Reconciliation of Pro Forma Financial Information
The following pro forma financial information is based on (i) the quarterly unaudited consolidated financial statements of CCO Holdings, LLC ("CCO Holdings"); (ii) the unaudited consolidated financial statements of Time Warner Cable Inc. ("TWC") contained in its 2015 and 2016 Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission ("SEC"); (iii) the audited consolidated financial statements of CCO Holdings contained in Exhibit 99.2 in its Current Report on Form 8-K filed with the SEC on June 6, 2016; (iv) the audited consolidated financial statements of TWC contained in its respective 2015 Annual Report on Form 10-K as filed with the SEC; (v) the 2015 and first quarter of 2016 condensed consolidated unaudited quarterly financial statements of Bright House Networks, LLC ("Bright House") contained in Charter's Current Reports on Form 8-K filed with the SEC on November 5, 2015 and July 29, 2016, Charter's preliminary joint proxy statement/prospectus filed with the SEC on June 26, 2015 and Charter's definitive joint proxy statement/prospectus filed with the SEC on August 20, 2015; (vi) the 2015 consolidated audited financial statements of Bright House contained in Charter's Current Report on Form 8-K filed with the SEC on April 7, 2016; and (vii) the unaudited consolidated financial information of TWC and Bright House for the 47 day period from April 1, 2016 to May 17, 2016.
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 CCO Holdings believes are reasonable and do not purport to represent what the actual consolidated results of operations of CCO Holdings 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.
CCO HOLDINGS, LLC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months ended March 31, 2015 |
| | CCO | | | | | | CCO | | | | | | CCO |
| | Holdings | | | | Pro Forma | | Holdings | | Bright | | Pro Forma | | Holdings |
| | Historical | | TWC | | Adjustments | | Pro Forma | | House | | Adjustments | | Pro Forma |
| | | | | | | | | | | | | | |
| REVENUES | $ | 2,362 |
| | $ | 5,777 |
| | $ | 46 |
| a | $ | 8,185 |
| | $ | 978 |
| | $ | (42 | ) | a | $ | 9,121 |
|
| | | | | | | | | | | | | | |
| COSTS AND EXPENSES: | | | | | | | | | | | | | |
| Operating costs and expenses (exclusive of items shown separately below) | 1,581 |
| | 3,781 |
| | 81 |
| a | 5,443 |
| | 668 |
| | (82 | ) | a | 6,029 |
|
| Depreciation and amortization | 514 |
| | 886 |
| | 655 |
| b | 2,055 |
| | 111 |
| | 110 |
| b | 2,276 |
|
| Other operating expenses, net | 18 |
| | 26 |
| | (25 | ) | c | 19 |
| | — |
| | (1 | ) | c | 18 |
|
| | 2,113 |
| | 4,693 |
| | 711 |
| | 7,517 |
| | 779 |
| | 27 |
| | 8,323 |
|
| | | | | | | | | | | | | | |
| Income from operations | 249 |
| | 1,084 |
| | (665 | ) | | 668 |
| | 199 |
| | (69 | ) | | 798 |
|
| | | | | | | | | | | | | | |
| OTHER INCOME (EXPENSES): | | | | | | | | | | | | | |
| Interest expense, net | (242 | ) | | (348 | ) | | (203 | ) | d | (793 | ) | | (7 | ) | | (1 | ) | d | (801 | ) |
| Loss on financial instruments, net | (6 | ) | | — |
| | — |
| | (6 | ) | | — |
| | — |
