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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
______________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
or
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
a2014charterlogoa01a02a24.jpg
Charter Communications, Inc.
(Exact name of registrant as specified in its charter)

Delaware
 
84-1496755
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
400 Atlantic Street
Stamford
Connecticut
06901
(Address of Principal Executive Offices)
(Zip Code)
(203) 905-7801
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock $.001 Par Value
CHTR
NASDAQ Global Select Market

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 x    Accelerated filer o    Non-accelerated filer o    Smaller reporting company      Emerging growth company  

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   No x

Number of shares of Class A common stock outstanding as of June 30, 2019: 221,477,664

Number of shares of Class B common stock outstanding as of June 30, 2019: 1





a2014charterlogoa01a02a24.jpg
CHARTER COMMUNICATIONS, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
JUNE 30, 2019

TABLE OF CONTENTS
 
 
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

This quarterly report on Form 10-Q is for the three and six months ended June 30, 2019. 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, “Charter,” “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 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” 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:

our ability to sustain and grow revenues and cash flow from operations by offering video, Internet, voice, mobile, advertising and other services to residential and commercial customers, to adequately meet the customer experience demands in our service 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 advertising over the Internet;
our ability to efficiently and effectively integrate acquired operations;
the effects of governmental regulation on our business 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;
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 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 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.


ii



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except share data)
 
June 30,
2019
 
December 31,
2018
 
(unaudited)
 
 
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
696

 
$
551

Accounts receivable, less allowance for doubtful accounts of
 
 
 
$155 and $129, respectively
2,070

 
1,733

Prepaid expenses and other current assets
574

 
446

Total current assets
3,340

 
2,730

 
 
 
 
RESTRICTED CASH
150

 
214

 
 
 
 
INVESTMENT IN CABLE PROPERTIES:
 
 
 
Property, plant and equipment, net of accumulated
 
 
 
depreciation of $25,004 and $23,075, respectively
34,475

 
35,126

Customer relationships, net
8,461

 
9,565

Franchises
67,319

 
67,319

Goodwill
29,554

 
29,554

Total investment in cable properties, net
139,809

 
141,564

 
 
 
 
OPERATING LEASE RIGHT-OF-USE ASSETS
1,166

 

OTHER NONCURRENT ASSETS
1,620

 
1,622

 
 
 
 
Total assets
$
146,085

 
$
146,130

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable and accrued liabilities
$
8,145

 
$
8,805

Operating lease liabilities
208

 

Current portion of long-term debt
1,522

 
3,290

Total current liabilities
9,875

 
12,095

 
 
 
 
LONG-TERM DEBT
71,784

 
69,537

DEFERRED INCOME TAXES
17,522

 
17,389

LONG-TERM OPERATING LEASE LIABILITIES
1,052

 

OTHER LONG-TERM LIABILITIES
2,758

 
2,837

 
 
 
 
SHAREHOLDERS’ EQUITY:
 
 
 
Class A common stock; $.001 par value; 900 million shares authorized;
 
 
 
226,803,870 and 225,353,807 shares issued, respectively

 

Class B common stock; $.001 par value; 1,000 shares authorized;
 
 
 
1 share issued and outstanding

 

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

 

Additional paid-in capital
33,742

 
33,507

Retained earnings
3,347

 
2,780

Treasury stock at cost; 5,326,206 and no shares, respectively
(1,801
)
 

Accumulated other comprehensive loss
(2
)
 
(2
)
Total Charter shareholders’ equity
35,286

 
36,285

Noncontrolling interests
7,808

 
7,987

Total shareholders’ equity
43,094

 
44,272

 
 
 
 
Total liabilities and shareholders’ equity
$
146,085

 
$
146,130


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



CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions, except per share data)
Unaudited
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
REVENUES
$
11,347

 
$
10,854

 
$
22,553

 
$
21,511

 
 
 
 
 
 
 
 
COSTS AND EXPENSES:
 
