UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
______________
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
   
For the quarterly period ended SeptemberJune 30, 20162017
or
   
o 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: 001-37789
 333-112593-01
CCO Holdings, LLC
CCO Holdings Capital Corp.
(Exact name of registrant as specified in its charter)
Delaware 86-1067239
Delaware 20-0257904
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
   
400 Atlantic Street
Stamford, Connecticut 06901
 (203) 905-7801
(Address of principal executive offices including zip code) (Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o    Accelerated filer o    Non-accelerated filer x    Smaller reporting company oEmerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

All of the issued and outstanding shares of capital stock of CCO Holdings Capital Corp. are held by CCO Holdings, LLC. All of the limited liability company membership interests of CCO Holdings, LLC are held by CCH I Holdings, LLC (a subsidiary of Charter Communications, Inc., a reporting company under the Exchange Act). There is no public trading market for any of the aforementioned limited liability company membership interests or shares of capital stock.

CCO Holdings, LLC and CCO Holdings Capital Corp. meet the conditions set forth in General Instruction I(1)(a) and (b) to Form 10-K and are therefore filing with the reduced disclosure format.

Number of shares of common stock of CCO Holdings Capital Corporation outstanding as of SeptemberJune 30, 2016:2017: 1






CCO HOLDINGS, LLC
CCO HOLDINGS CAPITAL CORP.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
SEPTEMBERJUNE 30, 20162017

TABLE OF CONTENTS

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This quarterly report on Form 10-Q is for the three and ninesix months ended SeptemberJune 30, 20162017. The United States Securities and Exchange Commission (“SEC”) allows us to “incorporate by reference” information that we file with the SEC, which means that we can disclose important information to you by referring you directly to those documents. In this quarterly report, “CCO Holdings,” “we,” “us” and “our” refer to CCO Holdings, LLC and its subsidiaries.


i



Explanatory Note
On May 18, 2016, Charter Communications, Inc. (formerly known as CCH I, LLC, or “Charter,” an indirect parent company of CCO Holdings, LLC) completed its previously reported merger transactions among Charter, Time Warner Cable Inc. (“Legacy TWC”), Charter Communications, Inc. (“Legacy Charter”), and certain other subsidiaries of Charter (the “TWC Transaction”). Also on May 18, 2016, Charter completed its previously reported acquisition of Bright House Networks, LLC (“Legacy Bright House”) from Advance/Newhouse Partnership (the “Bright House Transaction,” and, together with the TWC Transaction, the “Transactions”). As a result of the Transactions, Charter became the new public parent company that holds the combined operations of Legacy Charter, Legacy TWC and Legacy Bright House and was renamed Charter Communications, Inc. Substantially all of the operations acquired in the Transactions were contributed down to CCO Holdings. The financial statements presented in this quarterly report reflect the operations of CCO Holdings as a subsidiary of Legacy Charter through May 17, 2016 and CCO Holdings as a subsidiary of Charter on and after May 18, 2016. See Part I, Item 1. Financial Statements, Notes to Consolidated Financial Statements, Note 2, “Mergers and Acquisitions - Selected Pro Forma Financial Information” for certain financial information presented as if the Transactions had closed on January 1, 2015. Also see Exhibit 99.1 in this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2016 for pro forma financial information for each quarter of 2015 and the first and second quarter of 2016. Throughout this report references to the “Company” or to “CCO Holdings” refer to the combined company following the completion of the Transactions.

Upon closing of the TWC Transaction, the CCOH Safari, LLC notes became obligations of CCO Holdings and CCO Holdings Capital Corp., and the CCO Safari II, LLC notes and CCO Safari III, LLC credit facilities became obligations of Charter Communications Operating, LLC (“Charter Operating”) and Charter Communications Operating Capital Corp. CCOH Safari, LLC merged into CCO Holdings and CCO Safari II, LLC and CCO Safari III, LLC merged into Charter Operating.



ii



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS:STATEMENTS

This quarterly report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), regarding, among other things, our plans, strategies and prospects, both business and financial including, without limitation, the forward-looking statements set forth in the “Results of Operations” and “Liquidity and Capital Resources” sections under Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this quarterly report. Although we believe that our plans, intentions and expectations as reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions including, without limitation, the factors described under “Risk Factors” under Part II,I, Item 1A of this quarterly report onour most recent Form 10-Q.10-K filed with the SEC. Many of the forward-looking statements contained in this quarterly report may be identified by the use of forward-looking words such as “believe,” “expect,” “anticipate,” “should,” “planned,” “will,” “may,” “intend,” “estimated,” “aim,” “on track,” “target,” “opportunity,” “tentative,” “positioning,” “designed,” “create,” “predict,” “project,” “initiatives,” “seek,” “would,” “could,” “continue,” “ongoing,” “upside,” “increases” and “potential,” among others. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this quarterly report are set forth in this quarterly report on Form 10-Q, in our annual report on Form 10-K, 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 recently completed Transactions:

our ability to promptly, efficiently and effectively integrate acquired operations;
managing a significantly larger company than before the completion of the Transactions;
our ability to achieve the synergies and value creation contemplated by the Transactions;
diversion of management time on issues related to the integration of the Transactions;
changes in Legacy Charter, Legacy TWC or Legacy Bright House operations’ businesses, future cash requirements, capital requirements, results of operations, revenues, financial condition and/or cash flows;
disruption in our business relationships as a result of the Transactions;
the increase in indebtedness as a result of the Transactions, which will increase interest expense and may decrease our operating flexibility;
operating costs and business disruption that may be greater than expected;
the ability to retain and hire key personnel and maintain relationships with providers or other business partners; and
costs, disruptions and possible limitations on operating flexibility related to, and our ability to comply with, regulatory conditions applicable to us as a result of the Transactions.
Risks Related to Our Business

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 customer base, particularly in the face of increasingly aggressive competition, the need for innovation and the related capital expenditures;
the impact of competition from other market participants, including but not limited to incumbent telephone companies, direct broadcast satellite operators, wireless broadband and telephone providers, digital subscriber line (“DSL”) providers, fiber to the home providers, video provided over the Internet by (i) market participants that have not historically competed in the multichannel video business, (ii) traditional multichannel video distributors, and (iii) content providers that have historically licensed cable networks to multichannel video distributors, and providers of advertising over the Internet;
general business conditions, economic uncertainty or downturn, unemployment levels and the level of activity in the housing sector;
our ability to obtain programming at reasonable prices or to raise prices to offset, in whole or in part, the effects of higher programming costs (including retransmission consents);
our ability to develop and deploy new products and technologies including wireless products, our cloud-based user interface, Spectrum Guide®, and downloadable security for set-top boxes, and any other cloud-based consumer services and service platforms;
the effects of governmental regulation on our business or potential business combination transactions;transactions including costs, disruptions and possible limitations on operating flexibility related to, and our ability to comply with, regulatory conditions applicable to us as a result of the Time Warner Cable Inc. and Bright House Networks, LLC Transactions;
any events that disrupt our networks, information systems or properties and impair our operating activities or our reputation;
the ability to retain and hire key personnel;
the availability and access, in general, of funds to meet our debt obligations prior to or when they become due and to fund our operations and necessary capital expenditures, either through (i) cash on hand, (ii) free cash flow, or (iii) access to the capital or credit markets; and


iii



our ability to comply with all covenants in our indentures and credit facilities, any violation of which, if not cured in a timely manner, could trigger a default of our other obligations under cross-default provisions.

All forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by this cautionary statement. We are under no duty or obligation to update any of the forward-looking statements after the date of this quarterly report.


ivii



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.

CCO HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
September 30,
2016
 December 31,
2015
June 30,
2017
 December 31,
2016
(unaudited)  (unaudited)  
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents$996
 $5
$521
 $1,324
Accounts receivable, less allowance for doubtful accounts of      
$134 and $21, respectively1,229
 264
$121 and $124, respectively1,416
 1,387
Prepaid expenses and other current assets351
 55
319
 300
Total current assets2,576
 324
2,256
 3,011
      
INVESTMENT IN CABLE PROPERTIES:      
Property, plant and equipment, net of accumulated      
depreciation of $9,486 and $6,509, respectively32,657
 8,317
depreciation of $14,668 and $11,085, respectively32,711
 32,718
Customer relationships, net13,231
 14,608
Franchises66,245
 6,006
67,316
 67,316
Customer relationships, net15,439
 856
Goodwill30,165
 1,168
29,554
 29,509
Total investment in cable properties, net144,506
 16,347
142,812
 144,151
      
LOANS RECEIVABLE - RELATED PARTY
 693
OTHER NONCURRENT ASSETS1,172
 116
1,132
 1,157
      
Total assets$148,254
 $17,480
$146,200
 $148,319
      
LIABILITIES AND MEMBER’S EQUITY   
LIABILITIES AND MEMBER'S EQUITY   
CURRENT LIABILITIES:      
Accounts payable and accrued liabilities$6,004
 $1,476
$7,327
 $6,897
Payables to related party566
 621
Current portion of long-term debt2,050
 

 2,028
Payables to related party399
 331
Total current liabilities8,453
 1,807
7,893
 9,546
      
LONG-TERM DEBT59,946
 13,945
63,248
 59,719
LOANS PAYABLE - RELATED PARTY640
 333
833
 640
DEFERRED INCOME TAXES32
 28
39
 25
OTHER LONG-TERM LIABILITIES2,905
 45
2,320
 2,526
      
MEMBER’S EQUITY:   
Member’s equity76,261
 1,335
MEMBER'S EQUITY:   
Member's equity71,847
 75,845
Accumulated other comprehensive loss(8) (13)(4) (7)
Total CCO Holdings member’s equity76,253
 1,322
Total CCO Holdings member's equity71,843
 75,838
Noncontrolling interests25
 
24
 25
Total member’s equity76,278
 1,322
71,867
 75,863
      
Total liabilities and member’s equity$148,254
 $17,480
$146,200
 $148,319


CCO HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions)
Unaudited
Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015Three Months Ended June 30, Six Months Ended June 30,
       2017 2016 2017 2016
REVENUES$10,037
 $2,450
 $18,728
 $7,242
$10,357
 $6,161
 $20,521
 $8,691
              
COSTS AND EXPENSES:              
Operating costs and expenses (exclusive of items shown separately below)6,490
 1,620
 12,173
 4,802
6,582
 4,012
 13,166
 5,683
Depreciation and amortization2,435
 538
 4,409
 1,580
2,592
 1,435
 5,140
 1,974
Other operating (income) expenses, net193
 19
 (20) 69
9,118
 2,177
 16,562
 6,451
Other operating expenses, net135
 289
 229
 307
       9,309
 5,736
 18,535
 7,964
Income from operations919
 273
 2,166
 791
1,048
 425
 1,986
 727
              
OTHER EXPENSES:              
Interest expense, net(729) (192) (1,391) (648)(754) (462) (1,473) (662)
Loss on extinguishment of debt
 
 (110) (126)(1) (110) (35) (110)
Gain (loss) on financial instruments, net71
 (5) 16
 (10)
Other expense, net(2) 
 (2) 
Loss on financial instruments, net(70) (50) (32) (55)
Other pension benefits13
 520
 26
 520
(660) (197) (1,487) (784)(812) (102) (1,514) (307)
              
Income before income taxes259
 76
 679
 7
236
 323
 472
 420
Income tax benefit7
 219
 
 212
Income tax expense(10) (7) (29) (7)
Consolidated net income266
 295
 679
 219
226
 316
 443
 413
Less: Net income attributable to noncontrolling interests(1) (13) (1) (34)(1) 
 (1) 
       
Net income attributable to CCO Holdings member$265
 $282
 $678
 $185
$225
 $316
 $442
 $413



CCO HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in millions)
Unaudited
 Three Months Ended September 30, Nine Months Ended September 30,
 2016 2015 2016 2015
        
Consolidated net income$266
 $295
 $679
 $219
Net impact of interest rate derivative instruments, net of tax2
 2
 6
 7
Foreign currency translation adjustment(1) 
 (1) 
        
Consolidated comprehensive income267
 297
 684
 226
Less: Net income attributable to noncontrolling interests(1) (13) (1) (34)
Comprehensive income attributable to CCO Holdings member$266
 $284
 $683
 $192


CCO HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER’S EQUITY
(dollars in millions)
Unaudited

 Member’s EquityAccumulated Other Comprehensive LossTotal CCO Holdings Member’s EquityNoncontrolling InterestsTotal Member’s Equity
      
BALANCE, December 31, 2014$534
$(22)$512
$436
$948
Net income185

185
34
219
Changes in accumulated other comprehensive loss, net
7
7

7
Stock compensation expense, net58

58

58
Contributions from parent15

15

15
Distributions to parent(73)
(73)
(73)
BALANCE, September 30, 2015$719
$(15)$704
$470
$1,174
      
BALANCE, December 31, 2015$1,335
$(13)$1,322
$
$1,322
Net income678

678
1
679
Changes in accumulated other comprehensive loss, net
5
5

5
Stock compensation expense, net168

168

168
Accelerated vesting of equity awards202

202

202
Contributions from parent478

478

478
Distributions to parent(3,084)
(3,084)
(3,084)
Contribution of net assets acquired in the TWC Transaction87,530

87,530

87,530
Contribution of net assets acquired in the Bright House Transaction12,156

12,156

12,156
Merger of parent companies and the Safari Escrow Entities(23,202)
(23,202)
(23,202)
Contribution of noncontrolling interests


24
24
BALANCE, September 30, 2016$76,261
$(8)$76,253
$25
$76,278

 Three Months Ended June 30, Six Months Ended June 30,
 2017 2016 2017 2016
Consolidated net income$226
 $316
 $443
 $413
Net impact of interest rate derivative instruments2
 2
 3
 4
Consolidated comprehensive income228
 318
 446
 417
Less: Comprehensive income attributable to noncontrolling interests(1) 
 (1) 
Comprehensive income attributable to CCO Holdings member$227
 $318
 $445
 $417


CCO HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
Unaudited
 Nine Months Ended September 30, Six Months Ended June 30,
 2016 2015 2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:        
Consolidated net income $679
 $219
 $443
 $413
Adjustments to reconcile consolidated net income to net cash flows from operating activities:        
Depreciation and amortization 4,409
 1,580
 5,140
 1,974
Stock compensation expense 168
 58
 134
 87
Accelerated vesting of equity awards 202
 
 37
 145
Noncash interest (income) expense, net (148) 21
Noncash interest income, net (196) (41)
Other pension benefits (533) 
 (26) (520)
Loss on extinguishment of debt 110
 126
 35
 110
(Gain) loss on financial instruments, net (16) 10
Loss on financial instruments, net 32
 55
Deferred income taxes (14) (216) 16
 
Other, net (10) 4
 (3) (5)
Changes in operating assets and liabilities, net of effects from acquisitions:        
Accounts receivable (2) (4) 79
 (96)
Prepaid expenses and other assets 105
 (20) 16
 39
Accounts payable, accrued liabilities and other 483
 15
 (56) 560
Receivables from and payables to related party, including deferred management fees 105
 28
 (23) 27
Net cash flows from operating activities 5,538
 1,821
 5,628
 2,748
        
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchases of property, plant and equipment (3,437) (1,292) (3,703) (1,689)
Change in accrued expenses related to capital expenditures 86
 11
 197
 138
Purchases of cable systems, net of cash acquired (7) 
 
 (8)
Change in restricted cash and cash equivalents 
 3,514
Other, net (8) (15) (49) (6)
Net cash flows from investing activities (3,366) 2,218
 (3,555) (1,565)
        
CASH FLOWS FROM FINANCING ACTIVITIES:        
Borrowings of long-term debt 5,997
 3,771
 7,146
 5,997
Repayments of long-term debt (4,120) (7,411) (5,529) (4,070)
Repayments loans payable - related parties (253) (317)
Borrowings (repayments) loans payable - related parties 178
 (253)
Payments for debt issuance costs (283) (24) (42) (283)
Contributions from parent 478
 15
 
 478
Distributions to parent (3,084) (73) (4,622) (2,719)
Proceeds from termination of interest rate derivatives 88
 
 
 88
Other, net (4) 
 (7) (1)
Net cash flows from financing activities (1,181) (4,039) (2,876) (763)
        
NET INCREASE IN CASH AND CASH EQUIVALENTS 991
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (803) 420
CASH AND CASH EQUIVALENTS, beginning of period 5
 
 1,324
 5
CASH AND CASH EQUIVALENTS, end of period $996
 $
 $521
 $425
        
CASH PAID FOR INTEREST $1,479
 $657
 $1,653
 $527
CASH PAID FOR TAXES $20
 $2


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)



1.    Organization and Basis of Presentation

Organization

CCO Holdings, LLC (“(together with its subsidiaries, “CCO Holdings,” or the “Company”) is the second largest cable operator in the United States and a leading broadband communications company providing video, Internet and voice services to residential and business customers. In addition, the Company sells video and online advertising inventory to local, regional and national advertising customers and fiber-delivered communications and managed information technology solutions to larger enterprise customers. The Company also owns and operates regional sports networks and local sports, news and lifestyle channels and sells security and home management services to the residential marketplace.

CCO Holdings”)Holdings is a holding company whose principal assets are the equity interests in its operating subsidiaries. CCO Holdings is a direct subsidiary of CCH I Holdings, LLC (“CCH I”), which is an indirect subsidiary of Charter Communications, Inc. (“Charter”), Charter Communications Holdings, LLC (“Charter Holdings”) and Spectrum Management Holding Company, LLC (“Spectrum Holdings”Management”). The consolidated financial statements include the accounts of CCO Holdings and all of its subsidiaries where the underlying operations reside, which are collectively referred to herein as the “Company.” All significant intercompany accounts and transactions among consolidated entities have been eliminated. Charter, Charter Holdings and Spectrum HoldingsManagement have performed financing, cash management, treasury and other services for CCO Holdings on a centralized basis. Changes in member’s equity in the consolidated balance sheets related to these activities have been considered cash receipts (contributions) and payments (distributions) for purposes of the consolidated statements of cash flows and are reflected in financing activities.

The Company is the second largest cable operator in the United States and a leading broadband communications company providing video, Internet and voice services to residential and business customers. The Company also sells video and online advertising inventory to local, regional and national advertising customers, and networking and enterprise-class, cloud-enabled hosting, managed applications and transport services to business customers and owns and operates regional sports networks and local sports, news and lifestyle channels. The Company’s residential services also include security and home management services.

The Company’s operations are managed and reported to its Chief Executive Officer (“CEO”), the Company’s chief operating decision maker, on a consolidated basis. The CEO assesses performance and allocates resources based on the consolidated results of operations. Under this organizational and reporting structure, the Company has one reportable segment, cable services.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnote disclosures typically included in the Company’sCCO Holdings’ Annual Report filed as Exhibit 99.2 in the Company’s Current Report on Form 8-K filed with the SEC on June 6, 201610-K have been condensed or omitted for this quarterly report. The accompanying consolidated financial statements are unaudited and are subject to review by regulatory authorities. However, in the opinion of management, such financial statements include all adjustments, which consist of only normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. Interim results are not necessarily indicative of results for a full year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Areas involving significant judgments and estimates include capitalization of labor and overhead costs; depreciation and amortization costs; purchase accounting valuations of assets and liabilities including, but not limited to, property, plant and equipment, intangibles and goodwill; pension benefits; income taxes; contingencies and programming expense. Actual results could differ from those estimates.

Certain prior period amounts have been reclassified to conform with the 2017 presentation.

2.     Mergers and Acquisitions

TWC TransactionThe Transactions

On May 18, 2016, the transactions contemplated by the Agreement and Plan of Mergers dated as of May 23, 2015 (the “Merger Agreement”), by and among Time Warner Cable Inc. (“Legacy TWC”), Charter Communications, Inc. prior to the closing of the Merger Agreement (“Legacy Charter”), CCH I, LLC, previously a wholly owned subsidiary of Legacy Charter (“New Charter”) and certain other subsidiaries of New CharterCCH I, LLC were completed (the “TWC Transaction,” and together with the Bright House Transaction described below, the “Transactions”). As a result of the TWC Transaction, New CharterCCH I, LLC became the new public parent company that holds the operations of the combined companies and was renamed Charter Communications, Inc.

As of the date of completion of the


65


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)


Pursuant to the terms of the Merger Agreement, upon consummation of the TWC Transaction, each outstanding share of Legacy TWC common stock (other than Legacy TWC common stock held by Liberty Broadband Corporation (“Liberty Broadband”) and Liberty Interactive Corporation (“Liberty Interactive” and, collectively, the “Liberty Parties”)), was converted into the right to receive, at the option of each such holder of Legacy TWC common stock, either (a) $100 in cash and Charter Class A common stock equivalent to 0.5409 shares of Legacy Charter Class A common stock (the “Option A Consideration”) or (b) $115 in cash and Charter Class A common stock equivalent to 0.4562 shares of Legacy Charter Class A common stock (the “Option B Consideration”). The actual number of shares of Charter Class A common stock that Legacy TWC stockholders received, excluding the Liberty Parties, was calculated by multiplying the exchange ratios of 0.5409 or 0.4562 specified above by 0.9042 (the “Parent Merger Exchange Ratio”), which was also the exchange ratio that was used to determine the number of shares of Charter Class A common stock that Legacy Charter stockholders received per share of Legacy Charter Class A common stock. Such exchange ratio did not impact the aggregate value represented by the shares of Charter Class A common stock issued in the TWC Transaction; however, it did impact the actual number of shares issued in the TWC Transaction.

Out of approximately 277 million shares of TWC common stock outstanding at the closing of the TWC Transaction, excluding TWC common stock held by the Liberty Parties, approximately 274 million shares were converted into the right to receive the Option A Consideration and approximately 3 million shares were converted into the right to receive the Option B Consideration. The Liberty Parties received approximately one share of Charter Class A common stock for each share of Legacy TWC common stock they owned (equivalent to 1.106 shares of Legacy Charter Class A common stock multiplied by the Parent Merger Exchange Ratio).

As of the date of completion of the Transactions, the total value of the TWC Transaction was approximately $85 billion, including cash, equity and Legacy TWC assumed debt. The purchase price also included an estimated pre-combination vesting period fair value of $514 million for Legacy TWC equity awards converted into Charter awards upon closing of the TWC Transaction (“Converted TWC Awards”) and $69 million of cash paid to former Legacy TWC employees and non-employee directors who held equity awards, whether vested or not vested.

Bright House Transaction

Also, on May 18, 2016, Legacy Charter and Advance/Newhouse Partnership (“A/N”), the former parent of Bright House Networks, LLC (“Bright House”), completed their previously announced transaction, pursuant to a definitive Contribution Agreement (the “Contribution Agreement”), under which Charter acquired Bright House (the “Bright House Transaction”). for approximately $12.2 billion consisting of cash, convertible preferred units of Charter Holdings and common units of Charter Holdings. Pursuant to the Bright House Transaction, Charter became the owner of the membership interests in Bright House and the other assets primarily related to Bright House (other than certain excluded assets and liabilities and non-operating cash). As of the date of acquisition, the purchase price totaled approximately $12.2 billion consisting of (a) $2.0 billion in cash, (b) 25 million convertible preferred units of Charter Holdings with a face amount of $2.5 billion that pay a 6% annual preferential dividend, (c) approximately 31.0 million common units of Charter Holdings that are exchangeable into Charter Class A common stock on a one-for-one basis and (d) one share of Charter Class B common stock.

Liberty Transaction

In connection with the TWC Transaction, Legacy Charter and Liberty Broadband completed their previously announced transactions pursuant to their investment agreement, in which Liberty Broadband purchased for cash approximately 22.0 million shares of Charter Class A common stock valued at $4.3 billion at the closing of the TWC Transaction to partially finance the cash portion of the TWC Transaction consideration, and in connection with the Bright House Transaction, Liberty Broadband purchased approximately 3.7 million shares of Charter Class A common stock valued at $700 million at the closing of the Bright House Transaction (the “Liberty Transaction”Transactions”).

Financing for the Transactions

Charter partially financed the cash portion of the purchase price of the Transactions with additional indebtedness and cash on hand.  In 2015, Legacy Charter issued $15.5 billion aggregate principal amount of CCO Safari II, LLC (“CCO Safari II”) senior secured notes, $3.8 billion aggregate principal amount of CCO Safari III, LLC (“CCO Safari III”) senior secured bank loans and $2.5 billion aggregate principal amount of CCOH Safari, LLC (“CCOH Safari” and collectively with CCO Safari II and CCO Safari III, the “Safari Escrow Entities”) senior unsecured notes.  The net proceeds were initially deposited into escrow accounts. Upon closing of the TWC Transaction, the proceeds were released from escrow and the CCOH Safari notes became obligations of CCO


7


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)


Holdings and CCO Holdings Capital Corp. (“CCO Holdings Capital”), and the CCO Safari II notes and CCO Safari III credit facilities became obligations of Charter Communications Operating, LLC (“Charter Operating”) and Charter Communications Operating Capital Corp. CCOH Safari merged into CCO Holdings and CCO Safari II and CCO Safari III merged into Charter Operating. In connection with the closing of the Bright House Transaction, Charter Operating closed on a $2.6 billion aggregate principal amount term loan A facility (“Term Loan A”). See Note 7.

Acquisition Accounting

The Transactions enable Charter to apply its operating strategy to a larger set of assets, accelerate product development and innovation through greater scale as well as more effectively compete in medium and large commercial markets. Substantially all of the operations acquired in the Transactions were contributed down to the Company. The operating results of Legacy TWC and Legacy Bright House have been included in the Company’s consolidated statements of operations for the period from the date of the Transactions through September 30, 2016. For the three and nine months ended September 30, 2016, revenues included in the Company’s consolidated statements of operations were $6.4 billion and $9.5 billion, respectively, and consolidated net income was $62 million and $434 million, respectively, for Legacy TWC. For the three and nine months ended September 30, 2016, revenues included in the Company’s consolidated statements of operations were $1.0 billion and $1.5 billion, respectively, and consolidated net income was $126 million and $167 million, respectively, for Legacy Bright House. Consolidated net income includes non-operating expenses such as interest expense and income taxes based on what is included in the respective legal entities and does not include allocations of additional corporate level non-operating expenses.

Charter applied acquisition accounting to the Transactions. The total purchase price was allocated to the identifiable tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values. The fair values were primarily based on third-party valuations using assumptions developed by management and other information compiled by management including, but not limited to, future expected cash flows. The excess of the purchase price over those fair values was recorded as goodwill. Goodwill recognized in the Transactions is representative of resources that do not meet the definition of an identifiable intangible asset and include buy-side synergies, economies of scale of the combined operations, increased market share, assembled workforces and improved credit rating.

The fair valuestables below present the final allocation of the purchase price to the assets acquired and liabilities assumed were preliminarily determined using the income, cost and market approaches. The fair values were primarily based on significant inputs that are not observable in the marketTransactions.

