Charter 2015 Annual Report Download

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2015 ANNUAL REPORT
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Table of contents

  • Page 1
    ® 2 0 1 5 A N N U A L R E P O R T ®

  • 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, Spectrum Businessâ„¢, provides scalable, tailored and cost-effective communications...

  • Page 3
    ...  Enjoy TV on your schedule with instant access to thousands of On Demand movies and shows  Watch over 170 live TV channels anywhere in your home on your portable devices with the Spectrum TV App INTERNET  The fastest Internet speeds starting at 60Mbps, 20x faster than DSL  Connect to multiple...

  • Page 4
    ... Spectrum TV App, customers can watch over 170 live channels anywhere in their homes on their mobile devices. Now, with Download To Go through the Spectrum TV App, customers can download their favorite movies and shows to watch wherever they are, even without an Internet connection. Spectrum TV App...

  • Page 5
    ...United States today. Looking forward, we intend to apply the same customer-focused strategy that has worked so well at Charter, to drive growth across the broader footprint we will manage, following the close of our transactions with Time Warner Cable Inc. and Bright House Networks, LLC. The success...

  • Page 6
    ... in Internet customer growth by offering high speeds at low price points, with no data caps, no usage-based billing, and no modem rental fees. And in commercial, we also continued to drive accelerating customer growth. We separated our SMB and enterprise segments early last year, and launched new...

  • Page 7
    ... our shareholders. Best Regards, RESIDENTIAL & SMALL AND MEDIUM BUSINESS CUSTOMERS(1) IN THOUSANDS 6% INCREASE 5,936 2013 (1) 2014 2015 2013 customer data represents prior reporting methodology. Thomas M. Rutledge President and Chief Executive Officer Charter Communications 5 6,674 6,322

  • Page 8

  • Page 9
    ...Time Warner Cable's momentum and Charter's operating strategy  Greater scale and an enhanced footprint increase competitiveness and innovation  Cost synergies along with levered and tax efficient equity returns  A win for consumers and commercial customers  Significant benefits for employees and...

  • Page 10
    ... Information For the year ended December 31, (in millions, except ARPU data) 2012 $ 9,724 $ 5,406 $ 1,114 $ 247 $ 1,840 $ 110.28 2014 $ 9,108 $ 3,190 $ 971 $ 171 $ 2,221 $ 107.60 Revenue Adjusted EBITDA* Income from operations Actual free cash flow* Capital expenditures Revenue per customer...

  • Page 11
    ... fiscal year ended December 31, 2015 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 Number: 001-33664 Charter Communications, Inc. (Exact name of registrant as specified in its charter) Delaware (State or...

  • Page 12
    ... at June 30, 2015 was approximately $13.9 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
    ..., and Director Independence Principal Accounting Fees and Services 73 73 73 73 73 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations...

  • 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: Risks Related to the Time Warner Cable Inc. ("TWC") Transaction and Bright House Networks, LLC ("Bright House") Transaction...

  • Page 15
    ... of new products and technologies including our cloud-based user interface, Spectrum Guide®, and downloadable security for set-top boxes; the effects of governmental regulation on our business or potential business combination transactions; any events that disrupt our networks, information systems...

  • Page 16
    ... voicemail, call waiting and caller ID. Through Spectrum 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 fiber connectivity to...

  • Page 17
    ... that will result in Charter and TWC becoming wholly owned subsidiaries of New Charter (the "TWC Transaction"), on the terms and subject to the conditions set forth in the Merger Agreement. After giving effect to the TWC Transaction, New Charter will be the new public company parent that will hold...

  • Page 18
    ... at least 60 Mbps download speeds for New Charter's Internet service and improve the video product by adding HD and on-demand options Consistent packaging and pricing strategy to be transitioned to Charter's current model within 12 months of closing for TWC and Bright House markets that are already...

  • Page 19
    ... may enter into additional commitments in connection with the TWC Transaction and the Bright House Transaction. Comcast Transactions On April 25, 2014, we entered into a binding definitive agreement (the "Comcast Transactions Agreement") with Comcast Corporation ("Comcast"), which contemplated the...

  • Page 20
    ... 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 addition, Charter provides management services to Charter Holdco and its subsidiaries under...

