|
3
|
|
|
$
|
398
|
|
|
$
|
453
|
|
|
$
|
—
|
|
|
$
|
868
|
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)
16.
Recently Issued Accounting Standards
In June 2013, the Financial Accounting Standards Board's Emerging Issues Task Force reached a final consensus on Issue 13-C, Presentation of an Unrecognized Tax Benefit when a Net Operating Loss or Tax Credit Carryforward Exists ("Issue 13-C"). Issue 13-C states that entities should present the unrecognized tax benefit as a reduction of the deferred tax asset for a net operating loss or similar tax loss or tax credit carryforward rather than as a liability when the uncertain tax position would reduce the net operating loss or other carryforward under the tax law. Issue 13-C requires prospective application (including accounting for uncertain tax positions that exist upon date of adoption) with optional retrospective application and is effective for annual and interim periods beginning after December 15, 2013, with early adoption permitted. The Company adopted Issue 13-C in the second quarter of 2013 and applied it retrospectively. The adoption of Issue 13-C decreased prepaid expenses and other current assets by
$3 million
and other long-term liabilities by
$202 million
and increased deferred income taxes by
$199 million
as of December 31, 2012.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
General
Charter Communications, Inc. (“Charter”) is a holding company whose principal asset is a 100% common equity interest in Charter Communications Holding Company, LLC (“Charter Holdco”). Charter owns cable systems through its subsidiaries.
We are a cable operator providing services in the United States with approximately
5.9 million
residential and commercial customers at
September 30, 2013
. We offer our customers traditional cable video programming, Internet services, and telephone services, as well as advanced video services such as Charter OnDemand
TM
(“OnDemand”), high definition (“HD”) television and digital video recorder (“DVR”) service. We also sell local advertising on cable networks and provide fiber connectivity to cellular towers.
Acquisition of Bresnan
In July 2013, Charter and Charter Communications Operating, LLC ("Charter Operating") acquired Bresnan Broadband Holdings, LLC and its subsidiaries (collectively, “Bresnan”) from a wholly owned subsidiary of Cablevision Systems Corporation ("Cablevision"), for $1.625 billion in cash, subject to a working capital adjustment, a reduction for certain funded indebtedness of Bresnan and payment of any post-closing refunds of certain Montana property taxes paid under protest by Bresnan prior to the closing (the "Bresnan Acquisition"). Bresnan manages cable operating systems in Colorado, Montana, Wyoming and Utah that pass approximately 670,000 homes and serve approximately 375,000 residential and commercial customer relationships.
Overview
Our business plans include goals for increasing customers and revenue. To reach our goals, we have actively invested in our network and operations, and have improved the quality and value of the products and packages that we offer. We have enhanced our video product by increasing digital and HD-DVR penetration, offering more HD channels, and deemphasizing our analog service. During the second quarter of 2012, we simplified our offers and pricing and improved our packaging of products to bring more value to new and existing customers. As part of our effort to create more value for customers, we have focused on driving penetration of our triple play offering, which includes more than 100 HD channels, video on demand, Internet service, and fully-featured phone service. In addition, we have implemented a number of changes to our organizational structure, selling methods and operating tactics. We are increasingly insourcing our field operations, call center and direct sales workforces and modifying the way our sales workforce is compensated, which we believe positions us for better customer service and growth. We expect that our enhanced product set combined with improved customer service will lead to lower customer churn and longer customer lifetimes, allowing us to grow our customer base and revenue more quickly and economically. We expect our capital expenditures to remain elevated as we strive to increase digital and HD-DVR penetration, place higher levels of customer premise equipment per transaction and progressively move to an all-digital platform.
Total revenue growth was
13%
and
7%
for the
three and nine
months ended
September 30, 2013
, respectively, compared to the corresponding periods in
2012
, due to the Bresnan Acquisition described above and growth in our video, Internet and commercial businesses. Total revenue growth on a pro forma basis for the Bresnan Acquisition as if it had occurred on January 1, 2012 was
5%
for both the
three and nine
months ended
September 30, 2013
compared to the corresponding periods in
2012
. For the
three and nine
months ended
September 30, 2013
, adjusted earnings (loss) before interest expense, income taxes, depreciation and amortization (“Adjusted EBITDA”) was
$732 million
and
$2.1 billion
, respectively, and for the
three and nine
months ended
September 30, 2012
, Adjusted EBITDA was
$651 million
and
$2.0 billion
, respectively. See “—Use of Adjusted EBITDA and Free Cash Flow” for further information on Adjusted EBITDA and free cash flow. Adjusted EBITDA increased
12%
and
5%
for the
three and nine
months ended
September 30, 2013
, respectively, compared to the corresponding periods in
2012
as a result of the Bresnan Acquisition, which contributed $45 million, and an increase in residential and commercial revenues offset by increases in programming costs, costs to service customers and marketing costs. Costs to service customers primarily increased from higher labor to deliver improved products and service levels and greater reconnect expense. For the
three and nine
months ended
September 30, 2013
, our income from operations was
$220 million
and
$679 million
, respectively. For the
three and nine
months ended
September 30, 2012
, our income from operations was
$211 million
and
$710 million
, respectively. In addition to the factors discussed above, income from operations for the
three and nine
months ended
September 30, 2013
was affected by increases in depreciation and amortization.
We believe that continued competition and the weakened economic conditions in the United States, including weakness in the housing market and relatively high unemployment levels, have adversely affected consumer demand for our services, particularly video. To date, our video competitors often offer more channels, including more HD channels, and typically only offer digital services which have a better picture quality compared to our analog product. In the current economic environment, customers
have been more willing to consider our competitors' products, partially because of increased marketing highlighting perceived differences between competitive video products, especially when those competitors are often offering significant incentives to switch providers. We also believe some customers have chosen to receive video over the Internet rather than through our OnDemand and premium video services, thereby reducing our video revenues.
