Charter 2012 Annual Report Download

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Delivering More
2012 Annual Report
TV
HD
HD
INTERNET
INTERNET
PHONE
PHONE
BANDWIDTH
BANDWIDTH
ONLINE
MANAGER
ONLINE
MANAGER
ON
DEMAND
ON
DEMAND
CHARTER
BUSINESS
CHARTER
BUSINESS
UNLIMITED
CALLING
UNLIMITED
CALLING
SECURITY
SUITE
CUSTOMER
GUARANTEE
TRIPLE PLAY
TRIPLE PLAY
CUSTOMER
GUARANTEE
CLOUD DRIVE
SECURITY SUITE
MOBILE APPS
MOBILE APPS
BANDWIDTH
TV
CLOUD
DRIVE

Table of contents

  • Page 1
    ... INTERNET ON DEMAND TV SECURITY SUITE ONLINE MANAGER BANDWIDTH MOBILE APPS HD Delivering More TRIPLE PLAY CHARTER BUSINESS UNLIMITED CALLING HD BANDWIDTH CUSTOMER GUARANTEE ON DEMAND PHONE ONLINE MANAGER SECURITY SUITE INTERNET CLOUD DRIVE BANDWIDTH TV MOBILE APPS 2012 Annual Report

  • Page 2
    A Fortune 500 company and one of the nation's largest cable operators, Charter Communications, Inc. provides advanced TV, Internet and telephone services to more than 5 million homes and businesses across 25 states. We connect our customers to the world through a high capacity superior network, ...

  • Page 3
    ... interactive network PRODUCTS HD TV INTERNET PHONE Offering More In 2012, Charter continued to enhance our product set. Mid-year, we launched a new pricing and packaging strategy designed to drive deeper product penetration and higher revenue per customer, lower transaction costs per customer and...

  • Page 4
    ... and Chief Executive Officer REVENUE (IN MILLIONS) our video and broadband offerings. Our new pricing and packaging also made Charter's digital phone service even more attractive, enabling us to now offer what we believe is the most competitive triple play package-video, Internet and 2 01 0 2 01...

  • Page 5
    ... our services and increase our market penetration. We now offer highly competitive video, phone and Internet services that are among the best in the country-and we offer it all in a package delivering superior value. This combination of advantages creates significant opportunity for Charter. It...

  • Page 6
    ...in the right direction on many fronts, and continue to improve the service we deliver to our customers. Finally, we are focused on driving commercial growth using the product, service, and network improvements that we have accelerated throughout our business. We have achieved a great deal in a short...

  • Page 7
    ... STRONG PLATFORM & SCALE • • • Highly capable network covering more than 12 million passings; $9.5 billion commercial market Offering best-in-class Internet and competitive video and phone products in residential and commercial markets Change in national go-to-market approach and operating...

  • Page 8
    ...Phone %Residential primary service units %Commercial %%Video %%Internet %%Phone %Commercial primary service units Video Services: %Estimated video passings %Video penetration of estimated video passings %Digital video revenue generating units %Digital penetration of video customers Internet Services...

  • Page 9
    ... NASDAQ Global Select Market Securities registered pursuant to section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes Indicate by check mark if the registrant is not required to file reports pursuant...

  • Page 10
    ...all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No There were 101,178,821 shares of Class A common stock outstanding as of January 31, 2013. There were...

  • Page 11
    ... Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services 58 58 58 58 58 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management...

  • Page 12
    ... other reports or documents that we file from time to time with the SEC, and include, but are not limited to: • our ability to sustain and grow revenues and cash flow from operations by offering video, Internet, telephone, advertising and other services to residential and commercial customers, to...

  • Page 13
    ...467,000 commercial primary service units, primarily small- and medium-sized commercial customers. Our advertising sales division, Charter Media®, provides local, regional and national businesses with the opportunity to advertise in individual markets on cable television networks. For the year ended...

  • Page 14
    ..., Stamford, Connecticut 06901. Our telephone number is (203) 905-7801, and we have a website accessible at www.charter.com. Our annual reports, quarterly reports and current reports on Form 8-K, and all amendments thereto, are available on our website free of charge as soon as reasonably practicable...

  • Page 15
    .... Charter Communications, Inc. Charter owns 100% of Charter Communications Holding Company, LLC ("Charter Holdco"). Charter Holdco, through its subsidiaries, owns cable systems. As sole manager under applicable operating agreements, Charter controls the affairs of Charter Holdco and its limited...

