Charter 2013 Annual Report Download

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Make Way for
2013
Annual Report

Table of contents

  • Page 1
    Make Way for 2013 Annual Report

  • Page 2
    ... service. Charter currently offers advanced cloud-based cable television, video-on-demand titles, fully-featured telephone service and Internet speeds that are among the nation's fastest. Our commercial services unit, Charter Business®, provides scalable, tailored and cost-effective communications...

  • Page 3
    ... cable plant. Charter Is Gearing Up For Big Things Over the course of 2014, we will introduce Charter Spectrum, our latest suite of services, including over 200 high definition channels, Internet speeds of 60 Mbps, and fully-featured voice service, all at an attractive price. Charter Communications...

  • Page 4
    .... Revenue of $8.4 billion rose 5% year over year. We added 172,000 new resi1 THOMAS M. RUTLEDGE, President and Chief Executive Officer customers and by deepening and extending its relationship with existing customers. We will achieve these goals by offering bestin-class video, Internet and voice...

  • Page 5
    ... as a touchscreen guide and enables customers to livestream cable channels in the home on tablets and phones, with more features and greater functionality to come. We also continue to develop our cloud-based user interface for Charter Communications, Inc. Revenue (in millions) 2011 2012 2013 $7,697...

  • Page 6
    ...footprint, packaged in a high-value offering we are calling Charter Spectrum. With over 200 channels of HD, minimum Internet speeds of at least 60 Mbps, and fully-featured voice services, Charter Spectrum is designed to drive greater market share of our services in both homes and businesses. Greater...

  • Page 7
    MORE is new connections, new ideas, new worlds to explore. Charter Communications, Inc. 5

  • Page 8
    ... 2013 Annual Report MORE. STRONG PLATFORM & SCALE - Highly capable network covering ~12.8M passings; $9.5B1 commercial market Char ter is well positioned . - Offering superior Internet and competitive video and voice products in residential and commercial markets - Change in national go-to-market...

  • Page 9
    ...new worlds to explore. It's discovering there's more to you than you ever even knew. We've invested in our superior fiber-rich network to bring more of what's now, and what's next. But we bring you so much more than that. We bring you more...you. CHARTER. MAKE WAY FOR MORE. Charter Communications...

  • Page 10
    ...816 $ 105.55 For the year ended December 31, (in millions, except ARPU data) Revenue Adjusted EBITDA* Income from operations Actual free cash flow* Capital expenditures Revenue per customer relationship Operating Statistics Actual 2013 5,561 375 5,936 32.6% Pro Forma 2012 5,389 341 5,730 30...

  • Page 11
    ... FORM 10-K _____ (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2013 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From to Commission File...

  • Page 12
    ... at June 30, 2013 was approximately $8.8 billion, computed based on the closing sale price as quoted on the NASDAQ Global Select Market on that date. For purposes of this calculation only, directors, executive officers and the principal controlling shareholders or entities controlled by such...

  • Page 13
    ...Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services 60 60 60 60 60 Market for...

  • Page 14
    ...in this annual report are set forth in this annual report and in 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, voice, advertising and...

  • Page 15
    ...other features, including voicemail, call waiting and caller ID. Through Charter Business®, we provide scalable, tailored broadband communications solutions to business and carrier organizations, such as video entertainment services, Internet access, business telephone services, data networking and...

  • Page 16
    ... offices are located at 400 Atlantic Street, 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...

  • Page 17
    ... described below. Charter Communications, Inc. Charter owns 100% of 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 liability company subsidiaries. In...

  • Page 18
    ..., to transmit digital voice signals over our systems. Our video, Internet, and voice services are offered to residential and commercial customers on a subscription basis, with prices and related charges based on the types of service selected, whether the services are sold as a "bundle" or on...

  • Page 19
    ... 100 channels of cable TV and use the device as a remote to control their digital set-top box while in their home. It also allows customers the ability to browse Charter's program guide, search for programming, and schedule DVR recordings from inside and outside the home. Charter's online offerings...