  • Page 21
    ...Internet protocol ("VoIP") technology, 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...

  • Page 22
    .... The Spectrum TV App allows customers to watch over 150 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...

  • Page 23
    ... total revenues. Commercial services offered through Spectrum Business, include scalable broadband communications solutions for businesses and carrier organizations of all sizes such as Internet access, data networking, fiber connectivity to cellular towers and office buildings, video entertainment...

  • Page 24
    ... employees in service delivery; the ability to package more services at the time of sale and include more product in each service, thus increasing revenue per customer; a higher quality product offering through more HD channels, improved pricing for HD and HD/DVR equipment and faster Internet speeds...

  • Page 25
    ... for self-care. Our services include a new and improved Internet portal, Charter.net, making it easier for customers to manage their account, seek self-help and watch TV online. Our marketing strategy emphasizes our bundled services through targeted direct response marketing programs to existing and...

  • Page 26
    ... past several years and the demands of large media companies who link carriage of their most popular networks to carriage and cost increases for all of their networks. In addition, contracts to purchase sports programming sometimes provide for optional additional games to be added to the service and...

  • Page 27
    ...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 other providers of video, high-speed...

  • Page 28
    ... video on demand services, which include HD programming, are superior to DBS service, because cable headends can provide communication to deliver many titles which customers can access and control independently, whereas DBS technology can only make available a much smaller number of titles with DVR...

  • Page 29
    ... 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 with fifth generation (5G) and faster services on the horizon. In addition, a growing number of commercial areas, such...

  • Page 30
    ... had required cable operators to use CableCARDs in all of their new set-top boxes. In 2013, Charter received a two-year waiver from the FCC's "integration ban," on the condition that Charter meet certain milestones regarding downloadable security by the end of the waiver period. In December 2014, as...

  • Page 31
    ...legislatures are considering the adoption of new data security and cybersecurity legislation that could result in additional network and information security requirements for our business. On February 12, 2014, the National Institute for Standards and Technologies ("NIST"), in cooperation with other...

  • Page 32
    ... activity in this area could further burden the channel capacity of our cable systems. 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...

  • Page 33
    ... 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 34
    ...-based fixed, residential voice services that are not otherwise line-powered, including our VoIP services. This order becomes effective in February 2016 and requires us to disclose certain information to customers and to make back-up power available at the point of sale. In March 2007, a federal...

  • Page 35
    ... variable rates of interest; expose us to increased interest expense to the extent we refinance existing debt with higher cost debt; require us to dedicate a significant portion of our cash flow from operating activities to make payments on our debt, reducing our funds available for working capital...

  • Page 36
    ... new products and technologies including our cloud-based user interface, Spectrum Guide®, and downloadable security for set-top boxes; the effects of governmental regulation on our business or potential business combination transactions; and any events that disrupt our networks, information systems...

  • Page 37
    ...such as video on demand, new video formats, and Internet streaming and downloading, have increased the number of entertainment and information delivery choices available to consumers, and intensified the challenges posed by audience fragmentation. For example, online video services continue to offer...

  • Page 38
    ... above, our business competes with all other sources of entertainment and information delivery, including broadcast television, movies, live events, radio broadcasts, home video products, console games, print media, and the Internet. If we do not respond appropriately to further increases in the...

  • Page 39
    ... 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 voice services to businesses and have increased our focus on growing this business. In order to grow our commercial business...

  • Page 40
    ... using one of two proprietary conditional access security systems, which we believe has limited the number of manufacturers producing set-top boxes for such systems. As an alternative, Charter has developed a conditional access security system which may be downloaded into set-top boxes with features...

  • Page 41
    ... following the TWC transactions, New Charter (or, if only the Bright House Transaction is completed, Charter) will be subject to an annual limitation on the use of our loss carryforwards which existed at November 30, 2009 for the first "ownership change" and those that existed at May 1, 2013 for the...

  • Page 42
    ... in, and engaged in, other businesses involving or related to the operation of cable television systems, video programming, Internet service, voice or business and financial transactions conducted through broadband interactivity and Internet services. Liberty Broadband and its affiliates may also...

