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 September 30, 2020
or
| | | | | |
For the quarterly period ended September 30, 2017 |
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)No.) |
| | |
400 Atlantic Street Stamford, Connecticut 06901
| Stamford | (203) 905-7801Connecticut | 06901 |
(Address of principal executive offices including zip code) | Principal Executive Offices) | (Registrant’s telephone number, including area code)Zip Code) |
(203) 905-7801
(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 xSmaller reporting company o☐ Emerging 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 September 30, 2017:2020: 1
CCO HOLDINGS, LLCLLC.
CCO HOLDINGS CAPITAL CORP.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 20172020
TABLE OF CONTENTS
This quarterly report on Form 10-Q is for the three and nine months ended September 30, 2017.2020. 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.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING 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 I, Item 1A of our most recent Form 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”“increases,” “focused on” 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:
•the impact of the COVID-19 pandemic on the economy, our abilitycustomers, our vendors, local, state and federal governmental responses to promptly, efficientlythe pandemic and effectively integrate acquired operations;our businesses generally;
•our ability to sustain and grow revenues and cash flow from operations by offering Internet, video, Internet, voice, mobile, advertising and other services to residential and commercial customers, to adequately meet the customer experience demands in our marketsservice areas 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 ("DBS") 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 advertisingvideo content over the Internet;broadband Internet connections;
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;
|
•our ability to develop and deploy new products and technologies including mobile products and any other consumer services and service platforms;
•any events that disrupt our networks, information systems or properties and impair our operating activities or our reputation;
•the effects of governmental regulation on our business or potential business combination 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;transactions;
any events that disrupt our networks, information systems•general business conditions, economic uncertainty or propertiesdownturn, including the impacts of the COVID-19 pandemic to unemployment levels and impair our operating activities or our reputation;the level of activity in the housing sector;
•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
•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.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CCO HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| (unaudited) | | |
ASSETS | | | |
CURRENT ASSETS: | | | |
Cash and cash equivalents | $ | 1,015 | | | $ | 3,249 | |
Accounts receivable, less allowance for doubtful accounts of $223 and $151, respectively | 2,032 | | | 2,195 | |
Prepaid expenses and other current assets | 647 | | | 711 | |
Total current assets | 3,694 | | | 6,155 | |
| | | |
INVESTMENT IN CABLE PROPERTIES: | | | |
Property, plant and equipment, net of accumulated depreciation of $30,332 and $27,595, respectively | 33,387 | | | 33,908 | |
Customer relationships, net | 6,050 | | | 7,453 | |
Franchises | 67,322 | | | 67,322 | |
Goodwill | 29,554 | | | 29,554 | |
Total investment in cable properties, net | 136,313 | | | 138,237 | |
| | | |
OTHER NONCURRENT ASSETS | 2,653 | | | 2,351 | |
| | | |
Total assets | $ | 142,660 | | | $ | 146,743 | |
LIABILITIES AND MEMBER’S EQUITY | | | |
CURRENT LIABILITIES: | | | |
Accounts payable and accrued liabilities | $ | 7,881 | | | $ | 8,142 | |
Payables to related party | 94 | | | 298 | |
Current portion of long-term debt | 1,715 | | | 3,500 | |
Total current liabilities | 9,690 | | | 11,940 | |
| | | |
LONG-TERM DEBT | 77,947 | | | 75,578 | |
LOANS PAYABLE - RELATED PARTY | 1,006 | | | 959 | |
DEFERRED INCOME TAXES | 55 | | | 55 | |
OTHER LONG-TERM LIABILITIES | 3,496 | | | 2,922 | |
| | | |
MEMBER’S EQUITY: | | | |
Member's equity | 50,443 | | | 55,266 | |
Accumulated other comprehensive loss | 0 | | | 0 | |
Total CCO Holdings member’s equity | 50,443 | | | 55,266 | |
Noncontrolling interests | 23 | | | 23 | |
Total member’s equity | 50,466 | | | 55,289 | |
| | | |
Total liabilities and member’s equity | $ | 142,660 | | | $ | 146,743 | |
The accompanying notes are an integral part of these consolidated financial statements.
1
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| (unaudited) | | |
ASSETS | | | |
CURRENT ASSETS: | | | |
Cash and cash equivalents | $ | 1,974 |
| | $ | 1,324 |
|
Accounts receivable, less allowance for doubtful accounts of | | | |
$103 and $124, respectively | 1,573 |
| | 1,387 |
|
Prepaid expenses and other current assets | 275 |
| | 300 |
|
Total current assets | 3,822 |
| | 3,011 |
|
| | | |
INVESTMENT IN CABLE PROPERTIES: | | | |
Property, plant and equipment, net of accumulated | | | |
depreciation of $16,350 and $11,085, respectively | 33,066 |
| | 32,718 |
|
Customer relationships, net | 12,589 |
| | 14,608 |
|
Franchises | 67,316 |
| | 67,316 |
|
Goodwill | 29,554 |
| | 29,509 |
|
Total investment in cable properties, net | 142,525 |
| | 144,151 |
|
| | | |
OTHER NONCURRENT ASSETS | 1,115 |
| | 1,157 |
|
| | | |
Total assets | $ | 147,462 |
| | $ | 148,319 |
|
| | | |
LIABILITIES AND MEMBER'S EQUITY | | | |
CURRENT LIABILITIES: | | | |
Accounts payable and accrued liabilities | $ | 7,503 |
| | $ | 6,897 |
|
Payables to related party | 636 |
| | 621 |
|
Current portion of long-term debt | 2,068 |
| | 2,028 |
|
Total current liabilities | 10,207 |
| | 9,546 |
|
| | | |
LONG-TERM DEBT | 66,064 |
| | 59,719 |
|
LOANS PAYABLE - RELATED PARTY | 818 |
| | 640 |
|
DEFERRED INCOME TAXES | 39 |
| | 25 |
|
OTHER LONG-TERM LIABILITIES | 2,307 |
| | 2,526 |
|
| | | |
MEMBER'S EQUITY: | | | |
Member's equity | 68,005 |
| | 75,845 |
|
Accumulated other comprehensive loss | (2 | ) | | (7 | ) |
Total CCO Holdings member's equity | 68,003 |
| | 75,838 |
|
Noncontrolling interests | 24 |
| | 25 |
|
Total member’s equity | 68,027 |
| | 75,863 |
|
| | | |
Total liabilities and member’s equity | $ | 147,462 |
| | $ | 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, |
| 2017 | | 2016 | | 2017 | | 2016 |
REVENUES | $ | 10,458 |
| | $ | 10,037 |
| | $ | 30,979 |
| | $ | 18,728 |
|
| | | | | | | |
COSTS AND EXPENSES: | | | | | | | |
Operating costs and expenses (exclusive of items shown separately below) | 6,705 |
| | 6,490 |
| | 19,871 |
| | 12,173 |
|
Depreciation and amortization | 2,699 |
| | 2,435 |
| | 7,839 |
| | 4,409 |
|
Other operating expenses, net | 145 |
| | 206 |
| | 374 |
| | 513 |
|
| 9,549 |
| | 9,131 |
| | 28,084 |
| | 17,095 |
|
Income from operations | 909 |
| | 906 |
| | 2,895 |
| | 1,633 |
|
| | | | | | | |
OTHER EXPENSES: | | | | | | | |
Interest expense, net | (795 | ) | | (729 | ) | | (2,268 | ) | | (1,391 | ) |
Loss on extinguishment of debt | — |
| | — |
| | (35 | ) | | (110 | ) |
Gain (loss) on financial instruments, net | 17 |
| | 71 |
| | (15 | ) | | 16 |
|
Other pension benefits (costs) | (17 | ) | | 13 |
| | 9 |
| | 533 |
|
Other expense, net | (2 | ) | | (2 | ) | | (2 | ) | | (2 | ) |
| (797 | ) | | (647 | ) | | (2,311 | ) | | (954 | ) |
| | | | | | | |
Income before income taxes | 112 |
| | 259 |
| | 584 |
| | 679 |
|
Income tax benefit (expense) | (6 | ) | | 7 |
| | (35 | ) | | — |
|
Consolidated net income | 106 |
| | 266 |
| | 549 |
| | 679 |
|
Less: Net income attributable to noncontrolling interests | — |
| | (1 | ) | | (1 | ) | | (1 | ) |
Net income attributable to CCO Holdings member | $ | 106 |
| | $ | 265 |
| | $ | 548 |
| | $ | 678 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEOPERATIONS
(dollars in millions)
Unaudited
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
REVENUES | $ | 12,037 | | | $ | 11,449 | | | $ | 35,467 | | | $ | 33,997 | |
| | | | | | | |
COSTS AND EXPENSES: | | | | | | | |
Operating costs and expenses (exclusive of items shown separately below) | 7,509 | | | 7,450 | | | 22,283 | | | 21,950 | |
Depreciation and amortization | 2,366 | | | 2,411 | | | 7,283 | | | 7,453 | |
Other operating expenses, net | 17 | | | 18 | | | 29 | | | 77 | |
| 9,892 | | | 9,879 | | | 29,595 | | | 29,480 | |
Income from operations | 2,145 | | | 1,570 | | | 5,872 | | | 4,517 | |
| | | | | | | |
OTHER INCOME (EXPENSES): | | | | | | | |
Interest expense, net | (947) | | | (973) | | | (2,904) | | | (2,865) | |
Loss on extinguishment of debt | (58) | | | 0 | | | (121) | | | 0 | |
Gain (loss) on financial instruments, net | 69 | | | (34) | | | (185) | | | (116) | |
Other pension benefits (costs), net | (115) | | | 9 | | | (94) | | | 27 | |
Other expense, net | (11) | | | (3) | | | (6) | | | (129) | |
| (1,062) | | | (1,001) | | | (3,310) | | | (3,083) | |
| | | | | | | |
Income before income taxes | 1,083 | | | 569 | | | 2,562 | | | 1,434 | |
Income tax expense | (10) | | | (10) | | | (23) | | | (86) | |
Consolidated net income | 1,073 | | | 559 | | | 2,539 | | | 1,348 | |
Less: Net income attributable to noncontrolling interests | 0 | | | 0 | | | (1) | | | (1) | |
Net income attributable to CCO Holdings member | $ | 1,073 | | | $ | 559 | | | $ | 2,538 | | | $ | 1,347 | |
The accompanying notes are an integral part of these consolidated financial statements.
2
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Consolidated net income | $ | 106 |
| | $ | 266 |
| | $ | 549 |
| | $ | 679 |
|
Net impact of interest rate derivative instruments | 1 |
| | 2 |
| | 4 |
| | 6 |
|
Foreign currency translation adjustment | 1 |
| | (1 | ) | | 1 |
| | (1 | ) |
Consolidated comprehensive income | 108 |
| | 267 |
| | 554 |
| | 684 |
|
Less: Comprehensive income attributable to noncontrolling interests | — |
| | (1 | ) | | (1 | ) | | (1 | ) |
Comprehensive income attributable to CCO Holdings member | $ | 108 |
| | $ | 266 |
| | $ | 553 |
| | $ | 683 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER’S EQUITY
(dollars in millions)
Unaudited
| | | | | | | | | | | | | | | | | |
| Member's Equity | Accumulated Other Comprehensive Loss | Total CCO Holdings Member’s Equity | Noncontrolling Interests | Total Member’s Equity |
BALANCE, December 31, 2019 | $ | 55,266 | | $ | 0 | | $ | 55,266 | | $ | 23 | | $ | 55,289 | |
Consolidated net income | 459 | | 0 | | 459 | | 0 | | 459 | |
Stock compensation expense | 90 | | 0 | | 90 | | 0 | | 90 | |
Contributions from parent | 27 | | 0 | | 27 | | 0 | | 27 | |
Distributions to parent | (2,685) | | 0 | | (2,685) | | 0 | | (2,685) | |
Distributions to noncontrolling interest | 0 | | 0 | | 0 | | (1) | | (1) | |
BALANCE, March 31, 2020 | 53,157 | | 0 | | 53,157 | | 22 | | 53,179 | |
Consolidated net income | 1,006 | | 0 | | 1,006 | | 1 | | 1,007 | |
Stock compensation expense | 90 | | 0 | | 90 | | 0 | | 90 | |
Contributions from parent | 12 | | 0 | | 12 | | 0 | | 12 | |
Distributions to parent | (1,290) | | 0 | | (1,290) | | 0 | | (1,290) | |
BALANCE, June 30, 2020 | 52,975 | | 0 | | 52,975 | | 23 | | 52,998 | |
Consolidated net income | 1,073 | | 0 | | 1,073 | | 0 | | 1,073 | |
Stock compensation expense | 83 | | 0 | | 83 | | 0 | | 83 | |
Contributions from parent | 4 | | 0 | | 4 | | 0 | | 4 | |
Distributions to parent | (3,692) | | 0 | | (3,692) | | 0 | | (3,692) | |
BALANCE, September 30, 2020 | $ | 50,443 | | $ | 0 | | $ | 50,443 | | $ | 23 | | $ | 50,466 | |
The accompanying notes are an integral part of these consolidated financial statements.
3
CCO HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER’S EQUITY
(dollars in millions)
Unaudited
| | | | | | | | | | | | | | | | | |
| Member's Equity | Accumulated Other Comprehensive Loss | Total CCO Holdings Member’s Equity | Noncontrolling Interests | Total Member’s Equity |
BALANCE, December 31, 2018 | $ | 60,532 | | $ | (2) | | $ | 60,530 | | $ | 24 | | $ | 60,554 | |
Consolidated net income | 350 | | 0 | | 350 | | 0 | | 350 | |
Stock compensation expense | 85 | | 0 | | 85 | | 0 | | 85 | |
| | | | | |
Contributions from parent | 9 | | 0 | | 9 | | 0 | | 9 | |
Distributions to parent | (1,040) | | 0 | | (1,040) | | 0 | | (1,040) | |
Distributions to noncontrolling interest | 0 | | 0 | | 0 | | (1) | | (1) | |
BALANCE, March 31, 2019 | 59,936 | | (2) | | 59,934 | | 23 | | 59,957 | |
Consolidated net income | 438 | | 0 | | 438 | | 1 | | 439 | |
Stock compensation expense | 82 | | 0 | | 82 | | 0 | | 82 | |
Contributions from parent | 42 | | 0 | | 42 | | 0 | | 42 | |
Distributions to parent | (1,044) | | 0 | | (1,044) | | 0 | | (1,044) | |
BALANCE, June 30, 2019 | 59,454 | | (2) | | 59,452 | | 24 | | 59,476 | |
Consolidated net income | 559 | | 0 | | 559 | | 0 | | 559 | |
Stock compensation expense | 71 | | 0 | | 71 | | 0 | | 71 | |
Contributions from parent | 3 | | 0 | | 3 | | 0 | | 3 | |
Distributions to parent | (3,138) | | 0 | | (3,138) | | 0 | | (3,138) | |
Distributions to noncontrolling interest | 0 | | 0 | | 0 | | (1) | | (1) | |
BALANCE, September 30, 2019 | $ | 56,949 | | $ | (2) | | $ | 56,947 | | $ | 23 | | $ | 56,970 | |
The accompanying notes are an integral part of these consolidated financial statements.
4
CCO HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
Unaudited
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2020 | | 2019 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Consolidated net income | $ | 2,539 | | | $ | 1,348 | |
Adjustments to reconcile consolidated net income to net cash flows from operating activities: | | | |
Depreciation and amortization | 7,283 | | | 7,453 | |
Stock compensation expense | 263 | | | 238 | |
Noncash interest income, net | (33) | | | (89) | |
Other pension (benefits) costs, net | 94 | | | (27) | |
Loss on extinguishment of debt | 121 | | | 0 | |
Loss on financial instruments, net | 185 | | | 116 | |
Deferred income taxes | 0 | | | 54 | |
Other, net | (28) | | | 155 | |
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions: | | | |
Accounts receivable | 163 | | | (567) | |
Prepaid expenses and other assets | (228) | | | (207) | |
Accounts payable, accrued liabilities and other | 79 | | | (104) | |
Receivables from and payables to related party | (122) | | | (23) | |
Net cash flows from operating activities | 10,316 | | | 8,347 | |
| | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Purchases of property, plant and equipment | (5,352) | | | (4,913) | |
Change in accrued expenses related to capital expenditures | (70) | | | (449) | |
Other, net | (33) | | | 85 | |
Net cash flows from investing activities | (5,455) | | | (5,277) | |
| | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Borrowings of long-term debt | 10,352 | | | 13,157 | |
Repayments of long-term debt | (9,711) | | | (10,886) | |
Borrowings of loans payable - related parties | 6 | | | — | |
Payments for debt issuance costs | (91) | | | (48) | |
Contributions from parent | 43 | | | 54 | |
Distributions to parent | (7,667) | | | (5,222) | |
Distributions to noncontrolling interest | (1) | | | (2) | |
Other, net | (26) | | | (133) | |
Net cash flows from financing activities | (7,095) | | | (3,080) | |
| | | |
NET DECREASE IN CASH AND CASH EQUIVALENTS | (2,234) | | | (10) | |
CASH AND CASH EQUIVALENTS, beginning of period | 3,249 | | | 300 | |
CASH AND CASH EQUIVALENTS, end of period | $ | 1,015 | | | $ | 290 | |
| | | |
CASH PAID FOR INTEREST | $ | 3,020 | | | $ | 3,065 | |
CASH PAID FOR TAXES | $ | 36 | | | $ | 27 | |
The accompanying notes are an integral part of these consolidated financial statements.
5
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Consolidated net income | $ | 549 |
| | $ | 679 |
|
Adjustments to reconcile consolidated net income to net cash flows from operating activities: | | | |
Depreciation and amortization | 7,839 |
| | 4,409 |
|
Stock compensation expense | 198 |
| | 168 |
|
Accelerated vesting of equity awards | 43 |
| | 202 |
|
Noncash interest income, net | (284 | ) | | (148 | ) |
Other pension benefits | (9 | ) | | (533 | ) |
Loss on extinguishment of debt | 35 |
| | 110 |
|
(Gain) loss on financial instruments, net | 15 |
| | (16 | ) |
Deferred income taxes | 14 |
| | (14 | ) |
Other, net | 82 |
| | (10 | ) |
Changes in operating assets and liabilities, net of effects from acquisitions: | | | |
Accounts receivable | (77 | ) | | (2 | ) |
Prepaid expenses and other assets | 64 |
| | 105 |
|
Accounts payable, accrued liabilities and other | 6 |
| | 483 |
|
Receivables from and payables to related party, including deferred management fees | 46 |
| | 105 |
|
Net cash flows from operating activities | 8,521 |
| | 5,538 |
|
| | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Purchases of property, plant and equipment | (6,096 | ) | | (3,437 | ) |
Change in accrued expenses related to capital expenditures | 276 |
| | 86 |
|
Purchases of cable systems, net of cash acquired | — |
| | (7 | ) |
Other, net | (63 | ) | | (8 | ) |
Net cash flows from investing activities | (5,883 | ) | | (3,366 | ) |
| | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Borrowings of long-term debt | 12,115 |
| | 5,997 |
|
Repayments of long-term debt | (5,534 | ) | | (4,120 | ) |
Borrowings (repayments) loans payable - related parties | 163 |
| | (253 | ) |
Payments for debt issuance costs | (83 | ) | | (283 | ) |
Contributions from parent | — |
| | 478 |
|
Distributions to parent | (8,641 | ) | | (3,084 | ) |
Proceeds from termination of interest rate derivatives | — |
| | 88 |
|
Other, net | (8 | ) | | (4 | ) |
Net cash flows from financing activities | (1,988 | ) | | (1,181 | ) |
| | | |
NET INCREASE IN CASH AND CASH EQUIVALENTS | 650 |
| | 991 |
|
CASH AND CASH EQUIVALENTS, beginning of period | 1,324 |
| | 5 |
|
CASH AND CASH EQUIVALENTS, end of period | $ | 1,974 |
| | $ | 996 |
|
| | | |
CASH PAID FOR INTEREST | $ | 2,544 |
| | $ | 1,479 |
|
CASH PAID FOR TAXES | $ | 21 |
| | $ | 3 |
|
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 connectivity company and cable operator. Over an advanced communications company providing video, Internet and voice services tonetwork, the Company offers a full range of state-of-the-art residential and business customers. In addition,services including Spectrum Internet, TV, Mobile and Voice. For small and medium-sized companies, Spectrum Business® delivers the Company sells videosame suite of broadband products and onlineservices coupled with special features and applications to enhance productivity, while for larger businesses and government entities, Spectrum Enterprise provides highly customized, fiber-based solutions. Spectrum Reach® delivers tailored advertising inventory to local, regional and national advertising customers and fiber-delivered communications and managed information technology solutions to larger enterprise customers.production for the modern media landscape. The Company also ownsdistributes award-winning news coverage, sports and operates regional sports networkshigh-quality original programming to its customers through Spectrum Networks and local sports, news and lifestyle channels and sells security and home management services to the residential marketplace.Spectrum Originals.
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 Management”). All of the outstanding capital stock of CCO Holdings Capital Corp. is owned by CCO 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. Charter, Charter Holdings and Spectrum Management 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’s operations are managed and reported to its Chairman and 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 one1 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 CCO Holdings’the Company's Annual Report on Form 10-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; depreciationcosts, impairments of franchises and amortization costs; purchase accounting valuations of assetsgoodwill, pension benefits and liabilities including, but not limited to, property, plant and equipment, intangibles and goodwill; pension benefits; income taxes; contingencies and programming expense.taxes. Actual results could differ from those estimates.
Certain prior period amounts have been reclassified to conform with the 20172020 presentation.
2. Mergers and Acquisitions
The 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 and certain other subsidiaries of CCH 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, CCH 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
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
Transactions, the total value of the TWC Transaction was approximately $85 billion, including cash, equity and Legacy TWC assumed debt.
Also, on May 18, 2016, Legacy Charter and Advance/Newhouse Partnership (“A/N”), the former parent of Bright House Networks, LLC (“Legacy Bright House”), completed their previously announced transaction, pursuant to a definitive Contribution Agreement (the “Contribution Agreement”), under which Charter acquired Legacy 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 Legacy Bright House and the other assets primarily related to Legacy Bright House (other than certain excluded assets and liabilities and non-operating cash).
In connection with the TWC Transaction, Liberty Broadband purchased shares of Charter Class A common stock to partially finance the cash portion of the TWC Transaction consideration, and in connection with the Bright House Transaction, Liberty Broadband purchased shares of Charter Class A common stock (the “Liberty Transactions”).
Acquisition Accounting
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.
The tables below present the final allocation of the purchase price to the assets acquired and liabilities assumed in the Transactions.
TWC Allocation of Purchase Price
|
| | | |
Cash and cash equivalents | $ | 1,058 |
|
Current assets | 1,417 |
|
Property, plant and equipment | 21,413 |
|
Customer relationships | 13,460 |
|
Franchises | 54,085 |
|
Goodwill | 28,337 |
|
Other noncurrent assets | 1,040 |
|
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 liabilities assumed in the TWC Transaction during the six months ended June 30, 2017 upon completion of the measurement period, including a decrease to working capital of $73 million and a decrease of $28 million to deferred income tax liabilities, resulting in a net increase of $45 million to goodwill.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
Bright House Allocation of Purchase Price
|
| | | |
Current assets | $ | 131 |
|
Property, plant and equipment | 2,884 |
|
Customer relationships | 2,150 |
|
Franchises | 7,225 |
|
Goodwill | 44 |
|
Other noncurrent assets | 86 |
|
Accounts payable and accrued liabilities | (330 | ) |
Other long-term liabilities | (12 | ) |
Noncontrolling interests | (22 | ) |
| $ | 12,156 |
|
In connection with the Transactions, subsidiaries of Charter contributed down to the Company the net assets and liabilities of Legacy TWC and Legacy 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.