  • Page 20
    ... waiting, caller ID, call forwarding and other features. Charter Voice also provides international calling either by the minute or through packages of minutes per month. For Charter Voice and video customers, caller ID on TV is available. Commercial Services In 2013, commercial services represented...

  • Page 21
    ... 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 play products of video, Internet...

  • Page 22
    ...of service-related calls to our care centers and in the number of trouble call truck rolls in 2012 and 2013. Our marketing strategy emphasizes our bundled services through targeted direct response marketing programs to existing and potential customers and increases awareness and value of the Charter...

  • Page 23
    ... 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, remove underperforming services and limit the launch of non-essential, new networks...

  • Page 24
    ... 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, voice services, and other sources of home entertainment. In our commercial business, we compete with...

  • Page 25
    ... expansion plans announced in late 2012. Fiber-to-the-home networks, however, can provide Internet speeds equal to or greater than Charter's current Internet speeds. Verizon's FiOS is the primary fiber-to-the-home competitor. Our voice service competes directly with incumbent telephone companies and...

  • Page 26
    ... Competitors Local wireless Internet services operate in some markets using available unlicensed radio spectrum. Various wireless phone companies are now offering third and fourth generation (3G and 4G) wireless high-speed Internet services. In addition, a growing number of commercial areas, such...

  • Page 27
    ... preferred 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...

  • Page 28
    .... In their current form, the FCC's regulations in this area favor our competitors. Privacy and Information Security Regulation. The Communications Act limits our ability to collect and disclose subscribers' personally identifiable information for our video, voice, and Internet services, as well...

  • Page 29
    ... Internet access services to the Universal Service funding requirements. These funding requirements could impose significant new costs on our high-speed Internet service. Also, the FCC and some state regulatory commissions direct certain subsidies to telephone companies deploying broadband to areas...

  • Page 30
    ... with requirements relating to 911 emergency services ("E911"), the CALEA regarding law enforcement surveillance of communications, Universal Service Fund contributions, customer privacy and Customer Proprietary Network Information issues, number portability, disability access, regulatory fees, and...

  • Page 31
    ... factors, including: • our ability to sustain and grow revenues and cash flow from operations by offering video, Internet, voice, 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...

  • Page 32
    ..., to service debt obligations is subject to its compliance with the terms of its credit facilities, and restrictions under applicable law. See "Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Limitations on...

  • Page 33
    ... and wireless services offered by the telephone companies and their affiliates. These service bundles offer customers similar pricing and convenience advantages as our bundles. Continued growth in our residential voice business faces risks. The competitive landscape for residential and commercial...

  • Page 34
    ...in the housing market and relatively high unemployment levels, have adversely affected consumer demand for our services, particularly basic video. We believe competition from wireless and economic factors have contributed to an increase in the number of homes that replace their traditional telephone...

  • Page 35
    ...which we believe has limited the number of manufacturers producing set-top boxes for such systems. As an alternative, under a waiver granted to Charter by the FCC, Charter is currently developing a conditional access security system which may be downloaded into set-top boxes provided by a variety of...

  • Page 36
    ...future taxable income. The consummation of the Plan generated an "ownership change" as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), and the sale of shares of 27% of the beneficial amount of our common stock by Apollo Management, L.P. and certain related funds...

  • Page 37
    ... an acquisition and integrating an acquired business, product or technology could divert management and employee time and resources from other matters. Risks Related to Ownership Position of Liberty Media Corporation Liberty Media Corporation owns a significant amount of Charter's common stock...

  • Page 38
    ... the following the provisioning and marketing of cable equipment and compatibility with new digital technologies; subscriber and employee privacy and data security; limited rate regulation of video service; copyright royalties for retransmitting broadcast signals; when a cable system must carry...

  • Page 39
    ...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, the FCC and Congress continue to be concerned that cable rate increases are exceeding...

  • Page 40
    ... us to incur additional costs. We offer voice communications services over our broadband network and continue to develop and deploy VoIP services. The FCC has ruled that competitive telephone companies that support VoIP services, such as those we offer our customers, are entitled to interconnect...