We believe competition from wireless service operators and economic factors have contributed to an increase in the number of homes that replace their traditional telephone service with wireless service thereby impacting the growth of our telephone business.
If the economic and competitive conditions discussed above do not improve, or our efforts to improve our products and the way we market those products do not continue to be successful in increasing our growth, we believe our business and results of operations will be adversely affected, which may contribute to future impairments of our franchises and goodwill.
We have a history of net losses. Our net losses are principally attributable to insufficient revenue to cover the combination of operating expenses, interest expenses that we incur because of our debt, depreciation expenses resulting from the capital investments we have made and continue to make in our cable properties, amortization expenses related to our customer relationship intangibles and non-cash taxes resulting from increases in our deferred tax liabilities.
The following table summarizes our customer statistics for video, Internet and telephone as of
September 30, 2013
and
2012
(in thousands except revenue per customer relationship).
|
|
|
|
|
|
|
|
|
|
Approximate as of
|
|
September 30,
|
|
2013 (a)
|
|
2012 (a)
|
Residential
|
|
|
|
Video (b)
|
4,179
|
|
|
4,025
|
|
Internet (c)
|
4,290
|
|
|
3,731
|
|
Telephone (d)
|
2,217
|
|
|
1,880
|
|
Residential PSUs (e)
|
10,686
|
|
|
9,636
|
|
|
|
|
|
Residential Customer Relationships (f)
|
5,498
|
|
|
5,015
|
|
Revenue per Customer Relationship (g)
|
$
|
108.52
|
|
|
$
|
105.39
|
|
|
|
|
|
Commercial
|
|
|
|
Video (b)(h)
|
166
|
|
|
172
|
|
Internet (c)
|
245
|
|
|
186
|
|
Telephone (d)
|
138
|
|
|
99
|
|
Commercial PSUs (e)
|
549
|
|
|
457
|
|
|
|
|
|
Commercial Customer Relationships (f)(h)
|
359
|
|
|
321
|
|
After giving effect to the Bresnan Acquisition in July 2013 described above, September 30, 2012 residential video, Internet and phone customers would have been
4,322,000
,
4,000,000
and
2,039,000
, respectively, and commercial video, Internet and phone customers would have been
180,000
,
202,000
and
109,000
, respectively.
|
|
(a)
|
We calculate the aging of customer accounts based on the monthly billing cycle for each account. On that basis, at
September 30, 2013
and
2012
, customers include approximately
9,700
and
16,900
customers, respectively, whose accounts were over 60 days past due in payment, approximately
1,000
and
3,400
customers, respectively, whose accounts were over 90 days past due in payment, and approximately
900
and
1,600
customers, respectively, whose accounts were over 120 days past due in payment.
|
|
|
(b)
|
“Video customers” represent those customers who subscribe to our video cable services.
|
|
|
(c)
|
“Internet customers” represent those customers who subscribe to our Internet services.
|
|
|
(d)
|
“Telephone customers” represent those customers who subscribe to our telephone services.
|
|
|
(e)
|
“Primary Service Units” or “PSUs” represent the total of video, Internet and telephone customers.
|
|
|
(f)
|
"Customer Relationships" include the number of customers that receive one or more levels of service, encompassing video, Internet and telephone services, without regard to which service(s) such customers receive. This statistic is computed in accordance with the guidelines of the National Cable & Telecommunications Association ("NCTA"). Commercial customer relationships include video customers in commercial structures, which are calculated on an EBU basis (see footnote (h)) and non-video commercial customer relationships.
|
|
|
(g)
|
"Revenue per Customer Relationship" is calculated as total residential video, Internet and telephone quarterly revenue divided by three divided by average residential customer relationships during the respective quarter.
|
|
|
(h)
|
Included within commercial video customers are those in commercial structures, which are calculated on an equivalent bulk unit (“EBU”) basis. We calculate EBUs by dividing the bulk price charged to accounts in an area by the published rate charged to non-bulk residential customers in that market for the comparable tier of service. This EBU method of estimating basic video customers is consistent with the methodology used in determining costs paid to programmers and is consistent with the methodology used by other multiple system operators. As we increase our published video rates to residential customers without a corresponding increase in the prices charged to commercial service customers, our EBU count will decline even if there is no real loss in commercial service customers. For example, commercial video customers decreased by 10,000 during the nine months ended September 30, 2013 due to published video rate increases.
|
Liberty Media
On May 1, 2013, Liberty Media Corporation (“Liberty Media”) completed its purchase from investment funds managed by, or affiliated with, Apollo Global Management LLC, Oaktree Capital Management, L.P. and Crestview Partners of approximately 26.9 million shares and warrants to purchase approximately 1.1 million shares in Charter for approximately $2.6 billion (the "Liberty Media Transaction"), which represents an approximate 27% beneficial ownership in Charter and a price per share of $95.50.
In connection with the Liberty Media Transaction, Charter entered into a stockholders agreement with Liberty Media that, among other things, provided Liberty Media with the right to designate four directors for appointment to Charter's board of directors in connection with the closing. Liberty Media designated John Malone, Chairman of Liberty Media, Gregory Maffei, president and chief executive officer of Liberty Media, Balan Nair, executive vice president and chief technology officer of Liberty Global plc, and Michael Huseby, president of Barnes & Noble, Inc. Charter’s board of directors appointed these directors effective upon the resignations of Stan Parker, Darren Glatt, Bruce Karsh and Edgar Lee in connection with the closing of the Liberty Media Transaction on May 1, 2013. Subject to Liberty Media’s continued ownership level in Charter, the stockholders agreement also provides that Liberty Media can designate up to four directors as nominees for election to Charter’s board of directors at least through Charter’s 2015 annual meeting of stockholders, and that up to one of these individuals may serve on each of the Audit Committee, the Nominating and Corporate Governance Committee, and Compensation and Benefits Committee of Charter’s board of directors. Consistent with these provisions, the board appointed Dr. Malone to serve on the Nominating and Corporate Governance Committee, Mr. Maffei to serve on the Finance Committee and the Compensation and Benefits Committee and Mr. Huseby to serve on the Audit Committee.