  • Page 43
    ...waiting periods under the HSR Act and the required governmental authorizations, including an order of the FCC with respect to the TWC Transaction and/or the Bright House Transaction, having been obtained and being in full force and effect. Although Charter and TWC have agreed in the Merger Agreement...

  • Page 44
    ... the companies' administrative and information technology infrastructure; coordinating programming and marketing efforts; coordinating geographically dispersed organizations; integrating information, purchasing, provisioning, accounting, finance, sales, billing, payroll, reporting and regulatory...

  • Page 45
    ... benefits or primary office location. If employees of Charter, TWC or Bright House depart, the integration of the companies may be more difficult and the combined company's business following the TWC Transaction and/or the Bright House Transaction may be harmed. Furthermore, New Charter (or, if only...

  • Page 46
    ..., and after closing the TWC Transaction and/or the Bright House Transaction. If the merger agreement is terminated under certain circumstances, Charter will be required to pay to TWC certain termination fees. Charter and/or New Charter also will incur transaction fees and costs related to financing...

  • Page 47
    ... or anticipate the demand of its customers for products and services requiring new technology or bandwidth. New Charter's (or, if only the Bright House Transaction is completed, Charter's) inability to maintain, expand and upgrade its existing or combined businesses could materially adversely affect...

  • Page 48
    ... number of video subscribers of TWC and (iii) authorizations of state public utilities commissions whose consent is required in connection with the transactions contemplated by the merger agreement (solely with respect to the obligations of each of Charter, New Charter, Merger Subsidiary One, Merger...

  • Page 49
    ... merger subsidiaries in connection with the TWC Transaction, which could result in substantial costs to Charter, TWC, and/or New Charter. See "Part I, Item 3. Legal Proceedings" for more information. Risks Related to the Bright House Transaction and Liberty Transactions Liberty Broadband currently...

  • Page 50
    ... over certain matters relating to the governance of New Charter, including the approval of significant corporate actions, such as mergers and other business combination transactions. The Bright House/Liberty stockholders agreement will provide A/N and Liberty Broadband with preemptive rights with...

  • Page 51
    ... and marketing of cable equipment and compatibility with new digital technologies; customer and employee privacy and data security; limited rate regulation of video service; copyright royalties for retransmitting broadcast signals; when a cable system must carry a particular broadcast station and...

  • Page 52
    ... or administrative actions may increase Charter's costs or impose additional restrictions on Charter's businesses. For example, on February 26, 2015, the FCC adopted an order that (1) reclassified broadband Internet service as a Title II service, (2) applied certain existing Title II provisions...

  • Page 53
    ... fees on our services which could impact our customers, combined reporting and other changes to general business taxes, central/unit-level assessment of property taxes and other matters that could increase our income, franchise, sales, use and/or property tax liabilities. In addition, federal, state...

  • Page 54
    ...adopted limiting our discretion over programming decisions. Our voice service is subject to regulatory burdens which may increase, causing us to incur additional costs. We offer voice communications services over our broadband network using VoIP services. The FCC has ruled that competitive telephone...

  • Page 55
    ... our St. Louis corporate office. We lease space for our corporate headquarters in Stamford, Connecticut. The physical components of our cable systems require maintenance as well as periodic upgrades to support the new services and products we introduce. See "Item 1. Business - Our Network Technology...

  • Page 56
    ... information relating to Charter and the Transactions. The disclosures demanded by the plaintiff included (i) certain unlevered free cash flow projections for Charter and (ii) a Form of Proxy and Right of First Refusal Agreement ("Proxy") by and among Liberty Broadband, A/N, Charter and New Charter...

  • Page 57
    ..., 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 58
    ...,950 (1) - 5,044,950 (1) (1) This total does not include 217,847 shares issued pursuant to restricted stock grants made under our 2009 Stock Incentive Plan, which are subject to vesting based on continued employment and market conditions. For information regarding securities issued under our equity...

  • Page 59
    ...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 nature of operations. The Company's peer group consists of Cablevision Systems Corporation ("Cablevision"), Comcast, and TWC. The...

  • Page 60
    ...millions, except per share data): Years Ended December 31, 2015 Statement of Operations Data: Revenues Income from operations Interest expense, net Income (loss) before income taxes Net loss Loss per common share, basic and diluted Weighted average shares outstanding, basic and diluted Balance Sheet...

