10-Q 1 chtr33113-10q.htm 10-Q CHTR 3.31.13 - 10Q


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 March 31, 2013
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: 001-33664
Charter Communications, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
43-1857213
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
 
 
400 Atlantic Street, 10th Floor
Stamford, Connecticut 06901
 
(203) 905-7801
(Address of principal executive offices including zip code)
 
(Registrant’s telephone number, including area code)

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

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

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

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

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No o

Number of shares of Class A common stock outstanding as of March 31, 2013: 101,250,955








CHARTER COMMUNICATIONS, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
March 31, 2013

TABLE OF CONTENTS

 
 
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

This quarterly report on Form 10-Q is for the three months ended March 31, 2013. The 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, "we," "us" and "our" refer to Charter Communications, Inc. and its subsidiaries.
 



i



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 reflected in or suggested by these forward‑looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward‑looking statements are inherently subject to risks, uncertainties and assumptions including, without limitation, the factors described under “Risk Factors” under Part II, Item 1A and 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” 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, 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:

our ability to sustain and grow revenues and cash flow from operations by offering video, Internet, telephone, advertising and other services to residential and commercial customers, to adequately meet the customer experience demands in our markets and to maintain and grow our customer base, particularly in the face of increasingly aggressive competition, the need for innovation and the related capital expenditures and the difficult economic conditions in the United States;

the impact of competition from other market participants, including but not limited to incumbent telephone companies, direct broadcast satellite operators, wireless broadband and telephone providers, digital subscriber line (“DSL”) providers, and video provided over the Internet;

general business conditions, economic uncertainty or downturn, high 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);

the development and deployment of new products and technologies;

the effects of governmental regulation on our business;

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.


ii



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions, except share data)
 
March 31,
2013
 
December 31,
2012
 
(unaudited)
 
 
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
65

 
$
7

Restricted cash and cash equivalents
27

 
27

Accounts receivable, less allowance for doubtful accounts of
 
 
 
$13 and $14, respectively
208

 
234

Prepaid expenses and other current assets
74

 
65

Total current assets
374

 
333

 
 
 
 
INVESTMENT IN CABLE PROPERTIES:
 
 
 
Property, plant and equipment, net of accumulated
 
 
 
depreciation of $3,968 and $3,563, respectively
7,259

 
7,206

Franchises
5,287

 
5,287

Customer relationships, net
1,359

 
1,424

Goodwill
953

 
953

Total investment in cable properties, net
14,858

 
14,870

 
 
 
 
OTHER NONCURRENT ASSETS
407

 
396

 
 
 
 
Total assets
$
15,639

 
$
15,599

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable and accrued liabilities
$
1,290

 
$
1,224

Total current liabilities
1,290

 
1,224

 
 
 
 
LONG-TERM DEBT
12,816

 
12,808

DEFERRED INCOME TAXES
1,279

 
1,122

OTHER LONG-TERM LIABILITIES
125

 
296

 
 
 
 
SHAREHOLDERS’ EQUITY:
 
 
 
Class A common stock; $.001 par value; 900 million shares authorized;
 
 
 
101,310,068 and 101,176,247 shares issued, respectively

 

Class B common stock; $.001 par value; 25 million shares authorized;
 
 
 
no shares issued and outstanding

 

Preferred stock; $.001 par value; 250 million shares authorized;
 
 
 
no shares issued and outstanding

 

Additional paid-in capital
1,632

 
1,616

Accumulated deficit
(1,434
)
 
(1,392
)
Treasury stock at cost; 59,113 and 0 shares, respectively
(5
)
 

Accumulated other comprehensive loss
(64
)
 
(75
)
Total shareholders’ equity
129

 
149

 
 
 
 
Total liabilities and shareholders’ equity
$
15,639

 
$
15,599


The accompanying notes are an integral part of these condensed consolidated financial statements.
1



CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions, except per share and share data)
Unaudited
 
Three Months Ended March 31,
 
2013
 
2012
 
 
 
 
REVENUES
$
1,917

 
$
1,827

 
 
 
 
COSTS AND EXPENSES:
 
 
 
Operating costs and expenses (excluding depreciation and amortization)
1,258

 
1,186

Depreciation and amortization
425

 
408

Other operating expenses, net
11

 
3

 
 
 
 
 
1,694

 
1,597

 
 
 
 
Income from operations
223

 
230

 
 
 
 
OTHER EXPENSES:
 
 
 
Interest expense, net
(210
)
 
(237
)
Loss on extinguishment of debt
(42
)
 
(15
)
Loss on derivative instruments, net
(3
)
 

Other expense, net
(1
)
 
(1
)
 
 
 
 
 
(256
)
 
(253
)
 
 
 
 
Loss before income taxes
(33
)
 
(23
)
 
 
 
 
Income tax expense
(9
)
 
(71
)
 
 
 
 
Net loss
$
(42
)
 
$
(94
)
 
 
 
 
LOSS PER COMMON SHARE, BASIC AND DILUTED
$
(0.42
)
 
$
(0.95
)
 
 
 
 
Weighted average common shares outstanding, basic and diluted
100,327,418

 
99,432,960


CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(dollars in millions)
Unaudited
 