TWC Allocation of Purchase Price

Cash and cash equivalents$1,058
Current assets1,417
Property, plant and equipment21,413
Customer relationships13,460
Franchises54,085
Goodwill28,337
Other noncurrent assets1,040
Accounts payable and accrued liabilities(4,107)
Debt(24,900)
Deferred income taxes(28,120)
Other long-term liabilities(3,162)
Noncontrolling interests(4)
 $60,517

Charter made measurement period adjustments to the fair value of certain assets acquired and thus represent a Level 3 measurement, other than long-term debtliabilities assumed in the TWC Transaction which representsduring the three months ended June 30, 2017, including a Level 1 measurement. See Note 10.

Property, plantdecrease to working capital of $46 million and equipment was valued utilizing the cost approach. The cost approach considers the amount requireda decrease of $18 million to replace an asset by constructing or purchasing a new asset with similar utility, then adjusts the value in consideration of all forms of depreciation as of the appraisal date as described below:

Physical depreciation - the loss in value or usefulness attributable solely to use of the asset and physical causes such as wear and tear and exposure to the elements.
Functional obsolescence - the loss in value due to factors inherent in the asset itself and due to changes in technology, design or processdeferred income tax liabilities, resulting in inadequacy, overcapacity, lacka net increase of functional utility or excess operating costs.
Economic obsolescence - the loss in value due$28 million to unfavorable external conditions such as economics of the industry or geographic area, or change in ordinances.

goodwill. The cost approach relies on assumptions regarding current material and labor costs required to rebuild and repurchase significant components of property, plant and equipment along with assumptions regarding the age and estimated useful lives of property, plant and equipment.

Franchise rights and customer relationships were valued using an income approach model based on the present value of the estimated discrete future cash flows attributable to each of the intangible assets identified. See Note 6 to the consolidated financial statements in Exhibit 99.2 in the Company’s Current Report on Form 8-K filed with the SEC on June 6, 2016measurement period adjustments for more information on the income approach model. The weighted average life of customer relationships acquired in the TWC Transaction during the six months ended June 30, 2017 included a decrease to working capital of $73 million and Bright House Transaction was 11 years and 10 years, respectively.a decrease of $28 million to deferred income tax liabilities, resulting in a net increase of $45 million to goodwill.



86


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)


The fair value of equity investments was based on either applying implied multiples to estimated cash flows or utilizing a discounted cash flow model. The implied multiples were estimated based on precedent transactions and comparable companies. The discounted cash flow model required estimating the present value of future cash flows of the investee.

Legacy TWC long-term debt assumed was adjusted to fair value based on quoted market prices. At the acquisition date, the quoted market values of all but two of Legacy TWC’s bonds were higher than the principal amount of the related debt instrument, which resulted in the recognition of a net debt premium of approximately $2.4 billion. The quoted market value of a debt instrument is higher than the principal amount of the debt when the market interest rates are lower than the stated interest rate of the debt. This debt premium is amortized as a reduction to interest expense over the remaining life of the applicable debt.

Generally, no fair value adjustments were reflected in current assets and current liabilities as carrying value is estimated to approximate fair value because of the short-term nature of the items.  However, fair value adjustments were reflected in other noncurrent assets and other long-term liabilities relating to contract-based assets and liabilities, capital lease obligations, deferred liabilities and pension liabilities.  Out-of-market contract-based assets and liabilities relating to non-cancelable executory contracts and operating leases were recognized based on discounted cash flow models to the extent the terms of the non-cancelable contracts are favorable or unfavorable compared with the relative market terms of the same or similar contract at the acquisition date.  The out-of-market element will be amortized as if the contract were consummated at market terms on the acquisition date.  Capital lease obligations were measured at fair value based on the present value of amounts to be paid under the lease agreement using a market participant discount rate.  Deferred liabilities were not recorded in acquisition accounting to the extent there was no associated payment obligation or substantive performance obligation.  The pension liabilities assumed in the TWC Transaction are measured at fair value based on an actuarially determined projected benefit obligation, less the fair value of pension investments, as of the acquisition date. See Note 17 for fair value assumptions considered in acquisition accounting for the pension liabilities.

An adjustment was recorded for the deferred tax impact of acquisition accounting adjustments primarily related to property, plant and equipment, franchises, customer relationships and assumed Legacy TWC long-term debt. The incremental deferred tax liabilities were calculated primarily based on the tax effect of the step-up in book basis of net assets of Legacy TWC excluding the amount attributable to nondeductible goodwill. Deferred tax liabilities are recorded at Charter and not contributed down as the Company, and majority of its indirect subsidiaries, are limited liability companies that are not subject to income tax.

The Charter Class A common stock issued to Legacy TWC stockholders and Charter Holdings common units issued to A/N were valued based on the opening share price of Charter Class A common stock on the acquisition date. The convertible preferred units of Charter Holdings issued to A/N were valued at approximately $3.2 billion based on a binomial lattice model for convertible bonds that models the future changes in the common equity value of Charter. The valuation relies on management’s assumptions including risk-free interest rate, volatility and discount yield. The pre-combination vesting period fair value of the Converted TWC Awards was based on the portion of the requisite service period completed at the acquisition date by Legacy TWC employee award holders applied to the total fair value of the Converted TWC Awards. See Note 16 for fair value assumptions considered in acquisition accounting for the Converted TWC Awards.


9


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)


The allocation of the purchase price to tangible and intangible assets and certain liabilities is preliminary and is subject to change based on finalization and review of such valuations. During the measurement period, the Company will continue to obtain information to assist in finalizing the fair value of net assets acquired, which may differ materially from the preliminary estimates. The Company will apply any measurement period adjustments, including any related impacts to net income (loss), in the reporting period in which the adjustments are determined. The tables below present the calculation of the purchase price and the preliminary allocation of the purchase price to the assets acquired and liabilities assumed in the Transactions.

TWC Purchase Price

Shares of Charter Class A common stock issued (including the Liberty Parties) (in millions)143.0
Charter Class A common stock closing price per share$224.91
Fair value of Charter Class A common stock issued$32,164
  
Cash paid to Legacy TWC stockholders (excluding the Liberty Parties)$27,770
Pre-combination vesting period fair value of Converted TWC Awards514
Cash paid for Legacy TWC non-employee equity awards69
Total purchase price$60,517

TWC PreliminaryBright House Allocation of Purchase Price

Cash and cash equivalents$1,058
Current assets1,309
$131
Property, plant and equipment21,431
2,884
Customer relationships2,150
Franchises53,395
7,225
Customer relationships13,700
Goodwill28,459
44
Other noncurrent assets1,061
86
Accounts payable and accrued liabilities(3,752)(330)
Debt(24,900)
Deferred income taxes(28,071)
Other long-term liabilities(3,169)(12)
Noncontrolling interests(4)(22)
$60,517
$12,156

During the three months ended September 30, 2016, the Company madeNo measurement period adjustments were made to the fair value of certain assets acquired and liabilities assumed in the TWC Transaction, including a decrease of $145 million to property, plant and equipment; an increase of $25 million to accrued liabilities; a decrease of $81 million to deferred income taxes; and an increase in other long-term liabilities of $2 million resulting in a net increase of $91 million to goodwill.  The measurement period adjustment to property, plant and equipment also resulted in an increase of $12 million in depreciation expense relating to the prior quarter that was recorded in the third quarter of 2016.  The Company expects to record additional measurement period adjustments in future periods.


10


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)



Bright House Purchase Price

Charter Holdings common units issued to A/N (in millions)31.0
Charter Class A common stock closing price per share$224.91
Fair value of Charter Holdings common units issued to A/N$6,971
  
Fair value of Charter Holdings convertible preferred units issued to A/N3,163
Cash paid to A/N2,022
Total purchase price$12,156

Bright House Preliminary Allocation of Purchase Price

Current assets$132
Property, plant and equipment2,884
Franchises6,844
Customer relationships2,040
Goodwill534
Other noncurrent assets86
Accounts payable and accrued liabilities(330)
Other long-term liabilities(12)
Noncontrolling interests(22)
 $12,156

During the three months ended September 30, 2016, the Company made measurement period adjustments to the fair value of certain assets acquired and liabilities assumed in the Bright House Transaction including a decrease of $382 million to property, plant and equipment and a corresponding increase of $382 million to goodwill.  The measurement period adjustment to property, plant and equipment had an inconsequential impact on depreciation expense recorded induring the prior quarter. The Company expects to record additional measurement period adjustments in future periods. six months ended June 30, 2017.

In connection with the Transactions, subsidiaries of Charter contributed down to the Company the net assets and liabilities of TWC and Bright House except for the deferred tax liabilities of Charter, as noted above, and net assets of approximately $1.0 billion primarily comprised of cash and cash equivalents used as a source for the cash portion of the TWC purchase price.


11


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)



Selected Pro Forma Financial Information

The following unaudited pro forma financial information of the Company is based on the historical consolidated financial statements of CCO Holdings,Legacy Charter, Legacy TWC and Legacy Bright House and is intended to provide information about how the Transactions and related financing may have affected the Company’s historical consolidated financial statements if they had closed as of January 1, 2015. The pro forma financial information below is based on available information and assumptions that the Company believes are reasonable. The pro forma financial information is for illustrative and informational purposes only and is not intended to represent or be indicative of what the Company’s financial condition or results of operations would have been had the transactions described above occurred on the date indicated. The pro forma financial information also should not be considered representative of the Company’s future financial condition or results of operations.

 Three Months Ended September 30, Nine Months Ended September 30,
 2015 2016 2015
Revenues$9,342
 $29,748
 $27,813
Net income attributable to CCO Holdings member$253
 $1,112
 $342

3.    Property, Plant and Equipment

Property, plant and equipment consists of the following as of September 30, 2016 and December 31, 2015:

 September 30, 2016 December 31, 2015
    
Cable distribution systems$22,942
 $8,158
Customer premise equipment and installations11,916
 4,632
Vehicles and equipment1,178
 379
Buildings and improvements3,108
 540
Furniture, fixtures and equipment2,999
 1,117
 42,143
 14,826
Less: accumulated depreciation(9,486) (6,509)
 $32,657
 $8,317

The Company periodically evaluates the estimated useful lives used to depreciate its assets and the estimated amount of assets that will be abandoned or have minimal use in the future. A significant change in assumptions about the extent or timing of future asset retirements, or in the Company’s use of new technology and upgrade programs, could materially affect future depreciation expense.

Depreciation expense for the three and nine months ended September 30, 2016 was $1.7 billion and $3.2 billion, respectively, and was $471 million and $1.4 billion for the three and nine months ended September 30, 2015, respectively. Property, plant and equipment preliminarily increased by $24.3 billion as a result of the Transactions. See Note 2.
 Three Months Ended June 30, 2016 Six Months Ended June 30, 2016
Revenues$9,969
 $19,711
Net income attributable to CCO Holdings member$474
 $847



127


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)


4.3.    Franchises, Goodwill and Other Intangible Assets

Indefinite-lived and finite-lived intangible assets consist of the following as of SeptemberJune 30, 20162017 and December 31, 2015:2016:

 September 30, 2016 December 31, 2015 June 30, 2017 December 31, 2016
 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Indefinite-lived intangible assets:                        
Franchises $66,245
 $
 $66,245
 $6,006
 $
 $6,006
 $67,316
 $
 $67,316
 $67,316
 $
 $67,316
Goodwill 30,165
 
 30,165
 1,168
 
 1,168
 29,554
 
 29,554
 29,509
 
 29,509
Other intangible assets 4
 
 4
 4
 
 4
 
 
 
 4
 
 4
 $96,414
 $
 $96,414
 $7,178
 $
 $7,178
 $96,870
 $
 $96,870
 $96,829
 $
 $96,829
                        
Finite-lived intangible assets:                        
Customer relationships $18,356
 $(2,917) $15,439
 $2,616
 $(1,760) $856
 $18,227
 $(4,996) $13,231
 $18,226
 $(3,618) $14,608
Other intangible assets 635
 (120) 515
 173
 (82) 91
 664
 (162) 502
 615
 (128) 487
 $18,991
 $(3,037) $15,954
 $2,789
 $(1,842) $947
 $18,891
 $(5,158) $13,733
 $18,841
 $(3,746) $15,095

Amortization expense related to customer relationships and other intangible assets for the three and ninesix months ended SeptemberJune 30, 20162017 was $748$695 million and $1.2$1.4 billion, respectively, and was $67$403 million and $205$464 million for the three and ninesix months ended SeptemberJune 30, 2015,2016, respectively. Franchises, goodwill and customer relationships preliminarily increased by $60.2 billion, $29.0 billion and $15.7 billion, respectively, as a result of the Transactions. See Note 2.
    
The Company expects amortization expense on its finite-lived intangible assets will be as follows:

Three months ended December 31, 2016 $741
2017 2,773
Six months ended December 31, 2017 $1,327
2018 2,488
 2,468
2019 2,201
 2,185
2020 1,906
 1,894
2021 1,609
Thereafter 5,845
 4,250
 $15,954
 $13,733

Actual amortization expense in future periods will differ from these estimates as a result of new intangible asset acquisitions or divestitures, changes in useful lives, purchase accounting adjustments, impairments and other relevant factors.

5.    Investments

In connection with the Transactions, the Company acquired approximately $508 million of Legacy TWC and Legacy Bright House equity-method and cost-method investments, which were adjusted to fair value as a result of applying acquisition accounting. The equity-method investments acquired and related ownership percentages as of September 30, 2016 include Sterling Entertainment Enterprises, LLC (“Sterling” - d/b/a SportsNet New York - 26.8% owned), MLB Network, LLC (“MLB Network” - 6.4% owned), iN Demand L.L.C. (“iN Demand” - 39.8% owned) and National Cable Communications LLC (“NCC” - 20.0% owned), among other less significant equity-method and cost-method investments acquired. Sterling and MLB Network are primarily engaged in the development of sports programming services. iN Demand provides programming on a video on demand, pay-per-view and subscription basis. NCC represents multi-video program distributors to advertisers.



13


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)


The Company applies the equity method of accounting to these and other less significant equity-method investments, all of which are recorded in other noncurrent assets in the consolidated balance sheets as of September 30, 2016 and December 31, 2015. For each of the three and nine months ended September 30, 2016, net losses from equity-method investments were $2 million which were recorded in other expense, net in the consolidated statements of operations, and for both the three and nine months ended September 31, 2015, gains (losses) from equity-method investments were insignificant.

Noncontrolling interests assumed in the Transactions were recorded at fair value on the acquisition date and primarily relate to the third-party interest in CV of Viera, LLP, the Company’s consolidated joint venture in a small cable system in Florida. For both the three and nine months ended September 30, 2016, net income attributable to noncontrolling interest was $1 million.

In 2015, noncontrolling interest included the 2% accretion of the preferred membership interests in CC VIII, LLC (“CC VIII”) plus approximately 18.6% of CC VIII’s income, net of accretion. On December 31, 2015, the CC VIII preferred interest held by CCH I, LLC was contributed to CC VIII and subsequently canceled.

6.4.    Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consist of the following as of SeptemberJune 30, 20162017 and December 31, 20152016:

 September 30, 2016 December 31, 2015
    June 30, 2017 December 31, 2016
Accounts payable – trade $447
 $112
$538
 $416
Accrued capital expenditures 611
 296
Deferred revenue 346
 96
364
 352
Accrued liabilities:       
Programming costs1,985
 1,783
Labor699
 953
Capital expenditures1,308
 1,107
Interest 841
 167
984
 958
Programming costs 1,768
 451
Franchise-related fees 242
 65
Compensation 770
 118
Taxes and regulatory fees532
 529
Other 979
 171
917
 799
 $6,004
 $1,476
$7,327
 $6,897


148


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)


7.5.    Long-Term Debt

Long-term debt consists of the following as of SeptemberJune 30, 20162017 and December 31, 20152016:

September 30, 2016 December 31, 2015June 30, 2017 December 31, 2016
Principal Amount Accreted Value Principal Amount Accreted ValuePrincipal Amount Accreted Value Principal Amount Accreted Value
CCO Holdings, LLC:              
7.000% senior notes due January 15, 2019$
 $
 $600
 $594
7.375% senior notes due June 1, 2020
 
 750
 744
5.250% senior notes due March 15, 2021500
 496
 500
 496
$500
 $497
 $500
 $496
6.500% senior notes due April 30, 2021
 
 1,500
 1,487
6.625% senior notes due January 31, 2022750
 741
 750
 740

 
 750
 741
5.250% senior notes due September 30, 20221,250
 1,231
 1,250
 1,229
1,250
 1,233
 1,250
 1,232
5.125% senior notes due February 15, 20231,000
 991
 1,000
 990
1,000
 992
 1,000
 992
5.125% senior notes due May 1, 20231,150
 1,141
 1,150
 1,140
1,150
 1,142
 1,150
 1,141
5.750% senior notes due September 1, 2023500
 496
 500
 495
500
 496
 500
 496
5.750% senior notes due January 15, 20241,000
 991
 1,000
 990
1,000
 992
 1,000
 991
5.875% senior notes due April 1, 20241,700
 1,684
 
 
1,700
 1,686
 1,700
 1,685
5.375% senior notes due May 1, 2025750
 744
 750
 744
750
 745
 750
 744
5.750% senior notes due February 15, 20262,500
 2,459
 
 
2,500
 2,462
 2,500
 2,460
5.500% senior notes due May 1, 20261,500
 1,487
 
 
1,500
 1,488
 1,500
 1,487
5.875% senior notes due May 1, 2027800
 794
 800
 794
800
 794
 800
 794
5.125% senior notes due May 1, 20273,250
 3,214
 
 
Charter Communications Operating, LLC:              
3.579% senior notes due July 23, 20202,000
 1,982
 
 
2,000
 1,985
 2,000
 1,983
4.464% senior notes due July 23, 20223,000
 2,972
 
 
3,000
 2,975
 3,000
 2,973
4.908% senior notes due July 23, 20254,500
 4,457
 
 
4,500
 4,460
 4,500
 4,458
6.384% senior notes due October 23, 20352,000
 1,980
 
 
2,000
 1,981
 2,000
 1,980
6.484% senior notes due October 23, 20453,500
 3,466
 
 
3,500
 3,466
 3,500
 3,466
5.375% senior notes due May 1, 20471,250
 1,241
 
 
6.834% senior notes due October 23, 2055500
 495
 
 
500
 495
 500
 495
Credit facilities8,965
 8,863
 3,552
 3,502
8,817
 8,725
 8,916
 8,814
Time Warner Cable, LLC:              
5.850% senior notes due May 1, 20172,000
 2,050
 
 

 
 2,000
 2,028
6.750% senior notes due July 1, 20182,000
 2,157
 
 
2,000
 2,090
 2,000
 2,135
8.750% senior notes due February 14, 20191,250
 1,430
 
 
1,250
 1,374
 1,250
 1,412
8.250% senior notes due April 1, 20192,000
 2,292
 
 
2,000
 2,206
 2,000
 2,264
5.000% senior notes due February 1, 20201,500
 1,624
 
 
1,500
 1,597
 1,500
 1,615
4.125% senior notes due February 15, 2021700
 742
 
 
700
 735
 700
 739
4.000% senior notes due September 1, 20211,000
 1,059
 
 
1,000
 1,050
 1,000
 1,056
5.750% sterling senior notes due June 2, 2031 (a)
810
 879
 
 
814
 880
 770
 834
6.550% senior debentures due May 1, 20371,500
 1,693
 
 
1,500
 1,689
 1,500
 1,691
7.300% senior debentures due July 1, 20381,500
 1,797
 
 
1,500
 1,792
 1,500
 1,795
6.750% senior debentures due June 15, 20391,500
 1,731
 
 
1,500
 1,727
 1,500
 1,730
5.875% senior debentures due November 15, 20401,200
 1,259
 
 
1,200
 1,258
 1,200
 1,259
5.500% senior debentures due September 1, 20411,250
 1,258
 
 
1,250
 1,258
 1,250
 1,258
5.250% sterling senior notes due July 15, 2042 (b)
843
 811
 
 
847
 816
 800
 771
4.500% senior debentures due September 15, 20421,250
 1,135
 
 
1,250
 1,136
 1,250
 1,135
Time Warner Cable Enterprises LLC:       


159


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)


Time Warner Cable Enterprises LLC:       
8.375% senior debentures due March 15, 20231,000
 1,282
 
 
1,000
 1,253
 1,000
 1,273
8.375% senior debentures due July 15, 20331,000
 1,327
 
 
1,000
 1,318
 1,000
 1,324
Total debt60,168
 61,996
 14,102
 13,945
61,778
 63,248
 60,036
 61,747
Less current portion:              
5.850% senior notes due May 1, 20172,000
 2,050
 
 

 
 (2,000) (2,028)
Long-term debt$58,168
 $59,946
 $14,102
 $13,945
$61,778
 $63,248
 $58,036
 $59,719

(a) 
Principal amount includes £625 million valued at $810$814 million and $770 million as of SeptemberJune 30, 2017 and December 31, 2016, respectively, using the exchange rate at that date.the respective dates.
(b) 
Principal amount includes £650 million valued at $843$847 million and $800 million as of SeptemberJune 30, 2017 and December 31, 2016, respectively, using the exchange rate at that date.the respective dates.

The accreted values presented in the table above represent the principal amount of the debt less the original issue discount at the time of sale, deferred financing costs, and, (i) in regards to the Legacy TWC debt assumed, a fair value premium adjustmentadjustments as a result of applying acquisition accounting plus the accretion of those amounts to the balance sheet date and (ii) in regards to the fixed-rate British pound sterling denominated notes (the “Sterling Notes”), a remeasurement of the principal amount of the debt and any premium or discount into US dollars as of the balance sheet date. See Note 9. However, the amount that is currently payable if the debt becomes immediately due is equal to the principal amount of the debt. In regards to the fixed-rate British pound sterling denominated notes (the “Sterling Notes”), the principal amount of the debt and any premium or discount into US dollars is remeasured as of each balance sheet date. See Note 7. The Company has availability under the Charter Operating credit facilities of approximately $2.8 billion as of SeptemberJune 30, 20162017.

As discussed in Note 2, upon consummation of the Transactions, CCOH Safari merged into CCO Holdings and CCO Safari II and CCO Safari III merged into Charter Operating and, as a result, the Company assumed $21.8 billion aggregate principal amount of debt. During the three and nine months ended September 30, 2015, Charter incurred interest expense on this debt of approximately $163 million and $275 million, respectively.

CCO Holdings

In February 2016, CCO Holdings and CCO Holdings Capital Corp. ("CCO Holdings Capital") jointly issued $1.7 billion aggregate principal amount of 5.875% senior notes due 2024 (the “2024 Notes”) and, in April 2016, they issued $1.5 billion aggregate principal amount of 5.500% senior notes due 2026 (the “2026 Notes”) at a price of 100.075% of the aggregate principal amount. The net proceeds from both issuances were used to repurchase all of CCO Holdings’ 7.000% senior notes due 2019, 7.375% senior notes due 2020 and 6.500% senior notes due 2021 and to pay related fees and expenses and for general corporate purposes. These debt repurchases resulted in a loss on extinguishment of debt of $110 million for the ninethree and six months ended SeptemberJune 30, 2016.

In February 2017, CCO Holdings and CCO Holdings Capital jointly issued $1.0 billion aggregate principal amount of 5.125% senior notes due May 1, 2027. The 2024net proceeds were used to redeem CCO Holdings’ 6.625% senior notes due 2022, pay related fees and expenses and for general corporate purposes. The Company recorded a loss on extinguishment of debt of $33 million for the six months ended June 30, 2017 related to these transactions.

In March 2017, CCO Holdings and CCO Holdings Capital jointly issued an additional $1.0 billion aggregate principal amount of 5.125% senior notes due May 1, 2027 at a price of 99.0% of the aggregate principal amount. The net proceeds, as well as cash on hand, were used in April 2017 to redeem Time Warner Cable, LLC's 5.850% senior notes due 2017, pay related fees and expenses and for general corporate purposes. The Company recorded a loss on extinguishment of debt of $1 million for the three and six months ended June 30, 2017 related to these transactions.

In April 2017, CCO Holdings and CCO Holdings Capital jointly issued an additional $1.25 billion aggregate principal amount of 5.125% senior notes due May 1, 2027 (the "April CCOH Notes" and together with the notes issued in February and March 2017 described above, the "Notes") at a price of 100.5% of the aggregate principal amount. The net proceeds, along with the net proceeds from the Charter Operating Notes described below, were used to pay related fees and 2026expenses and for general corporate purposes, including to fund buybacks of Charter Class A common stock or Charter Holdings common units.

The Notes are senior debt obligations of CCO Holdings and CCO Holdings Capital and rank equally with all other current and future unsecured, unsubordinated obligations of CCO Holdings and CCO Holdings Capital. They are structurally subordinated to all obligations of subsidiaries of CCO Holdings.

CCO Holdings may redeem some or all of the 2024 Notes and 2026 Notes at any time withat a make-whole premium. Beginning in 2019 for the 2024 notes and 2021 for the 2026 notes,2025, the optional redemption price declines to 100% of the respective series’ principal amount, plus accrued and unpaid interest, if any.



10


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)


In addition, at any time prior to April 1, 2019 in regards to the 2024 Notes and May 1, 2019 in regards to the 2026 Notes,2020, CCO Holdings may redeem up to 40% of the aggregate principal amount of the 2024 Notes and 2026 Notes at a premium plus accrued and unpaid interest to the redemption date, with the net cash proceeds of one or more equity offerings (as defined in the indenture); provided that certain conditions are met. In the event of specified change of control events, CCO Holdings must offer to purchase the outstanding CCO Holdings notesNotes from the holders at a purchase price equal to 101% of the total principal amount of the notes,Notes, plus any accrued and unpaid interest.

In April 2015, CCO Holdings and CCO Holdings Capital closed on transactions in which they issued $1.15 billion aggregate principal amount of 5.125% senior unsecured notes due 2023 (the “2023 Notes”), $750 million aggregate principal amount of 5.375% senior unsecured notes due 2025 (the “2025 Notes”) and $800 million aggregate principal amount of 5.875% senior unsecured notes due 2027 (the “2027 Notes” and collectively, the “Notes”). The net proceeds from the issuance of the 2023 Notes


16


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)


and 2025 Notes were used to finance tender offers and a subsequent call in which $1.0 billion aggregate principal amount of CCO Holdings’ outstanding 7.250% senior notes due 2017 and $700 million aggregate principal amount of CCO Holdings’ outstanding 8.125% senior notes due 2020 were repurchased, as well as for general corporate purposes. The net proceeds from the issuance of the 2027 Notes were used to call $800 million of the $1.4 billion aggregate principal amount of CCO Holdings’ outstanding 7.000% senior notes due 2019. These debt repurchases resulted in a loss on extinguishment of debt of $123 million for the nine months ended September 30, 2015.