  • Page 16
    ... using voice over Internet protocol ("VoIP") technology, to transmit digital voice signals over our systems. Our video, Internet, and telephone services are offered to residential and commercial customers on a subscription basis, with prices and related charges based on the types of service selected...

  • Page 17
    ... video services such as DVRs and HD television. Premium channels provide original programming, commercial-free movies, sports, and other special event entertainment programming. Although we offer subscriptions to premium channels on an individual basis, we offer an increasing number of digital video...

  • Page 18
    ... services represented approximately 11% of our total revenues. We provide voice communications services primarily using VoIP technology to transmit digital voice signals over our network. Charter Phone® includes unlimited nationwide calling, voicemail, call waiting, caller ID, call forwarding...

  • Page 19
    ...we charge for video cable-related equipment, such as set-top boxes and remote control devices, and for installation services, are based on actual costs plus a permitted rate of return in regulated markets. In mid-2012, Charter launched a new pricing and packaging approach which emphasizes the triple...

  • Page 20
    ... in the number of service-related calls to our care centers and in the number of trouble call truck rolls in 2012 versus 2011. Our marketing strategy emphasizes our bundled services through targeted direct response marketing programs to existing and potential customers and increases awareness and...

  • Page 21
    ... margins due to rapidly increasing programming costs, we continue to review our pricing and programming packaging strategies, and we plan to continue to migrate certain program services from our basic level of service to our digital tiers and limit the launch of nonessential, new networks. We have...

  • Page 22
    ... both residential and commercial customers in the areas of price, service offerings, and service reliability. In our residential business, we compete with other providers of video, high-speed Internet access, telephone services, and other sources of home entertainment. In our commercial business, we...

  • Page 23
    ... than Charter's current Internet speeds. Verizon's FiOS is the primary fiber-to-the-home competitor. Our telephone service competes directly with incumbent telephone companies and other carriers, including Internet-based VoIP providers, for both residential and commercial voice service customers...

  • Page 24
    ... program streams, as well as advanced digital services such as subscription video and data transmission. Internet Delivered Video Internet access facilitates the streaming of video, including movies and television shows, into homes and businesses. Increasingly, content owners are using Internet...

  • Page 25
    ... use of limited channel capacity, and limit our ability to offer services that appeal to our customers and generate revenues. Access Channels. Local franchise agreements often require cable operators to set aside certain channels for public, educational, and governmental access programming. Federal...

  • Page 26
    ... additional network and information security requirements for our business. Other FCC Regulatory Matters. FCC regulations cover a variety of additional areas, including, among other things: (1) equal employment opportunity obligations; (2) customer service standards; (3) technical service standards...

  • Page 27
    ... are considering subjecting Internet access services to the Universal Service funding requirements. These funding requirements could impose significant new costs on our high-speed Internet service. State and local governmental organizations have also adopted Internet-related regulations. These...

  • Page 28
    ... regarding law enforcement surveillance of communications, Universal Service Fund contribution, customer privacy and Customer Proprietary Network Information issues, number portability, disability access, regulatory fees, and discontinuance of service. In March 2007, a federal appeals court affirmed...

  • Page 29
    ... operations by offering video, Internet, telephone, advertising and other services to residential and commercial customers, to adequately meet the customer experience demands in our markets and to maintain and grow our customer base, particularly in the face of increasingly aggressive competition...

  • Page 30
    ... may not have sufficient access to funds at the time of the change of control event to make the required repurchase of the applicable notes and the debt under the CCO Holdings credit facility, and Charter Operating is limited in its ability to make distributions or other payments to CCO Holdings to...

  • Page 31
    ... to time we make promotional offers, including offers of temporarily reduced price or free service. These promotional programs result in significant advertising, programming and operating expenses, and also may require us to make capital expenditures to acquire and install customer premise equipment...

  • Page 32
    ... in our commercial business. We may encounter unforeseen difficulties as we increase the scale of our service offerings to businesses. We sell Internet access, data networking and fiber connectivity to cellular towers and office buildings, video and business telephone services to businesses and have...

  • Page 33
    ... obtain required materials on favorable terms. In that regard, we currently purchase set-top boxes from a limited number of vendors, because each of our cable systems use one or two proprietary conditional access security schemes, which allows us to regulate subscriber access to some services, such...