  • Page 41
    ... local public utilities and telephone companies, and in certain locations are buried in underground ducts or trenches. We own or lease real property for signal reception sites, and own our service vehicles. Our subsidiaries generally lease space for business offices. Our headend and tower locations...

  • Page 42
    ... and contrary to law, vacating the 2010 assessment, and directing that the Montana DOR refund the amounts paid by Bresnan under protest, plus interest and certain costs. The Montana DOR filed a notice of appeal to the Montana Supreme Court on September 20, 2012. The appeal was fully briefed, and...

  • Page 43
    ...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 price per...

  • Page 44
    ...of December 31, 2013 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...

  • Page 45
    ...be indicative of future performance of Charter's Class A common stock. (F) Recent Sales of Unregistered Securities During 2013, there were no unregistered sales of securities of the registrant other than those previously reported on a Quarterly Report on Form 10-Q or Current Report on Form 8-K. 31

  • Page 46
    ...31, 2010 2009 Predecessor Eleven Months Ended November 30, 2009 Years Ended December 31, 2013 Statement of Operations Data: Revenues Income (loss) from operations Interest expense, net Income (loss) before income taxes Net income (loss) - Charter shareholders Basic earnings (loss) per common share...

  • Page 47
    ...cases wireless services, and they also offer these services in bundles similar to ours. See "Business - Competition." In the recent past, we have grown revenues by offsetting basic video customer losses with price increases and sales of incremental services such as high-speed Internet, OnDemand, DVR...

  • Page 48
    ...% and 87% of our revenues for years ended December 31, 2013 and 2012, respectively, are attributable to monthly subscription fees charged to customers for our video, Internet, voice, and commercial services provided by our cable systems. Generally, these customer subscriptions may be discontinued by...

  • Page 49
    ... customer's digital set-top box. • Judgment is required to determine the extent to which overhead costs incurred result from specific capital activities, and therefore should be capitalized. The primary costs that are included in the determination of the overhead rate are (i) employee benefits...

  • Page 50
    ... 31, 2013, 2012 and 2011. We utilize the cost approach as the primary method used to establish fair value for our property, plant and equipment in connection with business combinations. The cost approach considers the amount required to replace an asset by constructing or purchasing a new asset with...

  • Page 51
    ... measurement value include the assumptions regarding revenue growth, programming expense growth rates, the amount and timing of capital expenditures and the discount rate utilized. The quantitative franchise valuations completed for the year ended December 31, 2011 showed franchise values in excess...

  • Page 52
    ...219 million at December 31, 2013 and 2012, respectively, relating to certain indirect subsidiaries of Charter Holdco that file separate federal or state income tax returns. The remainder of our net deferred tax liability arose from Charter's investment in Charter Holdco, and was largely attributable...

  • Page 53
    ...of the new contract. We also make estimates in the recognition of programming expense related to other items, such as the accounting for free periods, timing of rate increases and credits from service interruptions, as well as the allocation of consideration exchanged between the parties in multiple...

  • Page 54
    ...in 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. Asset acquisitions increased revenues...

  • Page 55
    ...changes in video revenues are attributable to the following (dollars in millions): 2013 compared to 2012 Incremental video services, price adjustments and bundle revenue allocation Decrease in basic video customers Decrease in premium purchases Asset acquisitions, net $ 2012 compared to 2011 115 (89...

  • Page 56
    ... The increases in commercial revenues are attributable to the following (dollars in millions): 2013 compared to 2012 Sales to small-to-medium sized business customers Carrier site customers Other Asset acquisitions, net $ 97 25 11 31 164 2012 compared to 2011 $ 87 17 9 1 114 $ $ Advertising sales...

  • Page 57
    ... 2010 marketing campaigns. The increases in other expense are attributable to the following (dollars in millions): 2013 compared to 2012 Commercial sales expense Property tax and insurance Bad debt and collections Advertising sales expense Stock compensation expense Administrative labor Other $ 2012...

  • Page 58
    ... 2013, 2012 and 2011, respectively, primarily through increases in deferred tax liabilities related to our investment in Charter Holdco and certain of our indirect subsidiaries, in addition to $8 million, $7 million and $9 million of current federal and state income tax expense, respectively. Income...