The Company also recorded a loss on extinguishment of debt of approximately $3 million for the nine months ended September 30, 2015 as a result of the repayment of debt upon termination of the proposed transactions with Comcast Corporation (“Comcast”).

Charter Operating

In connection with the closing of the TWC Transaction,January 2017, Charter Operating replacedentered into an amendment to its existing revolving credit facility with a new $3.0 billion senior secured revolving credit facility under Charter Operating’s Amended and Restated Credit Agreement dated May 18, 2016 (the “Credit Agreement”). As decreasing the applicable LIBOR margin on both the term loan E and term loan F to 2.00% and eliminating the LIBOR floor. The Company recorded a loss on extinguishment of Septemberdebt of $1 million for the six months ended June 30, 2016, $220 million of the revolving credit facility was utilized2017 related to collateralize $325 million of letters of credit issued on the Company’s behalf. these transactions.

In connection with the closing of the Bright House Transaction,April 2017, Charter Operating closed on a $2.6 billion aggregate principal amount Term Loan A pursuant to the terms of the Credit Agreement of which $2.0 billion was used to fund the cash portion of the Bright House Transaction and of which $638 million was used to prepay and terminate Charter Operating’s existing Term A-1 Loans. Interest on Term Loan A was set at LIBOR plus 2%. As of September 30, 2016, the aggregate principal amount of Charter Operating’s credit facilities was $9.0 billion, which includes $3.8Communications Operating Capital Corp. jointly issued $1.25 billion aggregate principal amount of CCO Safari III credit facilities that became obligations5.375% senior secured notes due May 1, 2047 at a price of 99.968% of the aggregate principal amount. The net proceeds, along with the net proceeds from the April CCOH Notes described above, were used to pay related fees and expenses and for general corporate purposes, including to fund buybacks of Charter Class A common stock or Charter Holdings common units.

In July 2017, Charter Operating upon the closingand Charter Communications Operating Capital Corp. jointly issued $1.0 billion aggregate principal amount of 3.750% senior notes due February 15, 2028 at a price of 99.166% of the TWC Transaction.aggregate principal amount and an additional $500 million aggregate principal amount of 5.375% senior secured notes due May 1, 2047 at a price of 106.529% of the aggregate principal amount (collectively together with the notes issued in April 2017 described above, the "Charter Operating Notes"). The net proceeds will be used to pay related fees and expenses and for general corporate purposes, including to fund potential buybacks of Charter Class A common stock or Charter Holdings common units.

The Credit Agreement and the Charter Operating senior notesNotes are guaranteed by CCO Holdings, TWC,Time Warner Cable, LLC, (as defined below), TWCE (as defined below)Time Warner Cable Enterprises LLC and substantially all of the operating subsidiaries of Charter Operating. In addition, the Charter Operating (collectively, the “Subsidiary Guarantors”). Term Loan A and borrowings under the incremental revolving credit facilityNotes are secured by a perfected first priority security interest in substantially all of the assets of Charter Operating andto the Subsidiary Guarantors, subject to certain customary exceptions andextent such liens can be perfected under the Uniform Commercial Code by the filing of a financing statement. The liens rank equally with the liens on the collateral securing obligations under the Charter Operating notes and credit facilities and continue to exist as long as the Time Warner Cable, LLC (the successor to Legacy TWC outstanding debt obligations, “TWC, LLC”) senior notes and debentures and the Time Warner Cable Enterprises LLC (“TWCE”) senior debentures assumed in the TWC Transaction.

Assumed Legacy TWC Indebtedness

The Company assumed approximately $22.4 billion in aggregate principal amount of TWC, LLC senior notes and debentures and TWCE senior debentures with varying maturities. The Company applied acquisition accounting to Legacy TWC, and as a result, the debt assumed was adjusted to fair value using quoted market values as of the closing date. This fair value adjustment resulted in recognition of a net debt premium of approximately $2.4 billion.

TWC, LLC Senior Notes and Debentures

The TWC, LLC senior notes and debentures are guaranteed by CCO Holdings,liens securing such facilities exist. Charter Operating TWCE and the Subsidiary Guarantors and rank equally with the liens on the collateral securing obligations undermay redeem some or all of the Charter Operating notes and credit facilities. Interest on each series of TWC, LLC senior notes and debentures is payable semi-annually (with the exception of the Sterling Notes, which is payable annually) in arrears. 

The TWC, LLC indenture contains customary covenants relating to restrictions on the ability of TWC, LLC or any material subsidiary to create liens and on the ability of TWC, LLC and TWCE to consolidate, merge or convey or transfer substantially all of their assets. The TWC, LLC indenture also contains customary events of default.

The TWC, LLC senior notes and debentures may be redeemed in whole or in part at any time at TWC, LLC’s option at a redemption price equal to the greater of (i) all of the applicable principal amount being redeemed and (ii) the sum of the present values of the remaining scheduled payments on the applicable TWC, LLC senior notes and debentures discounted to the redemption date on a semi-annual basis (with the exception of the Sterling Notes, which are on an annual basis), at a comparable government bond rate


17


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)


plus a designated number of basis points as further described in the indenture and the applicable note or debenture, plus, in each case, accrued but unpaid interest to, but not including, the redemption date.

The Company may offer to redeem all, but not less than all, of the Sterling Notes in the event of certain changes in the tax laws of the U.S. (or any taxing authority in the U.S.). This redemption would be at a redemption price equal to 100% of the principal amount, together with accrued and unpaid interest on the Sterling Notes to, but not including, the redemption date.

TWCE Senior Debentures

The TWCE senior debentures are guaranteed by CCO Holdings, Charter Operating, TWC, LLC and the Subsidiary Guarantors and rank equally with the liens on the collateral securing obligations under the Charter Operating notes and credit facilities. Interest on each series of TWCE senior debentures is payable semi-annually in arrears. The TWCE senior debentures are not redeemable before maturity.

The TWCE indenture contains customary covenants relating to restrictions on the ability of TWCE or any material subsidiary to create liens and on the ability of TWC, LLC and TWCE to consolidate, merge or convey or transfer substantially all of their assets. The TWCE indenture also contains customary events of default.

Liquidity and Future Principal Payments

The Company continues to have significant amounts of debt, and its business requires significant cash to fund principal and interest payments on its debt, capital expenditures and ongoing operations. As set forth below, the Company has significant future principal payments. The Company continues to monitor the capital markets, and it expects to undertake refinancing transactions and utilize free cash flow and cash on hand to further extend or reduce the maturities of its principal obligations. The timing and terms of any refinancing transactions will be subject to market conditions.

Based on outstanding indebtedness as of September 30, 2016, the amortization of term loans, and the maturity dates for all senior and subordinated notes and debentures, total future principal payments on the total borrowings under all debt agreements as of September 30, 2016 are as follows:

Year Amount
   
Three months ended December 31, 2016 $49
2017 2,197
2018 2,197
2019 3,546
2020 5,216
Thereafter 46,963
   
  $60,168
premium.

8.6.    Loans Receivable (Payable) - Related Party

Loans payable - related party as of SeptemberJune 30, 2017 and December 31, 2016 consists of loans from Charter Communications Holdings Company, LLC (“Charter Holdco”) to the Company of $655 million and $640 million, respectively. Loans payable - related party as of June 30, 2017 also includes a loan from Charter to the Company of $178 million. Interest accrues on loans payable - related party at LIBOR plus 2%1.75%.

Loans receivable - related party as of December 31, 2015 consists of loans from the Company to CCOH Safari II, LLC, CCOH Safari, CCO Safari II and CCO Safari III of $96 million, $34 million, $508 million and $55 million, respectively, which were settled with the Company upon the merger of the Safari Escrow Entities into the Company. Loans payable-related party as of December 31, 2015 consists of loans from Charter Holdco and CCH II, LLC to the Company of $48 million and $285 million, respectively.



18


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)


9.7.     Accounting for Derivative Instruments and Hedging Activities

The Company uses derivative instruments to manage interest rate risk on variable debt and foreign exchange risk on the Sterling Notes, and does not hold or issue derivative instruments for speculative trading purposes.

Interest rate derivative instruments are used to manage interest costs and to reduce the Company’s exposure to increases in floating interest rates. The Company manages its exposure to fluctuations in interest rates by maintaining a mix of fixed and variable rate debt. Using interest rate derivative instruments, the Company agrees to exchange, at specified intervals through 2017, the difference between fixed and variable interest amounts calculated by reference to agreed-upon notional principal amounts. As of SeptemberJune 30, 20162017 and December 31, 2015,2016, the Company had $1.1 billion$850 million in notional amounts of interest rate derivative instruments outstanding. The notional amounts of interest rate derivative instruments do not represent amounts exchanged by the parties and, thus, are not a measure of exposure to credit loss. The amounts exchanged were determined by reference to the notional amount and the other terms of the contracts.

Upon closing of the TWC Transaction, the Company acquired interest rate derivative instrument assets with a fair value of $85 million (excluding accrued interest), which were terminated and settled with their respective counterparties

11


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in the second quarter of 2016 with an $88 million cash payment to the Company of which $14 million was for interest accrued through the date of termination. The termination resulted in an $11 million loss for the nine months ended September 30, 2016 which was recorded in gain (loss) on financial instruments, net in the consolidated statements of operations.millions except where indicated)


Upon closing of the TWC Transaction, the Company assumed cross-currency derivative instrument liabilities with a fair value of $72 million (excluding accrued interest). Cross-currency derivative instruments are used to effectively convert £1.275 billion aggregate principal amount of fixed-rate British pound sterling denominated debt, including annual interest payments and the payment of principal at maturity, to fixed-rate U.S. dollar denominated debt. The cross-currency swaps have maturities of June 2031 and July 2042. The Company is required to post collateral on the cross-currency derivative instruments when the derivative contracts are in a liability position. In May 2016, the Company entered into a collateral holiday agreement for 80% of both the 2031 and 2042 cross-currency swaps, which eliminates the requirement to post collateral for three years.

The effect of derivative instruments on the consolidated balance sheets is presented in the table below:

September 30, 2016 December 31, 2015
   June 30, 2017 December 31, 2016
Interest Rate Derivatives      
Accrued interest$1
 $3
$1
 $5
Other long-term liabilities$7
 $10
Accumulated other comprehensive loss$(7) $(13)$(2) $(5)
      
Cross-Currency Derivatives      
Other long-term liabilities$240
 $
$193
 $251

The Company’s interest rate and cross-currency derivative instruments are not designated as hedges and are marked to fair value each period, with the impact recorded as a gain or loss on financial instruments, net in the consolidated statements of operations. While these derivative instruments are not designated as cash flow hedges for accounting purposes, management continues to believe such instruments are closely correlated with the respective debt, thus managing associated risk.


19


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)



The effect of financial instruments on the consolidated statements of operations is presented in the table below.
Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended June 30, Six Months Ended June 30,
2016 2015 2016 20152017 2016 2017 2016
       
Gain (loss) on Financial Instruments, Net:       
Loss on Financial Instruments, Net:       
Change in fair value of interest rate derivative instruments$7
 $(3) $5
 $(3)$2
 $1
 $4
 $(2)
Change in fair value of cross-currency derivative instruments17
 
 (168) 
(7) (185) 58
 (185)
Remeasurement of Sterling Notes to U.S. dollars49
 
 196
 
Termination of interest rate derivative instruments
 
 (11) 
Foreign currency remeasurement of Sterling Notes to U.S. dollars(63) 147
 (91) 147
Loss on termination of interest rate derivative instruments
 (11) 
 (11)
Loss reclassified from accumulated other comprehensive loss due to discontinuance of hedge accounting(2) (2) (6) (7)(2) (2) (3) (4)
$71
 $(5) $16
 $(10)$(70) $(50) $(32) $(55)

10.8.    Fair Value Measurements

The accounting guidance establishes a three-level hierarchy for disclosure of fair value measurements, based on the transparency of inputs to the valuation of an asset or liability as of the measurement date, as follows:

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.



12


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)


Financial Assets and Liabilities

The Company has estimated the fair value of its financial instruments as of SeptemberJune 30, 20162017 and December 31, 20152016 using available market information or other appropriate valuation methodologies. Considerable judgment, however, is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented in the accompanying consolidated financial statements are not necessarily indicative of the amounts the Company would realize in a current market exchange.

The carrying amounts of cash and cash equivalents, receivables, payables and other current assets and liabilities approximate fair value because of the short maturity of those instruments.

TheA portion of the Company’s cash and cash equivalents as of SeptemberJune 30, 2017 and December 31, 2016 were primarily invested in money market funds. MoneyThe money market funds are valued at the closing price reported by the fund sponsor from an actively traded exchange which approximates fair value. The money market funds potentially subject the Company to concentration of credit risk. The amount invested within any one financial instrument did not exceed $150 million and $250 million as of SeptemberJune 30, 2016.2017 and December 31, 2016, respectively. As of SeptemberJune 30, 2017 and December 31, 2016, there were no significant concentrations of financial instruments in a single investee, industry or geographic location.

Interest rate derivative instruments are valued using a present value calculation based on an implied forward LIBOR curve (adjusted for Charter Operating’s and counterparties’ credit risk). The weighted average pay rate for the Company’s currently effective interest rate derivative instruments was 1.61%1.59% at SeptemberJune 30, 20162017 and December 31, 20152016 (exclusive of applicable spreads). The cross-currency derivative instruments are valued using a present value calculation based on expected forward interest and exchange rates (adjusted for Charter Operating’s and counterparties’ credit risk).



20


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)


Financial instruments accounted for at fair value on a recurring basis are presented in the table below.

 September 30, 2016 December 31, 2015
 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3June 30, 2017 December 31, 2016
            Level 1 Level 2 Level 1 Level 2
Assets                   
Money market funds $480
 $
 $
 $
 $
 $
$1
 $
 $1,003
 $
                   
Liabilities                   
Interest rate derivative instruments $
 $8
 $
 $
 $13
 $
$
 $1
 $
 $5
Cross-currency derivative instruments $
 $240
 $
 $
 $
 $
$
 $193
 $
 $251

A summary of the carrying value and fair value of debt as of SeptemberJune 30, 20162017 and December 31, 20152016 is as follows:

 September 30, 2016 December 31, 2015
 Carrying Value Fair Value Carrying Value Fair Value June 30, 2017 December 31, 2016
         Carrying Value Fair Value Carrying Value Fair Value
Senior notes and debentures $53,133
 $56,899
 $10,443
 $10,718
 $54,523
 $58,470
 $52,933
 $55,203
Credit facilities $8,863
 $8,975
 $3,502
 $3,500
 $8,725
 $8,836
 $8,814
 $8,943

The estimated fair value of the Company’s senior notes and debentures as of SeptemberJune 30, 20162017 and December 31, 20152016 is based on quoted market prices in active markets and is classified within Level 1 of the valuation hierarchy, while the estimated fair value of the Company’s credit facilities is based on quoted market prices in inactive markets and is classified within Level 2.



13


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)


Nonfinancial Assets and Liabilities

The Company’s nonfinancial assets such as equity-method investments, franchises, property, plant, and equipment, and other intangible assets are not measured at fair value on a recurring basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence that an impairment may exist.  No material impairments were recorded during the three and ninesix months ended SeptemberJune 30, 20162017 and 20152016. Upon closing of the Transactions, all of Legacy TWC and Legacy Bright House nonfinancial assets and liabilities were recorded at preliminary fair values. See Note 2.

11.9.     Operating Costs and Expenses

Operating costs and expenses, exclusive of items shown separately in the consolidated statements of operations, consist of the following for the periods presented:

 Three Months Ended September 30, Nine Months Ended September 30,
 2016 2015 2016 2015
        
Programming$2,404
 $667
 $4,648
 $2,004
Regulatory, connectivity and produced content508
 108
 936
 324
Costs to service customers1,825
 438
 3,329
 1,285
Marketing591
 163
 1,134
 474
Transition costs32
 12
 78
 50
Other1,130
 232
 2,048
 665
 $6,490
 $1,620
 $12,173
 $4,802


21


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)


 Three Months Ended June 30, Six Months Ended June 30,
 2017 2016 2017 2016
Programming$2,649
 $1,541
 $5,253
 $2,244
Regulatory, connectivity and produced content532
 317
 1,030
 429
Costs to service customers1,907
 1,189
 3,855
 1,647
Marketing601
 382
 1,183
 547
Transition costs30
 25
 81
 46
Other863
 558
 1,764
 770
 $6,582
 $4,012
 $13,166
 $5,683

Programming costs consist primarily of costs paid to programmers for basic, premium, digital, video on demand, and pay-per-view programming. Regulatory, connectivity and produced content costs represent payments to franchise and regulatory authorities, costs directly related to providing video, Internet and voice services as well as payments for sports, local and news content produced by the Company. Included in regulatory, connectivity and produced content costs is content acquisition costs for the Los Angeles Lakers’ basketball games and Los Angeles Dodgers’ baseball games which are recorded as games are exhibited over the applicable season. Costs to service customers include costs related to field operations, network operations and customer care for the Company’s residential and small and medium business customers, including internal and third-party labor for installations, service and repairs, maintenance, bad debt expense, billing and collection, occupancy and vehicle costs. Marketing costs represent the costs of marketing to current and potential commercial and residential customers including labor costs. Transition costs represent incremental costs incurred to integrate the TWC and Bright House operations and to increase the scale of the Company’s business as a result of the Transactions. See Note 2. Other includes bad debt expense, corporate overhead, advertising sales expense,expenses, indirect costs associated with the Company’s enterprise business customers and regional sports and news networks, property tax expense,and insurance expense and stock compensation expense, among others.
 
12.10.     Other Operating Expenses, Net

Other operating expenses, net consist of the following for the periods presented:

Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015Three Months Ended June 30, Six Months Ended June 30,
       2017 2016 2017 2016
Merger and restructuring costs$205
 $19
 $513
 $51
$131
 $294
 $226
 $308
Other pension benefits(13) 
 (533) 
Special charges, net4
 1
 10
 13
4
 2
 6
 6
(Gain) loss on sale of assets, net(3) (1) (10) 5
Gain on sale of assets, net
 (7) (3) (7)
$193
 $19
 $(20) $69
$135
 $289
 $229
 $307



14


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)


Merger and restructuring costs

Merger and restructuring costs represent costs incurred in connection with merger and acquisition transactions and related restructuring, such as advisory, legal and accounting fees, employee retention costs, employee termination costs related to the Transactions and other exit costs. The Company expects to incur additional merger and restructuring costs in connection with the Transactions. Changes in accruals for merger and restructuring costs from December 31, 20152016 through SeptemberJune 30, 20162017 are presented below:

Employee Retention Costs Employee Termination Costs Transaction and Advisory Costs Other Costs Total
         Employee Retention Costs Employee Termination Costs Transaction and Advisory Costs Other Costs Total
Liability, December 31, 2015$
 $
 $33
 $
 $33
$
 $
 $33
 $
 $33
Liability assumed in the Transactions80
 9
 3
 
 92
80
 9
 3
 
 92
Costs incurred20
 219
 62
 10
 311
26
 337
 318
 41
 722
Cash paid(91) (40) (68) (10) (209)(99) (102) (329) (41) (571)
Remaining liability, September 30, 2016$9
 $188
 $30
 $
 $227
Remaining liability, December 31, 20167
 244
 25
 
 276
         
Costs incurred3
 150
 3
 33
 189
Cash paid(9) (194) (5) (33) (241)
Remaining liability, June 30, 2017$1
 $200
 $23
 $
 $224

In addition to the costs incurred indicated above, the Company recorded $57$20 million and $202$37 million of expense related to accelerated vesting of equity awards of terminated employees forduring the three and ninesix months ended SeptemberJune 30, 2016, respectively.

Other pension benefits

Other pension benefits include2017, respectively, and $145 million during each of the pension curtailment gain, remeasurement loss, net, expected return on plan assetsthree and interest cost components of net periodic pension cost (benefit). See Note 17.


22


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)


six months ended June 30, 2016.

Special charges, net

Special charges, net primarily includes employee termination costs not related to the Transactions and net amounts of litigation settlements.

(Gain) lossGain on sale of assets, net

(Gain) lossGain on sale of assets, net represents the net (gain) lossgain recognized on the sales and disposals of fixed assets and cable systems.

13.11.    Income Taxes

CCO Holdings is a single member limited liability company not subject to income tax. CCO Holdings holds all operations through indirect subsidiaries. The majority of these indirect subsidiaries are limited liability companies that are not subject to income tax. Certain indirect subsidiaries that are required to file separate returns are subject to federal and state tax. CCO Holdings’ tax provision reflects the tax provision of the entities required to file separate returns.

Generally, the taxable income, gains, losses, deductions and credits of CCO Holdings are passed through to its indirect members, Charter and A/N. Charter is responsible for its share of taxable income or loss of CCO Holdings allocated to it in accordance with the CCHCharter Holdings Limited Liability Company Agreement (“LLC Agreement”) and partnership tax rules and regulations. Charter also records financial statement deferred tax assets and liabilities related to its investment, and its underlying net assets, in CCO Holdings.

For the three and six months ended SeptemberJune 30, 2016,2017, the Company recorded income tax expense of $10 million and $29 million, respectively, and $7 million for each of income tax benefit and for the three and ninesix months ended SeptemberJune 30, 2015, the Company recorded $219 million and $212 million of income tax benefit, respectively.2016. Income tax benefit for the nine months ended September 30, 2016 was insignificant. Income taxexpense is generally recognized primarily through decreases (increases)increases in deferred tax liabilities as well as through current federal and state income tax expense. Income tax benefit for the three and nine months ended September 30, 2015 was primarily the result of the deemed liquidation of Charter Holdco in July 2015. After the deemed liquidation of Charter Holdco, all taxable income, gains, losses, deductions and credits of Charter Holdco and its indirect subsidiaries were treated as income of Charter. The tax provision in future periods will vary based on future operating results, as well as future book versus tax differences.

In determining the Company’s tax provision for financial reporting purposes, the Company establishes a reserve for uncertain tax positions unless such positions are determined to be “more likely than not” of being sustained upon examination, based on their


15


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)


technical merits. There is considerable judgment involved in making such a determination. In connection with the TWC Transaction, CCO Holdings assumed $218 million of grossThe Company has recorded unrecognized tax benefits (net of return to provision adjustments), includingtotaling approximately $157 million and $159 million, excluding interest and penalties, which are recorded within other long-term liabilities.as of June 30, 2017 and December 31, 2016, respectively. The net amount of the unrecognized tax benefits that would impact the effective tax rate is $215 million. CCO HoldingsCompany does not currently anticipate that its reserve for uncertain tax positions will significantly increase or decrease during 2016;2017; however, various events could cause the Company’s current expectations to change in the future. These uncertain tax positions, if ever recognized in the financial statements, would be recorded in the consolidated statements of operations as part of the income tax provision.

No tax years for Charter, Charter Holdings, or Charter Communications Holding Company, LLC,Holdco, the Company’s indirect parent companies, for income tax purposes, are currently under examination by the IRS. Legacy Charter’s tax years ending 2013 through the short period return dated May 17, 2016 remain subject to examination and assessment. Years prior to 2013 remain open solely for purposes of examination of Legacy Charter’s loss and credit carryforwards. The IRS is currently examining Legacy TWC’s income tax returns for 2011 and 2012.through 2014. Legacy TWC’s tax years ending 2013 throughyear 2015 remainremains subject to examination and assessment. Prior to Legacy TWC’s separation from Time Warner Inc. (“Time Warner”) in March 2009 (the “Separation”), Legacy TWC was included in the consolidated U.S. federal and certain state income tax returns of Time Warner. The IRS is currently examining Time Warner’s 2008 through 2010 income tax returns. Time Warner’s income tax returns for 2005 to 2007, which are periods prior to the separation,Separation, were settled with the exception of an immaterial item that has been referred to the IRS Appeals Division. The Company does not anticipate that these examinations will have a material impact on the Company’s consolidated financial position or results of operations. In addition, the Company is also subject to ongoing examinations of the Company’s tax returns by state and local tax authorities for various periods. Activity related to these state and local examinations did not have a


23


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)


material impact on the Company’s consolidated financial position or results of operations in 2015,during the three and six months ended June 30, 2017, nor does the Company anticipate a material impact in the future.

14.12.     Related Party Transactions

On May 23, 2015, in connection with the execution of the Merger Agreement and the amendment of the Contribution Agreement, Charter entered into the Amended and Restated Stockholders Agreement with Liberty Broadband, A/N and Legacy Charter (the “Stockholders Agreement”). and the LLC Agreement with Liberty Broadband and A/N. As of the closing of the Merger Agreement and the Contribution Agreement on May 18, 2016, the Stockholders Agreement replaced Legacy Charter’s existing stockholders agreement with Liberty Broadband, dated September 29, 2014, and superseded the amended and restated stockholders agreement among Legacy Charter, Charter, Liberty Broadband and A/N, dated March 31, 2015.

Under the terms of the Stockholders Agreement, the number of Charter’s directors is fixed at 13, and includes its chief executive officer.CEO. Upon the closing of the Bright House Transaction, two designees selected by A/N became members of the board of directors of Charter and three designees selected by Liberty Broadband continued as members of the board of directors of Charter. The remaining eight directors are not affiliated with either A/N or Liberty Broadband. Each of A/N and Liberty Broadband is entitled to nominate at least one director to each of the committees of Charter’s board of directors, subject to applicable stock exchange listing rules and certain specified voting or equity ownership thresholds for each of A/N and Liberty Broadband, and provided that the Nominating and Corporate Governance Committee and the Compensation and Benefit Committee each have at least a majority of directors independent from A/N, Liberty Broadband and the Company (referred to as the “unaffiliated directors”). Each of the Nominating and Corporate Governance Committee and the Compensation and Benefits Committee is currently comprised of three unaffiliated directors includingand one designee of each of A/N and Liberty Broadband. A/N and Liberty Broadband also have certain other committee designation and other governance rights. Upon the closing of the Bright House Transaction, Mr. Thomas Rutledge, the Company’s Chief Executive Officer (“CEO”),CEO, became the chairman of the board of Charter.

In December 2016, Charter and A/N entered into a letter agreement (the "Letter Agreement") that requires A/N to sell to Charter or to Charter Holdings, on a monthly basis, a number of shares of Charter Class A common stock or Charter Holdings common units that represents a pro rata participation by A/N and its affiliates in any repurchases of shares of Charter Class A common stock from persons other than A/N effected by Charter during the immediately preceding calendar month, at a purchase price equal to the average price paid by Charter for the shares repurchased from persons other than A/N during such immediately preceding calendar month. A/N and Charter both have the right to terminate or suspend the pro rata repurchase arrangement on a prospective basis once Charter or Charter Holdings have repurchased shares of Class A common stock or Charter Holdings common units from A/N and its affiliates for an aggregate purchase price of $537 million which threshold has been reached.

