The accompanying notes are an integral part of these consolidated financial statements.
CHARTER COMMUNICATIONS, INC.CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 20072016, 2015 AND 20062014
(dollars in millions, except where indicated)
1. Organization and Basis of Presentation
Organization
CCO Holdings, LLC (“(together with its subsidiaries, “CCO Holdings,” or the “Company”) is the second largest cable operator in the United States and a leading broadband communications company providing video, Internet and voice services to residential and business 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 lifestyle channels and sells security and home management services to the residential marketplace.
CCO Holdings”)Holdings is a holding company whose principal assets at December 31, 2008 are the equity interests in its operating subsidiaries. CCO Holdings is a direct subsidiary of CCH II,I Holdings, LLC (“CCH II”I”), which is an indirect subsidiary of Charter Communications, Inc. (“Charter”), Charter Communications Holdings, LLC (“Charter Holdings”). Charter Holdings is an indirect subsidiary of Charter Communications, Inc. and Spectrum Management Holding Company, LLC (“Charter”Spectrum Management”). The consolidated financial statements include the accounts of CCO Holdings and all of its subsidiaries where the underlying operations reside, which are collectively referred to herein as the "Company."“Company.” All significant intercompany accounts and transactions among consolidated entities have been eliminated. Charter, Charter Holdings and Spectrum Management have performed financing, cash management, treasury and other services for CCO Holdings on a centralized basis. Changes in member’s equity in the consolidated balance sheets related to these activities have been considered cash receipts (contributions) and payments (distributions) for purposes of the consolidated statements of cash flows and are reflected in financing activities.
Basis of Presentation
The Company is a broadband communications company operatingaccompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and the United States. The Company offers to residentialrules and commercial customers traditional cable video programming (basicregulations of the Securities and digital video), high-speed Internet services, and telephone services, as well as advanced broadband services such as high definition television, Charter OnDemand™, and digital video recorder (“DVR”Exchange Commission (the “SEC”) service. The Company sells its cable video programming, high-speed Internet, telephone, and advanced broadband services primarily on a subscription basis. The Company also sells local advertising on cable networks..
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”)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; impairmentspurchase accounting valuations of assets and liabilities including, but not limited to, property, plant and equipment, franchisesintangibles and goodwill; pension benefits; income taxes; contingencies and contingencies.programming expense. Actual results could differ from those estimates.
Reclassifications. Certain prior year amounts have been reclassified to conform with the 2008 presentation.
2. LiquidityMergers and Capital Resources
The Company’s consolidated financial statements have been prepared assuming that it will continue as a going concern. The conditions noted below raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.Acquisitions
TWC Transaction
On February 12, 2009,May 18, 2016, the transactions contemplated by the Agreement and Plan of Mergers dated as of May 23, 2015 (the “Merger Agreement”), by and among Time Warner Cable Inc. (“Legacy TWC”), Charter announced that it had reached agreements in principle with holdersCommunications, Inc. prior to the closing of certain of its subsidiaries’ senior notes (the “Noteholders”the Merger Agreement (“Legacy Charter”) holding approximately $4.1 billion in aggregate principal amount of notes issued by Charter’s subsidiaries,, CCH I, LLC, previously a wholly owned subsidiary of Legacy Charter (“CCH I”New Charter”) and CCH II, LLC (“CCH II”certain other subsidiaries of New Charter were completed (the “TWC Transaction,” and together with the Bright House Transaction described below, the “Transactions”). Pursuant to separate restructuring agreements, dated February 11, 2009, entered into with each Noteholder (the “Restructuring Agreements”), on March 27, 2009, Charter and its subsidiaries, including CCO Holdings, filed voluntary petitions for relief under Chapter 11As a result of the United States Bankruptcy Code to implement a restructuring pursuant to a joint planTWC Transaction, New Charter became the new public parent company that holds the operations of reorganization (the “Plan”) aimed at improving their capital structure (the “Proposed Restructuring”). The filing of bankruptcy is an event of default under the Company’s indebtedness. Refer to discussion of subsequent events regarding the Proposed Restructuring in Note 25.combined companies and was renamed Charter Communications, Inc.
During the fourth quarter of 2008, Charter Operating drew down all except $27 million of amounts available under the revolving credit facility. During the first quarter of 2009, Charter Operating presented a qualifying draw noticePursuant to the banks under the revolving credit facility but was refused those funds. Additionally, upon filing bankruptcy, Charter Operating will no longer have access to the revolving credit facility and will rely on cash on hand and cash flows from operating activities to fund our projected cash needs. The Company’s and its parent companies’ projected cash needs and projected sources of liquidity depend upon, among other things, its actual results, the timing and amount of its expenditures, and the outcome of various matters in its Chapter 11 bankruptcy proceedings and financial restructuring. The outcometerms of the Proposed Restructuring is subjectMerger Agreement, upon consummation of the TWC Transaction, each outstanding share of Legacy TWC common stock (other than Legacy TWC common stock held by Liberty Broadband Corporation (“Liberty Broadband”) and Liberty Interactive Corporation (“Liberty Interactive” and, collectively, the “Liberty Parties”)), was converted into the right to substantial risks. See Note 25.receive, at the option of each such holder of Legacy TWC common stock, either (a) $100 in cash and Charter Class A common stock equivalent to 0.5409 shares of Legacy Charter Class A common stock (the “Option A Consideration”) or (b) $115 in cash and Charter Class A common stock equivalent to 0.4562 shares of Legacy Charter Class A common stock (the “Option B Consideration”). The actual number of shares of Charter Class A common stock that Legacy TWC stockholders received, excluding the Liberty Parties, was calculated by multiplying the exchange ratios of 0.5409 or 0.4562 specified above by 0.9042 (the “Parent Merger Exchange Ratio”), which was also the exchange ratio that was used to determine the number of shares of Charter Class A common stock that Legacy Charter stockholders received per share of Legacy Charter Class A common stock. Such exchange
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 20072016, 2015 AND 20062014
(dollars in millions, except where indicated)
ratio did not impact the aggregate value represented by the shares of Charter Class A common stock issued in the TWC Transaction; however, it did impact the actual number of shares issued in the TWC Transaction.
Out of approximately 277 million shares of TWC common stock outstanding at the closing of the TWC Transaction, excluding TWC common stock held by the Liberty Parties, approximately 274 million shares were converted into the right to receive the Option A Consideration and approximately 3 million shares were converted into the right to receive the Option B Consideration. The Liberty Parties received approximately one share of Charter Class A common stock for each share of Legacy TWC common stock they owned (equivalent to 1.106 shares of Legacy Charter Class A common stock multiplied by the Parent Merger Exchange Ratio).
As of the date of completion of the Transactions, the total value of the TWC Transaction was approximately $85 billion, including cash, equity and Legacy TWC assumed debt. The purchase price also includes an estimated pre-combination vesting period fair value of $514 million for Legacy TWC equity awards converted into Charter awards upon closing of the TWC Transaction (“Converted TWC Awards”) and $69 million of cash paid to former Legacy TWC employees and non-employee directors who held equity awards, whether vested or not vested.
Bright House Transaction
Also, on May 18, 2016, Legacy Charter and Advance/Newhouse Partnership (“A/N”), the former parent of Bright House Networks, LLC (“Bright House”), completed their previously announced transaction, pursuant to a definitive Contribution Agreement (the “Contribution Agreement”), under which Charter acquired Bright House (the “Bright House Transaction”). Pursuant to the Bright House Transaction, Charter became the owner of the membership interests in Bright House and the other assets primarily related to Bright House (other than certain excluded assets and liabilities and non-operating cash). As of the date of acquisition, the purchase price totaled approximately $12.2 billion consisting of (a) $2.0 billion in cash, (b) 25 million convertible preferred units of Charter Holdings with a face amount of $2.5 billion that pay a 6% annual preferential dividend, (c) approximately 31.0 million common units of Charter Holdings that are exchangeable into Charter Class A common stock on a one-for-one basis and (d) one share of Charter Class B common stock.
Liberty Transaction
In connection with the TWC Transaction, Legacy Charter and Liberty Broadband completed their previously announced transactions pursuant to their investment agreement, in which Liberty Broadband purchased for cash approximately 22.0 million shares of Charter Class A common stock valued at $4.3 billion at the closing of the TWC Transaction to partially finance the cash portion of the TWC Transaction consideration, and in connection with the Bright House Transaction, Liberty Broadband purchased approximately 3.7 million shares of Charter Class A common stock valued at $700 million at the closing of the Bright House Transaction (the “Liberty Transaction”).
Financing for the Transactions
Charter partially financed the cash portion of the purchase price of the Transactions with additional indebtedness and cash on hand. In 2015, Legacy Charter issued $15.5 billion aggregate principal amount of CCO Safari II, LLC (“CCO Safari II”) senior secured notes, $3.8 billion aggregate principal amount of CCO Safari III, LLC (“CCO Safari III”) senior secured bank loans and $2.5 billion aggregate principal amount of CCOH Safari, LLC (“CCOH Safari” and collectively with CCO Safari II and CCO Safari III, the "Safari Escrow Entities") senior unsecured notes. The net proceeds were initially deposited into escrow accounts. Upon closing of the TWC Transaction, the proceeds were released from escrow and the CCOH Safari notes became obligations of CCO Holdings and CCO Holdings Capital Corp. (“CCO Holdings Capital”), and the CCO Safari II notes and CCO Safari III credit facilities became obligations of Charter Communications Operating, LLC (“Charter Operating”) and Charter Communications Operating Capital Corp. CCOH Safari merged into CCO Holdings and CCO Safari II and CCO Safari III merged into Charter Operating.
In connection with the closing of the Bright House Transaction, Charter Operating closed on a $2.6 billion aggregate principal amount term loan A facility (“Term Loan A”) pursuant to the terms of Charter Operating’s Amended and Restated Credit Agreement dated May 18, 2016 (the “Credit Agreement”) of which $2.0 billion was used to fund the cash portion of the Bright House Transaction and $638 million was used to prepay and terminate Charter Operating’s existing Term A-1 Loans. See Note 9.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
Acquisition Accounting
The Transactions enable Charter to apply its operating strategy to a larger set of assets, accelerate product development and innovation through greater scale as well as more effectively compete in medium and large commercial markets. Substantially all of the operations acquired in the Transactions were contributed down to the Company. The operating results of Legacy TWC and Legacy Bright House have been included in the Company’s consolidated statements of operations for the period from the date of the Transactions through December 31, 2016. Revenues included in the Company's consolidated statements of operations were $16.0 billion and $2.6 billion for Legacy TWC and Legacy Bright House, respectively, for the year ended December 31, 2016.
Charter applied acquisition accounting to the Transactions. The total purchase price was allocated to the identifiable tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values. The fair values were primarily based on third-party valuations using assumptions developed by management and other information compiled by management including, but not limited to, future expected cash flows. The excess of the purchase price over those fair values was recorded as goodwill. Goodwill recognized in the Transactions is representative of resources that do not meet the definition of an identifiable intangible asset and include buy-side synergies, economies of scale of the combined operations, increased market share, assembled workforces and improved credit rating.
The fair values of the assets acquired and liabilities assumed were preliminarily determined using the income, cost and market approaches. The fair values were primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement, other than long-term debt assumed in the TWC Transaction, which represents a Level 1 measurement. See Note 12.
Property, plant and equipment was valued utilizing the cost approach. The cost approach considers the amount required to replace an asset by constructing or purchasing a new asset with similar utility, then adjusts the value in consideration of all forms of depreciation as of the appraisal date as described below:
Physical depreciation - the loss in value or usefulness attributable solely to use of the asset and physical causes such as wear and tear and exposure to the elements.
Functional obsolescence - the loss in value due to factors inherent in the asset itself and due to changes in technology, design or process resulting in inadequacy, overcapacity, lack of functional utility or excess operating costs.
Economic obsolescence - the loss in value due to unfavorable external conditions such as economics of the industry or geographic area, or change in ordinances.
The cost approach relies on assumptions regarding current material and labor costs required to rebuild and repurchase significant components of property, plant and equipment along with assumptions regarding the age and estimated useful lives of property, plant and equipment.
Franchise rights and customer relationships were valued using an income approach model based on the present value of the estimated discrete future cash flows attributable to each of the intangible assets identified. See Note 6 for more information on the income approach model. The weighted average life of customer relationships acquired in the TWC Transaction and Bright House Transaction was 11 years and 10 years, respectively.
The fair value of equity investments was based on either applying implied multiples to estimated cash flows or utilizing a discounted cash flow model. The implied multiples were estimated based on precedent transactions and comparable companies. The discounted cash flow model required estimating the present value of future cash flows of the investee.
Legacy TWC long-term debt assumed was adjusted to fair value based on quoted market prices. At the acquisition date, the quoted market values of all but two of Legacy TWC’s bonds were higher than the principal amount of the related debt instrument, which resulted in the recognition of a net debt premium of approximately $2.4 billion. The quoted market value of a debt instrument is higher than the principal amount of the debt when the market interest rates are lower than the stated interest rate of the debt. This debt premium is amortized as a reduction to interest expense over the remaining life of the applicable debt.
Generally, no fair value adjustments were reflected in current assets and current liabilities as carrying value is estimated to approximate fair value because of the short-term nature of the items, except for risk management obligations. Risk management obligations assumed including various claims for workers compensation, employment practices, and auto and general liabilities
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
were measured at fair value as of the acquisition date based on an actuarially determined study. Fair value adjustments were reflected in other noncurrent assets and other long-term liabilities relating to contract-based assets and liabilities, capital lease obligations, deferred liabilities and net pension liabilities. Out-of-market contract-based assets and liabilities relating to non-cancelable executory contracts and operating leases were recognized based on discounted cash flow models to the extent the terms of the non-cancelable contracts are favorable or unfavorable compared with the relative market terms of the same or similar contract at the acquisition date. The out-of-market element will be amortized as if the contract were consummated at market terms on the acquisition date. Capital lease obligations were measured at fair value based on the present value of amounts to be paid under the lease agreement using a market participant discount rate. Deferred liabilities were not recorded in acquisition accounting to the extent there was no associated payment obligation or substantive performance obligation. The net pension liabilities assumed in the TWC Transaction were measured at fair value based on an actuarially determined projected benefit obligation, less the fair value of pension investments, as of the acquisition date. See Note 19 for fair value assumptions considered in acquisition accounting for the net pension liabilities.
Deferred tax assets and liabilities were recorded for the deferred tax impact of acquisition accounting adjustments primarily related to property, plant and equipment, franchises, customer relationships and assumed Legacy TWC long-term debt. The incremental deferred tax liabilities were calculated primarily based on the tax effect of the step-up in book basis of net assets of Legacy TWC excluding the amount attributable to nondeductible goodwill. Deferred tax liabilities are recorded at Charter and not contributed down as the Company, and majority of its indirect subsidiaries, are limited liability companies that are not subject to income tax.
The Charter Class A common stock issued to Legacy TWC stockholders and Charter Holdings common units issued to A/N were valued based on the opening share price of Charter Class A common stock on the acquisition date. The convertible preferred units of Charter Holdings issued to A/N were valued at approximately $3.2 billion based on a binomial lattice model for convertible bonds that models the future changes in the common equity value of Charter. The valuation relies on management’s assumptions including risk-free interest rate, volatility and discount yield. The pre-combination vesting period fair value of the Converted TWC Awards was based on the portion of the requisite service period completed at the acquisition date by Legacy TWC employee award holders applied to the total fair value of the Converted TWC Awards.
The allocation of the purchase price to certain assets and liabilities is preliminary and is subject to change based on additional information that may be obtained during the measurement period primarily related to working capital measurement. The Company will continue to obtain information to assist in finalizing the fair value of net assets acquired and liabilities assumed, which is not expected to differ materially from the preliminary estimates herein. The Company will apply any measurement period adjustments, including any related impacts to net income (loss), in the reporting period in which the adjustments are determined. The tables below present the calculation of the purchase price and the preliminary allocation of the purchase price to the assets acquired and liabilities assumed in the Transactions.
TWC Purchase Price
|
| | | |
Shares of Charter Class A common stock issued (including the Liberty Parties) (in millions) | 143.0 |
|
Charter Class A common stock closing price per share | $ | 224.91 |
|
Fair value of Charter Class A common stock issued | $ | 32,164 |
|
| |
Cash paid to Legacy TWC stockholders (excluding the Liberty Parties) | $ | 27,770 |
|
Pre-combination vesting period fair value of Converted TWC Awards | 514 |
|
Cash paid for Legacy TWC non-employee equity awards | 69 |
|
Total purchase price | $ | 60,517 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
TWC Preliminary Allocation of Purchase Price
|
| | | |
Cash and cash equivalents | $ | 1,058 |
|
Current assets | 1,308 |
|
Property, plant and equipment | 21,413 |
|
Customer relationships | 13,460 |
|
Franchises | 54,085 |
|
Goodwill | 28,292 |
|
Other noncurrent assets | 1,040 |
|
Accounts payable and accrued liabilities | (3,925 | ) |
Debt | (24,900 | ) |
Deferred income taxes | (28,148 | ) |
Other long-term liabilities | (3,162 | ) |
Noncontrolling interests | (4 | ) |
| $ | 60,517 |
|
Since completion of the initial estimates in the second quarter of 2016, the Company made measurement period adjustments to the fair value of certain assets acquired and liabilities assumed in the TWC Transaction, including a decrease of $163 million to property, plant and equipment; a decrease of $240 million to customer relationships; an increase of $690 million to franchises; an increase to other operating net liabilities of $215 million; and a decrease of $4 million to deferred income taxes; resulting in a net decrease to goodwill of $76 million. These adjustments were made primarily to reflect updated appraisal results.
