chtr-20200930

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 September 30, 2020


☐			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			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 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 September 30, 2020: 199,875,128

Number of shares of Class B common stock outstanding as of September 30, 2020: 1

CHARTER COMMUNICATIONS, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2020

TABLE OF CONTENTS


		Page No.
PART I	FINANCIAL INFORMATION

Item 1	Financial Statements ‑ Charter Communications, Inc. and Subsidiaries
	Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	1
	Consolidated Statements of Operations
	for the three and nine months ended September 30, 2020 and 2019	2
	Consolidated Statements of Changes in Shareholders' Equity
	for the three and nine months ended September 30, 2020 and 2019	3
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019	5
	Notes to Consolidated Financial Statements	6

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3	Quantitative and Qualitative Disclosure About Market Risk	37

Item 4	Controls and Procedures	37

PART II	OTHER INFORMATION

Item 1	Legal Proceedings	39

Item 1A	Risk Factors	39

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 6	Exhibits	40

Signatures		S-1

Exhibit Index		E-1

This quarterly report on Form 10-Q is for the three and nine months ended September 30, 2020. The United States Securities and Exchange Commission (“SEC”) allows us to “incorporate by reference” information that we file with the SEC, which means that we can disclose important information to you by referring you directly to those documents. In this quarterly report, “Charter,” “we,” “us” and “our” refer to Charter Communications, Inc. and its subsidiaries.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

•the impact of the COVID-19 pandemic on the economy, our customers, our vendors, local, state and federal governmental responses to the pandemic and our businesses generally;

•our ability to sustain and grow revenues and cash flow from operations by offering Internet, video, 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 and providers of video content over broadband Internet connections;

•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 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, including the impacts of the COVID-19 pandemic to unemployment levels and the level of activity in the housing sector;

•the ability to retain and hire key personnel;

•the availability and access, in general, of funds to meet our debt obligations prior to or when they become due and to fund our operations and necessary capital expenditures, either through (i) cash on hand, (ii) free cash flow, or (iii) access to the capital or credit markets; and

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

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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in millions, except share data)


	September 30, 2020		December 31, 2019
	(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,283	$	3,483
Accounts receivable, less allowance for doubtful accounts of $223 and $151, respectively	2,068		2,227
Prepaid expenses and other current assets	709		761
Total current assets	4,060		6,471

RESTRICTED CASH	3		66

INVESTMENT IN CABLE PROPERTIES:
Property, plant and equipment, net of accumulated depreciation of $30,407 and $27,656, respectively	34,196		34,591
Customer relationships, net	6,050		7,453
Franchises	67,322		67,322
Goodwill	29,554		29,554
Total investment in cable properties, net	137,122		138,920

OTHER NONCURRENT ASSETS	3,008		2,731

Total assets	$	144,193	$	148,188
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities	$	8,541	$	8,885
Current portion of long-term debt	1,715		3,500
Total current liabilities	10,256		12,385

LONG-TERM DEBT	77,947		75,578
DEFERRED INCOME TAXES	17,929		17,711
OTHER LONG-TERM LIABILITIES	4,349		3,703

SHAREHOLDERS’ EQUITY:
Class A common stock; $0.001 par value; 900 million shares authorized;
213,203,558 and 209,975,963 shares issued, respectively	—		—
Class B common stock; $0.001 par value; 1,000 shares authorized;
1 share issued and outstanding	—		—
Preferred stock; $0.001 par value; 250 million shares authorized; no shares issued and outstanding	—		—
Additional paid-in capital	31,758		31,405
Retained earnings	2,016		40
Treasury stock at cost; 13,328,430 and no shares, respectively	(6,868)		—
Accumulated other comprehensive loss	—		—
Total Charter shareholders’ equity	26,906		31,445
Noncontrolling interests	6,806		7,366
Total shareholders’ equity	33,712		38,811

Total liabilities and shareholders’ equity	$	144,193	$	148,188

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

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in millions, except per share data)

Unaudited


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
REVENUES	$	12,039	$	11,450	$	35,473	$	34,003