The Company is aware that Dr. John Malone may be deemed to have a 36.4%37.9% voting interest in Liberty Interactive and is Chairman of the board of directors, an executive officer position, of Liberty Interactive. Liberty Interactive owns 38.3%38.2% of the common


16


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)


stock of HSN, Inc. (“HSN”) and has the right to elect 20% of the board members of HSN. Liberty Interactive wholly owns QVC, Inc. (“QVC”). The Company has programming relationships with HSN and QVC which pre-date the transaction with Liberty Media.Media Corporation. For the three and ninesix months ended SeptemberJune 30, 2017, the Company recorded payments in aggregate of approximately $16 million and $33 million, respectively, and for the three and six months ended June 30, 2016, the Company recorded payments in aggregate of approximately $18$11 million and $33 million, respectively, and for the three and nine months ended September 30, 2015, the Company recorded payments in aggregate of approximately $4 million and $12$15 million, respectively, from HSN and QVC as part of channel carriage fees and revenue sharing arrangements for home shopping sales made to customers in the Company’s footprint.

Dr. Malone and Mr. Steven Miron, each a member of Charter’s board of directors, also serve on the board of directors of Discovery Communications, Inc., (“Discovery”) and the Company is aware that Dr. Malone owns 4.9%5.1% in the aggregate of the common stock of Discovery and has a 28.6%28.2% voting interest in Discovery for the election of directors. The Company is aware that Advance/Newhouse Programming Partnership (“A/N PP”), an affiliate of A/N and in which Mr. Miron is the CEO, owns 100% of the Series A preferred stock of Discovery and 100% of the Series C preferred stock of Discovery, representing approximately 34.0%34.6% of the outstanding equity of Discovery’s stock, on an as-converted basis. A/N PP has the right to appoint three directors out of a total of teneleven directors to Discovery’s board to be elected by the holders of Discovery’s Series A preferred stock. In addition, Dr. Malone is a member of the board of directors of Lions Gate Entertainment Corp. ("Lions Gate", parent company of Starz, Inc.) and owns approximately 6.4%5.9% in the aggregate of the common stock of StarzLions Gate and has 48.1%8.1% of the voting power, pursuant to certain irrevocable proxies granted by Lions Gate Entertainment Corp. and his ownership of common stock. Mr. Gregory Maffei, a member of Charter’s board of directors, is a non-executive Chairman of the board of Starz.Lions Gate Class A voting shares. The Company purchases programming from both Discovery and StarzLions Gate pursuant to agreements entered into prior to Dr. Malone Mr. Maffei and Mr. Miron joining Charter’s board of directors. Based on publicly available information, the Company does not believe that either Discovery or StarzLions Gate would currently be considered related parties. The amounts paid in the aggregate to Discovery and StarzLions Gate represent less than 3% of total operating costs and expenses for the three and ninesix months ended SeptemberJune 30, 20162017 and 2015.2016.

The Company hasand its parent companies have agreements with certain equity-method investees (see Note 5) pursuant to which the Company has made or received related party transaction payments. The Company and its parent companies recorded payments to equity-method investees totaling $62$78 million and $94$146 million during the three and ninesix months ended SeptemberJune 30, 2017, respectively, and $37 million and $41 million during the three and six months ended June 30, 2016, respectively. The Company recorded advertising revenues from transactions with equity-method investees totaling $3 million and $4$5 million during the three and ninesix months ended SeptemberJune 30, 2016, respectively.2017, respectively, and $1 million during each of the three and six months ended June 30, 2016.



24


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)


15.13.     Commitments and Contingencies

Commitments

The following table summarizes the Company’s payment obligations as of September 30, 2016 for its contractual obligations.

 Capital and Operating Lease Obligations (1) Programming Minimum Commitments (2) Other (3) Total
        
Three months ended December 31, 2016$82
 $58
 $291
 $431
2017240
 223
 851
 1,314
2018210
 35
 773
 1,018
2019167
 24
 657
 848
2020128
 15
 654
 797
Thereafter505
 
 10,105
 10,610
 $1,332
 $355
 $13,331
 $15,018

(1) The Company leases certain facilities and equipment under non-cancelable capital and operating leases. Leases and rental costs charged to expense for the three months ended September 30, 2016 and 2015 were $79 million and $12 million, respectively, and for the nine months ended September 30, 2016 and 2015 were $136 million and $36 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 be fixed for the term, or may in some cases escalate over the term. Programming costs included in the statement of operations were $2.4 billion and $667 million for the three months ended September 30, 2016 and 2015, respectively, and $4.6 billion and $2.0 billion for the nine months ended September 30, 2016 and 2015, respectively. Certain of the Company’s programming agreements are based on a flat fee per month or have guaranteed minimum payments. The table sets forth the aggregate guaranteed minimum commitments under the Company’s programming contracts.

(3) “Other” represents other guaranteed minimum commitments, including programming rights negotiated directly with content owners for distribution on Company-owned channels or networks and commitments related to the Company’s role as an advertising and distribution sales agent for third party-owned channels or networks as well as commitments to the Company’s customer premise equipment vendors.

The following items are not included in the contractual obligation table due to various factors discussed below. However, the Company incurs these costs as part of its operations:

The Company rents utility poles used in its operations. Generally, pole rentals are cancelable on short notice, but the Company anticipates that such rentals will recur. Rent expense incurred for pole rental attachments for the three months ended September 30, 2016 and 2015 were $36 million and $13 million, respectively, and for the nine months ended September 30, 2016 and 2015 were $74 million and $39 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 education grants, under multi-year agreements. Franchise fees and other franchise-related costs included in the accompanying statement of operations for the three months ended September 30, 2016 and 2015 were $177 million and $52 million, respectively, and for the nine months ended September 30, 2016 and 2015 were $356 million and $158 million, respectively.

The Company also has $325 million in letters of credit, of which $220 million is secured under the Charter Operating credit facility, primarily to its various worker’s compensation, property and casualty, and general liability carriers, as collateral for reimbursement of claims.



25


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)


Litigation

In 2014, following an announcement by Comcast and Legacy TWC of their intent to merge, Breffni Barrett and others filed suit in the Supreme Court of the State of New York for the County of New York against Comcast, Legacy TWC and their respective officers and directors.  Later five similar class actions were consolidated with this matter (the “NY Actions”). The NY Actions were settled in July 2014, however, such settlement was terminated following the termination of the Comcast and TWC merger in April 2015.  In May 2015, Charter and TWC announced their intent to merge.  Subsequently, the parties in the NY Actions filed a Second Consolidated Class Action Complaint (the “Second Amended Complaint”), removing Comcast as a defendant and naming TWC, the members of the TWC board of directors, Charter and the merger subsidiaries as defendants. The Second Amended Complaint generally alleges, among other things, that the members of the TWC board of directors breached their fiduciary duties to TWC stockholders during the Charter merger negotiations and by entering into the merger agreement and approving the mergers, and that Charter aided and abetted such breaches of fiduciary duties. The complaint sought, among other relief, injunctive relief enjoining the stockholder vote on the mergers, unspecified declaratory and equitable relief, compensatory damages in an unspecified amount, and costs and attorneys’ fees.

In September 2015, the parties entered into a memorandum of understanding (“MOU”) to settle the action. Pursuant to the MOU, the defendants issued certain supplemental disclosures relating to the mergers on a Form 8-K, and plaintiffs agreed to release with prejudice all claims that could have been asserted against defendants in connection with the mergers. The settlement is conditioned on, among other things, approval by the New York Supreme Court. That court gave preliminary approval to the settlement in October 2016. A hearing to consider final approval of this settlement is set for March 2017. In the event that the New York Supreme Court does not approve the settlement, the defendants intend to vigorously defend against any further litigation. 

In August 2015, a purported stockholder of Charter, Matthew Sciabacucchi, filed a lawsuit in the Delaware Court of Chancery, on behalf of a putative class of Charter stockholders, challenging the transactions between Charter, TWC, A/N, and Liberty Broadband announced by Charter on May 26, 2015 (collectively, the “Transactions”).2015. The lawsuit names as defendants Liberty Broadband, Charter, the board of directors of Charter, and New Charter. Plaintiff alleged that the Liberty Transactions improperly benefit Liberty Broadband at the expense of other Charter shareholders, and that Charter issued a false and misleading proxy statement in connection with the Transactions and the Liberty Transactions.  Plaintiff requested, among other things, that the Delaware Court of Chancery enjoin the September 21, 2015 special meeting of Charter stockholders at which Charter stockholders were asked to vote on the Transactions and the Liberty Transactions until the defendants disclosed certain information relating to Charter, the Transactions and the Liberty 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, which was referenced in the description of the Second Amended and Restated Stockholders Agreement, dated May 23, 2015, among Charter, New Charter, Liberty Broadband and A/N. On September 9, 2015, Charter issued supplemental disclosures containing unlevered free cash flow projections for Charter. In return, the plaintiff agreed its disclosure claims were moot and withdrew its application to enjoin the Charter stockholder vote on the Transactions and the Liberty Transactions. Charter has filed a motion to dismiss this litigation butand on May 31, 2017, the court has not yet ruled upon it.issued an opinion, concluding a number of issues but reserving ruling on Charter’s motion until further briefing can be done regarding whether plaintiff’s claims are direct or derivative. The parties are presently providing the additional briefing that the court seeks. Charter denies any liability, believes that it has substantial defenses, and intends to vigorously defend this suit. Although Charter is unable to predict the outcome of this lawsuit, it does not expect the outcome will have a material effect on its operations, financial condition or cash flows.

The California Attorney General and the Alameda County, California District Attorney are investigating whether certain of Legacy Charter’s waste disposal policies, procedures and practices are in violation of the California Business and Professions Code and the California Health and Safety Code. That investigation was commenced in January 2014. A similar investigation involving Legacy TWC was initiated in February 2012. Charter is cooperating with these investigations. While the Company is unable to


17


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)


predict the outcome of these investigations, it does not expect that the outcome will have a material effect on its operations, financial condition, or cash flows.

On December 19, 2011, Sprint Communications Company L.P. (“Sprint”) filed a complaint in the U.S. District Court for the District of Kansas alleging that Legacy TWC infringesinfringed 12 U.S. patents purportedly relating to Voice over Internet Protocol (“VoIP”) services. Over the course of the litigation Sprint dismissed its claims relating to five of the asserted patents, and shortly before trial Sprint dropped its claims with respect to two additional patents.  A trial on the remaining five patents began on February 13, 2017.  On March 3, 2017 the jury returned a verdict of $140 million against Legacy TWC and further concluded that Legacy TWC had willfully infringed Sprint’s patents. The plaintiff is seeking monetary damagescourt subsequently declined to enhance the damage award as well as injunctive relief.a result of the purported willful infringement. On October 8, 2015,May 30, 2017, the court stayed this litigation pending Sprint’sawarded Sprint an additional $6 million, representing pre-judgment interest on the damages award. On June 28, 2017, the Company filed its notice of appeal of a judgment in a parallel case against Cox Communications, Inc. (“Cox Communications”) inwith the U.S. District Court for the District of Delaware invalidating six of the 12 patents at issue in the Legacy TWC litigation. The stay applied to all 12 patents at issue in Sprint’s complaint against Legacy TWC. On September 23, 2016, the U.S.United States Court of Appeals for the Federal Circuit reversedCircuit. In addition to its appeal, the district court’s orderCompany will continue to pursue indemnity from one of its vendors.  The impact of the verdict was reflected in the Cox Communications litigation invalidating the six patents. On October 5, 2016,adjustment to net current liabilities as a result of the Federal Circuit opinion, the Kansas court lifted the stay of the Legacy TWC case. Charter intends to defend against this lawsuit vigorously, but is unable to predictdescribed in Note 2. The Company does not expect that the outcome of this lawsuitlitigation will have a material adverse effect on its operations or reasonably estimatefinancial condition.  The ultimate outcome of this litigation or the pursuit of indemnity against the Company’s vendor cannot be predicted.
On October 23, 2015, the New York Office of the Attorney General (the “NY AG”) began an investigation of Legacy TWC's advertised Internet speeds and other Internet product advertising. On February 1, 2017, the NY AG filed suit in the Supreme Court for the State of New York alleging that Legacy TWC's advertising of Internet speeds was false and misleading. The suit seeks restitution and injunctive relief. On May 26, 2017, the Company moved to dismiss the NY AG’s complaint. The Company intends to defend itself vigorously. However, no assurances can be made that such defenses would ultimately be successful. At this time, the Company does not expect that the outcome of this litigation will have a range of possible loss.


26


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)


material adverse effect on its operations, financial condition or cash flows.

The Company is a defendantand its parent companies are defendants or co-defendantco-defendants in several lawsuits involving alleged infringement of various patents relating to various aspects of itstheir businesses. Other industry participants are also defendants in certain of these cases. In the event that a court ultimately determines that the Company infringes on any intellectual property rights, the Company may be subject to substantial damages and/or an injunction that could require the Company or its vendors to modify certain products and services the Company offers to its subscribers, as well as negotiate royalty or license agreements with respect to the patents at issue. While the Company believes the lawsuits are without merit and intends to defend the actions vigorously, no assurance can be given that any adverse outcome would not be material to the Company’s consolidated financial condition, results of operations, or liquidity. The Company cannot predict the outcome of any such claims nor can it reasonably estimate a range of possible loss.

The Company isand its parent companies are party to lawsuits, claims and claimsregulatory inquiries that arise in the ordinary course of conducting itstheir business, including lawsuits claiming violation of wage and hour laws and breach of contract by vendors, including by threeone of its programmers. The ultimate outcome of these other legal matters pending against the Company cannot be predicted, and although such lawsuits and claims are not expected individually to have a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity, such lawsuits could have, in the aggregate, a material adverse effect on the Company’s consolidated financial condition, results of operations or liquidity. Whether or not the Company ultimately prevails in any particular lawsuit or claim, litigation can be time consuming and costly and injure the Company’s reputation.

16.14.     Stock Compensation Plans

Legacy Charter’s 2009 Stock Incentive Plan (assumed by Charter upon closing of the Transactions) provides for grants of nonqualified stock options, incentive stock options, stock appreciation rights, dividend equivalent rights, performance units and performance shares, share awards, phantom stock, restricted stock units and restricted stock.  Directors, officers and other employees of the Company and its subsidiaries, as well as others performing consulting services for the Company, are eligible for grants under the 2009 Stock Incentive Plan. In April 2016, Charter’s board of directors and stockholders approved an additional 9 million shares of Charter Class A common stock (or units convertible into Charter Class A common stock) under the 2009 Stock Incentive Plan.

At the closing of the TWC Transaction, Legacy TWC employee equity awards were converted into Charter Class A common stock equity awards on the same terms and conditions as were applicable under the Legacy TWC equity awards, except that the number of shares covered by each award and the option exercise prices were adjusted for the Stock Award Exchange Ratio (as defined in the Merger Agreement) such that the intrinsic value of the Converted TWC Awards was approximately equal to that of the original awards at the closing of the Transactions. The Converted TWC Awards represented approximately 4 million Charter restricted stock units and 0.8 million Charter stock options (0.5 million of which were exercisable at the time of conversion) and continue to be subject to the terms of the Legacy TWC equity plans. The Converted TWC Awards were measured at their fair value as of the closing of the TWC Transaction. Of that fair value, $514 million related to Legacy TWC employee pre-combination service and was treated as consideration transferred in the TWC Transaction (See Note 2), while $539 million relates to post-combination service and will be amortized to stock compensation expense over the remaining vesting period of the awards. The fair values of the Converted TWC Awards were based on a valuation using assumptions developed by management and other information compiled by management including, but not limited to, historical volatility and exercise trends of Legacy Charter and Legacy TWC.

The Parent Merger Exchange Ratio was also applied to outstanding Legacy Charter equity awards and option exercise prices; however, the terms of the equity awards did not change as a result of the Transactions. Charter granted the following equity awards, excluding the Converted TWC Awards, for the periods presented after applying the Parent Merger Exchange Ratio, as applicable.

 Three Months Ended September 30, Nine Months Ended September 30,
 2016 2015 2016 2015
        
Stock options275,400
 2,100
 5,980,800
 1,146,300
Restricted stock400
 
 10,400
 6,300
Restricted stock units39,300
 500
 890,700
 138,400



2718


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)


Charter granted the following equity awards for the periods presented after applying the parent company merger ratio as a result of the Transactions, as applicable.

 Three Months Ended June 30, Six Months Ended June 30,
 2017 2016 2017 2016
Stock options42,600
 4,800,200
 1,145,200
 5,679,700
Restricted stock9,500
 10,000
 9,500
 10,000
Restricted stock units9,500
 597,300
 277,700
 845,600

Legacy Charter stock options granted prior to 2014 generallyand restricted stock units cliff vest annually overupon the three years from either the grant date or delayed vesting commencement dates. Stock options generally expire ten years from the grant date. Restricted stock generally vests annually oneyear from the dateanniversary of each grant. Certain stock options and restricted stock units vest based on achievement of stock price hurdles. RestrictedStock options generally expire ten years from the grant date and restricted stock units have no voting rights, and restrictedrights. Restricted stock units granted prior to 2014 vest ratably overgenerally vests threeone yearsyear from either the grant date or delayed vesting commencement dates. Beginning in 2014, stock options and restricted stock units granted cliff vest upon the three year anniversary of each grant. Legacy TWC restricted stock units that were converted into Charter restricted stock units generally vest 50% on each of the third and fourth anniversary of the grant date. Legacy TWC stock options that were converted into Charter stock options vest ratably over a four-year period and expire ten years from the grant date.

As of SeptemberJune 30, 20162017, total unrecognized compensation remaining to be recognized in future periods totaled $296273 million for stock options, $13 million for restricted stock and $364247 million for restricted stock units and the weighted average period over which they are expected to be recognized is fourthree years for stock options, one year for restricted stock and threetwo years for restricted stock units.

The Company recorded $81$65 million and $168$134 million of stock compensation expense for the three and ninesix months ended SeptemberJune 30, 2017, respectively and $63 million and $87 million for the three and six months ended June 30, 2016, respectively, which is included in operating costs and expenses. The Company also recorded $57$20 million and $202$37 million of expense for the three and ninesix months ended SeptemberJune 30, 2017, respectively, and $145 million for each of the three and six months ended June 30, 2016 respectively, related to accelerated vesting of equity awards of terminated employees which is recorded in merger and restructuring costs. For the three and nine months ended September 30, 2015, the Company recorded $20 million and $58 million of stock compensation expense, respectively, which is included in operating costs and expenses. In connection with the TWC Transaction, Charter settled restricted stock units in the amount of $59 million for cash to be paid prior to the end of 2016 which amount is recorded in accounts payables and accrued liabilities in the consolidated balance sheets as of September 30, 2016.

17.15.     Employee Benefit Plans

Upon completion of the TWC Transaction, Charter assumed sponsorship of Legacy TWC’s pension plans. The Company sponsors two qualified defined benefit pension plans, the TWC Pension Plan and the TWC Union Pension Plan, that provide pension benefits to a majority of Legacy TWC employees. The Company also provides a nonqualified defined benefit pension plan for certain employees under the TWC Excess Pension Plan.
 
Pension benefits are based on formulas that reflect the employees’ years of service and compensation during their employment period. Actuarial gains or losses are changes in the amount of either the benefit obligation or the fair value of plan assets resulting from experience different from that assumed or from changes in assumptions. The Company has elected to follow a mark-to-market pension accounting policy for recording the actuarial gains or losses annually during the fourth quarter, or earlier if a remeasurement event occurs during an interim period.

Pension benefits are recorded as a net asset or liability for the overfunded or underfunded status of defined benefit pension plans and changes in the funded status are recorded in the year in which the changes occur. As of the closing date of the TWC Transaction, the excess of the projected benefit obligation over the fair value of plan assets was recognized as a liability and deferred actuarial losses and prior service credits previously recognized were eliminated in acquisition accounting. As of the closing date of the TWC Transaction, the projected benefit obligation and the fair value of plan assets for the pension plans were $4.0 billion and $2.9 billion, respectively, and the net underfunded liability of the pension plans was recorded as a $6 million current pension liability and $1.1 billion long-term pension liability in acquisition accounting.

The rate of compensation increase used to measure the projected benefit obligation as of the closing of the TWC Transaction was an age-graded average increase of 4.25%. The weighted average of discount rates used to measure the projected benefit obligation at the closing date of the TWC Transaction was 3.99%. The Company determined the discount rates based on the yield of a large population of high-quality corporate bonds with cash flows sufficient in timing and amount to settle projected future defined benefit payments. The Company also utilized the RP 2015/MP 2015 mortality tables published by the Society of Actuaries to measure the projected benefit obligation as of the closing date of the TWC Transaction. In addition, the expected long-term rate of return on plan assets used to determine a componentcomponents of net periodic pension benefit cost was 6.50%. In developingfor the expected long-term ratethree and six months ended June 30, 2017 and 2016 consisted of return on plan assets, the Company considered the pension portfolio’s composition, past average rate of earnings and the Company’s future asset allocation targets.following:

 Three Months Ended June 30, Six Months Ended June 30,
 2017 2016 2017 2016
Service cost$
 $35
 $
 $35
Interest cost34
 21
 $68
 $21
Expected return on plan assets(47) (23) (94) (23)
Pension curtailment gain
 (675) 
 (675)
Remeasurement loss, net
 157
 
 157
Net periodic pension benefit$(13) $(485) $(26) $(485)



2819


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)


Pension Plan Assets

The assets of the qualified pension plans are held in a master trust in which the qualified pension plans are the only participating plans. The investment policy for the qualified pension plans is to achieve a reasonable long-term rate of return on plan assets with an acceptable level of risk in order to maintain adequate funding levels. The investment portfolio is a mix of fixed-income and equity securities with the objective of matching plan liability performance, diversifying risk and achieving a target investment return. The Company’s allocation of plan assets includes fixed-income and equity securities of 39% and 61%, respectively, the substantial majority of which consist of Level 1 or Level 2 fair value measurements.

Net Periodic Pension Cost (Benefit)
The components of net periodic pension cost (benefit) for the three and nine months ended September 30, 2016 consisted of the following:

 Three Months Ended September 30, Nine Months Ended September 30,
 2016 2016
    
Service cost$51
 $86
Interest cost34
 55
Expected return on plan assets(47) (70)
Pension curtailment gain
 (675)
Remeasurement loss, net
 157
Net periodic pension cost (benefit)$38
 $(447)

The service cost component of net periodic pension cost (benefit)benefit is recorded in operating costs and expenses in the consolidated statements of operations.operations while the remaining components of net periodic pension benefit are recorded in other pension benefits. The effects of the plan amendment made subsequent to the TWC Transaction, discussed below, resulted in a $675 million pension curtailment gain and $157 million net remeasurement loss net recorded in other operating expenses, net inresulted from an amendment to the consolidated statements of operations during the nine months ended September 30, 2016.
Pension Plan Curtailment Amendment
Following the closing ofplans made subsequent to the TWC Transaction, CharterTransaction. During the second quarter of 2016, the Company amended the pension plans to freeze future benefit accruals to current active plan participants, asdriving the recognition of August 31, 2016. Effective September 1, 2016,the pension curtailment gain, as no future compensation increases or future service will be credited to participants of the pension plans and new hires will not be eligible to participate in the plans. Upon announcement and approval of the plan amendment, the assumptions underlying the pension liability and pension asset values were reassessed utilizing remeasurement date assumptions in accordance with Charter’sthe Company's mark-to-market pension accounting policy to record gains and losses in the period in which a remeasurement event occurs. The $675 million curtailment gain recorded duringoccurs, resulting in the nine months ended September 30, 2016 was primarily driven by the reduction of the compensation rate assumption to zero in accordance with the terms of the plan amendment, reflecting the pension liability at its accumulated benefit obligation instead of its projected benefit obligation at thenet remeasurement date. The $157 million remeasurement loss recorded during the nine months ended September 30, 2016 was primarily driven by the effects of a reduction of the discount rate from 3.99% at the closing date of the TWC Transaction to 3.72% at remeasurement date, net of a gain to record pension assets at June 30, 2016 fair values. As of the remeasurement date, June 30, 2016, the accumulated benefit obligation and fair value of plan assets for the pension plans was $3.6 billion and $2.9 billion, respectively, for a net underfunded liability of $647 million.

Pension Plan Contributionsloss.
The Company made no cash contributions to the qualified pension plans during the three and ninesix months ended SeptemberJune 30, 2017 and 2016; however, the Company may make discretionary cash contributions to the qualified pension plans in the future. Such contributions will be dependent on a variety of factors, including current and expected interest rates, asset performance, the funded status of the qualified pension plans and management’s judgment. For the nonqualified unfunded pension plan, the Company will continue to make contributions during the remainder of 20162017 to the extent benefits are paid.


29


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)



Defined Contribution Benefit Plans
Upon completion of the TWC Transaction, Charter assumed Legacy TWC’s defined contribution plan, the TWC Savings Plan. In June 2016, the Company announced changes to both the Charter Communications, Inc. 401(k) Plan (the “401(k) Plan”) and the TWC Savings Plan that were effective September 1, 2016. The Company’s matching contribution to the 401(k) Plan and the TWC Savings Plan equal 100% of the amount of the salary reduction the participant elects to defer up to 6% of the participant’s eligible pay. For employees who are not eligible to participate in the Company’s long-term incentive plan and who are not covered by a collective bargaining agreement, the Company also provides a contribution to a new Retirement Accumulation Plan, equal to 3% of eligible pay.

18.16.     Consolidating Schedules

Each of Charter Operating, TWC, LLC, TWCE, CCO Holdings and certain subsidiaries jointly, severally, fully and unconditionally guarantee the outstanding debt securities of the others (other than the CCO Holdings notes) on an unsecured senior basis and the condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered. Certain Charter Operating subsidiaries that are regulated telephone entities only become guarantor subsidiaries upon approval by regulators. This information is not intended to present the financial position, results of operations and cash flows of the individual companies or groups of companies in accordance with generally accepted accounting principles.
 
The “Charter Operating and Restricted Subsidiaries” column is presented to comply with the terms of the Credit Agreement.

The “Unrestricted Subsidiary” column included in the condensed consolidating financial statements for the nine months ended September 30, 2015 consists of CCO Safari which was a non-recourse subsidiary under the Credit Agreement and held the CCO Safari Term G Loans that were repaid in April 2015.
Condensed consolidating financial statements as of SeptemberJune 30, 20162017 and December 31, 20152016 and for the ninesix months ended SeptemberJune 30, 20162017 and 20152016 follow.