  • Page 59
    ...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 60
    ... 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...

  • Page 61
    ... that is currently payable if the debt becomes immediately due is equal to the principal amount of the debt. We have availability under our credit facilities of approximately $1.1 billion as of December 31, 2013. (b) In general, the obligors have the right to redeem all of the notes set forth in...

  • Page 62
    ...December 31, 2013, 2012 and 2011 was $49 million, $47 million and $49 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 63
    ...set-top boxes in new and existing customer homes, growth in our commercial business, and further spend related to our efforts to insource our service operations as well as product development. The actual amount of our capital expenditures will depend on a number of factors including the growth rates...

  • Page 64
    ...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 65
    ... revolving credit facility and pays a revolving commitment fee of 0.30% per annum on the daily average available amount of the revolving commitment, payable quarterly. The Charter Operating credit facilities also allow us to enter into incremental term loans in the future, with amortization as set...

  • Page 66
    ...of control transaction resulting in any person or group having power, directly or indirectly, to vote more than 50% of the ordinary voting power for the management of Charter Operating on a fully diluted basis and the occurrence of a ratings event including a downgrade in the corporate family rating...

  • Page 67
    ...2017 Redemption Dates October 30, 2013 - October 29, 2014 October 30, 2014 - October 29, 2015 October 30, 2015 - October 29, 2016 Thereafter ...notes due 2020 7.375% senior notes due 2020 5.250% senior notes due 2021 6.500% senior notes due 2021 6.625% senior notes due 2022 5.250% senior notes ...

  • Page 68
    ...finance the purchase or capital lease of new assets; up to the greater of $300 million and 5% of consolidated net tangible assets of additional debt for any purpose; and other items of indebtedness for specific purposes such as intercompany debt, refinancing of existing debt, and interest rate swaps...

  • Page 69
    ..., so long as no default exists or would be caused by transactions among other distributions or restricted payments to repurchase management equity interests in amounts not to exceed $10 million per fiscal year; to pay pass-through tax liabilities in respect of ownership of equity interests in the...

  • Page 70
    ... 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...

  • Page 71
    ... LIBOR curve (adjusted for Charter Operating's or counterparties' credit risk). Interest rates on variable debt are estimated using the average implied forward LIBOR for the year of maturity based on the yield curve in effect at December 31, 2013 including applicable bank spread. Item 8. Financial...

  • Page 72
    ...assurance to Charter's management and board of directors regarding the preparation and fair presentation of published financial statements. Management has assessed the effectiveness of our internal control over financial reporting as of 2013. In making this assessment, we used the criteria set forth...

  • Page 73
    ... provided customs brokerage and freight forwarding services for the export to Iran of two measurement instruments to the Iranian Offshore Engineering Construction Company, a joint venture between two entities that are identified on OFAC's list of Specially Designated Nationals ("SDN"). The revenues...

  • Page 74
    ... or an 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...

  • Page 75
    ... 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 76
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  • Page 77
    ...of 1934, Charter Communications, Inc. has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. CHARTER COMMUNICATIONS, INC., Registrant By: /s/ Thomas M. Rutledge Thomas M. Rutledge President, Chief Executive Officer and Director Date: February 21...

  • Page 78
    ... hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Charter Communications, Inc. and in the capacities and on the dates indicated. Signature /s/ Thomas M. Rutledge Thomas M. Rutledge /s/ Christopher...

  • Page 79
    ...of Liberty Media Corporation to purchase Charter Communications, Inc. shares dated March 19, 2013 (incorporated by reference to Exhibit 1.1 to the current report on Form 8-K of Charter Communications, Inc. filed March 19, 2013 (File No. 001-33664)). Registration Rights Agreement relating to the 5.25...

  • Page 80
    ...lenders party thereto and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K filed by Charter Communications, Inc. on April 17, 2012 (File No. 001-33664)). Amendment No. 1 dated March 22, 2013 to the Amended and Restated Credit...