| | (6 | ) |
| Other income, net | — |
| | 10 |
| | — |
| | 10 |
| | 1 |
| | — |
| | 11 |
|
| | (248 | ) | | (338 | ) | | (203 | ) | | (789 | ) | | (6 | ) | | (1 | ) | | (796 | ) |
| | | | | | | | | | | | | | |
| Income (loss) before taxes | 1 |
| | 746 |
| | (868 | ) | | (121 | ) | | 193 |
| | (70 | ) | | 2 |
|
| | | | | | | | | | | | | | |
| Income tax expense | (1 | ) | | (288 | ) | | 288 |
| e | (1 | ) | | — |
| | — |
| | (1 | ) |
| | | | | | | | | | | | | | |
| Consolidated net income (loss) | — |
| | 458 |
| | (580 | ) | | (122 | ) | | 193 |
| | (70 | ) | | 1 |
|
| | | | | | | | | | | | | | |
| Less: Noncontrolling interest | (10 | ) | | — |
| | — |
| | (10 | ) | | — |
| | — |
| | (10 | ) |
| | | | | | | | | | | | | | |
| Net income (loss) before non-recurring charges directly attributable to the Transactions | $ | (10 | ) | | $ | 458 |
| | $ | (580 | ) | | $ | (132 | ) | | $ | 193 |
| | $ | (70 | ) | | $ | (9 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months ended June 30, 2015 |
| | CCO | | | | | | CCO | | | | | | CCO |
| | Holdings | | | | Pro Forma | | Holdings | | Bright | | Pro Forma | | Holdings |
| | Historical | | TWC | | Adjustments | | Pro Forma | | House | | Adjustments | | Pro Forma |
| | | | | | | | | | | | | | |
| REVENUES | $ | 2,430 |
| | $ | 5,926 |
| | $ | 45 |
| a | $ | 8,401 |
| | $ | 989 |
| | $ | (40 | ) | a | $ | 9,350 |
|
| | | | | | | | | | | | | | |
| COSTS AND EXPENSES: | | | | | | | | | | | | | |
| Operating costs and expenses (exclusive of items shown separately below) | 1,601 |
| | 3,896 |
| | 84 |
| a | 5,581 |
| | 665 |
| | (80 | ) | a | 6,166 |
|
| Depreciation and amortization | 528 |
| | 919 |
| | 655 |
| b | 2,102 |
| | 113 |
| | 110 |
| b | 2,325 |
|
| Other operating (income) expenses, net | 32 |
| | 82 |
| | (89 | ) | c | 25 |
| | (22 | ) | | (2 | ) | c | 1 |
|
| | 2,161 |
| | 4,897 |
| | 650 |
| | 7,708 |
| | 756 |
| | 28 |
| | 8,492 |
|
| | | | | | | | | | | | | | |
| Income from operations | 269 |
| | 1,029 |
| | (605 | ) | | 693 |
| | 233 |
| | (68 | ) | | 858 |
|
| | | | | | | | | | | | | | |
| OTHER INCOME (EXPENSES): | | | | | | | | | | | | | |
| Interest expense, net | (214 | ) | | (350 | ) | | (171 | ) | d | (735 | ) | | (9 | ) | | (1 | ) | d | (745 | ) |
| Loss on extinguishment of debt | (126 | ) | | — |
| | — |
| | (126 | ) | | — |
| | — |
| | (126 | ) |
| Gain on financial instruments, net | 1 |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
| Other income, net | — |
| | 127 |
| | — |
| | 127 |
| | — |
| | — |
| | 127 |
|
| | (339 | ) | | (223 | ) | | (171 | ) | | (733 | ) | | (9 | ) | | (1 | ) | | (743 | ) |
| | | | | | | | | | | | | | |
| Income (loss) before taxes | (70 | ) | | 806 |
| | (776 | ) | | (40 | ) | | 224 |
| | (69 | ) | | 115 |
|
| | | | | | | | | | | | | | |
| Income tax expense | (6 | ) | | (343 | ) | | 343 |
| e | (6 | ) | | — |
| | — |
| | (6 | ) |
| | | | | | | | | | | | | | |
| Consolidated net income (loss) | (76 | ) | | 463 |
| | (433 | ) | | (46 | ) | | 224 |
| | (69 | ) | | 109 |
|
| | | | | | | | | | | | | | |
| Less: Noncontrolling interest | (11 | ) | | — |
| | — |