  • Page 34
    ... If directed at us or technologies upon which we depend, these activities could have adverse consequences on our network and our customers, including degradation of service, excessive call volume to call centers, and damage to our or our customers' equipment and data. Further, these activities could...

  • Page 35
    ... of high-speed Internet service, including net neutrality rules; the provision of voice communications; cable franchise renewals and transfers; and equal employment opportunity, emergency alert systems, disability access, technical standards, marketing practices, customer service, and consumer...

  • Page 36
    ... our business. Local franchising authorities may impose new and more restrictive requirements. Local franchising authorities who are certified to regulate rates in the communities where they operate generally have the power to reduce rates and order refunds on the rates charged for basic service and...

  • Page 37
    ... or cancel service or programming enhancements, or impair our ability to raise rates to cover our increasing costs, resulting in increased losses. Currently, rate regulation of cable systems is strictly limited to the basic service tier and associated equipment and installation activities. However...

  • Page 38
    ... programming (required channel capacity for use by persons unaffiliated with the cable operator who desire to distribute programming over a cable system). The FCC has adopted new commercial leased access rules (currently stayed while under appeal) which dramatically reduce the rate we can charge...

  • Page 39
    ... 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 are pending relating to...

  • Page 40
    ... issues concerning our reports to the EPA for backup batteries used at our facilities. We do not view these matters as material. We also are party to other lawsuits and claims that arise in the ordinary course of conducting our business, including lawsuits claiming violation of anti-trust laws...

  • Page 41
    ..., Related Stockholder Matters and Issuer Purchases of Equity Securities. (A) Market Information Charter's Class A common stock is listed on the NASDAQ Global Select Market under the symbol "CHTR." The following table sets forth, for the periods indicated, the range of high and low last reported sale...

  • Page 42
    ... 31, 2012 with respect to equity compensation plans: Weighted Average Exercise Price of Outstanding Warrants and Rights Plan Category Equity compensation plans approved by security holders Equity compensation plans not approved by security holders TOTAL Number of Securities to be Issued Upon...

  • Page 43
    ... total return on Charter's Class A common stock for the period from December 2, 2009 through December 31, 2012, in comparison to the cumulative total return on Standard & Poor's 500 Index and a peer group consisting of the national cable operators that are most comparable to us in terms of size and...

  • Page 44
    ...above information from year to year is affected by acquisitions and dispositions completed by us. In addition, upon our emergence from bankruptcy, we adopted fresh start accounting. This resulted in us becoming a new entity on December 1, 2009, with a new capital structure, a new accounting basis in...

  • Page 45
    ... residential and commercial customers at December 31, 2012. We offer our customers traditional cable video programming, Internet services, and telephone services, as well as advanced video services such as OnDemandTM, HD television and DVR service. We also sell local advertising on cable networks...

  • Page 46
    ... fee revenues (which are collected by us but then paid to local authorities), pay-per-view and OnDemand programming, installation, processing fees or reconnection fees charged to customers to commence or reinstate service, and commissions related to the sale of merchandise by home shopping services...

  • Page 47
    ... equipment in connection with the installation of expanded services, and equipment replacement and betterment; and Verifying the integrity of the customer's network connection by initiating test signals downstream from the headend to the customer's digital set-top box. • Judgment is required...

  • Page 48
    ... 20% of costs and expenses, respectively. Depreciation is recorded using the straight-line composite method over management's estimate of the useful lives of the related assets as listed below: Cable distribution systems...Customer equipment and installations...Vehicles and equipment...Buildings and...

  • Page 49
    ...factors such as projected revenues, expenses, capital expenditures, and a discount rate applied to the estimated cash flows. The determination of the discount rate is based on a weighted average cost of capital approach, which uses a market participant's cost of equity and after-tax cost of debt and...

  • Page 50
    ... an additional $226 million annually over each of the next 12 years of federal tax loss carryforwards, should become unrestricted and available for Charter's use. Charter's remaining $400 million of suspended losses carry forward indefinitely until such time as either tax basis is restored or other...

  • Page 51
    ...video programming costs based on our contractual agreements with our programming vendors, which are generally multi-year agreements that provide for us to make payments to the programming vendors at agreed upon market rates based on the number of customers to which we provide the programming service...