3020


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)


CCO Holdings, LLC and SubsidiariesCondensed Consolidating Balance Sheets
As of September 30, 2016
As of June 30, 2017As of June 30, 2017
              
Guarantor Subsidiaries    Guarantor Subsidiaries    
CCO Holdings Charter Operating and Restricted Subsidiaries Eliminations CCO Holdings ConsolidatedCCO Holdings Charter Operating and Restricted Subsidiaries Eliminations CCO Holdings Consolidated
ASSETS              
       
CURRENT ASSETS:              
Cash and cash equivalents$
 $996
 $
 $996
$
 $521
 $
 $521
Accounts receivable, net
 1,229
 
 1,229

 1,416
 
 1,416
Receivables from related party58
 
 (58) 
51
 
 (51) 
Prepaid expenses and other current assets
 351
 
 351

 319
 
 319
Total current assets58
 2,576
 (58) 2,576
51
 2,256
 (51) 2,256
              
INVESTMENT IN CABLE PROPERTIES:              
Property, plant and equipment, net
 32,657
 
 32,657

 32,711
 
 32,711
Customer relationships, net
 13,231
 
 13,231
Franchises
 66,245
 
 66,245

 67,316
 
 67,316
Customer relationships, net
 15,439
 
 15,439
Goodwill
 30,165
 
 30,165

 29,554
 
 29,554
Total investment in cable properties, net
 144,506
 
 144,506

 142,812
 
 142,812
              
INVESTMENT IN SUBSIDIARIES89,165
 
 (89,165) 
87,289
 
 (87,289) 
LOANS RECEIVABLE – RELATED PARTY494
 
 (494) 
511
 
 (511) 
OTHER NONCURRENT ASSETS
 1,172
 
 1,172

 1,132
 
 1,132
              
Total assets$89,717
 $148,254
 $(89,717) $148,254
$87,851
 $146,200
 $(87,851) $146,200
              
LIABILITIES AND MEMBER’S EQUITYLIABILITIES AND MEMBER’S EQUITY      LIABILITIES AND MEMBER’S EQUITY      
       
CURRENT LIABILITIES:              
Accounts payable and accrued liabilities$209
 $5,795
 $
 $6,004
$267
 $7,060
 $
 $7,327
Payables to related party
 457
 (58) 399

 617
 (51) 566
Current portion of long-term debt
 2,050
 
 2,050
Total current liabilities209
 8,302
 (58) 8,453
267
 7,677
 (51) 7,893
              
LONG-TERM DEBT13,255
 46,691
 
 59,946
15,741
 47,507
 
 63,248
LOANS PAYABLE – RELATED PARTY
 1,134
 (494) 640

 1,344
 (511) 833
DEFERRED INCOME TAXES
 32
 
 32

 39
 
 39
OTHER LONG-TERM LIABILITIES
 2,905
 
 2,905

 2,320
 
 2,320
              
MEMBER’S EQUITY              
Controlling interest76,253
 89,165
 (89,165) 76,253
71,843
 87,289
 (87,289) 71,843
Noncontrolling interests
 25
 
 25

 24
 
 24
Total member’s equity76,253
 89,190
 (89,165) 76,278
71,843
 87,313
 (87,289) 71,867
              
Total liabilities and member’s equity$89,717
 $148,254
 $(89,717) $148,254
$87,851
 $146,200
 $(87,851) $146,200



3121


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)


CCO Holdings, LLC and SubsidiariesCondensed Consolidating Balance Sheets
As of December 31, 2015
As of December 31, 2016As of December 31, 2016
              
Guarantor Subsidiaries    Guarantor Subsidiaries    
CCO Holdings Charter Operating and Restricted Subsidiaries Eliminations CCO Holdings ConsolidatedCCO Holdings Charter Operating and Restricted Subsidiaries Eliminations CCO Holdings Consolidated
ASSETS              
       
CURRENT ASSETS:              
Cash and cash equivalents$
 $5
 $
 $5
$
 $1,324
 $
 $1,324
Accounts receivable, net
 264
 
 264

 1,387
 
 1,387
Receivables from related party14
 
 (14) 
62
 
 (62) 
Prepaid expenses and other current assets
 55
 
 55

 300
 
 300
Total current assets14
 324
 (14) 324
62
 3,011
 (62) 3,011
              
INVESTMENT IN CABLE PROPERTIES:              
Property, plant and equipment, net
 8,317
 
 8,317

 32,718
 
 32,718
Customer relationships, net
 14,608
 
 14,608
Franchises
 6,006
 
 6,006

 67,316
 
 67,316
Customer relationships, net
 856
 
 856
Goodwill
 1,168
 
 1,168

 29,509
 
 29,509
Total investment in cable properties, net
 16,347
 
 16,347

 144,151
 
 144,151
              
INVESTMENT IN SUBSIDIARIES11,303
 
 (11,303) 
88,760
 
 (88,760) 
LOANS RECEIVABLE – RELATED PARTY613
 563
 (483) 693
494
 
 (494) 
OTHER NONCURRENT ASSETS
 116
 
 116

 1,157
 
 1,157
              
Total assets$11,930
 $17,350
 $(11,800) $17,480
$89,316
 $148,319
 $(89,316) $148,319
              
LIABILITIES AND MEMBER’S EQUITYLIABILITIES AND MEMBER’S EQUITY      LIABILITIES AND MEMBER’S EQUITY      
       
CURRENT LIABILITIES:              
Accounts payable and accrued liabilities$165
 $1,311
 $
 $1,476
$219
 $6,678
 $
 $6,897
Payables to related party
 345
 (14) 331

 683
 (62) 621
Current portion of long-term debt
 2,028
 
 2,028
Total current liabilities165
 1,656
 (14) 1,807
219
 9,389
 (62) 9,546
              
LONG-TERM DEBT10,443
 3,502
 
 13,945
13,259
 46,460
 
 59,719
LOANS PAYABLE – RELATED PARTY
 816
 (483) 333

 1,134
 (494) 640
DEFERRED INCOME TAXES
 28
 
 28

 25
 
 25
OTHER LONG-TERM LIABILITIES
 45
 
 45

 2,526
 
 2,526
       
MEMBER’S EQUITY1,322
 11,303
 (11,303) 1,322
       
Controlling interest75,838
 88,760
 (88,760) 75,838
Noncontrolling interests
 25
 
 25
Total member’s equity75,838
 88,785
 (88,760) 75,863
              
Total liabilities and member’s equity$11,930
 $17,350
 $(11,800) $17,480
$89,316
 $148,319
 $(89,316) $148,319



3222


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)



CCO Holdings, LLC and SubsidiariesCondensed Consolidating Statements of Operations
For the nine months ended September 30, 2016
       
For the six months ended June 30, 2017For the six months ended June 30, 2017
Guarantor Subsidiaries           
CCO Holdings Charter Operating and Restricted Subsidiaries Eliminations CCO Holdings ConsolidatedGuarantor Subsidiaries    
       CCO Holdings Charter Operating and Restricted Subsidiaries Eliminations CCO Holdings Consolidated
REVENUES$
 $18,728
 $
 $18,728
$
 $20,521
 $
 $20,521
              
COSTS AND EXPENSES:              
Operating costs and expenses (exclusive of items shown separately below)
 12,173
 
 12,173

 13,166
 
 13,166
Depreciation and amortization
 4,409
 
 4,409

 5,140
 
 5,140
Other operating income, net
 (20) 
 (20)
       

 16,562
 
 16,562
Other operating expenses, net
 229
 
 229
       
 18,535
 
 18,535
Income from operations
 2,166
 
 2,166

 1,986
 
 1,986
              
OTHER INCOME (EXPENSES):              
Interest expense, net(539) (852) 
 (1,391)(404) (1,069) 
 (1,473)
Loss on extinguishment of debt(110) 
 
 (110)(33) (2) 
 (35)
Gain on financial instruments, net
 16
 
 16
Other expense, net
 (2) 
 (2)
Loss on financial instruments, net
 (32) 
 (32)
Other pension benefits
 26
 
 26
Equity in income of subsidiaries1,327
 
 (1,327) 
879
 
 (879) 
       442
 (1,077) (879) (1,514)
678
 (838) (1,327) (1,487)       
       
Income before income taxes678
 1,328
 (1,327) 679
442
 909
 (879) 472
       
INCOME TAX BENEFIT
 
 
 
       
INCOME TAX EXPENSE
 (29) 
 (29)
Consolidated net income678
 1,328
 (1,327) 679
442
 880
 (879) 443
       
Less: Net income attributable to noncontrolling interests
 (1) 
 (1)
 (1) 
 (1)
       
Net income$678
 $1,327
 $(1,327) $678
$442
 $879
 $(879) $442



3323


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)



CCO Holdings, LLC and SubsidiariesCondensed Consolidating Statements of Operations
For the nine months ended September 30, 2015
         
For the six months ended June 30, 2016For the six months ended June 30, 2016
Guarantor Subsidiaries             
CCO Holdings Charter Operating and Restricted Subsidiaries Unrestricted Subsidiary Eliminations CCO Holdings ConsolidatedGuarantor Subsidiaries    
         CCO Holdings Charter Operating and Restricted Subsidiaries Eliminations CCO Holdings Consolidated
REVENUES$
 $7,242
 $
 $
 $7,242
$
 $8,691
 $
 $8,691
                
COSTS AND EXPENSES:                
Operating costs and expenses (exclusive of items shown separately below)
 4,802
 
 
 4,802

 5,683
 
 5,683
Depreciation and amortization
 1,580
 
 
 1,580

 1,974
 
 1,974
Other operating expenses, net
 69
 
 
 69

 307
 
 307
         
 7,964
 
 7,964

 6,451
 
 
 6,451
         
Income from operations
 791
 
 
 791
Income (loss) from operations
 727
 
 727
                
OTHER INCOME (EXPENSES):                
Interest expense, net(487) (114) (47) 
 (648)(350) (312) 
 (662)
Loss on extinguishment of debt(123) 
 (3) 
 (126)(110) 
 
 (110)
Loss on financial instruments, net
 (10) 
 
 (10)
 (55) 
 (55)
Equity in income (loss) of subsidiaries795
 (50) 
 (745) 
Other pension benefits
 520
 
 520
Equity in income of subsidiaries873
 
 (873) 
         413
 153
 (873) (307)
185
 (174) (50) (745) (784)       
         
Income (loss) before income taxes185
 617
 (50) (745) 7
         
INCOME TAX BENEFIT
 212
 
 
 212
         
Consolidated net income (loss)185
 829
 (50) (745) 219
         
Less: Net income attributable to noncontrolling interests
 (34) 
 
 (34)
         
Net income (loss)$185
 $795
 $(50) $(745) $185
Income before income taxes413
 880
 (873) 420
INCOME TAX EXPENSE
 (7) 
 (7)
Consolidated net income$413
 $873
 $(873) $413



3424


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)



CCO Holdings, LLC and SubsidiariesCondensed Consolidating Statements of Comprehensive Income
For the nine months ended September 30, 2016
       
For the six months ended June 30, 2017For the six months ended June 30, 2017
Guarantor Subsidiaries           
CCO Holdings Charter Operating and Restricted Subsidiaries Eliminations CCO Holdings ConsolidatedGuarantor Subsidiaries    
       CCO Holdings Charter Operating and Restricted Subsidiaries Eliminations CCO Holdings Consolidated
Consolidated net income$678
 $1,328
 $(1,327) $679
$442
 $880
 $(879) $443
Net impact of interest rate derivative instruments, net of tax6
 6
 (6) 6
Foreign currency translation adjustment(1) (1) 1
 (1)
       
Net impact of interest rate derivative instruments3
 3
 (3) 3
Consolidated comprehensive income683
 1,333
 (1,332) 684
445
 883
 (882) 446
Less: Net income attributable to noncontrolling interests
 (1) 
 (1)
       
Less: Comprehensive income attributable to noncontrolling interests
 (1) 
 (1)
Comprehensive income$683
 $1,332
 $(1,332) $683
$445
 $882
 $(882) $445

CCO Holdings, LLC and Subsidiaries
Condensed Consolidating Statements of Comprehensive Income (Loss)
For the nine months ended September 30, 2015
          
 Guarantor Subsidiaries      
 CCO Holdings Charter Operating and Restricted Subsidiaries Unrestricted Subsidiary Eliminations CCO Holdings Consolidated
          
Consolidated net income (loss)$185
 $829
 $(50) $(745) $219
Net impact of interest rate derivative instruments, net of tax7
 7
 
 (7) 7
          
Consolidated comprehensive income (loss)$192
 $836
 $(50) $(752) $226
Less: Net income attributable to noncontrolling interests
 (34) 
 
 (34)
          
Comprehensive income (loss)$192
 $802
 $(50) $(752) $192
CCO Holdings, LLC and Subsidiaries
Condensed Consolidating Statements of Comprehensive Income
For the six months ended June 30, 2016
        
 Guarantor Subsidiaries    
 CCO Holdings Charter Operating and Restricted Subsidiaries Eliminations CCO Holdings Consolidated
Consolidated net income$413
 $873
 $(873) $413
Net impact of interest rate derivative instruments4
 4
 (4) 4
Comprehensive income$417
 $877
 $(877) $417






3525


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)


CCO Holdings, LLC and SubsidiariesCondensed Consolidating Statements of Cash Flows
For the nine months ended September 30, 2016
       
For the six months ended June 30, 2017For the six months ended June 30, 2017
Guarantor Subsidiaries           
CCO Holdings Charter Operating and Restricted Subsidiaries Eliminations CCO Holdings ConsolidatedGuarantor Subsidiaries    
       CCO Holdings Charter Operating and Restricted Subsidiaries Eliminations CCO Holdings Consolidated
NET CASH FLOWS FROM OPERATING ACTIVITIES$(533) $6,071
 $
 $5,538
$(353) $5,981
 $
 $5,628
              
CASH FLOWS FROM INVESTING ACTIVITIES:              
Purchases of property, plant and equipment
 (3,437) 
 (3,437)
 (3,703) 
 (3,703)
Change in accrued expenses related to capital expenditures
 86
 
 86

 197
 
 197
Purchases of cable systems, net of cash assumed
 (7) 
 (7)
Contributions to subsidiaries(437) 
 437
 
(693) 
 693
 
Distributions from subsidiaries3,455
 
 (3,455) 
3,228
 
 (3,228) 
Change in restricted cash and cash equivalents
 
 
 
Other, net
 (8) 
 (8)
 (49) 
 (49)
       
Net cash flows from investing activities3,018
 (3,366) (3,018) (3,366)2,535
 (3,555) (2,535) (3,555)
              
CASH FLOWS FROM FINANCING ACTIVITIES:              
Borrowings of long-term debt3,201
 2,796
 
 5,997
3,246
 3,900
 
 7,146
Repayments of long-term debt(2,937) (1,183) 
 (4,120)(775) (4,754) 
 (5,529)
Repayments loans payable - related parties(71) (182) 
 (253)
Borrowings loans payable - related parties
 178
 
 178
Payments for debt issuance costs(73) (210) 
 (283)(31) (11) 
 (42)
Proceeds from termination of interest rate derivatives
 88
 
 88
Contributions from parent478
 437
 (437) 478

 693
 (693) 
Distributions to parent(3,084) (3,455) 3,455
 (3,084)(4,622) (3,228) 3,228
 (4,622)
Other, net1
 (5) 
 (4)
 (7) 
 (7)
       
Net cash flows from financing activities(2,485) (1,714) 3,018
 (1,181)(2,182) (3,229) 2,535
 (2,876)
              
NET INCREASE IN CASH AND CASH EQUIVALENTS
 991
 
 991
NET DECREASE IN CASH AND CASH EQUIVALENTS
 (803) 
 (803)
CASH AND CASH EQUIVALENTS, beginning of period
 5
 
 5

 1,324
 
 1,324
              
CASH AND CASH EQUIVALENTS, end of period$
 $996
 $
 $996
$
 $521
 $
 $521


3626


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)


CCO Holdings, LLC and SubsidiariesCondensed Consolidating Statements of Cash Flows
For the nine months ended September 30, 2015
         
For the six months ended June 30, 2016For the six months ended June 30, 2016
Guarantor Subsidiaries             
CCO Holdings Charter Operating and Restricted Subsidiaries Unrestricted Subsidiary Eliminations CCO Holdings ConsolidatedGuarantor Subsidiaries    
         CCO Holdings Charter Operating and Restricted Subsidiaries Eliminations CCO Holdings Consolidated
NET CASH FLOWS FROM OPERATING ACTIVITIES$(510) $2,386
 $(55) $
 $1,821
$(321) $3,069
 $
 $2,748
                
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchases of property, plant and equipment
 (1,292) 
 
 (1,292)
 (1,689) 
 (1,689)
Change in accrued expenses related to capital expenditures
 11
 
 
 11

 138
 
 138
Purchases of cable systems, net of cash acquired
 (8) 
 (8)
Contribution to subsidiary(46) (24) 
 70
 
(437) 
 437
 
Distributions from subsidiaries521
 
 
 (521) 
2,878
 
 (2,878) 
Change in restricted cash and cash equivalents
 
 3,514
 
 3,514
Other, net
 (15) 
 
 (15)
 (6) 
 (6)
         
Net cash flows from investing activities475
 (1,320) 3,514
 (451) 2,218
2,441
 (1,565) (2,441) (1,565)
                
CASH FLOWS FROM FINANCING ACTIVITIES:                
Borrowings of long-term debt2,700
 1,071
 
 
 3,771
3,201
 2,796
 
 5,997
Repayments of long-term debt(2,599) (1,329) (3,483) 
 (7,411)(2,937) (1,133) 
 (4,070)
Borrowings (repayments) loans payable - related parties16
 (333) 
 
 (317)
Payments loans payable - related parties(71) (182) 
 (253)
Payments for debt issuance costs(24) 
 
 
 (24)(73) (210) 
 (283)
Proceeds from termination of interest rate derivatives
 88
 
 88
Contributions from parent15
 46
 24
 (70) 15
478
 437
 (437) 478
Distributions to parent(73) (521) 
 521
 (73)(2,719) (2,878) 2,878
 (2,719)
         
Other, net1
 (2) 
 (1)
Net cash flows from financing activities35
 (1,066) (3,459) 451
 (4,039)(2,120) (1,084) 2,441
 (763)
                
NET INCREASE IN CASH AND CASH EQUIVALENTS
 
 
 
 

 420
 
 420
CASH AND CASH EQUIVALENTS, beginning of period
 
 
 
 

 5
 
 5
                
CASH AND CASH EQUIVALENTS, end of period$
 $
 $
 $
 $
$
 $425
 $
 $425


37


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)


19.17.     Recently Issued Accounting Standards

Accounting Standards Adopted January 1, 2017

In May 2014,March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP.  The new standard provides a single principles-based, five-step model to be applied to all contracts with customers, which steps are to (1) identify the contract(s) with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when each performance obligation is satisfied. More specifically, revenue will be recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services.  ASU 2014-09 will be effective, reflecting the one-year deferral, for interim and annual periods beginning after December 15, 2017 (January 1, 2018 for the Company).  Early adoption of the standard is permitted but not before the original effective date. Companies can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is currently in the process of evaluating the impact that the adoption of ASU 2014-09 will have on its consolidated financial statements and the selected method of transition to the new standard.

In April 2015, the FASB issued ASU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”), which provides guidance in determining whether fees for purchasing cloud computing services (or hosted software solutions) are considered internal-use software or should be considered a service contract.  The cloud computing agreement that includes a software license should be accounted for in the same manner as internal-use software if customer has contractual right to take possession of the software during the hosting period without significant penalty and it is feasible to either run the software on customer’s hardware or contract with another vendor to host the software. Arrangements that don’t meet the requirements for internal-use software should be accounted for as a service contract. ASU 2015-05 was effective for interim and annual periods beginning after December 15, 2015 (January 1, 2016 for the Company).  The adoption of ASU 2015-05 did not have a material impact on the Company’s financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. Lessees are allowed to account for short-term leases (i.e., leases with a term of 12 months or less) off-balance sheet, consistent with current operating lease accounting. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. ASU 2016-02 will be effective for interim and annual periods beginning after December 15, 2018 (January 1, 2019 for the Company). Early adoption is permitted. The new standard requires a modified retrospective transition through a cumulative-effect adjustment as of the beginning of the earliest period presented in the financial statements. The Company is currently in the process of evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. The new standard (1) requires all excess tax benefits and deficiencies to be recognized as income tax expense or benefit in the income statement in the period in which they occur regardless of whether the benefit reduces taxes payable in the current period, (2) requires classification of excess tax benefits as an operating activity on the statements of cash flows, (3) allows an entity to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur and (4) causes the threshold under which employee share-based awards partially settled in cash can qualify for equity classification to increase to the maximum statutory tax rates in the applicable jurisdiction. ASU 2016-09 will be effective for interim and annual periods after December 15, 2016 (January 1, 2017 for the Company). Early adoption of the standard is permitted but requires adoption of all provisions included in the amendment in the same period. The new standard generally requires a modified retrospective transition through a cumulative-effect adjustment as of the beginning of the period of adoption, with certain provisions requiring either a prospective or retrospective transition. The Company adopted ASU 2016-09 on January 1, 2017. On January 1, 2017, the Company also established an accounting policy election to assume zero forfeitures for stock award grants and account for forfeitures when they occur which prospectively impacts stock compensation expense. Other aspects of adoption ASU 2016-09 did not have a material impact to the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost ("ASU 2017-07"), which requires employers to report the service cost component of net periodic pension cost in the same line item as other compensation costs arising from services rendered during the period. The standard also requires the other components of net periodic cost be presented in the income statement separately from the service cost component


27


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)


and outside of a subtotal of income from operations. ASU 2017-07 will be effective for annual periods beginning after December 15, 2017, and early adoption is permitted. The new standard requires retrospective application and allows a practical expedient that permits an employer to use the amounts disclosed in its pension plan footnote for the prior comparative periods as the estimation basis for applying the retrospective presentation. The Company early adopted ASU 2017-07 on January 1, 2017 and utilized the practical expedient to estimate the impact on the prior comparative period information presented in interim and annual financial statements. The Company previously recorded service cost with other compensation costs in operating costs and expenses in the consolidated statements of operations, and recorded other pension costs (benefits), in other operating expenses, net. Adoption of the standard results in the reclassification of other pension costs (benefits) to other expenses, net (non-operating). Adopting the standard will reduce 2016 income from operations presented for comparative purposes in the 2017 annual financial statements by $899 million with a corresponding decrease to other expenses of $899 million, with no impact to net income. For both the three and six months ended June 30, 2016, the adoption of the standard resulted in reduction of income from operations by $520 million with a corresponding decrease to other expenses of $520 million, with no impact to net income. ASU 2017-07 does not impact the consolidated balance sheets or statements of cash flows.

Accounting Standards Not Yet Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP.  The new standard provides a single principles-based, five-step model to be applied to all contracts with customers, which steps are to (1) identify the contract(s) with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when each performance obligation is satisfied. ASU 2014-09 will be effective for interim and annual periods beginning after December 15, 2017 (January 1, 2018 for the Company).  Companies can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is currently in the process of evaluating which method of transition will be utilized. The Company is continuing to assess all potential impacts that the adoption of ASU 2014-09 will have on its consolidated financial statements, however the adoption is not anticipated to have a material impact on the Company's financial position or results of operations. The adoption is anticipated to result in the deferral of residential installation revenues and enterprise commission expenses over a period of time instead of recognized immediately. The adoption is also anticipated to result in the reclassification to operating costs and expenses the amortization of up-front fees paid to market and serve customers who reside in residential multiple dwelling units (“MDUs”) instead of amortized as an intangible to depreciation and amortization expense.

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. Lessees are allowed to account for short-term leases (i.e., leases with a term of 12 months or less) off-balance sheet, consistent with current operating lease accounting. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. ASU 2016-02 will be effective for interim and annual periods beginning after December 15, 2018 (January 1, 2019 for the Company). The new standard requires a modified retrospective transition through a cumulative-effect adjustment as of the beginning of the earliest period presented in the financial statements. The Company is currently in the process of evaluating the impact that the adoption of ASU 2016-092016-02 will have on its consolidated financial statements.statements including identifying the population of leases, evaluating technology solutions and collecting lease data.

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which clarifies how entities should classify cash receipts and cash payments related to eight specific cash flow matters on the statement of cash flows, with the objective of reducing existing diversity in practice. ASU 2016-15 will be effective for interim and annual periods beginning after December 15, 2017 (January 1, 2018 for the Company). Early adoption is permitted. The Company is currently in the process of evaluating the impact that the adoption of ASU 2016-15 will have on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which eliminates step two from the goodwill impairment test. Under the new standard, to the extent the carrying amount of a reporting unit exceeds the fair value, the Company will record an impairment charge equal to the difference. The impairment charge recognized should not exceed the total amount of goodwill allocated to the reporting unit. ASU 2017-04 will be effective for interim and annual periods beginning after December 15, 2019 (January 1, 2020 for the Company). Early adoption is permitted for interim or


3828


CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions except where indicated)


annual goodwill impairment tests performed after January 1, 2017. The Company is currently in the process of evaluating the impact that the adoption of ASU 2016-152017-04 will have on its consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Scope of Modification Accounting ("ASU 2017-09"), which amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. ASU 2017-09 will be applied prospectively to awards modified on or after the effective date. ASU 2017-09 will be effective for interim and annual periods beginning after December 15, 2017 (January 1, 2018 for the Company). Early adoption is permitted. The Company is currently in the process of evaluating the impact that the adoption of ASU 2017-09 will have on its consolidated financial statements.



3929



Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

CCO Holdings, LLC (“CCO Holdings”) is a holding company whose principal assets are the equity interests in its operating subsidiaries. CCO Holdings is a direct subsidiary of CCH I Holdings, LLC (“CCH I”), which is an indirect subsidiary of Charter Communications, Inc. (“Charter”), Charter Communications Holdings, LLC (“Charter Holdings”) and Spectrum Management Holding Company, LLC (“Spectrum Holdings”). The consolidated financial statements include the accounts of CCO Holdings and all of its subsidiaries where the underlying operations reside. All significant intercompany accounts and transactions among consolidated entities have been eliminated.

We are the second largest cable operator in the United States and a leading broadband communications services company providing video, Internet and voice services withto approximately 25.926.8 million residential and commercialbusiness customers at SeptemberJune 30, 2016. We also2017. In addition, we sell video and online advertising inventory to local, regional and national advertising customers and networkingfiber-delivered communications and enterprise-class, cloud-enabled hosting, managed applications and transport servicesinformation technology ("IT") solutions to business customers andlarger enterprise customers. We also own and operate regional sports networks and local sports, news and lifestyle channels. Our residential services also includecommunity channels and sell security and home management services.services to the residential marketplace.

TWC TransactionThe Transactions

On May 18, 2016, the transactions contemplated by the Agreement and Plan of Mergers dated as of May 23, 2015 (the “Merger Agreement”), by and among Time Warner Cable Inc. (“Legacy TWC”), Charter Communications, Inc. prior to the closing of the Merger Agreement (“Legacy Charter”), CCH I, LLC, previously a wholly owned subsidiary of Legacy Charter (“New Charter”) and certain other subsidiaries of New CharterCCH I, LLC were completed (the “TWC Transaction,” and together with the Bright House Transaction described below, the “Transactions”). As a result of the TWC Transaction, New CharterCCH I, LLC became the new public parent company that holds the operations of the combined companies and was renamed Charter Communications, Inc.