In addition, Liberty Media agreed to not increase its beneficial ownership in Charter above
35%
until January 2016, at which point such limit increases to
39.99%
. Liberty Media is also, subject to certain exceptions, subject to certain customary standstill provisions that prohibit Liberty Media from, among other things, engaging in proxy or consent solicitations relating to the election of directors. The standstill limitations apply through the 2015 shareholder meeting and continue to apply as long as Liberty Media's designees are nominated to the Charter board, unless the agreement is earlier terminated. Charter approved Liberty Media as an interested stockholder under the business combination provisions of the Delaware General Corporation Law.
Critical Accounting Policies and Estimates
For a discussion of our critical accounting policies and the means by which we develop estimates therefore, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our
2012
Annual Report on Form 10-K.
Results of Operations
The following table sets forth the percentages of revenues that items in the accompanying condensed consolidated statements of operations constituted for the periods presented (dollars in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
2,118
|
|
|
100
|
%
|
|
$
|
1,880
|
|
|
100
|
%
|
|
$
|
6,007
|
|
|
100
|
%
|
|
$
|
5,591
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (excluding depreciation and amortization)
|
1,397
|
|
|
66
|
%
|
|
1,242
|
|
|
66
|
%
|
|
3,950
|
|
|
66
|
%
|
|
3,632
|
|
|
65
|
%
|
Depreciation and amortization
|
493
|
|
|
23
|
%
|
|
424
|
|
|
23
|
%
|
|
1,354
|
|
|
23
|
%
|
|
1,247
|
|
|
22
|
%
|
Other operating expenses, net
|
8
|
|
|
—
|
%
|
|
3
|
|
|
—
|
%
|
|
24
|
|
|
—
|
%
|
|
2
|
|
|
—
|
%
|
|
1,898
|
|
|
90
|
%
|
|
1,669
|
|
|
89
|
%
|
|
5,328
|
|
|
89
|
%
|
|
4,881
|
|
|
87
|
%
|
Income from operations
|
220
|
|
|
10
|
%
|
|
211
|
|
|
11
|
%
|
|
679
|
|
|
11
|
%
|
|
710
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
(214
|
)
|
|
|
|
(229
|
)
|
|
|
|
(635
|
)
|
|
|
|
(691
|
)
|
|
|
Loss on extinguishment of debt
|
—
|
|
|
|
|
—
|
|
|
|
|
(123
|
)
|
|
|
|
(74
|
)
|
|
|
Gain (loss) on derivative instruments, net
|
(8
|
)
|
|
|
|
—
|
|
|
|
|
9
|
|
|
|
|
—
|
|
|
|
Other expense, net
|
(11
|
)
|
|
|
|
—
|
|
|
|
|
(14
|
)
|
|
|
|
(1
|
)
|
|
|
|
(233
|
)
|
|
|
|
(229
|
)
|
|
|
|
(763
|
)
|
|
|
|
(766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
(13
|
)
|
|
|
|
(18
|
)
|
|
|
|
(84
|
)
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
(57
|
)
|
|
|
|
(69
|
)
|
|
|
|
(124
|
)
|
|
|
|
(208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(70
|
)
|
|
|
|
$
|
(87
|
)
|
|
|
|
$
|
(208
|
)
|
|
|
|
$
|
(264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS PER COMMON SHARE, BASIC AND DILUTED:
|
$
|
(0.68
|
)
|
|
|
|
$
|
(0.87
|
)
|
|
|
|
$
|
(2.05
|
)
|
|
|
|
$
|
(2.65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
|
102,924,443
|
|
|
|
|
99,694,672
|
|
|
|
|
101,293,696
|
|
|
|
|
99,542,021
|
|
|
|
Revenues.
Total revenue grew
$238 million
or
13%
for the
three
months ended
September 30, 2013
as compared to the
three
months ended
September 30, 2012
. Total revenue grew
$416 million
or
7%
for the
nine
months ended
September 30, 2013
as compared to the
nine
months ended
September 30, 2012
. Revenue growth primarily reflects increases in the number of residential Internet and commercial business customers, growth in expanded basic and digital penetration, promotional and annual rate increases, and higher advanced services penetration offset by a decrease in basic video customers and lower advertising sales in a non-political year. The Bresnan Acquisition increased revenues for each of the
three and nine
months ended
September 30, 2013
as compared to the
three and nine
months
September 30, 2012
by approximately $134 million.