Three Months Ended March 31,
 
2013
 
2012
 
 
 
 
Net loss
$
(42
)
 
$
(94
)
Net impact of gains on interest rate derivative instruments, net of tax
11

 
1

 
 
 
 
Comprehensive loss
$
(31
)
 
$
(93
)

The accompanying notes are an integral part of these condensed consolidated financial statements.
2



CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
Unaudited
 
 
Three Months Ended March 31,
 
 
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net loss
 
$
(42
)
 
$
(94
)
Adjustments to reconcile net loss to net cash flows from operating activities:
 
 
 
 
Depreciation and amortization
 
425

 
408

Noncash interest expense
 
13

 
14

Loss on extinguishment of debt
 
42

 
15

Loss on derivative instruments, net
 
3

 

Deferred income taxes
 
2

 
70

Other, net
 
12

 
11

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
26

 
40

Prepaid expenses and other assets
 
(16
)
 
(8
)
Accounts payable, accrued expenses and other
 
76

 
(2
)
Net cash flows from operating activities
 
541

 
454

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Purchases of property, plant and equipment
 
(412
)
 
(340
)
Change in accrued expenses related to capital expenditures
 
(11
)
 
(12
)
Other, net
 
(9
)
 
(13
)
Net cash flows from investing activities
 
(432
)
 
(365
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Borrowings of long-term debt
 
1,315

 
1,469

Repayments of long-term debt
 
(1,355
)
 
(1,539
)
Payments for debt issuance costs
 
(12
)
 
(10
)
Purchase of treasury stock
 
(5
)
 
(3
)
Other, net
 
6

 
(4
)
Net cash flows from financing activities
 
(51
)
 
(87
)
 
 
 
 
 
NET INCREASE IN CASH AND CASH EQUIVALENTS
 
58

 
2

CASH AND CASH EQUIVALENTS, beginning of period
 
7

 
2

CASH AND CASH EQUIVALENTS, end of period
 
$
65

 
$
4

 
 
 
 
 
CASH PAID FOR INTEREST
 
$
120

 
$
216



The accompanying notes are an integral part of these condensed consolidated financial statements.
3


CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)



1.    Organization and Basis of Presentation

Organization

Charter Communications, Inc. (“Charter”) is a holding company whose principal asset is a 100% common equity interest in Charter Communications Holding Company, LLC (“Charter Holdco”). Charter owns cable systems through its subsidiaries, which are collectively, with Charter, referred to herein as the “Company.” All significant intercompany accounts and transactions among consolidated entities have been eliminated.

The Company is a cable operator providing services in the United States. The Company offers to residential and commercial customers traditional cable video programming, Internet services, and telephone services, as well as advanced video services such as Charter OnDemand™, high definition television, and digital video recorder (“DVR”) service. The Company sells its cable video programming, Internet, telephone, and advanced video services primarily on a subscription basis. The Company also sells local advertising on cable networks and on the Internet and provides fiber connectivity to cellular towers.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnote disclosures typically included in Charter's Annual Report on Form 10-K have been condensed or omitted for this quarterly report. The accompanying condensed consolidated financial statements are unaudited and are subject to review by regulatory authorities. However, in the opinion of management, such financial statements include all adjustments, which consist of only normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. Interim results are not necessarily indicative of results for a full year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Areas involving significant judgments and estimates include capitalization of labor and overhead costs; depreciation and amortization costs; impairments of property, plant and equipment, intangibles and goodwill; income taxes; contingencies and programming expense. Actual results could differ from those estimates.

Restricted cash and cash equivalents on the accompanying condensed consolidated balance sheets consist of amounts held in an escrow account pending final resolution from the Bankruptcy Court. See Note 12. In April 2013, the restrictions on the cash and cash equivalents were resolved.




4


CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)


2.    Franchises, Goodwill and Other Intangible Assets

As of March 31, 2013 and December 31, 2012, indefinite lived and finite-lived intangible assets are presented in the following table:

 
 
March 31, 2013
 
December 31, 2012
 
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Franchises
 
$
5,287

 
$

 
$
5,287

 
$
5,287

 
$

 
$
5,287

Goodwill
 
953

 

 
953

 
953

 

 
953

Trademarks
 
158

 

 
158

 
158

 

 
158

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
6,398

 
$

 
$
6,398

 
$
6,398

 
$

 
$
6,398

 
 
 
 
 
 
 
 
 
 
 
 
 
Finite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
 
$
2,368

 
$
1,009

 
$
1,359

 
$
2,368

 
$
944

 
$
1,424

Other intangible assets
 
115

 
32

 
83

 
105

 
29

 
76

 
 
$
2,483

 
$
1,041

 
$
1,442

 
$
2,473

 
$
973

 
$
1,500


Amortization expense related to customer relationships and other intangible assets for the three months ended March 31, 2013 and 2012 was $68 million and $74 million, respectively.

The Company expects amortization expense on its finite-lived intangible assets will be as follows.