Selected Pro Forma Financial Information
The following unaudited pro forma financial information of the Company is based on the historical consolidated financial statements of 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.
|
| | | |
| Nine Months Ended September 30, 2016 |
Revenues | $ | 29,748 |
|
Net income attributable to CCO Holdings member | $ | 1,112 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
3.2. Franchises, Goodwill and Other Intangible Assets
Indefinite-lived and finite-lived intangible assets consist of the following as of September 30, 20172020 and December 31, 2016:2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Indefinite-lived intangible assets: | | | | | | | | | | | | |
Franchises | | $ | 67,322 | | | $ | — | | | $ | 67,322 | | | $ | 67,322 | | | $ | — | | | $ | 67,322 | |
Goodwill | | 29,554 | | | — | | | 29,554 | | | 29,554 | | | — | | | 29,554 | |
| | $ | 96,876 | | | $ | — | | | $ | 96,876 | | | $ | 96,876 | | | $ | — | | | $ | 96,876 | |
| | | | | | | | | | | | |
Finite-lived intangible assets: | | | | | | | | | | | | |
Customer relationships | | $ | 18,230 | | | $ | (12,180) | | | $ | 6,050 | | | $ | 18,230 | | | $ | (10,777) | | | $ | 7,453 | |
Other intangible assets | | 405 | | | (150) | | | 255 | | | 405 | | | (122) | | | 283 | |
| | $ | 18,635 | | | $ | (12,330) | | | $ | 6,305 | | | $ | 18,635 | | | $ | (10,899) | | | $ | 7,736 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Indefinite-lived intangible assets: | | | | | | | | | | | | |
Franchises | | $ | 67,316 |
| | $ | — |
| | $ | 67,316 |
| | $ | 67,316 |
| | $ | — |
| | $ | 67,316 |
|
Goodwill | | 29,554 |
| | — |
| | 29,554 |
| | 29,509 |
| | — |
| | 29,509 |
|
Other intangible assets | | — |
| | — |
| | — |
| | 4 |
| | — |
| | 4 |
|
| | $ | 96,870 |
| | $ | — |
| | $ | 96,870 |
| | $ | 96,829 |
| | $ | — |
| | $ | 96,829 |
|
| | | | | | | | | | | | |
Finite-lived intangible assets: | | | | | | | | | | | | |
Customer relationships | | $ | 18,227 |
| | $ | (5,638 | ) | | $ | 12,589 |
| | $ | 18,226 |
| | $ | (3,618 | ) | | $ | 14,608 |
|
Other intangible assets | | 673 |
| | (181 | ) | | 492 |
| | 615 |
| | (128 | ) | | 487 |
|
| | $ | 18,900 |
| | $ | (5,819 | ) | | $ | 13,081 |
| | $ | 18,841 |
| | $ | (3,746 | ) | | $ | 15,095 |
|
Amortization expense related to customer relationships and other intangible assets for the three and nine months ended September 30, 20172020 was $664$445 million and $2.1$1.4 billion, respectively, and was $748$516 million and $1.2$1.6 billion for the three and nine months ended September 30, 2016,2019, respectively.
The Company expects amortization expense on its finite-lived intangible assets will be as follows:
| | | | | | | | |
Three months ended December 31, 2020 | | $ | 443 | |
2021 | | 1,599 | |
2022 | | 1,329 | |
2023 | | 1,072 | |
2024 | | 821 | |
Thereafter | | 1,041 | |
| | $ | 6,305 | |
|
| | | | |
Three months ended December 31, 2017 | | $ | 662 |
|
2018 | | 2,470 |
|
2019 | | 2,187 |
|
2020 | | 1,895 |
|
2021 | | 1,611 |
|
Thereafter | | 4,256 |
|
| | $ | 13,081 |
|
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, impairments adoption of new accounting standards and other relevant factors.
4. Accounts Payable and Accrued Liabilities3. Investments
Accounts payable and accrued liabilities consistThe Company recorded impairments on equity investments of approximately $121 million during the following as of nine months ended September 30, 2017 and December 31, 2016:2019 which were recorded in other expense, net in the consolidated statements of operations.
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Accounts payable – trade | $ | 519 |
| | $ | 416 |
|
Deferred revenue | 405 |
| | 352 |
|
Accrued liabilities: | | | |
Programming costs | 1,947 |
| | 1,783 |
|
Labor | 741 |
| | 953 |
|
Capital expenditures | 1,389 |
| | 1,107 |
|
Interest | 994 |
| | 958 |
|
Taxes and regulatory fees | 572 |
| | 529 |
|
Other | 936 |
| | 799 |
|
| $ | 7,503 |
| | $ | 6,897 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
4. Accounts Payable and Accrued Liabilities
5. Long-Term Debt
Long-term debt consistsAccounts payable and accrued liabilities consist of the following as of September 30, 20172020 and December 31, 2016:2019:
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Accounts payable – trade | $ | 704 | | | $ | 727 | |
Deferred revenue | 477 | | | 460 | |
Accrued liabilities: | | | |
Programming costs | 1,913 | | | 2,042 | |
Labor | 1,124 | | | 939 | |
Capital expenditures | 1,264 | | | 1,441 | |
Interest | 962 | | | 1,052 | |
Taxes and regulatory fees | 537 | | | 501 | |
Operating lease liabilities | 203 | | | 184 | |
Other | 697 | | | 796 | |
| $ | 7,881 | | | $ | 8,142 | |
5. Leases
Operating lease expenses were $98 million and $289 million for the three and nine months ended September 30, 2020, respectively, and $92 million and $281 million for the three and nine months ended September 30, 2019, respectively, inclusive of $32 million and $94 million for the three and nine months ended September 30, 2020, respectively, and $31 million and $92 million for the three and nine months ended September 30, 2019, respectively, of both short-term lease costs and variable lease costs that were not included in the measurement of operating lease liabilities.
Cash paid for amounts included in the measurement of operating lease liabilities, recorded as operating cash flows in the statements of cash flows, were $189 million and $185 million for the nine months ended September 30, 2020 and 2019, respectively. Operating lease right-of-use assets obtained in exchange for operating lease obligations were $250 million and $171 million for the nine months ended September 30, 2020 and 2019, respectively.
Supplemental balance sheet information related to leases is as follows.
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Operating lease right-of-use assets: | | | |
Included within other noncurrent assets | $ | 1,012 | | | $ | 925 | |
| | | |
Operating lease liabilities: | | | |
Current portion included within accounts payable and accrued liabilities | $ | 203 | | | $ | 184 | |
Long-term portion included within other long-term liabilities | 876 | | | 788 | |
| $ | 1,079 | | | $ | 972 | |
| | | |
Weighted average remaining lease term for operating leases | 6.3 years | | 6.6 years |
Weighted average discount rate for operating leases | 4.1 | % | | 4.4 | % |
|
| | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Principal Amount | | Accreted Value | | Principal Amount | | Accreted Value |
CCO Holdings, LLC: | | | | | | | |
5.250% senior notes due March 15, 2021 | $ | 500 |
| | $ | 497 |
| | $ | 500 |
| | $ | 496 |
|
6.625% senior notes due January 31, 2022 | — |
| | — |
| | 750 |
| | 741 |
|
5.250% senior notes due September 30, 2022 | 1,250 |
| | 1,234 |
| | 1,250 |
| | 1,232 |
|
5.125% senior notes due February 15, 2023 | 1,000 |
| | 992 |
| | 1,000 |
| | 992 |
|
5.125% senior notes due May 1, 2023 | 1,150 |
| | 1,142 |
| | 1,150 |
| | 1,141 |
|
5.750% senior notes due September 1, 2023 | 500 |
| | 496 |
| | 500 |
| | 496 |
|
5.750% senior notes due January 15, 2024 | 1,000 |
| | 992 |
| | 1,000 |
| | 991 |
|
5.875% senior notes due April 1, 2024 | 1,700 |
| | 1,686 |
| | 1,700 |
| | 1,685 |
|
5.375% senior notes due May 1, 2025 | 750 |
| | 745 |
| | 750 |
| | 744 |
|
5.750% senior notes due February 15, 2026 | 2,500 |
| | 2,463 |
| | 2,500 |
| | 2,460 |
|
5.500% senior notes due May 1, 2026 | 1,500 |
| | 1,489 |
| | 1,500 |
| | 1,487 |
|
5.875% senior notes due May 1, 2027 | 800 |
| | 794 |
| | 800 |
| | 794 |
|
5.125% senior notes due May 1, 2027 | 3,250 |
| | 3,215 |
| | — |
| | — |
|
5.000% senior notes due February 1, 2028 | 1,500 |
| | 1,486 |
| | — |
| | — |
|
Charter Communications Operating, LLC: | | | | | | | |
3.579% senior notes due July 23, 2020 | 2,000 |
| | 1,987 |
| | 2,000 |
| | 1,983 |
|
4.464% senior notes due July 23, 2022 | 3,000 |
| | 2,976 |
| | 3,000 |
| | 2,973 |
|
4.908% senior notes due July 23, 2025 | 4,500 |
| | 4,461 |
| | 4,500 |
| | 4,458 |
|
3.750% senior notes due February 15, 2028 | 1,000 |
| | 985 |
| | — |
| | — |
|
4.200% senior notes due March 15, 2028 | 1,250 |
| | 1,237 |
| | — |
| | — |
|
6.384% senior notes due October 23, 2035 | 2,000 |
| | 1,981 |
| | 2,000 |
| | 1,980 |
|
6.484% senior notes due October 23, 2045 | 3,500 |
| | 3,466 |
| | 3,500 |
| | 3,466 |
|
5.375% senior notes due May 1, 2047 | 2,500 |
| | 2,506 |
| | — |
| | — |
|
6.834% senior notes due October 23, 2055 | 500 |
| | 495 |
| | 500 |
| | 495 |
|
Credit facilities | 8,768 |
| | 8,681 |
| | 8,916 |
| | 8,814 |
|
Time Warner Cable, LLC: | | | | | | | |
5.850% senior notes due May 1, 2017 | — |
| | — |
| | 2,000 |
| | 2,028 |
|
6.750% senior notes due July 1, 2018 | 2,000 |
| | 2,068 |
| | 2,000 |
| | 2,135 |
|
8.750% senior notes due February 14, 2019 | 1,250 |
| | 1,356 |
| | 1,250 |
| | 1,412 |
|
8.250% senior notes due April 1, 2019 | 2,000 |
| | 2,177 |
| | 2,000 |
| | 2,264 |
|
5.000% senior notes due February 1, 2020 | 1,500 |
| | 1,588 |
| | 1,500 |
| | 1,615 |
|
4.125% senior notes due February 15, 2021 | 700 |
| | 732 |
| | 700 |
| | 739 |
|
4.000% senior notes due September 1, 2021 | 1,000 |
| | 1,048 |
| | 1,000 |
| | 1,056 |
|
5.750% sterling senior notes due June 2, 2031 (a) | 838 |
| | 905 |
| | 770 |
| | 834 |
|
6.550% senior debentures due May 1, 2037 | 1,500 |
| | 1,687 |
| | 1,500 |
| | 1,691 |
|
7.300% senior debentures due July 1, 2038 | 1,500 |
| | 1,790 |
| | 1,500 |
| | 1,795 |
|
6.750% senior debentures due June 15, 2039 | 1,500 |
| | 1,725 |
| | 1,500 |
| | 1,730 |
|
5.875% senior debentures due November 15, 2040 | 1,200 |
| | 1,258 |
| | 1,200 |
| | 1,259 |
|
5.500% senior debentures due September 1, 2041 | 1,250 |
| | 1,258 |
| | 1,250 |
| | 1,258 |
|
8
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
Maturities of lease liabilities are as follows.
| | | | | | | |
| Operating leases | | |
Three months ended December 31, 2020 | $ | 66 | | | |
2021 | 258 | | | |
2022 | 225 | | | |
2023 | 200 | | | |
2024 | 162 | | | |
Thereafter | 378 | | | |
Undiscounted lease cash flow commitments | 1,289 | | | |
Reconciling impact from discounting | (210) | | | |
Lease liabilities on consolidated balance sheet as of September 30, 2020 | $ | 1,079 | | | |
The Company has $61 million and $62 million of finance lease liabilities recognized in the consolidated balance sheets as of September 30, 2020 and December 31, 2019, respectively, included within accounts payable and accrued liabilities and other long-term liabilities.The related finance lease right-of-use assets are recorded in property, plant and equipment, net.The Company’s finance leases were not considered material for further supplemental lease disclosures.
6. Long-Term Debt
Long-term debt consists of the following as of September 30, 2020 and December 31, 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| Principal Amount | | Accreted Value | | Principal Amount | | Accreted Value |
CCO Holdings, LLC: | | | | | | | |
5.250% senior notes due September 30, 2022 | $ | 0 | | | $ | 0 | | | $ | 1,250 | | | $ | 1,241 | |
5.125% senior notes due February 15, 2023 | 0 | | | 0 | | | 1,000 | | | 995 | |
4.000% senior notes due March 1, 2023 | 500 | | | 498 | | | 500 | | | 497 | |
5.125% senior notes due May 1, 2023 | 0 | | | 0 | | | 1,150 | | | 1,145 | |
5.750% senior notes due September 1, 2023 | 0 | | | 0 | | | 500 | | | 497 | |
5.750% senior notes due January 15, 2024 | 0 | | | 0 | | | 150 | | | 149 | |
5.875% senior notes due April 1, 2024 | 0 | | | 0 | | | 1,700 | | | 1,690 | |
5.375% senior notes due May 1, 2025 | 750 | | | 747 | | | 750 | | | 746 | |
5.750% senior notes due February 15, 2026 | 2,500 | | | 2,474 | | | 2,500 | | | 2,471 | |
5.500% senior notes due May 1, 2026 | 1,500 | | | 1,492 | | | 1,500 | | | 1,491 | |
5.875% senior notes due May 1, 2027 | 800 | | | 796 | | | 800 | | | 796 | |
5.125% senior notes due May 1, 2027 | 3,250 | | | 3,224 | | | 3,250 | | | 3,222 | |
5.000% senior notes due February 1, 2028 | 2,500 | | | 2,471 | | | 2,500 | | | 2,469 | |
5.375% senior notes due June 1, 2029 | 1,500 | | | 1,501 | | | 1,500 | | | 1,501 | |
4.750% senior notes due March 1, 2030 | 3,050 | | | 3,042 | | | 3,050 | | | 3,041 | |
4.500% senior notes due August 15, 2030 | 2,750 | | | 2,750 | | | 0 | | | 0 | |
4.250% senior notes due February 1, 2031 | 3,000 | | | 3,001 | | | 0 | | | 0 | |
4.500% senior notes due May 1, 2032 | 1,400 | | | 1,387 | | | 0 | | | 0 | |
Charter Communications Operating, LLC: | | | | | | | |
3.579% senior notes due July 23, 2020 | 0 | | | 0 | | | 2,000 | | | 1,997 | |
4.464% senior notes due July 23, 2022 | 3,000 | | | 2,990 | | | 3,000 | | | 2,987 | |
Senior floating rate notes due February 1, 2024 | 900 | | | 902 | | | 900 | | | 902 | |
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
| | 4.500% senior notes due February 1, 2024 | | 4.500% senior notes due February 1, 2024 | 1,100 | | | 1,094 | | | 1,100 | | | 1,093 | |
4.908% senior notes due July 23, 2025 | | 4.908% senior notes due July 23, 2025 | 4,500 | | | 4,474 | | | 4,500 | | | 4,471 | |
3.750% senior notes due February 15, 2028 | | 3.750% senior notes due February 15, 2028 | 1,000 | | | 988 | | | 1,000 | | | 987 | |
4.200% senior notes due March 15, 2028 | | 4.200% senior notes due March 15, 2028 | 1,250 | | | 1,241 | | | 1,250 | | | 1,240 | |
5.050% senior notes due March 30, 2029 | | 5.050% senior notes due March 30, 2029 | 1,250 | | | 1,241 | | | 1,250 | | | 1,241 | |
2.800% senior notes due April 1, 2031 | | 2.800% senior notes due April 1, 2031 | 1,600 | | | 1,583 | | | 0 | | | 0 | |
6.384% senior notes due October 23, 2035 | | 6.384% senior notes due October 23, 2035 | 2,000 | | | 1,983 | | | 2,000 | | | 1,982 | |
5.375% senior notes due April 1, 2038 | | 5.375% senior notes due April 1, 2038 | 800 | | | 786 | | | 800 | | | 786 | |
6.484% senior notes due October 23, 2045 | | 6.484% senior notes due October 23, 2045 | 3,500 | | | 3,468 | | | 3,500 | | | 3,467 | |
5.375% senior notes due May 1, 2047 | | 5.375% senior notes due May 1, 2047 | 2,500 | | | 2,506 | | | 2,500 | | | 2,506 | |
5.750% senior notes due April 1, 2048 | | 5.750% senior notes due April 1, 2048 | 2,450 | | | 2,391 | | | 2,450 | | | 2,391 | |
5.125% senior notes due July 1, 2049 | | 5.125% senior notes due July 1, 2049 | 1,250 | | | 1,240 | | | 1,250 | | | 1,240 | |
4.800% senior notes due March 1, 2050 | | 4.800% senior notes due March 1, 2050 | 2,800 | | | 2,797 | | | 2,800 | | | 2,798 | |
3.700% senior notes due April 1, 2051 | | 3.700% senior notes due April 1, 2051 | 1,400 | | | 1,380 | | | 0 | | | 0 | |
6.834% senior notes due October 23, 2055 | | 6.834% senior notes due October 23, 2055 | 500 | | | 495 | | | 500 | | | 495 | |
Credit facilities | | Credit facilities | 10,219 | | | 10,147 | | | 10,427 | | | 10,345 | |
Time Warner Cable, LLC: | | Time Warner Cable, LLC: | |
5.000% senior notes due February 1, 2020 | | 5.000% senior notes due February 1, 2020 | 0 | | | 0 | | | 1,500 | | | 1,503 | |
4.125% senior notes due February 15, 2021 | | 4.125% senior notes due February 15, 2021 | 700 | | | 704 | | | 700 | | | 711 | |
4.000% senior notes due September 1, 2021 | | 4.000% senior notes due September 1, 2021 | 1,000 | | | 1,011 | | | 1,000 | | | 1,021 | |
5.750% sterling senior notes due June 2, 2031 (a) | | 5.750% sterling senior notes due June 2, 2031 (a) | 806 | | | 860 | | | 828 | | | 886 | |
6.550% senior debentures due May 1, 2037 | | 6.550% senior debentures due May 1, 2037 | 1,500 | | | 1,670 | | | 1,500 | | | 1,675 | |
7.300% senior debentures due July 1, 2038 | | 7.300% senior debentures due July 1, 2038 | 1,500 | | | 1,766 | | | 1,500 | | | 1,772 | |
6.750% senior debentures due June 15, 2039 | | 6.750% senior debentures due June 15, 2039 | 1,500 | | | 1,708 | | | 1,500 | | | 1,713 | |
5.875% senior debentures due November 15, 2040 | | 5.875% senior debentures due November 15, 2040 | 1,200 | | | 1,254 | | | 1,200 | | | 1,255 | |
5.500% senior debentures due September 1, 2041 | | 5.500% senior debentures due September 1, 2041 | 1,250 | | | 1,258 | | | 1,250 | | | 1,258 | |
5.250% sterling senior notes due July 15, 2042 (b) | 871 |
| | 839 |
| | 800 |
| | 771 |
| 5.250% sterling senior notes due July 15, 2042 (b) | 839 | | | 810 | | | 861 | | | 831 | |
4.500% senior debentures due September 15, 2042 | 1,250 |
| | 1,137 |
| | 1,250 |
| | 1,135 |
| 4.500% senior debentures due September 15, 2042 | 1,250 | | | 1,144 | | | 1,250 | | | 1,142 | |
Time Warner Cable Enterprises LLC: | | | | | | | | Time Warner Cable Enterprises LLC: | |
8.375% senior debentures due March 15, 2023 | 1,000 |
| | 1,243 |
| | 1,000 |
| | 1,273 |
| 8.375% senior debentures due March 15, 2023 | 1,000 | | | 1,115 | | | 1,000 | | | 1,148 | |
8.375% senior debentures due July 15, 2033 | 1,000 |
| | 1,315 |
| | 1,000 |
| | 1,324 |
| 8.375% senior debentures due July 15, 2033 | 1,000 | | | 1,273 | | | 1,000 | | | 1,284 | |
Total debt | 66,777 |
| | 68,132 |
| | 60,036 |
| | 61,747 |
| Total debt | 79,064 | | | 79,662 | | | 78,416 | | | 79,078 | |
Less current portion: | | | | | | | | Less current portion: | |
5.850% senior notes due May 1, 2017 | — |
| | — |
| | (2,000 | ) | | (2,028 | ) | |
6.750% senior notes due July 1, 2018 | (2,000 | ) | | (2,068 | ) | | — |
| | — |
| |
5.000% senior notes due February 1, 2020 | | 5.000% senior notes due February 1, 2020 | 0 | | | 0 | | | (1,500) | | | (1,503) | |
3.579% senior notes due July 23, 2020 | | 3.579% senior notes due July 23, 2020 | 0 | | | 0 | | | (2,000) | | | (1,997) | |
4.125% senior notes due February 15, 2021 | | 4.125% senior notes due February 15, 2021 | (700) | | | (704) | | | 0 | | | 0 | |
4.000% senior notes due September 1, 2021 | | 4.000% senior notes due September 1, 2021 | (1,000) | | | (1,011) | | | 0 | | | 0 | |
Long-term debt | $ | 64,777 |
| | $ | 66,064 |
| | $ | 58,036 |
| | $ | 59,719 |
| Long-term debt | $ | 77,364 | | | $ | 77,947 | | | $ | 74,916 | | | $ | 75,578 | |
| |
(a)
| Principal amount includes £625 million valued at $838 million and $770 million as of September 30, 2017 and December 31, 2016, respectively, using the exchange rate at the respective dates. |
| |
(b)
| Principal amount includes £650 million valued at $871 million and $800 million as of September 30, 2017 and December 31, 2016, respectively, using the exchange rate at the respective dates. |
(a)Principal amount includes £625 million remeasured at $806 million and $828 million as of September 30, 2020 and December 31, 2019, respectively, using the exchange rate at the respective dates.
(b)Principal amount includes £650 million remeasured at $839 million and $861 million as of September 30, 2020 and December 31, 2019, respectively, using the exchange rate at the respective dates.
The accreted values presented in the table above represent the principal amount of the debt less theadjusted for original issue discount or premium at the time of sale, deferred financing costs, and, in regards to the Legacy TWC debt assumed in acquisitions, fair value premium adjustments as a result of applying acquisition accounting plus the accretion of those amounts to the balance sheet date. However, the amount that is currently payable if the debt becomes immediately due is equal to the principal amount of the debt.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
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 is remeasured into US dollars is remeasured as of each balance sheet date. See Note 7.8. The Company has availability under the Charter Communications Operating, LLC ("Charter Operating") credit facilities of approximately $2.9$4.7 billion as of September 30, 2017.2020.