Revenues by service offering were as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
2013
|
|
2012
|
|
2013 over 2012
|
|
Revenues
|
|
% of Revenues
|
|
Revenues
|
|
% of Revenues
|
|
Change
|
|
% Change
|
Video
|
$
|
1,044
|
|
|
49
|
%
|
|
$
|
906
|
|
|
48
|
%
|
|
$
|
138
|
|
|
15
|
%
|
Internet
|
575
|
|
|
27
|
%
|
|
467
|
|
|
25
|
%
|
|
108
|
|
|
23
|
%
|
Telephone
|
161
|
|
|
8
|
%
|
|
208
|
|
|
11
|
%
|
|
(47
|
)
|
|
(23
|
)%
|
Commercial
|
218
|
|
|
10
|
%
|
|
168
|
|
|
9
|
%
|
|
50
|
|
|
30
|
%
|
Advertising sales
|
75
|
|
|
4
|
%
|
|
85
|
|
|
5
|
%
|
|
(10
|
)
|
|
(12
|
)%
|
Other
|
45
|
|
|
2
|
%
|
|
46
|
|
|
2
|
%
|
|
(1
|
)
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,118
|
|
|
100
|
%
|
|
$
|
1,880
|
|
|
100
|
%
|
|
$
|
238
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
2013
|
|
2012
|
|
2013 over 2012
|
|
Revenues
|
|
% of Revenues
|
|
Revenues
|
|
% of Revenues
|
|
Change
|
|
% Change
|
Video
|
$
|
2,984
|
|
|
50
|
%
|
|
$
|
2,712
|
|
|
49
|
%
|
|
$
|
272
|
|
|
10
|
%
|
Internet
|
1,596
|
|
|
27
|
%
|
|
1,384
|
|
|
25
|
%
|
|
212
|
|
|
15
|
%
|
Telephone
|
490
|
|
|
8
|
%
|
|
642
|
|
|
11
|
%
|
|
(152
|
)
|
|
(24
|
)%
|
Commercial
|
594
|
|
|
10
|
%
|
|
481
|
|
|
9
|
%
|
|
113
|
|
|
23
|
%
|
Advertising sales
|
208
|
|
|
3
|
%
|
|
238
|
|
|
4
|
%
|
|
(30
|
)
|
|
(13
|
)%
|
Other
|
135
|
|
|
2
|
%
|
|
134
|
|
|
2
|
%
|
|
1
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,007
|
|
|
100
|
%
|
|
$
|
5,591
|
|
|
100
|
%
|
|
$
|
416
|
|
|
7
|
%
|
Video revenues consist primarily of revenues from basic and digital video services provided to our non-commercial customers, as well as franchise fees, equipment rental and video installation revenue. Residential basic video customers increased by
154,000
from
September 30, 2012
to
September 30, 2013
, however customers decreased by
143,000
customers after giving effect to the Bresnan Acquisition.
The increase in video revenues is attributable to the following (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30, 2013
compared to
three months ended
September 30, 2012
Increase / (Decrease)
|
|
Nine months ended
September 30, 2013
compared to
nine months ended
September 30, 2012
Increase / (Decrease)
|
|
|
|
|
|
Incremental video services, price adjustments and bundle revenue allocation
|
|
$
|
101
|
|
|
$
|
298
|
|
Decrease in basic video customers
|
|
(25
|
)
|
|
(80
|
)
|
Decrease in premium purchases
|
|
(5
|
)
|
|
(13
|
)
|
Bresnan Acquisition
|
|
67
|
|
|
67
|
|
|
|
|
|
|
|
|
$
|
138
|
|
|
$
|
272
|
|
Residential Internet customers grew by
559,000
customers from
September 30, 2012
to
September 30, 2013
or
290,000
customers after giving effect to the Bresnan Acquisition. The increase in Internet revenues from our residential customers is attributable to the following (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30, 2013
compared to
three months ended
September 30, 2012
Increase / (Decrease)
|
|
Nine months ended
September 30, 2013
compared to
nine months ended
September 30, 2012
Increase / (Decrease)
|
|
|
|
|
|
Increase in residential Internet customers
|
|
$
|
35
|
|
|
$
|
102
|
|
Service level changes and price adjustments
|
|
37
|
|
|
74
|
|
Bresnan Acquisition
|
|
36
|
|
|
36
|
|
|
|
|
|
|
|
|
$
|
108
|
|
|
$
|
212
|
|
Residential telephone customers grew by
337,000
customers from
September 30, 2012
to
September 30, 2013
or
178,000
customers after giving effect to the Bresnan Acquisition. The decrease in telephone revenues from our residential customers is attributable to the following (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30, 2013
compared to
three months ended
September 30, 2012
Increase / (Decrease)
|
|
Nine months ended
September 30, 2013
compared to
nine months ended
September 30, 2012
Increase / (Decrease)
|
|
|
|
|
|
Price adjustments and bundle revenue allocation
|
|
$
|
(72
|
)
|
|
$
|
(203
|
)
|
Increase in residential telephone customers
|
|
13
|
|
|
39
|
|
Bresnan Acquisition
|
|
12
|
|
|
12
|
|
|
|
|
|
|
|
|
$
|
(47
|
)
|
|
$
|
(152
|
)
|
Commercial revenues consist primarily of revenues from services provided to our commercial customers. Commercial PSUs increased
92,000
from
September 30, 2012
to
September 30, 2013
, or
58,000
customers after giving effect to the Bresnan Acquisition. Excluding the impact of video counts negatively affected by rate increases under the EBU methodology for commercial customer counts, commercial PSUs increased 102,000 from
September 30, 2012
to
September 30, 2013
, or 68,000 customers after giving effect to the Bresnan Acquisition. The increase in commercial revenues is attributable to the following (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30, 2013
compared to
three months ended
September 30, 2012
Increase / (Decrease)
|
|
Nine months ended
September 30, 2013
compared to
nine months ended
September 30, 2012
Increase / (Decrease)
|
|
|
|
|
|
Sales to small-to-medium sized business customers
|
|
$
|
25
|
|
|
$
|
72
|
|
Carrier site customers
|
|
7
|
|
|
18
|
|
Other
|
|
3
|
|
|
8
|
|
Bresnan Acquisition
|
|
15
|
|
|
15
|
|
|
|
|
|
|
|
|
$
|
50
|
|
|
$
|
113
|
|
Advertising sales revenues consist primarily of revenues from commercial advertising customers, programmers and other vendors. Advertising sales revenues decreased for the
three
months ended
September 30, 2013
as a result of a decrease in revenue from the political sector of $6 million and vendors of $5 million. Advertising sales revenues decreased for the
nine
months ended
September 30, 2013
as a result of a decrease in revenue from the political sector of $14 million and vendors of $20 million. For the
three
months ended
September 30, 2013
and
2012
, we received $10 million and $15 million, respectively, and for the
nine
months ended
September 30, 2013
and
2012
, we received $26 million and $46 million, respectively, in advertising sales revenues from vendors. The Bresnan Acquisition increased advertising sales revenues for each of the
three and nine
months ended
September 30, 2013
as compared to the
three and nine
months
September 30, 2012
by approximately $3 million.