  • Page 52
    ... in the number of residential Internet and commercial business customers, incremental video revenues from DVR and HD television services and growth in advertising sales, offset by a decrease in basic video customers. Asset sales and acquisitions increased revenues in 2012 as compared to 2011 by...

  • Page 53
    ... digital video services provided to our non-commercial customers, as well as franchise fees, equipment rental and video installation revenue. Average monthly video revenue per residential basic video customer, measured on an annual basis, has increased from $69 in 2010 to $72 in 2011 and $74 in 2012...

  • Page 54
    ... in 2012 and 2011, respectively. The increases in commercial revenues are attributable to the following (dollars in millions): 2012 compared to 2011 Sales to small-to-medium sized business customers Carrier site customers Other Asset sales and acquisitions $ 87 17 9 1 114 2011 compared to 2010 $ 71...

  • Page 55
    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 for the year ended December 31, 2012 was ...

  • Page 56
    ...investment activities. Adjusted EBITDA is used by management and Charter's board of directors to evaluate the performance of our business. 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...

  • Page 57
    ...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...

  • Page 58
    ...benefits in the first half of 2010 post emergence from bankruptcy along with timing of payments in 2011. These decreases in free cash flow in 2011 were partially offset by revenues increasing at a faster rate than cash expenses. Long-Term Debt As of December 31, 2012, the accreted value of our total...

  • Page 59
    ...December 31, 2012, 2011 and 2010 was $47 million, $49 million and $50 million, respectively. We pay franchise fees under multi-year franchise agreements based on a percentage of revenues generated from video service per year. We also pay other franchise related costs, such as public education grants...

  • Page 60
    ... of acquisitions. 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...

  • Page 61
    ...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...

  • Page 62
    ... requiring mandatory loan prepayments under specific circumstances, including in connection with certain sales of assets, so long as the proceeds have not been reinvested in the business. The CCO Holdings credit facility permits CCO Holdings and its subsidiaries to make distributions to pay...

  • Page 63
    ... requiring mandatory loan prepayments under specific circumstances, including in connection with certain sales of assets, so long as the proceeds have not been reinvested in the business. Additionally, the Charter Operating credit facilities provisions contain an allowance for restricted payments...

  • Page 64
    ... of Our Notes The various notes issued by our subsidiaries included in the table may be redeemed in accordance with the following table or are not redeemable until maturity as indicated: Note Series 7.25% senior notes due 2017 Redemption Dates October 30, 2013 - October 29, 2014 October 30, 2014...

  • Page 65
    ... other things incur indebtedness; pay dividends or make distributions in respect of capital stock and other restricted payments; issue equity; make investments; create liens; sell assets; consolidate, merge, or sell all or substantially all assets; enter into sale leaseback transactions; create...

  • Page 66
    ... acquire assets used or useful in their businesses or use the net cash proceeds to repay specified debt, or to offer to repurchase the issuer's notes with any remaining proceeds. Restrictions on Sale and Leaseback Transactions The note issuer and its restricted subsidiaries may generally not engage...

  • Page 67
    ...We are exposed to various market risks, including fluctuations in interest rates. We have used interest rate swap agreements to manage our interest costs and reduce our exposure to increases in floating interest rates. We manage our exposure to fluctuations in interest rates by maintaining a mix of...

  • Page 68
    ..., and as of the date of that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to provide reasonable assurances that information required to be disclosed in the reports we file or submit under the Securities 56

  • Page 69
    ... the preparation and fair presentation of published financial statements. Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the...

  • Page 70
    ... amendment to this Annual Report on Form 10-K under the caption "Report of Compensation and Benefits Committee" is furnished and not deemed filed with the SEC. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by Item 12...

  • Page 71
    ... independent public accountants required by Item 8 begins on page F-1 of this annual report. (2) Financial Statement Schedules. No financial statement schedules are required to be filed by Items 8 and 15(d) because they are not required or are not applicable, or the required information is set forth...

  • Page 72
    ... this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. CHARTER COMMUNICATIONS, INC., Registrant By: /s/ Thomas M. Rutledge Thomas M. Rutledge President, Chief Executive Officer and Director Date: February 22, 2013 Pursuant to the requirements of the Securities...

  • Page 73
    ... CCO Holdings Capital Corp., as Issuers, Charter Communications, Inc., as Parent Guarantor, and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K of Charter Communications, Inc. filed on May 13, 2011 (File No. 001...