| | (11 | ) | | — |
| | — |
| | (11 | ) |
| | | | | | | | | | | | | | |
| Net income (loss) before non-recurring charges directly attributable to the Transactions | $ | (87 | ) | | $ | 463 |
| | $ | (433 | ) | | $ | (57 | ) | | $ | 224 |
| | $ | (69 | ) | | $ | 98 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months ended September 30, 2015 |
| | CCO | | | | | | CCO | | | | | | CCO |
| | Holdings | | | | Pro Forma | | Holdings | | Bright | | Pro Forma | | Holdings |
| | Historical | | TWC | | Adjustments | | Pro Forma | | House | | Adjustments | | Pro Forma |
| | | | | | | | | | | | | | |
| REVENUES | $ | 2,450 |
| | $ | 5,922 |
| | $ | 48 |
| a | $ | 8,420 |
| | $ | 964 |
| | $ | (42 | ) | a | $ | 9,342 |
|
| | | | | | | | | | | | | | |
| COSTS AND EXPENSES: | | | | | | | | | | | | | |
| Operating costs and expenses (exclusive of items shown separately below) | 1,620 |
| | 3,942 |
| | 82 |
| a | 5,644 |
| | 666 |
| | (82 | ) | a | 6,228 |
|
| Depreciation and amortization | 538 |
| | 935 |
| | 655 |
| b | 2,128 |
| | 116 |
| | 110 |
| b | 2,354 |
|
| Other operating (income) expenses, net | 19 |
| | 44 |
| | (67 | ) | c | (4 | ) | | (2 | ) | | — |
| | (6 | ) |
| | 2,177 |
| | 4,921 |
| | 670 |
| | 7,768 |
| | 780 |
| | 28 |
| | 8,576 |
|
| | | | | | | | | | | | | | |
| Income from operations | 273 |
| | 1,001 |
| | (622 | ) | | 652 |
| | 184 |
| | (70 | ) | | 766 |
|
| | | | | | | | | | | | | | |
| OTHER INCOME (EXPENSES): | | | | | | | | | | | | | |
| Interest expense, net | (192 | ) | | (351 | ) | | (171 | ) | d | (714 | ) | | (9 | ) | | (1 | ) | d | (724 | ) |
| Loss on financial instruments, net | (5 | ) | | — |
| | — |
| | (5 | ) | | — |
| | — |
| | (5 | ) |
| Other income, net | — |
| | 10 |
| | — |
| | 10 |
| | — |
| | — |
| | 10 |
|
| | (197 | ) | | (341 | ) | | (171 | ) | | (709 | ) | | (9 | ) | | (1 | ) | | (719 | ) |
| | | | | | | | | | | | | | |
| Income (loss) before taxes | 76 |
| | 660 |
| | (793 | ) | | (57 | ) | | 175 |
| | (71 | ) | | 47 |
|
| | | | | | | | | | | | | | |
| Income tax benefit (expense) | 219 |
| | (223 | ) | | 223 |
| e | 219 |
| | — |
| | — |
| | 219 |
|
| | | | | | | | | | | | | | |
| Consolidated net income | 295 |
| | 437 |
| | (570 | ) | | 162 |
| | 175 |
| | (71 | ) | | 266 |
|
| | | | | | | | | | | | | | |
| Less: Noncontrolling interest | (13 | ) | | — |
| | — |
| | (13 | ) | | — |
| | — |
| | (13 | ) |
| | | | | | | | | | | | | | |
| Net income before non-recurring charges directly attributable to the Transactions | $ | 282 |
| | $ | 437 |
| | $ | (570 | ) | | $ | 149 |
| | $ | 175 |
| | $ | (71 | ) | | $ | 253 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months ended December 31, 2015 |
| | CCO | | | | | | CCO | | | | | | CCO |
| | Holdings | | | | Pro Forma | | Holdings | | Bright | | Pro Forma | | Holdings |
| | Historical | | TWC | | Adjustments | | Pro Forma | | House | | Adjustments | | Pro Forma |
| | | | | | | | | | | | | | |
| REVENUES | $ | 2,512 |
| | $ | 6,072 |
| | $ | 44 |
| a | $ | 8,628 |
| | $ | 992 |
| | $ | (39 | ) | a | $ | 9,581 |
|
| | | | | | | | | | | | | | |
| COSTS AND EXPENSES: | | | | | | | | | | | | | |