Nine months ended December 31, 2013
 
$
202

2014
 
244

2015
 
217

2016
 
191

2017
 
164

Thereafter
 
424

 
 
 
 
 
$
1,442


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




5


CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)


3.    Accounts Payable and Accrued Liabilities

Accounts payable and accrued expenses consist of the following as of March 31, 2013 and December 31, 2012:

 
 
March 31, 2013
 
December 31, 2012
 
 
 
 
 
Accounts payable – trade
 
$
89

 
$
107

Accrued capital expenditures
 
145

 
156

Deferred revenue
 
81

 
81

Accrued expenses:
 
 
 
 
Interest
 
238

 
155

Programming costs
 
335

 
323

Franchise related fees
 
48

 
52

Compensation
 
105

 
145

Other
 
249

 
205

 
 
 
 
 
 
 
$
1,290

 
$
1,224


4.    Long-Term Debt

Long-term debt consists of the following as of March 31, 2013 and December 31, 2012:

 
March 31, 2013
 
December 31, 2012
 
Principal Amount
 
Accreted Value
 
Principal Amount
 
Accreted Value
CCO Holdings, LLC:
 
 
 
 
 
 
 
7.250% senior notes due October 30, 2017
$
1,000

 
$
1,000

 
$
1,000

 
$
1,000

7.875% senior notes due April 30, 2018
900

 
900

 
900

 
900

7.000% senior notes due January 15, 2019
1,400

 
1,392

 
1,400

 
1,392

8.125% senior notes due April 30, 2020
700

 
700

 
700

 
700

7.375% senior notes due June 1, 2020
750

 
750

 
750

 
750

5.250% senior notes due March 15, 2021
500

 
500

 

 

6.500% senior notes due April 30, 2021
1,500

 
1,500

 
1,500

 
1,500

6.625% senior notes due January 31, 2022
750

 
747

 
750

 
746

5.250% senior notes due September 30, 2022
1,250

 
1,239

 
1,250

 
1,238

5.125% senior notes due February 15, 2023
1,000

 
1,000

 
1,000

 
1,000

5.750% senior notes due September 1, 2023
500

 
500

 

 

Credit facility due September 6, 2014
350

 
334

 
350

 
332

Charter Communications Operating, LLC:
 
 
 
 
 
 
 
Credit facilities
2,298

 
2,254

 
3,337

 
3,250

Long-Term Debt
$
12,898

 
$
12,816

 
$
12,937

 
$
12,808


The accreted values presented above represent the principal amount of the debt less the original issue discount at the time of sale, plus the accretion 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. The Company has availability under its credit facilities of approximately $800 million as of March 31, 2013.

In January 2012, CCO Holdings, LLC ("CCO Holdings") and CCO Holdings Capital Corp. closed on transactions in which they issued $750 million aggregate principal amount of 6.625% senior notes due 2022. The notes were issued at a price of 99.5% of


6


CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)


the aggregate principal amount. The net proceeds of the notes were used, along with a draw on the $500 million delayed draw portion of the Charter Communications Operating, LLC ("Charter Operating") term loan A facility, to repurchase $300 million aggregate principal amount of Charter Operating's outstanding 8.000% senior second-lien notes due 2012, $294 million aggregate principal amount of Charter Operating's 10.875% senior second-lien notes due 2014 and $334 million aggregate principal amount of CCH II, LLC's ("CCH II") 13.500% senior notes due 2016, as well as to repay amounts outstanding under the Company's revolving credit facility. The tender offers closed in January and February 2012 and the Company recorded a loss on extinguishment of debt of approximately $15 million on this transaction for the three months ended March 31, 2012.

In March 2013, CCO Holdings and CCO Holdings Capital Corp. closed on transactions in which they issued $500 million aggregate principal amount of 5.25% senior notes due 2021 (the "2021 Notes") and $500 million aggregate principal amount of 5.750% senior notes due 2023 (the "2023 Notes") (collectively, the "Notes"). The proceeds from the notes were used for repaying amounts outstanding under the Charter Operating term loan C facility. The Company recorded a loss on extinguishment of debt of approximately $42 million for the three months ended March 31, 2013 related to these transactions.

The Notes are guaranteed by Charter.  They 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 Corp.  The Notes are structurally subordinated to all obligations of subsidiaries of CCO Holdings, including the Charter Operating credit facilities. 

CCO Holdings may redeem some or all of the Notes at any time at a premium.  The optional redemption price declines to 100% of the respective series' principal amount, plus accrued and unpaid interest, if any, on or after varying dates in 2016 through 2019 (in regards to the 2021 Notes) or 2018 through 2021 (in regards to the 2023 Notes). 

In addition, at any time prior to March 15, 2016 (in regards to the 2021 Notes) or March 1, 2016 (in regards to the 2023 Notes), CCO Holdings may redeem up to 35% of the aggregate principal amount of the notes at a redemption price 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 Notes from the holders at a purchase price equal to 101% of the total principal amount of the notes, plus any accrued and unpaid interest.

In March 2013, Charter Operating entered into an amendment of its credit agreement.  The amendments to the existing credit agreement included, among other things, eliminating the $7.5 billion cap on the incurrence of first lien debt; and eliminating the requirement for providing Charter Operating financial statements and instead allowing for Charter financial statements with consolidating information.