 
 
 
 
 
 
Operating costs and expenses (exclusive of items shown separately below)
7,244

 
6,873

 
14,480

 
13,709

Depreciation and amortization
2,500

 
2,592

 
5,050

 
5,302

Other operating expenses, net
62

 
29

 
57

 
98

 
9,806

 
9,494

 
19,587

 
19,109

Income from operations
1,541

 
1,360

 
2,966

 
2,402

 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSES):
 
 
 
 
 
 
 
Interest expense, net
(945
)
 
(878
)
 
(1,870
)
 
(1,729
)
Loss on financial instruments, net
(119
)
 
(75
)
 
(82
)
 
(12
)
Other pension benefits, net
9

 
20

 
18

 
40

Other expense, net
(16
)
 
(47
)
 
(126
)
 
(70
)
 
(1,071
)
 
(980
)
 
(2,060
)
 
(1,771
)
 
 
 
 
 
 
 
 
Income before income taxes
470

 
380

 
906

 
631

Income tax expense
(84
)
 
(41
)
 
(203
)
 
(69
)
Consolidated net income
386

 
339

 
703

 
562

Less: Net income attributable to noncontrolling interests
(72
)
 
(66
)
 
(136
)
 
(121
)
Net income attributable to Charter shareholders
$
314

 
$
273

 
$
567

 
$
441

 
 
 
 
 
 
 
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CHARTER SHAREHOLDERS:
 
 
 
 
 
 
 
Basic
$
1.41

 
$
1.17

 
$
2.54

 
$
1.87

Diluted
$
1.39

 
$
1.15

 
$
2.50

 
$
1.84

 
 
 
 
 
 
 
 
Weighted average common shares outstanding, basic
222,392,274

 
234,241,769

 
223,505,016

 
235,992,306

Weighted average common shares outstanding, diluted
225,942,172

 
237,073,566

 
226,889,745

 
239,246,727




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



CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(dollars in millions)
Unaudited
 
Class A Common Stock
Class B Common Stock
Additional Paid-in Capital
Retained Earnings
Treasury Stock
Accumulated Other Comprehensive Loss
Total Charter Shareholders’ Equity
Non-controlling Interests
Total Shareholders’ Equity
BALANCE, December 31, 2018
$

$

$
33,507

$
2,780

$

$
(2
)
$
36,285

$
7,987

$
44,272

Consolidated net income



253



253

64

317

Stock compensation expense


85




85


85

Exercise of stock options


44




44


44

Purchases of treasury stock




(940
)

(940
)

(940
)
Purchase of noncontrolling interest, net of tax


(15
)



(15
)
(74
)
(89
)
Change in noncontrolling interest ownership, net of tax


22




22

(29
)
(7
)
Distributions to noncontrolling interest







(39
)
(39
)
BALANCE, March 31, 2019


33,643

3,033

(940
)
(2
)
35,734

7,909

43,643

Consolidated net income



314



314

72

386

Stock compensation expense


82




82


82

Exercise of stock options


37




37


37

Purchases of treasury stock




(861
)

(861
)

(861
)
Purchase of noncontrolling interest, net of tax


(37
)



(37
)
(111
)
(148
)
Change in noncontrolling interest ownership, net of tax


17




17

(23
)
(6
)
Distributions to noncontrolling interest







(39
)
(39
)
BALANCE, June 30, 2019
$

$

$
33,742

$
3,347

$
(1,801
)
$
(2
)
$
35,286

$
7,808

$
43,094


 
Class A Common Stock
Class B Common Stock
Additional Paid-in Capital
Retained Earnings
Treasury Stock
Accumulated Other Comprehensive Loss
Total Charter Shareholders’ Equity
Non-controlling Interests
Total Shareholders’ Equity
BALANCE, December 31, 2017
$