  • Page 61
    ... by offsetting basic video customer losses with price increases and sales of incremental services such as Internet, video on demand, DVR and HD television. We expect to continue to grow revenues by increasing the number of products in our current customer homes, obtaining new customers with our...

  • Page 62
    ... 89% of our revenues for years ended December 31, 2015, 2014 and 2013, 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...

  • Page 63
    ...'s network connection by initiating test signals downstream from the headend to the customer's digital set-top box, as well as testing signal levels at the pole or pedestal. • Judgment is required to determine the extent to which overhead costs incurred result from specific capital activities...

  • Page 64
    ..., 2014 and 2013, respectively, representing approximately 21%, 22% and 22% 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...

  • Page 65
    ...a gross deferred tax asset (net of federal tax benefit) of approximately $365 million. State tax net operating loss carryforwards generally expire in the years 2016 through 2035. Such tax loss carryforwards can accumulate and be used to offset Charter's future taxable income. As of December 31, 2015...

  • Page 66
    ... vendors at agreed upon market rates based on the number of customers to which we provide the programming service. If a programming contract expires prior to the parties' entry into a new agreement and we continue to distribute the service, we estimate the programming costs during the period there...

  • Page 67
    ...digital penetration, promotional and annual rate increases, and higher advanced services penetration offset by a decrease in advertising sales in 2015 and a decrease in average basic video customers. The Bresnan Acquisition increased revenues by approximately $276 million in 2014 as compared to 2013...

  • Page 68
    ... video services, price adjustments and bundle revenue allocation Increase (decrease) in premium, video on demand and pay-per-view Decrease in average basic video customers Bresnan Acquisition $ 2014 compared to 2013 330 (16) (49) 138 403 161 $ 15 (32) - 144 $ $ Residential Internet customers...

  • Page 69
    .... The Bresnan Acquisition increased advertising sales revenue by approximately $7 million in 2014 compared to the corresponding prior year period. Other revenues consist of home shopping, late payment fees, wire maintenance fees and other miscellaneous revenues. The increase in 2015 was primarily...

  • Page 70
    ... the years ended December 31, 2015, 2014 and 2013, respectively. Programming costs consist primarily of costs paid to programmers for basic, digital, premium, video on demand, and pay-per-view programming. The increase in programming costs is primarily a result of annual contractual rate adjustments...

  • Page 71
    ...changes in other operating expenses, net are attributable to the following (dollars in millions): 2015 compared to 2014 Merger and acquisitions costs Loss on sale of assets, net Special charges, net $ $ 2014 compared to 2013 22 2 (9) 15 32 $ (6) $ 1 27 $ $ For more information, see Note 14 to the...

  • Page 72
    ... 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 taxes, depreciation and amortization...

  • Page 73
    ... to close that offering in February 2016 and the net proceeds will be used to (i) repurchase or redeem certain of CCO Holdings' 7.000% senior notes due 2019 and 7.375% senior notes due 2020 and pay related fees and expenses and (ii) for general corporate purposes including, for example, to fund...

  • Page 74
    ... 31, 2014 (Increase) decrease in capital expenditures Increase in Adjusted EBITDA Changes in working capital, excluding change in accrued interest Increase in cash paid for interest Other, net $ 381 $ 216 9 (196) (34) 376 $ Year ended December 31, 2014 compared to year ended December 31, 2013 (396...

  • Page 75
    ... $ (a) The accreted values presented above represent the principal amount of the debt less the original issue discount at the time of sale and deferred financing costs, plus the accretion of both amounts to the balance sheet date. However, the amount that is currently payable if the debt becomes...

  • Page 76
    ... 31, 2015, 2014 and 2013 was $53 million, $49 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, under...

  • Page 77
    ... and a $22 million increase in merger and acquisition costs. Investing Activities. Net cash used in investing activities for the years ended December 31, 2015, 2014 and 2013, was $17.0 billion, $9.3 billion and $2.4 billion, respectively. The increase in 2015 compared to 2014 is primarily due to an...

  • Page 78
    ...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 79
    ...III placed the funds in an escrow account pending the closing of the TWC Transaction, at which time, subject to certain conditions, Charter Operating will re-assume the obligations in respect of the CCO Safari III credit facilities under the Credit Agreement. Should the TWC Transaction be terminated...