5.    Treasury Stock

In January 2012, the Company purchased, in a private transaction with a shareholder, 49,332 shares of its common stock at $55.18 for a total of $3 million. These shares were retired in January 2012.

During the three months ended March 31, 2013 and 2012, the Company withheld 59,113 and 5,358 shares, respectively, of its common stock in payment of income tax withholding owed by employees upon vesting of restricted shares. The Company accounts for treasury stock using the cost method and includes treasury stock as a component of total shareholders' equity.

6.     Accounting for Derivative Instruments and Hedging Activities

The Company uses interest rate derivative instruments to manage its interest costs and 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.

The Company does not hold or issue derivative instruments for speculative trading purposes. The Company, until de-designating in the three months ended March 31, 2013, had certain interest rate derivative instruments that were designated as cash flow hedging instruments for GAAP purposes. Such instruments effectively converted variable interest payments on certain debt


7


CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)


instruments into fixed payments. For qualifying hedges, realized derivative gains and losses offset related results on hedged items in the condensed consolidated statements of operations. The Company formally documented, designated and assessed the effectiveness of transactions that received hedge accounting.

The effect of interest rate derivative instruments on the Company’s condensed consolidated balance sheets is presented in the table below:

 
March 31, 2013
 
December 31, 2012
 
 
 
 
Other long-term liabilities:
 
 
 
Fair value of interest rate derivatives designated as hedges
$

 
$
67

Fair value of interest rate derivatives not designated as hedges
$
53

 
$

 
 
 
 
Accrued interest:
 
 
 
Fair value of interest rate derivatives designated as hedges
$

 
$
8

Fair value of interest rate derivatives not designated as hedges
$
14

 
$

 
 
 
 
Accumulated other comprehensive loss:
 
 
 
Fair value of interest rate derivatives designated as hedges
$

 
$
(75
)
Fair value of interest rate derivatives not designated as hedges
$
(64
)
 
$


Changes in the fair value of interest rate derivative instruments that were designated as hedging instruments of the variability of cash flows associated with floating-rate debt obligations, and that met effectiveness criteria were reported in accumulated other comprehensive loss. The amounts were subsequently reclassified as an increase or decrease to interest expense in the same periods in which the related interest on the floating-rate debt obligations affected earnings (losses).

Due to repayment of variable rate credit facility debt without a LIBOR floor, certain interest rate derivative instruments were de-designated as cash flow hedges during the three months ended March 31, 2013, as they no longer met the criteria for cash flow hedging specified by GAAP. In addition, on March 31, 2013, the remaining interest rate derivative instruments that continued to be highly effective cash flow hedges for GAAP purposes were electively de-designated. On the date of de-designation, the Company completed a final measurement test for each interest rate derivative instrument to determine any ineffectiveness and such amount was reclassified from accumulated other comprehensive loss into loss on derivative instruments, net in the Company's condensed consolidated statements of operations. While these interest rate derivative instruments are no longer 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. Interest rate derivative instruments not designated as hedges are marked to fair value, with the impact recorded in loss on derivative instruments, net in the Company's condensed consolidated statements of operations. The balance that remains in accumulated other comprehensive loss for these interest rate derivative instruments will be amortized over the respective lives of the contracts and recorded as a loss on derivative instruments, net in the Company's condensed consolidated statements of operations. The estimated net amount of existing losses that are reported in accumulated other comprehensive loss as of March 31, 2013 that is expected to be reclassified into earnings within the next twelve months is approximately $30 million.



8


CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)


The effects of interest rate derivative instruments on the Company’s condensed consolidated statements of operations is presented in the table below.

 
Three Months Ended March 31,
 
2013
 
2012
 
 
 
 
Loss on derivative instruments, net:
 
 
 
Change in fair value of interest rate derivative instruments not designated as cash flow hedges
$
1

 
$

Loss reclassified from accumulated other comprehensive loss into earnings as a result of cash flow hedge discontinuance
$
(4
)
 
$

 
 
 
 
Interest expense:
 
 
 
Amount of loss reclassified from accumulated other comprehensive loss into interest expense
$
(10
)
 
$
(8
)

As of March 31, 2013 and December 31, 2012, the Company had $2.7 billion and $3.1 billion in notional amounts of interest rate derivative instruments outstanding. This includes $900 million in delayed start interest rate derivative instruments that become effective in September 2013 through March 2015.  In any future quarter in which a portion of these delayed start interest rate derivative instruments first becomes effective, an equal or greater notional amount of the currently effective interest rate derivative instruments are scheduled to mature.  Therefore, the $1.8 billion notional amount of currently effective interest rate derivative instruments will gradually step down over time as current interest rate derivative instruments mature and an equal or lesser amount of delayed start interest rate derivative instruments become effective.

The notional amounts of interest rate 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.

7.    Fair Value Measurements

The accounting guidance establishes a three-level hierarchy for disclosure of fair value measurements, based upon 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 March 31, 2013 and December 31, 2012 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 condensed 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.

The estimated fair value of the Company’s debt at March 31, 2013 and December 31, 2012 are based on quoted market prices and is classified within Level 1 of the valuation hierarchy.