  • Page 81
    ... 2013 (File No. 001-33664)). Incremental Activation Notice, dated as of July 1, 2013 delivered by Charter Communications Operating, LLC, CCO Holdings, LLC, the Subsidiary Guarantors Party thereto and each Term E Lender party thereto to Bank of America, N.A., as Administrative Agent under the credit...

  • Page 82
    ...current report on Form 8-K of Charter Communications, Inc. filed on December 19, 2011 (File No. 001-33664)). Amended and Restated Employment Agreement between Christopher L. Winfrey and Charter Communications, Inc., dated effective as of August 31, 2012. The New York Relocation Agreement and Release...

  • Page 83
    ... Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2013 and 2012 Consolidated Statements of Operations for the Years Ended December 31, 2013, 2012 and 2011 Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2013, 2012...

  • Page 84
    Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders Charter Communications, Inc.: We have audited the accompanying consolidated balance sheets of Charter Communications, Inc. and subsidiaries (the Company) as of December 31, 2013 and 2012, and the related ...

  • Page 85
    ... in cable properties, net OTHER NONCURRENT ASSETS Total assets LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued liabilities Total current liabilities LONG-TERM DEBT DEFERRED INCOME TAXES OTHER LONG-TERM LIABILITIES SHAREHOLDERS' EQUITY: Class A common stock...

  • Page 86
    ... 108,948,554 CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (dollars in millions) 2013 Net loss Net impact of interest rate derivative instruments, net of tax Comprehensive loss $ Year Ended December 31, 2012 (169) $ 34 (304) $ (10) (314) $ 2011 (369...

  • Page 87
    ... Loss Class A Common Stock BALANCE, December 31, 2010 Net loss Net impact of interest rate derivative instruments, net of tax Stock compensation expense, net Exercise of options Purchase of treasury stock Retirement of treasury stock Class B Common Stock Additional Paid-In Capital Accumulated...

  • Page 88
    ... equipment Change in accrued 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 Payments for debt issuance costs Purchase...

  • Page 89
    ...Company offers to residential and commercial customers traditional cable video programming, Internet services, and voice services, as well as advanced video services such as Charter OnDemandâ„¢, high definition television, and digital video recorder ("DVR") service. The Company sells its cable video...

  • Page 90
    ... statements. Franchises Franchise rights represent the value attributed to agreements or authorizations with local and state authorities that allow access to homes in cable service areas. Management estimates the fair value of franchise rights at the date of acquisition and determines if the...

  • Page 91
    ... the years ended December 31, 2013, 2012 and 2011, respectively, are reported in video, voice and commercial revenues, on a gross basis with a corresponding operating expense because the Company is acting as a principal. Other taxes, such as sales taxes imposed on the Company's customers collected...

  • Page 92
    ... Company's revenues by product line are as follows: Year Ended December 31, 2011 2013 2012 Video Internet Voice Commercial Advertising sales Other $ 4,030 2,186 644 822 291 182 8,155 $ 3,639 1,866 828 658 334 179 7,504 $ 3,639 1,708 858 544 292 163 7,204 $ Programming Costs $ $ The Company has...

  • Page 93
    .... 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 8) and borrowings under the Charter Operating credit facilities. The Company also incurred acquisition related costs of approximately...

  • Page 94
    ...) Working capital adjustment Cash purchase price, net of cash acquired Purchase Price Allocation: Property, plant and equipment Franchises Customer relationships Goodwill Other noncurrent assets Current assets Current liabilities Long-term debt (including accrued interest) Cash purchase price...

  • Page 95
    ... or in the Company's use of new technology and upgrade programs, could materially affect future depreciation expense. Depreciation expense for the years ended December 31, 2013, 2012 and 2011 was $1.6 billion, $1.4 billion, and $1.3 billion, respectively. Property, plant and equipment increased $515...

  • Page 96
    ... 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 voice; revenue growth rates; operating margins...

  • Page 97
    ... assets for the years ended December 31, 2013, 2012 and 2011 was $299 million, $293 million and $315 million, respectively. Franchises, customer relationships and goodwill increased by $722 million, $249 million and $224 million, respectively, as a result of the acquisition of Bresnan completed...