The measurement period adjustment to intangibles resulted in a decrease of $20 million in amortization expense relating to the prior quarters that was recorded in the fourth quarter of 2016. The measurement period adjustment to property, plant and equipment resulted in an increase of $12 million in depreciation expense relating to the second quarter that was recorded in the third quarter of 2016. The Company may record additional measurement period adjustments in future periods.
Bright House Purchase Price
|
| | | |
Charter Holdings common units issued to A/N (in millions) | 31.0 |
|
Charter Class A common stock closing price per share | $ | 224.91 |
|
Fair value of Charter Holdings common units issued to A/N | $ | 6,971 |
|
| |
Fair value of Charter Holdings convertible preferred units issued to A/N | 3,163 |
|
Cash paid to A/N | 2,022 |
|
Total purchase price | $ | 12,156 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
Bright House Preliminary Allocation of Purchase Price
|
| | | |
Current assets | $ | 131 |
|
Property, plant and equipment | 2,884 |
|
Customer relationships | 2,150 |
|
Franchises | 7,225 |
|
Goodwill | 44 |
|
Other noncurrent assets | 86 |
|
Accounts payable and accrued liabilities | (330 | ) |
Other long-term liabilities | (12 | ) |
Noncontrolling interests | (22 | ) |
| $ | 12,156 |
|
Since completion of the initial estimates in the second quarter of 2016, the Company made measurement period adjustments to the fair value of certain assets acquired and liabilities assumed in the Bright House Transaction, including a decrease of $382 million to property, plant and equipment; an increase of $110 million to customer relationships; an increase of $381 million to franchises; and a decrease of $1 million to current assets resulting in a decrease to goodwill of $108 million. These adjustments were made primarily to reflect updated appraisal results.
The measurement period adjustment to intangibles resulted in an increase of $7 million in amortization expense relating to the prior quarters that was recorded in the fourth quarter of 2016. The measurement period adjustment to property, plant and equipment in the third quarter had an inconsequential impact on depreciation expense recorded in the prior quarter. The Company may record additional measurement period adjustments in future periods.
In connection with the Transactions, subsidiaries of Charter contributed down to the Company the net assets and liabilities of TWC and Bright House except for the deferred tax liabilities of Charter, as noted above, and net assets of approximately $1.0 billion primarily comprised of cash and cash equivalents used as a source for the cash portion of the TWC purchase price.
Selected Pro Forma Financial Information
The following unaudited pro forma financial information of the Company is based on the historical consolidated financial statements of Legacy Charter, Legacy TWC and Legacy Bright House and is intended to provide information about how the Transactions and related financing may have affected the Company’s historical consolidated financial statements if they had closed as of January 1, 2015. The pro forma financial information below is based on available information and assumptions that the Company believes are reasonable. The pro forma financial information is for illustrative and informational purposes only and is not intended to represent or be indicative of what the Company’s financial condition or results of operations would have been had the transactions described above occurred on the date indicated. The pro forma financial information also should not be considered representative of the Company’s future financial condition or results of operations.
|
| | | | | | | |
| Year Ended December 31, |
| 2016 | | 2015 |
Revenues | $ | 40,023 |
| | $ | 37,394 |
|
Net income attributable to CCO Holdings member | $ | 1,890 |
| | $ | 608 |
|
3. Summary of Significant Accounting Policies
Consolidation
The accompanying consolidated financial statements include the accounts of CCO Holdings and all entities in which CCO Holdings has a controlling interest. The Company consolidates based upon evaluation of the Company’s power, through voting rights or similar rights, to direct the activities of another entity that most significantly impact the entity’s economic performance; its obligation
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
to absorb the expected losses of the entity; and its right to receive the expected residual returns of the entity. The noncontrolling interest on the Company’s balance sheet represents the third-party interest in CV of Viera, LLP, the Company’s consolidated joint venture in a small cable system in Florida. See Note 7. All significant inter-company accounts and transactions among consolidated entities have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. These investments are carried at cost, which approximates market value. Cash and cash equivalents consist primarily of money market funds.
Property, Plant and Equipment
Additions to property, plant and equipment are recorded at cost, including all material, labor and certain indirect costs associated with the construction of cable transmission and distribution facilities. While the Company’s capitalization is based on specific activities, once capitalized, costs are tracked on a composite basis by fixed asset category at the cable system level and not on a specific asset basis. For assets that are sold or retired, the estimated historical cost and related accumulated depreciation is removed. Costs associated with the initial placement of the customer drop to the dwelling and the initial placement of outlets within a dwelling along with the costs associated with the initial deployment of customer premise equipment necessary to provide video, Internet or voice services are capitalized. Costs capitalized include materials, direct labor, and certain indirect costs. Indirect costs are associated with the activities of the Company’s personnel who assist in installation activities and consist of compensation and other costs associated with these support functions. Indirect costs primarily include employee benefits and payroll taxes, vehicle and occupancy costs, and the costs of sales and dispatch personnel associated with capitalizable activities. The costs of disconnecting service and removing customer premise equipment from a dwelling and the costs to reconnect a customer drop or to redeploy previously installed customer premise equipment are charged to operating expensed as incurred. Costs for repairs and maintenance are charged to operating expense as incurred, net losseswhile plant and equipment replacement, including replacement of $1.5 billion, $350 million,certain components, betterments, including replacement of cable drops and $193 millionoutlets, are capitalized.
Depreciation is recorded using the straight-line composite method over management’s estimate of the useful lives of the related assets as follows:
|
| | |
Cable distribution systems | | 7-20 years |
Customer premise equipment and installations | | 3-8 years |
Vehicles and equipment | | 3-6 years |
Buildings and improvements | | 15-40 years |
Furniture, fixtures and equipment | | 6-10 years |
Asset Retirement Obligations
Certain of the Company’s franchise agreements and leases contain provisions requiring the Company to restore facilities or remove equipment in 2008, 2007,the event that the franchise or lease agreement is not renewed. The Company expects to continually renew its franchise agreements and 2006, respectively.therefore cannot reasonably estimate any liabilities associated with such agreements. A remote possibility exists that franchise agreements could be terminated unexpectedly, which could result in the Company incurring significant expense in complying with restoration or removal provisions. The Company does not have any significant liabilities related to asset retirements recorded in its consolidated financial statements.
Valuation of Long-Lived Assets
The Company evaluates the recoverability of long-lived assets (e.g., property, plant and equipment and finite-lived intangible assets) to be held and used when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such events or changes in circumstances could include such factors as impairment of the Company’s indefinite life assets, changes in technological advances, fluctuations in the fair value of such assets, adverse changes in relationships with local franchise authorities, adverse changes in market conditions or a deterioration of operating results. If a review indicates that the carrying value of such asset is not recoverable from estimated undiscounted cash flows, the carrying value of such asset is reduced
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
to its estimated fair value. While the Company believes that its estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect its evaluations of asset recoverability. No impairments of long-lived assets to be held and used were recorded in 2016, 2015 and 2014.
Other Noncurrent Assets
Other noncurrent assets primarily include investments, right-of-entry costs and other intangible assets. The Company accounts for its investments in less than majority owned investees under either the equity or cost method. The Company applies the equity method to investments when it has the ability to exercise significant influence over the operating and financial policies of the investee. The Company’s share of the investee’s earnings (losses) is included in other expense, net cash flowsin the consolidated statements of operations. The Company monitors its investments for indicators that a decrease in investment value has occurred that is other than temporary. If it has been determined that an investment has sustained an other than temporary decline in value, the investment is written down to fair value with a charge to earnings. Investments acquired are measured at fair value utilizing the acquisition method of accounting. The difference between the fair value and the amount of underlying equity in net assets for most equity method investments is due to previously unrecognized intangible assets at the investee. These amounts are amortized as a component of equity earnings (losses), recorded within other expense, net over the estimated useful life of the asset. Right-of-entry costs represent costs incurred related to agreements entered into with landlords, real estate companies or owners to gain access to a building in order to provide cable service. Right-of-entry costs are generally deferred and amortized to amortization expense over the term of the agreement.
Revenue Recognition
Revenues from residential and commercial video, Internet and voice services are recognized when the related services are provided. Advertising sales are recognized at estimated realizable values in the period that the advertisements are broadcast. In some cases, the Company coordinates the advertising sales efforts of other cable operators in a certain market and remits amounts received from customers less an agreed-upon percentage to such cable operator. For those arrangements in which the Company acts as a principal, the Company records the revenues earned from the advertising customer on a gross basis and the amount remitted to the cable operator as an operating activities were $1.5 billion, $1.4 billion,expense.
Fees imposed on the Company by various governmental authorities are passed through on a monthly basis to the Company’s customers and $1.2 billionare periodically remitted to authorities. Fees of $711 million, $255 million and $248 million for the years ending ended December 31, 2008, 2007,2016, 2015 and 2006, respectively.2014, respectively, are reported in video, voice and commercial revenues, on a gross basis with a corresponding operating expense because the Company is acting as a principal. Other taxes, such as sales taxes imposed on the Company’s customers, collected and remitted to state and local authorities, are recorded on a net basis because the Company is acting as an agent in such situation.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
The Company's total debtCompany’s revenues by product line are as of December 31, 2008 was $11.8 billion, consisting of $8.6 billion of credit facility debt and $3.2 billion accreted value of high-yield notes. In each of 2009, 2010, and 2011, $70 million of the Company’s debt matures. In 2012 and beyond, significant additional amounts will become due under the Company’s remaining long-term debt obligations.follows:
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2016 | | 2015 | | 2014 |
| | | | | |
Video | $ | 11,967 |
| | $ | 4,587 |
| | $ | 4,443 |
|
Internet | 9,272 |
| | 3,003 |
| | 2,576 |
|
Voice | 2,005 |
| | 539 |
| | 575 |
|
Residential revenue | 23,244 |
| | 8,129 |
| | 7,594 |
|
| | | | | |
Small and medium business | 2,480 |
| | 764 |
| | 676 |
|
Enterprise | 1,429 |
| | 363 |
| | 317 |
|
Commercial revenue | 3,909 |
| | 1,127 |
| | 993 |
|
| | | | | |
Advertising sales | 1,235 |
| | 309 |
| | 341 |
|
Other | 615 |
| | 189 |
| | 180 |
|
| $ | 29,003 |
| | $ | 9,754 |
| | $ | 9,108 |
|
Programming Costs
The Company requires significanthas various contracts to obtain video programming from vendors whose compensation is typically based on a flat fee per customer. The cost of the right to exhibit network programming under such arrangements is recorded in operating expenses in the month the programming is available for exhibition. Programming costs are paid each month based on calculations performed by the Company and are subject to periodic audits performed by the programmers. Certain programming contracts contain incentives to be paid by the programmers. The Company receives these payments and recognizes the incentives on a straight-line basis over the life of the programming agreement as a reduction of programming expense. Programming costs included in the statements of operations were $7.0 billion, $2.7 billion and $2.5 billion for the years ended December 31, 2016, 2015 and 2014, respectively.
Advertising Costs
Advertising costs associated with marketing the Company’s products and services are generally expensed as costs are incurred.
Multiple-Element Transactions
In the normal course of business, the Company enters into multiple-element transactions where it is simultaneously both a customer and a vendor with the same counterparty or in which it purchases multiple products and/or services, or settles outstanding items contemporaneous with the purchase of a product or service from a single counterparty. Transactions, although negotiated contemporaneously, may be documented in one or more contracts. The Company’s policy for accounting for each transaction negotiated contemporaneously is to record each element of the transaction based on the respective estimated fair values of the products or services purchased and the products or services sold. In determining the fair value of the respective elements, the Company refers to quoted market prices (where available), historical transactions or comparable cash transactions. Cash consideration received from a vendor is recorded as a reduction in the price of the vendor’s product unless (i) the consideration is for the reimbursement of a specific, incremental, identifiable cost incurred, in which case the cash consideration received would be recorded as a reduction in such cost (e.g., marketing costs), or (ii) an identifiable benefit in exchange for the consideration is provided, in which case revenue would be recognized for this element.
Stock-Based Compensation
Restricted stock, restricted stock units, stock options as well as equity awards with market conditions are measured at the grant date fair value and amortized to fund debtstock compensation expense over the requisite service costs, capital expendituresperiod. The fair value of options is estimated on the date of grant using the Black-Scholes option-pricing model and ongoing operations.the fair value of equity awards with market conditions is estimated on the date of grant using Monte Carlo simulations. The grant date weighted average assumptions used during the years
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
ended December 31, 2016, 2015 and 2014, respectively, were: risk-free interest rate of 1.7%, 1.5% and 2.0%; expected volatility of 25.4%, 34.7% and 36.9%; and expected lives of 1.3 years, 6.5 years and 6.5 years. Weighted average assumptions for 2016 include the assumptions used for the Converted TWC Awards. Volatility assumptions were based on historical volatility of Legacy Charter and Legacy TWC. The Company’s volatility assumptions represent management’s best estimate and were partially based on historical volatility of Legacy TWC due to the completion of the Transactions. Expected lives were estimated using historical exercise data. The valuations assume no dividends are paid.
Pension Plans
The Company sponsors the TWC Pension Plan, TWC Union Pension Plan and TWC Excess Pension Plan (as defined in Note 19). Pension benefits are based on formulas that reflect the employees’ years of service and compensation during their employment period. Actuarial gains or losses are changes in the amount of either the benefit obligation or the fair value of plan assets resulting from experience different from that assumed or from changes in assumptions. The Company has historically fundedelected to follow a mark-to-market pension accounting policy for recording the actuarial gains or losses annually during the fourth quarter, or earlier if a remeasurement event occurs during an interim period.
Income Taxes
CCO Holdings is a single member limited liability company not subject to income tax. CCO Holdings holds all operations through indirect subsidiaries. The majority of these requirementsindirect subsidiaries are limited liability companies that are not subject to income tax. Certain indirect subsidiaries that are required to file separate returns are subject to federal and state tax. CCO Holdings’ tax provision reflects the tax provision of the entities required to file separate returns. The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of these indirect subsidiaries' assets and liabilities and expected benefits of utilizing loss carryforwards. The impact on deferred taxes of changes in tax rates and tax law, if any, applied to the years during which temporary differences are expected to be settled, are reflected in the consolidated financial statements in the period of enactment. See Note 16.
Charter, the Company’s indirect parent company, is subject to income taxes. Accordingly, in addition to the Company’s deferred tax liabilities, Charter has recorded net deferred tax liabilities of approximately $26.7 billion as December 31, 2016 related to their investment in Charter Holdings, net of loss carryforwards, which is not reflected at the Company.
Segments
The Company’s operations are managed and reported to its 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.
4. Allowance for Doubtful Accounts
Activity in the allowance for doubtful accounts is summarized as follows for the years presented:
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2016 | | 2015 | | 2014 |
Balance, beginning of period | $ | 21 |
| | $ | 22 |
| | $ | 19 |
|
Charged to expense | 328 |
| | 135 |
| | 122 |
|
Uncollected balances written off, net of recoveries | (225 | ) | | (136 | ) | | (119 | ) |
Balance, end of period | $ | 124 |
| | $ | 21 |
| | $ | 22 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
5. Property, Plant and Equipment
Property, plant and equipment consists of the following as of December 31, 2016 and 2015:
|
| | | | | | | | |
| | December 31, |
| | 2016 | | 2015 |
Cable distribution systems | | $ | 23,314 |
| | $ | 8,158 |
|
Customer premise equipment and installations | | 12,867 |
| | 4,632 |
|
Vehicles and equipment | | 1,187 |
| | 379 |
|
Buildings and improvements | | 3,194 |
| | 540 |
|
Furniture, fixtures and equipment | | 3,241 |
| | 1,117 |
|
| | 43,803 |
| | 14,826 |
|
Less: accumulated depreciation | | (11,085 | ) | | (6,509 | ) |
| | $ | 32,718 |
| | $ | 8,317 |
|
The Company periodically evaluates the estimated useful lives used to depreciate its assets and the estimated amount of assets that will be abandoned or have minimal use in the future. A significant change in assumptions about the extent or timing of future asset retirements, or in the Company’s use of new technology and upgrade programs, could materially affect future depreciation expense.
Depreciation expense for the years ended December 31, 2016, 2015 and 2014 was $5.0 billion, $1.9 billion, and $1.8 billion, respectively. Property, plant and equipment increased by $24.3 billion as a result of the Transactions. See Note 2.
6. Franchises, Goodwill and Other Intangible Assets
Franchise rights represent the value attributed to agreements or authorizations with local and state authorities that allow access to homes in cable service areas. For valuation purposes, they are defined as the future economic benefits of the right to solicit and service potential customers (customer marketing rights), and the right to deploy and market new services to potential customers (service marketing rights).
Management estimates the fair value of franchise rights at the date of acquisition and determines if the franchise has a finite life or an indefinite life. The Company has concluded that all of its franchises, including those acquired as part of the Transactions, qualify for indefinite life treatment given that there are no legal, regulatory, contractual, competitive, economic or other factors which limit the period over which these rights will contribute to our cash flows. We reassess this determination periodically or whenever events or substantive changes in circumstances occur.
The estimated fair value of franchises is determined utilizing an income approach model based on the present value of the estimated discrete future cash flows attributable to each of the intangible assets identified assuming a discount rate. The fair value of franchises is determined based on estimated discrete discounted future cash flows using assumptions consistent with internal forecasts. The franchise after-tax cash flow is calculated as the after-tax cash flow generated by the potential customers obtained. The sum of the present value of the franchises’ after-tax cash flow in years 1 through 10 and the continuing value of the after-tax cash flow beyond year 10 yields the fair value of the franchises.