9


CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)



A summary of the carrying value and fair value of the Company’s debt at March 31, 2013 and December 31, 2012 is as follows:

 
 
March 31, 2013
 
December 31, 2012
 
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Debt
 
 
 
 
 
 
 
 
CCO Holdings debt
 
$
10,228

 
$
10,769

 
$
9,226

 
$
9,933

Credit facilities
 
$
2,588

 
$
2,648

 
$
3,582

 
$
3,695


The interest rate derivative instruments were valued as $67 million and $75 million liabilities as of March 31, 2013 and December 31, 2012, respectively, using a present value calculation based on an implied forward LIBOR curve (adjusted for Charter Operating’s or counterparties’ credit risk) and were classified within Level 2 of the valuation hierarchy. The weighted average pay rate for the Company’s currently effective interest rate derivative instruments was 2.26% and 2.25% at March 31, 2013 and December 31, 2012, respectively (exclusive of applicable spreads).

Nonfinancial Assets and Liabilities

The Company’s nonfinancial assets such as 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 impairments were recorded during the three months ended March 31, 2013 and 2012.

8.     Operating Costs and Expenses

Operating costs and expenses consist of the following for the years presented:

 
Three Months Ended March 31,
 
 
2013
 
2012
Programming
$
515

 
$
491

Franchise, regulatory and connectivity
92

 
92

Costs to service customers
363

 
327

Marketing
108

 
112

Other
180

 
164

 
 
 
 
 
$
1,258

 
$
1,186


Programming costs consist primarily of costs paid to programmers for basic, premium, digital, OnDemand, and pay-per-view programming. Franchise, regulatory and connectivity costs represent payments to franchise and regulatory authorities and costs directly related to providing Internet and telephone services. Costs to service customers include residential and commercial costs related to field operations, network operations and customer care including labor, reconnects, maintenance, billing, occupancy and vehicle costs. Marketing costs represents the costs of marketing to our current and potential commercial and residential customers including labor costs. Other includes bad debt and collections expense, corporate overhead, commercial and advertising sales expenses, property tax and insurance and stock compensation expense, among others.



10


CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)


9.     Other Operating Expenses, Net

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

 
Three Months Ended March 31,
 
2013
 
2012
 
 
 
 
Loss on sale of assets, net
$
1

 
$
1

Special charges, net
10

 
2

 
 
 
 
 
$
11

 
$
3


Loss on sale of assets, net

Loss on sale of assets represents the loss recognized on the sales of fixed assets and cable systems.

Special charges, net

Special charges, net for the three months ended March 31, 2013 and 2012 primarily include severance charges, and in 2013, also includes net amounts of litigation settlements.

10.    Income Taxes

All of Charter’s operations are held through Charter Holdco and its direct and indirect subsidiaries. Charter Holdco and the majority of its subsidiaries are generally limited liability companies that are not subject to income tax. However, certain of these limited liability companies are subject to state income tax. In addition, the indirect subsidiaries that are corporations are subject to federal and state income tax. All of the remaining taxable income, gains, losses, deductions and credits of Charter Holdco are passed through to Charter and its direct subsidiaries.

For the three months ended March 31, 2013 and 2012, the Company recorded $9 million and $71 million of income tax expense, respectively. The income tax expense is recognized primarily through increases in deferred tax liabilities related to our investment in Charter Holdco, as well as through current federal and state income tax expense and increases in the deferred tax liabilities of certain of our indirect corporate subsidiaries. Income tax expense for the three months ended March 31, 2013 decreased compared to the corresponding prior period, primarily as a result of a step-up in basis of indefinite-lived assets for tax, but not GAAP purposes, which decreased the Company's net deferred tax liability related to indefinite-lived assets by $55 million.

The step-up for tax purposes corresponds to gains recognized by corporate subsidiaries of Charter, which are partners in Charter Holdco, and resulted from the repayment of Charter Operating credit facility debt with proceeds from the CCO Holdings notes issued in March 2013, see Note 4. The repayment of Charter Operating credit facility debt, which is not guaranteed by Charter with proceeds from the Notes, which are guaranteed by Charter, had the effect of reducing the amount of debt allocable to the non-guarantor corporate subsidiaries of Charter. For partnership tax purposes, the reduction in the amount of non-guaranteed debt available to allocate to these corporate subsidiaries caused them to recognize gains due to limited basis in their partnership interests in Charter Holdco. The tax provision in future periods will vary based on various factors including changes in its deferred tax liabilities attributable to indefinite-lived intangibles, as well as future operating results, however the Company does not anticipate having such a large reduction in tax expense attributable to this item unless it enters into similar future financing transactions.

As of March 31, 2013 and December 31, 2012, the Company had net deferred income tax liabilities of approximately $1.3 billion and $1.1 billion, respectively. Included in net deferred tax liabilities are net current deferred assets of $13 million and $21 million as of March 31, 2013 and December 31, 2012, respectively, included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets of the Company. Net deferred tax liabilities included approximately $219 million at March 31, 2013 and December 31, 2012, relating to certain indirect subsidiaries of Charter Holdco that file separate federal or state income tax returns.  The remainder of the Company's net deferred tax liability arose from Charter's investment in


11



Charter Holdco, and was largely attributable to the characterization of franchises for financial reporting purposes as indefinite-lived.