  • Page 74
    ... to Exhibit 1.01 to the current report on Form 8-K filed by Charter Communications, Inc. on April 17, 2012 (File No. 001-33664)). Registration Rights Agreement, dated as of November 30, 2009, by and among Charter Communications, Inc. and certain investors listed therein (incorporated by reference...

  • Page 75
    ... Act of 2002 (Chief Financial Officer). The following financial information from the Annual Report of Charter Communications, Inc. on Form 10-K for the year ended December 31, 2012, filed with the SEC on February 22, 2013, formatted in eXtensible Business Reporting Language: (i) Consolidated Balance...

  • Page 76
    ... Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2012 and 2011 Consolidated Statements of Operations for the Years Ended December 31, 2012, 2011 and 2010 Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2012, 2011...

  • Page 77
    ... statements and an opinion on the Company's internal control over financial reporting based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain...

  • Page 78
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in millions, except share data) December 31, 2012 ASSETS CURRENT ASSETS: Cash and cash equivalents Restricted cash and cash equivalents Accounts receivable, less allowance for doubtful accounts of $14 and $16, ...

  • Page 79
    ...,461 CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (dollars in millions) 2012 Net loss Changes in fair value of interest rate swap agreements, net of tax Comprehensive loss $ $ Year Ended December 31, 2011 (304) $ (10) (314) $ (369) $ (8) (377) $ 2010...

  • Page 80
    ... IN SHAREHOLDERS' EQUITY (dollars in millions) Accumulated Other Comprehensive Loss Class A Common Stock BALANCE, December 31, 2009 Net loss Charter Investment Inc.'s exchange of Charter Holdco interest (see Note 16) Changes in fair value of interest rate swap agreements Stock compensation expense...

  • Page 81
    ... expenses related to capital expenditures Sales (purchases) of cable systems, net Other, net Net cash flows from investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings of long-term debt Repayments of long-term debt Repayment of preferred stock Payments for debt issuance costs Purchase...

  • Page 82
    ... services such as Charter OnDemandâ„¢, 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...

  • Page 83
    ... dwelling, are capitalized. Depreciation is recorded using the straight-line composite method over management's estimate of the useful lives of the related assets as follows: Cable distribution systems Customer equipment and installations Vehicles and equipment Buildings and leasehold improvements...

  • Page 84
    ... authorities are passed through on a monthly basis to the Company's customers and are periodically remitted to authorities. Fees of $389 million, $388 million and $379 million for the years ended December 31, 2012, 2011 and 2010, respectively, are reported in video, telephone and commercial revenues...

  • Page 85
    ...Video Internet Telephone Commercial Advertising sales Other $ Programming Costs The Company has various contracts to obtain basic, digital and premium video programming from programming vendors whose compensation is typically based on a flat fee per customer. The cost of the right to exhibit network...

  • Page 86
    ...6.3 years. The grant date weighted average cost of equity used was 16.2% and 15.5% during the years ended December 31, 2012 and 2011, respectively. Volatility assumptions were based on historical volatility of Charter and a peer group. The Company's volatility assumptions represent management's best...

  • Page 87
    ...authorities that allow access to homes in cable service areas. For valuation purposes, they are defined as the future economic benefits of the right to solicit and service potential customers (customer marketing rights), and the right to deploy and market new services, such as Internet and telephone...

  • Page 88
    ... cost of equity and after-tax cost of debt and reflects the risks inherent in the cash flows. The Company estimates discounted future cash flows using reasonable and appropriate assumptions including among others, penetration rates for video, high-speed Internet, and telephone; revenue growth rates...

  • Page 89
    ...the year ended December 31, 2011, franchises, customer relationships and goodwill increased by $31 million, $10 million and $3 million, respectively, as a result of cable system acquisitions. The Company expects amortization expense on its finite-lived intangible assets will be as follows. 2013 2014...

  • Page 90
    ... as of December 31, 2012 and 2011: December 31, 2012 Accounts payable - trade Accrued capital expenditures Deferred revenue Accrued expenses: Interest Programming costs Franchise related fees Compensation Other $ 107 156 81 155 323 52 145 205 $ 7. Long-Term Debt 1,224 $ $ 2011 80 143 73 191 294...