This approach makes use of unobservable factors such as projected revenues, expenses, capital expenditures, customer trends, and a discount rate applied to the estimated cash flows. The determination of the franchise discount rate is derived from the Company’s weighted average cost of capital, which uses a market participant’s cost of equity and after-tax cost of debt and reflects the risks inherent in the cash flows. The Company estimates discounted future cash flows using reasonable and appropriate assumptions including among others, penetration rates for video, Internet, and voice; revenue growth rates; operating margins; and capital expenditures. The assumptions are based on the Company’s and its peers’ historical operating performance adjusted for current and expected competitive and economic factors surrounding the cable industry. The estimates and assumptions made in the Company’s valuations are inherently subject to significant uncertainties, many of which are beyond its control, and there is no assurance that these results can be achieved. The primary assumptions for which there is a reasonable possibility of the occurrence of a variation that would significantly affect the measurement value include the assumptions regarding revenue growth,
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
programming expense growth rates, the amount and timing of capital expenditures, actual customer trends and the discount rate utilized.
All franchises are tested for impairment annually or more frequently as warranted by events or changes in circumstances. Franchise assets are aggregated into essentially inseparable units of accounting to conduct valuations. The units of accounting generally represent geographical clustering of our cable systems into groups. The Company assesses qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that an indefinite lived intangible asset has been impaired. If, after this optional qualitative assessment, the Company determines that it is not more likely than not that an indefinite lived intangible asset has been impaired, then no further quantitative testing is necessary. In completing the qualitative impairment testing, the Company evaluates a multitude of factors that affect the fair value of our franchise assets. Examples of such factors include environmental and competitive changes within our operating footprint, actual and projected operating performance, the consistency of our operating margins, equity and debt market trends, including changes in our market capitalization, and changes in our regulatory and political landscape, among other factors. After consideration of the qualitative factors, in 2016 the Company concluded that it is more likely than not that the fair value of the franchise assets in each unit of accounting exceeds the carrying value of such assets and therefore did not perform a quantitative analysis. Periodically, the Company will elect to perform a quantitative analysis for impairment testing. If the Company elects or is required to perform a quantitative analysis to test its franchise assets for impairment, the methodology described above is utilized.
The fair value of goodwill is determined using both an income approach and market approach. The Company’s income approach model used for its goodwill valuation is consistent with that used for its franchise valuation noted above except that cash flows from operating activities, borrowingsthe entire business enterprise are used for the goodwill valuation. The Company’s market approach model estimates the fair value of the reporting unit based on market prices in actual precedent transactions of similar businesses and market valuations of guideline public companies. Goodwill is tested for impairment as of November 30 of each year, or more frequently as warranted by events or changes in circumstances. Accounting guidance also permits an optional qualitative assessment for goodwill to determine whether it is more likely than not that the carrying value of a reporting unit exceeds its fair value. If, after this qualitative assessment, the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount then no further quantitative testing would be necessary. If the Company elects or is required to perform the two-step test under the accounting guidance, the first step involves a comparison of the estimated fair value of the reporting unit to its credit facilities,carrying amount. If the estimated fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired and the second step of the goodwill impairment is not necessary. If the carrying amount of a reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed, and a comparison of the implied fair value of the reporting unit’s goodwill is compared to its carrying amount to determine the amount of impairment, if any. As with the Company’s franchise impairment testing, in 2016 the Company elected to perform a qualitative goodwill impairment assessment and concluded that goodwill is not impaired.
Customer relationships are recorded at fair value as of the date acquired less accumulated amortization. Customer relationships, for valuation purposes, represent the value of the business relationship with existing customers, and are calculated by projecting the discrete future after-tax cash flows from these customers, including the right to deploy and market additional services to these customers. The present value of these after-tax cash flows yields the fair value of the customer relationships. The use of different valuation assumptions or definitions of franchises or customer relationships, such as our inclusion of the value of selling additional services to our current customers within customer relationships versus franchises, could significantly impact our valuations and any resulting impairment. Customer relationships are amortized on an accelerated sum of years’ digits method over useful lives of 8-15 years based on the period over which current customers are expected to generate cash flows. The Company periodically evaluates the remaining useful lives of its customer relationships to determine whether events or circumstances warrant revision to the remaining periods of amortization. Customer relationships are evaluated for impairment upon the occurrence of events or changes in circumstances indicating that the carrying amount of an asset may not be recoverable. Customer relationships are deemed impaired when the carrying value exceeds the projected undiscounted future cash flows associated with the customer relationships. No impairment of customer relationships was recorded in the years ended December 31, 2016, 2015 or 2014.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
As of December 31, 2016 and 2015, indefinite-lived and finite-lived intangible assets are presented in the following table:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2016 | | 2015 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Indefinite-lived intangible assets: | | | | | | | | | | | | |
Franchises | | $ | 67,316 |
| | $ | — |
| | $ | 67,316 |
| | $ | 6,006 |
| | $ | — |
| | $ | 6,006 |
|
Goodwill | | 29,509 |
| | — |
| | 29,509 |
| | 1,168 |
| | — |
| | 1,168 |
|
Other intangible assets | | 4 |
| | — |
| | 4 |
| | 4 |
| | — |
| | 4 |
|
| | $ | 96,829 |
| | $ | — |
| | $ | 96,829 |
| | $ | 7,178 |
| | $ | — |
| | $ | 7,178 |
|
| | | | | | | | | | | | |
Finite-lived intangible assets: | | | | | | | | | | | | |
Customer relationships | | $ | 18,226 |
| | $ | (3,618 | ) | | $ | 14,608 |
| | $ | 2,616 |
| | $ | (1,760 | ) | | $ | 856 |
|
Other intangible assets | | 615 |
| | (128 | ) | | 487 |
| | 173 |
| | (82 | ) | | 91 |
|
| | $ | 18,841 |
| | $ | (3,746 | ) | | $ | 15,095 |
| | $ | 2,789 |
| | $ | (1,842 | ) | | $ | 947 |
|
Other intangible assets consist primarily of right-of-entry costs. Amortization expense related to customer relationships and other intangible assets for the years ended December 31, 2016, 2015 and 2014 was $1.9 billion, $271 million and $299 million, respectively. Franchises, goodwill and customer relationships increased by $61.3 billion, $28.3 billion and $15.6 billion, respectively, as a result of the Transactions. See Note 2.
The Company expects amortization expense on its finite-lived intangible assets will be as follows.
|
| | | | |
2017 | | $ | 2,743 |
|
2018 | | 2,461 |
|
2019 | | 2,178 |
|
2020 | | 1,886 |
|
2021 | | 1,602 |
|
Thereafter | | 4,225 |
|
| | $ | 15,095 |
|
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.
7. Investments
In connection with the Transactions, the Company acquired approximately $508 million of Legacy TWC and Legacy Bright House equity-method and cost-method investments, which were adjusted to fair value as a result of applying acquisition accounting. The equity-method investments acquired include Sterling Entertainment Enterprises, LLC (“Sterling” - d/b/a SportsNet New York - 26.8% owned), MLB Network, LLC (“MLB Network” - 6.4% owned), iN Demand L.L.C. (“iN Demand” - 39.8% owned) and National Cable Communications LLC (“NCC” - 20.0% owned), among other less significant equity-method and cost-method investments. Sterling and MLB Network are primarily engaged in the development of sports programming services. iN Demand provides programming on a video on demand, pay-per-view and subscription basis. NCC represents multi-video program distributors to advertisers.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
Investments consisted of the following as of December 31, 2016 and 2015:
|
| | | | | | | | |
| | December 31, |
| | 2016 | | 2015 |
Equity-method investments | | 477 |
| | — |
|
Other investments | | 11 |
| | 2 |
|
Total investments | | $ | 488 |
| | $ | 2 |
|
The Company's equity-method investments balance as of December 31, 2016 reflected in the table above includes differences between the acquisition date fair value of certain investments acquired in the Transactions and the underlying equity contributions from its parent companies, proceeds from salesin the net assets of the investee, referred to as a basis difference. As discussed in Note 2, this basis difference is amortized as a component of equity earnings. The remaining unamortized basis difference is $436 million as of December 31, 2016.
The Company applies the equity method of accounting to these and other less significant equity-method investments, all of which are recorded in other noncurrent assets issuancesin the consolidated balance sheets as of debt securities,December 31, 2016 and cash on hand. However, the mix of funding sources changes from period to period.2015. For the year ended December 31, 2008,2016, net losses from equity-method investments were $3 million which were recorded in other expense, net in the Company generated $1.5 billionconsolidated statements of net cash flowsoperations, and for the years ended December 31, 2015 and 2014, gains (losses) from operating activities, after paying cashequity-method investments were insignificant.
Noncontrolling interests assumed in the Transactions were recorded at fair value on the acquisition date and primarily relate to the third-party interest in CV of $774 million. In addition,Viera, LLP, the Company used $1.2 billion for purchases of property, plant and equipment. Finally, the Company generated net cash flows from financing activities of $689 million, asCompany’s consolidated joint venture in a result of financing transactions and credit facility borrowings completed duringsmall cable system in Florida. For the year ended December 31, 2008.2016, net income attributable to noncontrolling interest was $1 million.
In 2015, noncontrolling interest included the 2% accretion of the preferred membership interests in CC VIII, LLC (“CC VIII”) plus approximately 18.6% of CC VIII’s income, net of accretion. On December 31, 2015, the CC VIII preferred interest held by CCH I, LLC was contributed to CC VIII and subsequently canceled.
8. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following as of December 31, 2016 and 2015:
|
| | | | | | | |
| December 31, |
| 2016 | | 2015 |
Accounts payable – trade | $ | 416 |
| | $ | 112 |
|
Deferred revenue | 352 |
| | 96 |
|
Accrued liabilities: | | | |
Programming costs | 1,783 |
| | 451 |
|
Compensation | 953 |
| | 118 |
|
Capital expenditures | 1,107 |
| | 296 |
|
Interest | 958 |
| | 167 |
|
Taxes and regulatory fees | 529 |
| | 126 |
|
Other | 799 |
| | 110 |
|
| $ | 6,897 |
| | $ | 1,476 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
9. Long-Term Debt
Long-term debt consists of the following as of December 31, 2016 and 2015:
|
| | | | | | | | | | | | | | | |
| December 31, |
| 2016 | | 2015 |
| Principal Amount | | Accreted Value | | Principal Amount | | Accreted Value |
CCO Holdings, LLC: | | | | | | | |
7.000% senior notes due January 15, 2019 | $ | — |
| | $ | — |
| | $ | 600 |
| | $ | 594 |
|
7.375% senior notes due June 1, 2020 | — |
| | — |
| | 750 |
| | 744 |
|
5.250% senior notes due March 15, 2021 | 500 |
| | 496 |
| | 500 |
| | 496 |
|
6.500% senior notes due April 30, 2021 | — |
| | — |
| | 1,500 |
| | 1,487 |
|
6.625% senior notes due January 31, 2022 | 750 |
| | 741 |
| | 750 |
| | 740 |
|
5.250% senior notes due September 30, 2022 | 1,250 |
| | 1,232 |
| | 1,250 |
| | 1,229 |
|
5.125% senior notes due February 15, 2023 | 1,000 |
| | 992 |
| | 1,000 |
| | 990 |
|
5.125% senior notes due May 1, 2023 | 1,150 |
| | 1,141 |
| | 1,150 |
| | 1,140 |
|
5.750% senior notes due September 1, 2023 | 500 |
| | 496 |
| | 500 |
| | 495 |
|
5.750% senior notes due January 15, 2024 | 1,000 |
| | 991 |
| | 1,000 |
| | 990 |
|
5.875% senior notes due April 1, 2024 | 1,700 |
| | 1,685 |
| | — |
| | — |
|
5.375% senior notes due May 1, 2025 | 750 |
| | 744 |
| | 750 |
| | 744 |
|
5.750% senior notes due February 15, 2026 | 2,500 |
| | 2,460 |
| | — |
| | — |
|
5.500% senior notes due May 1, 2026 | 1,500 |
| | 1,487 |
| | — |
| | — |
|
5.875% senior notes due May 1, 2027 | 800 |
| | 794 |
| | 800 |
| | 794 |
|
Charter Communications Operating, LLC: | | | | | | | |
3.579% senior notes due July 23, 2020 | 2,000 |
| | 1,983 |
| | — |
| | — |
|
4.464% senior notes due July 23, 2022 | 3,000 |
| | 2,973 |
| | — |
| | — |
|
4.908% senior notes due July 23, 2025 | 4,500 |
| | 4,458 |
| | — |
| | — |
|
6.384% senior notes due October 23, 2035 | 2,000 |
| | 1,980 |
| | — |
| | — |
|
6.484% senior notes due October 23, 2045 | 3,500 |
| | 3,466 |
| | — |
| | — |
|
6.834% senior notes due October 23, 2055 | 500 |
| | 495 |
| | — |
| | — |
|
Credit facilities | 8,916 |
| | 8,814 |
| | 3,552 |
| | 3,502 |
|
Time Warner Cable, LLC: | | | | | | | |
5.850% senior notes due May 1, 2017 | 2,000 |
| | 2,028 |
| | — |
| | — |
|
6.750% senior notes due July 1, 2018 | 2,000 |
| | 2,135 |
| | — |
| | — |
|
8.750% senior notes due February 14, 2019 | 1,250 |
| | 1,412 |
| | — |
| | — |
|
8.250% senior notes due April 1, 2019 | 2,000 |
| | 2,264 |
| | — |
| | — |
|
5.000% senior notes due February 1, 2020 | 1,500 |
| | 1,615 |
| | — |
| | — |
|
4.125% senior notes due February 15, 2021 | 700 |
| | 739 |
| | — |
| | — |
|
4.000% senior notes due September 1, 2021 | 1,000 |
| | 1,056 |
| | — |
| | — |
|
5.750% sterling senior notes due June 2, 2031 (a) | 770 |
| | 834 |
| | — |
| | — |
|
6.550% senior debentures due May 1, 2037 | 1,500 |
| | 1,691 |
| | — |
| | — |
|
7.300% senior debentures due July 1, 2038 | 1,500 |
| | 1,795 |
| | — |
| | — |
|
6.750% senior debentures due June 15, 2039 | 1,500 |
| | 1,730 |
| | — |
| | — |
|
5.875% senior debentures due November 15, 2040 | 1,200 |
| | 1,259 |
| | — |
| | — |
|
5.500% senior debentures due September 1, 2041 | 1,250 |
| | 1,258 |
| | — |
| | — |
|
5.250% sterling senior notes due July 15, 2042 (b) | 800 |
| | 771 |
| | — |
| | — |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
|
| | | | | | | | | | | | | | | |
4.500% senior debentures due September 15, 2042 | 1,250 |
| | 1,135 |
| | — |
| | — |
|
Time Warner Cable Enterprises LLC: | | | | | | | |
8.375% senior debentures due March 15, 2023 | 1,000 |
| | 1,273 |
| | — |
| | — |
|
8.375% senior debentures due July 15, 2033 | 1,000 |
| | 1,324 |
| | — |
| | — |
|
Total debt | 60,036 |
| | 61,747 |
| | 14,102 |
| | 13,945 |
|
Less current portion: | | | | | | | |
5.850% senior notes due May 1, 2017 | (2,000 | ) | | (2,028 | ) | | — |
| | — |
|
Long-term debt | $ | 58,036 |
| | $ | 59,719 |
| | $ | 14,102 |
| | $ | 13,945 |
|
| |
(a) | Principal amount includes £625 million valued at $770 million as of December 31, 2016 using the exchange rate at that date. |
| |
(b) | Principal amount includes £650 million valued at $800 million as of December 31, 2016 using the exchange rate at that date. |
The accreted values presented in the table above represent the principal amount of the debt less the original issue discount at the time of sale, deferred financing costs, and, (i) in regards to the Legacy TWC debt assumed, a fair value premium adjustment as a result of applying acquisition accounting plus/minus the accretion of those amounts to the balance sheet date and (ii) in regards to the fixed-rate British pound sterling denominated notes (the “Sterling Notes”), a remeasurement of the principal amount of the debt and any premium or discount into US dollars as of the balance sheet date. See Note 11. 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 the Charter Operating credit facilities of approximately $2.8 billion as of December 31, 2016.
In December 2016, Charter Operating entered into an amendment to its Credit Agreement decreasing the applicable LIBOR margin on the term loan A, term loan H, term loan I and revolver to 1.75%, 2.00%, 2.25% and 1.75%, respectively, eliminating the LIBOR floor on the term loan H and term loan I and extending the maturity of term loan H to 2022 and term loan I to 2024. The Company recorded a loss on extinguishment of debt of $1 million for the year ended December 31, 2016 related to these transactions.
In February 2016, CCO Holdings and CCO Holdings Capital jointly issued $1.7 billion aggregate principal amount of 5.875% senior notes due 2024 (the “2024 Notes”) and, in April 2016, they issued $1.5 billion aggregate principal amount of 5.500% senior notes due 2026 (the “2026 Notes”) at a price of 100.075% of the aggregate principal amount. The net proceeds from both issuances were used to repurchase all of CCO Holdings’ 7.000% senior notes due 2019, 7.375% senior notes due 2020 and 6.500% senior notes due 2021 and to pay related fees and expenses and for general corporate purposes. These debt repurchases resulted in a loss on extinguishment of debt of $110 million for the year ended December 31, 2016.