COSTS AND EXPENSES:
Operating costs and expenses (exclusive of items shown separately below)	7,483		7,435		22,212		21,915
Depreciation and amortization	2,370		2,415		7,295		7,465
Other operating expenses, net	14		14		23		71
	9,867		9,864		29,530		29,451
Income from operations	2,172		1,586		5,943		4,552

OTHER INCOME (EXPENSES):
Interest expense, net	(946)		(963)		(2,883)		(2,833)
Loss on extinguishment of debt	(58)		—		(121)		—
Gain (loss) on financial instruments, net	69		(34)		(185)		(116)
Other pension benefits (costs), net	(115)		9		(94)		27
Other expense, net	(13)		(5)		(13)		(131)
	(1,063)		(993)		(3,296)		(3,053)

Income before income taxes	1,109		593		2,647		1,499
Income tax expense	(177)		(126)		(372)		(329)
Consolidated net income	932		467		2,275		1,170
Less: Net income attributable to noncontrolling interests	(118)		(80)		(299)		(216)
Net income attributable to Charter shareholders	$	814	$	387	$	1,976	$	954

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CHARTER SHAREHOLDERS:
Basic	$	4.01	$	1.77	$	9.62	$	4.30
Diluted	$	3.90	$	1.74	$	9.35	$	4.23

Weighted average common shares outstanding, basic	202,826,502		218,499,213		205,468,736		221,818,079
Weighted average common shares outstanding, diluted	208,722,129		222,355,867		211,399,781		225,337,984

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

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, 2019	$	—	$	—	$	31,405	$	40	$	—	$	—	$	31,445	$	7,366	$	38,811
Consolidated net income	—		—		—		396		—		—		396		71		467
Stock compensation expense	—		—		90		—		—		—		90		—		90
Exercise of stock options	—		—		93		—		—		—		93		—		93
Issuance of equity	—		—		23		—		—		—		23		—		23
Purchases of treasury stock	—		—		—		—		(2,352)		—		(2,352)		—		(2,352)
Purchase of noncontrolling interest, net of tax	—		—		(149)		—		—		—		(149)		(195)		(344)
Change in noncontrolling interest ownership, net of tax	—		—		82		—		—		—		82		(109)		(27)
Distributions to noncontrolling interest	—		—		—		—		—		—		—		(39)		(39)
BALANCE, March 31, 2020	—		—		31,544		436		(2,352)		—		29,628		7,094		36,722
Consolidated net income	—		—		—		766		—		—		766		110		876
Stock compensation expense	—		—		90		—		—		—		90		—		90
Exercise of stock options	—		—		28		—		—		—		28		—		28
Purchases of treasury stock	—		—		—		—		(1,155)		—		(1,155)		—		(1,155)
Purchase of noncontrolling interest, net of tax	—		—		(42)		—		—		—		(42)		(69)		(111)
Change in noncontrolling interest ownership, net of tax	—		—		41		—		—		—		41		(52)		(11)
Distributions to noncontrolling interest	—		—		—		—		—		—		—		(38)		(38)
BALANCE, June 30, 2020	—		—		31,661		1,202		(3,507)		—		29,356		7,045		36,401
Consolidated net income	—		—		—		814		—		—		814		118		932
Stock compensation expense	—		—		83		—		—		—		83		—		83
Exercise of stock options	—		—		50		—		—		—		50		—		50
Purchases of treasury stock	—		—		—		—		(3,361)		—		(3,361)		—		(3,361)
Purchase of noncontrolling interest, net of tax	—		—		(154)		—		—		—		(154)		(163)		(317)
Change in noncontrolling interest ownership, net of tax	—		—		118		—		—		—		118		(157)		(39)
Distributions to noncontrolling interest	—		—		—		—		—		—		—		(37)		(37)
BALANCE, September 30, 2020	$	—	$	—	$	31,758	$	2,016	$	(6,868)	$	—	$	26,906	$	6,806	$	33,712