Other revenues consist of home shopping, late payment fees, wire maintenance fees and other miscellaneous revenues. Other revenues were relatively flat for the
three and nine
months ended
September 30, 2013
compared to the
three and nine
months ended
September 30, 2012
. The Bresnan Acquisition increased other revenues for the
three and nine
months ended
September 30, 2013
as compared to the
three and nine
months
September 30, 2012
by approximately $1 million.
Operating costs and expenses
.
The increases in our operating costs and expenses are attributable to the following (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30, 2013
compared to
three months ended
September 30, 2012
Increase / (Decrease)
|
|
Nine months ended
September 30, 2013
compared to
nine months ended
September 30, 2012
Increase / (Decrease)
|
|
|
|
|
|
Programming
|
|
$
|
25
|
|
|
$
|
77
|
|
Franchise, regulatory and connectivity
|
|
—
|
|
|
(1
|
)
|
Costs to service customers
|
|
18
|
|
|
99
|
|
Marketing
|
|
14
|
|
|
17
|
|
Other
|
|
9
|
|
|
37
|
|
Bresnan Acquisition
|
|
89
|
|
|
89
|
|
|
|
|
|
|
|
|
$
|
155
|
|
|
$
|
318
|
|
Programming costs were approximately
$558 million
and
$497 million
, each representing
40%
of total operating costs and expenses for the
three
months ended
September 30, 2013
and
2012
, respectively, and were approximately
$1.6 billion
and
$1.5 billion
, representing
40%
and
41%
of operating costs and expenses for the
nine
months ended
September 30, 2013
and
2012
, respectively. Programming costs consist primarily of costs paid to programmers for basic, digital, premium, OnDemand, and pay-per-view programming. The increases in programming costs are primarily a result of annual contractual rate adjustments, including increases in amounts paid for retransmission consents and for new programming,
offset in part by video customer losses. Programming costs were also offset by the amortization of payments received from programmers of $1 million and $4 million for the
three
and
nine
months ended
September 30, 2012
. We expect programming expenses to continue to increase due to a variety of factors, including increased demands by owners of some broadcast stations for carriage of other services or payments to those broadcasters for retransmission consent, annual increases imposed by programmers with additional selling power as a result of media consolidation, and additional programming, including new sports services and non-linear programming for on-line and OnDemand programming. We have been unable to fully pass these increases on to our customers nor do we expect to be able to do so in the future without a potential loss of customers.
Costs to service customers include residential and commercial costs related to field operations, network operations and customer care including labor, reconnects, maintenance, billing, occupancy and vehicle costs. The increase in costs to service customers during the
three and nine
months ended
September 30, 2013
compared to the
three and nine
months ended
September 30, 2012
was primarily the result of higher spending on labor to deliver improved products and service levels as well as greater reconnect expense.
Partially offsetting the growth related increases in expenses noted above is $11 million of one-time adjustments. These one-time adjustments were more than offset by higher growth costs to market and reconnect customers, a reduction in political advertising and Bresnan transition costs which are being phased out.
The increases in other expense are attributable to the following (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30, 2013
compared to
three months ended
September 30, 2012
Increase / (Decrease)
|
|
Nine months ended
September 30, 2013
compared to
nine months ended
September 30, 2012
Increase / (Decrease)
|
|
|
|
|
|
Commercial sales expense
|
|
$
|
7
|
|
|
$
|
20
|
|
Property tax and insurance
|
|
5
|
|
|
10
|
|
Other
|
|
(3
|
)
|
|
7
|
|
|
|
|
|
|
|
|
$
|
9
|
|
|
$
|
37
|
|
Commercial sales expenses increased during the
three and nine
months ended
September 30, 2013
compared to the
three and nine
months ended
September 30, 2012
, primarily related to growth in the commercial business.
Depreciation and amortization.
Depreciation and amortization expense increased by
$69 million
and
$107 million
for the
three and nine
months ended
September 30, 2013
compared to the corresponding periods in
2012
, respectively, primarily representing depreciation on more recent capital expenditures and the Bresnan Acquisition, offset by certain assets becoming fully depreciated.
Other operating expenses, net.
Other operating expenses, net increased during the
three
months ended
September 30, 2013
compared to the
three
months ended
September 30, 2012
primarily due to an increase in loss on sale of assets. Other operating expenses, net increased during the
nine
months ended
September 30, 2013
compared to the
nine
months ended
September 30, 2012
primarily due to a decrease in gain on sale of assets. For more information, see Note 10 to the accompanying condensed consolidated financial statements contained in “Item 1. Financial Statements.”
Interest expense, net.
For the
three and nine
months ended
September 30, 2013
compared to the corresponding periods in
2012
, net interest expense decreased by
$15 million
and
$56 million
, respectively, which was primarily a result of a decrease in our average interest rate from 6.6% for both the
three and nine
months ended
September 30, 2012
, to 5.6% and 5.9% for the
three and nine
months ended
September 30, 2013
, respectively, while our weighted average debt outstanding increased from $13.4 billion for the
three
months ended
September 30, 2012
to $14.3 billion for the
three
months ended
September 30, 2013
and from $13.0 billion for the
nine
months ended
September 30, 2012
to $13.4 billion for the
nine
months ended
September 30, 2013
as a result of the Bresnan Acquisition.