In April 2015, CCO Holdings and CCO Holdings Capital closed on transactions in which they issued $1.15 billion aggregate principal amount of 5.125% senior unsecured notes due 2023 (the “2023 Notes”), $750 million aggregate principal amount of 5.375% senior unsecured notes due 2025 (the “2025 Notes”) and $800 million aggregate principal amount of 5.875% senior unsecured notes due 2027 (the “2027 Notes”). The net proceeds from the issuance of the 2023 Notes and 2025 Notes were used to finance tender offers and a subsequent call in which $1.0 billion aggregate principal amount of CCO Holdings’ outstanding 7.250% senior notes due 2017 and $700 million aggregate principal amount of CCO Holdings’ outstanding 8.125% senior notes due 2020 were repurchased, as well as for general corporate purposes. The net proceeds from the issuance of the 2027 Notes were used to call $800 million of the $1.4 billion aggregate principal amount of CCO Holdings’ outstanding 7.000% senior notes due 2019. These debt repurchases resulted in a loss on extinguishment of debt of $123 million for the year ended December 31, 2015.
The Company also recorded a loss on extinguishment of debt of approximately $3 million for the year ended December 31, 2015 as a result of the repayment of debt upon termination of the proposed transactions with Comcast Corporation (“Comcast”).
As discussed in Note 2, upon consummation of the Transactions, CCOH Safari merged into CCO Holdings and CCO Safari II and CCO Safari III merged into Charter Operating and, as a result, the Company assumed $21.8 billion aggregate principal amount of debt. During the year ended December 31, 2015, Charter incurred interest expense on this debt of approximately $474 million.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
CCO Holdings Notes
The CCO Holdings notes are senior debt obligations of CCO Holdings and CCO Holdings Capital and rank equally with all other current and future unsecured, unsubordinated obligations of CCO Holdings and CCO Holdings Capital. They are structurally subordinated to all obligations of subsidiaries of CCO Holdings.
CCO Holdings may redeem some or all of the CCO Holdings 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 2017 through 2024.
In addition, at any time prior to varying dates in 2017 through 2021, CCO Holdings may redeem up to 35% (40% in regards to certain notes issued in 2015 and 2016) of the aggregate principal amount of the notes 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 CCO Holdings 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.
High-Yield Restrictive Covenants; Limitation on Indebtedness.
The indentures governing the CCO Holdings notes contain certain covenants that restrict the ability of CCO Holdings, CCO Holdings Capital and all of their restricted subsidiaries to:
incur additional debt;
pay dividends on equity or repurchase equity;
make investments;
sell all or substantially all of their assets or merge with or into other companies;
sell assets;
in the case of restricted subsidiaries, create or permit to exist dividend or payment restrictions with respect to CCO Holdings, guarantee their parent companies debt, or issue specified equity interests;
engage in certain transactions with affiliates; and
grant liens.
The above limitations in certain circumstances regarding incurrence of debt, payment of dividends and making investments contained in the indentures of CCO Holdings permit CCO Holdings and its restricted subsidiaries to perform the above, so long as, after giving pro forma effect to the above, the leverage ratio would be below a specified level for the issuer. The leverage ratio under the indentures is 6.0 to 1.0.
Charter Operating Notes
The Charter Operating notes are guaranteed by CCO Holdings, TWC, LLC (as defined below), TWCE (as defined below) and substantially all of the operating subsidiaries of Charter Operating (collectively, the “Subsidiary Guarantors”). In addition, the Charter Operating notes are secured by a perfected first priority security interest in substantially all of the assets of Charter Operating to the extent such liens can be perfected under the Uniform Commercial Code by the filing of a financing statement and the liens rank equally with the liens on the collateral securing obligations under the Charter Operating credit facilities. Charter Operating may redeem some or all of the Charter Operating notes at any time at a premium.
The Charter Operating notes are subject to the terms and conditions of the indenture governing the Charter Operating notes. The Charter Operating notes contain customary representations and warranties and affirmative covenants with limited negative covenants. The Charter Operating indenture also contains customary events of default.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
Charter Operating Credit Facilities
The Charter Operating credit facilities have an outstanding principal amount of $8.9 billion at December 31, 2016 as follows:
term loan A with a remaining principal amount of $2.5 billion, which is repayable in quarterly installments and aggregating $132 million in 2017 and 2018, $231 million in 2019 and $264 million in 2020, with the remaining balance due at final maturity on May 18, 2021. Pricing on term loan A is LIBOR plus 1.75%;
term loan E with a remaining principal amount of approximately $1.4 billion, which is repayable in equal quarterly installments and aggregating $15 million in each loan year, with the remaining balance due at final maturity on July 1, 2020. Pricing on term loan E is LIBOR plus 2.25% with a LIBOR floor of 0.75% (see Note 22 for amendments to the Charter Operating credit facilities completed in 2017);
term loan F with a remaining principal amount of approximately $1.2 billion, which is repayable in equal quarterly installments and aggregating $12 million in each loan year, with the remaining balance due at final maturity on January 3, 2021. Pricing on term loan F is LIBOR plus 2.25% with a LIBOR floor of 0.75% (see Note 22 for amendments to the Charter Operating credit facilities completed in 2017);
term loan H with a remaining principal amount of approximately $993 million, which is repayable in equal quarterly installments and aggregating $10 million in each loan year, with the remaining balance due at final maturity on January 15, 2022. Pricing on term loan H is LIBOR plus 2.00%;
term loan I with a remaining principal amount of approximately $2.8 billion, which is repayable in equal quarterly installments and aggregating $28 million in each loan year, with the remaining balance due at final maturity on January 15, 2024. Pricing on term loan I is LIBOR plus 2.25%; and
revolving loan allowing for borrowings of up to $3.0 billion, maturing on May 18, 2021. Pricing on the revolving loan is LIBOR plus 1.75% with a commitment fee of 0.30%. As of December 31, 2008,2016, $220 million of the Company had cashrevolving loan was utilized to collateralize a like principal amount of letters of credit out of $278 million of letters of credit issued on handthe Company’s behalf.
Amounts outstanding under the Charter Operating credit facilities bear interest, at Charter Operating’s election, at a base rate or LIBOR (0.77% and 0.42% as of $948 million.December 31, 2016 and December 31, 2015, respectively), as defined, plus an applicable margin.
The Charter Operating credit facilities also allow us to enter into incremental term loans in the future, with amortization as set forth in the notices establishing such term loans. Although the Charter Operating credit facilities allow for the incurrence of a certain amount of incremental term loans subject to pro forma compliance with its financial maintenance covenants, no assurance can be given that the Company has been able to refinance or otherwise fund the repayment of debtcould obtain additional incremental term loans in the past, it may notfuture if Charter Operating sought to do so or what amount of incremental term loans would be able to access additional sources of refinancing on similarallowable at any given time under the terms or pricing as those that are currently in place, or at all, or otherwise obtain other sources of funding, especially given the recent volatility and disruption of the capitalCharter Operating credit facilities.
The obligations of Charter Operating under the Charter Operating credit facilities are guaranteed by the Subsidiary Guarantors. The obligations are also secured by (i) a lien on substantially all of the assets of Charter Operating and the Subsidiary Guarantors, to the extent such lien can be perfected under the Uniform Commercial Code by the filing of a financing statement, and (ii) a pledge by CCO Holdings of the equity interests owned by it in any of Charter Operating’s subsidiaries, as well as intercompany obligations owing to it by any of such entities.
Restrictive Covenants
The Charter Operating credit facilities contain representations and warranties, and affirmative and negative covenants customary for financings of this type. The financial covenants measure performance against standards set for leverage to be tested as of the end of each quarter. The Charter Operating credit facilities contain provisions requiring mandatory loan prepayments under specific circumstances, including in connection with certain sales of assets, so long as the proceeds have not been reinvested in the business. Additionally, the Charter Operating credit facilities provisions contain an allowance for restricted payments so long as the consolidated leverage ratio is no greater than 3.5 after giving pro forma effect to such restricted payment. The Charter Operating credit facilities permit Charter Operating and its subsidiaries to make distributions to pay interest on the currently outstanding subordinated and parent company indebtedness, provided that, among other things, no default has occurred and is continuing under the Charter Operating credit facilities. The Charter Operating credit facilities also contain customary events of default.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
Assumed Legacy TWC Indebtedness
The Company assumed approximately $22.4 billion in aggregate principal amount of Time Warner Cable, LLC (successor to Legacy TWC outstanding debt obligations, “TWC, LLC”) senior notes and debentures and Time Warner Cable Enterprises LLC (“TWCE”) senior debentures with varying maturities. The Company applied acquisition accounting to Legacy TWC, and as a result, the debt assumed was adjusted to fair value using quoted market values as of the closing date. This fair value adjustment resulted in recognition of a net debt premium of approximately $2.4 billion.
TWC, LLC Senior Notes and Debentures
The TWC, LLC senior notes and debentures are guaranteed by CCO Holdings, Charter Operating, TWCE and the Subsidiary Guarantors and rank equally with the liens on the collateral securing obligations under the Charter Operating notes and credit marketsfacilities. Interest on each series of TWC, LLC senior notes and debentures is payable semi-annually (with the exception of the Sterling Notes, which is payable annually) in arrears.
The TWC, LLC indenture contains customary covenants relating to restrictions on the ability of TWC, LLC or any material subsidiary to create liens and on the ability of TWC, LLC and TWCE to consolidate, merge or convey or transfer substantially all of their assets. The TWC, LLC indenture also contains customary events of default.
The TWC, LLC senior notes and debentures may be redeemed in whole or in part at any time at TWC, LLC’s option at a redemption price equal to the greater of (i) all of the applicable principal amount being redeemed and (ii) the sum of the present values of the remaining scheduled payments on the applicable TWC, LLC senior notes and debentures discounted to the redemption date on a semi-annual basis (with the exception of the Sterling Notes, which are on an annual basis), at a comparable government bond rate plus a designated number of basis points as further described in the indenture and the deterioration of general economic conditionsapplicable note or debenture, plus, in recent months.each case, accrued but unpaid interest to, but not including, the redemption date.
The Company may offer to redeem all, but not less than all, of the Sterling Notes in the event of certain changes in the tax laws of the U.S. (or any taxing authority in the U.S.). This redemption would be at a redemption price equal to 100% of the principal amount, together with accrued and unpaid interest on the Sterling Notes to, but not including, the redemption date.
TWCE Senior Debentures
The TWCE senior debentures are guaranteed by CCO Holdings, Charter Operating, TWC, LLC and the Subsidiary Guarantors and rank equally with the liens on the collateral securing obligations under the Charter Operating notes and credit facilities. Interest on each series of TWCE senior debentures is payable semi-annually in arrears. The TWCE senior debentures are not redeemable before maturity.
The TWCE indenture contains customary covenants relating to restrictions on the ability of TWCE or any material subsidiary to create liens and on the ability of TWC, LLC and TWCE to consolidate, merge or convey or transfer substantially all of their assets. The TWCE indenture also contains customary events of default.
Limitations on DistributionsMultiple-Element Transactions
As long as Charter’s convertible senior notes remainIn the normal course of business, the Company enters into multiple-element transactions where it is simultaneously both a customer and a vendor with the same counterparty or in which it purchases multiple products and/or services, or settles outstanding and are not otherwise converted into sharesitems contemporaneous with the purchase of common stock, Charter must pay interesta product or service from a single counterparty. Transactions, although negotiated contemporaneously, may be documented in one or more contracts. The Company’s policy for accounting for each transaction negotiated contemporaneously is to record each element of the transaction based on the convertible senior notesrespective estimated fair values of the products or services purchased and repay the principal amount. Charter’s abilityproducts or services sold. In determining the fair value of the respective elements, the Company refers to make interest payments on its convertible senior notes, and to repayquoted market prices (where available), historical transactions or comparable cash transactions. Cash consideration received from a vendor is recorded as a reduction in the outstanding principalprice of its convertible senior notes will depend on its ability to raise additional capital and/the vendor’s product unless (i) the consideration is for the reimbursement of a specific, incremental, identifiable cost incurred, in which case the cash consideration received would be recorded as a reduction in such cost (e.g., marketing costs), or on receipt of payments or distributions from Charter Holdco and its subsidiaries. As of December 31, 2008, Charter Holdco was owed $13 million(ii) an identifiable benefit in intercompany loans from Charter Communications Operating, LLC (“Charter Operating”) and had $1 millionexchange for the consideration is provided, in cash, which amounts were available to pay interest and principal on Charter's convertible senior notes to the extent not otherwise used,case revenue would be recognized for example, to satisfy maturities at Charter Holdings. In addition, as long as Charter Holdco continues to hold the $137 million of Charter Holdings’ notes due 2009 and 2010 (as discussed further below), Charter Holdco will receive interest and principal payments from Charter Holdings to the extent Charter Holdings is able to make such payments. Such amounts may be available to pay interest and principal on Charter’s convertible senior notes, although Charter Holdco may use those amounts for other purposes. this element.
Distributions by Charter’s subsidiaries to a parent company for payment of principal on parent company notes,Stock-Based Compensation
Restricted stock, restricted stock units, stock options as well as equity awards with market conditions are restricted under the indentures governing the Company’s and its parent companies’ notes, and under the CCO Holdings credit facility, unless there is no default under the applicable indenture and credit facilities, and unless each applicable subsidiary’s leverage ratio test is metmeasured at the timegrant date fair value and amortized to stock compensation expense over the requisite service period. The fair value of such distribution. Foroptions is estimated on the quarter ended December 31, 2008, there was no default under anydate of these indentures or credit facilities. However, certaingrant using the Black-Scholes option-pricing model and the fair value of Charter’s subsidiaries did not meet their applicable leverage ratio tests basedequity awards with market conditions is estimated on December 31, 2008 financial results. As a result, distributions from certainthe date of Charter’s subsidiaries to their parent companies would have been restricted at such time and will continue to be restricted unless those tests are met. Distributions by Charter Operating for payment of principal on parent company notes are further restricted bygrant using Monte Carlo simulations. The grant date weighted average assumptions used during the covenants in its credit facilities.years
Distributions by CIH, CCH I, CCH II, CCO Holdings, and Charter Operating to a parent company for payment of parent company interest are permitted if there is no default under the aforementioned indentures and CCO Holdings credit facility.
The indentures governing the Charter Holdings notes permit Charter Holdings to make distributions to Charter Holdco for payment of interest or principal on Charter’s convertible senior notes, only if, after giving effect to the
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 20072016, 2015 AND 20062014
(dollars in millions, except where indicated)
distribution, Charter Holdings can incur additional debt under the leverage ratio of 8.75 to 1.0, there is no default under Charter Holdings’ indentures, and other specified tests are met. For the quarter ended December 31, 2008, there was no default under Charter Holdings’ indentures,2016, 2015 and 2014, respectively, were: risk-free interest rate of 1.7%, 1.5% and 2.0%; expected volatility of 25.4%, 34.7% and 36.9%; and expected lives of 1.3 years, 6.5 years and 6.5 years. Weighted average assumptions for 2016 include the other specified testsassumptions used for the Converted TWC Awards. Volatility assumptions were met, and Charter Holdings met its leverage ratio test based on December 31, 2008 financial results. Such distributions would be restricted, however, ifhistorical volatility of Legacy Charter Holdings failsand Legacy TWC. The Company’s volatility assumptions represent management’s best estimate and were partially based on historical volatility of Legacy TWC due to meet these tests at the timecompletion of the contemplated distribution. In the past, Charter Holdings has from time to time failed to meet this leverage ratio test. There can beTransactions. Expected lives were estimated using historical exercise data. The valuations assume no assurance that Charter Holdings will satisfy these tests at the time of the contemplated distribution. During periods in which distributionsdividends are restricted, the indentures governing the Charter Holdings notes permit Charter Holdings and its subsidiaries to make specified investments (that are not restricted payments) in Charter Holdco or Charter, up to an amount determined by a formula, as long as there is no default under the indentures. paid.
InPension Plans
The Company sponsors the TWC Pension Plan, TWC Union Pension Plan and TWC Excess Pension Plan (as defined in Note 19). Pension benefits are based on formulas that reflect the employees’ years of service and compensation during their employment period. Actuarial gains or losses are changes in the amount of either the benefit obligation or the fair value of plan assets resulting from experience different from that assumed or from changes in assumptions. The Company has elected to follow a mark-to-market pension accounting policy for recording the actuarial gains or losses annually during the fourth quarter, or earlier if a remeasurement event occurs during an interim period.
Income Taxes
CCO Holdings is a single member limited liability company not subject to income tax. CCO Holdings holds all operations through indirect subsidiaries. The majority of these indirect subsidiaries are limited liability companies that are not subject to income tax. Certain indirect subsidiaries that are required to file separate returns are subject to federal and state tax. CCO Holdings’ tax provision reflects the tax provision of the entities required to file separate returns. The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of these indirect subsidiaries' assets and liabilities and expected benefits of utilizing loss carryforwards. The impact on deferred taxes of changes in tax rates and tax law, if any, applied to the years during which temporary differences are expected to be settled, are reflected in the consolidated financial statements in the period of enactment. See Note 16.
Charter, the Company’s indirect parent company, is subject to income taxes. Accordingly, in addition to the limitationCompany’s deferred tax liabilities, Charter has recorded net deferred tax liabilities of approximately $26.7 billion as December 31, 2016 related to their investment in Charter Holdings, net of loss carryforwards, which is not reflected at the Company.