Pursuant to the terms of the Merger Agreement, upon consummation of the TWC Transaction, each outstanding share of Legacy TWC common stock (other than Legacy TWC common stock held by Liberty Broadband Corporation (“Liberty Broadband”) and Liberty Interactive Corporation (“Liberty Interactive” and, collectively, the “Liberty Parties”)), was converted into the right to receive, at the option of each such holder of Legacy TWC common stock, either (a) $100 in cash and Charter Class A common stock equivalent to 0.5409 shares of Legacy Charter Class A common stock (the “Option A Consideration”) or (b) $115 in cash and Charter Class A common stock equivalent to 0.4562 shares of Legacy Charter Class A common stock (the “Option B Consideration”). The actual number of shares of Charter Class A common stock that Legacy TWC stockholders received, excluding the Liberty Parties, was calculated by multiplying the exchange ratios of 0.5409 or 0.4562 specified above by 0.9042 (the “Parent Merger Exchange Ratio”), which was also the exchange ratio that was used to determine the number of shares of Charter Class A common stock that Legacy Charter stockholders received per share of Legacy Charter Class A common stock. Such exchange ratio did not impact the aggregate value represented by the shares of Charter Class A common stock issued in the TWC Transaction; however, it did impact the actual number of shares issued in the TWC Transaction.

Out of approximately 277 million shares of TWC common stock outstanding at the closing of the TWC Transaction, excluding TWC common stock held by the Liberty Parties, approximately 274 million shares were converted into the right to receive the Option A Consideration and approximately 3 million shares were converted into the right to receive the Option B Consideration. The Liberty Parties received approximately one share of Charter Class A common stock for each share of Legacy TWC common stock they owned (equivalent to 1.106 shares of Legacy Charter Class A common stock multiplied by the Parent Merger Exchange Ratio).

As of the date of the Transactions, the total value of the TWC Transaction was approximately $85 billion, including cash, equity and Legacy TWC assumed debt. The purchase price also includes an estimated pre-combination vesting period fair value of $514 million for Legacy TWC equity awards converted into Charter awards upon closing of the TWC Transaction (“Converted TWC Awards”) and $69 million of cash paid to former Legacy TWC employees and non-employee directors who held equity awards, whether vested or not vested.

Bright House Transaction

Also, on May 18, 2016, Legacy Charter and Advance/Newhouse Partnership (“A/N”), the former parent of Bright House Networks, LLC (“Bright House”), completed their previously announced transaction, pursuant to a definitive Contribution Agreement (the “Contribution Agreement”), under which Charter acquired Bright House (the “Bright House Transaction”). Pursuant to the Bright


40



House Transaction, Charter became the owner of the membership interests in Bright House and the other assets primarily related to Bright House (other than certain excluded assets and liabilities and non-operating cash). As of the date of acquisition, the purchase price totaled approximately $12.2 billion consisting of (a) $2 billion in cash, (b) 25 million convertible preferred units of Charter Holdings with a face amount of $2.5 billion that pay a 6% annual preferential dividend, (c) approximately 31.0 million common units of Charter Holdings that are exchangeable into Charter Class A common stock on a one-for-one basis and (d) one share of Charter Class B common stock.

Liberty Transaction

In connection with the TWC Transaction, Legacy Charter and Liberty Broadband completed their previously announced transactions pursuant to their investment agreement, in which Liberty Broadband purchased for cash approximately 22.0 million shares of Charter Class A common stock valued at $4.3 billion at the closing of the TWC Transaction to partially finance the cash portion of the TWC Transaction consideration. Inconsideration, and in connection with the Bright House Transaction, Liberty Broadband purchased approximately 3.7 million shares of Charter Class A common stock valued at $700 million at the closing of the Bright House Transaction.(the “Liberty Transactions”).

Financing for the TransactionsRecent Events

In May 2017, Charter partially financed the cash portion of the purchase price of the Transactionsannounced an agreement with additional indebtednessComcast Corporation (“Comcast”) to, for one year, explore potential opportunities for operational cooperation in our respective wireless businesses to accelerate and cash on hand.  In 2015, Charter issued $15.5 billion aggregate principal amount of CCO Safari II, LLC (“CCO Safari II”) senior secured notes, $3.8 billion aggregate principal amount of CCO Safari III, LLC (“CCO Safari III”) senior secured bank loans and $2.5 billion aggregate principal amount of CCOH Safari, LLC (“CCOH Safari”) senior unsecured notes.  The net proceeds were initially deposited into an escrow account. Upon closing of the TWC Transaction and release of the proceeds, the CCOH Safari notes became obligations of CCO Holdings and CCO Holdings Capital Corp. (“CCO Holdings Capital”), and the CCO Safari II notes and CCO Safari III credit facilities became obligations of Charter Communications Operating, LLC (“Charter Operating”) and Charter Communications Operating Capital Corp. CCOH Safari merged into CCO Holdings and CCO Safari II and CCO Safari III merged into Charter Operating. In connection with the closing of the Bright House Transaction, Charter Operating closed on a $2.6 billion aggregate principal amount term loan A facility.

Transaction-Related Commitments

The Federal Communications Commission (the “FCC”) order approving the Transactions contained certain conditions including build out of an additional two million locations with accessenhance each company’s ability to a high-speed connection within five years. At least one million of those connections must be in competition with another high-speed broadband providerparticipate in the market served.national wireless marketplace. Charter and Comcast have each separately activated a mobile virtual network operator (“MVNO”) reseller agreement with Verizon Wireless, and have each agreed to explore working together in a number of potential operational areas in the wireless space, including: creating common operating platforms; technical standards development and harmonization; device forward and reverse logistics; and emerging wireless technology platforms. The FCC order also providesefficiencies created are expected to provide more choice, innovative products and competitive prices for customers in each of our respective footprints. Additionally, the companies have agreed to work only together with respect to national mobile network operators, through potential commercial arrangements, including MVNOs and other material transactions in the wireless industry, for a period of one year. We intend to consider and pursue opportunities in the wireless space which may include entering into joint ventures or partnerships with wireless or cable providers which may require significant investment in our wireless business. There is no assurance we will enter into such arrangements or that Charter will not be permitted to charge usage-based prices or impose data caps andif we do, that they will be prohibited from charging interconnection fees for seven years, although the FCC sets forth a process in which the FCC could eliminate the conditions after five years.successful.

Under the terms of the order with the Department of Justice (“DOJ”), Charter is prohibited from entering into or enforcing any agreement with a programmer that forbids, limits or creates incentives to limit the programmer’s provision of content to one or more on-line video distributors (“OVDs”). The settlement further provides that Charter will not be able to avail itself of other distributors’ most favored nation (“MFN”) provisions if they are inconsistent with this prohibition. The settlement also prohibits Charter from retaliating against programmers for licensing to OVDs. These DOJ conditions are in force for seven years, although Charter may petition the DOJ to eliminate the conditions after five years.



41



Corporate Entity Structure

The chart below sets forth our entity structure and that of our direct and indirect parents and subsidiaries. This chart does not include all of our affiliates and subsidiaries and, in some cases, we have combined separate entities for presentation purposes. The equity ownership percentages shown below are approximations. Indebtedness amounts shown below are principal amounts as of September 30, 2016. See Note 7 to the accompanying consolidated financial statements which also includes the accreted values of the indebtedness described below.
orgchart101216.jpg



42



(1)As of September 30, 2016, Liberty Broadband beneficially owned approximately 17.4% of Charter’s Class A common stock and A/N beneficially owned approximately 13.0% of Charter’s Class A common stock, in each case assuming the exchange of the membership interests held by A/N for Charter’s Class A common stock.

(2)In the Transactions, Legacy TWC transferred substantially all of its assets to TWC, LLC and merged with and into Spectrum Management Holding Company, LLC (formerly named Nina Company II, LLC) (“Spectrum Management”) with Spectrum Management as the surviving entity. Spectrum Management was the successor to the SEC reporting obligations of Legacy TWC (which have since been terminated).

(3)In connection with the Transactions, on May 18, 2016, the proceeds of $2.5 billion principal amount of senior notes previously issued by CCOH Safari and held in escrow were released from escrow, and CCOH Safari merged with and into CCO Holdings, which, among other things, assumed the obligations under these debt securities and agreed to guarantee, along with Time Warner Cable, LLC (“TWC, LLC”), Time Warner Cable Enterprises LLC (“TWCE”) and substantially all of the operating subsidiaries of Charter Operating (collectively, the “Subsidiary Guarantors”), the Charter Operating notes, the TWC, LLC and TWCE debt securities and the Charter Operating credit facilities.

(4)In connection with the Transactions, on May 18, 2016, (a) the proceeds of $15.5 billion principal amount of senior notes previously issued by CCO Safari II and held in escrow were released from escrow, and CCO Safari II merged with and into Charter Operating, which, among other things, assumed these debt obligations, (b) the $3.8 billion credit facility of CCO Safari III was issued, and CCO Safari III merged with and into Charter Operating, which, among other things, assumed the obligations under this credit facility and (c) Charter Operating agreed to guarantee, along with the Subsidiary Guarantors the TWC, LLC senior notes and debentures and the TWCE senior debentures. As of September 30, 2016, the Charter Operating credit facilities were comprised of $2.6 billion aggregate principal amount term loan A facility, $1.4 billion aggregate principal amount term loan E facility, $1.2 billion aggregate principal amount term loan F facility, $995 million aggregate principal amount term loan H facility and $2.8 billion aggregate principal amount term loan I facility. Charter Operating also has availability under its revolving credit facility of approximately $2.8 billion as of September 30, 2016.

(5)In connection with the TWC Transaction, Legacy TWC transferred substantially all of its assets to TWC, LLC (f/k/a TWC NewCo LLC), and, among other things, TWC, LLC assumed all the obligations under $20.3 billion principal amount of notes and debentures previously issued by Legacy TWC, and agreed to guarantee the Charter Operating and TWCE notes and debentures and the Charter Operating credit agreement.

(6)In connection with the Transactions, TWCE agreed to guarantee the Charter Operating and TWC, LLC notes and debentures and the Charter Operating credit agreement.

Overview

Since 2012, Legacy Charter has actively invested in its network and operations and has improved the quality and value of the products and packages that Legacy Charter offered.it offers. Through the roll-out of Spectrum pricing and packaging ("SPP") across Legacy Charter, we have simplified our offers and improved our packaging of products, delivering more value to new and existing customers. Further,


30



through the transition of our Legacy Charter markets to our all-digital platform, we increased our offerings to more than 200 HD channels in most of the Legacy Charter markets and offered Internet speeds of at least 60Mbps,60 or 100 Mbps, among other benefits. We believe that this product set combined with improved customer service, as we insource our workforce in our call centers and in our field operations, has led to lower customer churn and longer customer lifetimes.

As a result of the Transactions, quarterly revenues increased by over $7$3.9 billion year over year. We also saw an increase in expenses related to our increased scale. In September 2016, we began launching Spectrum pricing and packagingSPP to Legacy TWC and Legacy Bright House markets and we expect that by midas of June 30, 2017, we will offer Spectrum pricing and packagingSPP in nearly all Legacy TWC and Legacy Bright House markets. In the second half of 2017, we intend to begin converting the remaining Legacy TWC and Legacy Bright House analog markets to an all-digital platform and we expect to complete this initiative by the end of 2018. By the end of 2016, we expect that most of ourplatform. Our corporate organization, as well as our marketing, sales and product development departments, will beare now centralized. Field operations will beare managed through eleven regional areas, each designed to represent a combination of designated marketing areas and managed with largely the same set of field employees that were with the three legacy companies prior to completion of the Transactions. Over a multi-year period, Legacy TWC and Legacy Bright House customer care centers will migrate to Charter’sLegacy Charter's model of using segmented, virtualized, U.S.-based in-house call centers. We will focusare focused on deploying superior products and service with minimal service disruptions as we integrate our information technology and network operations. We expect customer and financial results to trend similarsimilarly to Legacy Charter following the implementation of the Legacy CharterCharter's operating strategies across the


43



Legacy TWC and Legacy Bright House markets. As a result of implementing our operating strategy atacross Legacy TWC and Legacy Bright House, we cannot be certain that we will be able to grow revenues or maintain our margins at recent historical rates.

Our most significant competitors are direct broadcast satellite providers and certain telephone companies that offer services that provide features and functions similar to our Internet, video and voice services, including in some cases wireless services. These services are frequently offered in bundles similar to ours. In addition, some consumers have chosen to receive video over the Internet rather than through pay television services including from us.

The CompanyWe realized revenue, Adjusted EBITDA and income from operations during the periods presented on an actual basis and pro forma basis, assuming the Transactions occurred as of January 1, 2015, as follows (in millions)millions; all percentages are calculated using whole numbers. Minor differences may exist due to rounding).

Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended June 30,
2016 2015 % Growth 2016 2015 % Growth2017 2016 % Change 2016 % Change
Actual           
Actual Pro forma
Revenues$10,037
 $2,450
 309.6% $18,728
 $7,242
 158.6%$10,357
 $6,161
 68.1% $9,969
 3.9%
Adjusted EBITDA$3,628
 $850
 326.8% $6,723
 $2,498
 169.1%$3,840
 $2,212
 73.6% $3,531
 8.8%
Income from operations$919
 $273
 236.6% $2,166
 $791
 173.8%$1,048
 $425
 146.6% $834
 25.7%
                    
Pro Forma           
Six Months Ended June 30,
2017 2016 % Change 2016 % Change
Actual Pro forma
Revenues$10,037
 $9,342
 7.4% $29,748
 $27,813
 7.0%$20,521
 $8,691
 136.1% $19,711
 4.1%
Adjusted EBITDA$3,628
 $3,176
 14.2% $10,596
 $9,574
 10.7%$7,489
 $3,095
 142.0% $6,968
 7.5%
Income from operations$919
 $766
 20.0% $3,354
 $2,422
 38.5%$1,986
 $727
 173.2% $1,899
 4.6%

Adjusted EBITDA is defined as consolidated net income (loss) plus net interest expense, income tax expense,taxes, depreciation and amortization, stock compensation expense, loss on extinguishment of debt, (gain) loss on financial instruments, net, other pension benefits, other (income) expense, net and other operating (income) expenses, such as merger and restructuring costs, other pension benefits, special charges and gain (loss) on sale or retirement of assets. See “—Use of Adjusted EBITDA and Free Cash Flow” for further information on Adjusted EBITDA and free cash flow. 

Growth in total revenue, Adjusted EBITDA and income from operations was primarily due to the Transactions.
On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, total revenue growth was primarily due to growth in our Internet and commercial businesses. On a pro forma basis, Adjusted EBITDAFor the six months ended June 30, 2017 compared to the corresponding prior period, the growth was primarilyoffset by an early contract termination benefit at Legacy TWC and Legacy Bright House in 2016 and lower advertising sales revenue due to an increasea decrease in residentialpolitical and commercial revenues offset by increases in programming costs and other operating costs.local advertising. In addition to the factors discusseditems noted above, income from operationsAdjusted EBITDA growth on a pro forma basis was affected by increases in programming costs and transition costs offset by decreases in all other operating expense categories. Income from operations on a pro forma basis was additionally affected by an increase in depreciation and amortization offset by a decrease in merger and restructuring costscosts.

On a pro forma basis, income from operations for the three and stock compensation expense.six months ended June 30, 2016 has been reduced from what was previously reported by $526 million and $536 million, respectively, to reflect the adoption of Accounting Standards Update No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost ("ASU 2017-07").


31



For more information, see Note 17 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”

We incurred the following transition costs in connection with the Transactions (in millions).

Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015Three Months Ended June 30, Six Months Ended June 30,
       2017 2016 2017 2016
Operating expenses$32
 $12
 $78
 $50
$30
 $25
 $81
 $46
Other operating expenses$205
 $19
 $513
 $51
$131
 $294
 $226
 $308
Capital expenditures$109
 $24
 $273
 $66
$86
 $111
 $162
 $164

Amounts included in transition operating expenses and transition capital expenditures represent incremental costs incurred to integrate the Legacy TWC and Legacy Bright House operations and to bring the three companies’ systems and processes into a uniform operating structure.  Costs are incremental and would not be incurred absent the integration.  Other operating expenses associated with the Transactions represent merger and restructuring costs and include advisory, legal and accounting fees, employee retention costs, employee termination costs and other exit costs. 



44



All customer statistics as of SeptemberJune 30, 20162017 include the operations of Legacy TWC, Legacy Bright House and Legacy Charter, each of which is based on theindividual legacy company’scompany reporting methodology. SuchThese methodologies differ and thesetheir differences may be material. Once statisticalStatistical reporting is fully integrated, all prior periods will be recastconformed over time to reflect a consistentsingle reporting methodology. The following table summarizes our customer statistics for video, Internet and voice as of SeptemberJune 30, 20162017 and 20152016 (in thousands except per customer data and footnotes).

 Approximate as of
 September 30,
 2016 (a) 2015 (a)
    
Customer Relationships (b)   
Residential24,551
 6,202
Small and Medium Business1,367
 375
Total Customer Relationships25,918
 6,577
    
Residential Primary Service Units (“PSU”)   
Video16,887
 4,293
Internet21,017
 5,112
Voice10,288
 2,551
 48,192
 11,956
    
Monthly Residential Revenue per Residential Customer (c)$109.69
 $110.69
    
Small and Medium Business PSUs   
Video388
 104
Internet1,185
 331
Voice751
 208
 2,324
 643
    
Monthly Small and Medium Business Revenue per Customer (d)$214.64
 $176.19
    
Enterprise PSUs (e)93
 28

After giving effect to the Transactions, September 30, 2015 residential and small and medium business customer relationships would have been 23,436,000 and 1,221,000, respectively, residential video, Internet and voice PSUs would have been 16,944,000, 19,416,000 and 9,655,000, respectively and small and medium business PSUs would have been 354,000, 1,045,000 and 643,000, respectively; Enterprise PSUs would have been 77,000.
 Approximate as of
 June 30,
 2017 (a) 2016 (a)(b)
Customer Relationships (c)   
Residential25,298
 24,306
Small and Medium Business1,483
 1,333
Total Customer Relationships26,781
 25,639
    
Residential Primary Service Units (“PSU”)   
Video16,646
 16,934
Internet22,033
 20,667
Voice10,378
 10,255
 49,057
 47,856
    
Monthly Residential Revenue per Residential Customer (d)$109.46
 $109.99
    
Small and Medium Business PSUs   
Video425
 378
Internet1,285
 1,148
Voice847
 725
 2,557
 2,251
    
Monthly Small and Medium Business Revenue per Customer (e)$210.64
 $236.68
    
Enterprise PSUs (f)103
 90

(a)
We calculate the aging of customer accounts based on the monthly billing cycle for each account. On that basis, as of SeptemberJune 30, 20162017 and 2015,2016, customers include approximately 200,900209,500 and 36,800208,600 customers, respectively, whose accounts were over 60 days past due, approximately 15,20014,800 and 1,20014,000 customers, respectively, whose accounts were over 90 days past due, and approximately 8,9008,700 and 8008,000 customers, respectively, whose accounts were over 120 days past due.


32



(b)In the second quarter of 2017, we conformed the seasonal customer program in the Legacy Bright House footprint to our program. Prior to the plan change, Legacy Bright House customers enrolling in the seasonal plan were charged a one-time fee and counted as customer disconnects, and as new connects, when moving off the seasonal plan. Under our seasonal plan, residential customers pay a reduced monthly fee while the seasonal plan is active and remain reported as customers. Excluding the impact of customer disconnect activity related to the previous seasonal plan, Legacy Bright House residential customer relationships at June 30, 2016, would have been higher by approximately 58,000, and video, Internet and voice PSUs for the second quarter of 2016, would have been higher by 52,000, 72,000 and 49,000 respectively.
(c)Customer relationships include the number of customers that receive one or more levels of service, encompassing video, Internet and voice services, without regard to which service(s) such customers receive. Customers who reside in residential multiple dwelling units (“MDUs”) and that are billed under bulk contracts are counted based on the number of billed units within each bulk MDU. Total customer relationships excludes enterprise customer relationships.

(c)(d)Monthly residential revenue per residential customer is calculated as total residential video, Internet and voice quarterly revenue divided by three divided by average residential customer relationships during the respective quarter.



45



(d)(e)Monthly small and medium business revenue per customer is calculated as total small and medium business quarterly revenue divided by three divided by average small and medium business customer relationships during the respective quarter.

(e)(f)Enterprise PSUs represent the aggregate number of fiber service offerings counting each separate service offering as an individual PSU.

Critical Accounting Policies and Estimates

For a discussion of our critical accounting policies and the means by which we develop estimates therefore, see Exhibit 99.1 in our Current Report on Form 8-K filed with the SEC on June 6, 2016 and “Item 2.7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Quarterly2016 Annual Report on Form 10-Q for the three and six months ended June 30, 2016.10-K. There have been no material changes from the critical accounting policies described in our Form 8-K and Form 10-Q.10-K.

Results of Operations

We completed the Transactions on May 18, 2016 and have included the Legacy TWC and Legacy Bright House operating results since that date. In accordance with U.S. generally accepted accounting principles (“GAAP”), operating results from Legacy TWC and Legacy Bright House prior to the closing of the Transactions have been excluded. For purposes of management’s discussion and analysis, we have given explanations of increases and decreases in our results of operations on an actual basis, as well as on a pro forma basis assuming the Transactions occurred as of January 1, 2015. Due to the size of the Transactions, we believe that providing a discussion of our results of operations on a pro forma basis provides management and investors a more meaningful perspective on our financial and operational performance and trends. The results of operations data on a pro forma basis are provided for illustrative purposes only and are based on available information and assumptions that we believe are reasonable and do not purport to represent what our actual consolidated results of operations would have been had the Transactions occurred as of January 1, 2015, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position.

See Exhibit 99.1 in thisCCO Holdings' Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2016 filed with the SEC on November 10, 2016 for pro forma financial information for each quarter of 2015 and the first and second quarter of 2016.




4633



The following table sets forth the consolidated statements of operations for the periods presented (dollars in millions, except per share data):

Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015Three Months Ended June 30, Six Months Ended June 30,
       2017 2016 2017 2016
Revenues$10,037
 $2,450
 $18,728
 $7,242
$10,357
 $6,161
 $20,521
 $8,691
              
Costs and Expenses:              
Operating costs and expenses (exclusive of items shown separately below)6,490
 1,620
 12,173
 4,802
6,582
 4,012
 13,166
 5,683
Depreciation and amortization2,435
 538
 4,409
 1,580
2,592
 1,435
 5,140
 1,974
Other operating (income) expenses, net193
 19
 (20) 69
Other operating expenses, net135
 289
 229
 307
9,118
 2,177
 16,562
 6,451
9,309
 5,736
 18,535
 7,964
Income from operations919
 273
 2,166
 791
1,048
 425
 1,986
 727
              
Other Expenses:              
Interest expense, net(729) (192) (1,391) (648)(754) (462) (1,473) (662)
Loss on extinguishment of debt
 
 (110) (126)(1) (110) (35) (110)
Gain (loss) on financial instruments, net71
 (5) 16
 (10)
Other expense, net(2) 
 (2) 
Loss on financial instruments, net(70) (50) (32) (55)
Other pension benefits13
 520
 26
 520
(660) (197) (1,487) (784)(812) (102) (1,514) (307)
              
Income before income taxes259
 76
 679
 7
236
 323
 472
 420
Income tax benefit7
 219
 
 212
       
Income tax expense(10) (7) (29) (7)
Consolidated net income266
 295
 679
 219
226
 316
 443
 413
Less: Net income attributable to noncontrolling interests(1) (13) (1) (34)(1) 
 (1) 
              
Net income attributable to CCO Holdings member$265
 $282
 $678
 $185
$225
 $316
 $442
 $413

Revenues. Total revenues grew $7.6$4.2 billion or 310%68.1% for the three months ended SeptemberJune 30, 20162017 as compared to the three months ended SeptemberJune 30, 2015,2016, and grew $11.5$11.8 billion or 159%136.1% for the ninesix months ended SeptemberJune 30, 20162017 as compared to the ninesix months ended SeptemberJune 30, 2015.2016. Revenue growth primarily reflects the Transactions and increases in the number of residential Internet and triple play customers and in commercial business customers, growth in rates driven by higher equipment revenue and rate increases offset by a decrease in basic video customers. The Transactions increased revenues for three and ninesix months ended SeptemberJune 30, 20162017 as compared to the three and ninesix months SeptemberJune 30, 20152016 by approximately $7.4$3.9 billion and $11.0$11.4 billion, respectively. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, total revenue growth was 7%3.9% and 4.1% for both the three and ninesix months ended SeptemberJune 30, 20162017 compared to the corresponding periods in 2015.2016, respectively.
    


4734



Revenues by service offering were as follows (dollars in millions; all percentages are calculated using whole numbers. Minor differences may exist due to rounding):

 Three Months Ended September 30,
 Actual Pro forma
 2016 2015 % Change 2016 2015 % Change
            
Video$4,094
 $1,143
 258% $4,094
 $3,973
 3 %
Internet3,206
 762
 321% 3,206
 2,844
 13 %
Voice728
 135
 441% 728
 707
 3 %
Residential revenue8,028
 2,040
 293% 8,028
 7,524
 7 %
            
Small and medium business868
 193
 347% 868
 767
 13 %
Enterprise508
 93
 453% 508
 461
 10 %
Commercial revenue1,376
 286
 381% 1,376
 1,228
 12 %
            
Advertising sales419
 77
 449% 419
 374
 12 %
Other214
 47
 354% 214
 216
 (1)%
            
 $10,037
 $2,450
 310% $10,037
 $9,342
 7 %
            
 Nine Months Ended September 30,
 Actual Pro forma
 2016 2015 % Change 2016 2015 % Change
            
Video$7,869
 $3,420
 130% $12,291
 $12,009
 2 %
Internet5,960
 2,222
 168% 9,376
 8,371
 12 %
Voice1,286
 404
 219% 2,185
 2,117
 3 %
Residential revenue15,115
 6,046
 150% 23,852
 22,497
 6 %
            
Small and medium business1,590
 565
 181% 2,520
 2,223
 13 %
Enterprise903
 268
 237% 1,500
 1,339
 12 %
Commercial revenue2,493
 833
 199% 4,020
 3,562
 13 %
            
Advertising sales728
 222
 229% 1,189
 1,105
 8 %
Other392
 141
 178% 687
 649
 6 %
            
 $18,728
 $7,242
 159% $29,748
 $27,813
 7 %



48


 Three Months Ended June 30,
 2017 2016 % Change 2016 % Change
 Actual Pro forma
Video$4,124
 $2,605
 58.3% $4,125
  %
Internet3,513
 1,950
 80.2% 3,133
 12.1 %
Voice650
 423
 53.4% 729
 (10.9)%
Residential revenue8,287
 4,978
 66.4% 7,987
 3.8 %
          
Small and medium business924
 520
 77.7% 843
 9.7 %
Enterprise548
 296
 85.1% 501
 9.3 %
Commercial revenue1,472
 816
 80.4% 1,344
 9.5 %
          
Advertising sales381
 237
 61.3% 405
 (5.8)%
Other217
 130
 67.0% 233
 (6.8)%
 $10,357
 $6,161
 68.1% $9,969
 3.9 %
          
 Six Months Ended June 30,
 2017 2016 % Change 2016 % Change
 Actual Pro forma
Video$8,203
 $3,775
 117.3% $8,198
 0.1 %
Internet6,911
 2,754
 151.0% 6,170
 12.0 %
Voice1,344
 558
 140.6% 1,458
 (7.9)%
Residential revenue16,458
 7,087
 132.2% 15,826
 4.0 %
          
Small and medium business1,824
 722
 152.5% 1,651
 10.5 %
Enterprise1,087
 395
 175.1% 991
 9.7 %
Commercial revenue2,911
 1,117
 160.5% 2,642
 10.2 %
          
Advertising sales718
 309
 132.9% 770
 (6.7)%
Other434
 178
 143.8% 473
 (8.3)%
 $20,521
 $8,691
 136.1% $19,711
 4.1 %

Video revenues consist primarily of revenues from basic and digital video services provided to our residential customers, as well as franchise fees, equipment rental and video installation revenue. Excluding the impacts of the Transactions, residentialResidential video customers increaseddecreased by 51,000288,000 from SeptemberJune 30, 20152016 to SeptemberJune 30, 20162017.