  • Page 91
    ... to Charter Communications Operating, LLC ("Charter Operating") as a capital contribution and were used to repay indebtedness under the Charter Operating credit facilities. The Company recorded a loss on extinguishment of debt of approximately $67 million for the year ended December 31, 2011 related...

  • Page 92
    ...notes were used for general corporate purposes, including repaying amounts outstanding under the Company's revolving credit facility, and to fund the redemption of the CCH II 13.500% senior notes due 2016 during the fourth quarter of 2012. In December 2012, CCO Holdings and CCO Holdings Capital Corp...

  • Page 93
    ... 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...

  • Page 94
    ... requiring mandatory loan prepayments under specific circumstances, including in connection with certain sales of assets, so long as the proceeds have not been reinvested in the business. Additionally, the Charter Operating credit facilities provisions contain an allowance for restricted payments...

  • Page 95
    ... its business requires significant cash to fund principal and interest payments on its debt, capital expenditures and ongoing operations. As set forth below, the Company has significant future principal payments beginning in 2013 and beyond. The Company continues to monitor the capital markets, and...

  • Page 96
    ... January 2012. In December 2011, the Company also entered into stock repurchase agreements for approximately 3.0 million shares of Charter's Class A common stock from funds advised by Oaktree Capital Management and approximately 2.2 million shares of Charter's Class A common stock from funds advised...

  • Page 97
    ... Restricted stock unit vesting Purchase of treasury stock (see Note 9) BALANCE, December 31, 2012 11. Accounting for Derivative Instruments and Hedging Activities The Company uses interest rate swap agreements to manage its interest costs and reduce the Company's exposure to increases in floating...

  • Page 98
    ... time as current swaps mature and an equal or lesser amount of delayed start swaps become effective. 12. Fair Value Measurements Financial Assets and Liabilities The Company has estimated the fair value of its financial instruments as of December 31, 2012 and 2011 using available market information...

  • Page 99
    ... 31, 2012 and 2011, 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 (defined below) of the valuation hierarchy. The weighted average pay rate for the Company...

  • Page 100
    ... 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 costs related to field...

  • Page 101
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2012, 2011 AND 2010 (dollars in millions, except share or per share data or where indicated) Under the 2009 Stock Incentive Plan, stock options generally vest annually over four years from either ...

  • Page 102
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2012, 2011 AND 2010 (dollars in millions, except share or per share data or where indicated) A summary of the activity for the Company's restricted stock for the years ended December 31, 2012, 2011 ...

  • Page 103
    ... years ended December 31, 2012, 2011, and 2010, the Company recorded deferred income tax expense and benefits as shown below. The 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...

  • Page 104
    ... other current assets in the accompanying consolidated balance sheets of the Company. Net deferred tax liabilities included approximately $219 million and $221 million at December 31, 2012 and 2011, respectively, relating to certain indirect subsidiaries of Charter Holdco that file separate federal...

  • Page 105
    ... for Charter or Charter Holdco are currently under examination by the Internal Revenue Service. Tax years ending 2009 through 2012 remain subject to examination and assessment. Years prior to 2009 remain open solely for purposes of examination of Charter's loss and credit carryforwards. 17. Related...

  • Page 106
    .... The management fee charged to the Company's operating subsidiaries approximated the expenses incurred by Charter Holdco and Charter on behalf of the Company's operating subsidiaries in 2012, 2011, and 2010. Registration Rights Agreement As part of the emergence from Chapter 11 bankruptcy in 2009...

  • Page 107
    ... 31, 2012, 2011, and 2010 was $47 million, $49 million, and $50 million, respectively. The Company pays franchise fees under multi-year franchise agreements based on a percentage of revenues generated from video service per year. The Company also pays other franchise related costs, such as public...

  • Page 108
    ... by allowing telephone companies to provide video programming in their own telephone service areas. Future legislative and regulatory changes could adversely affect the Company's operations. 19. Employee Benefit Plan The Company's employees may participate in the Charter Communications, Inc. 401...

  • Page 109
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2012, 2011 AND 2010 (dollars in millions, except share or per share data or where indicated) Effective January 1, 2013, the Company's matching contribution will be equal to 50% of the amount of the ...

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    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2012, 2011 AND 2010 (dollars in millions, except share or per share data or where indicated) 22. Consolidating Schedules The CCO Holdings notes and the CCO Holdings credit facility are obligations ...