Segments
The Company’s operations are managed and reported to its Chief Executive Officer (“CEO”), the Company’s chief operating decision maker, on distributions undera consolidated basis. The CEO assesses performance and allocates resources based on the various indentures discussed above, distributions by Charter’s subsidiaries, includingconsolidated results of operations. Under this organizational and reporting structure, the Company may be limited by applicable law. Under the Delaware Limited Liability Company Act, Charter’s subsidiaries may only make distributions if they have “surplus” as definedhas one reportable segment, cable services.
4. Allowance for Doubtful Accounts
Activity in the act. Under fraudulent transfer laws, Charter’s subsidiaries may not pay dividends if they are insolvent or are rendered insolvent thereby. The measures of insolvencyallowance for purposes of these fraudulent transfer laws vary depending upondoubtful accounts is summarized as follows for the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, an entity would be considered insolvent if:years presented:
· | the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all its assets; |
· | the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or |
· | it could not pay its debts as they became due. |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2016 | | 2015 | | 2014 |
Balance, beginning of period | $ | 21 |
| | $ | 22 |
| | $ | 19 |
|
Charged to expense | 328 |
| | 135 |
| | 122 |
|
Uncollected balances written off, net of recoveries | (225 | ) | | (136 | ) | | (119 | ) |
Balance, end of period | $ | 124 |
| | $ | 21 |
| | $ | 22 |
|
It is uncertain whether Charter’s subsidiaries, including the Company, will have, at the relevant times, sufficient surplus at the relevant subsidiaries to make distributions, including for payments of interest and principal on the debts of the parents of such entities, and there can otherwise be no assurance that Charter’s subsidiaries will not become insolvent or will be permitted to make distributions in the future in compliance with these restrictions in amounts needed to service parent company indebtedness.
3. Summary of Significant Accounting Policies
Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. These investments are carried at cost, which approximates market value. Cash and cash equivalents consist primarily of money market funds and commercial paper.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, including all material, labor and certain indirect costs associated with the construction of cable transmission and distribution facilities. While the Company’s capitalization is based on specific activities, once capitalized, costs are tracked by fixed asset category at the cable system level and not on a specific asset basis. For assets that are sold or retired, the estimated historical cost and related accumulated depreciation is removed. Costs associated with initial customer installations and the additions of network equipment necessary to enable advanced services are capitalized. Costs capitalized as part of initial customer installations include materials, labor, and certain indirect costs. Indirect costs are associated with the activities of the Company’s personnel who assist in connecting and activating the new service and consist of compensation and indirect costs associated with these support functions. Indirect costs primarily include employee benefits and payroll taxes, direct variable costs associated with capitalizable activities, consisting primarily of installation and construction vehicle costs, the cost of dispatch personnel and indirect costs directly attributable to capitalizable activities. The costs of disconnecting service at a customer’s dwelling or reconnecting service to a previously installed dwelling are charged to operating expense in the period incurred. Costs for repairs and maintenance are charged to operating expense as
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 20072016, 2015 AND 20062014
(dollars in millions, except where indicated)
5. Property, Plant and Equipment
incurred, while
Property, plant and equipment replacement and betterments, including replacement of cable drops from the pole to the dwelling, are capitalized.
Depreciation is recorded using the straight-line composite method over management’s estimateconsists of the following as of December 31, 2016 and 2015:
|
| | | | | | | | |
| | December 31, |
| | 2016 | | 2015 |
Cable distribution systems | | $ | 23,314 |
| | $ | 8,158 |
|
Customer premise equipment and installations | | 12,867 |
| | 4,632 |
|
Vehicles and equipment | | 1,187 |
| | 379 |
|
Buildings and improvements | | 3,194 |
| | 540 |
|
Furniture, fixtures and equipment | | 3,241 |
| | 1,117 |
|
| | 43,803 |
| | 14,826 |
|
Less: accumulated depreciation | | (11,085 | ) | | (6,509 | ) |
| | $ | 32,718 |
| | $ | 8,317 |
|
The Company periodically evaluates the estimated useful lives used to depreciate its assets and the estimated amount of assets that will be abandoned or have minimal use in the future. A significant change in assumptions about the extent or timing of future asset retirements, or in the Company’s use of new technology and upgrade programs, could materially affect future depreciation expense.
Depreciation expense for the years ended December 31, 2016, 2015 and 2014 was $5.0 billion, $1.9 billion, and $1.8 billion, respectively. Property, plant and equipment increased by $24.3 billion as a result of the related assets as follows:
Cable distribution systems | | 7-20 years |
Customer equipment and installations | | 3-5 years |
Vehicles and equipment | | 1-5 years |
Buildings and leasehold improvements | | 5-15 years |
Furniture, fixtures and equipment | | 5 years |
Asset Retirement Obligations
Certain of the Company’s franchise agreements and leases contain provisions requiring the Company to restore facilities or remove equipment in the event that the franchise or lease agreement is not renewed. The Company expects to continually renew its franchise agreements and has concluded that substantially all of the related franchise rights are indefinite lived intangible assets. Accordingly, the possibility is remote that the Company would be required to incur significant restoration or removal costs related to these franchise agreements in the foreseeable future. Statement of Financial Accounting Standards (“SFAS”) No. 143, Accounting for Asset Retirement Obligations, as interpreted by Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 47, Accounting for Conditional Asset Retirement Obligations – an Interpretation of FASB Statement No. 143, requires that a liability be recognized for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. The Company has not recorded an estimate for potential franchise related obligations but would record an estimated liability in the unlikely event a franchise agreement containing such a provision were no longer expected to be renewed. The Company also expects to renew many of its lease agreements related to the continued operation of its cable business in the franchise areas. For the Company’s lease agreements, the estimated liabilities related to the removal provisions, where applicable, have been recorded and are not significant to the financial statements.Transactions. See Note 2.
6. Franchises, Goodwill and Other Intangible Assets
Franchise rights represent the value attributed to agreements or authorizations with local and state authorities that allow access to homes in cable service areas acquired throughareas. For valuation purposes, they are defined as the purchasefuture economic benefits of cable systems. the right to solicit and service potential customers (customer marketing rights), and the right to deploy and market new services to potential customers (service marketing rights).
Management estimates the fair value of franchise rights at the date of acquisition and determines if the franchise has a finite life or an indefinite-lifeindefinite life. The Company has concluded that all of its franchises, including those acquired as defined by SFAS No. 142, Goodwill and Other Intangible Assets. All franchises thatpart of the Transactions, qualify for indefinite-lifeindefinite life treatment under SFAS No. 142given that there are no longer amortized against earnings but insteadlegal, regulatory, contractual, competitive, economic or other factors which limit the period over which these rights will contribute to our cash flows. We reassess this determination periodically or whenever events or substantive changes in circumstances occur.
The estimated fair value of franchises is determined utilizing an income approach model based on the present value of the estimated discrete future cash flows attributable to each of the intangible assets identified assuming a discount rate. The fair value of franchises is determined based on estimated discrete discounted future cash flows using assumptions consistent with internal forecasts. The franchise after-tax cash flow is calculated as the after-tax cash flow generated by the potential customers obtained. The sum of the present value of the franchises’ after-tax cash flow in years 1 through 10 and the continuing value of the after-tax cash flow beyond year 10 yields the fair value of the franchises.
This approach makes use of unobservable factors such as projected revenues, expenses, capital expenditures, customer trends, and a discount rate applied to the estimated cash flows. The determination of the franchise discount rate is derived from the Company’s weighted average cost of capital, which uses a market participant’s cost of equity and after-tax cost of debt and reflects the risks inherent in the cash flows. The Company estimates discounted future cash flows using reasonable and appropriate assumptions including among others, penetration rates for video, Internet, and voice; revenue growth rates; operating margins; and capital expenditures. The assumptions are based on the Company’s and its peers’ historical operating performance adjusted for current and expected competitive and economic factors surrounding the cable industry. The estimates and assumptions made in the Company’s valuations are inherently subject to significant uncertainties, many of which are beyond its control, and there is no assurance that these results can be achieved. The primary assumptions for which there is a reasonable possibility of the occurrence of a variation that would significantly affect the measurement value include the assumptions regarding revenue growth,
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
programming expense growth rates, the amount and timing of capital expenditures, actual customer trends and the discount rate utilized.
All franchises are tested for impairment annually or more frequently as warranted by events or changes in circumstances. Franchise assets are aggregated into essentially inseparable units of accounting to conduct valuations. The units of accounting generally represent geographical clustering of our cable systems into groups. The Company assesses qualitative factors to determine whether the existence of events or circumstances (see Note 7). Theleads to a determination that it is more likely than not that an indefinite lived intangible asset has been impaired. If, after this optional qualitative assessment, the Company determines that it is not more likely than not that an indefinite lived intangible asset has been impaired, then no further quantitative testing is necessary. In completing the qualitative impairment testing, the Company evaluates a multitude of factors that affect the fair value of our franchise assets. Examples of such factors include environmental and competitive changes within our operating footprint, actual and projected operating performance, the consistency of our operating margins, equity and debt market trends, including changes in our market capitalization, and changes in our regulatory and political landscape, among other factors. After consideration of the qualitative factors, in 2016 the Company concluded that substantially all of its franchises qualify for indefinite-life treatment. Costs incurred in renewing cable franchises are deferred and amortized over 10 years.
Other Noncurrent Assets
Other noncurrent assets primarily include deferred financing costs, investments in equity securities and goodwill. Costs related to borrowings are deferred and amortized to interest expense overit is more likely than not that the termsfair value of the related borrowings.franchise assets in each unit of accounting exceeds the carrying value of such assets and therefore did not perform a quantitative analysis. Periodically, the Company will elect to perform a quantitative analysis for impairment testing. If the Company elects or is required to perform a quantitative analysis to test its franchise assets for impairment, the methodology described above is utilized.
InvestmentsThe fair value of goodwill is determined using both an income approach and market approach. The Company’s income approach model used for its goodwill valuation is consistent with that used for its franchise valuation noted above except that cash flows from the entire business enterprise are used for the goodwill valuation. The Company’s market approach model estimates the fair value of the reporting unit based on market prices in equity securities are accountedactual precedent transactions of similar businesses and market valuations of guideline public companies. Goodwill is tested for at cost,impairment as of November 30 of each year, or more frequently as warranted by events or changes in circumstances. Accounting guidance also permits an optional qualitative assessment for goodwill to determine whether it is more likely than not that the carrying value of a reporting unit exceeds its fair value. If, after this qualitative assessment, the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount then no further quantitative testing would be necessary. If the Company elects or is required to perform the two-step test under the equityaccounting guidance, the first step involves a comparison of the estimated fair value of the reporting unit to its carrying amount. If the estimated fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired and the second step of the goodwill impairment is not necessary. If the carrying amount of a reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed, and a comparison of the implied fair value of the reporting unit’s goodwill is compared to its carrying amount to determine the amount of impairment, if any. As with the Company’s franchise impairment testing, in 2016 the Company elected to perform a qualitative goodwill impairment assessment and concluded that goodwill is not impaired.
Customer relationships are recorded at fair value as of the date acquired less accumulated amortization. Customer relationships, for valuation purposes, represent the value of the business relationship with existing customers, and are calculated by projecting the discrete future after-tax cash flows from these customers, including the right to deploy and market additional services to these customers. The present value of these after-tax cash flows yields the fair value of the customer relationships. The use of different valuation assumptions or definitions of franchises or customer relationships, such as our inclusion of the value of selling additional services to our current customers within customer relationships versus franchises, could significantly impact our valuations and any resulting impairment. Customer relationships are amortized on an accelerated sum of years’ digits method over useful lives of accounting or in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities.8-15 years based on the period over which current customers are expected to generate cash flows. The Company recognizes losses for any decline in value considered to be other than temporary.
Valuation of Property, Plant and Equipment
The Companyperiodically evaluates the recoverabilityremaining useful lives of long-lived assetsits customer relationships to be held and useddetermine whether events or circumstances warrant revision to the remaining periods of amortization. Customer relationships are evaluated for impairment whenupon the occurrence of events or changes in circumstances indicateindicating that the carrying amount of an asset may not be recoverable. Such events or changes in circumstances could include such factors asCustomer relationships are deemed impaired when the carrying value exceeds the projected undiscounted future cash flows associated with the customer relationships. No impairment of customer relationships was recorded in the Company’s indefinite life franchise underyears ended December 31, 2016, 2015 or 2014.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 20072016, 2015 AND 20062014
(dollars in millions, except where indicated)
SFAS No. 142, changes in technological advances, fluctuationsAs of December 31, 2016 and 2015, indefinite-lived and finite-lived intangible assets are presented in the fair valuefollowing table:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2016 | | 2015 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Indefinite-lived intangible assets: | | | | | | | | | | | | |
Franchises | | $ | 67,316 |
| | $ | — |
| | $ | 67,316 |
| | $ | 6,006 |
| | $ | — |
| | $ | 6,006 |
|
Goodwill | | 29,509 |
| | — |
| | 29,509 |
| | 1,168 |
| | — |
| | 1,168 |
|
Other intangible assets | | 4 |
| | — |
| | 4 |
| | 4 |
| | — |
| | 4 |
|
| | $ | 96,829 |
| | $ | — |
| | $ | 96,829 |
| | $ | 7,178 |
| | $ | — |
| | $ | 7,178 |
|
| | | | | | | | | | | | |
Finite-lived intangible assets: | | | | | | | | | | | | |
Customer relationships | | $ | 18,226 |
| | $ | (3,618 | ) | | $ | 14,608 |
| | $ | 2,616 |
| | $ | (1,760 | ) | | $ | 856 |
|
Other intangible assets | | 615 |
| | (128 | ) | | 487 |
| | 173 |
| | (82 | ) | | 91 |
|
| | $ | 18,841 |
| | $ | (3,746 | ) | | $ | 15,095 |
| | $ | 2,789 |
| | $ | (1,842 | ) | | $ | 947 |
|
Other intangible assets consist primarily of suchright-of-entry costs. Amortization expense related to customer relationships and other intangible assets adverse changes in relationships with local franchise authorities, adverse changes in market conditions or a deterioration of operating results. If a review indicates that the carrying value of such asset is not recoverable from estimated undiscounted cash flows, the carrying value of such asset is reduced to its estimated fair value. While the Company believes that its estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect its evaluations of asset recoverability. No impairments of long-lived assets to be held and used were recorded in 2008, 2007, and 2006; however, approximately $56 million and $159 million of impairment on assets held for sale was recorded for the years ended December 31, 20072016, 2015 and 2006,2014 was $1.9 billion, $271 million and $299 million, respectively. Franchises, goodwill and customer relationships increased by $61.3 billion, $28.3 billion and $15.6 billion, respectively, (seeas a result of the Transactions. See Note 4).
Derivative Financial Instruments
The Company accounts for derivative financial instruments in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. For those instruments which qualify as hedging activities, related gains or losses are recorded in accumulated other comprehensive income (loss). For all other derivative instruments, the related gains or losses are recorded in the statements of operations. The Company uses interest rate swap agreements to manage its interest costs and reduce the Company’s exposure to increases in floating interest rates. The Company’s policy is to manage its exposure to fluctuations in interest rates by maintaining a mix of fixed and variable rate debt within a targeted range. Using interest rate swap agreements, the Company agrees to exchange, at specified intervals through 2013, the difference between fixed and variable interest amounts calculated by reference to agreed-upon notional principal amounts. At the banks’ option, certain interest rate swap agreements may be extended through 2014. The Company does not hold or issue any derivative financial instruments for trading purposes.2.
Revenue Recognition
Revenues from residential and commercial video, high-speed Internet and telephone services are recognized when the related services are provided. Advertising sales are recognized at estimated realizable values in the period that the advertisements are broadcast. Franchise fees imposed by local governmental authorities are collected on a monthly basis from the Company’s customers and are periodically remitted to local franchise authorities. Franchise fees of $187 million, $177 million, and $179 million for the years ended December 31, 2008, 2007, and 2006, respectively, are reported in other revenues, on a gross basis with a corresponding operating expense. Sales taxes collected and remitted to state and local authorities are recorded on a net basis.
The Company’s revenues by product line are as follows:
| | Year Ended December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | |
Video | | $ | 3,463 | | | $ | 3,392 | | | $ | 3,349 | |
High-speed Internet | | | 1,356 | | | | 1,243 | | | | 1,047 | |
Telephone | | | 555 | | | | 345 | | | | 137 | |
Commercial | | | 392 | | | | 341 | | | | 305 | |
Advertising sales | | | 308 | | | | 298 | | | | 319 | |
Other | | | 405 | | | | 383 | | | | 347 | |
| | | | | | | | | | | | |
| | $ | 6,479 | | | $ | 6,002 | | | $ | 5,504 | |
Programming Costs
The Company has various contractsexpects amortization expense on its finite-lived intangible assets will be as follows.
|
| | | | |
2017 | | $ | 2,743 |
|
2018 | | 2,461 |
|
2019 | | 2,178 |
|
2020 | | 1,886 |
|
2021 | | 1,602 |
|
Thereafter | | 4,225 |
|
| | $ | 15,095 |
|
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.