Loss on extinguishment of debt.
Loss on extinguishment of debt consists of the following for the periods presented:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2013
|
|
2012
|
|
|
|
|
Senior notes repurchase
|
$
|
65
|
|
|
$
|
15
|
|
Charter Operating credit facility refinancing/prepayments
|
58
|
|
|
59
|
|
|
|
|
|
|
$
|
123
|
|
|
$
|
74
|
|
For more information, see Note 5 to the accompanying condensed consolidated financial statements contained in “Item 1. Financial Statements.”
Gain (loss) on derivative instruments, net.
Interest rate derivative instruments are held to manage our interest costs and reduce our exposure to increases in floating interest rates. We recorded a loss of
$8 million
and a gain of
$9 million
during the
three and nine
months ended
September 30, 2013
, respectively, which represents the change in fair value of our interest rate derivative instruments and amortization of our accumulated other comprehensive loss for interest rate derivative instruments no longer
designated as hedges for accounting purposes. For more information, see Note 7 to the accompanying condensed consolidated financial statements contained in “Item 1. Financial Statements.”
Other Expense, net.
Other expense, net of $11 million and $14 million for the
three and nine
months ended
September 30, 2013
, respectively, primarily represents acquisition related costs incurred as a result of the Bresnan Acquisition.
Income tax expense.
Income tax expense was recognized for the
three and nine
months ended
September 30, 2013
and
2012
primarily through increases in deferred tax liabilities related to our investment in Charter Holdco and certain of our indirect subsidiaries, in addition to $1 million and $2 million for the
three
months ended
September 30, 2013
and
2012
, respectively, and $12 million and $5 million for the
nine
months ended
September 30, 2013
and
2012
, respectively, of current federal and state income tax expense. Income tax expense for the
nine
months ended
September 30, 2013
decreased compared to the corresponding prior period, primarily as a result of a step-up in basis of indefinite-lived assets for tax, but not GAAP purposes, which decreased our net deferred tax liability related to indefinite-lived assets by $58 million. The tax provision in future periods will vary based on current and future temporary differences, as well as future operating results, however we do not anticipate having such a large reduction in tax expense unless we enter into future financing transactions similar to that described in Note 11 to the accompanying condensed consolidated financial statements contained in “Item 1. Financial Statements.”
Net loss.
Net loss decreased from
$87 million
for the
three
months ended
September 30, 2012
to
$70 million
for the
three
months ended
September 30, 2013
and from
$264 million
for the
nine
months ended
September 30, 2012
to
$208 million
for the
nine
months ended
September 30, 2013
primarily as a result of the factors described above.
Loss per common share.
During the
three and nine
months ended
September 30, 2013
compared to the corresponding periods in
2012
, net loss per common share decreased by
$0.19
and
$0.60
, respectively, as a result of the factors described above.
Use of Adjusted EBITDA
and Free Cash Flow
We use certain measures that are not defined by accounting principles generally accepted in the United States ("GAAP") to evaluate various aspects of our business. Adjusted EBITDA and free cash flow are non-GAAP financial measures and should be considered in addition to, not as a substitute for, net loss and net cash flows from operating activities reported in accordance with GAAP. These terms, as defined by us, may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA and free cash flow are reconciled to net loss and net cash flows from operating activities, respectively, below.
Adjusted EBITDA is defined as net loss plus net interest expense, income tax expense, depreciation and amortization, stock compensation expense, loss on extinguishment of debt, (gain) loss on derivative instruments, net and other operating expenses, such as special charges and (gain) loss on sale or retirement of assets. As such, it eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of our businesses as well as other non-cash or special items, and is unaffected by our capital structure or investment activities. However, this measure is limited in that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues and our cash cost of financing. These costs are evaluated through other financial measures.
Free cash flow is defined as net cash flows from operating activities, less capital expenditures and changes in accrued expenses related to capital expenditures.
Management and Charter's board of directors use adjusted EBITDA and free cash flow to assess Charter's performance and its ability to service its debt, fund operations and make additional investments with internally generated funds. In addition, Adjusted EBITDA generally correlates to the leverage ratio calculation under our credit facilities or outstanding notes to determine compliance with the covenants contained in the facilities and notes (all such documents have been previously filed with the United States Securities and Exchange Commission). For the purpose of calculating compliance with leverage covenants, we use Adjusted EBITDA, as presented, excluding certain expenses paid by our operating subsidiaries to other Charter entities. Our debt covenants refer to these expenses as management fees, which fees were in the amount of
$49 million
and
$44 million
for the
three
months ended
September 30, 2013
and
2012
, respectively, and
$147 million
and
$126 million
for the
nine
months ended
September 30, 2013
and
2012
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(70
|
)
|
|
$
|
(87
|
)
|
|
$
|
(208
|
)
|
|
$
|
(264
|
)
|
Plus: Interest expense, net
|
214
|
|
|
229
|
|
|
635
|
|
|
691
|
|
Income tax expense
|
57
|
|
|
69
|
|
|
124
|
|
|
208
|
|
Depreciation and amortization
|
493
|
|
|
424
|
|
|
1,354
|
|
|
1,247
|
|
Stock compensation expense
|
11
|
|
|
13
|
|
|
37
|
|
|
37
|
|
Loss on extinguishment of debt
|
—
|
|
|
—
|
|
|
123
|
|
|
74
|
|
(Gain) loss on derivative instruments, net
|
8
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
Other, net
|
19
|
|
|
3
|
|
|
38
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
732
|
|
|
$
|
651
|
|
|
$
|
2,094
|
|
|
$
|
1,996
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities
|
$
|
538
|
|
|
$
|
468
|
|
|
$
|
1,563
|
|
|
$
|
1,391
|
|
Less: Purchases of property, plant and equipment
|
(425
|
)
|
|
(488
|
)
|
|
(1,259
|
)
|
|
(1,296
|
)
|
Change in accrued expenses related to capital expenditures
|
19
|
|
|
3
|
|
|
21
|
|
|
16
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
$
|
132
|
|
|
$
|
(17
|
)
|
|
$
|
325
|
|
|
$
|
111
|
|
Liquidity and Capital Resources
Introduction
This section contains a discussion of our liquidity and capital resources, including a discussion of our cash position, sources and uses of cash, access to credit facilities and other financing sources, historical financing activities, cash needs, capital expenditures and outstanding debt.