  • Page 80
    ... certain conditions, including the closing of the TWC Transaction. Upon release of the proceeds, CCO Safari II will merge into Charter Operating and the CCO Safari II notes will become obligations of Charter Operating and Charter Communications Operating Capital Corp. Should the Merger Agreement be...

  • Page 81
    ... May 23, 2016 (or six months following such date in the event of an extension of the Merger Agreement), such amounts placed in escrow must be used to settle amounts outstanding under the CCOH Safari notes at par value. See "Part I. Item I. Business" for a discussion of the TWC Transaction and Bright...

  • Page 82
    CCO Holdings, LLC: 7.000% senior notes due 2019 7.375% senior notes due 2020 5.250% senior notes due 2021 6.500% senior notes...734% 100.000% In the event that a specified change of control event occurs, each of the respective issuers of the notes must offer to repurchase any then outstanding notes ...

  • Page 83
    ... as, after giving pro forma effect to the incurrence, the leverage ratio would be below a specified level for CCO Holdings. The leverage ratio under the indentures is 6.0 to 1. In addition, regardless of whether the leverage ratio could be met, so long as no default exists or would result from the...

  • Page 84
    ..., only if it can incur $1.00 of new debt under the 6.0 to 1.0 leverage ratio test after giving effect to the transaction and if no default exists or would exist as a consequence of such incurrence. If those conditions are met, restricted payments may be made in a total amount of up to the sum of 100...

  • Page 85
    ... issued accounting standards. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. We are exposed to various market risks, including fluctuations in interest rates. We use interest rate derivative instruments to manage our interest costs and reduce our exposure to increases in...

  • Page 86
    ... 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, 2015 including applicable bank spread. Item 8. Financial...

  • Page 87
    ...internal control system was designed to provide reasonable 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 2015...

  • Page 88
    ... 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 89
    ... 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(c) because they are not required or are not applicable, or the required information is set forth...

  • Page 90
    ..., 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 9, 2016...

  • Page 91
    ... in each capacity stated below any and all amendments (including post-effective amendments) to this annual report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents...

  • Page 92
    ...to the current report on Form 8-K of Charter Communications, Inc. filed on February 12, 2013 (File No. 001-33664)). Agreement and Plan of Mergers, dated as of May 23, 2015, among Time Warner Cable Inc., Charter Communications, Inc., CCH I, LLC, Nina Corporation I, Inc., Nina Company II, LLC and Nina...

  • Page 93
    ... current report on Form 8-K filed by Charter Communications, Inc. on April 22, 2015 (File No. 001-33664)). Exchange and Registration Rights Agreement, dated as of April 21, 2015 relating to the 5.125% Senior Notes due 2023, among CCO Holdings, LLC, CCO Holdings Capital Corp., Charter Communications...

  • Page 94
    ...current report on Form 8-K filed by Charter Communications, Inc. on November 25, 2015 (File No. 001-33664)). Restatement Agreement, dated as of April 11, 2012 by and among Charter Communications Operating, LLC, CCO Holdings, LLC, the lenders party thereto and Bank of America, N.A., as Administrative...

  • Page 95
    ... each Term I Lender party thereto and Bank of America, N.A., as Administrative Agent under the Amended and Restated Credit Agreement, dated as of April 11, 2012 (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K of Charter Communications, Inc. filed on August 28, 2015 (File...

  • Page 96
    ... 19, 2011 (File No. 001-33664)). Employment Agreement between Christopher L. Winfrey and Charter Communications, Inc., dated effective as of December 31, 2014 (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed by Charter Communications, Inc. on March 13, 2015 (File No...

  • Page 97
    ... 23, 2015 (File No. 001-33664)). Employment Agreement dated effective as of April 9, 2014 by and between Charter Communications, Inc. and Jonathan Hargis (incorporated by reference to Exhibit 10.39 to the annual report on Form 10-K filed by Charter Communications, Inc. on February 24, 2015 (File No...

  • Page 98
    ... Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2015 and 2014 Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 2013 Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2015, 2014 and 2013 Consolidated...

  • Page 99
    ... of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was...