7. Investments
In connection with the Transactions, the Company acquired approximately $508 million of Legacy TWC and Legacy Bright House equity-method and cost-method investments, which were adjusted to obtain basic, digitalfair value as a result of applying acquisition accounting. The equity-method investments acquired include Sterling Entertainment Enterprises, LLC (“Sterling” - d/b/a SportsNet New York - 26.8% owned), MLB Network, LLC (“MLB Network” - 6.4% owned), iN Demand L.L.C. (“iN Demand” - 39.8% owned) and premium videoNational Cable Communications LLC (“NCC” - 20.0% owned), among other less significant equity-method and cost-method investments. Sterling and MLB Network are primarily engaged in the development of sports programming from program suppliers whose compensation is typically basedservices. iN Demand provides programming on a flat fee per customer. The cost of the rightvideo on demand, pay-per-view and subscription basis. NCC represents multi-video program distributors to exhibit network programming under such arrangements is recorded in operating expenses in the month the programming is available for exhibition. Programming costs are paid each month based on calculations performed by the Company and are subject to periodic audits performed by the programmers. Certain programming contracts contain incentives to beadvertisers.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 20072016, 2015 AND 20062014
(dollars in millions, except where indicated)
Investments consisted of the following as of December 31, 2016 and 2015:
paid by
|
| | | | | | | | |
| | December 31, |
| | 2016 | | 2015 |
Equity-method investments | | 477 |
| | — |
|
Other investments | | 11 |
| | 2 |
|
Total investments | | $ | 488 |
| | $ | 2 |
|
The Company's equity-method investments balance as of December 31, 2016 reflected in the programmers. table above includes differences between the acquisition date fair value of certain investments acquired in the Transactions and the underlying equity in the net assets of the investee, referred to as a basis difference. As discussed in Note 2, this basis difference is amortized as a component of equity earnings. The remaining unamortized basis difference is $436 million as of December 31, 2016.
The Company receivesapplies the equity method of accounting to these payments related toand other less significant equity-method investments, all of which are recorded in other noncurrent assets in the activationconsolidated balance sheets as of December 31, 2016 and 2015. For the programmer’s cable television channelyear ended December 31, 2016, net losses from equity-method investments were $3 million which were recorded in other expense, net in the consolidated statements of operations, and recognizes the incentives on a straight-line basis over the life of the programming agreement as a reduction of programming expense. This offset to programming expense was $33 million, $25 million, and $32 million for the years ended December 31, 2008, 2007,2015 and 2006, respectively.2014, gains (losses) from equity-method investments were insignificant.
Noncontrolling interests assumed in the Transactions were recorded at fair value on the acquisition date and primarily relate to the third-party interest in CV of Viera, LLP, the Company’s consolidated joint venture in a small cable system in Florida. For the year ended December 31, 2016, net income attributable to noncontrolling interest was $1 million.
In 2015, noncontrolling interest included the 2% accretion of the preferred membership interests in CC VIII, LLC (“CC VIII”) plus approximately 18.6% of CC VIII’s income, net of accretion. On December 31, 2015, the CC VIII preferred interest held by CCH I, LLC was contributed to CC VIII and subsequently canceled.
8. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following as of December 31, 2016 and 2015:
|
| | | | | | | |
| December 31, |
| 2016 | | 2015 |
Accounts payable – trade | $ | 416 |
| | $ | 112 |
|
Deferred revenue | 352 |
| | 96 |
|
Accrued liabilities: | | | |
Programming costs | 1,783 |
| | 451 |
|
Compensation | 953 |
| | 118 |
|
Capital expenditures | 1,107 |
| | 296 |
|
Interest | 958 |
| | 167 |
|
Taxes and regulatory fees | 529 |
| | 126 |
|
Other | 799 |
| | 110 |
|
| $ | 6,897 |
| | $ | 1,476 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
9. Long-Term Debt
Long-term debt consists of the following as of December 31, 2016 and 2015:
|
| | | | | | | | | | | | | | | |
| December 31, |
| 2016 | | 2015 |
| Principal Amount | | Accreted Value | | Principal Amount | | Accreted Value |
CCO Holdings, LLC: | | | | | | | |
7.000% senior notes due January 15, 2019 | $ | — |
| | $ | — |
| | $ | 600 |
| | $ | 594 |
|
7.375% senior notes due June 1, 2020 | — |
| | — |
| | 750 |
| | 744 |
|
5.250% senior notes due March 15, 2021 | 500 |
| | 496 |
| | 500 |
| | 496 |
|
6.500% senior notes due April 30, 2021 | — |
| | — |
| | 1,500 |
| | 1,487 |
|
6.625% senior notes due January 31, 2022 | 750 |
| | 741 |
| | 750 |
| | 740 |
|
5.250% senior notes due September 30, 2022 | 1,250 |
| | 1,232 |
| | 1,250 |
| | 1,229 |
|
5.125% senior notes due February 15, 2023 | 1,000 |
| | 992 |
| | 1,000 |
| | 990 |
|
5.125% senior notes due May 1, 2023 | 1,150 |
| | 1,141 |
| | 1,150 |
| | 1,140 |
|
5.750% senior notes due September 1, 2023 | 500 |
| | 496 |
| | 500 |
| | 495 |
|
5.750% senior notes due January 15, 2024 | 1,000 |
| | 991 |
| | 1,000 |
| | 990 |
|
5.875% senior notes due April 1, 2024 | 1,700 |
| | 1,685 |
| | — |
| | — |
|
5.375% senior notes due May 1, 2025 | 750 |
| | 744 |
| | 750 |
| | 744 |
|
5.750% senior notes due February 15, 2026 | 2,500 |
| | 2,460 |
| | — |
| | — |
|
5.500% senior notes due May 1, 2026 | 1,500 |
| | 1,487 |
| | — |
| | — |
|
5.875% senior notes due May 1, 2027 | 800 |
| | 794 |
| | 800 |
| | 794 |
|
Charter Communications Operating, LLC: | | | | | | | |
3.579% senior notes due July 23, 2020 | 2,000 |
| | 1,983 |
| | — |
| | — |
|
4.464% senior notes due July 23, 2022 | 3,000 |
| | 2,973 |
| | — |
| | — |
|
4.908% senior notes due July 23, 2025 | 4,500 |
| | 4,458 |
| | — |
| | — |
|
6.384% senior notes due October 23, 2035 | 2,000 |
| | 1,980 |
| | — |
| | — |
|
6.484% senior notes due October 23, 2045 | 3,500 |
| | 3,466 |
| | — |
| | — |
|
6.834% senior notes due October 23, 2055 | 500 |
| | 495 |
| | — |
| | — |
|
Credit facilities | 8,916 |
| | 8,814 |
| | 3,552 |
| | 3,502 |
|
Time Warner Cable, LLC: | | | | | | | |
5.850% senior notes due May 1, 2017 | 2,000 |
| | 2,028 |
| | — |
| | — |
|
6.750% senior notes due July 1, 2018 | 2,000 |
| | 2,135 |
| | — |
| | — |
|
8.750% senior notes due February 14, 2019 | 1,250 |
| | 1,412 |
| | — |
| | — |
|
8.250% senior notes due April 1, 2019 | 2,000 |
| | 2,264 |
| | — |
| | — |
|
5.000% senior notes due February 1, 2020 | 1,500 |
| | 1,615 |
| | — |
| | — |
|
4.125% senior notes due February 15, 2021 | 700 |
| | 739 |
| | — |
| | — |
|
4.000% senior notes due September 1, 2021 | 1,000 |
| | 1,056 |
| | — |
| | — |
|
5.750% sterling senior notes due June 2, 2031 (a) | 770 |
| | 834 |
| | — |
| | — |
|
6.550% senior debentures due May 1, 2037 | 1,500 |
| | 1,691 |
| | — |
| | — |
|
7.300% senior debentures due July 1, 2038 | 1,500 |
| | 1,795 |
| | — |
| | — |
|
6.750% senior debentures due June 15, 2039 | 1,500 |
| | 1,730 |
| | — |
| | — |
|
5.875% senior debentures due November 15, 2040 | 1,200 |
| | 1,259 |
| | — |
| | — |
|
5.500% senior debentures due September 1, 2041 | 1,250 |
| | 1,258 |
| | — |
| | — |
|
5.250% sterling senior notes due July 15, 2042 (b) | 800 |
| | 771 |
| | — |
| | — |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
|
| | | | | | | | | | | | | | | |
4.500% senior debentures due September 15, 2042 | 1,250 |
| | 1,135 |
| | — |
| | — |
|
Time Warner Cable Enterprises LLC: | | | | | | | |
8.375% senior debentures due March 15, 2023 | 1,000 |
| | 1,273 |
| | — |
| | — |
|
8.375% senior debentures due July 15, 2033 | 1,000 |
| | 1,324 |
| | — |
| | — |
|
Total debt | 60,036 |
| | 61,747 |
| | 14,102 |
| | 13,945 |
|
Less current portion: | | | | | | | |
5.850% senior notes due May 1, 2017 | (2,000 | ) | | (2,028 | ) | | — |
| | — |
|
Long-term debt | $ | 58,036 |
| | $ | 59,719 |
| | $ | 14,102 |
| | $ | 13,945 |
|
| |
(a) | Principal amount includes £625 million valued at $770 million as of December 31, 2016 using the exchange rate at that date. |
| |
(b) | Principal amount includes £650 million valued at $800 million as of December 31, 2016 using the exchange rate at that date. |
The accreted values presented in the table above represent the principal amount of the debt less the original issue discount at the time of sale, deferred financing costs, and, (i) in regards to the Legacy TWC debt assumed, a fair value premium adjustment as a result of applying acquisition accounting plus/minus the accretion of those amounts to the balance sheet date and (ii) in regards to the fixed-rate British pound sterling denominated notes (the “Sterling Notes”), a remeasurement of the principal amount of the debt and any premium or discount into US dollars as of the balance sheet date. See Note 11. 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 the Charter Operating credit facilities of approximately $2.8 billion as of December 31, 2016.
In December 2016, Charter Operating entered into an amendment to its Credit Agreement decreasing the applicable LIBOR margin on the term loan A, term loan H, term loan I and revolver to 1.75%, 2.00%, 2.25% and 1.75%, respectively, eliminating the LIBOR floor on the term loan H and term loan I and extending the maturity of term loan H to 2022 and term loan I to 2024. The Company recorded a loss on extinguishment of debt of $1 million for the year ended December 31, 2016 related to these transactions.
In February 2016, CCO Holdings and CCO Holdings Capital jointly issued $1.7 billion aggregate principal amount of 5.875% senior notes due 2024 (the “2024 Notes”) and, in April 2016, they issued $1.5 billion aggregate principal amount of 5.500% senior notes due 2026 (the “2026 Notes”) at a price of 100.075% of the aggregate principal amount. The net proceeds from both issuances were used to repurchase all of CCO Holdings’ 7.000% senior notes due 2019, 7.375% senior notes due 2020 and 6.500% senior notes due 2021 and to pay related fees and expenses and for general corporate purposes. These debt repurchases resulted in a loss on extinguishment of debt of $110 million for the year ended December 31, 2016.
In April 2015, CCO Holdings and CCO Holdings Capital closed on transactions in which they issued $1.15 billion aggregate principal amount of 5.125% senior unsecured notes due 2023 (the “2023 Notes”), $750 million aggregate principal amount of 5.375% senior unsecured notes due 2025 (the “2025 Notes”) and $800 million aggregate principal amount of 5.875% senior unsecured notes due 2027 (the “2027 Notes”). The net proceeds from the issuance of the 2023 Notes and 2025 Notes were used to finance tender offers and a subsequent call in which $1.0 billion aggregate principal amount of CCO Holdings’ outstanding 7.250% senior notes due 2017 and $700 million aggregate principal amount of CCO Holdings’ outstanding 8.125% senior notes due 2020 were repurchased, as well as for general corporate purposes. The net proceeds from the issuance of the 2027 Notes were used to call $800 million of the $1.4 billion aggregate principal amount of CCO Holdings’ outstanding 7.000% senior notes due 2019. These debt repurchases resulted in a loss on extinguishment of debt of $123 million for the year ended December 31, 2015.
The Company also recorded a loss on extinguishment of debt of approximately $3 million for the year ended December 31, 2015 as a result of the repayment of debt upon termination of the proposed transactions with Comcast Corporation (“Comcast”).
As discussed in Note 2, upon consummation of the Transactions, CCOH Safari merged into CCO Holdings and CCO Safari II and CCO Safari III merged into Charter Operating and, as a result, the Company assumed $21.8 billion aggregate principal amount of debt. During the year ended December 31, 2015, Charter incurred interest expense on this debt of approximately $474 million.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
CCO Holdings Notes
The CCO Holdings notes are senior debt obligations of CCO Holdings and CCO Holdings Capital and rank equally with all other current and future unsecured, unsubordinated obligations of CCO Holdings and CCO Holdings Capital. They are structurally subordinated to all obligations of subsidiaries of CCO Holdings.
CCO Holdings may redeem some or all of the CCO Holdings 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 2017 through 2024.
In addition, at any time prior to varying dates in 2017 through 2021, CCO Holdings may redeem up to 35% (40% in regards to certain notes issued in 2015 and 2016) of the aggregate principal amount of the notes 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 CCO Holdings 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.
High-Yield Restrictive Covenants; Limitation on Indebtedness.
The indentures governing the CCO Holdings notes contain certain covenants that restrict the ability of CCO Holdings, CCO Holdings Capital and all of their restricted subsidiaries to:
incur additional debt;
pay dividends on equity or repurchase equity;
make investments;
sell all or substantially all of their assets or merge with or into other companies;
sell assets;
in the case of restricted subsidiaries, create or permit to exist dividend or payment restrictions with respect to CCO Holdings, guarantee their parent companies debt, or issue specified equity interests;
engage in certain transactions with affiliates; and
grant liens.
The above limitations in certain circumstances regarding incurrence of debt, payment of dividends and making investments contained in the indentures of CCO Holdings permit CCO Holdings and its restricted subsidiaries to perform the above, so long as, after giving pro forma effect to the above, the leverage ratio would be below a specified level for the issuer. The leverage ratio under the indentures is 6.0 to 1.0.
Charter Operating Notes
The Charter Operating notes are guaranteed by CCO Holdings, TWC, LLC (as defined below), TWCE (as defined below) and substantially all of the operating subsidiaries of Charter Operating (collectively, the “Subsidiary Guarantors”). In addition, the Charter Operating notes are secured by a perfected first priority security interest in substantially all of the assets of Charter Operating to the extent such liens can be perfected under the Uniform Commercial Code by the filing of a financing statement and the liens rank equally with the liens on the collateral securing obligations under the Charter Operating credit facilities. Charter Operating may redeem some or all of the Charter Operating notes at any time at a premium.
The Charter Operating notes are subject to the terms and conditions of the indenture governing the Charter Operating notes. The Charter Operating notes contain customary representations and warranties and affirmative covenants with limited negative covenants. The Charter Operating indenture also contains customary events of default.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
Charter Operating Credit Facilities
The Charter Operating credit facilities have an outstanding principal amount of $8.9 billion at December 31, 2016 as follows:
term loan A with a remaining principal amount of $2.5 billion, which is repayable in quarterly installments and aggregating $132 million in 2017 and 2018, $231 million in 2019 and $264 million in 2020, with the remaining balance due at final maturity on May 18, 2021. Pricing on term loan A is LIBOR plus 1.75%;
term loan E with a remaining principal amount of approximately $1.4 billion, which is repayable in equal quarterly installments and aggregating $15 million in each loan year, with the remaining balance due at final maturity on July 1, 2020. Pricing on term loan E is LIBOR plus 2.25% with a LIBOR floor of 0.75% (see Note 22 for amendments to the Charter Operating credit facilities completed in 2017);
term loan F with a remaining principal amount of approximately $1.2 billion, which is repayable in equal quarterly installments and aggregating $12 million in each loan year, with the remaining balance due at final maturity on January 3, 2021. Pricing on term loan F is LIBOR plus 2.25% with a LIBOR floor of 0.75% (see Note 22 for amendments to the Charter Operating credit facilities completed in 2017);
term loan H with a remaining principal amount of approximately $993 million, which is repayable in equal quarterly installments and aggregating $10 million in each loan year, with the remaining balance due at final maturity on January 15, 2022. Pricing on term loan H is LIBOR plus 2.00%;
term loan I with a remaining principal amount of approximately $2.8 billion, which is repayable in equal quarterly installments and aggregating $28 million in each loan year, with the remaining balance due at final maturity on January 15, 2024. Pricing on term loan I is LIBOR plus 2.25%; and
revolving loan allowing for borrowings of up to $3.0 billion, maturing on May 18, 2021. Pricing on the revolving loan is LIBOR plus 1.75% with a commitment fee of 0.30%. As of December 31, 20082016, $220 million of the revolving loan was utilized to collateralize a like principal amount of letters of credit out of $278 million of letters of credit issued on the Company’s behalf.
Amounts outstanding under the Charter Operating credit facilities bear interest, at Charter Operating’s election, at a base rate or LIBOR (0.77% and 2007,0.42% as of December 31, 2016 and December 31, 2015, respectively), as defined, plus an applicable margin.
The Charter Operating credit facilities also allow us to enter into incremental term loans in the deferred amountsfuture, with amortization as set forth in the notices establishing such term loans. Although the Charter Operating credit facilities allow for the incurrence of a certain amount of incremental term loans subject to pro forma compliance with its financial maintenance covenants, no assurance can be given that the Company could obtain additional incremental term loans in the future if Charter Operating sought to do so or what amount of incremental term loans would be allowable at any given time under the terms of the Charter Operating credit facilities.
The obligations of Charter Operating under the Charter Operating credit facilities are guaranteed by the Subsidiary Guarantors. The obligations are also secured by (i) a lien on substantially all of the assets of Charter Operating and the Subsidiary Guarantors, to the extent such lien can be perfected under the Uniform Commercial Code by the filing of a financing statement, and (ii) a pledge by CCO Holdings of the equity interests owned by it in any of Charter Operating’s subsidiaries, as well as intercompany obligations owing to it by any of such economic consideration, includedentities.