Overview of Our Contractual Obligations and Liquidity
We have significant amounts of debt. The principal amount of our debt as of
September 30, 2013
was
$14.4 billion
, consisting of
$4.0 billion
of credit facility debt and
$10.4 billion
of high-yield notes. Our business requires significant cash to fund principal and interest payments on our debt. As of
September 30, 2013
, $16 million of our debt matures in 2013, $414 million in 2014, $65 million in 2015, $93 million in 2016, $1.1 billion in 2017 and $12.7 billion thereafter. As of
December 31, 2012
, as shown in our annual report on Form 10-K, we had other contractual obligations, including interest on our debt, totaling $6.6 billion. During 2013, we currently expect capital expenditures to be approximately $1.8 billion, including the impact of the Bresnan Acquisition which closed on July 1, 2013.
Our projected cash needs and projected sources of liquidity depend upon, among other things, our actual results, and the timing and amount of our expenditures. Free cash flow was
$132 million
for the
three
months ended
September 30, 2013
and
$325 million
and
$111 million
for the
nine
months ended
September 30, 2013
and
2012
, respectively. We incurred negative free cash flow of
$17 million
for the
three
months ended
September 30, 2012
. We expect to generate positive free cash flow for 2013. As of
September 30, 2013
, the amount available under our credit facilities was approximately
$978 million
. We expect to utilize free cash flow and availability under our credit facilities as well as future refinancing transactions to further extend the maturities of or reduce the principal on our obligations. The timing and terms of any refinancing transactions will be subject to market conditions. Additionally, we may, from time to time, depending on market conditions and other factors, use cash on hand and the proceeds from securities offerings or other borrowings, to retire our debt through open market purchases, privately negotiated purchases, tender offers, or redemption provisions. We believe we have sufficient liquidity from cash on hand, free cash flow and Charter Operating's revolving credit facility as well as access to the capital markets to fund our projected operating cash needs.
We regularly evaluate uses for our free cash flow including to reduce our leverage, further investing in our business, strategic opportunities to strengthen and grow our business as well as stock repurchases and dividends. We evaluate strategic opportunities regularly, and may consider acquisitions, divestitures, swaps, mergers or other business combinations or significant investments,
strategic partnerships or alliances as opportunities become available. All opportunities are actively reviewed against our objectives including, among other considerations, improving the underlying cash flow profile, operational efficiency, or technology capabilities of either the target or our own business, with the goal of achieving appropriate return targets. The market for such transactions is highly competitive, and therefore we may be unable to ultimately secure strategic opportunities or to do so on terms favorable to us. In addition, any such transactions may be financed by issuing additional equity and debt, which could have a material impact on our operations, results, or could have a dilutive impact on our common stock.
Free Cash Flow
Free cash flow was
$132 million
for the
three
months ended
September 30, 2013
, and
$325 million
and
$111 million
for the
nine
months ended
September 30, 2013
and
2012
, respectively. We incurred negative free cash flow of
$17 million
for the
three
months ended
September 30, 2012
. The increase in free cash flow for the
three
months ended
September 30, 2013
compared to the corresponding period in
2012
is primarily due to an increase of $81 million in Adjusted EBITDA and a decrease of $63 million in capital expenditures. The increase in free cash flow for the
nine
months ended
September 30, 2013
compared to the corresponding period in
2012
is primarily due to an increase of $98 million in Adjusted EBITDA, a decrease of
$63 million
in cash paid for interest due to a decrease in our average interest rate with the completion of refinancings and a decrease of $37 million in capital expenditures.
Limitations on Distributions
Distributions by Charter’s subsidiaries to a parent company for payment of principal on parent company notes are restricted under indentures and credit facilities governing our indebtedness, unless there is no default under the applicable indenture and credit facilities, and unless each applicable subsidiary’s leverage ratio test is met at the time of such distribution. As of
September 30, 2013
, there was no default under any of these indentures or credit facilities and each subsidiary met its applicable leverage ratio tests based on
September 30, 2013
financial results. Such distributions would be restricted, however, if any such subsidiary fails to meet these tests at the time of the contemplated distribution. In the past, certain subsidiaries have from time to time failed to meet their leverage ratio test. There can be no assurance that they will satisfy these tests at the time of the contemplated distribution. Distributions by Charter Operating for payment of principal on CCO Holdings, LLC's ("CCO Holdings") notes and credit facility are further restricted by the covenants in its credit facilities.
In addition to the limitation on distributions under the various indentures discussed above, distributions by our subsidiaries may be limited by applicable law, including the Delaware Limited Liability Company Act, under which our subsidiaries may only make distributions if they have “surplus” as defined in the act.
Historical Operating, Investing, and Financing Activities
Cash and Cash Equivalents.