CCO Holdings
In February 2016,2020, CCO Holdings and CCO Holdings Capital Corp. ("CCO Holdings Capital") jointly issued $1.7$1.65 billion aggregate principal amount of 5.875%4.500% senior unsecured notes due 20242030 at par and in April 2016, theyMarch 2020, an additional $1.1 billion of the same series of notes were issued $1.5 billion aggregate principal amount of 5.500% senior notes due 2026 at a price of 100.075%102.5% 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 dueAlso in March 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 nine months ended September 30, 2016.
In February 2017, CCO Holdings and CCO Holdings Capital jointlyCorp. issued $1.0$1.4 billion aggregate principal amount of 5.125%4.500% senior unsecured 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. The Company recorded a loss on extinguishment of debt of $33 million for the nine months ended September 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, 20272032 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 nine months ended September 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 at a price of 100.5% of the aggregate principal amount.par. The net proceeds were used to pay related fees and expenses and for general corporate purposes, including repaying certain indebtedness, including repayment of all of CCO Holdings' 5.250% senior notes due September 30, 2022, 5.125% senior notes due February 15, 2023, 5.125% senior notes due May 1, 2023, 5.750% senior notes due September 1, 2023 and 5.750% senior notes due January 15, 2024, as well as distributions to the Company's parent companies to fund buybacks of Charter Class A common stock orand Charter Holdings common units. The Company recorded a loss on extinguishment of debt of $63 million during the nine months ended September 30, 2020 related to these transactions.
In August 2017,July 2020, CCO Holdings and CCO Holdings Capital Corp. jointly issued $1.5 billion aggregate principal amount of 5.000%4.250% senior unsecured notes due February 1, 2028. The net proceeds were used to pay related fees2031 at par and expenses and for general corporate purposes, including to fund buybacks of Charter Class A common stock or Charter Holdings common units.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollarslater in millions, except where indicated)
In October 2017, CCO Holdings and CCO Holdings Capital jointly issued $500 million aggregate principal amount of 4.000% senior notes due March 1, 2023 (the "2023 Notes") andJuly 2020, an additional $1.0$1.5 billion aggregate principal amount of 5.000% seniorthe same series of notes due February 1, 2028were issued at a price of 98.5% of the aggregate principal amount (together with the notes issued in February, March, April and October 2017 described above, the "Notes")102%. The net proceeds were used to pay related fees and expenses and for general corporate purposes, including repaying certain indebtedness, including repayment of all of CCO Holdings' 5.875% senior notes due April 1, 2024, as well as distributions to the Company's parent companies to fund buybacks of Charter Class A common stock orand Charter Holdings common units. The Company recorded a loss on extinguishment of debt of $58 million during the three and nine months ended September 30, 2020 related to these transactions.
In October 2020, CCO Holdings and CCO Holdings Capital Corp. jointly issued an additional $1.5 billion of its 4.500% senior unsecured notes due 2032 at 103.75% of the aggregate principal amount. The net proceeds will be used to pay related fees and expenses and for general corporate purposes, including repaying certain indebtedness, including repayment of all of CCO Holdings' 5.375% senior notes due May 1, 2025, as well as distributions to the Company's parent companies to fund potential buybacks of Charter Class A common stock and Charter Holdings common units.
The NotesCCO Holdings notes are senior debt obligations of CCO Holdings and CCO Holdings Capital Corp. and rank equally with all other current and future unsecured, unsubordinated obligations of CCO Holdings and CCO Holdings Capital.Capital Corp. They are structurally subordinated to all obligations of subsidiaries of CCO Holdings.
CCO Holdings may redeem some or all of the Notesnotes at any time at a premium. Beginning in 2025 (2021 for 2023 Notes),2028 and 2029, the optional redemption price declines to 100% of the principal amount, plus accrued and unpaid interest, if any.
In addition, at any time prior to varying dates in 2020 (2019 for the 2023, Notes), CCO Holdings may redeem up to 40% of the aggregate principal amount of the Notesnotes 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 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.
Charter Operating
In January 2017, Charter Operating entered into an amendment to its Amended and Restated Credit Agreement dated May 18, 2016 (the “Credit Agreement”) 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 debt of $1 million for the nine months ended September 30, 2017 related to these transactions.
In April 2017,2020, Charter Operating and Charter Communications Operating Capital Corp. jointly issued $1.25$1.6 billion aggregate principal amount of 5.375%2.800% senior secured notes due May 1, 2047April 2031 at a price of 99.968%99.561% of the aggregate principal amount and $1.4 billion aggregate principal amount of 3.700% senior secured notes due April 2051 at a price of 99.217% of the aggregate principal amount. The net proceeds 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.purposes.
In July 2017,June 2020, Charter Operating and Charter Communications Operating Capital Corp. jointly issued $1.0 billion aggregate principal amountredeemed all 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%their 3.579% senior secured notes due May 1, 2047 at a price of 106.529% of the aggregate principal amount. The net proceeds 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.July 2020.
In September 2017, Charter Operating and Charter Communications Operating Capital Corp. jointly issued $1.25 billion aggregate principal amount of 4.200% senior notes due March 15, 2028 at a price of 99.757% of the aggregate principal amount and an additional $750 million aggregate principal amount of 5.375% senior secured notes due May 1, 2047 at a price of 98.969% of the aggregate principal amount (collectively together with the notes issued in April and July 2017 described above, the "Charter Operating Notes"). The net proceeds 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.
The Charter Operating Notesnotes are guaranteed by CCO Holdings Time Warner Cable, LLC, Time Warner Cable Enterprises LLC and substantially all of the operating subsidiaries of Charter Operating. In addition, the Charter Operating Notesnotes are secured by a perfected first priority security interest in substantially all of the assets of Charter Operating to the extent 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 credit facilities and continue to exist as long as the liens securing such facilities exist. Charter Operating may redeem some or all of the Charter Operating notes at any time at a premium.
6. Loans Payable - Related Party
Loans payable - related party as of September 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 -
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
a financing statement and the liens rank equally with the liens on the collateral securing obligations under the Charter Operating credit facilities. Charter Operating may redeem some or all of the Charter Operating notes at any time at a premium.
The Charter Operating notes are subject to the terms and conditions of the indenture governing the Charter Operating notes. The Charter Operating notes contain customary representations and warranties and affirmative covenants with limited negative covenants. The Charter Operating indenture also contains customary events of default.
7. Loans Payable - Related Party
Loans payable - related party as of September 30, 2017 also includes a loan2020 and December 31, 2019 consists of loans from Charter Communications Holding Company, LLC (“Charter Holdco”) to the Company of $727 million and $699 million, respectively, and loans from Charter to the Company of $163 million.$279 million and $260 million, respectively. Interest accrues on loans payable - related partyaccrued at LIBOR plus 1.75%.1.25% on the loans payable from Charter Holdco during the period ending September 30, 2020 and LIBOR plus 1.50% during the period ending December 31, 2019. Interest accrued at LIBOR plus 2.00% on the loans payable from Charter during both periods ending September 30, 2020 and December 31, 2019.
7.8. 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 September 30, 2017 and December 31, 2016, the Company had $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.
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,April 2019, the Company entered into a collateral holiday agreement for 80%60% of both the 2031 and 2042 cross-currency swaps, which eliminates the requirement to post collateral for three years.
The effect of derivative instrumentsyears, as well as a ten year collateral cap on the remaining 40% of the cross-currency swaps which limits the required collateral posting on that 40% of the cross-currency swaps to $150 million. The fair value of the Company's cross-currency derivatives was $454 million and $224 million and is included in other long-term liabilities on its consolidated balance sheets is presented in the table below:as of September 30, 2020 and December 31, 2019, respectively.
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Interest Rate Derivatives | | | |
Accrued interest | $ | 1 |
| | $ | 5 |
|
Accumulated other comprehensive loss | $ | (1 | ) | | $ | (5 | ) |
| | | |
Cross-Currency Derivatives | | | |
Other long-term liabilities | $ | 125 |
| | $ | 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.
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, |
| 2017 | | 2016 | | 2017 | | 2016 |
Gain (loss) on Financial Instruments, Net: | | | | | | | |
Change in fair value of interest rate derivative instruments | $ | — |
| | $ | 7 |
| | $ | 4 |
| | $ | 5 |
|
Change in fair value of cross-currency derivative instruments | 68 |
| | 17 |
| | 126 |
| | (168 | ) |
Foreign currency remeasurement of Sterling Notes to U.S. dollars | (50 | ) | | 49 |
| | (141 | ) | | 196 |
|
Loss on termination of interest rate derivative instruments | — |
| | — |
| | — |
| | (11 | ) |
Loss reclassified from accumulated other comprehensive loss due to discontinuance of hedge accounting | (1 | ) | | (2 | ) | | (4 | ) | | (6 | ) |
| $ | 17 |
| | $ | 71 |
| | $ | (15 | ) | | $ | 16 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Gain (Loss) on Financial Instruments, Net: | | | | | | | |
Change in fair value of cross-currency derivative instruments | $ | 135 | | | $ | (86) | | | $ | (230) | | | $ | (172) | |
Foreign currency remeasurement of Sterling Notes to U.S. dollars | (66) | | | 52 | | | 45 | | | 56 | |
| $ | 69 | | | $ | (34) | | | $ | (185) | | | $ | (116) | |
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
8.9. Fair Value Measurements
The accountingAccounting guidanceestablishes 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.
Financial Assets and Liabilities
The Company has estimated the fair value of its financial instruments as of September 30, 20172020 and December 31, 20162019 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.
A portion of the Company’s cash and cash equivalents as of September 30, 2017 and December 31, 2016 were invested in money market funds. The 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 $500 million and $250 million as of September 30, 2017 and December 31, 2016, respectively. As of September 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 1.59% at September 30, 2017 and December 31, 2016 (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).
Financial instruments accounted for at fair value on a recurring basis are presented in the table below.
|
| | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Level 1 | | Level 2 | | Level 1 | | Level 2 |
Assets | | | | | | | |
Money market funds | $ | 1,312 |
| | $ | — |
| | $ | 1,003 |
| | $ | — |
|
| | | | | | | |
Liabilities | | | | | | | |
Interest rate derivative instruments | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | 5 |
|
Cross-currency derivative instruments | $ | — |
| | $ | 125 |
| | $ | — |
| | $ | 251 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
A summaryand classified within Level 2 of the carrying valuevaluation hierarchy include the Company's cross-currency derivative instruments and fair value of debtwere valued at $454 million and $224 million as of September 30, 20172020 and December 31, 2016 is as follows:2019, respectively.
|
| | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Senior notes and debentures | | $ | 59,451 |
| | $ | 62,657 |
| | $ | 52,933 |
| | $ | 55,203 |
|
Credit facilities | | $ | 8,681 |
| | $ | 8,788 |
| | $ | 8,814 |
| | $ | 8,943 |
|
The estimated fair value of the Company’s senior notes and debentures as of September 30, 20172020 and December 31, 20162019 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.
A summary of the carrying value and fair value of debt as of September 30, 2020 and December 31, 2019 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Senior notes and debentures | | $ | 69,515 | | | $ | 78,793 | | | $ | 68,733 | | | $ | 74,938 | |
Credit facilities | | $ | 10,147 | | | $ | 9,983 | | | $ | 10,345 | | | $ | 10,448 | |
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 materialWhen such impairments wereare recorded, during the three and nine months ended September 30, 2017 and 2016. Upon closingfair values are generally classified within Level 3 of the Transactions, all of Legacy TWC and Legacy Bright House nonfinancial assets and liabilities were recorded at fair values. See Note 2.valuation hierarchy.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
10. Revenues
The Company’s revenues by product line are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Internet | $ | 4,722 | | | $ | 4,195 | | | $ | 13,659 | | | $ | 12,322 | |
Video | 4,221 | | | 4,359 | | | 13,014 | | | 13,134 | |
Voice | 449 | | | 477 | | | 1,357 | | | 1,470 | |
Residential revenue | 9,392 | | | 9,031 | | | 28,030 | | | 26,926 | |
| | | | | | | |
Small and medium business | 988 | | | 974 | | | 2,967 | | | 2,882 | |
Enterprise | 617 | | | 644 | | | 1,845 | | | 1,939 | |
Commercial revenue | 1,605 | | | 1,618 | | | 4,812 | | | 4,821 | |
| | | | | | | |
Advertising sales | 460 | | | 394 | | | 1,074 | | | 1,134 | |
Mobile | 368 | | | 192 | | | 936 | | | 490 | |
Other | 212 | | | 214 | | | 615 | | | 626 | |
| $ | 12,037 | | | $ | 11,449 | | | $ | 35,467 | | | $ | 33,997 | |
11. 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, |
| 2020 | | 2019 | | 2020 | | 2019 |
Programming | $ | 2,727 | | | $ | 2,790 | | | $ | 8,492 | | | $ | 8,482 | |
Regulatory, connectivity and produced content | 612 | | | 612 | | | 1,651 | | | 1,770 | |
Costs to service customers | 1,902 | | | 1,894 | | | 5,598 | | | 5,483 | |
Marketing | 788 | | | 793 | | | 2,273 | | | 2,296 | |
Mobile | 456 | | | 337 | | | 1,243 | | | 874 | |
Other | 1,024 | | | 1,024 | | | 3,026 | | | 3,045 | |
| $ | 7,509 | | | $ | 7,450 | | | $ | 22,283 | | | $ | 21,950 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Programming | $ | 2,699 |
| | $ | 2,404 |
| | $ | 7,952 |
| | $ | 4,648 |
|
Regulatory, connectivity and produced content | 523 |
| | 515 |
| | 1,553 |
| | 944 |
|
Costs to service customers | 1,943 |
| | 2,016 |
| | 5,798 |
| | 3,663 |
|
Marketing | 629 |
| | 596 |
| | 1,812 |
| | 1,143 |
|
Transition costs | 23 |
| | 32 |
| | 104 |
| | 78 |
|
Other | 888 |
| | 927 |
| | 2,652 |
| | 1,697 |
|
| $ | 6,705 |
| | $ | 6,490 |
| | $ | 19,871 |
| | $ | 12,173 |
|
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 Internet, 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.contract period. 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 the non-capitalizable portion of 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. TransitionMobile costs represent incremental costs incurred to integrateassociated with the TWCCompany's mobile service such as device and Bright House operationsservice costs, marketing, sales and to increase the scale of the Company’s business as a result of the Transactions. See Note 2.commissions, retail stores, personnel costs and taxes, among others. Other includes corporate overhead, advertising sales expenses, indirect costs associated with the Company’s enterprise business customers and regional sports and news networks, property tax and insurance expense and stock compensation expense, among others.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
10.
12. 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, |
| 2020 | | 2019 | | 2020 | | 2019 |
Special charges, net | $ | 31 | | | $ | 23 | | | $ | 56 | | | 44 | |
(Gain) loss on sale of assets, net | (14) | | | (5) | | | (27) | | | 33 | |
| $ | 17 | | | $ | 18 | | | $ | 29 | | | $ | 77 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Merger and restructuring costs | $ | 67 |
| | $ | 205 |
| | $ | 293 |
| | $ | 513 |
|
Special charges, net | 80 |
| | 4 |
| | 86 |
| | 10 |
|
Gain on sale of assets, net | (2 | ) | | (3 | ) | | (5 | ) | | (10 | ) |
| $ | 145 |
| | $ | 206 |
| | $ | 374 |
| | $ | 513 |
|
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, 2016 through September 30, 2017 are presented below:
|
| | | | | | | | | | | | | | | | | | | |
| Employee Retention Costs | | Employee Termination Costs | | Transaction and Advisory Costs | | Other Costs | | Total |
Liability, December 31, 2015 | $ | — |
| | $ | — |
| | $ | 33 |
| | $ | — |
| | $ | 33 |
|
Liability assumed in the Transactions | 80 |
| | 9 |
| | 3 |
| | — |
| | 92 |
|
Costs incurred | 26 |
| | 337 |
| | 66 |
| | 31 |
| | 460 |
|
Cash paid | (99 | ) | | (102 | ) | | (77 | ) | | (31 | ) | | (309 | ) |
Remaining liability, December 31, 2016 | 7 |
| | 244 |
| | 25 |
| | — |
| | 276 |
|
| | | | | | | | | |
Costs incurred | 4 |
| | 186 |
| | 3 |
| | 57 |
| | 250 |
|
Cash paid | (9 | ) | | (253 | ) | | (4 | ) | | (45 | ) | | (311 | ) |
Remaining liability, September 30, 2017 | $ | 2 |
| | $ | 177 |
| | $ | 24 |
| | $ | 12 |
| | $ | 215 |
|
In addition to the costs incurred indicated above, the Company recorded $6 million and $43 million of expense related to accelerated vesting of equity awards of terminated employees during the three and nine months ended September 30, 2017, respectively, and $57 million and $202 million during the three and nine months ended September 30, 2016, respectively.
Special charges, net
Special charges, net primarily includes employee termination costs not related to the Transactions and net amounts of litigation settlements. In 2017, special charges, net also includes an $83 million charge related to the Company's withdrawal liability from a multiemployer pension plan.
Gain(Gain) loss on sale of assets, net
Gain(Gain) loss on sale of assets, net represents the net gain(gain) loss recognized on the sales and disposals of fixed assets and cable systems. The nine months ended September 30, 2019 includes a $41 million impairment of non-strategic assets.
11.13. Stock Compensation Plans
Charter’s stock incentive plans provide 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 stock incentive plans.
Charter granted the following equity awards for the periods presented.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Stock options | 17,100 | | | 39,400 | | | 1,282,400 | | | 1,821,800 | |
Restricted stock | 0 | | | 200 | | | 6,000 | | | 8,300 | |
Restricted stock units | 5,000 | | | 11,300 | | | 420,900 | | | 698,200 | |
Charter stock options and restricted stock units generally cliff vest three years from the date of grant. Certain stock options and restricted stock units vest based on achievement of stock price hurdles. Stock options generally expire ten years from the grant date and restricted stock units have no voting rights. Restricted stock generally vests one year from the date of grant.
As of September 30, 2020, total unrecognized compensation remaining to be recognized in future periods totaled $222 million for stock options, $2 million for restricted stock and $260 million for restricted stock units and the weighted average period over which they are expected to be recognized is two years for stock options, seven months for restricted stock and two years for restricted stock units.
The Company recorded stock compensation expense of $83 million and $263 million for the three and nine months ended September 30, 2020, respectively, and $71 million and $238 million for the three and nine months ended September 30, 2019, respectively, which is included in operating costs and expenses.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
14. 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.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
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 Advance/Newhouse Partnership (“A/N.N”). Charter is responsible for its share of taxable income or loss of CCO Holdings allocated to it in accordance with the Charter 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.
ForThe Company recorded income tax expense of $10 million and $23 million for the three and nine months ended September 30, 2017, the Company recorded income tax expense of $62020, respectively, and $10 million and $35 million, respectively, and income tax benefit of $7$86 million for the three and nine months ended September 30, 2016.2019, respectively. Income tax benefit forexpense decreased during the nine months ended September 30, 2016 was insignificant. Income2020 compared to the corresponding period in 2019 primarily as a result of an internal entity simplification that increased expense in 2019.
On March 18, 2020, the Families First Coronavirus Response Act ("FFCR Act"), and on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") were each enacted in response to the COVID-19 pandemic. The FFCR Act and the CARES Act contain numerous tax provisions, such as deferring payroll tax payments, establishing a credit for the retention of certain employees, relaxing limitations on the deductibility of interest, and updating the definition of qualified improvement property. This legislation currently has no material impact to income tax expense is generally recognized through increases in deferred tax liabilities as well as through current federal and state income tax expense.on the Company’s financial statements.
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 technical merits. There is considerable judgment involved in making such a determination. The Company has recorded unrecognized tax benefits totaling approximately $158$103 million and $159$110 million, excluding interest and penalties, as of September 30, 20172020 and December 31, 2016,2019, respectively. The Company does not currently anticipate that its reserve for uncertain tax positions will significantly increase or decrease during 2017;2020; 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 Holdco, the Company’s indirect parent companies, for income tax purposes, are currently under examination by the IRS. Legacy Charter’sInternal Revenue Service ("IRS") for income tax purposes. Charter's 2016 through 2019 tax years ending 2014 through 2016 remain subject toopen for examination and assessment. YearsCharter’s short period return dated May 17, 2016 (prior to the Time Warner Cable Inc. ("TWC") and Bright House Networks, LLC ("Bright House") transactions) and prior to 2014years remain open solely for purposes of examination of Legacy Charter’s loss and credit carryforwards. The IRS is currently examining LegacyCharter Holdings’ income tax return for 2016. Charter Holdings’ 2017 through 2019 tax years remain open for examination and assessment. The IRS is currently examining TWC’s income tax returns for 2011 through 2014. Legacy TWC’s tax year 2015 remains 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 examininghas examined Time Warner’s 2008 through 2010 income tax returns. Time Warner’s income tax returns for 2005 to 2007, whichand the results are periods prior to the Separation, were settled with the exception of an immaterial item that has been referred to the IRS Appeals Division.under appeal. 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 material impact on the Company’s consolidated financial position or results of operations during the three and nine months ended September 30, 2017,2020, nor does the Company anticipate a material impact in the future.
12.15. Comprehensive Income
Comprehensive income equaled net income attributable to CCO Holdings member for each of the three and nine months ended September 30, 2020 and 2019.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
16. Related Party Transactions
On May 23, 2015,The following sets forth certain transactions in connection withwhich the executionCompany and the directors, executive officers, and affiliates of the Merger AgreementCompany are involved.
Liberty Broadband and A/N
Under the amendmentterms 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 ondated 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,23, 2015, the number of Charter’s directors is fixed at 13, and includes its CEO. Upon the closing of the Bright House Transaction, twoTwo designees selected by A/N becameare members of the board of directors of Charter and three designees selected by Liberty Broadband continued asare 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 CompanyCharter (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
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
directors and 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 CEO, becameis the chairman of the board of Charter.
In December 2016,2017, Charter and A/N entered into aan amendment to the letter agreement (the "Letter Agreement"“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.basis.
The Company is aware that Dr. John Malone, may be deemed to have a 37.9% voting interest in Liberty Interactivedirector emeritus of Charter and is Chairman of the board of directors an executive officer position,and holder of 48.8% of voting interest in Liberty Interactive. Liberty InteractiveBroadband, also serves on the board of directors of Qurate Retail, Inc. ("Qurate"). As reported in Qurate's SEC filings, Dr. Malone owns 38.2%approximately 1.2 million shares of the Series A common stock and approximately 27.7 million shares of the Series B common stock of Qurate and has a 40.9% voting interest in Qurate for the election of directors. Qurate wholly owns 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 Corporation.QVC. For the three and nine months ended September 30, 2017,2020, the Company recorded paymentsrevenue in aggregate of approximately $17$12 million and $50$36 million, respectively, and for the three and nine months ended September 30, 2016,2019, the Company recorded paymentsrevenue in aggregate of approximately $18$11 million and $33$35 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. As reported in Discovery's SEC filings, Dr. Malone owns 5.1% in1.2% of the aggregateseries A common stock, 93.6% of the series B common stock and 3.6% of the series C common stock of Discovery and has a 28.5%27.9% voting interest in Discovery for the election of directors. The Company is aware thatAs reported in Discovery's SEC filings, Advance/Newhouse Programming Partnership (“A/N PP”), an affiliate of A/N and inof which Mr. Miron is the CEO, owns 100% of the Series AA-1 preferred stock of Discovery and 100% of the Series CC-1 preferred stock of Discovery representing approximately 34.6%and has a 23.9% voting interest for matters other than the election of the outstanding equity of Discovery’s stock, on an as-converted basis.directors. A/N PP also has the right to appoint three directors out of a total of eleventwelve 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 5.9% in the aggregate of the common stock of Lions Gate and has 8.1% of the voting power, pursuant to his ownership of Lions Gate Class A voting shares.board. The Company purchases programming from both Discovery and Lions Gate pursuant to agreements entered into prior to Dr. Malone and Mr. Miron joining Charter’s board of directors.Discovery. Based on publicly available information, the Company does not believe that either Discovery or Lions Gate would currently be considered a related parties.party. The amountsamount paid in the aggregate to Discovery and Lions Gate representrepresents less than 3%2% of total operating costs and expenses for the three and nine months ended September 30, 20172020 and 2016.2019.