The increase in video revenues is attributable to the following (dollars in millions):

 Three months ended
September 30, 2016
compared to
three months ended
September 30, 2015
Increase / (Decrease)
 Nine months ended
September 30, 2016
compared to
nine months ended
September 30, 2015
Increase / (Decrease)
    
Incremental video services, price adjustments and bundle revenue allocation$24
 $98
Increase in average basic video customers13
 24
Decrease in video on demand and pay-per-view(2) (19)
TWC Transaction2,521
 3,749
Bright House Transaction395
 597
    
 $2,951
 $4,449
 Three months ended
June 30, 2017
compared to
three months ended
June 30, 2016
Increase / (Decrease)
 Six months ended
June 30, 2017
compared to
six months ended
June 30, 2016
Increase / (Decrease)
Decrease in average basic video customers$(34) $(26)
Bundle revenue allocation and price adjustments30
 19
TWC Transaction1,310
 3,806
Bright House Transaction213
 629
 $1,519
 $4,428



35



On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, residential video customers decreased by 57,000 from September 30, 2015 to September 30, 2016 and the increasechange in video revenues is attributable to the following (dollars in millions):

 Three months ended
September 30, 2016
compared to
three months ended
September 30, 2015
Increase / (Decrease)
 Nine months ended
September 30, 2016
compared to
nine months ended
September 30, 2015
Increase / (Decrease)
    
Incremental video services, price adjustments and bundle revenue allocation$130
 $375
Increase (decrease) in video on demand and pay-per-view2
 (61)
Decrease in average basic video customers(11) (32)
    
 $121
 $282
 Three months ended
June 30, 2017
compared to
three months ended
June 30, 2016
Increase / (Decrease)
 Six months ended
June 30, 2017
compared to
six months ended
June 30, 2016
Increase / (Decrease)
Bundle revenue allocation and price adjustments$75
 $150
Decrease in average basic video customers(76) (145)
 $(1) $5

Excluding the impacts of the Transactions, residentialResidential Internet customers grew by 467,0001,366,000 customers from SeptemberJune 30, 20152016 to SeptemberJune 30, 20162017. The increase in Internet revenues from our residential customers is attributable to the following (dollars in millions):

 Three months ended
September 30, 2016
compared to
three months ended
September 30, 2015
Increase / (Decrease)
 Nine months ended
September 30, 2016
compared to
nine months ended
September 30, 2015
Increase / (Decrease)
    
Increase in average residential Internet customers$73
 $213
Service level changes, price adjustments and bundle revenue allocation14
 50
TWC Transaction2,017
 2,973
Bright House Transaction340
 502
    
 $2,444
 $3,738



49


 Three months ended
June 30, 2017
compared to
three months ended
June 30, 2016
Increase / (Decrease)
 Six months ended
June 30, 2017
compared to
six months ended
June 30, 2016
Increase / (Decrease)
Increase in average residential Internet customers$136
 $205
Price adjustments, bundle revenue allocation and service level changes98
 113
TWC Transaction1,134
 3,268
Bright House Transaction195
 571
 $1,563
 $4,157

On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, residential Internet customers increased by 1,601,000 from September 30, 2015 to September 30, 2016 and the increase in Internet revenues is attributable to the following (dollars in millions):

Three months ended
September 30, 2016
compared to
three months ended
September 30, 2015
Increase / (Decrease)
 Nine months ended
September 30, 2016
compared to
nine months ended
September 30, 2015
Increase / (Decrease)
   Three months ended
June 30, 2017
compared to
three months ended
June 30, 2016
Increase / (Decrease)
 Six months ended
June 30, 2017
compared to
six months ended
June 30, 2016
Increase / (Decrease)
Increase in average residential Internet customers$248
 $719
$209
 $424
Service level changes, price adjustments and bundle revenue allocation114
 286
Price adjustments, bundle revenue allocation and service level changes171
 317
   $380
 $741
$362
 $1,005

Excluding the impacts of the Transactions, residentialResidential voice customers grew by 114,000123,000 customers from SeptemberJune 30, 20152016 to SeptemberJune 30, 20162017. The increase in voice revenues from our residential customers is attributable to the following (dollars in millions):

Three months ended
September 30, 2016
compared to
three months ended
September 30, 2015
Increase / (Decrease)
 Nine months ended
September 30, 2016
compared to
nine months ended
September 30, 2015
Increase / (Decrease)
   Three months ended
June 30, 2017
compared to
three months ended
June 30, 2016
Increase / (Decrease)
 Six months ended
June 30, 2017
compared to
six months ended
June 30, 2016
Increase / (Decrease)
Increase in average residential voice customers$6
 $22
$7
 $11
Price adjustments and bundle revenue allocation(4) (15)
Bundle revenue allocation and price adjustments(51) (54)
TWC Transaction507
 750
231
 707
Bright House Transaction84
 125
40
 122
   $227
 $786
$593
 $882


36




On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, residential voice customers increased by 633,000 from September 30, 2015 to September 30, 2016 and the increasedecrease in voice revenues is attributable to the following (dollars in millions):

Three months ended
September 30, 2016
compared to
three months ended
September 30, 2015
Increase / (Decrease)
 Nine months ended
September 30, 2016
compared to
nine months ended
September 30, 2015
Increase / (Decrease)
   Three months ended
June 30, 2017
compared to
three months ended
June 30, 2016
Increase / (Decrease)
 Six months ended
June 30, 2017
compared to
six months ended
June 30, 2016
Increase / (Decrease)
Increase in average residential voice customers$53
 $196
$11
 $31
Price adjustments and bundle revenue allocation(32) (128)
Bundle revenue allocation and price adjustments(90) (145)
   $(79) $(114)
$21
 $68


50



Excluding the impacts of the Transactions, smallSmall and medium business PSUs grew by 127,000306,000 from SeptemberJune 30, 20152016 to SeptemberJune 30, 2016.2017. The increase in small and medium business commercial revenues is attributable to the following (dollars in millions):

Three months ended
September 30, 2016
compared to
three months ended
September 30, 2015
Increase / (Decrease)
 Nine months ended
September 30, 2016
compared to
nine months ended
September 30, 2015
Increase / (Decrease)
   Three months ended
June 30, 2017
compared to
three months ended
June 30, 2016
Increase / (Decrease)
 Six months ended
June 30, 2017
compared to
six months ended
June 30, 2016
Increase / (Decrease)
Increase in small and medium business customers$33
 $95
$64
 $95
Price adjustments(9) (29)(15) (22)
TWC Transaction565
 831
307
 890
Bright House Transaction86
 128
48
 139
   $404
 $1,102
$675
 $1,025

On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, small and medium business PSUs increased by 282,000 from September 30, 2015 to September 30, 2016 and the increase in small and medium business commercial revenues is attributable to the following (dollars in millions):

Three months ended
September 30, 2016
compared to
three months ended
September 30, 2015
Increase / (Decrease)
 Nine months ended
September 30, 2016
compared to
nine months ended
September 30, 2015
Increase / (Decrease)
   Three months ended
June 30, 2017
compared to
three months ended
June 30, 2016
Increase / (Decrease)
 Six months ended
June 30, 2017
compared to
six months ended
June 30, 2016
Increase / (Decrease)
Increase in small and medium business customers$92
 $265
$102
 $199
Price adjustments and service level changes9
 32
Price adjustments(21) (26)
   $81
 $173
$101
 $297

Excluding the impacts of the Transactions, enterpriseEnterprise PSUs increased 7,00013,000 from SeptemberJune 30, 20152016 to SeptemberJune 30, 2016. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, enterprise PSUs increased by 16,000 from September 30, 2015 to September 30, 2016.2017. The Transactions increased enterprise commercial revenues for the three and ninesix months ended SeptemberJune 30, 20162017 compared to the corresponding periods in 20152016 by $411$224 million and $607$655 million, respectively. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, enterprise commercial revenues increased $47 million and $161$96 million during the three and ninesix months ended SeptemberJune 30, 2016,2017, respectively, compared to the corresponding periods in 20152016 primarily due to growth in customers.

Advertising sales revenues consist primarily of revenues from commercial advertising customers, programmers and other vendors, as well as local cable and advertising on regional sports and news channels. Advertising sales revenues increased $342$144 million and $506$409 million during the three and ninesix months ended SeptemberJune 30, 20162017, respectively, compared to the corresponding periods in 20152016 primarily due to the Transactions. The Transactions increased advertising sales revenues for the three and ninesix months ended SeptemberJune 30, 20162017 compared to the corresponding periods in 20152016 by $336$160 million and $495$425 million, respectively. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, advertising sales revenues increased $45decreased $24 million and $84$52 million


37



during the three and ninesix months ended SeptemberJune 30, 2016,2017, respectively, compared to the corresponding periods in 20152016 primarily due to an increasea decrease in political and local advertising.

Other revenues consist of revenue from regional sports and news channels (excluding intercompany charges or advertising sales on those channels), home shopping, late payment fees, wire maintenance fees and other miscellaneous revenues. Other revenues increased $167$87 million and $251$256 million during the three and ninesix months ended SeptemberJune 30, 2016,2017, respectively, compared to the corresponding periods in 20152016 primarily as a result of the Transactions. The Transactions increased other revenues for the three and ninesix months ended SeptemberJune 30, 20162017 compared to the corresponding periods in 20152016 by $173$86 million and $257$255 million, respectively. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, other revenues decreased $2by $16 million


51



and increased by $38$39 million during the three and ninesix months ended SeptemberJune 30, 2016,2017, respectively, compared to the corresponding periods in 2015. The increase during the nine months ended September 30, 2016 compared to 2015 is primarily due to a settlement incurred in 2016 related to an early contract termination at Legacy TWC and an increase in processing fees.Legacy Bright House.

Operating costs and expenses. The increases in our operating costs and expenses, exclusive of items shown separately in the consolidated statements of operations, are attributable to the following (dollars in millions):

Three months ended
September 30, 2016
compared to
three months ended
September 30, 2015
Increase / (Decrease)
 Nine months ended
September 30, 2016
compared to
nine months ended
September 30, 2015
Increase / (Decrease)
   Three months ended
June 30, 2017
compared to
three months ended
June 30, 2016
Increase / (Decrease)
 Six months ended
June 30, 2017
compared to
six months ended
June 30, 2016
Increase / (Decrease)
Programming$1,737
 $2,644
$1,108
 $3,009
Regulatory, connectivity and produced content400
 612
215
 601
Costs to service customers1,387
 2,044
718
 2,208
Marketing428
 660
219
 636
Transition costs20
 28
5
 35
Other898
 1,383
305
 994
   $2,570
 $7,483
$4,870
 $7,371

Programming costs were approximately $2.4$2.6 billion and $667 million,$1.5 billion, representing 37%40% and 41%38% of total operating costs and expenses for the three months ended SeptemberJune 30, 20162017 and 2015,2016, respectively, and $4.6$5.3 billion and $2.0$2.2 billion, representing 38%40% and 42%39% of total operating costs and expenses for the ninesix months ended SeptemberJune 30, 20162017 and 2015,2016, respectively. The increasesincrease in operating costs and expenses for the three and ninesix months ended SeptemberJune 30, 20162017 compared to the corresponding prior periods wereperiod was primarily due to the Transactions which increased operating costs and expenses by approximately $4.7 billion and $7.0 billion, respectively.Transactions.

The increase in other expense is attributable to the following (dollars in millions):

Three months ended
September 30, 2016
compared to
three months ended
September 30, 2015
Increase / (Decrease)
 Nine months ended
September 30, 2016
compared to
nine months ended
September 30, 2015
Increase / (Decrease)
   Three months ended
June 30, 2017
compared to
three months ended
June 30, 2016
Increase / (Decrease)
 Six months ended
June 30, 2017
compared to
six months ended
June 30, 2016
Increase / (Decrease)
Corporate costs$240
 $384
$61
 $260
Enterprise80
 236
Advertising sales expense149
 226
84
 233
Enterprise137
 207
Bad debt expense86
 118
Property tax and insurance79
 120
39
 114
Stock compensation expense61
 110
2
 47
Other146
 218
39
 104
   $305
 $994
$898
 $1,383

The increasesincrease in other expense for the three and ninesix months ended SeptemberJune 30, 20162017 compared to the corresponding prior periods wereperiod was primarily due to the Transactions which increased other expense by approximately $850 million and $1.3 billion, respectively.Transactions.



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On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, increases in our operating costs and expenses, exclusive of items shown separately in the consolidated statements of operations, are attributable to the following (dollars in millions):

Three months ended
September 30, 2016
compared to
three months ended
September 30, 2015
Increase / (Decrease)
 Nine months ended
September 30, 2016
compared to
nine months ended
September 30, 2015
Increase / (Decrease)
   Three months ended
June 30, 2017
compared to
three months ended
June 30, 2016
Increase / (Decrease)
 Six months ended
June 30, 2017
compared to
six months ended
June 30, 2016
Increase / (Decrease)
Programming$182
 $524
$232
 $429
Regulatory, connectivity and produced content(15) 11
(18) (25)
Costs to service customers(33) 55
(77) (62)
Marketing4
 86
(15) (25)
Transition costs20
 28
5
 35
Other104
 244
(55) (67)
   $72
 $285
$262
 $948

On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, programming costs were approximately $2.4 billion and $2.2$4.8 billion, representing 37% and 36%37% of total operating costs and expenses for the three and six months ended SeptemberJune 30, 2016, and 2015, respectively, and $7.2 billion and $6.7 billion, representing 37% and 36% of total operating costs and expenses for the nine months ended September 30, 2016 and 2015, 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 pro forma programming costs is primarily a result of annual contractual rate adjustments, including renewals and increases in amounts paid for retransmission consents and the introduction of new networks offset by synergies as a result of the Transactions and lower pay-per-view programming expenses.Transactions.  We expect pro forma programming expenses will continue to increase due to a variety of factors, including annual increases imposed by programmers with additional selling power as a result of media consolidation, increased demands by owners of broadcast stations for payment for retransmission consent or linking carriage of other services to retransmission consent, and additional programming, particularly new sports services. We have been unable to fully pass these increases on to our customers nor do we expect to be able to do so in the future without a potential loss of customers.

Costs to service customers decreased $77 million and $62 million during the three and six months ended June 30, 2017, respectively, compared to the corresponding periods in 2016 due to benefits from combining Legacy TWC and Legacy Bright House into Charter, including lower employee benefit costs, higher labor and material capitalization with increases in placement of new customer equipment and lower bad debt expenses.

On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, the increase in other expense is attributable to the following (dollars in millions):

 Three months ended
September 30, 2016
compared to
three months ended
September 30, 2015
Increase / (Decrease)
 Nine months ended
September 30, 2016
compared to
nine months ended
September 30, 2015
Increase / (Decrease)
    
Corporate costs$25
 $94
Advertising sales expense23
 57
Stock compensation expense19
 35
Enterprise12
 33
Property tax and insurance(5) 16
Other30
 17
    
 $104
 $252

The increases in corporate costs relate primarily to increases in the number of employees. Stock compensation expense increased primarily due to increases in headcount and the value of equity issued.


53



 Three months ended
June 30, 2017
compared to
three months ended
June 30, 2016
Increase / (Decrease)
 Six months ended
June 30, 2017
compared to
six months ended
June 30, 2016
Increase / (Decrease)
Corporate costs$(64) $(104)
Enterprise6
 17
Advertising sales expense13
 26
Property tax and insurance(8) (16)
Stock compensation expense(7) (4)
Other5
 14
 $(55) $(67)

Depreciation and amortization. Depreciation and amortization expense increased by $1.9$1.2 billion and $2.8$3.2 billion during the three and ninesix months ended SeptemberJune 30, 2016,2017, respectively, compared to the corresponding periods in 20152016 primarily as a result of additional


39



depreciation and amortization related to the Transactions, inclusive of the incremental amounts as a result of the higher fair values recorded in acquisition accounting.

Other operating expenses, net. The changes in other operating expenses, net are attributable to the following (dollars in millions):

Three months ended
September 30, 2016
compared to
three months ended
September 30, 2015
Increase / (Decrease)
 Nine months ended
September 30, 2016
compared to
nine months ended
September 30, 2015
Increase / (Decrease)
   Three months ended
June 30, 2017
compared to
three months ended
June 30, 2016
Increase / (Decrease)
 Six months ended
June 30, 2017
compared to
six months ended
June 30, 2016
Increase / (Decrease)
Merger and restructuring costs$186
 $462
$(163) $(82)
Other pension benefits(13) (533)
Special charges, net3
 (3)2
 
(Gain) loss on sale of assets, net(2) (15)7
 4
   $(154) $(78)
$174
 $(89)

The increasedecrease in merger and restructuring costs is primarily due to a decrease of approximately $171$149 million and $451$56 million of employee retentiontermination and employee terminationretention costs incurred during the three and ninesix months ended SeptemberJune 30, 2016, respectively.The increase in other pension benefits during the nine months ended September 30, 20162017, respectively, compared to the corresponding prior period is primarily due to the pension curtailment gain of $675 million, net of the remeasurement loss of $157 million. For more information, see Notes 12 and 17periods in 2016.See Note 10 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”

Interest expense, net. Net interest expense increased by $537$292 million and $743$811 million for the three and ninesix months ended SeptemberJune 30, 20162017, respectively, compared to the corresponding periods in 20152016 primarily as a result of an increase of approximately $239$129 million and $354$369 million, respectively, of interest expense associated with the debt incurred to fund the Transactions and $243approximately $118 million and $359$360 million, respectively, of interest expense associated with debt assumed from Legacy TWC.TWC and an increase in weighted average debt outstanding primarily due to the issuance of notes in April 2017.

Loss on extinguishment of debt. Loss on extinguishment of debt of $110$1 million and $126$35 million for the ninethree and six months ended SeptemberJune 30, 2017, respectively, and $110 million for each of the three and six months ended June 30, 2016 and 2015, respectively, primarily representrepresents losses recognized as a result of the repurchaserepurchases of CCO Holdings, LLC ("CCO Holdings") notes. For more information, see Note 75 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”

Gain (loss)Loss on financial instruments, net. Interest rate derivative instruments are used to manage our interest costs and to reduce our exposure to increases in floating interest rates, and cross-currency derivative instruments are used to manage foreign exchange risk related to the foreign currency denominated debt assumed in the TWC Transaction. We recorded gainslosses of $71$70 million and $16$32 million during the three and ninesix months ended SeptemberJune 30, 2016,2017, respectively and losses of $5$50 million and $10$55 million during the three and ninesix months ended SeptemberJune 30, 2015,2016, respectively. Gains and losses on financial instruments are recognized due to changes in the fair value of our interest rate and our cross currency derivative instruments, and the foreign currency remeasurement of the fixed-rate British pound sterling denominated notes (the “Sterling Notes”) into U.S. dollars. The nine months ended September 30, 2016, also includes an $11 million loss realized upon termination of Legacy TWC interest rate swap derivative instruments. For more information, see Note 97 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”

Other expense, net.pension benefits. Other expense,pension benefits decreased by $507 million and $494 million during the three and six months ended June 30, 2017, respectively, compared to the corresponding periods in 2016 primarily due to a $675 million pension curtailment gain offset by an $157 million net primarily represents equity losses on our equity-method investments.remeasurement loss recognized in 2016 that resulted from an amendment to the plans made subsequent to the TWC Transaction. For more information, see Note 515 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”

Income tax benefit.expense. We recognized income tax benefitexpense of $7 million for the three months ended September 30, 2016, and $219$10 million and $212$29 million for the three and ninesix months ended SeptemberJune 30, 2015, respectively. Current2017, respectively, and $7 million for each of the three and six months ended June 30, 2016. Income tax expense is recognized primarily through increases in deferred tax liabilities, as well as through current federal and state income tax expense was $7 million and $14 million for the three and nine months ended September 30, 2016, respectively, and $4 million for the nine months ended September 30, 2015. The tax provision in future periods will vary based on current and future temporary differences, as well as future operating results. For more information, see Note 13 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”expense.



54




Net income attributable to noncontrolling interest. Net income attributable to noncontrolling interest in 2016 relates to our third-party
interest in CV of Viera, LLP, a consolidated joint venture in a small cable system in Florida assumed in the Transactions. Net income attributable to noncontrolling interest in 2015 included the 2% accretion of the preferred membership interests in CC VIII, LLC (“CC VIII”) plus approximately 18.6% of CC VIII’s income, net of accretion. On December 31, 2015, the CC VIII preferred interest held by CCH I, LLC was contributed to CC VIII and subsequently canceled. For more information, see Note 5 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”

Net income (loss) attributable to CCO Holdings member. Net income attributable to CCO Holdings member decreased from $282$316 million for the three months ended SeptemberJune 30, 20152016 to $265$225 million for the three months ended SeptemberJune 30, 2016,2017, and increased from $185$413 million for the ninesix months ended SeptemberJune 30, 20152016 to $678$442 million for the ninesix months ended SeptemberJune 30, 20162017 primarily as a result


40



of the factors described above. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, net income attributable to CCO Holdings member increased from $253was $474 million and $847 million for the three and six months ended September 30, 2015 to $265 million for the three months ended SeptemberJune 30, 2016, and increased from $342 million for the nine months ended September 30, 2015 to $1.1 billion for the nine months ended September 30, 2016.respectively.

Use of Adjusted EBITDA and Free Cash Flow

We use certain measures that are not defined by U.S. generally accepted accounting principles (“GAAP”)GAAP to evaluate various aspects of our business. Adjusted EBITDA and free cash flow are non-GAAP financial measures and should be considered in addition to, not as a substitute for, consolidated net income (loss) and net cash flows from operating activities reported in accordance with GAAP. These terms, as defined by us, may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA and free cash flow are reconciled to consolidated net income (loss) and net cash flows from operating activities, respectively, below.

Adjusted EBITDA is defined as consolidated net income (loss) plus net interest expense, income tax benefit, depreciation and amortization, stock compensation expense, loss on extinguishment of debt, (gain) loss on financial instruments, other expense, net and other operating expenses, such as merger and restructuring costs, other pension benefits, special charges and (gain) loss on sale or retirement of assets. As such, it eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of our businesses as well as other non-cash or special items, and is unaffected by our capital structure or investment activities. However, this measure is limited in that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues and our cash cost of financing. These costs are evaluated through other financial measures.

Free cash flow is defined as net cash flows from operating activities, less capital expenditures and changes in accrued expenses related to capital expenditures.

Management and Charter’s board of directors use Adjusted EBITDA and free cash flow to assess our performance and our ability to service our debt, fund operations and make additional investments with internally generated funds. In addition, Adjusted EBITDA generally correlates to the leverage ratio calculation under our credit facilities or outstanding notes to determine compliance with the covenants contained in the facilities and notes (all such documents have been previously filed with the Securities and Exchange Commission (the “SEC”)). For the purpose of calculating compliance with leverage covenants, we use Adjusted EBITDA, as presented, excluding certain expenses paid by our operating subsidiaries to other Charter entities. Our debt covenants refer to these expenses as management fees, which were $330$256 million and $79$529 million for the three and six months ended SeptemberJune 30, 2016 and 2015,2017, respectively, and $634$202 million and $231$304 million for the ninethree and six months ended SeptemberJune 30, 2016, and 2015, respectively.

 Three Months Ended June 30, Six Months Ended June 30,
 2017 2016 2017 2016
 Actual
Consolidated net income$226
 $316
 $443
 $413
Plus: Interest expense, net754
 462
 1,473
 662
Income tax expense10
 7
 29
 7
Depreciation and amortization2,592
 1,435
 5,140
 1,974
Stock compensation expense65
 63
 134
 87
Loss on extinguishment of debt1
 110
 35
 110
Loss on financial instruments, net70
 50
 32
 55
Other pension benefits(13) (520) (26) (520)
Other, net135
 289
 229
 307
Adjusted EBITDA$3,840
 $2,212
 $7,489
 $3,095
        
Net cash flows from operating activities$2,964
 $2,067
 $5,628
 $2,748
Less: Purchases of property, plant and equipment(2,148) (1,260) (3,703) (1,689)
Change in accrued expenses related to capital expenditures347
 194
 197
 138
Free cash flow$1,163
 $1,001
 $2,122
 $1,197


5541



 Three Months Ended September 30, Nine Months Ended September 30,
 2016 2015 2016 2015
 Actual
Consolidated net income$266
 $295
 $679
 $219
Plus: Interest expense, net729
 192
 1,391
 648
Income tax benefit(7) (219) 
 (212)
Depreciation and amortization2,435
 538
 4,409
 1,580
Stock compensation expense81
 20
 168
 58
Loss on extinguishment of debt
 
 110
 126
(Gain) loss on financial instruments, net(71) 5
 (16) 10
Other, net195
 19
 (18) 69
        
Adjusted EBITDA$3,628
 $850
 $6,723
 $2,498
        
Net cash flows from operating activities$2,790
 $677
 $5,538
 $1,821
Less: Purchases of property, plant and equipment(1,748) (509) (3,437) (1,292)
Change in accrued expenses related to capital expenditures(52) 28
 86
 11
        
Free cash flow$990
 $196
 $2,187
 $540

Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended Six Months Ended
2016 2015 2016 2015June 30, 2016 June 30, 2016
Pro FormaPro Forma
Consolidated net income$266
 $266
 $1,113
 $376
$474
 $847
Plus: Interest expense, net729
 724
 2,160
 2,270
723
 1,431
Income tax benefit(7) (219) 
 (212)
Income tax expense7
 7
Depreciation and amortization2,435
 2,354
 7,054
 6,955
2,336
 4,619
Stock compensation expense81
 62
 219
 184
72
 138
Loss on extinguishment of debt
 
 110
 126
110
 110
(Gain) loss on financial instruments, net(71) 5
 (16) 10
Loss on financial instruments, net50
 55
Other pension benefits(526) (536)
Other, net195
 (16) (44) (135)285
 297
       
Adjusted EBITDA$3,628
 $3,176
 $10,596
 $9,574
$3,531
 $6,968

Liquidity and Capital Resources

Introduction

This section contains a discussion of our liquidity and capital resources, including a discussion of our cash position, sources and uses of cash, access to credit facilities and other financing sources, historical financing activities, cash needs, capital expenditures and outstanding debt.