  • Page 100
    ... Customer relationships, net Goodwill Total investment in cable properties, net OTHER NONCURRENT ASSETS Total assets LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable and accrued liabilities Total current liabilities LONG-TERM DEBT DEFERRED INCOME TAXES OTHER LONG...

  • Page 101
    ...$ 111,869,771 CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (dollars in millions) 2015 Net loss Net impact of interest rate derivative instruments, net of tax Comprehensive loss $ Year Ended December 31, 2014 (271) $ 9 (183) $ 19 (164) $ 2013 (169) 34...

  • Page 102
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) (dollars in millions) Accumulated Other Comprehensive Loss Total Shareholders' Equity (Deficit) Class A Common Stock BALANCE, December 31, 2012 Net loss Net impact of interest rate ...

  • Page 103
    ... related to capital expenditures Sales (purchases) of cable systems, net Change in restricted cash and cash equivalents 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...

  • Page 104
    ... United States. The Company offers to residential and commercial customers traditional cable video programming, Internet services, and voice services, as well as advanced video services such as video on demand, high definition television, and digital video recorder ("DVR") service. The Company sells...

  • Page 105
    ... an indefinite life and are tested annually for impairment. Right-of-entry costs represent costs incurred related to agreements entered into with landlords, real estate companies or owners to gain access to a building in order to provide cable service. Right-of-entry costs are generally deferred and...

  • Page 106
    ...'s revenues by product line are as follows: Year Ended December 31, 2013 2015 2014 Video Internet Voice Residential revenue Small and medium business Enterprise Commercial revenue Advertising sales Other $ Programming Costs The Company has various contracts to obtain basic, digital and premium video...

  • Page 107
    ... date of grant using the Black-Scholes option-pricing model and Monte Carlo simulations for options and restricted stock units with market conditions. The grant date weighted average assumptions used during the years ended December 31, 2015, 2014 and 2013, respectively, were: risk-free interest rate...

  • Page 108
    ..., broadband services. 3. Mergers and Acquisitions TWC Transaction On May 23, 2015, the Company entered into an Agreement and Plan of Mergers (the "Merger Agreement") with Time Warner Cable Inc. ("TWC"), CCH I, LLC ("New Charter"), a wholly owned subsidiary of the Company; Nina Corporation I, Inc...

  • Page 109
    ... information also should not be considered representative of Charter's future financial condition or results of operations. Year Ended December 31, 2013 Revenues Net loss Loss per common share, basic and diluted 4. Allowance for Doubtful Accounts $ $ $ (unaudited) 8,419 (194) (1.90) Activity...

  • Page 110
    ... the expected costs of franchise renewals, and the technological state of the associated cable systems, with a view to whether or not it is in compliance with any technology upgrading requirements specified in a franchise agreement. The Company has concluded that as of December 31, 2015 and 2014 all...

  • Page 111
    ... revenues, expenses, capital expenditures, customer trends, and a discount rate applied to the estimated cash flows. The determination of the franchise discount rate is derived from the Company's weighted average cost of capital, which uses a market participant's cost of equity and after-tax cost...

  • Page 112
    ... customer relationships was recorded in the years ended December 31, 2015, 2014 or 2013. The fair value of trademarks is determined using the relief-from-royalty method, a variation of the income approach, which applies a fair royalty rate to estimated revenue derived under the Company's trademarks...

  • Page 113
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2015, 2014 AND 2013 (dollars in millions, except share or per share data or where indicated) 7. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consist of the ...

  • Page 114
    ... notes due May 1, 2027 Charter Communications Operating, LLC: Credit facilities CCO Safari, LLC (an Unrestricted Subsidiary): Credit facility due September 12, 2021 Long-Term Debt $ - - 2,500 2,000 3,000 4,500 2,000 3,500 500 3,800 - 600 - 750 500 1,500 750 1,250 1,000 1,150 500 1,000 750 800 3,552...

  • Page 115
    ... and 2013: Year ended December 31, 2015 2014 2013 CCO Holdings notes repurchases Charter Operating credit amendment / prepayments CCOH Safari notes and CCO Safari Term G Loans repayments $ 123 - 5 128 65 58 - 123 $ $ $ On April 25, 2014, the Company entered into a binding definitive agreement...