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

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
Consolidated net income	—		—		—		387		—		—		387		80		467
Stock compensation expense	—		—		71		—		—		—		71		—		71
Exercise of stock options	—		—		25		—		—		—		25		—		25
Purchases of treasury stock	—		—		—		—		(2,767)		—		(2,767)		—		(2,767)
Purchase of noncontrolling interest, net of tax	—		—		(93)		—		—		—		(93)		(215)		(308)
Change in noncontrolling interest ownership, net of tax	—		—		65		—		—		—		65		(87)		(22)
Distributions to noncontrolling interest	—		—		—		—		—		—		—		(38)		(38)
BALANCE, September 30, 2019	$	—	$	—	$	33,810	$	3,734	$	(4,568)	$	(2)	$	32,974	$	7,548	$	40,522

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

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in millions)

Unaudited


	Nine Months Ended September 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net income	$	2,275	$	1,170
Adjustments to reconcile consolidated net income to net cash flows from operating activities:
Depreciation and amortization	7,295		7,465
Stock compensation expense	263		238
Noncash interest income, net	(31)		(89)
Other pension (benefits) costs, net	94		(27)
Loss on extinguishment of debt	121		—
Loss on financial instruments, net	185		116
Deferred income taxes	252		233
Other, net	(21)		148
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:
Accounts receivable	159		(564)
Prepaid expenses and other assets	(240)		(225)
Accounts payable, accrued liabilities and other	61		(75)
Net cash flows from operating activities	10,413		8,390

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(5,352)		(4,913)
Change in accrued expenses related to capital expenditures	(70)		(449)
Real estate investments through variable interest entities	(122)		(125)
Other, net	(43)		10
Net cash flows from investing activities	(5,587)		(5,477)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt	10,352		13,157
Repayments of long-term debt	(9,711)		(10,886)
Payments for debt issuance costs	(91)		(48)
Issuance of equity	23		—
Purchase of treasury stock	(6,868)		(4,568)
Proceeds from exercise of stock options	171		106
Purchase of noncontrolling interest	(884)		(593)
Distributions to noncontrolling interest	(114)		(116)
Borrowings for real estate investments through variable interest entities, net	63		—
Other, net	(30)		(133)
Net cash flows from financing activities	(7,089)		(3,081)

NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(2,263)		(168)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period	3,549		765
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period	$	1,286	$	597

CASH PAID FOR INTEREST	$	3,023	$	3,065
CASH PAID FOR TAXES	$	84	$	55

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

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 a leading broadband connectivity company and cable operator. Over an advanced communications network, the Company offers a full range of state-of-the-art residential and business services including Spectrum Internet, TV, Mobile and Voice. For small and medium-sized companies, Spectrum Business® delivers the same suite of broadband products and services coupled with special features and applications to enhance productivity, while for larger businesses and government entities, Spectrum Enterprise provides highly customized, fiber-based solutions. Spectrum Reach® delivers tailored advertising and production for the modern media landscape. The Company also distributes award-winning news coverage, sports and high-quality original programming to its customers through Spectrum Networks and Spectrum Originals.

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 the Company's Annual Report on Form 10-K have been condensed or omitted for this quarterly report. The accompanying consolidated financial statements are unaudited and are subject to review by regulatory authorities. However, in the opinion of management, such financial statements include all adjustments, which consist of only normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. Interim results are not necessarily indicative of results for a full year.

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

Certain prior period amounts have been reclassified to conform with the 2020 presentation.

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 September 30, 2020 and December 31, 2019:


	September 30, 2020						December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Indefinite-lived intangible assets:
Franchises	$	67,322	$	—	$	67,322	$	67,322	$	—	$	67,322
Goodwill	29,554		—		29,554		29,554		—		29,554
Trademarks	159		—		159		159		—		159
	$	97,035	$	—	$	97,035	$	97,035	$	—	$	97,035

Finite-lived intangible assets:
Customer relationships	$	18,230	$	(12,180)	$	6,050	$	18,230	$	(10,777)	$	7,453
Other intangible assets	405		(150)		255		405		(122)		283
	$	18,635	$	(12,330)	$	6,305	$	18,635	$	(10,899)	$	7,736

Amortization expense related to customer relationships and other intangible assets for the three and nine months ended September 30, 2020 was $445 million and $