  • Page 98
    ... as of December 31, 2013 and 2012: December 31, 2013 Accounts payable - trade Accrued capital expenditures Deferred revenue Accrued liabilities: Interest Programming costs Franchise related fees Compensation Other $ 91 235 90 195 379 62 156 259 $ 8. Long-Term Debt 1,467 $ $ 2012 107 156 81 155 323...

  • Page 99
    ...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 100
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2013, 2012 AND 2011 (dollars in millions, except share or per share data or where indicated) Company recorded a loss on extinguishment of debt of approximately $65 million for the year ended ...

  • Page 101
    ...'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 F- 19

  • Page 102
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2013, 2012 AND 2011 (dollars in millions, except share or per share data or where indicated) 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 ...

  • Page 103
    ...22, 2011, the Company purchased, in a private transaction, 4.5 million shares of Charter's Class A common stock from funds advised by Franklin Advisers, Inc. The price paid was $46.10 per share for a total of $207 million. The transaction was funded from existing cash on hand and available liquidity...

  • Page 104
    ...2013, 2012 and 2011, the Company withheld 150,258, 129,417 and 141,175 shares, respectively, of its common stock in payment of $15 million, $9 million and $7 million, respectively, of tax withholdings owed by employees upon vesting of restricted shares. In December 2011, Charter's board of directors...

  • Page 105
    ... stock unit vesting Purchase of treasury stock (see Note 9) BALANCE, December 31, 2013 11. 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...

  • Page 106
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2013, 2012 AND 2011 (dollars in millions, except share or per share data or where indicated) The effect of interest rate derivative instruments on the Company's consolidated balance sheets is ...

  • Page 107
    ... instrument. Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement. • Financial Assets and Liabilities The Company has estimated the fair value of its financial instruments as of December 31, 2013 and 2012 using available market information...

  • Page 108
    ... 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 voice services. Costs to service customers include residential and commercial...

  • Page 109
    ...under the 2009 Stock Incentive Plan. The 2009 Stock Incentive Plan allows for the issuance of up to 14 million shares of Charter Class A common stock (or units convertible into Charter Class A common stock). Stock options generally vest annually over three or four years from either the grant date or...

  • Page 110
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2013, 2012 AND 2011 (dollars in millions, except share or per share data or where indicated) A summary of the activity for the Company's stock options for the years ended December 31, 2013, 2012...fair...

  • Page 111
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2013, 2012 AND 2011 (dollars in millions, except share or per share data or where indicated) A summary of the activity for the Company's restricted stock units for the years ended December 31, 2013,...

  • Page 112
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2013, 2012 AND 2011 (dollars in millions, except share or per share data or where indicated) Current and deferred income tax expense is as follows: Year Ended December 31, 2013 2012 2011 Current ...

  • Page 113
    ... DECEMBER 31, 2013, 2012 AND 2011 (dollars in millions, except share or per share data or where indicated) The Company's effective tax rate differs from that derived by applying the applicable federal income tax rate of 35% for the years ended December 31, 2013, 2012, and 2011, respectively, as...

  • Page 114
    ...income tax payable. On May 1, 2013, Liberty Media Corporation ("Liberty Media") completed its purchase of a 27% beneficial interest in Charter (see Note 17). Upon closing, Charter experienced a second "ownership change" as defined in Section 382 of the Internal Revenue Code resulting in a second set...

  • Page 115
    ... sets forth certain transactions in which the Company and the directors, executive officers, and affiliates of the Company are involved or, in the case of the management arrangements, subsidiaries that are debt issuers that pay certain of their parent companies for services. Charter is a party...

  • Page 116
    ...the nine months ended December 31, 2013, the Company received payments in aggregate of approximately $10 million 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...

  • Page 117
    ... 31, 2013, 2012, and 2011 was $49 million, $47 million, and $49 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 118
    ... 31, 2013, 2012 AND 2011 (dollars in millions, except share or per share data or where indicated) Litigation The Montana Department of Revenue ("Montana DOR") generally assesses property taxes on cable companies at 3% and on telephone companies at 6%. Historically, Bresnan's cable and telephone...