Equity Investments
The Company and its parent companies have agreements with certain equity-methodequity investees pursuant to which the Company has made or received related party transaction payments. The Company and its parent companies recorded payments to equity-methodequity investees totaling $62$50 million and $208$167 million during the three and nine months ended September 30, 2017,2020, respectively, and $67$78 million and $108$245 million during the three and nine months ended September 30, 2016, respectively. The Company recorded advertising revenues from transactions with equity-method investees totaling $3 million and $8 million during the three and nine months ended September 30, 2017, respectively, and $3 million and $4 million during the three and nine months ended September 30, 2016,2019, respectively.
13.CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
17. Contingencies
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 betweeninvolving Charter, TWC, A/N, and Liberty Broadband announced by Charter on May 26, 2015. The lawsuit, nameswhich named as defendants Liberty Broadband, Legacy Charter theand its board of directors, of Charter, and Charter. Plaintiff alleged that the Liberty Transactions improperly benefittransactions resulted from breaches of fiduciary duty by Charter’s directors and that Liberty Broadband improperly benefited from the challenged transactions at the expense of other Charter shareholders, and that Charter issued a false and misleading proxy statement in connection withstockholders. The lawsuit has proceeded to 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
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
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, Legacy Charter and Charter, which was referenced in the description of the Second Amended and Restated Stockholders Agreement, dated May 23, 2015, among Legacy Charter, 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 filed a motion to dismiss this litigation and on May 31, 2017, the court 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.discovery phase. Charter denies any liability, believes that it has substantial defenses, and intends tois vigorously defenddefending this suit.lawsuit. 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 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.United States District Court for the District of Kansas alleging that Legacy TWC infringed 12certain U.S. patents purportedly relating to Voice over Internet Protocol (“VoIP”) services. OverAt 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 court subsequently declined to enhance the damage award as a result of the purported willful infringement. On May 30, 2017, the courtinfringement and awarded Sprint an additional $6 million, representing pre-judgment interest on the damages award. On June 28, 2017,The Company has now paid the verdict, interest and costs in full. The Company filed its notice of appeal with the United States Court of Appeals for the Federal Circuit. In addition to its appeal, the Company will continuecontinues to pursue indemnity from oneits vendors and has brought a patent suit against Sprint (TC Tech, LLC v. Sprint) in the United States District Court for the District of its vendors.Delaware implicating Sprint's LTE technology and a similar suit against T-Mobile USA, Inc. in the Western District of Texas. The impactultimate outcomes of the verdict was reflected inpursuit of indemnity against the adjustment to net current liabilities as described in Note 2.Company’s vendors and the TC Tech litigation cannot be predicted. The Company does not expect that the outcome of thisits indemnity claims nor the outcome of the TC Tech litigation will have a material adverse effect on its operations or financial 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 speedsSprint filed a second patent suit against Charter and other Internet product advertising. On February 1,Bright House Networks, LLC on December 2, 2017 the NY AG filed suit in the SupremeUnited States District Court for the StateDistrict of New York allegingDelaware. This suit alleges infringement of 11 patents related to the Company's provision of VoIP services (ten of which were asserted against Legacy TWC in the matter described above).
On February 18, 2020 Sprint filed a lawsuit against Charter, Bright House, and TWC in the District Court for Johnson County, Kansas. Sprint alleges that Legacy TWC's advertisingCharter misappropriated trade secrets from Sprint years ago through employees hired by Bright House. Sprint asserts that the alleged trade secrets relate to the VoIP business of Internet speeds was falseCharter and misleading.Bright House. Charter has removed this case to the United States District Court for the District of Kansas.
Sprint filed a third patent suit against Charter on May 17, 2018 in the United States District Court for the Eastern District of Virginia. This suit alleges infringement of two patents related to the Company's video on demand services. The suit seeks restitution and injunctive relief. On May 26, 2017,court transferred this case to the United States District Court for the District of Delaware on December 20, 2018 pursuant to an agreement between the parties.
While the Company movedis vigorously defending these suits and is unable to dismisspredict 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,outcome of the Sprint lawsuits, the Company does not expect that the outcome of this litigation will have a material adverse effect on its operations, financial condition, or cash flows.
TheIn addition to the Sprint litigation described above, the Company and its parent companies are defendants or co-defendants in several additional lawsuits involving alleged infringement of various patentsintellectual property relating to various aspects of their businesses. Other industry participants are also defendants in certain of these cases or related 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 patentsintellectual property at issue. While the Company believes the lawsuits are without merit and intends to defend the actions vigorously, no assurance
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
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 and its parent companies are party to other lawsuits, claims and regulatory inquiries that arise in the ordinary course of conducting their business, including lawsuits claiming violation of wage and hour laws and breach of contract by vendors, including by one of its programmers.business. 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
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
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.
14. Stock Compensation Plans
Charter’s 2009 Stock Incentive Plan 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.
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 September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Stock options | 20,900 |
| | 275,400 |
| | 1,167,100 |
| | 5,980,800 |
|
Restricted stock | — |
| | 400 |
| | 9,500 |
| | 10,400 |
|
Restricted stock units | 5,100 |
| | 39,300 |
| | 283,000 |
| | 890,700 |
|
Charter stock options and restricted stock units cliff vest upon the three year anniversary of each grant. Certain stock options and restricted stock units vest based on achievement of stock price hurdles. Stock options generally expire ten years from the grant date and restricted stock units have no voting rights. Restricted stock generally vests one year from the date of 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 September 30, 2017, total unrecognized compensation remaining to be recognized in future periods totaled $242 million for stock options, $2 million for restricted stock and $209 million for restricted stock units and the weighted average period over which they are expected to be recognized is three years for stock options, one year for restricted stock and two years for restricted stock units.
The Company recorded $64 million and $198 million of stock compensation expense for the three and nine months ended September 30, 2017, respectively and $81 million and $168 million for the three and nine months ended September 30, 2016, respectively, which is included in operating costs and expenses. The Company also recorded $6 million and $43 million of expense for the three and nine months ended September 30, 2017, respectively, and $57 million and $202 million for the three and nine months ended September 30, 2016, respectively, related to accelerated vesting of equity awards of terminated employees which is recorded in merger and restructuring costs.
15.18. Employee Benefit Plans
The Company sponsors twothree qualified defined benefit pension plans the TWC Pension Plan and the TWC Union Pension Plan,one nonqualified defined benefit pension plan that provide pension benefits to a majority of Legacyemployees who were employed by TWC employees. The Company also provides a nonqualified defined benefit pension plan for certain employees underbefore the TWC Excess Pension Plan.merger with TWC.
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. No future compensation increases or future service will be credited to participants of the pension plans given the frozen nature of the plans.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
The components of net periodic pension cost (benefit)benefit (costs) for the three and nine months ended September 30, 20172020 and 2016 consisted of the following:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Service cost | $ | — |
| | $ | 51 |
| | $ | — |
| | $ | 86 |
|
Interest cost | 33 |
| | 34 |
| | 101 |
| | 55 |
|
Expected return on plan assets | (46 | ) | | (47 | ) | | (140 | ) | | (70 | ) |
Pension curtailment gain | — |
| | — |
| | — |
| | (675 | ) |
Remeasurement loss, net | 30 |
| | — |
| | 30 |
| | 157 |
|
Net periodic pension cost (benefit) | $ | 17 |
| | $ | 38 |
| | $ | (9 | ) | | $ | (447 | ) |
The service cost component of net periodic pension cost (benefit) is2019 are recorded in operating costs and expensesother pension benefits, net in the consolidated statements of operations whileand consisted of the remaining components are recorded in other pension benefits (costs). following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Interest cost | $ | (29) | | | $ | (32) | | | $ | (85) | | | $ | (96) | |
Expected return on plan assets | 39 | | | 41 | | | 116 | | | 123 | |
Remeasurement loss, net | (125) | | | 0 | | | (125) | | | 0 | |
Net periodic pension benefits | $ | (115) | | | $ | 9 | | | $ | (94) | | | $ | 27 | |
During the three and nine months ended September 30, 2017,2020, settlements for lump-sum distributions to qualified and nonqualified pension plan participants exceeded the estimated annual interest cost of the plans. As a result, the pension liability and pension asset values were reassessed as of September 30, 20172020 utilizing remeasurement date assumptions in accordance with the Company's mark-to-market pension accounting policy to record gains and losses in the period in which a remeasurement event occurs. The $30$125 million remeasurement loss recorded during the three and nine months ended September 30, 20172020 was primarily driven by the adoption of the revised lump sum conversion mortality tables published by the Internal Revenue Service effective January 1, 2018, and the effects of a decrease ofchanges in the discount rate from 4.20% at December 31, 2016 to 3.88% at September 30, 2017. The effects of these changes were partially offset by a gainas well as net gains to record pension assets to fair value at September 30, 2017. The expected long-term rate of return on plan assets remains at 6.50%.value.
The $675 million pension curtailment gain and $157 million net remeasurement loss recognized during the nine months ended September 30, 2016 resulted from an amendment to the plans made subsequent to the TWC Transaction. During the second quarter of 2016, the Company amended the pension plans to freeze future benefit accruals to current active plan participants, driving the recognition of the pension curtailment gain, as no future compensation increases or future service will be credited to participants of the pension 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, resulting in the net remeasurement loss.
The Company made no cash contributions to the qualified pension plans during the three and nine months ended September 30, 20172020 and 2016;2019; 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 20172020 to the extent benefits are paid.
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.
Condensed consolidating financial statements as of September 30, 2017 and December 31, 2016 and for the nine months ended September 30, 2017 and 2016 follow.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
|
| | | | | | | | | | | | | | | |
CCO Holdings, LLC and Subsidiaries |
Condensed Consolidating Balance Sheets |
As of September 30, 2017 |
| | | | | | | |
| Guarantor Subsidiaries | | | | |
| CCO Holdings | | Charter Operating and Restricted Subsidiaries | | Eliminations | | CCO Holdings Consolidated |
ASSETS | | | | | | | |
CURRENT ASSETS: | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 1,974 |
| | $ | — |
| | $ | 1,974 |
|
Accounts receivable, net | — |
| | 1,573 |
| | — |
| | 1,573 |
|
Receivables from related party | 51 |
| | — |
| | (51 | ) | | — |
|
Prepaid expenses and other current assets | — |
| | 275 |
| | — |
| | 275 |
|
Total current assets | 51 |
| | 3,822 |
| | (51 | ) | | 3,822 |
|
| | | | | | | |
INVESTMENT IN CABLE PROPERTIES: | | | | | | | |
Property, plant and equipment, net | — |
| | 33,066 |
| | — |
| | 33,066 |
|
Customer relationships, net | — |
| | 12,589 |
| | — |
| | 12,589 |
|
Franchises | — |
| | 67,316 |
| | — |
| | 67,316 |
|
Goodwill | — |
| | 29,554 |
| | — |
| | 29,554 |
|
Total investment in cable properties, net | — |
| | 142,525 |
| | — |
| | 142,525 |
|
| | | | | | | |
INVESTMENT IN SUBSIDIARIES | 85,011 |
| | — |
| | (85,011 | ) | | — |
|
LOANS RECEIVABLE – RELATED PARTY | 511 |
| | — |
| | (511 | ) | | — |
|
OTHER NONCURRENT ASSETS | — |
| | 1,115 |
| | — |
| | 1,115 |
|
| | | | | | | |
Total assets | $ | 85,573 |
| | $ | 147,462 |
| | $ | (85,573 | ) | | $ | 147,462 |
|
| | | | | | | |
LIABILITIES AND MEMBER’S EQUITY | | | | | | | |
CURRENT LIABILITIES: | | | | | | | |
Accounts payable and accrued liabilities | $ | 339 |
| | $ | 7,164 |
| | $ | — |
| | $ | 7,503 |
|
Payables to related party | — |
| | 687 |
| | (51 | ) | | 636 |
|
Current portion of long-term debt | — |
| | 2,068 |
| | — |
| | 2,068 |
|
Total current liabilities | 339 |
| | 9,919 |
| | (51 | ) | | 10,207 |
|
| | | | | | | |
LONG-TERM DEBT | 17,231 |
| | 48,833 |
| | — |
| | 66,064 |
|
LOANS PAYABLE – RELATED PARTY | — |
| | 1,329 |
| | (511 | ) | | 818 |
|
DEFERRED INCOME TAXES | — |
| | 39 |
| | — |
| | 39 |
|
OTHER LONG-TERM LIABILITIES | — |
| | 2,307 |
| | — |
| | 2,307 |
|
| | | | | | | |
MEMBER’S EQUITY | | | | | | | |
Controlling interest | 68,003 |
| | 85,011 |
| | (85,011 | ) | | 68,003 |
|
Noncontrolling interests | — |
| | 24 |
| | — |
| | 24 |
|
Total member’s equity | 68,003 |
| | 85,035 |
| | (85,011 | ) | | 68,027 |
|
| | | | | | | |
Total liabilities and member’s equity | $ | 85,573 |
| | $ | 147,462 |
| | $ | (85,573 | ) | | $ | 147,462 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
|
| | | | | | | | | | | | | | | |
CCO Holdings, LLC and Subsidiaries |
Condensed Consolidating Balance Sheets |
As of December 31, 2016 |
| | | | | | | |
| Guarantor Subsidiaries | | | | |
| CCO Holdings | | Charter Operating and Restricted Subsidiaries | | Eliminations | | CCO Holdings Consolidated |
ASSETS | | | | | | | |
CURRENT ASSETS: | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 1,324 |
| | $ | — |
| | $ | 1,324 |
|
Accounts receivable, net | — |
| | 1,387 |
| | — |
| | 1,387 |
|
Receivables from related party | 62 |
| | — |
| | (62 | ) | | — |
|
Prepaid expenses and other current assets | — |
| | 300 |
| | — |
| | 300 |
|
Total current assets | 62 |
| | 3,011 |
| | (62 | ) | | 3,011 |
|
| | | | | | | |
INVESTMENT IN CABLE PROPERTIES: | | | | | | | |
Property, plant and equipment, net | — |
| | 32,718 |
| | — |
| | 32,718 |
|
Customer relationships, net | — |
| | 14,608 |
| | — |
| | 14,608 |
|
Franchises | — |
| | 67,316 |
| | — |
| | 67,316 |
|
Goodwill | — |
| | 29,509 |
| | — |
| | 29,509 |
|
Total investment in cable properties, net | — |
| | 144,151 |
| | — |
| | 144,151 |
|
| | | | | | | |
INVESTMENT IN SUBSIDIARIES | 88,760 |
| | — |
| | (88,760 | ) | | — |
|
LOANS RECEIVABLE – RELATED PARTY | 494 |
| | — |
| | (494 | ) | | — |
|
OTHER NONCURRENT ASSETS | — |
| | 1,157 |
| | — |
| | 1,157 |
|
| | | | | | | |
Total assets | $ | 89,316 |
| | $ | 148,319 |
| | $ | (89,316 | ) | | $ | 148,319 |
|
| | | | | | | |
LIABILITIES AND MEMBER’S EQUITY | | | | | | | |
CURRENT LIABILITIES: | | | | | | | |
Accounts payable and accrued liabilities | $ | 219 |
| | $ | 6,678 |
| | $ | — |
| | $ | 6,897 |
|
Payables to related party | — |
| | 683 |
| | (62 | ) | | 621 |
|
Current portion of long-term debt | — |
| | 2,028 |
| | — |
| | 2,028 |
|
Total current liabilities | 219 |
| | 9,389 |
| | (62 | ) | | 9,546 |
|
| | | | | | | |
LONG-TERM DEBT | 13,259 |
| | 46,460 |
| | — |
| | 59,719 |
|
LOANS PAYABLE – RELATED PARTY | — |
| | 1,134 |
| | (494 | ) | | 640 |
|
DEFERRED INCOME TAXES | — |
| | 25 |
| | — |
| | 25 |
|
OTHER LONG-TERM LIABILITIES | — |
| | 2,526 |
| | — |
| | 2,526 |
|
| | | | | | | |
MEMBER’S EQUITY | | | | | | | |
Controlling interest | 75,838 |
| | 88,760 |
| | (88,760 | ) | | 75,838 |
|
Noncontrolling interests | — |
| | 25 |
| | — |
| | 25 |
|
Total member’s equity | 75,838 |
| | 88,785 |
| | (88,760 | ) | | 75,863 |
|
| | | | | | | |
Total liabilities and member’s equity | $ | 89,316 |
| | $ | 148,319 |
| | $ | (89,316 | ) | | $ | 148,319 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
|
| | | | | | | | | | | | | | | |
CCO Holdings, LLC and Subsidiaries |
Condensed Consolidating Statements of Operations |
For the nine months ended September 30, 2017 |
| | | | | | | |
| Guarantor Subsidiaries | | | | |
| CCO Holdings | | Charter Operating and Restricted Subsidiaries | | Eliminations | | CCO Holdings Consolidated |
REVENUES | $ | — |
| | $ | 30,979 |
| | $ | — |
| | $ | 30,979 |
|
| | | | | | | |
COSTS AND EXPENSES: | | | | | | | |
Operating costs and expenses (exclusive of items shown separately below) | — |
| | 19,871 |
| | — |
| | 19,871 |
|
Depreciation and amortization | — |
| | 7,839 |
| | — |
| | 7,839 |
|
Other operating expenses, net | — |
| | 374 |
| | — |
| | 374 |
|
| — |
| | 28,084 |
| | — |
| | 28,084 |
|
Income from operations | — |
| | 2,895 |
| | — |
| | 2,895 |
|
| | | | | | | |
OTHER INCOME (EXPENSES): | | | | | | | |
Interest expense, net | (631 | ) | | (1,637 | ) | | — |
| | (2,268 | ) |
Loss on extinguishment of debt | (33 | ) | | (2 | ) | | — |
| | (35 | ) |
Loss on financial instruments, net | — |
| | (15 | ) | | — |
| | (15 | ) |
Other pension benefits | — |
| | 9 |
| | — |
| | 9 |
|
Other expense, net | — |
| | (2 | ) | | — |
| | (2 | ) |
Equity in income of subsidiaries | 1,212 |
| | — |
| | (1,212 | ) | | — |
|
| 548 |
| | (1,647 | ) | | (1,212 | ) | | (2,311 | ) |
| | | | | | | |
Income before income taxes | 548 |
| | 1,248 |
| | (1,212 | ) | | 584 |
|
INCOME TAX EXPENSE | — |
| | (35 | ) | | — |
| | (35 | ) |
Consolidated net income | 548 |
| | 1,213 |
| | (1,212 | ) | | 549 |
|
Less: Net income attributable to noncontrolling interests | — |
| | (1 | ) | | — |
| | (1 | ) |
Net income | $ | 548 |
| | $ | 1,212 |
| | $ | (1,212 | ) | | $ | 548 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
|
| | | | | | | | | | | | | | | |
CCO Holdings, LLC and Subsidiaries |
Condensed Consolidating Statements of Operations |
For the nine months ended September 30, 2016 |
| | | | | | | |
| Guarantor Subsidiaries | | | | |
| CCO Holdings | | Charter Operating and Restricted Subsidiaries | | Eliminations | | CCO Holdings Consolidated |
REVENUES | $ | — |
| | $ | 18,728 |
| | $ | — |
| | $ | 18,728 |
|
| | | | | | | |
COSTS AND EXPENSES: | | | | | | | |
Operating costs and expenses (exclusive of items shown separately below) | — |
| | 12,173 |
| | — |
| | 12,173 |
|
Depreciation and amortization | — |
| | 4,409 |
| | — |
| | 4,409 |
|
Other operating expenses, net | — |
| | 513 |
| | — |
| | 513 |
|
| — |
| | 17,095 |
| | — |
| | 17,095 |
|
Income (loss) from operations | — |
| | 1,633 |
| | — |
| | 1,633 |
|
| | | | | | | |
OTHER INCOME (EXPENSES): | | | | | | | |
Interest expense, net | (539 | ) | | (852 | ) | | — |
| | (1,391 | ) |
Loss on extinguishment of debt | (110 | ) | | — |
| | — |
| | (110 | ) |
Gain on financial instruments, net | — |
| | 16 |
| | — |
| | 16 |
|
Other pension benefits | — |
| | 533 |
| | — |
| | 533 |
|
Other expense, net | — |
| | (2 | ) | | — |
| | (2 | ) |
Equity in income of subsidiaries | 1,327 |
| | — |
| | (1,327 | ) | | — |
|
| 678 |
| | (305 | ) | | (1,327 | ) | | (954 | ) |
| | | | | | | |
Incomebefore income taxes | 678 |
| | 1,328 |
| | (1,327 | ) | | 679 |
|
INCOME TAX BENEFIT | — |
| | — |
| | — |
| | — |
|
Consolidated net income | 678 |
| | 1,328 |
| | (1,327 | ) | | 679 |
|
Less: Net income attributable to noncontrolling interests | — |
| | (1 | ) | | — |
| | (1 | ) |
Net income | $ | 678 |
| | $ | 1,327 |
| | $ | (1,327 | ) | | $ | 678 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
|
| | | | | | | | | | | | | | | |
CCO Holdings, LLC and Subsidiaries |
Condensed Consolidating Statements of Comprehensive Income |
For the nine months ended September 30, 2017 |
| | | | | | | |
| Guarantor Subsidiaries | | | | |
| CCO Holdings | | Charter Operating and Restricted Subsidiaries | | Eliminations | | CCO Holdings Consolidated |
Consolidated net income | $ | 548 |
| | $ | 1,213 |
| | $ | (1,212 | ) | | $ | 549 |
|
Net impact of interest rate derivative instruments | 4 |
| | 4 |
| | (4 | ) | | 4 |
|
Foreign currency translation adjustment | 1 |
| | 1 |
| | (1 | ) | | 1 |
|
Consolidated comprehensive income | 553 |
| | 1,218 |
| | (1,217 | ) | | 554 |
|
Less: Comprehensive income attributable to noncontrolling interests | — |
| | (1 | ) | | — |
| | (1 | ) |
Comprehensive income | $ | 553 |
| | $ | 1,217 |
| | $ | (1,217 | ) | | $ | 553 |
|
|
| | | | | | | | | | | | | | | |
CCO Holdings, LLC and Subsidiaries |
Condensed Consolidating Statements of Comprehensive Income |
For the nine months ended September 30, 2016 |
| | | | | | | |
| Guarantor Subsidiaries | | | | |
| CCO Holdings | | Charter Operating and Restricted Subsidiaries | | Eliminations | | CCO Holdings Consolidated |
Consolidated net income | $ | 678 |
| | $ | 1,328 |
| | $ | (1,327 | ) | | $ | 679 |
|
Net impact of interest rate derivative instruments | 6 |
| | 6 |
| | (6 | ) | | 6 |
|
Foreign currency translation adjustment | (1 | ) | | (1 | ) | | 1 |
| | (1 | ) |
Consolidated comprehensive income | $ | 683 |
| | $ | 1,333 |
| | $ | (1,332 | ) | | $ | 684 |
|
Less: Comprehensive income attributable to noncontrolling interests | — |
| | (1 | ) | | — |
| | (1 | ) |
Comprehensive income | $ | 683 |
| | $ | 1,332 |
| | $ | (1,332 | ) | | $ | 683 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
|
| | | | | | | | | | | | | | | |
CCO Holdings, LLC and Subsidiaries |
Condensed Consolidating Statements of Cash Flows |
For the nine months ended September 30, 2017 |
| | | | | | | |
| Guarantor Subsidiaries | | | | |
| CCO Holdings | | Charter Operating and Restricted Subsidiaries | | Eliminations | | CCO Holdings Consolidated |
NET CASH FLOWS FROM OPERATING ACTIVITIES | $ | (504 | ) | | $ | 9,025 |
| | $ | — |
| | $ | 8,521 |
|
| | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | |
Purchases of property, plant and equipment | — |
| | (6,096 | ) | | — |
| | (6,096 | ) |
Change in accrued expenses related to capital expenditures | — |
| | 276 |
| | — |
| | 276 |
|
Contributions to subsidiaries | (693 | ) | | — |
| | 693 |
| | — |
|
Distributions from subsidiaries | 5,912 |
| | — |
| | (5,912 | ) | | — |
|
Other, net | — |
| | (63 | ) | | — |
| | (63 | ) |
Net cash flows from investing activities | 5,219 |
| | (5,883 | ) | | (5,219 | ) | | (5,883 | ) |
| | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | |
Borrowings of long-term debt | 4,747 |
| | 7,368 |
| | — |
| | 12,115 |
|
Repayments of long-term debt | (775 | ) | | (4,759 | ) | | — |
| | (5,534 | ) |
Borrowings loans payable - related parties | — |
| | 163 |
| | — |
| | 163 |
|
Payments for debt issuance costs | (46 | ) | | (37 | ) | | — |
| | (83 | ) |
Contributions from parent | — |
| | 693 |
| | (693 | ) | | — |
|
Distributions to parent | (8,641 | ) | | (5,912 | ) | | 5,912 |
| | (8,641 | ) |
Other, net | — |
| | (8 | ) | | — |
| | (8 | ) |
Net cash flows from financing activities | (4,715 | ) | | (2,492 | ) | | 5,219 |
| | (1,988 | ) |
| | | | | | | |
NET INCREASE IN CASH AND CASH EQUIVALENTS | — |
| | 650 |
| | — |
| | 650 |
|
CASH AND CASH EQUIVALENTS, beginning of period | — |
| | 1,324 |
| | — |
| | 1,324 |
|
| | | | | | | |
CASH AND CASH EQUIVALENTS, end of period | $ | — |
| | $ | 1,974 |
| | $ | — |
| | $ | 1,974 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
|
| | | | | | | | | | | | | | | |
CCO Holdings, LLC and Subsidiaries |
Condensed Consolidating Statements of Cash Flows |
For the nine months ended September 30, 2016 |
| | | | | | | |
| Guarantor Subsidiaries | | | | |
| CCO Holdings | | Charter Operating and Restricted Subsidiaries | | Eliminations | | CCO Holdings Consolidated |
NET CASH FLOWS FROM OPERATING ACTIVITIES | $ | (533 | ) | | $ | 6,071 |
| | $ | — |
| | $ | 5,538 |
|
| | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | |
Purchases of property, plant and equipment | — |
| | (3,437 | ) | | — |
| | (3,437 | ) |
Change in accrued expenses related to capital expenditures | — |
| | 86 |
| | — |
| | 86 |
|
Purchases of cable systems, net of cash acquired | — |
| | (7 | ) | | — |
| | (7 | ) |
Contribution to subsidiary | (437 | ) | | — |
| | 437 |
| | — |
|
Distributions from subsidiaries | 3,455 |
| | — |
| | (3,455 | ) | | — |
|
Other, net | — |
| | (8 | ) | | — |
| | (8 | ) |
Net cash flows from investing activities | 3,018 |
| | (3,366 | ) | | (3,018 | ) | | (3,366 | ) |
| | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | |
Borrowings of long-term debt | 3,201 |
| | 2,796 |
| | — |
| | 5,997 |
|
Repayments of long-term debt | (2,937 | ) | | (1,183 | ) | | — |
| | (4,120 | ) |
Repayments loans payable - related parties | (71 | ) | | (182 | ) | | — |
| | (253 | ) |
Payments for debt issuance costs | (73 | ) | | (210 | ) | | — |
| | (283 | ) |
Proceeds from termination of interest rate derivatives | — |
| | 88 |
| | — |
| | 88 |
|
Contributions from parent | 478 |
| | 437 |
| | (437 | ) | | 478 |
|
Distributions to parent | (3,084 | ) | | (3,455 | ) | | 3,455 |
| | (3,084 | ) |
Other, net | 1 |
| | (5 | ) | | — |
| | (4 | ) |
Net cash flows from financing activities | (2,485 | ) | | (1,714 | ) | | 3,018 |
| | (1,181 | ) |
| | | | | | | |
NET INCREASE IN CASH AND CASH EQUIVALENTS | — |
| | 991 |
| | — |
| | 991 |
|
CASH AND CASH EQUIVALENTS, beginning of period | — |
| | 5 |
| | — |
| | 5 |
|
| | | | | | | |
CASH AND CASH EQUIVALENTS, end of period | $ | — |
| | $ | 996 |
| | $ | — |
| | $ | 996 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
17.19. Recently Issued Accounting Standards
Recently Adopted Accounting Standards Adopted January 1, 2017
ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”)
In MarchJune 2016, the Financial Accounting Standards Board (“FASB”("FASB") issued ASU No. 2016-09, ImprovementsAccounting Standards Update ("ASU") 2016-13, which requires a financial asset (or a group of financial assets) measured at amortized cost basis to Employee Share-Based Payment Accounting, which includes multiple provisions intended to simplify various aspectsbe assessed for impairment under the current expected credit loss model rather than an incurred loss model. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the accounting for share-based payments.reported amount. 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). The new standard generally requires a modified retrospective transition through a cumulative-effect adjustment asprimary financial assets of the beginningCompany in scope of the period of adoption, with certain provisions requiring either a prospective or retrospective transition.ASU 2016-13 include accounts receivables and equipment installment plan notes receivables. The Company adopted ASU 2016-092016-13 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 aspects2020. The adoption of adoption ASU 2016-092016-13 did not have a material impact to the Company’sCompany's consolidated financial statements.