| Operating costs and expenses (exclusive of items shown separately below) | 1,624 |
| | 3,940 |
| | 79 |
| a | 5,643 |
| | 656 |
| | (73 | ) | a | 6,226 |
|
| Depreciation and amortization | 545 |
| | 956 |
| | 655 |
| b | 2,156 |
| | 119 |
| | 110 |
| b | 2,385 |
|
| Other operating (income) expenses, net | 20 |
| | 51 |
| | (70 | ) | c | 1 |
| | (1 | ) | | 1 |
| c | 1 |
|
| | 2,189 |
| | 4,947 |
| | 664 |
| | 7,800 |
| | 774 |
| | 38 |
| | 8,612 |
|
| | | | | | | | | | | | | | |
| Income from operations | 323 |
| | 1,125 |
| | (620 | ) | | 828 |
| | 218 |
| | (77 | ) | | 969 |
|
| | | | | | | | | | | | | | |
| OTHER INCOME (EXPENSES): | | | | | | | | | | | | | |
| Interest expense, net | (192 | ) | | (352 | ) | | (145 | ) | d | (689 | ) | | (8 | ) | | (1 | ) | d | (698 | ) |
| Gain on financial instruments, net | 6 |
| | — |
| | — |
| | 6 |
| | — |
| | — |
| | 6 |
|
| Other income, net | — |
| | 3 |
| | — |
| | 3 |
| | — |
| | — |
| | 3 |
|
| | (186 | ) | | (349 | ) | | (145 | ) | | (680 | ) | | (8 | ) | | (1 | ) | | (689 | ) |
| | | | | | | | | | | | | | |
| Incomebefore taxes | 137 |
| | 776 |
| | (765 | ) | | 148 |
| | 210 |
| | (78 | ) | | 280 |
|
| | | | | | | | | | | | | | |
| Income tax expense | (2 | ) | | (290 | ) | | 290 |
| e | (2 | ) | | — |
| | — |
| | (2 | ) |
| | | | | | | | | | | | | | |
| Consolidated net income | 135 |
| | 486 |
| | (475 | ) | | 146 |
| | 210 |
| | (78 | ) | | 278 |
|
| | | | | | | | | | | | | | |
| Less: Noncontrolling interest | (12 | ) | | — |
| | — |
| | (12 | ) | | — |
| | — |
| | (12 | ) |
| | | | | | | | | | | | | | |
| Net income before non-recurring charges directly attributable to the Transactions | $ | 123 |
| | $ | 486 |
| | $ | (475 | ) | | $ | 134 |
| | $ | 210 |
| | $ | (78 | ) | | $ | 266 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months ended March 31, 2016 |
| | CCO | | | | | | CCO | | | | | | CCO |
| | Holdings | | | | Pro Forma | | Holdings | | Bright | | Pro Forma | | Holdings |
| | Historical | | TWC | | Adjustments | | Pro Forma | | House | | Adjustments | | Pro Forma |
| | | | | | | | | | | | | | |
| REVENUES | $ | 2,530 |
| | $ | 6,191 |
| | $ | 45 |
| a | $ | 8,766 |
| | $ | 1,015 |
| | $ | (39 | ) | a | $ | 9,742 |
|
| | | | | | | | | | | | | | |
| COSTS AND EXPENSES: | | | | | | | | | | | | | |
| Operating costs and expenses (exclusive of items shown separately below) | 1,671 |
| | 4,032 |
| | 60 |
| a | 5,763 |
| | 685 |
| | (77 | ) | a | 6,371 |
|
| Depreciation and amortization | 539 |
| | 974 |
| | 554 |
| b | 2,067 |
| | 112 |
| | 104 |
| b | 2,283 |
|
| Other operating (income) expenses, net | 18 |
| | 40 |
| | (46 | ) | c | 12 |
| | (1 | ) | | 2 |
| c | 13 |
|
| | 2,228 |
| | 5,046 |
| | 568 |
| | 7,842 |
| | 796 |
| | 29 |
| | 8,667 |
|
| | | | | | | | | | | | | | |
| Income from operations | 302 |
| | 1,145 |
| | (523 | ) | | 924 |
| | 219 |
| | (68 | ) | | 1,075 |
|
| | | | | | | | | | | | | | |
| OTHER INCOME (EXPENSES): | | | | | | | | | | | | | |
| Interest expense, net | (200 | ) | | (350 | ) | | (149 | ) | d | (699 | ) | | (5 | ) | | (4 | ) | d | (708 | ) |