$

$
35,253

$
3,832

$

$
(1
)
$
39,084

$
8,447

$
47,531

Consolidated net income



168



168

55

223

Stock compensation expense


72




72


72

Accelerated vesting of equity awards


5




5


5

Exercise of stock options


36




36


36

Cumulative effect of accounting changes



34



34

4

38

Purchases of treasury stock




(617
)

(617
)

(617
)
Purchase of noncontrolling interest, net of tax


(28
)



(28
)
(90
)
(118
)
Change in noncontrolling interest ownership, net of tax


14




14

(20
)
(6
)
Distributions to noncontrolling interest







(39
)
(39
)
BALANCE, March 31, 2018


35,352

4,034

(617
)
(1
)
38,768

8,357

47,125

Consolidated net income



273



273

66

339

Stock compensation expense


70




70


70

Exercise of stock options


7




7


7

Changes in accumulated other comprehensive loss





(1
)
(1
)

(1
)
Purchases of treasury stock




(1,664
)

(1,664
)

(1,664
)
Purchase of noncontrolling interest, net of tax


(28
)



(28
)
(164
)
(192
)
Change in noncontrolling interest ownership, net of tax


18




18

(23
)
(5
)
Distributions to noncontrolling interest







(37
)
(37
)
BALANCE, June 30, 2018
$

$

$
35,419

$
4,307

$
(2,281
)
$
(2
)
$
37,443

$
8,199

$
45,642


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



CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
Unaudited
 
Six Months Ended June 30,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Consolidated net income
$
703

 
$
562

Adjustments to reconcile consolidated net income to net cash flows from operating activities:
 
 
 
Depreciation and amortization
5,050

 
5,302

Stock compensation expense
167

 
142

Accelerated vesting of equity awards

 
5

Noncash interest income, net
(72
)
 
(177
)
Other pension benefits, net
(18
)
 
(40
)
Loss on financial instruments, net
82

 
12

Deferred income taxes
137

 
57

Other, net
151

 
76

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(337
)
 
16

Prepaid expenses and other assets
(176
)
 
(91
)
Accounts payable, accrued liabilities and other
(240
)
 
(69
)
Net cash flows from operating activities
5,447

 
5,795

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchases of property, plant and equipment
(3,262
)
 
(4,574
)
Change in accrued expenses related to capital expenditures
(428
)
 
(466
)
Real estate investments through variable interest entities
(64
)
 

Other, net
8

 
(67
)
Net cash flows from investing activities
(3,746
)
 
(5,107
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Borrowings of long-term debt
10,714

 
5,628

Repayments of long-term debt
(10,123
)
 
(3,500
)
Payments for debt issuance costs
(32
)
 
(17
)
Purchase of treasury stock
(1,801
)
 
(2,281
)
Proceeds from exercise of stock options
81

 
43

Purchase of noncontrolling interest
(254
)
 
(328
)
Distributions to noncontrolling interest
(78
)
 
(76
)
Other, net
(127
)
 
(5
)
Net cash flows from financing activities
(1,620
)
 
(536
)
 
 
 
 
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
81

 
152

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period
765

 
621

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
$
846

 
$
773

 
 
 
 
CASH PAID FOR INTEREST
$
2,017

 
$
1,889

CASH PAID FOR TAXES
$
43

 
$
22



The accompanying notes are an integral part of these consolidated financial statements.
4


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



1.    Organization and Basis of Presentation

Organization

Charter Communications, Inc. (together with its controlled subsidiaries, “Charter,” or the “Company”) is the second largest cable operator in the United States and a leading broadband communications company providing video, Internet and voice services to residential and business customers. The Company also recently launched its mobile service to residential customers. In addition, the Company sells video and online advertising inventory to local, regional and national advertising customers and fiber-delivered communications and managed information technology solutions to larger enterprise customers. The Company also owns and operates regional sports networks and local sports, news and community channels.