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 determining whether positions taken on the tax return are “more likely than not” of being sustained.  A reconciliation of the beginning and ending amount of unrecognized tax benefits included in other long-term liabilities in the accompanying consolidated balance sheets of the Company is as follows:  

Balance at December 31, 2012
 
202

Reductions due to tax positions related to prior year
 
(163
)
 
 
 
Balance at March 31, 2013
 
$
39


The Company's entire reserve for uncertain tax positions includes tax positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the character of the deductibility. Included in the balance at March 31, 2013 are $163 million of net reductions related to losses which would be offset by gains discussed above. The change in character of the deduction would not impact the annual effective tax rate after consideration of the valuation allowance. The deductions for the uncertain tax positions are included with the loss carryforwards in the deferred tax assets.

In March 2013, Charter announced that Liberty Media had entered into an agreement with certain selling shareholders to acquire a 27% beneficial interest in Charter. Liberty Media completed its purchase on May 1, 2013. Upon closing, Charter experienced a second “ownership change” as defined in Section 382 of the Internal Revenue Code resulting in a second set of limitations on Charter’s use of its existing federal and state net operating losses, capital losses, and tax credit carryforwards. The historical ownership change limitations that applied as a result of our emergence from bankruptcy in 2009 will also continue to apply. The primary driver of the size of the additional Section 382 limitations will be Charter’s equity value as measured primarily by the trading price of its publicly traded common stock at closing of the transaction. Based on the trading price of Charter’s common stock on May 1, 2013, the Company expects to continue to have the ability to use its loss carryforwards in the future.
In general, a corporation that experiences an ownership change is subject to an annual limitation on the use of its pre-change net operating losses, with such annual limitation equal to the equity value of the corporation immediately before the ownership change, multiplied by the long-term tax-exempt rate published by the Internal Revenue Service (“IRS”). This annual limit becomes available for each of up to 20 years following the ownership change. In addition to the annual limitation amount, a corporation, such as Charter, with net unrealized built-in gains, may increase its Section 382 limitation by the amount of its recognized built-in gains in the five years following the ownership change, as provided in IRS Notice 2003-65 and potentially through the sale of assets with built-in gains. The additional Section 382 limitations will limit the immediate availability of Charter’s pre-change net operating loss carryforwards, however Charter believes the annual and recognized built-in gains limitations will, over time, allow Charter’s net operating loss carryforwards to become fully available to offset future taxable income, if any.

No tax years for Charter or Charter Holdco are currently under examination by the IRS.  Tax years ending 2009 through 2012 remain subject to examination and assessment. Years prior to 2009 remain open solely for purposes of examination of Charter’s loss and credit carryforwards.

11.     Related Party Transactions

Cartus Corporation ("Cartus") provides relocation services for the Company's employees. Cartus is a subsidiary of Realogy Holdings Corp. ("Realogy"). Apollo Management, L.P. holds a 45% interest in Realogy. The amounts paid to Cartus include relocation expenses paid for the relocation of employees and a fee per employee relocated. For the three months ended March 31, 2013 and 2012 and year ended December 31, 2012, the Company paid Cartus $2 million, $0.3 million and $3 million, respectively.

12.     Contingencies

On March 27, 2009, Charter filed a Chapter 11 petition in the United States Bankruptcy Court for the Southern District of New York. On November 17, 2009, the Bankruptcy Court issued its Order and Opinion confirming the Joint Plan of Reorganization (the "Plan") over the objections of various objectors. Charter consummated the Plan on November 30, 2009.



12


CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)


Two appeals were pending relating to confirmation of the Plan, the appeals by (i) Law Debenture Trust Company of New York (“LDT”) (as the Trustee with respect to the $479 million in aggregate principal amount of 6.50% convertible senior notes due 2027 issued by Charter which are no longer outstanding following consummation of the Plan and the holders of which already received distributions of approximately $168 million pursuant to the Plan); and (ii) R2 Investments, LDC (“R2 Investments”) (a former equity interest holder in Charter). On January 10, 2013, R2 Investments and LDT filed a petition for a writ of certiorari with the United States Supreme Court, asking that court to review the 2nd Circuit's decision. On April 29, 2013, the Supreme Court issued its order that the writ of certiorari has been denied.

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

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

13.     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.
 
During the three months ended March 31, 2013 and 2012, the Company granted 102,500 and 6,000 stock options, respectively. Stock options generally vest annually over four years from either the grant date or delayed vesting commencement dates. Stock options generally expire ten years from the grant date. The Company did not issue any restricted stock during the three months ended March 31, 2013 and 2012. Restricted stock vests annually over a one to four-year period beginning from the date of grant. A portion of stock options and restricted stock vest based on achievement of stock price hurdles. During the three months ended March 31, 2013 and 2012, the Company granted 26,200 and 15,500 restricted stock units, respectively. Restricted stock units have no voting rights and vest ratably over four years from either the grant date or delayed vesting commencement dates. As of March 31, 2013, total unrecognized compensation remaining to be recognized in future periods totaled $47 million for stock options, $29 million for restricted stock and $17 million for restricted stock units and the weighted average period over which they are expected to be recognized is three years for stock options, two years for restricted stock and three years for restricted stock units.