| Loss on financial instruments, net | (5 | ) | | — |
| | — |
| | (5 | ) | | — |
| | — |
| | (5 | ) |
| Other income, net | — |
| | 11 |
| | — |
| | 11 |
| | — |
| | — |
| | 11 |
|
| | (205 | ) | | (339 | ) | | (149 | ) | | (693 | ) | | (5 | ) | | (4 | ) | | (702 | ) |
| | | | | | | | | | | | | | |
| Income before taxes | 97 |
| | 806 |
| | (672 | ) | | 231 |
| | 214 |
| | (72 | ) | | 373 |
|
| | | | | | | | | | | | | | |
| Income tax expense | — |
| | (312 | ) | | 312 |
| e | — |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | | | | |
| Net income before non-recurring charges directly attributable to the Transactions | $ | 97 |
| | $ | 494 |
| | $ | (360 | ) | | $ | 231 |
| | $ | 214 |
| | $ | (72 | ) | | $ | 373 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months ended June 30, 2016 |
| | CCO | | | | | | CCO | | | | | | CCO |
| | Holdings | | | | Pro Forma | | Holdings | | Bright | | Pro Forma | | Holdings |
| | Historical | 1 | TWC | 2 | Adjustments | | Pro Forma | | House | 2 | Adjustments | | Pro Forma |
| | | | | | | | | | | | | | |
| REVENUES | $ | 6,161 |
| | $ | 3,285 |
| | $ | 20 |
| a | $ | 9,466 |
| | $ | 531 |
| | $ | (28 | ) | a | $ | 9,969 |
|
| | | | | | | | | | | | | | |
| COSTS AND EXPENSES: | | | | | | | | | | | | | |
| Operating costs and expenses (exclusive of items shown separately below) | 4,012 |
| | 2,169 |
| | 38 |
| a | 6,219 |
| | 344 |
| | (53 | ) | a | 6,510 |
|
| Depreciation and amortization | 1,435 |
| | 515 |
| | 274 |
| b | 2,224 |
| | 64 |
| | 48 |
| b | 2,336 |
|
| Other operating (income) expenses, net | (231 | ) | | 20 |
| | (25 | ) | c | (236 | ) | | — |
| | (1 | ) | c | (237 | ) |
| | 5,216 |
| | 2,704 |
| | 287 |
| | 8,207 |
| | 408 |
| | (6 | ) | | 8,609 |
|
| | | | | | | | | | | | | | |
| Income from operations | 945 |
| | 581 |
| | (267 | ) | | 1,259 |
| | 123 |
| | (22 | ) | | 1,360 |
|
| | | | | | | | | | | | | | |
| OTHER INCOME (EXPENSES): | | | | | | | | | | | | | |
| Interest expense, net | (462 | ) | | (182 | ) | | (77 | ) | d | (721 | ) | | — |
| | (2 | ) | d | (723 | ) |
| Loss on extinguishment of debt | (110 | ) | | — |
| | — |
| | (110 | ) | | — |
| | — |
| | (110 | ) |
| Loss on financial instruments, net | (50 | ) | | — |
| | — |
| | (50 | ) | | — |
| | — |
| | (50 | ) |
| Other income, net | — |
| | 4 |
| | — |
| | 4 |
| | — |
| | — |
| | 4 |
|
| | (622 | ) | | (178 | ) | | (77 | ) | | (877 | ) | | — |
| | (2 | ) | | (879 | ) |
| | | | | | | | | | | | | | |
| Income before taxes | 323 |
| | 403 |
| | (344 | ) | | 382 |
| | 123 |
| | (24 | ) | | 481 |
|
| | | | | | | | | | | | | | |
| Income tax benefit (expense) | (7 | ) | | (160 | ) | | 160 |
| e | (7 | ) | | — |
| | — |
| | (7 | ) |
| | | | | | | | | | | | | | |
| Net income before non-recurring charges directly attributable to the Transactions | $ | 316 |
| | $ | 243 |
| | $ | (184 | ) | | $ | 375 |
| | $ | 123 |
| | $ | (24 | ) | | $ | 474 |
|
| |
| 1. | Includes the results of operations of CCO Holdings for the three months ended June 30, 2016 and the results of operations of Legacy TWC and Legacy Bright House from the date of acquisition (May 18, 2016) through June 30, 2016. |