Charter is a holding company whose principal asset is a controlling equity interest in Charter Communications Holdings, LLC (“Charter Holdings”), an indirect owner of Charter Communications Operating, LLC (“Charter Operating”) under which substantially all of the operations reside. All significant intercompany accounts and transactions among consolidated entities have been eliminated.

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 one reportable segment, cable services.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnote disclosures typically included in Charter’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; depreciation and amortization costs; impairments of property, plant and equipment, intangibles and goodwill; pension benefits; income taxes; contingencies and programming expense. Actual results could differ from those estimates.



5


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


2.    Franchises, Goodwill and Other Intangible Assets

Indefinite-lived and finite-lived intangible assets consist of the following as of June 30, 2019 and December 31, 2018:

 
 
June 30, 2019
 
December 31, 2018
 
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Franchises
 
$
67,319

 
$

 
$
67,319

 
$
67,319

 
$

 
$
67,319

Goodwill
 
29,554

 

 
29,554

 
29,554

 

 
29,554

Trademarks
 
159

 

 
159

 
159

 

 
159

 
 
$
97,032

 
$

 
$
97,032

 
$
97,032

 
$

 
$
97,032

 
 
 
 
 
 
 
 
 
 
 
 
 
Finite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
 
$
18,229

 
$
(9,768
)
 
$
8,461

 
$
18,229

 
$
(8,664
)
 
$
9,565

Other intangible assets
 
409

 
(114
)
 
295

 
409

 
(92
)
 
317

 
 
$
18,638

 
$
(9,882
)
 
$
8,756

 
$
18,638

 
$
(8,756
)
 
$
9,882



Amortization expense related to customer relationships and other intangible assets for the three and six months ended June 30, 2019 was $548 million and $1.1 billion, respectively, and $614 million and $1.3 billion for the three and six months ended June 30, 2018, respectively.
    
The Company expects amortization expense on its finite-lived intangible assets will be as follows:

Six months ended December 31, 2019
 
$
1,029

2020
 
1,873

2021
 
1,597

2022
 
1,327

2023
 
1,070

Thereafter
 
1,860

 
 
$
8,756



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 and other relevant factors.



6


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


3.    Investments

Real Estate Investments through Variable Interest Entities

In July 2018, the Company's build-to-suit lease arrangement with a single-asset special purpose entity ("SPE") to build a new Charter headquarters in Stamford, Connecticut obtained all approvals and was made effective. The SPE obtained a first-lien mortgage note to finance the construction with fixed monthly payments through July 15, 2035 with a 5.612% coupon interest rate. All payments of the mortgage note are guaranteed by Charter. The initial term of the lease is 15 years commencing August 1, 2020, with no termination options. At the end of the lease term there is a mirrored put option for the SPE to sell the property to Charter and call option for Charter to purchase the property for a fixed purchase price. As the Company has determined the SPE is a variable interest entity ("VIE") of which it became the primary beneficiary upon the effectiveness of the arrangement, the Company has consolidated the assets and liabilities of the SPE in its consolidated balance sheet as of June 30, 2019 and December 31, 2018 as follows.

 
June 30, 2019
 
December 31, 2018
Assets
 
 
 
Current assets
$
2

 
$
2

Restricted cash
$
150

 
$
214

Property, plant and equipment
$
200

 
$
130

Liabilities
 
 
 
Current liabilities
$
2

 
$

Other long-term liabilities
$
350

 
$
346



Property, plant and equipment includes land, a parking garage and building construction costs, including the capitalization of qualifying interest. As of June 30, 2019 and December 31, 2018, other long-term liabilities include $342 million in VIE's mortgage note liability and $8 million and $4 million, respectively, in liability-classified noncontrolling interest recorded at amortized cost with accretion towards settlement of the put/call option in the lease. The consolidated statement of cash flows for the six months ended June 30, 2019 includes a decrease to restricted cash of $64 million primarily related to building construction costs.