  • Page 111
    ...DECEMBER 31, 2012, 2011 AND 2010 (dollars in millions, except share or per share data or where indicated) Charter Communications, Inc. Condensed Consolidating Balance Sheet As of December 31, 2012 Intermediate Holding Companies Charter Operating and Subsidiaries Charter CCO Holdings Eliminations...

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    ...DECEMBER 31, 2012, 2011 AND 2010 (dollars in millions, except share or per share data or where indicated) Charter Communications, Inc. Condensed Consolidating Balance Sheet As of December 31, 2011 Intermediate Holding Companies Charter Operating and Subsidiaries Charter CCO Holdings Eliminations...

  • Page 113
    ... STATEMENTS DECEMBER 31, 2012, 2011 AND 2010 (dollars in millions, except share or per share data or where indicated) Charter Communications, Inc. Condensed Consolidating Statement of Operations For the year ended December 31, 2012 Intermediate Holding Companies Charter Operating and Subsidiaries...

  • Page 114
    ... STATEMENTS DECEMBER 31, 2012, 2011 AND 2010 (dollars in millions, except share or per share data or where indicated) Charter Communications, Inc. Condensed Consolidating Statement of Operations For the year ended December 31, 2011 Intermediate Holding Companies Charter Operating and Subsidiaries...

  • Page 115
    ... STATEMENTS DECEMBER 31, 2012, 2011 AND 2010 (dollars in millions, except share or per share data or where indicated) Charter Communications, Inc. Condensed Consolidating Statement of Operations For the year ended December 31, 2010 Intermediate Holding Companies Charter Operating and Subsidiaries...

  • Page 116
    ... (Loss) For the year ended December 31, 2011 Intermediate Holding Companies Charter Operating and Subsidiaries Charter CCO Holdings Eliminations Charter Consolidated Consolidated net income (loss) Changes in fair value of interest rate swap agreements, net of tax $ (382) $ - (116) $ - 82...

  • Page 117
    ... STATEMENTS DECEMBER 31, 2012, 2011 AND 2010 (dollars in millions, except share or per share data or where indicated) Charter Communications, Inc. Condensed Consolidating Statement of Cash Flows For the year ended December 31, 2012 Intermediate Holding Companies Charter Operating and Subsidiaries...

  • Page 118
    ... (dollars in millions, except share or per share data or where indicated) Charter Communications, Inc. Condensed Consolidating Statement of Cash Flows For the year ended December 31, 2011 Intermediate Holding Companies Charter Operating and Subsidiaries Charter CASH FLOWS FROM OPERATING ACTIVITIES...

  • Page 119
    ... (dollars in millions, except share or per share data or where indicated) Charter Communications, Inc. Condensed Consolidating Statement of Cash Flows For the year ended December 31, 2010 Intermediate Holding Companies Charter Operating and Subsidiaries Charter CASH FLOWS FROM OPERATING ACTIVITIES...

  • Page 120
    ... 31, 2012, 2011 AND 2010 (dollars in millions, except share or per share data or where indicated) 23. Subsequent Events In February 2013, the Company entered into a definitive agreement under which it will acquire Cablevision Systems Corporation's former Bresnan cable systems, known as Optimum West...

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    ... of the Company's business. 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 the cash cost of financing. Management evaluates these costs through other financial measures. Free cash...

  • Page 123
    ... 31 2010 2011 2012 Net loss Plus: Interest expense, net Income tax expense Depreciation and amortization Stock compensation expense Loss on extinguishment of debt Other, net Adjusted EBITDA Net cash flows from operating activities Less: Purchases of property, plant and equipment Change...

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    ... Public Accounting Firm KPMG LLP Form 10-K Additional copies of our Form 10-K, filed annually with the Securities and Exchange Commission (SEC), are available without charge (without exhibits) by accessing our website at Charter.com or by contacting Investor Relations. Trademarks Trademark terms...

  • Page 125
    ... Technology Don Detampel Executive Vice President, Strategy and President, Commercial Services Richard R. Dykhouse Executive Vice President, General Counsel and Corporate Secretary Jonathan Hargis Executive Vice President and Chief Marketing Officer Kathleen Mayo Executive Vice President, Customer...

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    Charter Communications, Inc. 400 Atlantic Street, 10th Floor Stamford, Connecticut 06901 Charter.com