Charter 2015 Annual Report Download - page 107

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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)
F- 10
paid each month based on calculations performed by the Company and are subject to periodic audits performed by the programmers.
Certain programming contracts contain incentives to be paid by the programmers. The Company receives these payments and
recognizes the incentives on a straight-line basis over the life of the programming agreement as a reduction of programming
expense. This offset to programming expense was $19 million, $19 million and $7 million for the years ended December 31,
2015, 2014 and 2013, respectively. Programming costs included in the accompanying statements of operations were $2.7 billion,
$2.5 billion and $2.1 billion for the years ended December 31, 2015, 2014 and 2013, respectively.
Advertising Costs
Advertising costs associated with marketing the Company’s products and services are generally expensed as costs are incurred.
Such advertising expense was $389 million, $380 million and $357 million for the years ended December 31, 2015, 2014 and
2013, respectively.
Multiple-Element Transactions
In the normal course of business, the Company enters into multiple-element transactions where it is simultaneously both a customer
and a vendor with the same counterparty or in which it purchases multiple products and/or services, or settles outstanding items
contemporaneous with the purchase of a product or service from a single counterparty. Transactions, although negotiated
contemporaneously, may be documented in one or more contracts. The Company’s policy for accounting for each transaction
negotiated contemporaneously is to record each element of the transaction based on the respective estimated fair values of the
products or services purchased and the products or services sold. In determining the fair value of the respective elements, the
Company refers to quoted market prices (where available), historical transactions or comparable cash transactions.
Stock-Based Compensation
Restricted stock, restricted stock units, stock options as well as restricted stock and stock options with market conditions are
measured at the grant date fair value and amortized to stock compensation expense over the requisite service period. The Company
recorded $78 million, $55 million and $48 million of stock compensation expense, which is included in operating costs and expenses
for the years ended December 31, 2015, 2014 and 2013, respectively.
The fair value of options granted is estimated on the 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 of 1.5%, 2.0% and 1.5%;
expected volatility of 34.7%, 36.9% and 37.8%, and expected lives of 6.5 years, 6.5 years and 6.3 years. The grant date weighted
average cost of equity used was 16.2% during the year ended December 31, 2013. Volatility assumptions were based on historical
volatility of Charter and a peer group. The Company’s volatility assumptions represent management’s best estimate and were
partially based on historical volatility of a peer group because management does not believe Charter’s pre-emergence from
bankruptcy historical volatility to be representative of its future volatility. Expected lives were calculated based on the simplified-
method due to insufficient historical exercise data. The valuations assume no dividends are paid.
Income Taxes
The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and
the tax basis of the Company’s assets and liabilities and expected benefits of utilizing loss carryforwards. The impact on deferred
taxes of changes in tax rates and tax law, if any, applied to the years during which temporary differences are expected to be settled,
are reflected in the consolidated financial statements in the period of enactment. See Note 16.
Loss per Common Share
Basic loss per common share is computed by dividing the net loss by the weighted-average common shares outstanding during
the respective periods. Diluted loss per common share equals basic loss per common share for the periods presented, as the effect
of stock options and other convertible securities are anti-dilutive because the Company incurred net losses.