The Company recorded $11 million of stock compensation expense for each of the three months ended March 31, 2013 and 2012 which is included in operating costs and expenses.

14.     Consolidating Schedules

The CCO Holdings notes and the CCO Holdings credit facility are obligations of CCO Holdings. However, the CCO Holdings notes are also jointly, severally, fully and unconditionally guaranteed on an unsecured senior basis by Charter. 

The accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10, Financial Statements of Guarantors and Affiliates Whose Securities Collateralize an Issue Registered or Being Registered. 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.



13


CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)


Condensed consolidating financial statements as of March 31, 2013 and December 31, 2012 and for the three months ended March 31, 2013 and 2012 follow.
Charter Communications, Inc.
Condensed Consolidating Balance Sheet
As of March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Charter
 
Intermediate Holding Companies
 
CCO Holdings
 
Charter Operating and Subsidiaries
 
Eliminations
 
Charter Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
8

 
$
1

 
$
1

 
$
55

 
$

 
$
65

Restricted cash and cash equivalents

 

 

 
27

 

 
27

Accounts receivable, net
1

 
7

 

 
200

 

 
208

Receivables from related party
44

 
155

 
3

 

 
(202
)
 

Prepaid expenses and other current assets
12

 
9

 

 
53

 

 
74

Total current assets
65

 
172

 
4

 
335

 
(202
)
 
374

 
 
 
 
 
 
 
 
 
 
 
 
INVESTMENT IN CABLE PROPERTIES:
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net

 
32

 

 
7,227

 

 
7,259

Franchises

 

 

 
5,287

 

 
5,287

Customer relationships, net

 

 

 
1,359

 

 
1,359

Goodwill

 

 

 
953

 

 
953

Total investment in cable properties, net

 
32

 

 
14,826

 

 
14,858

 
 
 
 
 
 
 
 
 
 
 
 
CC VIII PREFERRED INTEREST
107

 
250

 

 

 
(357
)
 

INVESTMENT IN SUBSIDIARIES
1,064

 
242

 
10,526

 

 
(11,832
)
 

LOANS RECEIVABLE – RELATED PARTY

 
318

 
368

 

 
(686
)
 

OTHER NONCURRENT ASSETS

 
163

 
128

 
116

 

 
407

 
 
 
 
 
 
 
 
 
 
 
 
Total assets
$
1,236

 
$
1,177

 
$
11,026

 
$
15,277

 
$
(13,077
)
 
$
15,639

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’/MEMBER’S EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
$
9

 
$
108

 
$
222

 
$
951

 
$

 
$
1,290

Payables to related party

 

 

 
202

 
(202
)
 

Total current liabilities
9

 
108

 
222

 
1,153

 
(202
)
 
1,290

 
 
 
 
 
 
 
 
 
 
 
 
LONG-TERM DEBT

 

 
10,562

 
2,254

 

 
12,816

LOANS PAYABLE – RELATED PARTY

 

 

 
686

 
(686
)
 

DEFERRED INCOME TAXES
1,059

 

 

 
220

 

 
1,279

OTHER LONG-TERM LIABILITIES
39

 
5

 

 
81

 

 
125

 
 
 
 
 
 
 
 
 
 
 
 
Shareholders’/Member’s equity
129

 
1,064

 
242

 
10,526

 
(11,832
)
 
129

Noncontrolling interest

 

 

 
357

 
(357
)
 

Total shareholders’/member’s equity
129

 
1,064

 
242

 
10,883

 
(12,189
)
 
129

 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities and shareholders’/member’s equity
$
1,236

 
$
1,177

 
$
11,026

 
$
15,277

 
$
(13,077
)
 
$
15,639




14


CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)


Charter Communications, Inc.
Condensed Consolidating Balance Sheet
As of December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
Charter
 
Intermediate Holding Companies
 
CCO Holdings
 
Charter Operating and Subsidiaries
 
Eliminations
 
Charter Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1

 
$

 
$

 
$
6

 
$

 
$
7

Restricted cash and cash equivalents

 

 

 
27

 

 
27

Accounts receivable, net
1

 
3

 

 
230

 

 
234

Receivables from related party
59

 
176

 
11

 

 
(246
)
 

Prepaid expenses and other current assets
19

 
8

 

 
38

 

 
65

Total current assets
80

 
187

 
11

 
301

 
(246
)
 
333

 
 
 
 
 
 
 
 
 
 
 
 
INVESTMENT IN CABLE PROPERTIES:
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net

 
32

 

 
7,174

 

 
7,206

Franchises

 

 

 
5,287

 

 
5,287

Customer relationships, net

 

 

 
1,424

 

 
1,424

Goodwill

 

 

 
953

 

 
953

Total investment in cable properties, net

 
32

 

 
14,838

 

 
14,870

 
 
 
 
 
 
 
 
 
 
 
 
CC VIII PREFERRED INTEREST
104

 
242

 

 

 
(346
)
 

INVESTMENT IN SUBSIDIARIES
1,081

 
269

 
9,485

 