  • Page 116
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2015, 2014 AND 2013 (dollars in millions, except share or per share data or where indicated) In the event of specified change of control events, CCO Holdings must offer to purchase the 2026 Notes ...

  • Page 117
    ...obligations of Charter Operating and Charter Communications Operating Capital Corp. Contingent upon closing of the TWC Transaction and release of the proceeds from escrow, the Company will be obligated to pay approximately $143 million of additional debt issuance fees. Should the Merger Agreement be...

  • Page 118
    ... measure performance against standards set for leverage to be tested as of the end of each quarter. The Charter Operating credit facilities contain provisions requiring mandatory loan prepayments under specific circumstances, including in connection with certain sales of assets, so long as the...

  • Page 119
    ... assuming the TWC Transaction closes in the second quarter of 2016, the amortization of term loans, and the maturity dates for all senior and subordinated notes, total future principal payments on the total borrowings under all debt agreements as of December 31, 2015, are as follows: Year 2016 2017...

  • Page 120
    ..., of tax withholdings owed by employees upon vesting of restricted shares and stock options. As of December 31, 2015, Company also withheld 49,260 shares of its common stock representing the exercise costs owed by employees upon exercise of stock options. In December 2015 and 2014, Charter's board...

  • Page 121
    ... December 31, 2014 Option exercises Restricted stock issuances, net of cancellations Restricted stock unit vesting Purchase of treasury stock (see Note 9) BALANCE, December 31, 2015 11. Accounting for Derivative Instruments and Hedging Activities The Company uses interest rate derivative instruments...

  • Page 122
    .... The Company's restricted cash and cash equivalents are primarily invested in money market funds and 90-day or less commercial paper. The money market funds are valued at the closing price reported by the fund sponsor from an actively traded exchange and commercial paper is valued at cost plus the...

  • Page 123
    ... using a present value calculation based on an implied forward LIBOR curve (adjusted for Charter Operating's or counterparties' credit risk). The weighted average pay rate for the Company's currently effective interest rate derivative instruments was 1.61% and 1.87% at December 31, 2015 and 2014...

  • Page 124
    ... for basic, premium, digital, video on demand, and pay-perview 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 costs related to...

  • Page 125
    ... operating costs and expenses. A summary of the activity for the Company's stock options for the years ended December 31, 2015, 2014 and 2013, is as follows (shares in thousands, except per share data): Year Ended December 31, 2014 Aggregate Intrinsic Value Weighted Average Exercise Price Aggregate...

  • Page 126
    ... Election to the Charter income tax provision, net of valuation allowance, was $187 million of income tax benefit recorded as a discrete tax event during the year ended December 31, 2015. For the years ended December 31, 2015, 2014, and 2013, the Company recorded deferred income tax benefit (expense...

  • Page 127
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2015, 2014 AND 2013 (dollars in millions, except share or per share data or where indicated) Current and deferred income tax benefit (expense) is as follows: Year Ended December 31, 2015 2014 2013 ...

  • Page 128
    ... 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, 2015, 2014, and 2013, respectively, as follows: Year Ended December 31, 2015 2014 2013 Statutory federal income taxes Statutory state income taxes, net...

  • Page 129
    ... 31, 2014. The Company does not currently anticipate that its existing reserves related to uncertain income tax positions as of December 31, 2015 will significantly increase or decrease during the twelve-month period ending December 31, 2016; however, various events could cause the Company's current...

  • Page 130
    ... the Company made related party transaction payments to investees totaling approximately $28 million during the year ended December 31, 2015. Liberty Broadband On May 23, 2015, in connection with the execution of the Merger Agreement and the amendment of the Contribution Agreement, Charter entered...

  • Page 131
    ... and rental costs charged to expense for the years ended December 31, 2015, 2014 and 2013 were $49 million, $43 million, $34 million, respectively. (2) The Company pays programming fees under multi-year contracts ranging from three to ten years, typically based on a flat fee per customer, which may...

  • Page 132
    ... 31, 2015, 2014 AND 2013 (dollars in millions, except share or per share data or where indicated) • The Company pays franchise fees under multi-year franchise agreements based on a percentage of revenues generated from video service per year. The Company also pays other franchise related costs...