  • Page 119
    ...the Company on a per pay period basis. The Company made contributions to the 401(k) plan totaling $16 million, $8 million and $6 million for the years ended December 31, 2013, 2012 and 2011, respectively. 20. Recently Issued Accounting Standards In June 2013, the Financial Accounting Standards Board...

  • Page 120
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2013, 2012 AND 2011 (dollars in millions, except share or per share data or where indicated) Revenues Income from operations Net loss Loss per common share: Basic and diluted Weighted average ...

  • Page 121
    ...'/MEMBER'S EQUITY CURRENT LIABILITIES: Accounts payable and accrued liabilities Payables to related party Total current liabilities LONG-TERM DEBT LOANS PAYABLE - RELATED PARTY DEFERRED INCOME TAXES OTHER LONG-TERM LIABILITIES Shareholders'/Member's equity Non-controlling interest Total shareholders...

  • Page 122
    ...'/MEMBER'S EQUITY CURRENT LIABILITIES: Accounts payable and accrued liabilities Payables to related party Total current liabilities LONG-TERM DEBT LOANS PAYABLE - RELATED PARTY DEFERRED INCOME TAXES OTHER LONG-TERM LIABILITIES Shareholders'/Member's equity Non-controlling interest Total shareholders...

  • Page 123
    ... STATEMENTS DECEMBER 31, 2013, 2012 AND 2011 (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, 2013 Intermediate Holding Companies Charter Operating and Subsidiaries...

  • Page 124
    ... STATEMENTS DECEMBER 31, 2013, 2012 AND 2011 (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 125
    ... STATEMENTS DECEMBER 31, 2013, 2012 AND 2011 (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 126
    ... 2013, 2012 AND 2011 (dollars in millions, except share or per share data or where indicated) Charter Communications, Inc. Condensed Consolidating Statement of Comprehensive Income (Loss) For the year ended December 31, 2013 Intermediate Holding Companies Charter Operating and Subsidiaries Charter...

  • Page 127
    ...) loans payable - related parties Payment for debt issuance costs Purchase of treasury stock Proceeds from exercise of options and warrants Contributions from parent Distributions to parent Other, net Net cash flows from financing activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH...

  • Page 128
    ...) loans payable - related parties Payment for debt issuance costs Purchase of treasury stock Proceeds from exercise of options and warrants Contributions from parent Distributions to parent Other, net Net cash flows from financing activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH...

  • Page 129
    ...) loans payable - related parties Payment for debt issuance costs Purchase of treasury stock Proceeds from exercise of options and warrants Contributions from parent Distributions to parent Other, net Net cash flows from financing activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH...

  • Page 130
    (This page intentionally left blank.) F- 48

  • Page 131
    ... purchases of property, plant and equipment and changes in accrued expenses related to capital expenditures. The Company believes that adjusted EBITDA and free cash flow provide information useful to investors in assessing Charter's performance and its ability to service its debt, fund operations...

  • Page 132
    ... amortization Stock compensation expense Loss on extinguishment of debt Gain on derivative instruments, net Other, net Adjusted EBITDA Net cash flows from operating activities Less: Purchases of property, plant and equipment Change in accrued expenses related to capital expenditures Free cash...

  • Page 133
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  • Page 134
    ... or cash dividends on any of its common stock. Investor Relations Charter's web site contains an Investor & News Center that offers financial information, including stock data, press releases, access to quarterly conference calls and SEC filings. You may request a shareholder kit, including the...

  • Page 135
    ...President, Commercial Services Richard R. Dykhouse Executive Vice President, General Counsel and Corporate Secretary Annual Report Design by Curran & Connors, Inc. / www.curran-connors.com Board of Directors Eric L. Zinterhofer Chairman of Charter's Board and Founder of Searchlight Capital Partners...

  • Page 136
    Charter Communications, Inc. 400 Atlantic Street Stamford, Connecticut 06901 Charter.com