ASU No. 2018-15, Customer’s Accounting for Implementation Costs in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15")
In March 2017,August 2018, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost ("ASU 2017-07"),2018-15 which requires employersupfront implementation costs incurred in a cloud computing arrangement (or hosting arrangement) that is a service contract to reportbe amortized to hosting expense over the service costterm of the arrangement, beginning when the module or 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 and outside of a subtotal of income from operations. ASU 2017-07 will be effectivehosting arrangement is ready 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.intended use. The Company early adopted ASU 2017-072018-15 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.2020. The Company previously recorded service cost with other compensation costs in operating costs and expenses in the consolidated statementsadoption of operations, and recorded other pension benefits (costs), in other operating expenses, net. Adoption of the standard results in the reclassification of other pension benefits (costs) 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 withASU 2018-15 did not have a corresponding decrease to other expenses of $899 million, with nomaterial impact to net income. For the threeCompany's consolidated financial statements.
ASU No. 2019-02, Improvements to Accounting for Costs of Films and nine months ended September 30, 2016, the adoption of the standard resulted in reductions of income from operations by $13 million and $533 million, respectively, with corresponding decreases to other expenses, with no impact to net income. License Agreements for Program Materials ("ASU 2017-07 does not impact the consolidated balance sheets or statements of cash flows.2019-02")
Accounting Standards Not Yet Adopted
In May 2014,March 2019, the FASB issued ASU 2019-02 which aligns the accounting for production costs of an episodic television series with the accounting for production costs of films regarding cost capitalization, amortization, impairment, presentation and disclosure. The Company adopted ASU 2019-02 on January 1, 2020. The adoption of ASU 2019-02 did not have a material impact to the Company's consolidated financial statements.
ASU No. 2014-09, Revenue from Contracts with Customers2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2014-09”2019-12”),
In December 2019, the FASB issued ASU 2019-12 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 modelintended to be appliedsimplify various aspects related 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 priceaccounting for income taxes. ASU 2019-12 removes certain exceptions to the performance obligationsgeneral principles in the contractTopic 740 and (5) recognize revenue when each performance obligation is satisfied.also clarifies and amends existing guidance to improve consistent application. ASU 2014-092019-12 will be effective for interim and annual periods beginning after December 15, 2017 (January 1, 2018 for the Company).2020. Early adoption is permitted. The Company has substantially completed the review of its revenue arrangements and does not currently expect that theelected to early adopt ASU 2019-12 on January 1, 2020. The adoption of the new standard willASU 2019-12 did not have a material impact on the Company’sCompany's consolidated financial position or resultsstatements.
Amendments to the financial disclosures requirements for guarantors and issuers of operations. However,guaranteed securities under SEC Regulation S-X
In March 2020, the adoption is anticipatedSEC adopted amendments to resultthe financial disclosure requirements of Regulation S-X for guarantors and issuers of guaranteed securities. The final rule streamlines disclosure obligations under the existing rules, including replacing condensed consolidating financial information with summarized financial information for the "obligor group" of issuers and guarantors to the extent material, no longer requiring subsidiary issuer and guarantor cash flow information, and no longer requiring financial information for non-guarantor subsidiaries. It also permits presentation of the required disclosures to be included in the deferralManagement's Discussion and Analysis ("MD&A") section 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. The new standard also requires additional disclosures regarding the nature, timing and uncertainty of the Company’s revenue transactions. The Company intends to adopt the provisions of the guidance using a cumulative effect adjustment as of the January 1, 2018 adoption date.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except where indicated)
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 interimquarterly and annual periods beginning after December 15, 2018 (January 1, 2019 forreports rather than the Company). The new standard requires a modified retrospective transition through a cumulative-effect adjustment as ofnotes to the beginning of the earliest period presented in theCompany's consolidated financial statements. The Company is currentlyvoluntarily complying with the new disclosure requirements beginning with its Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 and has included summarized financial information in the process of evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements including identifying the population of leases, evaluating technology solutions and collecting lease data.MD&A.
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 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 2017-04 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.
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”).LLC. All of the outstanding capital stock of CCO Holdings Capital Corp. is owned by CCO 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.eliminated
We are the second largesta leading broadband connectivity company and cable operator serving more than 30 million customers in 41 states through its Spectrum brand. Over an advanced communications network, we offer a full range of state-of-the-art residential and business services including Spectrum Internet, TV, Mobile and Voice. For small and medium-sized companies, Spectrum Business® delivers the same suite of broadband products and services coupled with special features and applications to enhance productivity, while for larger businesses and government entities, Spectrum Enterprise provides highly customized, fiber-based solutions. Spectrum Reach® delivers tailored advertising and production for the modern media landscape. We also distribute award-winning news coverage, sports and high-quality original programming to our customers through Spectrum Networks and Spectrum Originals.
Overview
As the COVID-19 pandemic continues to significantly impact the United States, we have continued to deliver services uninterrupted by the pandemic. Because we have invested significantly in our network and through normal course capacity increases, we have been able to respond to the significant increase in network activity from the private and public response to COVID-19 as we do our part as a major provider of Internet services in the United States by, among other things, enabling social distancing through telecommuting and e-learning across our footprint of 41 states. We have invested significantly in our self-service infrastructure, and customers have accelerated the adoption of our self-installation and digital self-service capabilities. Increased demand for our connectivity and the positive response to our Remote Education Offer ("REO") pursuant to which new customers with students or educators in the household were eligible to receive our Internet service for free for 60 days, and the Keep Americans Connected (“KAC”) Pledge which paused collection efforts and related disconnects for residential and small and medium business ("SMB") customers with COVID-19 related payment challenges through June 30, 2020, have positively impacted our results for the nine months ended September 30, 2020 with retention rates for these customers similar to our average customer base.
During the three and nine months ended September 30, 2020, our results were negatively impacted by COVID-19, including recording $218 million of estimated customer credits to be provided to video customers offset by $173 million in-period recognition of estimated rebates from sports programming networks as a leading broadband communications services company providingresult of canceled sporting events and related costs. The difference between the $218 million estimated credit to customers which lowered video Internetrevenue and voice servicesthe $163 million reduction in programming expense and $10 million reduction in regulatory, connectivity and produced content costs relates to an expected reduction in sports rights content costs which is being amortized over the life of the contract, consistent with the deferral of expense in the three months ended June 30, 2020 when games were canceled. We intend to provide a credit on our customers’ invoices for all of the rebates provided by the sports programming networks when details are finalized with these networks.
We have also seen declines in advertising revenues as a result of COVID-19 and lower revenues from seasonal plans offered to SMB and Enterprise hospitality customers that have requested a reduced level of service due to temporary business closure or because these customers have reduced their service offering to their own customers ("Seasonal Plan"). In addition, in an effort to assist COVID-19 impacted customers with overdue balances at the end of the KAC program, we waived approximately 27.0$85 million of receivables which was recorded as a reduction of revenue in the second quarter of 2020.
We cannot predict the ultimate impact of COVID-19 on our business, including the depth and duration of the economic impact to household formation and growth and our residential and business customers at September 30, 2017.customers’ ability to pay for our products and services including the impact of extended unemployment benefits and other stimulus packages. We expect that some of the COVID-19 programs discussed above may result in incremental churn and bad debt during the remainder of the year and into 2021. In addition, there is uncertainty regarding the impact of government emergency declarations, the ability of our suppliers and vendors to provide products and services to us, the pace of new housing construction, changes in business spend in our local
and national ad sales business, the effects to our employees’ health and safety and resulting reorientation of our work activities, and the risk of limitations on the deployment and maintenance of our services (including by limiting our customer support and on-site service repairs and installations).
Although the ultimate impact of the COVID-19 pandemic cannot be predicted, we sellremain focused on driving customer relationship growth by deploying superior products and services packaged with attractive pricing. Further, we expect to continue to drive customer relationship growth through sales of bundled services and improving customer retention despite the expectation for continued losses of video and online advertising inventorywireline voice customers.
Our Spectrum Mobile service is offered to local, regionalcustomers subscribing to our Internet service and national advertising customersruns on Verizon's mobile network combined with Spectrum WiFi. In March 2020, we launched 5G service offerings and fiber-delivered communications and managed information technology ("IT") solutionswe expect that, along with broader availability of our Spectrum Mobile bring-your-own-device program, to larger enterprise customers.contribute to the growth of our mobile business. We also owncontinue to explore ways to drive even more mobile traffic to our network. We plan to use our WiFi network in conjunction with additional unlicensed, and operate regional sports networkspotentially licensed, spectrum to improve network performance and local sports, newsexpand capacity to offer consumers a superior mobile service at a lower total cost to us. In October 2020, we purchased approximately $464 million of Citizens Broadband Radio Service ("CBRS") licenses from the Federal Communications Commission ("FCC") in our effort to support our wireless network. Further, we have experimental wireless licenses from the FCC that we are utilizing to test next generation mobile services in several service areas around the country.
We believe Spectrum-branded mobile services will drive higher sales of our core products, create longer customer lives and community channelsincrease profitability and sell security and home management services to the residential marketplace.
The 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 and certain other subsidiaries of CCH I, LLC were completed (the “TWC Transaction,” and together with the Bright House Transaction described below, the “Transactions”).cash flow over time. As a result of the TWC Transaction, CCH I, LLC became thegrowth costs associated with our new public parent company that holds the operations of the combined companies and was renamed Charter Communications, Inc.
Also, on May 18, 2016, Legacy Charter and Advance/Newhouse Partnership (“A/N”), the former parent of Bright House Networks, LLC (“Legacy Bright House”), completed their previously announced transaction, pursuant to a definitive Contribution Agreement (the “Contribution Agreement”), under which Charter acquired Legacy Bright House (the “Bright House Transaction”). Pursuant to the Bright House Transaction, Charter became the owner of the membership interests in Legacy Bright House and the other assets primarily related to Legacy Bright House (other than certain excluded assets and liabilities and non-operating cash).
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 shares of Charter Class A common stock to partially finance the cash portion of the TWC Transaction consideration, and in connection with the Bright House Transaction, Liberty Broadband purchased shares of Charter Class A common stock (the “Liberty Transactions”).
Comcast Wireless Cooperation Agreement
In May 2017, Charter announced an agreement with Comcast Corporation (“Comcast”) to, for one year, explore potential opportunities for operational cooperation in our respective wireless businesses to accelerate and enhance each company’s ability to participate in the 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 efficiencies 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 if we do, that they will be successful.
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 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,
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 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.
In September 2016, we began launching SPP to Legacy TWC and Legacy Bright House markets and as of September 30, 2017, we offer SPP in all Legacy TWC and Legacy Bright House markets. In the second half of 2017, we began converting the remaining Legacy TWC and Legacy Bright House analog markets to an all-digital platform. The bulk of this all-digital initiative will take place in 2018. Our corporate organization, as well as our marketing, sales and product development departments, are now centralized. Field operations are 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 Legacy Charter's model of using segmented, virtualized, U.S.-based in-house call centers. We are 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 similarly to Legacy Charter following the implementation of Legacy Charter's operating strategies across the Legacy TWC and Legacy Bright House markets. As a result of implementing our operating strategy across Legacy TWC and Legacy Bright House,line, we cannot be certain that we will be able to grow revenues or maintain our margins at recent historical rates. During the three and nine months ended September 30, 2020, our mobile product line increased revenues by $368 million and $936 million, respectively, reduced Adjusted EBITDA by approximately $88 million and $307 million, respectively, and reduced free cash flow by approximately $265 million and $758 million, respectively. During the three and nine months ended September 30, 2019, our mobile product line increased revenues by $192 million and $490 million, respectively, reduced Adjusted EBITDA by approximately $145 million and $384 million, respectively, and reduced free cash flow by approximately $256 million and $844 million, respectively. As we continue to grow our mobile service and scale the business, we expect continued negative impacts to Adjusted EBITDA, as well as negative working capital impacts from the timing of device-related cash flows when we sell the handset or tablet to customers pursuant to equipment installment plans.
We realized revenue, Adjusted EBITDA and income from operations during the periods presented as follows (in 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, |
| 2020 | | 2019 | | % Change | | 2020 | | 2019 | | % Change |
Revenues | $ | 12,037 | | | $ | 11,449 | | | 5.1 | % | | $ | 35,467 | | | $ | 33,997 | | | 4.3 | % |
Adjusted EBITDA | $ | 4,611 | | | $ | 4,070 | | | 13.3 | % | | $ | 13,447 | | | $ | 12,285 | | | 9.5 | % |
Income from operations | $ | 2,145 | | | $ | 1,570 | | | 36.6 | % | | $ | 5,872 | | | $ | 4,517 | | | 30.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change |
| Actual |
Revenues | $ | 10,458 |
| | $ | 10,037 |
| | 4.2 | % | | $ | 30,979 |
| | $ | 18,728 |
| | 65.4 | % |
Adjusted EBITDA | $ | 3,817 |
| | $ | 3,628 |
| | 5.2 | % | | $ | 11,306 |
| | $ | 6,723 |
| | 68.2 | % |
Income from operations | $ | 909 |
| | $ | 906 |
| | 0.3 | % | | $ | 2,895 |
| | $ | 1,633 |
| | 77.3 | % |
|
| | | | | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 | | |
| Actual | | Pro forma | | % Change |
Revenues | $ | 30,979 |
| | $ | 29,748 |
| | 4.1 | % |
Adjusted EBITDA | $ | 11,306 |
| | $ | 10,596 |
| | 6.7 | % |
Income from operations | $ | 2,895 |
| | $ | 2,805 |
| | 3.2 | % |
Adjusted EBITDA is defined as consolidated net income attributable to CCO Holdings member plus net income attributable to noncontrolling interest, net interest expense, income taxes, depreciation and amortization, stock compensation expense, loss on extinguishment of debt, (gain) loss on financial instruments, net, other pension (benefits) costs, net, other (income) expense, net and other operating (income) expenses, net, such as merger and restructuring costs, special charges and gain (loss)(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 and Adjusted EBITDA for the three and nine months ended September 30, 20172020 compared to the corresponding prior periodperiods was primarily due to growth in our residential Internet and commercial businesses,mobile customers. Adjusted EBITDA and income from operations growth was impacted by growth in revenue and increases in operating costs and expenses, primarily mobile, and for the nine months ended September 30, 2017 compared to the corresponding prior period was primarily due to the Transactions. On a pro forma basis for the nine months ended September 30, 2017, assuming the Transactions occurred as of January 1, 2015, total revenue growth was primarily due to growth in our Internet and commercial businesses offset by an early contract termination benefit at Legacy TWC and Legacy Bright House in 2016 and lower advertising sales revenue due to a decrease in political and local advertising. In addition to the items noted above, Adjusted EBITDA growth on a pro forma basis was affected by2020, increases in programming costs and transition costs offset by decreases in costs to service customers offset by lower regulatory, connectivity and other operating expenses.produced content costs. Income from operations on a pro forma basis was additionallyalso affected by an increasea decrease in depreciation and amortization offset by a decrease in mergerexpense and restructuring costs.other operating expenses, net.
On a pro forma basis, income from operations for the nine months ended September 30, 2016 has been reduced from what was previously reported by $549 million 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"). 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, |
| 2017 | | 2016 | | 2017 | | 2016 |
Operating expenses | $ | 23 |
| | $ | 32 |
| | $ | 104 |
| | $ | 78 |
|
Other operating expenses | $ | 67 |
| | $ | 205 |
| | $ | 293 |
| | $ | 513 |
|
Capital expenditures | $ | 125 |
| | $ | 109 |
| | $ | 287 |
| | $ | 273 |
|
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.