 
(10,835
)
 

LOANS RECEIVABLE – RELATED PARTY

 
309

 
359

 

 
(668
)
 

OTHER NONCURRENT ASSETS

 
163

 
118

 
115

 

 
396

 
 
 
 
 
 
 
 
 
 
 
 
Total assets
$
1,265

 
$
1,202

 
$
9,973

 
$
15,254

 
$
(12,095
)
 
$
15,599

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’/MEMBER’S EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
$
12

 
$
121

 
$
146

 
$
945

 
$

 
$
1,224

Payables to related party

 

 

 
246

 
(246
)
 

Total current liabilities
12

 
121

 
146

 
1,191

 
(246
)
 
1,224

 
 
 
 
 
 
 
 
 
 
 
 
LONG-TERM DEBT

 

 
9,558

 
3,250

 

 
12,808

LOANS PAYABLE – RELATED PARTY

 

 

 
668

 
(668
)
 

DEFERRED INCOME TAXES
902

 

 

 
220

 

 
1,122

OTHER LONG-TERM LIABILITIES
202

 

 

 
94

 

 
296

 
 
 
 
 
 
 
 
 
 
 
 
Shareholders’/Member’s equity
149

 
1,081

 
269

 
9,485

 
(10,835
)
 
149

Noncontrolling interest

 

 

 
346

 
(346
)
 

Total shareholders’/member’s equity
149

 
1,081

 
269

 
9,831

 
(11,181
)
 
149

 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities and shareholders’/member’s equity
$
1,265

 
$
1,202

 
$
9,973

 
$
15,254

 
$
(12,095
)
 
$
15,599




15


CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)



Charter Communications, Inc.
Condensed Consolidating Statement of Operations
For the three months ended March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Charter
 
Intermediate Holding Companies
 
CCO
Holdings
 
Charter Operating and Subsidiaries
 
Eliminations
 
Charter Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
REVENUES
$
5

 
$
46

 
$

 
$
1,917

 
$
(51
)
 
$
1,917

 
 
 
 
 
 
 
 
 
 
 
 
COSTS AND EXPENSES:
 
 
 
 
 
 
 
 
 
 
 
Operating costs and expenses (excluding depreciation and amortization)
5

 
46

 

 
1,258

 
(51
)
 
1,258

Depreciation and amortization

 

 

 
425

 

 
425

Other operating expenses, net

 

 

 
11

 

 
11

 
 
 
 
 
 
 
 
 
 
 
 
 
5

 
46

 

 
1,694

 
(51
)
 
1,694

 
 
 
 
 
 
 
 
 
 
 
 
Income from operations

 

 

 
223

 

 
223

 
 
 
 
 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSES):
 
 
 
 
 
 
 
 
 
 
 
Interest income (expense), net

 
2

 
(164
)
 
(48
)
 

 
(210
)
Loss on extinguishment of debt

 

 

 
(42
)
 

 
(42
)
Loss on derivative instruments, net

 

 

 
(3
)
 

 
(3
)
Other expense, net

 

 

 
(1
)
 

 
(1
)
Equity in income (loss) of subsidiaries
(37
)
 
(47
)
 
117

 

 
(33
)
 

 
 
 
 
 
 
 
 
 
 
 
 
 
(37
)
 
(45
)
 
(47
)
 
(94
)
 
(33
)
 
(256
)
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
(37
)
 
(45
)
 
(47
)
 
129

 
(33
)
 
(33
)
 
 
 
 
 
 
 
 
 
 
 
 
INCOME TAX EXPENSE
(8
)
 

 

 
(1
)
 

 
(9
)
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated net income (loss)
(45
)
 
(45
)
 
(47
)
 
128

 
(33
)
 
(42
)
 
 
 
 
 
 
 
 
 
 
 
 
Less: Net (income) loss – noncontrolling interest
3

 
8

 

 
(11
)
 

 

 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
(42
)
 
$
(37
)
 
$
(47
)
 
$
117

 
$
(33
)
 
$
(42
)



16


CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where indicated)



Charter Communications, Inc.
Condensed Consolidating Statement of Operations
For the three months ended March 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
Charter
 
Intermediate Holding Companies
 
CCO
Holdings
 
Charter Operating and Subsidiaries
 
Eliminations
 
Charter Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
REVENUES
$
6

 
$
36

 
$

 
$
1,827

 
$
(42
)
 
$
1,827

 
 
 
 
 
 
 
 
 
 
 
 
COSTS AND EXPENSES:
 
 
 
 
 
 
 
 
 
 
 
Operating costs and expenses (excluding depreciation and amortization)
6

 
36

 

 
1,186

 
(42
)
 
1,186

Depreciation and amortization

 

 

 
408

 

 
408

Other operating expenses, net

 

 

 
3

 

 
3

 
 
 
 
 
 
 
 
 
 
 
 
 
6

 
36

 

 
1,597

 
(42
)
 
1,597

 
 
 
 
 
 
 
 
 
 
 
 
Income from operations

 

 

 
230

 

 
230

 
 
 
 
 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSES):
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net

 
(34
)
 
(127
)
 
(76
)
 

 
(237
)
Loss on extinguishment of debt