Equity Investments

The Company recorded impairments on equity investments of approximately $11 million and $121 million during the three and six months ended June 30, 2019, respectively, and $39 million and $58 million during the three and six months ended June 30, 2018, respectively, which was recorded in other expense, net in the consolidated statements of operations.

4.    Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consist of the following as of June 30, 2019 and December 31, 2018:

 
June 30, 2019
 
December 31, 2018
Accounts payable – trade
$
790

 
$
758

Deferred revenue
389

 
494

Accrued liabilities:
 
 
 
Programming costs
2,108

 
2,044

Labor
906

 
1,052

Capital expenditures
1,016

 
1,472

Interest
1,001

 
1,045

Taxes and regulatory fees
543

 
526

Property and casualty
458

 
424

Other
934

 
990

 
$
8,145

 
$
8,805





7


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


5.    Leases

The primary leased asset classes of the Company include real estate, dark fiber, colocation facilities and other equipment. The lease agreements include both lease and non-lease components, which the Company accounts for separately depending on the election made for each leased asset class. For real estate and dark fiber leased asset classes, the Company accounts for lease and non-lease components as a single lease component and includes all fixed payments in the measurement of lease liabilities and lease assets. For colocation facilities leased asset class, the Company accounts for lease and non-lease components separately including only the fixed lease payment component in the measurement of lease liabilities and lease assets.

In addition to fixed lease payments, certain of the Company’s lease agreements include variable lease payments which are tied to an index or rate such as the change in the Consumer Price Index. These variable payments are not included in the measurement of the lease liabilities and lease assets.

Lease assets and lease liabilities are initially recognized based on the present value of the future lease payments over the expected lease term. As for most leases the implicit rate is not readily determinable, the Company uses a discount rate in determining the present value of future payments based on the yield-to-maturity of the Company’s secured publicly traded USD denominated debt instruments interpolating the duration of the debt to the term of the executed lease.

The Company’s leases have base rent periods and some with optional renewal periods. Leases with base rent periods of less than 12 months are not recorded on the balance sheet. For purposes of measurement of lease liabilities, the expected lease terms may include renewal options when it is reasonably certain that the Company will exercise such options. Based on conditions of the Company's existing leases and its overall business strategies, the majority of the Company's renewal options are not reasonably certain in determining the expected lease term. The Company will periodically reassess expected lease terms (and purchase options, if applicable) based on significant triggering events or compelling economic reasons to exercise such options.

The Company’s primary lease income represents sublease income on certain real estate leases. Sublease income is included in other revenue and presented gross from rent expense. For customer premise equipment ("CPE") where such CPE would qualify as a lease, the Company applies the practical expedient to combine the operating lease with the subscription service revenue as a single performance obligation in accordance with revenue recognition accounting guidance as the subscription service is the predominant component.

The components of lease related expenses, net are as follows.

 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Operating lease expense (a)
$
109

 
$
216

 
 
 
 
Finance lease expense:
 
 
 
Amortization of right-of-use assets
3

 
7

Interest on lease liabilities
2

 
3

Total finance lease expense
5

 
10

 
 
 
 
Sublease income
(7
)
 
(14
)
Total lease related expenses, net
$
107

 
$
212


(a) 
Includes short-term leases and variable leases costs of $30 million and $65 million for the three and six months ended June 30, 2019, respectively.



8


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


Supplemental cash flow information related to leases is as follows.

 
Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
147

Operating cash flows from finance leases
$
2

Financing cash flows from finance leases
$
4

 
 
Right-of-use assets obtained in exchange for lease obligations:
 
Operating leases
$
161

Finance leases
$
26



Supplemental balance sheet information related to leases is as follows.

 
June 30, 2019
Operating leases:
 
Operating lease right-of-use assets
$
1,166

 
 
Current operating lease liabilities
$
208

Long-term operating lease liabilities
1,052

Total operating lease liabilities
$
1,260

 
 
Finance leases:
 
Finance lease right-of-use assets (included within property, plant and equipment, net)
$
202