All customer statistics as of September 30, 2017 include the operations of Legacy TWC, Legacy Bright House and Legacy Charter, each of which is based on individual legacy company reporting methodology. These methodologies differ and their differences may be material. Statistical reporting will be conformed over time to a single reporting methodology. The following table summarizes our customer statistics for Internet, video, Internetmobile and voice as of September 30, 20172020 and 20162019 (in thousands except per customer data and footnotes).
| | | | | | | | | | | |
| Approximate as of |
| September 30, |
| 2020 (a) | | 2019 (a) |
Customer Relationships (b) | | | |
Residential | 28,912 | | | 27,037 | |
SMB | 2,021 | | | 1,930 | |
Total Customer Relationships | 30,933 | | | 28,967 | |
| | | |
Monthly Residential Revenue per Residential Customer (c) | $ | 109.03 | | | $ | 112.00 | |
Monthly SMB Revenue per SMB Customer (d) | $ | 164.77 | | | $ | 169.44 | |
| | | |
Internet | | | |
Residential | 26,807 | | | 24,595 | |
SMB | 1,826 | | | 1,730 | |
Total Internet Customers | 28,633 | | | 26,325 | |
| | | |
Video | | | |
Residential | 15,705 | | | 15,725 | |
SMB | 530 | | | 520 | |
Total Video Customers | 16,235 | | | 16,245 | |
| | | |
Voice | | | |
Residential | 9,335 | | | 9,595 | |
SMB | 1,207 | | | 1,120 | |
Total Voice Customers | 10,542 | | | 10,715 | |
| | | |
Mobile Lines | | | |
Residential | 2,020 | | | 793 | |
SMB | 40 | | | 1 | |
Total Mobile Lines | 2,060 | | | 794 | |
| | | |
Enterprise Primary Service Units ("PSUs") (e) | 272 | | 264 | |
(a)We calculate the aging of customer accounts based on the monthly billing cycle for each account. On that basis, as of September 30, 2020 and 2019, customers include approximately 181,700 and 148,000 customers, respectively, whose accounts were over 60 days past due, approximately 52,300 and 16,400 customers, respectively, whose accounts were over 90 days past due and approximately 26,000 and 14,100 customers, respectively, whose accounts were over 120 days past due. Included in the September 30, 2020 aging statistics are approximately 60,200 customers that would have been disconnected under our normal collection policies, but were not due to certain state mandates in place.
(b)Customer relationships include the number of customers that receive one or more levels of service, encompassing Internet, video 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 exclude enterprise and mobile-only customer relationships.
(c)Monthly residential revenue per residential customer is calculated as total residential quarterly revenue divided by three divided by average residential customer relationships during the respective quarter and excludes mobile revenue and customers.
(d)Monthly SMB revenue per SMB customer is calculated as total SMB quarterly revenue divided by three divided by average SMB customer relationships during the respective quarter and excludes mobile revenue and customers.
(e)Enterprise PSUs represent the aggregate number of fiber service offerings counting each separate service offering at each customer location as an individual PSU.
|
| | | | | | | |
| Approximate as of |
| September 30, |
| 2017 (a) | | 2016 (a)(b) |
Customer Relationships (c) | | | |
Residential | 25,470 |
| | 24,551 |
|
Small and Medium Business | 1,523 |
| | 1,367 |
|
Total Customer Relationships | 26,993 |
| | 25,918 |
|
| | | |
Residential Primary Service Units (“PSU”) | | | |
Video | 16,542 |
| | 16,887 |
|
Internet | 22,282 |
| | 21,017 |
|
Voice | 10,405 |
| | 10,288 |
|
| 49,229 |
| | 48,192 |
|
| | | |
Monthly Residential Revenue per Residential Customer (d) | $ | 110.12 |
| | $ | 109.70 |
|
| | | |
Small and Medium Business PSUs | | | |
Video | 440 |
| | 388 |
|
Internet | 1,321 |
| | 1,185 |
|
Voice | 881 |
| | 751 |
|
| 2,642 |
| | 2,324 |
|
| | | |
Monthly Small and Medium Business Revenue per Customer (e) | $ | 206.64 |
| | $ | 214.53 |
|
| | | |
Enterprise PSUs (f) | 108 |
| | 93 |
|
23
| |
(a) | We calculate the aging of customer accounts based on the monthly billing cycle for each account. On that basis, as of September 30, 2017 and 2016, customers include approximately 218,300 and 200,900 customers, respectively, whose accounts were over 60 days past due, approximately 20,300 and 15,200 customers, respectively, whose accounts were over 90 days past due, and approximately 12,000 and 8,900 customers, respectively, whose accounts were over 120 days past due. |
| |
(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 net customer disconnect activity related to the previous seasonal plan, Legacy Bright House residential customer relationships, video, Internet and voice PSUs at September 30, 2016 would have been higher by approximately 54,000, 48,000, 66,000 and 45,000 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. |
| |
(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. |
| |
(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. |
| |
(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 “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 20162019 Annual Report on Form 10-K. There have been no material changes from the critical accounting policies described in our Form 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 CCO 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.
The following table sets forth the consolidated statements of operations for the periods presented (dollars in millions, except per share data)millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenues | $ | 12,037 | | | $ | 11,449 | | | $ | 35,467 | | | $ | 33,997 | |
| | | | | | | |
Costs and Expenses: | | | | | | | |
Operating costs and expenses (exclusive of items shown separately below) | 7,509 | | | 7,450 | | | 22,283 | | | 21,950 | |
Depreciation and amortization | 2,366 | | | 2,411 | | | 7,283 | | | 7,453 | |
Other operating expenses, net | 17 | | | 18 | | | 29 | | | 77 | |
| 9,892 | | | 9,879 | | | 29,595 | | | 29,480 | |
Income from operations | 2,145 | | | 1,570 | | | 5,872 | | | 4,517 | |
| | | | | | | |
Other Income (Expenses): | | | | | | | |
Interest expense, net | (947) | | | (973) | | | (2,904) | | | (2,865) | |
Loss on extinguishment of debt | (58) | | | — | | | (121) | | | — | |
Gain (loss) on financial instruments, net | 69 | | | (34) | | | (185) | | | (116) | |
Other pension benefits (costs), net | (115) | | | 9 | | | (94) | | | 27 | |
Other expense, net | (11) | | | (3) | | | (6) | | | (129) | |
| (1,062) | | | (1,001) | | | (3,310) | | | (3,083) | |
| | | | | | | |
Income before income taxes | 1,083 | | | 569 | | | 2,562 | | | 1,434 | |
Income tax expense | (10) | | | (10) | | | (23) | | | (86) | |
Consolidated net income | 1,073 | | | 559 | | | 2,539 | | | 1,348 | |
Less: Net income attributable to noncontrolling interests | — | | | — | | | (1) | | | (1) | |
| | | | | | | |
Net income attributable to CCO Holdings member | $ | 1,073 | | | $ | 559 | | | $ | 2,538 | | | $ | 1,347 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenues | $ | 10,458 |
| | $ | 10,037 |
| | $ | 30,979 |
| | $ | 18,728 |
|
| | | | | | | |
Costs and Expenses: | | | | | | | |
Operating costs and expenses (exclusive of items shown separately below) | 6,705 |
| | 6,490 |
| | 19,871 |
| | 12,173 |
|
Depreciation and amortization | 2,699 |
| | 2,435 |
| | 7,839 |
| | 4,409 |
|
Other operating expenses, net | 145 |
| | 206 |
| | 374 |
| | 513 |
|
| 9,549 |
| | 9,131 |
| | 28,084 |
| | 17,095 |
|
Income from operations | 909 |
| | 906 |
| | 2,895 |
| | 1,633 |
|
| | | | | | | |
Other Expenses: | | | | | | | |
Interest expense, net | (795 | ) | | (729 | ) | | (2,268 | ) | | (1,391 | ) |
Loss on extinguishment of debt | — |
| | — |
| | (35 | ) | | (110 | ) |
Gain (loss) on financial instruments, net | 17 |
| | 71 |
| | (15 | ) | | 16 |
|
Other pension benefits (costs) | (17 | ) | | 13 |
| | 9 |
| | 533 |
|
Other expense, net | (2 | ) | | (2 | ) | | (2 | ) | | (2 | ) |
| (797 | ) | | (647 | ) | | (2,311 | ) | | (954 | ) |
| | | | | | | |
Income before income taxes | 112 |
| | 259 |
| | 584 |
| | 679 |
|
Income tax benefit (expense) | (6 | ) | | 7 |
| | (35 | ) | | — |
|
Consolidated net income | 106 |
| | 266 |
| | 549 |
| | 679 |
|
Less: Net income attributable to noncontrolling interests | — |
| | (1 | ) | | (1 | ) | | (1 | ) |
| | | | | | | |
Net income attributable to CCO Holdings member | $ | 106 |
| | $ | 265 |
| | $ | 548 |
| | $ | 678 |
|
Revenues.Total revenues grew $421$588 million and $12.3$1.5 billion for the three and nine months ended September 30, 20172020, respectively, compared to the corresponding periods in 2016, respectively,2019 primarily due to increases in the number of residential Internet and commercial businessmobile customers, as well as price adjustments and during the three months ended September 30, 2020, advertising sales offset by a decrease in basic video customers and advertising sales, and in the nine month period$218 million of estimated customer credits to be issued to our video customers due to the Transactions which increased total revenues by approximately $11.4 billion. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, total revenue growth was 4.1% forcanceled sporting events. For the nine months ended September 30, 20172020, total revenues also decreased as compared to the corresponding prior period in 2016.due to $85 million of waived receivables related to the KAC program.
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, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | % Change | | 2020 | | 2019 | | % Change |
Internet | $ | 4,722 | | | $ | 4,195 | | | 12.5 | % | | $ | 13,659 | | | $ | 12,322 | | | 10.8 | % |
Video | 4,221 | | | 4,359 | | | (3.2) | % | | 13,014 | | | 13,134 | | | (0.9) | % |
Voice | 449 | | | 477 | | | (5.8) | % | | 1,357 | | | 1,470 | | | (7.7) | % |
Residential revenue | 9,392 | | | 9,031 | | | 4.0 | % | | 28,030 | | | 26,926 | | | 4.1 | % |
| | | | | | | | | | | |
Small and medium business | 988 | | | 974 | | | 1.5 | % | | 2,967 | | | 2,882 | | | 2.9 | % |
Enterprise | 617 | | | 644 | | | (4.3) | % | | 1,845 | | | 1,939 | | | (4.9) | % |
Commercial revenue | 1,605 | | | 1,618 | | | (0.8) | % | | 4,812 | | | 4,821 | | | (0.2) | % |
| | | | | | | | | | | |
Advertising sales | 460 | | | 394 | | | 16.8 | % | | 1,074 | | | 1,134 | | | (5.3) | % |
Mobile | 368 | | | 192 | | | 91.8 | % | | 936 | | | 490 | | | 91.3 | % |
Other | 212 | | | 214 | | | (0.8) | % | | 615 | | | 626 | | | (1.7) | % |
| $ | 12,037 | | | $ | 11,449 | | | 5.1 | % | | $ | 35,467 | | | $ | 33,997 | | | 4.3 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change |
| Actual |
Video | $ | 4,213 |
| | $ | 4,094 |
| | 2.9 | % | | $ | 12,416 |
| | $ | 7,869 |
| | 57.8 | % |
Internet | 3,556 |
| | 3,206 |
| | 10.9 | % | | 10,467 |
| | 5,960 |
| | 75.6 | % |
Voice | 611 |
| | 728 |
| | (16.1 | )% | | 1,955 |
| | 1,286 |
| | 51.9 | % |
Residential revenue | 8,380 |
| | 8,028 |
| | 4.4 | % | | 24,838 |
| | 15,115 |
| | 64.3 | % |
| | | | | | | | | | | |
Small and medium business | 931 |
| | 867 |
| | 7.4 | % | | 2,755 |
| | 1,589 |
| | 73.3 | % |
Enterprise | 553 |
| | 508 |
| | 8.9 | % | | 1,640 |
| | 903 |
| | 81.6 | % |
Commercial revenue | 1,484 |
| | 1,375 |
| | 8.0 | % | | 4,395 |
| | 2,492 |
| | 76.3 | % |
| | | | | | | | | | | |
Advertising sales | 373 |
| | 420 |
| | (11.1 | )% | | 1,091 |
| | 729 |
| | 49.9 | % |
Other | 221 |
| | 214 |
| | 3.0 | % | | 655 |
| | 392 |
| | 66.9 | % |
| $ | 10,458 |
| | $ | 10,037 |
| | 4.2 | % | | $ | 30,979 |
| | $ | 18,728 |
| | 65.4 | % |
The increase in Internet revenues from our residential customers is attributable to the following (dollars in millions):
|
| | | | | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 | | |
| Actual | | Pro forma | | % Change |
Video | $ | 12,416 |
| | $ | 12,292 |
| | 1.0 | % |
Internet | 10,467 |
| | 9,376 |
| | 11.6 | % |
Voice | 1,955 |
| | 2,186 |
| | (10.6 | )% |
Residential revenue | 24,838 |
| | 23,854 |
| | 4.1 | % |
| | | | | |
Small and medium business | 2,755 |
| | 2,518 |
| | 9.4 | % |
Enterprise | 1,640 |
| | 1,499 |
| | 9.4 | % |
Commercial revenue | 4,395 |
| | 4,017 |
| | 9.4 | % |
| | | | | |
Advertising sales | 1,091 |
| | 1,190 |
| | (8.2 | )% |
Other | 655 |
| | 687 |
| | (4.8 | )% |
| $ | 30,979 |
| | $ | 29,748 |
| | 4.1 | % |
| | | | | | | | | | | |
| Three months ended September 30, 2020 compared to three months ended September 30, 2019 Increase / (Decrease) | | Nine months ended September 30, 2020 compared to nine months ended September 30, 2019 Increase / (Decrease) |
Increase in average residential Internet customers | $ | 373 | | | $ | 895 | |
Increase related to rate, product mix and allocation changes | 154 | | | 442 | |
| $ | 527 | | | $ | 1,337 | |
Residential Internet customers grew by 2,212,000 customers from September 30, 2019 to September 30, 2020 due to higher demand for our services. The increase related to rate, product mix and allocation changes was primarily due to price adjustments including promotional roll-off. The increase during the nine months ended September 30, 2020 as compared to the corresponding prior period was also impacted by a $29 million reduction related to the KAC program credits.
Video revenues consist primarily of revenues from basic and digital video services provided to our residential customers, as well as franchise fees, equipment rentalservice fees and video installation revenue. Residential video customers decreased by 345,000 from September 30, 2016 to September 30, 2017.
The increasedecrease in video revenues is attributable to the following (dollars in millions):
| | | | | | | | | | | |
| Three months ended September 30, 2020 compared to three months ended September 30, 2019 Increase / (Decrease) | | Nine months ended September 30, 2020 compared to nine months ended September 30, 2019 Increase / (Decrease) |
Estimated customer credits due to COVID-19 | $ | (218) | | | $ | (262) | |
Decrease in average residential video customers | (20) | | | (224) | |
Decrease in video on demand and pay-per-view | (18) | | | (26) | |
Increase related to rate, product mix and allocation changes | 118 | | | 392 | |
| $ | (138) | | | $ | (120) | |
|
| | | | | | | |
| Three months ended September 30, 2017 compared to three months ended September 30, 2016 Increase / (Decrease) | | Nine months ended September 30, 2017 compared to nine months ended September 30, 2016 Increase / (Decrease) |
Bundle revenue allocation and price adjustments | $ | 140 |
| | $ | 169 |
|
Increase in video on demand and pay-per-view | 55 |
| | 45 |
|
Decrease in average basic video customers | (76 | ) | | (102 | ) |
TWC Transaction | — |
| | 3,806 |
|
Bright House Transaction | — |
| | 629 |
|
| $ | 119 |
| | $ | 4,547 |
|
25
On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, the increase in video revenues is attributable to the following (dollars in millions):
|
| | | |
| Nine months ended September 30, 2017 compared to nine months ended September 30, 2016 Increase / (Decrease) |
Bundle revenue allocation and price adjustments | $ | 299 |
|
Increase in video on demand and pay-per-view | 46 |
|
Decrease in average basic video customers | (221 | ) |
| $ | 124 |
|
Residential Internet customers grew by 1,265,000 customers from September 30, 2016 to September 30, 2017. The increase in Internet revenues from our residential customers is attributable to the following (dollars in millions):
|
| | | | | | | |
| Three months ended September 30, 2017 compared to three months ended September 30, 2016 Increase / (Decrease) | | Nine months ended September 30, 2017 compared to nine months ended September 30, 2016 Increase / (Decrease) |
Increase in average residential Internet customers | $ | 205 |
| | $ | 410 |
|
Price adjustments, bundle revenue allocation and service level changes | 145 |
| | 258 |
|
TWC Transaction | — |
| | 3,268 |
|
Bright House Transaction | — |
| | 571 |
|
| $ | 350 |
| | $ | 4,507 |
|
On a pro forma basis, assumingWe recorded $218 million of estimated customer credits related to canceled sporting events during the Transactions occurred as of January 1, 2015, the increase in Internet revenues is attributable to the following (dollars in millions):
|
| | | |
| Nine months ended September 30, 2017 compared to nine months ended September 30, 2016 Increase / (Decrease) |
Increase in average residential Internet customers | $ | 629 |
|
Price adjustments, bundle revenue allocation and service level changes | 462 |
|
| $ | 1,091 |
|
Residential voice customers grew by 117,000 customers from three and nine months ended September 30, 20162020 and $44 million of customer credits related to KAC program during the nine months ended September 30, 2017.2020. The changeincrease related to rate, product mix and allocation changes was primarily due to price adjustments including annual increases and promotional roll-off, partly offset by a higher mix of lower cost video packages within our video customer base. Residential video customers decreased by 20,000 from September 30, 2019 to September 30, 2020.
The decrease in voice revenues from our residential customers is attributable to the following (dollars in millions):
| | | | | | | | | | | |
| Three months ended September 30, 2020 compared to three months ended September 30, 2019 Increase / (Decrease) | | Nine months ended September 30, 2020 compared to nine months ended September 30, 2019 Increase / (Decrease) |
Decrease in average residential voice customers | $ | (16) | | | $ | (77) | |
Decrease related to rate, product mix and allocation changes | (12) | | | (36) | |
| $ | (28) | | | $ | (113) | |
|
| | | | | | | |
| Three months ended September 30, 2017 compared to three months ended September 30, 2016 Increase / (Decrease) | | Nine months ended September 30, 2017 compared to nine months ended September 30, 2016 Increase / (Decrease) |
Bundle revenue allocation and price adjustments | $ | (126 | ) | | $ | (180 | ) |
Increase in average residential voice customers | 9 |
| | 20 |
|
TWC Transaction | — |
| | 707 |
|
Bright House Transaction | — |
| | 122 |
|
| $ | (117 | ) | | $ | 669 |
|
On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, the decrease inResidential wireline voice revenues is attributable to the following (dollars in millions):
|
| | | |
| Nine months ended September 30, 2017 compared to nine months ended September 30, 2016 Increase / (Decrease) |
Bundle revenue allocation and price adjustments | $ | (271 | ) |
Increase in average residential voice customers | 40 |
|
| $ | (231 | ) |
Small and medium business PSUs grewcustomers decreased by 318,000260,000 customers from September 30, 20162019 to September 30, 2017. 2020. The decrease related to rate, product mix and allocation changes was primarily due to value-based pricing. The decrease during the nine months ended September 30, 2020 as compared to the corresponding prior period was also impacted by a $3 million reduction related to the KAC program credits.
The increase in small and medium business commercial revenues is attributable to the following (dollars in millions):
| | | | | | | | | | | |
| Three months ended September 30, 2020 compared to three months ended September 30, 2019 Increase / (Decrease) | | Nine months ended September 30, 2020 compared to nine months ended September 30, 2019 Increase / (Decrease) |
Increase in small and medium business customers | $ | 42 | | | $ | 150 | |
Decrease related to rate and product mix changes | (28) | | | (65) | |
| $ | 14 | | | $ | 85 | |
|
| | | | | | | |
| Three months ended September 30, 2017 compared to three months ended September 30, 2016 Increase / (Decrease) | | Nine months ended September 30, 2017 compared to nine months ended September 30, 2016 Increase / (Decrease) |
Increase in small and medium business customers | $ | 100 |
| | $ | 195 |
|
Price adjustments | (36 | ) | | (58 | ) |
TWC Transaction | — |
| | 890 |
|
Bright House Transaction | — |
| | 139 |
|
| $ | 64 |
| | $ | 1,166 |
|
On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, the increase in smallSmall and medium business commercial revenues is attributable to the following (dollars in millions):
|
| | | |
| Nine months ended September 30, 2017 compared to nine months ended September 30, 2016 Increase / (Decrease) |
Increase in small and medium business customers | $ | 299 |
|
Price adjustments | (62 | ) |
| $ | 237 |
|
Enterprise PSUs increased 15,000customers grew by 91,000 from September 30, 20162019 to September 30, 2017. Enterprise commercial revenues increased $452020. The decrease related to rate and product mix changes during the three and nine months ended September 30, 2020 as compared to the corresponding prior periods included reductions of $11 million and $737$28 million, respectively, related to COVID-19 programs.
Enterprise revenues decreased $27 million and $94 million during the three and nine months ended September 30, 20172020, respectively, compared to the corresponding periods in 2016, respectively,2019 primarily due to growth in customers andthe sale of non-strategic assets in the nine month period due to the Transactions which increased enterprise commercial revenues by $655 million. On a pro forma basis, assuming the Transactions occurred asthird quarter of January 1, 2015, enterprise commercial revenues increased $141 million2019. The decrease during the nine months ended September 30, 20172020 as compared to the corresponding prior period in 2016 primarily duewas also impacted by a revenue reduction of $18 million related to growth in customers.the COVID-19 Enterprise hospitality seasonal program. Enterprise PSUs increased 8,000 from September 30, 2019 to September 30, 2020.
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 decreased $47increased $66 million during the three months ended September 30, 20172020 as compared to the corresponding period in 20162019 primarily due to an increase in political revenue, partially offset by a decrease in political advertising.local ad revenues due to COVID-19. Advertising sales revenues increased $362 million during the nine months ended September 30, 2017 compared to the corresponding period in 2016 primarily due to the Transactions which increased advertising sales revenues by $425 million. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, advertising sales revenues decreased $99$60 million during the nine months ended September 30, 20172020 as compared to the corresponding period in 2016 primarily2019 due to a decreaselower local and national ad revenues due to COVID-19, partially offset by an increase in political revenue.
During the three and local advertising.nine months ended September 30, 2020, mobile revenues represented approximately $172 million and $461 million of device revenues, respectively, and approximately $196 million and $475 million of service revenues, respectively. During the three and nine months ended September 30, 2019, mobile revenues represented approximately $123 million and $348 million of device revenues, respectively, and approximately $69 million and $142 million of service revenues,
respectively. The revenue increases are attributable to an increase in mobile lines from 794,000 as of September 30, 2019 to 2,060,000 mobile lines as of September 30, 2020.
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 $7decreased $2 million and $263$11 million during the three and nine months ended September 30, 2017, respectively,2020 compared to the corresponding periods in 2016. The Transactions increased other revenues for the nine months ended September 30, 2017 compared to the corresponding period in 2016 by $255 million. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, other revenues decreased by $32 million during the nine months ended September 30, 2017 compared to the corresponding period in 20162019 primarily due to a settlement incurreddecrease in 2016 related tolate payment fees and home security revenue offset by an early contract termination at Legacy TWCincrease in the sale of video devices and Legacy Bright House.regional sports and news revenue.
Operating costs and expenses. The increasesincrease 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, 2020 compared to three months ended September 30, 2019 Increase / (Decrease) | | Nine months ended September 30, 2020 compared to nine months ended September 30, 2019 Increase / (Decrease) |
Programming | $ | (63) | | | $ | 10 | |
Regulatory, connectivity and produced content | — | | | (119) | |
Costs to service customers | 8 | | | 115 | |
Marketing | (5) | | | (23) | |
Mobile | 119 | | | 369 | |
Other | — | | | (19) | |
| $ | 59 | | | $ | 333 | |
|
| | | | | | | |
| Three months ended September 30, 2017 compared to three months ended September 30, 2016 Increase / (Decrease) | | Nine months ended September 30, 2017 compared to nine months ended September 30, 2016 Increase / (Decrease) |
Programming | $ | 295 |
| | $ | 3,304 |
|
Regulatory, connectivity and produced content | 8 |
| | 609 |
|
Costs to service customers | (73 | ) | | 2,135 |
|
Marketing | 33 |
| | 669 |
|
Transition costs | (9 | ) | | 26 |
|
Other | (39 | ) | | 955 |
|
| $ | 215 |
| | $ | 7,698 |
|
Programming costs were approximately $2.7 billion and $2.4$8.5 billion representing 40% and 37% of total operating costs and expenses for the three months ended September 30, 2017 and 2016, respectively, and $8.0 billion and $4.6 billion, representing 40% and 38% of total operating costs and expenses for the nine months ended September 30, 2017 and 2016, respectively. The increase in operating costs and expenses for the three and nine months ended September 30, 2017 compared to the corresponding prior period was primarily due to an increase in programming costs2020, respectively, representing 36% and the Transactions.