We held
$41 million
and
$7 million
in cash and cash equivalents as of
September 30, 2013
and
December 31, 2012
, respectively. Additionally, we had
$27 million
of restricted cash as of
December 31, 2012
. Restrictions on such cash were lifted in April 2013.
Operating Activities.
Net cash provided by operating activities increased
$172 million
from
$1.4 billion
for the
nine
months ended
September 30, 2012
to
$1.6 billion
for the
nine
months ended
September 30, 2013
, primarily due to an increase in Adjusted EBITDA of $98 million and a
$63 million
decrease in our cash paid for interest.
Investing Activities.
Net cash used in investing activities for the
nine
months ended
September 30, 2013
and
2012
was
$1.9 billion
and
$1.3 billion
, respectively. The increase is primarily due to $673 million cash paid for the Bresnan Acquisition (net of debt assumed).
Financing Activities.
Net cash provided by financing activities was
$397 million
and
$754 million
for the
nine
months ended
September 30, 2013
and
2012
, respectively. The decrease in cash provided was primarily the result of a decrease in the amount by which borrowings of long-term debt exceeded repayments, including applicable premiums.
Capital Expenditures
We have significant ongoing capital expenditure requirements. Capital expenditures were
$1.3 billion
for each of the
nine
months ended
September 30, 2013
and
2012
, respectively. Scalable infrastructure costs decreased primarily as a result of the timing of expenditures this year versus last year, while expenditures for fleet replacement and real estate related to our organizational realignment, back-office system expenditures and commercial line extensions increased. See the table below for more details.
During 2013, we currently expect capital expenditures to be approximately $1.8 billion, including the impact of the Bresnan Acquisition which closed on July 1, 2013. We anticipate 2013 capital expenditures to be driven by the deployment of additional set-top boxes in new and existing customer homes, growth in our commercial business, and further spend related to plant reliability, back-office support and our organizational realignment. The actual amount of our capital expenditures will depend on a number of factors including the growth rates of both our residential and commercial businesses, and the pace at which we progress to all-digital transmission.
Our capital expenditures are funded primarily from cash flows from operating activities and borrowings on our credit facility. In addition, our liabilities related to capital expenditures increased by
$21 million
and
$16 million
for the
nine
months ended
September 30, 2013
and
2012
, respectively.
The following table presents our major capital expenditures categories in accordance with NCTA disclosure guidelines for the
three and nine
months ended
September 30, 2013
and
2012
. The disclosure is intended to provide more consistency in the reporting of capital expenditures among peer companies in the cable industry. These disclosure guidelines are not required disclosures under GAAP, nor do they impact our accounting for capital expenditures under GAAP (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
Customer premise equipment (a)
|
$
|
193
|
|
|
$
|
258
|
|
|
$
|
618
|
|
|
$
|
631
|
|
Scalable infrastructure (b)
|
78
|
|
|
67
|
|
|
210
|
|
|
301
|
|
Line extensions (c)
|
54
|
|
|
57
|
|
|
162
|
|
|
131
|
|
Upgrade/rebuild (d)
|
50
|
|
|
54
|
|
|
137
|
|
|
138
|
|
Support capital (e)
|
50
|
|
|
52
|
|
|
132
|
|
|
95
|
|
|
|
|
|
|
|
|
|
Total capital expenditures (f)(g)
|
$
|
425
|
|
|
$
|
488
|
|
|
$
|
1,259
|
|
|
$
|
1,296
|
|
|
|
(a)
|
Customer premise equipment includes costs incurred at the customer residence to secure new customers and revenue generating units. It also includes customer installation costs and customer premise equipment (e.g., set-top boxes and cable modems).
|
|
|
(b)
|
Scalable infrastructure includes costs not related to customer premise equipment, to secure growth of new customers and revenue generating units, or provide service enhancements (e.g., headend equipment).
|
|
|
(c)
|
Line extensions include network costs associated with entering new service areas (e.g., fiber/coaxial cable, amplifiers, electronic equipment, make-ready and design engineering).
|
|
|
(d)
|
Upgrade/rebuild includes costs to modify or replace existing fiber/coaxial cable networks, including betterments.
|
|
|
(e)
|
Support capital includes costs associated with the replacement or enhancement of non-network assets due to technological and physical obsolescence (e.g., non-network equipment, land, buildings and vehicles).
|
|
|
(f)
|
Total capital expenditures includes
$74 million
and
$82 million
for the
three
months ended
September 30, 2013
and
2012
, respectively, and
$221 million
and
$181 million
for the
nine
months ended
September 30, 2013
and
2012
, respectively, of capital expenditures related to commercial services.
|
|
|
(g)
|
Total capital expenditures for the
three and nine
months ended
September 30, 2013
include $11 million from the Bresnan Acquisition.
|
Recently Issued Accounting Standards
In June 2013, the Financial Accounting Standards Board's Emerging Issues Task Force reached a final consensus on Issue 13-C, Presentation of an Unrecognized Tax Benefit when a Net Operating Loss or Tax Credit Carryforward Exists ("Issue 13-C"). Issue 13-C states that entities should present the unrecognized tax benefit as a reduction of the deferred tax asset for a net operating loss or similar tax loss or tax credit carryforward rather than as a liability when the uncertain tax position would reduce the net operating loss or other carryforward under the tax law. Issue 13-C requires prospective application (including accounting for uncertain tax positions that exist upon date of adoption) with optional retrospective application and is effective for annual and interim periods beginning after December 15, 2013, with early adoption permitted. We adopted Issue 13-C in the second quarter of 2013 and applied it retrospectively. The adoption of Issue 13-C decreased prepaid expenses and other current assets by
$3 million
and other long-term liabilities by
$202 million
and increased deferred income taxes by
$199 million
as of December 31, 2012.