| |
| 2. | Includes the results of operations of Legacy TWC and Legacy Bright House for the period from April 1, 2016 through May 17, 2016. |
Notes to the Pro Forma Statements of Operations Adjustments
Refer to Exhibit 99.1 included in Charter's Current Report on Form 8-K/A filed with the Securities and Exchange Commission on July 29, 2016 for more detailed information regarding these adjustments.
| |
| (a) | Adjustments to revenues and operating costs and expenses reflect: |
| |
| • | a reclassification to conform to CCO Holdings' financial statement classification for processing fees revenue, among other revenue items; and |
| |
| • | eliminations of revenue/expense between CCO Holdings, TWC and Bright House including the TWC management fee incurred by Bright House. |
Operating costs and expenses also include adjustments for:
| |
| • | incremental replacement stock award compensation expense for TWC employees; |
| |
| • | elimination of amortization of actuarial gains (losses) and prior service credits for pension plans; |
| |
| • | a Bright House adjustment to capitalize residential installation labor and other labor costs to conform to CCO Holdings’ capitalization accounting policy; and |
| |
| • | elimination of costs related to parent company obligations not assumed in the Bright House transactions; |
| |
| • | incremental expense from a related party eliminated in consolidation at the parent level; and |
| |
| • | other reclassifications to conform to CCO Holdings’ financial statement classification. |
| |
| (b) | Adjustments to depreciation and amortization represent additional expense as a result of adjusting TWC and Bright House property, plant and equipment and customer relationships to fair value in accordance with acquisition accounting. The pro forma adjustments are based on current estimates and may not reflect actual depreciation and amortization once the purchase price allocation is finalized and final determination of useful lives is made. |
| |
| (c) | Adjustments to other operating (income) expenses, net reflect: |
| |
| • | elimination of TWC stock compensation expense classified by TWC as merger-related in other operating expense; |
| |
| • | elimination of Charter and TWC transaction costs directly related to the transactions; and |
| |
| • | other reclassifications to conform to CCO Holdings’ financial statement classification. |
| |
| (d) | Adjustments to interest expense, net reflect: |
| |
| • | additional interest expense on new debt issued and related amortization of deferred financing fees; |
| |
| • | amortization of net premium as a result of adjusting assumed TWC long-term debt to fair value; |
| |
| • | elimination of amortization related to TWC’s previously deferred financing fees and debt discounts; |
| |
| • | elimination of historical interest expense incurred by Bright House as debt is not assumed in the Bright House transactions. |
| |
| (e) | Adjustments to income tax benefit (expense) to reflect the elimination of income tax expense at TWC as TWC is no longer a corporate entity. |