The change in other expense is attributable to the following (dollars in millions):
|
| | | | | | | |
| Three months ended September 30, 2017 compared to three months ended September 30, 2016 Increase / (Decrease) | | Nine months ended September 30, 2017 compared to nine months ended September 30, 2016 Increase / (Decrease) |
Corporate costs | $ | (35 | ) | | $ | 225 |
|
Enterprise | 4 |
| | 240 |
|
Advertising sales expense | 12 |
| | 245 |
|
Property tax and insurance | 1 |
| | 115 |
|
Stock compensation expense | (17 | ) | | 30 |
|
Other | (4 | ) | | 100 |
|
| $ | (39 | ) | | $ | 955 |
|
The increase in other expense for the nine months ended September 30, 2017 compared to the corresponding prior period was primarily due to the Transactions.
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):
|
| | | |
| Nine months ended September 30, 2017 compared to nine months ended September 30, 2016 Increase / (Decrease) |
Programming | $ | 724 |
|
Regulatory, connectivity and produced content | (17 | ) |
Costs to service customers | (135 | ) |
Marketing | 8 |
|
Transition costs | 26 |
|
Other | (106 | ) |
| $ | 500 |
|
On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, programming costs were approximately $7.2 billion, representing 37%38% of total operating costs and expenses, respectively, and $2.8 billion and $8.5 billion for the three and nine months ended September 30, 2016.
2019, respectively, representing 37% and 39% of total operating costs and expenses, 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 programmingProgramming costs forduring the three months ended September 30, 2017 and nine months ended September 30, 2017, on a pro forma basis assuming the Transactions occurred2020 were reduced by $163 million of estimated rebates from sports programming networks as of January 1, 2015, compared to the corresponding periods in 2016 is primarily a result of canceled sporting events due to COVID-19 and further benefited from a higher mix of lower cost video packages within our video customer base and lower video customers. The decrease was offset by contractual rate adjustments, including renewals and increases in amounts paid for retransmission consents, higher expanded basic package customers and higher pay-per-view events offset by synergies as a result of the Transactions.consent. We expect programming expensesrates 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 services. We have been unable to fully pass these increases on to our customers norand do wenot expect to be able to do so in the future without a potential loss of customers.
Costs to service customersRegulatory, connectivity and produced content remained constant and decreased $73 million and $135$119 million during the three months ended September 30, 2017 and nine months ended September 30, 2017, on a pro forma basis assuming the Transactions occurred as of January 1, 2015,2020, respectively, compared to the corresponding periods in 20162019 primarily due to benefitsdeferred sports rights costs associated with the shortened baseball season resulting from combining Legacy TWCCOVID-19.
Costs to service customers increased $8 million and Legacy Bright House into Charter, including lower employee benefit$115 million during the three and maintenance costs,nine months ended September 30, 2020, respectively, compared to the corresponding periods in 2019 primarily due to higher labor costs resulting from COVID-19 related wage increases and material capitalizationflex time benefits along with 6.8% customer growth offset by a decrease in bad debt expense given the revenue write-off associated with the KAC program and better collections enhanced by government stimulus benefits.
Marketing costs decreased $5 million and $23 million during the three and nine months ended September 30, 2020, respectively, compared to the corresponding periods in 2019 primarily due to timing of media spend and, during the nine months ended September 30, 2020, a payroll tax credit.
Mobile costs of $456 million and $1.2 billion for the three and nine months ended September 30, 2020, respectively, and $337 million and $874 million for the three and nine months ended 2019, respectively, were comprised of mobile device costs and mobile service, customer acquisition and operating costs. The increases are attributable to increases in placementthe number of new customer equipment and improved productivity.mobile lines.
On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, the27
The increase in other expense is attributable to the following (dollars in millions):
| | | | | | | | | | | |
| Three months ended September 30, 2020 compared to three months ended September 30, 2019 Increase / (Decrease) | | Nine months ended September 30, 2020 compared to nine months ended September 30, 2019 Increase / (Decrease) |
Enterprise | $ | (16) | | | $ | (66) | |
Property tax and insurance | (12) | | | (32) | |
Advertising sales expense | 9 | | | (26) | |
Corporate costs | (5) | | | 27 | |
Stock compensation expense | 12 | | | 25 | |
Other | 12 | | | 53 | |
| $ | — | | | $ | (19) | |
|
| | | |
| Nine months ended September 30, 2017 compared to nine months ended September 30, 2016 Increase / (Decrease) |
Corporate costs | $ | (139 | ) |
Enterprise | 21 |
|
Advertising sales expense | 38 |
|
Property tax and insurance | (15 | ) |
Stock compensation expense | (21 | ) |
Other | 10 |
|
| $ | (106 | ) |
Depreciation and amortization.Depreciation and amortization expense increased by $264 million during the three months ended September 30, 2017 comparedEnterprise costs decreased primarily due to the corresponding period in 2016 primarily as a resultsale of higher capital expendituresnon-strategic assets in the current year. Depreciation and amortizationthird quarter of 2019. Advertising sales expense increased by $3.4 billiondecreased during the nine months ended September 30, 20172020 compared to the corresponding prior period in 2016 primarily as a resultdue to lower cost of additional depreciationsales fees driven by lower revenue.
Depreciation and amortization.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 decrease in other operating expenses, net are attributable to the following (dollars in millions):
|
| | | | | | | |
| Three months ended September 30, 2017 compared to three months ended September 30, 2016 Increase / (Decrease) | | Nine months ended September 30, 2017 compared to nine months ended September 30, 2016 Increase / (Decrease) |
Merger and restructuring costs | $ | (138 | ) | | $ | (220 | ) |
Special charges, net | 76 |
| | 76 |
|
(Gain) loss on sale of assets, net | 1 |
| | 5 |
|
| $ | (61 | ) | | $ | (139 | ) |
The decrease in mergerexpense decreased by $45 million and restructuring costs$170 million during the three and nine months ended September 30, 20172020, respectively, compared to the corresponding periods in 2016 is2019 primarily due to a decrease in depreciation and amortization as certain assets acquired in acquisitions become fully depreciated offset by an increase in depreciation as a result of approximately $118more recent capital expenditures.
Other operating expenses, net. The change in other operating expenses, net is attributable to the following (dollars in millions):
| | | | | | | | | | | |
| Three months ended September 30, 2020 compared to three months ended September 30, 2019 Increase / (Decrease) | | Nine months ended September 30, 2020 compared to nine months ended September 30, 2019 Increase / (Decrease) |
Special charges, net | $ | 8 | | | $ | 12 | |
(Gain) loss on sale of assets, net | (9) | | | (60) | |
| $ | (1) | | | $ | (48) | |
See Note 12 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements” for more information.
Interest expense, net. Net interest expense decreased by $26 million and $208increased by $39 million for the three and nine months ended September 30, 2020, respectively, compared to the corresponding periods in 2019. Changes in net interest expense is the result of employee terminationreductions in weighted average interest rates as well as increases in weighted average debt outstanding which was approximately $5.6 billion and retention costs. The increase in special charges, net$5.7 billion during the three and nine months endedSeptember 30, 20172020, respectively, compared to the corresponding periodperiods in 20162019. The increases in weighted average debt outstanding is primarily due to an $83the issuance of notes throughout 2019 and 2020 for general corporate purposes including distributions to parent companies for stock buybacks and debt repayments.
Loss on extinguishment of debt. Loss on extinguishment of debt of $58 million charge related toand $121 million for the Company's withdrawal liability fromthree and nine months ended September 30, 2020, respectively, represents losses recognized as a multiemployer pension plan. Seeresult of the redemption of CCO Holdings notes. For more information, see Note 106 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”
Interest expense, net. Net interest expense increased by $66 million and $877 million for the three and nine months ended September 30, 2017 compared to the corresponding periods in 2016 primarily as a result of an increase in weighted average debt outstanding primarily due to the issuance of notes in 2017. Interest expense associated with debt assumed from Legacy TWC also increased interest expense during the nine months ended September 30, 2017 compared to the corresponding period in 2016 by approximately $350 million as well as interest expense associated with debt incurred to fund the Transactions by approximately $369 million.
Loss on extinguishment of debt. Loss on extinguishment of debt of $35 million and $110 million for the nine months ended September 30, 2017 and 2016, respectively, primarily represents losses recognized as a result of repurchases of CCO Holdings, LLC ("CCO Holdings") notes. For more information, see Note 5 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”
Gain (loss) on financial instruments, net. We recorded a gaingains on financial instruments of $17$69 million and a losslosses on financial instruments of $15$185 million during the three and nine months ended September 30, 2017,2020, respectively, and gainslosses on financial
instruments of $71$34 million and $16$116 million during the three and nine months ended September 30, 2016,2019, respectively. Gains and losses on financial instruments are primarily recognized due to changes in the fair value of our interest rate and our cross currencycross-currency derivative instruments and the foreign currency remeasurement of the fixed-rate British pound sterling denominated notes (the “Sterling Notes”) into U.S. dollars. For more information, see Note 78 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”
Other pension benefits (costs). Other, net. Net other pension benefits decreased(costs) increased by $30$124 million and $524$121 million during the three and nine months ended September 30, 2017,2020, respectively, compared to the corresponding periods in 2016.2019. The decreaseincrease during the three and nine months ended September 30, 20172020 compared to the corresponding period in 2016prior periods was primarily due to a $125 million remeasurement loss in the third quarter 2017 remeasurementof 2020 as a result of significant lump sum settlement payments to participants. The decrease during the nine months ended September 30, 2017 compared to the corresponding period in 2016 was also affected by a $675 million pension curtailment gain offset by an $157 million net remeasurement loss recognized in 2016 that resulted from an amendment to the plans made subsequent to the TWC Transaction. For more information, see Note 1518 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”
Other expense, net. Other expense, net primarily represents equity losses on our equity-methodequity investments. Other expense, net also includes an impairment on equity investments of approximately $121 million during the nine months ended September 30, 2019.
Income tax benefit (expense).expense.We recognized income tax expense of $6$10 million and $35$23 million for the three and nine months ended September 30, 2017,2020, respectively, and income tax benefit of $7$10 million and $86 million for the three and nine months ended September 30, 2016.2019, respectively. Income tax benefit forexpense decreased during the nine months ended September 30, 2016 was insignificant. Income tax2020 compared to the corresponding period in 2019 primarily as a result of an internal entity simplification that increased expense is recognized primarily through increases in deferred tax liabilities, as well as through current federal and state income tax expense.2019. For more information, see Note 1114 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”
Net income attributable to noncontrolling interest. Net income attributable to noncontrolling interest 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.Florida.
Net income attributable to CCO Holdings member.Net income attributable to CCO Holdings member decreasedincreased from $265$559 million and $1.3 billion for the three months ended September 30, 2016 to $106 million for the three months ended September 30, 2017, and from $678 million for the nine months ended September 30, 20162019, respectively, to $548 million$1.1 billion and $2.5 billion for the three and nine months ended September 30, 20172020, respectively, primarily as a result 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 was $1.1 billion for the nine months ended September 30, 2016.
Use of Adjusted EBITDAand Free Cash Flow
We use certain measures that are not defined by GAAPU.S. generally accepted accounting principles ("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 attributable to CCO Holdings member 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 attributable to CCO Holdings member and net cash flows from operating activities, respectively, below.
Adjusted EBITDA 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 $262$308 million and $791$927 million for the three and nine months ended September 30, 2017,2020, respectively, and $330$317 million and $634$916 million for the three and nine months ended September 30, 2016,2019, respectively.
| | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | 2020 | | 2019 | | 2020 | | 2019 |
| 2017 | | 2016 | | 2017 | | 2016 | |
| Actual | |
Consolidated net income | $ | 106 |
| | $ | 266 |
| | $ | 549 |
| | $ | 679 |
| |
Plus: Interest expense, net | 795 |
| | 729 |
| | 2,268 |
| | 1,391 |
| |
Income tax (benefit) expense | 6 |
| | (7 | ) | | 35 |
| | — |
| |
Net income attributable to CCO Holdings member | | Net income attributable to CCO Holdings member | $ | 1,073 | | | $ | 559 | | | $ | 2,538 | | | $ | 1,347 | |
Plus: Net income attributable to noncontrolling interest | | Plus: Net income attributable to noncontrolling interest | — | | | — | | | 1 | | | 1 | |
Interest expense, net | | Interest expense, net | 947 | | | 973 | | | 2,904 | | | 2,865 | |
Income tax expense | | Income tax expense | 10 | | | 10 | | | 23 | | | 86 | |
Depreciation and amortization | 2,699 |
| | 2,435 |
| | 7,839 |
| | 4,409 |
| Depreciation and amortization | 2,366 | | | 2,411 | | | 7,283 | | | 7,453 | |
Stock compensation expense | 64 |
| | 81 |
| | 198 |
| | 168 |
| Stock compensation expense | 83 | | | 71 | | | 263 | | | 238 | |
Loss on extinguishment of debt | — |
| | — |
| | 35 |
| | 110 |
| Loss on extinguishment of debt | 58 | | | — | | | 121 | | | — | |
(Gain) loss on financial instruments, net | (17 | ) | | (71 | ) | | 15 |
| | (16 | ) | (Gain) loss on financial instruments, net | (69) | | | 34 | | | 185 | | | 116 | |
Other pension (benefits) costs | 17 |
| | (13 | ) | | (9 | ) | | (533 | ) | |
Other pension (benefits) costs, net | | Other pension (benefits) costs, net | 115 | | | (9) | | | 94 | | | (27) | |
Other, net | 147 |
| | 208 |
| | 376 |
| | 515 |
| Other, net | 28 | | | 21 | | | 35 | | | 206 | |
Adjusted EBITDA | $ | 3,817 |
| | $ | 3,628 |
| | $ | 11,306 |
| | $ | 6,723 |
| Adjusted EBITDA | $ | 4,611 | | | $ | 4,070 | | | $ | 13,447 | | | $ | 12,285 | |
| | | | | | | | | | | | | | | |
Net cash flows from operating activities | $ | 2,893 |
| | $ | 2,790 |
| | $ | 8,521 |
| | $ | 5,538 |
| Net cash flows from operating activities | $ | 3,621 | | | $ | 2,937 | | | $ | 10,316 | | | $ | 8,347 | |
Less: Purchases of property, plant and equipment | (2,393 | ) | | (1,748 | ) | | (6,096 | ) | | (3,437 | ) | Less: Purchases of property, plant and equipment | (2,014) | | | (1,651) | | | (5,352) | | | (4,913) | |
Change in accrued expenses related to capital expenditures | 79 |
| | (52 | ) | | 276 |
| | 86 |
| Change in accrued expenses related to capital expenditures | 104 | | | (21) | | | (70) | | | (449) | |
Free cash flow | $ | 579 |
| | $ | 990 |
| | $ | 2,701 |
| | $ | 2,187 |
| Free cash flow | $ | 1,711 | | | $ | 1,265 | | | $ | 4,894 | | | $ | 2,985 | |
|
| | | |
| Nine Months Ended |
| September 30, 2016 |
| Pro forma |
Consolidated net income | $ | 1,113 |
|
Plus: Interest expense, net | 2,160 |
|
Depreciation and amortization | 7,054 |
|
Stock compensation expense | 219 |
|
Loss on extinguishment of debt | 110 |
|
Gain on financial instruments, net | (16 | ) |
Other pension benefits | (549 | ) |
Other, net | 505 |
|
Adjusted EBITDA | $ | 10,596 |
|
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.
2017 Financing ActivitiesRecent Events
In January 2017, Charter Operating entered into an amendment to its Amended and Restated Credit Agreement dated May 18, 2016 decreasing the applicable LIBOR margin on both the term loan E and term loan F to 2.00% and eliminating the LIBOR floor.
In February 2017,2020, CCO Holdings and CCO Holdings Capital Corp. jointly issued $1.0$1.65 billion aggregate principal amount of 5.125%4.500% senior unsecured notes due May 1, 2027.2030 at par and in March 2020, an additional $1.1 billion of the same series of notes were issued at a price of 102.5% of the aggregate principal amount. Also in March 2020, CCO Holdings and CCO Holdings Capital Corp. issued $1.4 billion aggregate principal amount of 4.500% senior unsecured notes due 2032 at par. 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,purposes, including repaying certain indebtedness, including repayment of all of CCO Holdings and CCO Holdings Capital jointly issued an additional $1.0 billion aggregate principal amount ofHoldings' 5.250% senior notes due September 30, 2022, 5.125% senior notes due February 15, 2023, 5.125% senior notes due May 1, 2027 at a price of 99.0% of the aggregate principal amount. The net proceeds,2023, 5.750% senior notes due September 1, 2023 and 5.750% senior notes due January 15, 2024, as well as cash on hand, were used in April 2017distributions to redeem Time Warner Cable, LLC's 5.850% senior notes due 2017, pay related feesour parent companies to fund buybacks of Charter Class A common stock and expenses and for general corporate purposes.Charter Holdings common units.
In April 2017, CCO Holdings2020, Charter Communications Operating, LLC ("Charter Operating") and CCO HoldingsCharter Communications Operating Capital Corp. jointly issued an additional $1.25$1.6 billion aggregate principal amount of 5.125%2.800% senior secured notes due May 1, 2027April 2031 at a price of 100.5%99.561% of the aggregate principal amount and $1.4 billion aggregate principal amount of 3.700% senior secured notes due April 2051 at a price of 99.217% of the aggregate principal amount. The net proceeds 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.purposes.
In April 2017,June 2020, Charter Operating and Charter Communications Operating Capital Corp. redeemed all of their 3.579% senior secured notes due July 2020.
In July 2020, CCO Holdings and CCO Holdings Capital Corp. jointly issued $1.25$1.5 billion aggregate principal amount of 5.375%4.250% senior securedunsecured notes due May 1, 20472031 at par and later in July 2020, an additional $1.5 billion of the same series of notes were issued at a price of 99.968% of the aggregate principal amount.102%. The net proceeds were used to pay related fees and expenses and for general corporate purposes, including
repaying certain indebtedness, including repayment of all of CCO Holdings' 5.875% senior notes due April 1, 2024, as well as distributions to our parent companies to fund buybacks of Charter Class A common stock orand Charter Holdings common units.
In July 2017, Charter OperatingOctober 2020, CCO Holdings and Charter Communications OperatingCCO Holdings Capital Corp. jointly issued $1.0an additional $1.5 billion aggregate principal amount of 3.750%its 4.500% senior unsecured notes due February 15, 20282032 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%103.75% of the aggregate principal amount. The net proceeds werewill be used to pay related fees and expenses and for general corporate purposes, including repaying certain indebtedness, including repayment of all of CCO Holdings' 5.375% senior notes due May 1, 2025, as well as distributions to our parent companies to fund potential buybacks of Charter Class A common stock orand Charter Holdings common units.
In August 2017, CCO Holdings and CCO Holdings Capital jointly issued $1.5 billion aggregate principal amount of 5.000% senior notes due February 1, 2028. The net proceeds 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 September 2017, Charter Operating and Charter Communications Operating Capital Corp. jointly issued $1.25 billion aggregate principal amount of 4.200% senior notes due March 15, 2028 at a price of 99.757% of the aggregate principal amount and an additional $750 million aggregate principal amount of 5.375% senior secured notes due May 1, 2047 at a price of 98.969% of the aggregate principal amount. The net proceeds 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 October 2017, CCO Holdings and CCO Holdings Capital jointly issued $500 million aggregate principal amount of 4.000% senior notes due March 1, 2023 and an additional $1.0 billion aggregate principal amount of 5.000% senior notes due February 1, 2028 at a price of 98.5% of the aggregate principal amount. The net proceeds 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.
Overview of Our Contractual Obligations and Liquidity
We have significant amounts of debt. The principal amount of our debt as of September 30, 20172020 was $66.8$79.1 billion, consisting of $8.8$10.2 billion of credit facility debt, $40.6$45.3 billion of investment grade senior secured notes and $17.4$23.5 billion of high-yield senior unsecured notes. Our business requires significant cash to fund principal and interest payments on our debt.
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. As we continue to grow our mobile services, we expect an initial funding period to grow a new product as well as negative working capital impacts from the timing of device-related cash flows when we sell the handset or tablet to customers pursuant to equipment installment plans. Free cash flow was $579 million$1.7 billion and $2.7$4.9 billion for the three and nine months ended September 30, 2017,2020, respectively, and was $990 million$1.3 billion and $2.2$3.0 billion for the three and nine months ended September 30, 2016,2019, respectively. See table below for factors impacting free cash flow during the three and nine months ended September 30, 2020 compared to the corresponding prior periods. As of September 30, 2017,2020, the amount available under our credit facilities was approximately $2.9$4.7 billion and cash on hand was approximately $2.0$1.0 billion. 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 our obligations. The timing and terms of any refinancing transactions will be subject to market conditions.conditions among other considerations. 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 companycompanies for stock repurchases and dividends. Charter's target leverage of net debt to the last twelve months Adjusted EBITDA remains at 4 to 4.5 times Adjusted EBITDA, and up to 3.5 times Adjusted EBITDA at the Charter Operating level. We mayOur leverage ratio was 4.3 times Adjusted EBITDA as of September 30, 2020. As Adjusted EBITDA grows, we expect to increase the total amount of our indebtedness to maintain leverage within Charter's target leverage range. During the three and nine months ended September 30, 2017,2020, Charter purchased approximately 9.55.5 million and 21.911.9 million of Charter Class A common stock for approximately $3.3 billion and $6.5 billion, respectively, and during the three and nine months ended September 30, 2019, Charter purchased approximately 6.9 million and 11.8 million shares, respectively, of Charter Class A common stock for approximately $3.5$2.7 billion and $7.6$4.5 billion, respectively. As of September 30, 2017, Charter had remaining board authority to purchase an additional $5.2 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 purchases occur, CCO Holdings and its subsidiaries are the primary source for funding such purchases through distributions to their parent companies. As possible acquisitions, swaps or dispositions arise, 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 2016,2017, Charter and A/N entered into aan amendment to the 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.basis. Charter Holdings purchased from A/N 1.40.6 million and 1.7 million Charter Holdings common units at an average price per unit of $355.83,$568.19 and $514.10, or $493$366 million and $884 million, during the three and nine months ended September 30, 2017,2020, respectively, and 2.70.9 million and 1.6 million Charter Holdings common units at an average price per unit of $341.49,$391.62 and $366.76, or $922 million during the nine months ended September 30, 2017.
Free Cash Flow
Free cash flow decreased $411$339 million and increased $514$593 million, during the three and nine months ended September 30, 2017, respectively,2019, respectively.