Restrictive Covenants
The Charter Operating credit facilities contain representations and warranties, and affirmative and negative covenants customary for financings of this type. The financial covenants measure performance against standards set for leverage to be tested as of the end of each quarter. The Charter Operating credit facilities contain provisions requiring mandatory loan prepayments under specific circumstances, including in other long-term liabilities, were $61 million and $90 million, respectively. Programming costs includedconnection with certain sales of assets, so long as the proceeds have not been reinvested in the accompanying statementbusiness. Additionally, the Charter Operating credit facilities provisions contain an allowance for restricted payments so long as the consolidated leverage ratio is no greater than 3.5 after giving pro forma effect to such restricted payment. The Charter Operating credit facilities permit Charter Operating and its subsidiaries to make distributions to pay interest on the currently outstanding subordinated and parent company indebtedness, provided that, among other things, no default has occurred and is continuing under the Charter Operating credit facilities. The Charter Operating credit facilities also contain customary events of operations were $1.6default.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
Assumed Legacy TWC Indebtedness
The Company assumed approximately $22.4 billion $1.6 billion,in aggregate principal amount of Time Warner Cable, LLC (successor to Legacy TWC outstanding debt obligations, “TWC, LLC”) senior notes and $1.5 billion fordebentures and Time Warner Cable Enterprises LLC (“TWCE”) senior debentures with varying maturities. The Company applied acquisition accounting to Legacy TWC, and as a result, the years ended December 31, 2008, 2007,debt assumed was adjusted to fair value using quoted market values as of the closing date. This fair value adjustment resulted in recognition of a net debt premium of approximately $2.4 billion.
TWC, LLC Senior Notes and 2006, respectively.Debentures
Advertising CostsThe TWC, LLC senior notes and debentures are guaranteed by CCO Holdings, Charter Operating, TWCE and the Subsidiary Guarantors and rank equally with the liens on the collateral securing obligations under the Charter Operating notes and credit facilities. Interest on each series of TWC, LLC senior notes and debentures is payable semi-annually (with the exception of the Sterling Notes, which is payable annually) in arrears.
Advertising costs associatedThe TWC, LLC indenture contains customary covenants relating to restrictions on the ability of TWC, LLC or any material subsidiary to create liens and on the ability of TWC, LLC and TWCE to consolidate, merge or convey or transfer substantially all of their assets. The TWC, LLC indenture also contains customary events of default.
The TWC, LLC senior notes and debentures may be redeemed in whole or in part at any time at TWC, LLC’s option at a redemption price equal to the greater of (i) all of the applicable principal amount being redeemed and (ii) the sum of the present values of the remaining scheduled payments on the applicable TWC, LLC senior notes and debentures discounted to the redemption date on a semi-annual basis (with the exception of the Sterling Notes, which are on an annual basis), at a comparable government bond rate plus a designated number of basis points as further described in the indenture and the applicable note or debenture, plus, in each case, accrued but unpaid interest to, but not including, the redemption date.
The Company may offer to redeem all, but not less than all, of the Sterling Notes in the event of certain changes in the tax laws of the U.S. (or any taxing authority in the U.S.). This redemption would be at a redemption price equal to 100% of the principal amount, together with marketingaccrued and unpaid interest on the Company’s productsSterling Notes to, but not including, the redemption date.
TWCE Senior Debentures
The TWCE senior debentures are guaranteed by CCO Holdings, Charter Operating, TWC, LLC and servicesthe Subsidiary Guarantors and rank equally with the liens on the collateral securing obligations under the Charter Operating notes and credit facilities. Interest on each series of TWCE senior debentures is payable semi-annually in arrears. The TWCE senior debentures are generally expensed as costs are incurred. Such advertising expense was $229 million, $187 million,not redeemable before maturity.
The TWCE indenture contains customary covenants relating to restrictions on the ability of TWCE or any material subsidiary to create liens and $131 million foron the years ended December 31, 2008, 2007,ability of TWC, LLC and 2006, respectively.TWCE to consolidate, merge or convey or transfer substantially all of their assets. The TWCE indenture also contains customary events of default.
Multiple-Element Transactions
In the normal course of business, the Company enters into multiple-element transactions where it is simultaneously both a customer and a vendor with the same counterparty or in which it purchases multiple products and/or services, or settles outstanding items contemporaneous with the purchase of a product or service from a single counterparty. Transactions, although negotiated contemporaneously, may be documented in one or more contracts. The Company’s policy for accounting for each transaction negotiated contemporaneously is to record each element of the transaction based on the respective estimated fair values of the products or services purchased and the products or services sold. In determining the fair value of the respective elements, the Company refers to quoted market prices (where available), historical transactions or comparable cash transactions.
Stock-Based Compensation
The Company accounts Cash consideration received from a vendor is recorded as a reduction in the price of the vendor’s product unless (i) the consideration is for stock-based compensation in accordance with SFAS No. 123(R), Share – Based Payment, which addresses the accounting for share-based payment transactionsreimbursement of a specific, incremental, identifiable cost incurred, in which case the cash consideration received would be recorded as a company receives employee servicesreduction in such cost (e.g., marketing costs), or (ii) an identifiable benefit in exchange for (a)the consideration is provided, in which case revenue would be recognized for this element.
Stock-Based Compensation
Restricted stock, restricted stock units, stock options as well as equity instruments of that company or (b) liabilities thatawards with market conditions are based onmeasured at the grant date fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. The Company recorded $33 million, $18 million, and $13 million of optionamortized to stock compensation expense which is included in general and administrative expenses forover the years ended December 31, 2008, 2007, and 2006, respectively.
requisite service period. The fair value of each option grantedoptions is estimated on the date of grant using the Black-Scholes option-pricing model.model and the fair value of equity awards with market conditions is estimated on the date of grant using Monte Carlo simulations. The followinggrant date weighted average assumptions were used for grants during the years
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
ended December 31, 2008, 2007,2016, 2015 and 2006, respectively;2014, respectively, were: risk-free interest ratesrate of 3.5%1.7%, 4.6%,1.5% and 4.6%2.0%; expected volatility of 88.1%25.4%, 70.3%,34.7% and 87.3% based on historical volatility;36.9%; and expected lives of 6.31.3 years, 6.36.5 years and 6.3 years, respectively.6.5 years. Weighted average assumptions for 2016 include the assumptions used for the Converted TWC Awards. Volatility assumptions were based on historical volatility of Legacy Charter and Legacy TWC. The Company’s volatility assumptions represent management’s best estimate and were partially based on historical volatility of Legacy TWC due to the completion of the Transactions. Expected lives were estimated using historical exercise data. The valuations assume no dividends are paid.
Pension Plans
The Company sponsors the TWC Pension Plan, TWC Union Pension Plan and TWC Excess Pension Plan (as defined in Note 19). Pension benefits are based on formulas that reflect the employees’ years of service and compensation during their employment period. Actuarial gains or losses are changes in the amount of either the benefit obligation or the fair value of plan assets resulting from experience different from that assumed or from changes in assumptions. The Company has elected to follow a mark-to-market pension accounting policy for recording the actuarial gains or losses annually during the fourth quarter, or earlier if a remeasurement event occurs during an interim period.
Income Taxes
CCO Holdings is a single member limited liability company not subject to income tax. CCO Holdings holds all operations through indirect subsidiaries. The majority of these indirect subsidiaries are limited liability companies that are also not subject to income tax. However, certain of the limited liability companiesCertain indirect subsidiaries that are required to file separate returns are subject to federal and state income tax. In addition, certain of CCO Holdings’ indirect subsidiaries are corporations that are subjecttax provision reflects the tax provision of the entities required to income tax.file separate returns. The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of these indirect corporate subsidiaries’subsidiaries' assets and liabilities and expected benefits of utilizing net operating loss carryforwards. The impact on deferred taxes of changes in tax rates and tax law, if any, applied to the years during which temporary differences are expected to be settled, are reflected in the consolidated financial statements in the period of enactment (seeenactment. See Note 19).
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
16.
Charter, ourthe Company’s indirect parent company, is subject to income taxes. Accordingly, in addition to the Company’s deferred tax liabilities, Charter has recorded net deferred tax liabilities of approximately $379 million$26.7 billion as December 31, 2016 related to their approximate 53% investment in Charter HoldcoHoldings, net of loss carryforwards, which is not reflected at the Company.
Segments
SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information, established standards for reporting information about operating segments in annual financial statements and in interim financial reports issued to shareholders. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance of the segment.
The Company’s operations are managed and reported to its 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 basisconsolidated results of geographic operating segments. The Company has evaluated the criteria for aggregation of the geographic operating segments under paragraph 17 of SFAS No. 131operations. Under this organizational and believes it meets each of the respective criteria set forth. The Company delivers similar products and services within each of its geographic operations. Each geographic service area utilizes similar means for delivering the programming of the Company’s services; have similarity in the type or class of customer receiving the products and services; distributes the Company’s services over a unified network; and operates within a consistent regulatory environment. In addition, each of the geographic operating segments has similar economic characteristics. In light of the Company’s similar services, means for delivery, similarity in type of customers, the use of a unified network and other considerations across its geographic operatingreporting structure, management has determined that the Company has one reportable segment, broadbandcable services.
4. Sale of Assets
In 2006, the Company sold certain cable television systems serving approximately 356,000 video customers in 1) West Virginia and Virginia to Cebridge Connections, Inc. (the “Cebridge Transaction”); 2) Illinois and Kentucky to Telecommunications Management, LLC, doing business as New Wave Communications (the “New Wave Transaction”) and 3) Nevada, Colorado, New Mexico and Utah to Orange Broadband Holding Company, LLC (the “Orange Transaction”) for a total sales price of approximately $971 million. The Company used the net proceeds from the asset sales to reduce borrowings, but not commitments, under the revolving portion of the Company’s credit facilities. These cable systems met the criteria for assets held for sale. As such, the assets were written down to fair value less estimated costs to sell, resulting in asset impairment charges during the year ended December 31, 2006 of approximately $99 million related to the New Wave Transaction and the Orange Transaction. The Company determined that the West Virginia and Virginia cable systems comprise operations and cash flows that for financial reporting purposes meet the criteria for discontinued operations. Accordingly, the results of operations for the West Virginia and Virginia cable systems have been presented as discontinued operations, net of tax, for the year ended December 31, 2006, including a gain of $200 million on the sale of cable systems.
Summarized consolidated financial information for the years ended December 31, 2006 for the West Virginia and Virginia cable systems is as follows:
| | Year Ended December 31, 2006 | |
Revenues | | $ | 109 | |
Income before income taxes | | $ | 238 | |
Income tax expense | | $ | (22 | ) |
Net income | | $ | 216 | |
Earnings per common share, basic and diluted | | $ | 0.65 | |
In 2007 and 2006, the Company recorded asset impairment charges of $56 million and $60 million, respectively, related to other cable systems meeting the criteria of assets held for sale.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
5.4. Allowance for Doubtful Accounts
Activity in the allowance for doubtful accounts is summarized as follows for the years presented:
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2016 | | 2015 | | 2014 |
Balance, beginning of period | $ | 21 |
| | $ | 22 |
| | $ | 19 |
|
Charged to expense | 328 |
| | 135 |
| | 122 |
|
Uncollected balances written off, net of recoveries | (225 | ) | | (136 | ) | | (119 | ) |
Balance, end of period | $ | 124 |
| | $ | 21 |
| | $ | 22 |
|
| | Year Ended December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | |
Balance, beginning of year | | $ | 18 | | | $ | 16 | | | $ | 17 | |
Charged to expense | | | 122 | | | | 107 | | | | 89 | |
Uncollected balances written off, net of recoveries | | | (122 | ) | | | (105 | ) | | | (90 | ) |
| | | | | | | | | | | | |
Balance, end of year | | $ | 18 | | | $ | 18 | | | $ | 16 | |
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
5. Property, Plant and Equipment
Property, plant and equipment consists of the following as of December 31, 20082016 and 2007:2015:
|
| | | | | | | | |
| | December 31, |
| | 2016 | | 2015 |
Cable distribution systems | | $ | 23,314 |
| | $ | 8,158 |
|
Customer premise equipment and installations | | 12,867 |
| | 4,632 |
|
Vehicles and equipment | | 1,187 |
| | 379 |
|
Buildings and improvements | | 3,194 |
| | 540 |
|
Furniture, fixtures and equipment | | 3,241 |
| | 1,117 |
|
| | 43,803 |
| | 14,826 |
|
Less: accumulated depreciation | | (11,085 | ) | | (6,509 | ) |
| | $ | 32,718 |
| | $ | 8,317 |
|
| | 2008 | | | 2007 | |
| | | | | | |
Cable distribution systems | | $ | 7,008 | | | $ | 6,697 | |
Customer equipment and installations | | | 4,057 | | | | 3,740 | |
Vehicles and equipment | | | 256 | | | | 257 | |
Buildings and leasehold improvements | | | 439 | | | | 426 | |
Furniture, fixtures and equipment | | | 390 | | | | 384 | |
| | | | | | | | |
| | | 12,150 | | | | 11,504 | |
Less: accumulated depreciation | | | (7,191 | ) | | | (6,432 | ) |
| | | | | | | | |
| | $ | 4,959 | | | $ | 5,072 | |
The Company periodically evaluates the estimated useful lives used to depreciate its assets and the estimated amount of assets that will be abandoned or have minimal use in the future. A significant change in assumptions about the extent or timing of future asset retirements, or in the Company’s use of new technology and upgrade programs, could materially affect future depreciation expense. In 2007,
Depreciation expense for the Company changed the useful lives of certain property,years ended December 31, 2016, 2015 and 2014 was $5.0 billion, $1.9 billion, and $1.8 billion, respectively. Property, plant and equipment based on technological changes. The change in useful lives reduced depreciation expenseincreased by approximately $81 million and $8 million during 2008 and 2007, respectively.
Depreciation expense for each$24.3 billion as a result of the years ended December 31, 2008, 2007, and 2006 was $1.3 billion.Transactions. See Note 2.
6. Franchises, Goodwill and Other Intangible Assets
Franchise rights represent the value attributed to agreements or authorizations with local and state authorities that allow access to homes in cable service areas. Management estimates the fair value of franchise rights at the date of acquisition and determines if the franchise has a finite life or an indefinite-life as defined by SFAS No. 142, Goodwill and Other Intangible Assets. Franchises that qualify for indefinite-life treatment under SFAS No. 142 are tested for impairment annually, or more frequently as warranted by events or changes in circumstances. Franchises are aggregated into essentially inseparable units of accounting to conduct the valuations. The units of accounting generally represent geographical clustering of the Company’s cable systems into groups by which such systems are managed. Management believes such grouping represents the highest and best use of those assets. The Company has historically assessed that its divisional operations were the appropriate level at which the Company’s franchises should be evaluated. Based on certain organizational changes in 2008, the Company determined that the appropriate units of accounting for franchises are now the individual market area, which is a level below the Company’s geographic divisional groupings previously used. The organizational change in 2008 consolidated the Company’s three divisions to two operating groups and put more management focus on the individual market areas. The
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
Company completed its impairment assessment as of December 31, 2008 upon completion of its 2009 budgeting process. Largely driven by the impact of the current economic downturn along with increased competition, the Company lowered its projected revenue and expense growth rates, and accordingly revised its estimates of future cash flows as compared to those used in prior valuations. As a result, the Company recorded $1.5 billion of impairment for the year ended December 31, 2008. The Company recorded $178 million of impairment for the year ended December 31, 2007. TheFor valuation completed for 2006 showed franchise fair values in excess of book value, and thus resulted in no impairment.
The Company’s valuations, which are based on the present value of projected after tax cash flows, result in a value of property, plant and equipment, franchises, customer relationships, and its total entity value. The value of goodwill is the difference between the total entity value and amounts assigned to the other assets.
Franchises, for valuation purposes, they are defined as the future economic benefits of the right to solicit and service potential customers (customer marketing rights), and the right to deploy and market new services such as interactivity and telephone, to the potential customers (service marketing rights). Fair
Management estimates the fair value of franchise rights at the date of acquisition and determines if the franchise has a finite life or an indefinite life. The Company has concluded that all of its franchises, including those acquired as part of the Transactions, qualify for indefinite life treatment given that there are no legal, regulatory, contractual, competitive, economic or other factors which limit the period over which these rights will contribute to our cash flows. We reassess this determination periodically or whenever events or substantive changes in circumstances occur.
The estimated fair value of franchises is determined utilizing an income approach model based on the present value of the estimated discrete future cash flows attributable to each of the intangible assets identified assuming a discount rate. The fair value of franchises is determined based on estimated discrete discounted future cash flows using assumptions consistent with internal forecasts. The franchise after-tax cash flow is calculated as the after-tax cash flow generated by the potential customers obtained (less the anticipated customer churn), and the new services added to those customers in future periods.obtained. The sum of the present value of the franchises'franchises’ after-tax cash flow in years 1 through 10 and the continuing value of the after-tax cash flow beyond year 10 yields the fair value of the franchise.franchises.
This approach makes use of unobservable factors such as projected revenues, expenses, capital expenditures, customer trends, and a discount rate applied to the estimated cash flows. The determination of the franchise discount rate is derived from the Company’s weighted average cost of capital, which uses a market participant’s cost of equity and after-tax cost of debt and reflects the risks inherent in the cash flows. The Company estimates discounted future cash flows using reasonable and appropriate assumptions including among others, penetration rates for video, Internet, and voice; revenue growth rates; operating margins; and capital expenditures. The assumptions are based on the Company’s and its peers’ historical operating performance adjusted for current and expected competitive and economic factors surrounding the cable industry. The estimates and assumptions made in the Company’s valuations are inherently subject to significant uncertainties, many of which are beyond its control, and there is no assurance that these results can be achieved. The primary assumptions for which there is a reasonable possibility of the occurrence of a variation that would significantly affect the measurement value include the assumptions regarding revenue growth,
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
programming expense growth rates, the amount and timing of capital expenditures, actual customer trends and the discount rate utilized.