Recent Events

In February 2017, CCO Holdings and CCO Holdings Capital jointly issued $1.0 billion aggregate principal amount of 5.125% senior notes due May 1, 2027. The net proceeds were used to redeem CCO Holdings’ 6.625% senior notes due 2022, pay related fees and expenses and for general corporate purposes.

In March 2017, CCO Holdings and CCO Holdings Capital jointly issued an additional $1.0 billion aggregate principal amount of 5.125% senior notes due May 1, 2027 at a price of 99.0% of the aggregate principal amount. The net proceeds, as well as cash on hand, were used in April 2017 to redeem Time Warner Cable, LLC's 5.850% senior notes due 2017, pay related fees and expenses and for general corporate purposes.

In April 2017, CCO Holdings and CCO Holdings Capital jointly issued an additional $1.25 billion aggregate principal amount of 5.125% senior notes due May 1, 2027 at a price of 100.5% of the aggregate principal amount. The net proceeds, along with the net proceeds from the Charter Operating notes described below, were used to pay related fees and expenses and for general corporate purposes, including to fund buybacks of Charter Class A common stock or Charter Holdings common units.
In April 2017, Charter Operating and Charter Communications Operating Capital Corp. jointly issued $1.25 billion aggregate principal amount of 5.375% senior secured notes due May 1, 2047 at a price of 99.968% of the aggregate principal amount. The net proceeds, along with the net proceeds from the CCO Holdings notes issued in April 2017 described above, were used to pay related fees and expenses and for general corporate purposes, including to fund buybacks of Charter Class A common stock or Charter Holdings common units.

In July 2017, Charter Operating and Charter Communications Operating Capital Corp. jointly issued $1.0 billion aggregate principal amount of 3.750% senior notes due February 15, 2028 at a price of 99.166% of the aggregate principal amount and an additional $500 million aggregate principal amount of 5.375% senior secured notes due May 1, 2047 at a price of 106.529% of the aggregate principal amount (collectively together with the notes issued in April 2017 described above, the "Charter Operating Notes"). The net proceeds will be used to pay related fees and expenses and for general corporate purposes, including to fund potential buybacks of Charter Class A common stock or Charter Holdings common units.

Overview of Our Contractual Obligations and Liquidity

We have significant amounts of debt. The principal amount of our debt as of SeptemberJune 30, 20162017 was $60.2$61.8 billion, consisting of $9.0$8.8 billion of credit facility debt, $37.8$37.1 billion of investment grade senior secured notes and $13.4$15.9 billion of high-yield senior unsecured notes. Our business requires significant cash to fund principal and interest payments on our debt. As of September 30, 2016, $49 million of our long-term debt matures in 2016, $2.2 billion in 2017, $2.2 billion in 2018, $3.5 billion in 2019, $5.2 billion in 2020 and $47.0 billion thereafter.



5642




Our projected cash needs and projected sources of liquidity depend upon, among other things, our actual results, and the timing and amount of our expenditures. Free cash flow was $990 million$1.2 billion and $196 million$2.1 billion for the three and six months ended SeptemberJune 30, 2016 and 2015,2017, respectively, and $2.2was $1.0 billion and $540 million$1.2 billion for the ninethree and six months ended SeptemberJune 30, 2016, and 2015, respectively. As of SeptemberJune 30, 2016,2017, the amount available under our credit facilities was approximately $2.8 billion and cash on hand was approximately $1.0 billion.$521 million. We expect to utilize free cash flow, cash on hand and availability under our credit facilities as well as future refinancing transactions to further extend the maturities of or reduce the principal on our obligations. The timing and terms of any refinancing transactions will be subject to market conditions. Additionally, we may, from time to time, and depending on market conditions and other factors, use cash on hand and the proceeds from securities offerings or other borrowings to retire our debt through open market purchases, privately negotiated purchases, tender offers or redemption provisions. We believe we have sufficient liquidity from cash on hand, free cash flow and Charter Operating’s revolving credit facility as well as access to the capital markets to fund our projected cash needs.

We continue to evaluate the deployment of our cash on hand and anticipated future free cash flow including to invest in our business growth and other strategic opportunities, including mergers and acquisitions as well as distributions to our parent company for stock repurchases and dividends and to reduce our leverage. Charter’sdividends. Charter's target leverage remains at 4 to 4.5 times, and up to 3.5 times at the Charter Operating level. On October 25, 2016, Charter’s boardWe may increase the total amount of directors authorized managementour indebtedness to engage in opportunistic share repurchases of up to $750 million in any six-month period with the first period commencing the day of any repurchase after Charter’s third quarter 2016 earnings release and provided that Charter’s net debt remainsmaintain leverage within its then currentCharter's target leverage range. During the three and six months ended June 30, 2017, Charter purchased approximately 10.0 million and 12.4 million shares, respectively, of Charter Class A common stock for approximately $3.3 billion and $4.1 billion, respectively. As of July 25, 2017, Charter had remaining board authority to purchase an additional $3.0 billion of Charter’s Class A common stock without taking into account shares or units that may be purchased from A/N. Charter is not obligated to acquire any particular amount of common stock, and the timing of any purchases that may occur cannot be predicted and will largely depend on market conditions and other potential uses of capital. Purchases may include open market purchases, tender offers or negotiated transactions. To the extent such purchase occurs,purchases occur, CCO Holdings would likely be required to fundand its subsidiaries are the primary source for funding such purchases through distributions to their parent company distributions.companies. As possible acquisitions, swaps or dispositions arise, in our industry, we actively review them against our objectives including, among other considerations, improving the operational efficiency, clustering, product development or technology capabilities of our business and achieving appropriate return targets, and we may participate to the extent we believe these possibilities present attractive opportunities. However, there can be no assurance that we will actually complete any acquisitions, dispositions or system swaps, or that any such transactions will be material to our operations or results.

In December 2016, Charter and A/N entered into a letter agreement (the "Letter Agreement") that requires A/N to sell to Charter or to Charter Holdings, on a monthly basis, a number of shares of Charter Class A common stock or Charter Holdings common units that represents a pro rata participation by A/N and its affiliates in any repurchases of shares of Charter Class A common stock from persons other than A/N effected by Charter during the immediately preceding calendar month, at a purchase price equal to the average price paid by Charter for the shares repurchased from persons other than A/N during such immediately preceding calendar month. A/N and Charter both have the right to terminate or suspend the pro rata repurchase arrangement on a prospective basis once Charter or Charter Holdings have repurchased shares of Class A common stock or Charter Holdings common units from A/N and its affiliates for an aggregate purchase price of $537 million which threshold has been reached. Charter Holdings purchased from A/N 1.2 million Charter Holdings common units at an average price per unit of $326.50, or $402 million during the three months ended June 30, 2017, and 1.3 million Charter Holdings common units at an average price per unit of $326.38, or $429 million during the six months ended June 30, 2017.



43



Free Cash Flow

Free cash flow increased $794$162 million and $1.6 billion$925 million during the three and ninesix months ended SeptemberJune 30, 20162017, respectively, compared to the corresponding prior periods in 2015, respectively,2016 due to the following (dollars in millions).

 Three months ended
September 30, 2016
compared to
three months ended
September 30, 2015
Increase / (Decrease)
 Nine months ended
September 30, 2016
compared to
nine months ended
September 30, 2015
Increase / (Decrease)
    
Increase in Adjusted EBITDA$2,778
 $4,225
Changes in working capital, excluding change in accrued interest154
 652
Increase in capital expenditures(1,239) (2,145)
Increase in cash paid for interest, net(757) (819)
Increase in merger and restructuring costs(129) (260)
Other, net(13) (6)
    
 $794
 $1,647




57



Contractual Obligations

The following table summarizes our payment obligations as of September 30, 2016 under our long-term debt and certain other contractual obligations and commitments (dollars in millions). 
  Payments by Period
  Total Remainder of 2016 2017-2018 2019-2020 More than 5 years
           
Long-Term Debt Principal Payments (a) $60,168
 $49
 $4,394
 $8,762
 $46,963
Long-Term Debt Interest Payments (b) 38,978
 724
 6,503
 5,703
 26,048
Capital and Operating Lease Obligations (c) 1,332
 82

450
 295
 505
Programming Minimum Commitments (d) 355
 58
 258
 39
 
Other (e) 13,331
 291
 1,624
 1,311
 10,105
           
 Total $114,164
 $1,204
 $13,229
 $16,110
 $83,621

(a)The table presents maturities of long-term debt outstanding as of September 30, 2016. Refer to Note 7 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements” for a description of our long-term debt.
(b)Interest payments on variable debt are estimated using amounts outstanding as of September 30, 2016 and the average implied forward London Interbank Offering Rate (“LIBOR”) rates applicable for the quarter during the interest rate reset based on the yield curve in effect at September 30, 2016. Actual interest payments will differ based on actual LIBOR rates and actual amounts outstanding for applicable periods.
(c)We lease certain facilities and equipment under noncancelable capital and operating leases. Leases and rental costs charged to expense for the three months ended September 30, 2016 and 2015 were $79 million and $12 million, respectively, and for the nine months ended September 30, 2016 and 2015 were $136 million and $36 million, respectively.
(d)We pay programming fees under multi-year contracts ranging from three to ten years, typically based on a flat fee per customer, which may be fixed for the term, or may in some cases escalate over the term. Programming costs included in the accompanying statement of operations were approximately $2.4 billion and $667 million for the three months ended September 30, 2016 and 2015, respectively, and $4.6 billion and $2.0 billion for the nine months ended September 30, 2016 and 2015, respectively. Certain of our programming agreements are based on a flat fee per month or have guaranteed minimum payments. The table sets forth the aggregate guaranteed minimum commitments under our programming contracts.
(e)“Other” represents other guaranteed minimum commitments, including programming rights negotiated directly with content owners for distribution on Company-owned channels or networks and commitments related to our role as an advertising and distribution sales agent for third party-owned channels or networks as well as commitments to our customer premise equipment vendors.

Charter has agreed to certain commitments that were effective upon the consummation of the Transactions. See “Transaction-Related Commitments” for more information. Additionally, see Note 15 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements” for items not included in the contractual obligations table, but we incur as part of operations.
 Three months ended
June 30, 2017
compared to
three months ended
June 30, 2016
Increase / (Decrease)
 Six months ended
June 30, 2017
compared to
six months ended
June 30, 2016
Increase / (Decrease)
Increase in Adjusted EBITDA$1,628
 $4,394
Decrease (increase) in merger and restructuring costs38
 (26)
Increase in capital expenditures(888) (2,014)
Increase in cash paid for interest, net(421) (1,120)
Changes in working capital, excluding change in accrued interest(172) (288)
Other, net(23) (21)
 $162
 $925

Limitations on Distributions

Distributions by us and our subsidiaries to a parent company for payment of principal on parent company notes are restricted under indentures and credit facilities governing our indebtedness, unless there is no default under the applicable indenture and credit facilities, and unless each applicable subsidiary’s leverage ratio test is met at the time of such distribution. As of SeptemberJune 30, 20162017, there was no default under any of these indentures or credit facilities, and each subsidiary met its applicable leverage ratio tests based on SeptemberJune 30, 20162017 financial results. Such distributions would be restricted, however, if any such subsidiary fails to meet these tests at the time of the contemplated distribution. In the past, certain subsidiaries have from time to time failed to meet their leverage ratio test. There can be no assurance that they will satisfy these tests at the time of the contemplated distribution. Distributions by Charter Operating for payment of principal on parent company notes are further restricted by the covenants in its credit facilities.



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However, without regard to leverage, during any calendar year or any portion thereof during which we arethe borrower is a flow-through entity for tax purposes, and so long as no event of default exists, we and our subsidiariesthe borrower may make distributions to our parent companiesthe equity interests of the borrower in an amount sufficient to make permitted tax payments.

In addition to the limitation on distributions under the various indentures discussed above, distributions by our subsidiaries may be limited by applicable law, including the Delaware Limited Liability Company Act, under which our subsidiaries may only make distributions if they have “surplus” as defined in the act.

Historical Operating, Investing, and Financing Activities

Cash and Cash Equivalents. We held $996$521 million and $5 million1.3 billion in cash and cash equivalents as of SeptemberJune 30, 20162017 and December 31, 20152016, respectively.

Operating Activities. Net cash provided by operating activities increased $3.72.9 billion during the ninesix months ended SeptemberJune 30, 20162017 compared to the ninesix months ended SeptemberJune 30, 2015,2016, primarily due to an increase in Adjusted EBITDA of $4.2$4.4 billion offset by an increase in cash paid for interest, net of $819 million.$1.1 billion as a result of the Transactions as well as changes in operating assets and liabilities, excluding the change in accrued interest, that provided $288 million less cash during the six months ended June 30, 2017.

Investing Activities. Net cash used in investing activities was $3.4$3.6 billion and net cash provided by investing activities was $2.2$1.6 billion for the ninesix months ended SeptemberJune 30, 20162017 and 2015,2016, respectively. The increase in cash used was primarily due to the repayment in 2015 of $3.5 billion of net proceeds held in escrow upon the termination of the proposed transactions with Comcast as well as an increase in capital expenditures as a result of $2.1 billion.the Transactions.

Financing Activities. Net cash used in financing activities was $1.22.9 billion and $4.0 billion$763 million for the ninesix months ended SeptemberJune 30, 20162017 and 2015,2016, respectively. The decreaseincrease in cash used was primarily due to the repaymentan increase in 2015 of $3.5 billion of net proceeds held in escrow upon the termination of the proposed transactions with Comcast.distributions.



44



Capital Expenditures

We have significant ongoing capital expenditure requirements.  Capital expenditures were $1.7$2.1 billion and $509 million$3.7 billion for the three and six months ended SeptemberJune 30, 2016 and 2015,2017, respectively, and $3.4 billion and $1.3 billion and $1.7 billion for the ninethree and six months ended SeptemberJune 30, 2016, and 2015, respectively.  The increase was driven by the Transactions. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, capital expenditures increased $73 million and decreased $206 million during the increase for the ninethree and six months ended SeptemberJune 30, 20162017, respectively, compared to the corresponding prior periodperiods in 2016. The decrease during the six months ended June 30, 2017 compared to 2016 was drivenprimarily due to lower scalable infrastructure costs and support primarily due to the timing of spend offset by higher product development investments, transition capital expenditures incurred in connection with the Transactions and support capital investments.spend on customer premise equipment. See the table below for more details.
 
The actual amount of our capital expenditures in 20162017 will depend on a number of factors, including the pace of transition planning to service a larger customer base as a result of the Transactions, our all-digital transition in the Legacy TWC and Legacy Bright House markets and growth rates of both our residential and commercial businesses.

Our capital expenditures are funded primarily from cash flows from operating activities and borrowings on our credit facility. In addition, our accrued liabilities related to capital expenditures increased by $86$197 million and $11$138 million for the ninesix months ended SeptemberJune 30, 2017 and 2016, and 2015, respectively.



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The following tables present our major capital expenditures categories on an actual and pro forma basis, assuming the Transactions occurred as of January 1, 2015, in accordance with National Cable and Telecommunications Association (“NCTA”) disclosure guidelines for the three and ninesix months ended SeptemberJune 30, 20162017 and 2015.2016. The disclosure is intended to provide more consistency in the reporting of capital expenditures among peer companies in the cable industry. These disclosure guidelines are not required disclosures under GAAP, nor do they impact our accounting for capital expenditures under GAAP (dollars in millions):

Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended June 30, Six Months Ended June 30,
2016 2015 2016 20152017 2016 2017 2016
ActualActual
Customer premise equipment (a)$662
 $163
 $1,177
 $448
$1,017
 $378
 $1,724
 $515
Scalable infrastructure (b)441
 142
 937
 335
382
 386
 650
 496
Line extensions (c)249
 57
 467
 144
297
 171
 545
 218
Upgrade/rebuild (d)156
 38
 307
 94
145
 110
 252
 151
Support capital (e)240
 109
 549
 271
307
 215
 532
 309
       
Total capital expenditures$1,748
 $509
 $3,437
 $1,292
$2,148
 $1,260
 $3,703
 $1,689
              
Capital expenditures included in total related to:              
Commercial services$278
 $70
 $533
 $186
$334
 $196
 $602
 $260
Transition (f)$109
 $24
 $273
 $66
$86
 $111
 $162
 $164
 Three Months Ended Six Months Ended
 June 30, 2016 June 30, 2016
 Pro Forma
Customer premise equipment (a)$651
 $1,412
Scalable infrastructure (b)640
 1,115
Line extensions (c)277
 502
Upgrade/rebuild (d)171
 305
Support capital (e)336
 575
Total capital expenditures$2,075
 $3,909
    
Capital expenditures included in total related to:   
Commercial services$338
 $625
Transition (f)$111
 $164



45

 Three Months Ended September 30, Nine Months Ended September 30,
 2016 2015 2016 2015
 Pro Forma
Customer premise equipment (a)$662
 $712
 $2,074
 $2,097
Scalable infrastructure (b)441
 330
 1,556
 1,188
Line extensions (c)249
 237
 751
 725
Upgrade/rebuild (d)156
 171
 461
 438
Support capital (e)240
 249
 815
 690
        
Total capital expenditures$1,748
 $1,699
 $5,657
 $5,138


(a)Customer premise equipment includes costs incurred at the customer residence to secure new customers and revenue generating units. It also includes customer installation costs and customer premise equipment (e.g., set-top boxes and cable modems).
(b)Scalable infrastructure includes costs not related to customer premise equipment, to secure growth of new customers and revenue generating units, or provide service enhancements (e.g., headend equipment).
(c)Line extensions include network costs associated with entering new service areas (e.g., fiber/coaxial cable, amplifiers, electronic equipment, make-ready and design engineering).
(d)Upgrade/rebuild includes costs to modify or replace existing fiber/coaxial cable networks, including betterments.
(e)Support capital includes costs associated with the replacement or enhancement of non-network assets due to technological and physical obsolescence (e.g., non-network equipment, land, buildings and vehicles).
(f)Transition represents incremental costs incurred to integrate the Legacy TWC and Legacy Bright House operations and to bring the three companies’companies' systems and processes into a uniform operating structure.

Recently Issued Accounting Standards

See Note 1917 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements” for a discussion of recently issued accounting standards.



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Item 3.     Quantitative and Qualitative Disclosures About Market Risk.

We use derivative instruments to manage interest rate risk on variable debt and foreign exchange risk on the Sterling Notes, and do not hold or issue derivative instruments for speculative trading purposes.

Interest rate derivative instruments are used to manage interest costs and to reduce our exposure to increases in floating interest rates. We manage our exposure to fluctuations in interest rates by maintaining a mix of fixed and variable-rate debt. Using interest rate derivative instruments, we agree to exchange, at specified intervals through 2017, the difference between fixed and variable interest amounts calculated by reference to agreed-upon notional principal amounts.

Upon closing of the TWC Transaction, we assumed cross-currency derivative instruments. Cross-currency derivative instruments are used to effectively convert £1.275 billion aggregate principal amount of fixed-rate British pound sterling denominated debt, including annual interest payments and the payment of principal at maturity, to fixed-rate U.S. dollar denominated debt. The cross-currency derivative instruments have maturities of June 2031 and July 2042. We are required to post collateral on the cross-currency derivative instruments when such instruments are in a liability position. In May 2016, we entered into a collateral holiday agreement for 80% of both the 2031 and 2042 cross-currency swaps, which eliminates the requirement to post collateral for three years. For more information, see Note 97 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”
      
As of SeptemberJune 30, 20162017 and December 31, 2015, the principal amount of our debt was approximately $60.2 billion and $14.1 billion, respectively. As of September 30, 2016, and December 31, 2015, the weighted average interest rate on the credit facility debt, including the effects of our interest rate swap agreements, was approximately 3.2%3.3% and 2.9%, respectively, and the weighted average interest rate on the senior notes was approximately 5.8% and 5.9%, respectively, resulting in a blended weighted average interest rate of 5.5% and 5.2%, respectively.5.4% as of both time periods. The interest rate on approximately 87% and 83% of the total principal amount of our debt was effectively fixed, including the effects of our interest rate swap agreements as of SeptemberJune 30, 20162017 and December 31, 2015, respectively.2016.
  
The table set forth below summarizes the fair values and contract terms of financial instruments subject to interest rate risk maintained by us as of SeptemberJune 30, 20162017 (dollars in millions).

2016 2017 2018 2019 2020 Thereafter Total Fair Value2017 2018 2019 2020 2021 Thereafter Total Fair Value
Debt:                              
Fixed-Rate$
 $2,000
 $2,000
 $3,250
 $3,500
 $40,453
 $51,203
 $56,899
$
 $2,000
 $3,250
 $3,500
 $2,200
 $42,011
 $52,961
 $58,470
Average Interest Rate% 5.85% 6.75% 8.44% 4.19% 5.76% 5.86%  % 6.75% 8.44% 4.19% 4.32% 5.76% 5.80%  
                              
Variable Rate$49
 $197
 $197
 $296
 $1,716
 $6,510
 $8,965
 $8,975
$98
 $197
 $296
 $1,716
 $2,928
 $3,582
 $8,817
 $8,836
Average Interest Rate2.91% 3.21% 3.35% 3.99% 3.81% 4.41% 4.22%  3.17% 3.63% 3.92% 4.28% 4.31% 4.83% 4.47%  
                              
Interest Rate Instruments:Interest Rate Instruments:              Interest Rate Instruments:              
Variable to Fixed-Rate$250
 $850
 $
 $
 $
 $
 $1,100
 $8
$850
 $
 $
 $
 $
 $
 $850
 $1
Average Pay Rate3.89% 3.84% % % % % 3.86%  3.84% % % % % % 3.84%  
Average Receive Rate3.17% 3.35% % % % % 3.31%  3.76% % % % % % 3.76%  


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As of SeptemberJune 30, 2016,2017, we had $1.1 billion$850 million in notional amounts of interest rate derivative instruments outstanding. The notional amounts of interest rate derivative instruments do not represent amounts exchanged by the parties and, thus, are not a measure of our exposure to credit loss. The amounts exchanged are determined by reference to the notional amount and the other terms of the contracts.

The estimated fair value of the interest rate derivative instruments is determined using a present value calculation based on an implied forward LIBOR curve (adjusted for Charter Operating’s and counterparties’ credit risk). Interest rates on variable-rate debt are estimated using the average implied forward LIBOR for the year of maturity based on the yield curve in effect at SeptemberJune 30, 20162017 including applicable bank spread.

Item 4.     Controls and Procedures.

As of the end of the period covered by this report, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our design and operation of


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disclosure controls and procedures with respect to the information generated for use in this quarterly report. The evaluation was based upon reports and certifications provided by a number of executives. Based on, and as of the date of that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to provide reasonable assurances that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon the evaluation, we believe that our controls provide such reasonable assurances.

On May 18, 2016, we completed the Transactions and as a result, we have incorporated internal controls over significant processes specific to the Transactions and to activities post Transactionspost-Transactions that we believe to be appropriate and necessary in consideration of the related integration, including controls associated with the Transactions for the valuations of certain Legacy TWC and Legacy Bright House assets and liabilities assumed, as well as adoption of common financial reporting and internal control practices for the combined company. In January 2017, we consolidated our separate human resource platforms into one platform which resulted in significant changes to the nature and type of certain internal controls for the most recent fiscal quarter. As we further integrate Legacy TWC and Legacy Bright House, we will continue to validate the effectiveness and integration of internal controls.

Except as described above in the preceding paragraph, during the quarter ended SeptemberJune 30, 2016,2017, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.




6247



PART II

Item 1.     Legal Proceedings.

SeeOur Annual Report on Form 10-K for the year ended December 31, 2016 includes “Legal Proceedings” under Item 3 of Part I. Other than as described in Note 1513 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements,” for a description ofthere have been no material changes from the legal proceedings described in our legal proceedings.Form 10-K.

Item 1A.     Risk Factors.

Our QuarterlyAnnual Report on Form 10-Q10-K for the three and six monthsyear ended June 30,December 31, 2016 includes “Risk Factors”"Risk Factors" under Item 1A of Part II.I. There have been no material changes from the updated risk factors described in our Form 10-Q.10-K.

Item 6.     Exhibits.

See Exhibit Index.


6348



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, CCO Holdings, LLC and CCO Holdings Capital Corp. have duly caused this quarterly report to be signed on their behalf by the undersigned, thereunto duly authorized.
 

  CCO HOLDINGS, LLC
  Registrant
  By: CHARTER COMMUNICATIONS, INC., Sole Manager
   
  By: /s/ Kevin D. Howard
    Kevin D. Howard
    Senior Vice President - Finance, Controller and
Date: November 10, 2016August 1, 2017   Chief Accounting Officer
     
     
     
  CCO HOLDINGS CAPITAL CORP.
  Registrant
     
  By: /s/ Kevin D. Howard
    Kevin D. Howard
    Senior Vice President - Finance, Controller and
Date: November 10, 2016August 1, 2017   Chief Accounting Officer






S- 1




Exhibit Index
Exhibit Description
   
10.1
10.2
10.3
10.4
31.1* 
31.2* 
32.1* 
32.2* 
99.1*Reconciliation of pro forma financial information.
101** 
The following financial statements from CCO Holdings, LLC’sLLC's Quarterly Report on Form 10-Q for the three and ninesix months ended SeptemberJune 30, 2016,2017, filed with the Securities and Exchange Commission on November 10, 2016,August 1, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Changes in Member’s Equity; (v) the Consolidated Statements of Cash Flows; and (vi) the Notes to the Consolidated Financial Statements.

_____________
*Filed herewith.
**This exhibit will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (15 U.S.C. 78r) or otherwise subject to the liability of that section. Such exhibit will not be deemed to be incorporated by reference into any filing under the Securities Act or Securities Exchange Act, except to the extent that the company specifically incorporates it by reference.


E- 1