As of September 30, 2020, Charter had remaining board authority to purchase an additional $1.6 billion of Charter’s Class A common stock and/or Charter Holdings common units. Although Charter expects to continue to buy back its common stock consistent with its leverage target range, 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 purchases occur, CCO Holdings and its subsidiaries are the primary source for funding such purchases through distributions to their parent companies.
As possible acquisitions, swaps or dispositions arise, we actively review them against our objectives including, among other considerations, improving the operational efficiency, geographic clustering of assets, 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.
Free Cash Flow
Free cash flow increased $446 million and $1.9 billion during the three and nine months ended September 30, 2020 compared to the corresponding prior periods in 20162019 due to the following (dollars in millions).
| | | | | | | | | | | |
| Three months ended September 30, 2020 compared to three months ended September 30, 2019 Increase / (Decrease) | | Nine months ended September 30, 2020 compared to nine months ended September 30, 2019 Increase / (Decrease) |
Changes in working capital, excluding change in accrued interest | $ | 267 | | | $ | 1,184 | |
Increase in Adjusted EBITDA | 541 | | | 1,162 | |
Decrease in cash paid for interest, net | 10 | | | 39 | |
Increase in capital expenditures | (363) | | | (439) | |
Other, net | (9) | | | (37) | |
| $ | 446 | | | $ | 1,909 | |
Free cash flow was reduced by $265 million and $758 million during the three and nine months ended September 30, 2020, respectively, and $256 million and $844 million during the three and nine months ended September 30, 2019, respectively, due to mobile with impacts negatively affecting working capital, capital expenditures and Adjusted EBITDA.
Financial Information about Guarantors, Issuers of Guaranteed Securities and Consolidated Subsidiaries
Each of CCO Holdings, Charter Operating, Time Warner Cable, LLC and Time Warner Cable Enterprises LLC (collectively, the “Issuers”) and certain Charter Operating direct and indirect subsidiaries (collectively, the “Obligor Group”) jointly, severally, fully and unconditionally guarantee the outstanding debt securities of the respective Issuers (other than the CCO Holdings unsecured notes) and Charter Operating’s credit facilities on a senior basis (collectively, the “Guaranteed Debt”). Such guarantees are pari passu in right of payment with all senior indebtedness of the guarantors and senior in right of payment to subordinated obligations of the guarantors. Each guarantee will be limited to the maximum amount that can be guaranteed by the relevant guarantor without rendering the relevant guarantee, as it relates to that guarantor, voidable or otherwise ineffective or limited under applicable law, and enforcement of each guarantee would be subject to certain generally available defenses. Certain Charter Operating subsidiaries that are regulated entities are only designated as guarantor subsidiaries upon approval by regulators. The guaranteed obligations of a guarantor may be released under certain circumstances permitted under the documentation governing the Guaranteed Debt, including if a subsidiary guarantor no longer qualifies as a “Subsidiary” of Charter Operating under transactions not prohibited by the Charter Operating credit agreement.
The Guaranteed Debt and the subsidiary guarantees thereof are also secured by (i) a lien on substantially all of the assets of Charter Operating and its subsidiaries, to the extent such lien can be perfected under the Uniform Commercial Code by the filing of a financing statement, and (ii) a pledge by CCO Holdings of the equity interests owned by it in any of Charter Operating’s subsidiaries, as well as intercompany obligations owing to it by any of such entities. Such subsidiary guarantees are effectively senior to all unsecured debt or debt secured by a junior liens of the subsidiary guarantors, in each case to the extent of the value of the collateral securing the guarantee obligations of the subsidiary guarantors.
See Note 9 to the consolidated financial statements contained in “Part II. Item 8. Financial Statements and Supplementary Data” in CCO Holdings' 2019 Annual Report on Form 10-K for further details about the terms, conditions and other factors that may
|
| | | | | | | |
| Three months ended September 30, 2017 compared to three months ended September 30, 2016 Increase / (Decrease) | | Nine months ended September 30, 2017 compared to nine months ended September 30, 2016 Increase / (Decrease) |
Increase in Adjusted EBITDA | $ | 189 |
| | $ | 4,583 |
|
Decrease in merger and restructuring costs | 87 |
| | 61 |
|
Increase in capital expenditures | (645 | ) | | (2,659 | ) |
Decrease (increase) in cash paid for interest, net | 61 |
| | (1,059 | ) |
Changes in working capital, excluding change in accrued interest | (123 | ) | | (418 | ) |
Other, net | 20 |
| | 6 |
|
| $ | (411 | ) | | $ | 514 |
|
affect payments to holders of Guaranteed Debt. There have been no material changes from such disclosure described in our Form 10-K.
In March 2020, the SEC adopted amendments to the financial disclosure requirements of Regulation S-X for guarantors and issuers of guaranteed securities. CCO Holdings is voluntarily complying with the new disclosure requirements beginning with its Quarterly Report on Form 10-Q for the quarter ended September 30, 2020. Because the assets, liabilities and results of operations of the combined Obligor Group are not materially different than corresponding amounts presented in the consolidated financial statements of CCO Holdings, summarized financial information of the Obligor Group has been omitted pursuant to SEC Regulation S-X Rule 13-01, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered. The information below is being presented to comply with the terms of the Charter Operating credit agreement. This information is not intended to present the financial position, results of operations and cash flow of the individual companies or groups of companies in accordance with generally accepted accounting principles.
| | | | | | | | | | | | | | | | | | | | | | | |
| CCO Holdings | | Charter Operating and Consolidated Subsidiaries | | CCO Holdings | | Charter Operating and Consolidated Subsidiaries |
| September 30, 2020 | | December 31, 2019 |
Balance Sheet Data: | | | | | | | |
Current assets | $ | — | | | $ | 3,694 | | | $ | 500 | | | $ | 5,655 | |
Receivables from related party | $ | 42 | | | $ | — | | | $ | 59 | | | $ | — | |
Noncurrent assets | $ | — | | | $ | 138,966 | | | $ | — | | | $ | 140,588 | |
Loans receivables to related party | $ | 567 | | | $ | — | | | $ | 545 | | | $ | — | |
Current liabilities | $ | 299 | | | $ | 9,297 | | | $ | 296 | | | $ | 11,346 | |
Payable to related party | $ | — | | | $ | 136 | | | $ | — | | | $ | 357 | |
Noncurrent liabilities | $ | 23,383 | | | $ | 58,115 | | | $ | 21,951 | | | $ | 56,604 | |
Loans payable to related party | $ | — | | | $ | 1,573 | | | $ | — | | | $ | 1,504 | |
Noncontrolling interests | $ | — | | | $ | 23 | | | $ | — | | | $ | 23 | |
| | | | | | | |
| Nine Months Ended September 30, |
| 2020 | | 2019 |
Statement of Operations Data: | | | | | | | |
Revenue | $ | — | | | $ | 35,467 | | | $ | — | | | $ | 33,997 | |
Income from operations | $ | — | | | $ | 5,872 | | | $ | — | | | $ | 4,517 | |
Net income | $ | 2,538 | | | $ | 3,544 | | | $ | 1,347 | | | $ | 2,132 | |
| | | | | | | |
Statement of Cash Flows Data: | | | | | | | |
Net cash flows from operating activities | $ | (873) | | | $ | 11,189 | | | $ | (762) | | | $ | 9,109 | |
Net cash flows from investing activities | $ | 6,701 | | | $ | (5,455) | | | $ | 4,429 | | | $ | (5,277) | |
Net cash flows from financing activities | $ | (6,328) | | | $ | (7,468) | | | $ | (3,667) | | | $ | (3,842) | |
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 September 30, 2017,2020, there was no default under any of these indentures or credit facilities, and each subsidiary met its applicable leverage ratio tests based on September 30, 20172020 financial results. Such distributions would be restricted, however, if any such subsidiary fails to meet these tests at the time of the contemplated distribution. 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.
However, without regard to leverage, during any calendar year or any portion thereof during which the borrower is a flow-through entity for tax purposes, and so long as no event of default exists, the borrower may make distributions to the 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, Cash Equivalents and Cash Equivalents. Restricted Cash. We held $2.0$1.0 billion and $1.3$3.2 billion in cash and cash equivalents as of September 30, 20172020 and December 31, 2016,2019, respectively.
Operating Activities.Net cash provided by operating activities increased $3.0$2.0 billion during the nine months ended September 30, 20172020 compared to the nine months ended September 30, 2016,2019, primarily due to an increase in Adjusted EBITDA of $4.6$1.2 billion offset by an increase in cash paid for interest, net of $1.1 billion as a result of the Transactions as well asand changes in operating assets and liabilities,working capital, excluding the change in accrued interest and accrued expenses related to capital expenditures, that provided $418used $805 million less cash during the nine months ended September 30, 2017.cash.
Investing Activities.Net cash used in investing activities was $5.9$5.5 billion and $3.4$5.3 billion for the nine months ended September 30, 20172020 and 2016,2019, respectively. The increase in cash used was primarily due to an increase in capital expenditures as a result of the Transactions.expenditures.
Financing Activities.Net cash used in financing activities was $2.0$7.1 billion and $1.2$3.1 billion for the nine months ended September 30, 20172020 and 2016,2019, respectively. The increase in cash used was primarily due to an increase in distributions offsetto parent companies and a decrease in the amount by an increase inwhich borrowings of long-term debt exceedingexceeded repayments.
Capital Expenditures
We have significant ongoing capital expenditure requirements. Capital expenditures were $2.4$2.0 billion and $6.1$5.4 billion for the three and nine months ended September 30, 2017,2020, respectively, and $1.7 billion and $3.4$4.9 billion for the three and nine months ended September 30, 2016,2019, respectively. The increase during the nine months ended September 30, 2017 comparedwas primarily due to 2016 washigher support capital as a result of facility improvements and investments in back office systems and mobile store build-outs, higher line extensions driven by the Transactions. Oncontinued network expansion, including to rural areas and higher scalable infrastructure as a pro forma basis, assuming the Transactions occurred asresult of January 1, 2015, capital expenditures increased $439 million during the nine months ended September 30, 2017 compared to the corresponding period in 2016. The increasecore network enhancements and node splits given growing customers and traffic and during the three months ended September 30, 2017 compared to 2016 was primarily due to2020, higher spend onInternet customer premise equipment due to the launch of SPP and our all-digital initiative and higher scalable infrastructure costs and support primarily due to the timing of spend.equipment. See the table below for more details.
We currently expect 2020 cable capital expenditures to be consistent and possibly lower as a percentage of cable revenue versus 2019, despite the significant acceleration in customer growth and network utilization during COVID-19.The actual amount of our capital expenditures in 20172020 will depend on a number of factors including the pace of transition planningfurther spend related to service a larger customer base as a result of the Transactions, our all-digital transition in the Legacy TWC and Legacy Bright House marketsproduct development 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 increaseddecreased by $276$70 million and $86$449 million for the nine months ended September 30, 20172020 and 2016,2019, respectively.
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 nine months ended September 30, 20172020 and 2016. The disclosure is intended to provide more consistency in the reporting of capital expenditures among peer companies in the cable industry.2019. 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, |
| 2020 | | 2019 | | 2020 | | 2019 |
Customer premise equipment (a) | $ | 520 | | | $ | 470 | | | $ | 1,501 | | | $ | 1,527 | |
Scalable infrastructure (b) | 424 | | | 320 | | | 979 | | | 840 | |
Line extensions (c) | 439 | | | 370 | | | 1,204 | | | 1,054 | |
Upgrade/rebuild (d) | 175 | | | 165 | | | 459 | | | 451 | |
Support capital (e) | 456 | | | 326 | | | 1,209 | | | 1,041 | |
Total capital expenditures | $ | 2,014 | | | $ | 1,651 | | | $ | 5,352 | | | $ | 4,913 | |
| | | | | | | |
Capital expenditures included in total related to: | | | | | | | |
Mobile | $ | 139 | | | $ | 100 | | | $ | 351 | | | $ | 281 | |
Commercial services | $ | 358 | | | $ | 327 | | | $ | 942 | | | $ | 956 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| Actual |
Customer premise equipment (a) | $ | 855 |
| | $ | 662 |
| | $ | 2,579 |
| | $ | 1,177 |
|
Scalable infrastructure (b) | 632 |
| | 441 |
| | 1,282 |
| | 937 |
|
Line extensions (c) | 319 |
| | 249 |
| | 864 |
| | 467 |
|
Upgrade/rebuild (d) | 163 |
| | 156 |
| | 415 |
| | 307 |
|
Support capital (e) | 424 |
| | 240 |
| | 956 |
| | 549 |
|
Total capital expenditures | $ | 2,393 |
| | $ | 1,748 |
| | $ | 6,096 |
| | $ | 3,437 |
|
| | | | | | | |
Capital expenditures included in total related to: | | | | | | | |
Commercial services | $ | 339 |
| | $ | 306 |
| | $ | 941 |
| | $ | 566 |
|
Transition (f) | $ | 125 |
| | $ | 109 |
| | $ | 287 |
| | $ | 273 |
|
(a)Customer premise equipment includes costs incurred at the customer residence to secure new customers and revenue generating units, including customer installation costs and customer premise equipment (e.g., set-top boxes and cable modems). |
| | | |
| Nine Months Ended September 30, 2016 |
| Pro Forma |
Customer premise equipment (a) | $ | 2,074 |
|
Scalable infrastructure (b) | 1,556 |
|
Line extensions (c) | 751 |
|
Upgrade/rebuild (d) | 461 |
|
Support capital (e) | 815 |
|
Total capital expenditures | $ | 5,657 |
|
| |
Capital expenditures included in total related to: | |
Commercial services | $ | 931 |
|
Transition (f) | $ | 273 |
|
(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).
| |
(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' systems and processes into a uniform operating structure. |
(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).
Recently Issued Accounting Standards
See Note 1719 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements” for a discussion of recently issued accounting standards.
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.
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,April 2019, we entered into a collateral holiday agreement for 80%60% of both the 2031 and 2042 cross-currency swaps, which eliminates the requirement to post collateral for three years.years, as well as a ten year collateral cap on the remaining 40% of the cross-currency swaps which limits the required collateral posting on that 40% of the cross-currency swaps to $150 million. For more information, see Note 78 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”
As of September 30, 20172020 and December 31, 2016,2019, the weighted average interest rate on the credit facility debt including the effects of our interest rate swap agreements, was approximately 3.3%1.7% and 2.9%3.3%, respectively, and the weighted average interest rate on the senior notes was approximately 5.7%5.2% and 5.9%5.4%, respectively, resulting in a blended weighted average interest rate of 5.4% as of both time periods.4.7% and 5.1%, respectively. The interest rate on approximately 88% and 87%86% of the total principal amount of our debt was effectively fixed including the effects of our interest rate swap agreements as of September 30, 20172020 and December 31, 2016, respectively.2019.
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 September 30, 20172020 (dollars in millions).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total | | Fair Value |
Debt: | | | | | | | | | | | | | | | |
Fixed-Rate | $ | — | | | $ | 1,700 | | | $ | 3,000 | | | $ | 1,500 | | | $ | 1,100 | | | $ | 60,645 | | | $ | 67,945 | | | $ | 77,872 | |
Average Interest Rate | — | % | | 4.05 | % | | 4.46 | % | | 6.92 | % | | 4.50 | % | | 5.28 | % | | 5.24 | % | | |
| | | | | | | | | | | | | | | |
Variable Rate | $ | 69 | | | $ | 277 | | | $ | 277 | | | $ | 436 | | | $ | 1,165 | | | $ | 8,895 | | | $ | 11,119 | | | $ | 10,904 | |
Average Interest Rate | 1.52 | % | | 1.50 | % | | 1.51 | % | | 1.61 | % | | 1.93 | % | | 2.25 | % | | 2.15 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter | | Total | | Fair Value |
Debt: | | | | | | | | | | | | | | | |
Fixed-Rate | $ | — |
| | $ | 2,000 |
| | $ | 3,250 |
| | $ | 3,500 |
| | $ | 2,200 |
| | $ | 47,059 |
| | $ | 58,009 |
| | $ | 62,657 |
|
Average Interest Rate | — | % | | 6.75 | % | | 8.44 | % | | 4.19 | % | | 4.32 | % | | 5.64 | % | | 5.70 | % | | |
| | | | | | | | | | | | | | | |
Variable Rate | $ | 49 |
| | $ | 197 |
| | $ | 296 |
| | $ | 1,716 |
| | $ | 2,928 |
| | $ | 3,582 |
| | $ | 8,768 |
| | $ | 8,788 |
|
Average Interest Rate | 3.13 | % | | 3.58 | % | | 3.77 | % | | 4.07 | % | | 4.07 | % | | 4.68 | % | | 4.29 | % | | |
| | | | | | | | | | | | | | | |
Interest Rate Instruments: | | | | | | | | | | | | | | |
Variable to Fixed-Rate | $ | 850 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 850 |
| | $ | 1 |
|
Average Pay Rate | 3.84 | % | | — | % | | — | % | | — | % | | — | % | | — | % | | 3.84 | % | | |
Average Receive Rate | 3.68 | % | | — | % | | — | % | | — | % | | — | % | | — | % | | 3.68 | % | | |
As of September 30, 2017, we had $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 September 30, 20172020 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 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-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, duringDuring the quarter ended September 30, 2017,2020, 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.
PART IIII. OTHER INFORMATION
Item 1.Legal Proceedings.
Our 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 inSee Note 1317 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements,” there have been no material changes from the legal proceedings described in our Form 10-K.Statements” for Legal Proceedings.
Item 1A.Risk Factors.
Our Annual Report on Form 10-K for the year ended December 31, 20162019 includes "Risk Factors" under Item 1A of Part I. There have been no material changes from the updated risk factors described in our Form 10-K.10-K except as indicated below.
The ongoing COVID-19 pandemic could materially affect our financial condition and results of operations.
The ongoing COVID-19 pandemic has significantly increased economic and demand uncertainty. The current pandemic and continued spread of COVID-19 has caused a significant economic recession. At this time, we cannot predict the duration of any business disruption and the ultimate impact of COVID-19 on our business, including the depth and duration of the economic impact to household formation and growth and our residential and business customers’ ability to pay for our products and services including the impact of extended unemployment benefits and other stimulus packages. We expect that some of the COVID-19 programs may result in incremental churn and bad debt during the remainder of the year and into 2021. In addition, there is uncertainty regarding the impact of government emergency declarations, the ability of our suppliers and vendors to provide products and services to us, the pace of new housing construction, changes in business spend in our local and national ad sales business, the effects to our employees’ health and safety and resulting reorientation of our work activities, and the risk of limitations on the deployment and maintenance of our services (including by limiting our customer support and on-site service repairs and installations). The degree to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.
Item 6.Exhibits.
See Exhibit Index.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, CCO Holdings, LLC and CCO Holdings Capital Corp. havehas duly caused this quarterly report to be signed on their behalf by the undersigned, thereunto duly authorized.
|
| | | | | | | | | | |
| | CCO HOLDINGS, LLC |
| | Registrant |
| | | | |
| | By: | | /s/ Kevin D. Howard |
| | | | Kevin D. Howard |
| | | | Senior Vice President - Finance, Controller and |
Date: October 27, 2017 | | | | Chief Accounting Officer |
| | | | |
| | | | |
| | | | |
| | CCO HOLDINGS CAPITAL CORP. |
| | Registrant |
| | | | |
| | By: | | /s/ Kevin D. Howard |
| | | | Kevin D. Howard |
| | | | Senior Vice President - Finance, Controller and |
Date: October 27, 2017 | | | | Chief Accounting Officer |
Exhibit Index
|
| | |
Exhibit | | Description |
| By: | | /s/ Kevin D. Howard |
10.1 | | Sixth Supplemental Indenture, dated as of July 6, 2017, among Charter Communications Operating, LLC, Charter Communications Operating Capital Corp., the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee and collateral agent (incorporated by reference to Exhibit 4.3 to the current report on Form 8-K filed by Charter Communications, Inc. on July 12, 2017 (File No. 001-33664)). | Kevin D. Howard |
10.2Date: November 2, 2020 | | | Executive Vice President, Chief Accounting Officer and Controller |
| | | |
| CCO HOLDINGS CAPITAL CORP. |
| Registrant |
| | | |
| By: | | /s/ Kevin D. Howard |
| | | Kevin D. Howard |
Date: November 2, 2020 | | | Executive Vice President, Chief Accounting Officer and Controller |
Exhibit Index
| | | | | | | | |
Exhibit | | Description |
| | |
10.1 | | Exchange and Registration Rights Agreement, dated July 6, 2017,October 12, 2020, relating to the 3.750%4.500% Senior Notes due 2028,2032, among Charter Communications Operating,CCO Holdings, LLC, Charter Communications OperatingCCO Holdings Capital Corp., the guarantors party thereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated,Deutsche Bank Securities Inc., as representative of the several Purchasers (as defined therein) (incorporated by reference to Exhibit 10.1 to the current reportCurrent Report on Form 8-K filed by Charter Communications, Inc. on July 12, 2017 (File No. 001-33664))October 16, 2020). |
10.322.1 | | ExchangeIssuers and Registration Rights Agreement, dated July 6, 2017, relating to the 5.375% Senior Notes due 2047, among Charter Communications Operating, LLC, Charter Communications Operating Capital Corp., the guarantors party thereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representativeGuarantors of the several Purchasers (as defined therein) (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K filed by Charter Communications, Inc. on July 12, 2017 (File No. 001-33664))Guaranteed Securities. |
10.431.1 | | |
10.5 | | Exchange and Registration Rights Agreement, dated August 8, 2017, relating to the 5.000% Senior Notes due 2028, among CCO Holdings, LLC, CCO Holdings Capital Corp. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the several Purchasers (as defined therein) (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed by Charter Communications, Inc. on August 14, 2017 (File No. 001-33664)). |
10.6 | | Seventh Supplemental Indenture, dated as of September 18, 2017, among Charter Communications Operating, LLC, Charter Communications Operating Capital Corp., the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee and collateral agent (incorporated by reference to Exhibit 4.3 to the current report on Form 8-K filed by Charter Communications, Inc. on September 21, 2017 (File No. 001-33664)). |
10.7 | | Exchange and Registration Rights Agreement, dated September 18, 2017, relating to the 4.200% Senior Secured Notes due 2028, among Charter Communications Operating, LLC, Charter Communications Operating Capital Corp., the guarantors party thereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Citigroup Global Markets Inc., as representatives of the several Purchasers (as defined therein) (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed by Charter Communications, Inc. on September 21, 2017 (File No. 001-33664)). |
10.8 | | Exchange and Registration Rights Agreement, dated September 18, 2017, relating to the 5.375% Senior Secured Notes due 2047, among Charter Communications Operating, LLC, Charter Communications Operating Capital Corp., the guarantors party thereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Citigroup Global Markets Inc., as representatives of the several Purchasers (as defined therein) (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K filed by Charter Communications, Inc. on September 21, 2017 (File No. 001-33664)). |
31.1* | | |
31.2*31.2 | | |
32.1*32.1 | | |
32.2*32.2 | | |
101**101 | | The following financial statementsinformation from CCO Holdings, LLC's Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2017,2020, filed with the Securities and Exchange Commission on October 27, 2017,November 2, 2020, formatted in XBRL (eXtensibleiXBRL (inline eXtensible Business Reporting Language): includes: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Income;Changes in Member's Equity; (iv) the Consolidated Statements of Cash Flows; and (vi) the Notes to the Consolidated Financial Statements. |
104 | | Cover Page, formatted in iXBRL and contained in Exhibit 101. |
_____________
| |
** | 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.