  • Page 133
    ... million for the years ended December 31, 2015, 2014 and 2013, respectively. 20. Recently Issued Accounting Standards In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which is...

  • Page 134
    ... the requirements for internal-use software should be accounted for as a service contract. ASU 2015-05 will be effective for interim and annual periods beginning after December 15, 2015 (January 1, 2016 for the Company). Early adoption of the standard is permitted. The Company is currently in the...

  • Page 135
    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2015, 2014 AND 2013 (dollars in millions, except share or per share data or where indicated) First Quarter Revenues Income from operations Net loss Loss per common share, basic and diluted Weighted...

  • Page 136
    ... AND SHAREHOLDERS'/MEMBER'S EQUITY (DEFICIT) 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 (DEFICIT...

  • Page 137
    ...'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'/member...

  • Page 138
    ... 31, 2015, 2014 AND 2013 (dollars in millions, except share or per share data or where indicated) Charter Communications, Inc. Consolidating Statement of Operations For the year ended December 31, 2015 Charter Operating and Restricted Subsidiaries Charter Intermediate Holding Companies Safari...

  • Page 139
    ... 31, 2015, 2014 AND 2013 (dollars in millions, except share or per share data or where indicated) Charter Communications, Inc. Consolidating Statement of Operations For the year ended December 31, 2014 Charter Operating and Restricted Subsidiaries Charter Intermediate Holding Companies Safari...

  • Page 140
    ... 31, 2015, 2014 AND 2013 (dollars in millions, except share or per share data or where indicated) Charter Communications, Inc. Consolidating Statement of Operations For the year ended December 31, 2013 Charter Operating and Restricted Subsidiaries Charter Intermediate Holding Companies Safari...

  • Page 141
    ... FINANCIAL STATEMENTS DECEMBER 31, 2015, 2014 AND 2013 (dollars in millions, except share or per share data or where indicated) Charter Communications, Inc. Consolidating Statement of Comprehensive Income (Loss) For the year ended December 31, 2015 Charter Operating and Restricted Subsidiaries...

  • Page 142
    ... 2013 (dollars in millions, except share or per share data or where indicated) Charter Communications, Inc. Consolidating Statement of Cash Flows For the year ended December 31, 2015 Charter Operating and Restricted Subsidiaries Charter CASH FLOWS FROM OPERATING ACTIVITIES: Consolidated net income...

  • Page 143
    ... 2013 (dollars in millions, except share or per share data or where indicated) Charter Communications, Inc. Consolidating Statement of Cash Flows For the year ended December 31, 2014 Charter Operating and Restricted Subsidiaries Charter CASH FLOWS FROM OPERATING ACTIVITIES: Consolidated net income...

  • Page 144
    ... 31, 2015, 2014 AND 2013 (dollars in millions, except share or per share data or where indicated) Charter Communications, Inc. Consolidating Statement of Cash Flows For the year ended December 31, 2013 Charter Operating and Restricted Subsidiaries Charter Intermediate Holding Companies Safari...

  • Page 145
    ... to close that offering in February 2016 and the net proceeds will be used to (i) repurchase or redeem certain of CCO Holdings' 7.000% senior notes due 2019 and 7.375% senior notes due 2020 and pay related fees and expenses and (ii) for general corporate purposes including, for example, to fund...

  • Page 146
    (This page intentionally left blank.) F-49

  • Page 147
    ... terms, as defined by Charter, may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA is reconciled to net income (loss) and free cash flow is reconciled to net cash flows from operating activities in this annual report. Adjusted EBITDA is defined as net income...

  • Page 148
    ... For the year ended December 31 Net loss Plus: Interest expense, net Income tax (benefit) expense Depreciation and amortization Stock compensation expense Loss on extinguishment of debt (Gain) loss on derivative instruments, net Other, net Adjusted EBITDA 2012 2014 2013 $ (271) $ (183...

  • Page 149
    .... Headquarters Charter Communications, Inc. 400 Atlantic Street Stamford, CT 06901 Charter.com 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...

  • Page 150
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  • Page 151
    ... of Media Sales 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, LLC Thomas M. Rutledge President and Chief Executive Officer of Charter Communications, Inc...

  • Page 152
    Charter Communications, Inc. 400 Atlantic Street Stamford, Connecticut 06901 Charter.com