All franchises are tested for impairment annually or more frequently as warranted by events or changes in circumstances. Franchise assets are aggregated into essentially inseparable units of accounting to conduct valuations. The units of accounting generally represent geographical clustering of our cable systems into groups. The Company assesses qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that an indefinite lived intangible asset has been impaired. If, after this optional qualitative assessment, the Company determines that it is not more likely than not that an indefinite lived intangible asset has been impaired, then no further quantitative testing is necessary. In completing the qualitative impairment testing, the Company evaluates a multitude of factors that affect the fair value of our franchise assets. Examples of such factors include environmental and competitive changes within our operating footprint, actual and projected operating performance, the consistency of our operating margins, equity and debt market trends, including changes in our market capitalization, and changes in our regulatory and political landscape, among other factors. After consideration of the qualitative factors, in 2016 the Company concluded that it is more likely than not that the fair value of the franchise assets in each unit of accounting exceeds the carrying value of such assets and therefore did not perform a quantitative analysis. Periodically, the Company will elect to perform a quantitative analysis for impairment testing. If the Company elects or is required to perform a quantitative analysis to test its franchise assets for impairment, the methodology described above is utilized.
The fair value of goodwill is determined using both an income approach and market approach. The Company’s income approach model used for its goodwill valuation is consistent with that used for its franchise valuation noted above except that cash flows from the entire business enterprise are used for the goodwill valuation. The Company’s market approach model estimates the fair value of the reporting unit based on market prices in actual precedent transactions of similar businesses and market valuations of guideline public companies. Goodwill is tested for impairment as of November 30 of each year, or more frequently as warranted by events or changes in circumstances. Accounting guidance also permits an optional qualitative assessment for goodwill to determine whether it is more likely than not that the carrying value of a reporting unit exceeds its fair value. If, after this qualitative assessment, the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount then no further quantitative testing would be necessary. If the Company elects or is required to perform the two-step test under the accounting guidance, the first step involves a comparison of the estimated fair value of the reporting unit to its carrying amount. If the estimated fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired and the second step of the goodwill impairment is not necessary. If the carrying amount of a reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed, and a comparison of the implied fair value of the reporting unit’s goodwill is compared to its carrying amount to determine the amount of impairment, if any. As with the Company’s franchise impairment testing, in 2016 the Company elected to perform a qualitative goodwill impairment assessment and concluded that goodwill is not impaired.
Customer relationships are recorded at fair value as of the date acquired less accumulated amortization. Customer relationships, for valuation purposes, represent the value of the business relationship with existing customers, (less the anticipated customer churn), and are calculated by projecting the discrete future after-tax cash flows from these customers, including the right to deploy and market additional services to these customers. The present value of these after-tax cash flows yields the fair value of the customer relationships. Substantially all acquisitions occurred priorThe use of different valuation assumptions or definitions of franchises or customer relationships, such as our inclusion of the value of selling additional services to January 1, 2002.our current customers within customer relationships versus franchises, could significantly impact our valuations and any resulting impairment. Customer relationships are amortized on an accelerated sum of years’ digits method over useful lives of 8-15 years based on the period over which current customers are expected to generate cash flows. The Company didperiodically evaluates the remaining useful lives of its customer relationships to determine whether events or circumstances warrant revision to the remaining periods of amortization. Customer relationships are evaluated for impairment upon the occurrence of events or changes in circumstances indicating that the carrying amount of an asset may not record anybe recoverable. Customer relationships are deemed impaired when the carrying value exceeds the projected undiscounted future cash flows associated with the customer relationship intangibles related to those acquisitions. For acquisitions subsequent to January 1, 2002,relationships. No impairment of customer relationships was recorded in the Company did assign a value to the customer relationship intangible, which is amortized over its estimated useful life.
As of years ended December 31, 2008 and 2007, indefinite-lived and finite-lived intangible assets are presented in the following table:2016, 2015 or 2014.
| | | December 31, |
| | | 2008 | | 2007 |
| | | Gross | | | | | | Net | | | Gross | | | | | | Net |
| | | Carrying | | | Accumulated | | | Carrying | | | Carrying | | | Accumulated | | | Carrying |
| | | Amount | | | Amortization | | | Amount | | | Amount | | | Amortization | | | Amount |
| | | | | | | | | | | | | | | | | | |
Indefinite-lived intangible assets: | | | | | | | | | | | | | | | | | | |
| Franchises with indefinite lives | | $ | 7,377 | | $ | -- | | $ | 7,377 | | $ | 8,929 | | $ | -- | | $ | 8,929 |
| Goodwill | | | 68 | | | -- | | | 68 | | | 67 | | | -- | | | 67 |
| | | | | | | | | | | | | | | | | | | |
| | $ | 7,445 | | $ | -- | | $ | 7,445 | | $ | 8,996 | | $ | -- | | $ | 8,996 |
| | | | | | | | | | | | | | | | | | | |
Finite-lived intangible assets: | | | | | | | | | | | | | | | | | | |
| Franchises with finite lives | | $ | 16 | | $ | 9 | | $ | 7 | | $ | 23 | | $ | 10 | | $ | 13 |
| Other intangible assets | | | 71 | | | 41 | | | 30 | | | 97 | | | 73 | | | 24 |
| | | $ | 87 | | $ | 50 | | $ | 37 | | $ | 120 | | $ | 83 | | $ | 37 |
Franchise amortization expense represents the amortization relating to franchises that did not qualify for indefinite-life treatment under SFAS No. 142, including costs associated with franchise renewals. During the year ended December 31, 2008, the net carrying amount of indefinite-lived franchises was reduced by $1.5 billion as a result of the impairment of franchises discussed above, $32 million related to cable asset sales completed in 2008, and $4 million as a result of the finalization of purchase accounting related to cable asset acquisitions. Additionally, during the year ended December 31, 2008, approximately $5 million of franchises that were previously classified as finite-lived were reclassified to indefinite-lived, based on management’s assessment when these franchises migrated to
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 20072016, 2015 AND 20062014
(dollars in millions, except where indicated)
state-wide franchising. For the year endedAs of December 31, 2007,2016 and 2015, indefinite-lived and finite-lived intangible assets are presented in the net carrying amountfollowing table:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2016 | | 2015 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Indefinite-lived intangible assets: | | | | | | | | | | | | |
Franchises | | $ | 67,316 |
| | $ | — |
| | $ | 67,316 |
| | $ | 6,006 |
| | $ | — |
| | $ | 6,006 |
|
Goodwill | | 29,509 |
| | — |
| | 29,509 |
| | 1,168 |
| | — |
| | 1,168 |
|
Other intangible assets | | 4 |
| | — |
| | 4 |
| | 4 |
| | — |
| | 4 |
|
| | $ | 96,829 |
| | $ | — |
| | $ | 96,829 |
| | $ | 7,178 |
| | $ | — |
| | $ | 7,178 |
|
| | | | | | | | | | | | |
Finite-lived intangible assets: | | | | | | | | | | | | |
Customer relationships | | $ | 18,226 |
| | $ | (3,618 | ) | | $ | 14,608 |
| | $ | 2,616 |
| | $ | (1,760 | ) | | $ | 856 |
|
Other intangible assets | | 615 |
| | (128 | ) | | 487 |
| | 173 |
| | (82 | ) | | 91 |
|
| | $ | 18,841 |
| | $ | (3,746 | ) | | $ | 15,095 |
| | $ | 2,789 |
| | $ | (1,842 | ) | | $ | 947 |
|
Other intangible assets consist primarily of indefinite-lived franchisesright-of-entry costs. Amortization expense related to customer relationships and other intangible assets for the years ended December 31, 2016, 2015 and 2014 was reduced$1.9 billion, $271 million and $299 million, respectively. Franchises, goodwill and customer relationships increased by $178 million$61.3 billion, $28.3 billion and $15.6 billion, respectively, as a result of the impairment of franchises discussed above, $77 million related to cable asset sales completed in 2007, and $56 million as a result of the asset impairment charges recorded related to these cable asset sales. These decreases were offset by $33 million of franchises added as a result of acquisitions of cable assets.Transactions. See Note 2.
Franchise amortization expense for the years ended December 31, 2008, 2007, and 2006 was $2 million, $3 million, and $2 million, respectively. During the year ended December 31, 2008, the net carrying amount of finite-lived franchises increased $1 million as a result of costs incurred associated with franchise renewals. Other intangible assets amortization expense for the years ended December 31, 2008, 2007 and 2006 was $5 million, $4 million, and $4 million, respectively. The Company expects that amortization expense on franchise assets and otherits finite-lived intangible assets will be approximately $7 million annually for each of the next five years. as follows.
|
| | | | |
2017 | | $ | 2,743 |
|
2018 | | 2,461 |
|
2019 | | 2,178 |
|
2020 | | 1,886 |
|
2021 | | 1,602 |
|
Thereafter | | 4,225 |
|
| | $ | 15,095 |
|
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.
7. Investments
In connection with the Transactions, the Company acquired approximately $508 million of Legacy TWC and Accrued ExpensesLegacy Bright House equity-method and cost-method investments, which were adjusted to fair value as a result of applying acquisition accounting. The equity-method investments acquired include Sterling Entertainment Enterprises, LLC (“Sterling” - d/b/a SportsNet New York - 26.8% owned), MLB Network, LLC (“MLB Network” - 6.4% owned), iN Demand L.L.C. (“iN Demand” - 39.8% owned) and National Cable Communications LLC (“NCC” - 20.0% owned), among other less significant equity-method and cost-method investments. Sterling and MLB Network are primarily engaged in the development of sports programming services. iN Demand provides programming on a video on demand, pay-per-view and subscription basis. NCC represents multi-video program distributors to advertisers.
Accounts payable and accrued expenses consist of the following as of December 31, 2008 and 2007:
| | 2008 | | | 2007 | |
| | | | | | |
Accounts payable – trade | | $ | 86 | | | $ | 116 | |
Accrued capital expenditures | | | 56 | | | | 95 | |
Accrued expenses: | | | | | | | | |
Interest | | | 122 | | | | 120 | |
Programming costs | | | 305 | | | | 273 | |
Franchise related fees | | | 60 | | | | 66 | |
Compensation | | | 80 | | | | 75 | |
Other | | | 200 | | | | 184 | |
| | | | | | | | |
| | $ | 909 | | | $ | 929 | |
9. Long-Term Debt
Long-term debt consists of the following as of December 31, 2008 and 2007:
| | 2008 | | | 2007 | |
| | Principal | | | Accreted | | | Principal | | | Accreted | |
| | Amount | | | Value | | | Amount | | | Value | |
CCO Holdings, LLC: | | | | | | | | | | | | |
8 3/4% senior notes due November 15, 2013 | | $ | 800 | | | $ | 796 | | | $ | 800 | | | $ | 795 | |
Credit facility | | | 350 | | | | 350 | | | | 350 | | | | 350 | |
Charter Communications Operating, LLC: | | | | | | | | | | | | | | | | |
8.000% senior second-lien notes due April 30, 2012 | | | 1,100 | | | | 1,100 | | | | 1,100 | | | | 1,100 | |
8 3/8% senior second-lien notes due April 30, 2014 | | | 770 | | | | 770 | | | | 770 | | | | 770 | |
10.875% senior second-lien notes due September 15, 2014 | | | 546 | | | | 527 | | | | -- | | | | -- | |
Credit facilities | | | 8,246 | | | | 8,246 | | | | 6,844 | | | | 6,844 | |
Total Debt | | $ | 11,812 | | | $ | 11,789 | | | $ | 9,864 | | | $ | 9,859 | |
Less: Current Portion | | | 70 | | | | 70 | | | | -- | | | | -- | |
Long-Term Debt | | $ | 11,742 | | | $ | 11,719 | | | $ | 9,864 | | | $ | 9,859 | |
The accreted values presented above generally represent the principal amount of the notes less the original issue discount at the time of sale, plus the accretion to the balance sheet date. However, the current accreted value for
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 20072016, 2015 AND 20062014
(dollars in millions, except where indicated)
Investments consisted of the following as of December 31, 2016 and 2015:
legal purposes
|
| | | | | | | | |
| | December 31, |
| | 2016 | | 2015 |
Equity-method investments | | 477 |
| | — |
|
Other investments | | 11 |
| | 2 |
|
Total investments | | $ | 488 |
| | $ | 2 |
|
The Company's equity-method investments balance as of December 31, 2016 reflected in the table above includes differences between the acquisition date fair value of certain investments acquired in the Transactions and the underlying equity in the net assets of the investee, referred to as a basis difference. As discussed in Note 2, this basis difference is amortized as a component of equity earnings. The remaining unamortized basis difference is $436 million as of December 31, 2016.
The Company applies the equity method of accounting to these and other less significant equity-method investments, all of which are recorded in other noncurrent assets in the consolidated balance sheets as of December 31, 2016 and 2015. For the year ended December 31, 2016, net losses from equity-method investments were $3 million which were recorded in other expense, net in the consolidated statements of operations, and for the years ended December 31, 2015 and 2014, gains (losses) from equity-method investments were insignificant.
Noncontrolling interests assumed in the Transactions were recorded at fair value on the acquisition date and primarily relate to the third-party interest in CV of Viera, LLP, the Company’s consolidated joint venture in a small cable system in Florida. For the year ended December 31, 2016, net income attributable to noncontrolling interest was $1 million.
In 2015, noncontrolling interest included the 2% accretion of the preferred membership interests in CC VIII, LLC (“CC VIII”) plus approximately 18.6% of CC VIII’s income, net of accretion. On December 31, 2015, the CC VIII preferred interest held by CCH I, LLC was contributed to CC VIII and subsequently canceled.
8. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following as of December 31, 2016 and 2015:
|
| | | | | | | |
| December 31, |
| 2016 | | 2015 |
Accounts payable – trade | $ | 416 |
| | $ | 112 |
|
Deferred revenue | 352 |
| | 96 |
|
Accrued liabilities: | | | |
Programming costs | 1,783 |
| | 451 |
|
Compensation | 953 |
| | 118 |
|
Capital expenditures | 1,107 |
| | 296 |
|
Interest | 958 |
| | 167 |
|
Taxes and regulatory fees | 529 |
| | 126 |
|
Other | 799 |
| | 110 |
|
| $ | 6,897 |
| | $ | 1,476 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
9. Long-Term Debt
Long-term debt consists of the following as of December 31, 2016 and 2015:
|
| | | | | | | | | | | | | | | |
| December 31, |
| 2016 | | 2015 |
| Principal Amount | | Accreted Value | | Principal Amount | | Accreted Value |
CCO Holdings, LLC: | | | | | | | |
7.000% senior notes due January 15, 2019 | $ | — |
| | $ | — |
| | $ | 600 |
| | $ | 594 |
|
7.375% senior notes due June 1, 2020 | — |
| | — |
| | 750 |
| | 744 |
|
5.250% senior notes due March 15, 2021 | 500 |
| | 496 |
| | 500 |
| | 496 |
|
6.500% senior notes due April 30, 2021 | — |
| | — |
| | 1,500 |
| | 1,487 |
|
6.625% senior notes due January 31, 2022 | 750 |
| | 741 |
| | 750 |
| | 740 |
|
5.250% senior notes due September 30, 2022 | 1,250 |
| | 1,232 |
| | 1,250 |
| | 1,229 |
|
5.125% senior notes due February 15, 2023 | 1,000 |
| | 992 |
| | 1,000 |
| | 990 |
|
5.125% senior notes due May 1, 2023 | 1,150 |
| | 1,141 |
| | 1,150 |
| | 1,140 |
|
5.750% senior notes due September 1, 2023 | 500 |
| | 496 |
| | 500 |
| | 495 |
|
5.750% senior notes due January 15, 2024 | 1,000 |
| | 991 |
| | 1,000 |
| | 990 |
|
5.875% senior notes due April 1, 2024 | 1,700 |
| | 1,685 |
| | — |
| | — |
|
5.375% senior notes due May 1, 2025 | 750 |
| | 744 |
| | 750 |
| | 744 |
|
5.750% senior notes due February 15, 2026 | 2,500 |
| | 2,460 |
| | — |
| | — |
|
5.500% senior notes due May 1, 2026 | 1,500 |
| | 1,487 |
| | — |
| | — |
|
5.875% senior notes due May 1, 2027 | 800 |
| | 794 |
| | 800 |
| | 794 |
|
Charter Communications Operating, LLC: | | | | | | | |
3.579% senior notes due July 23, 2020 | 2,000 |
| | 1,983 |
| | — |
| | — |
|
4.464% senior notes due July 23, 2022 | 3,000 |
| | 2,973 |
| | — |
| | — |
|
4.908% senior notes due July 23, 2025 | 4,500 |
| | 4,458 |
| | — |
| | — |
|
6.384% senior notes due October 23, 2035 | 2,000 |
| | 1,980 |
| | — |
| | — |
|
6.484% senior notes due October 23, 2045 | 3,500 |
| | 3,466 |
| | — |
| | — |
|
6.834% senior notes due October 23, 2055 | 500 |
| | 495 |
| | — |
| | — |
|
Credit facilities | 8,916 |
| | 8,814 |
| | 3,552 |
| | 3,502 |
|
Time Warner Cable, LLC: | | | | | | | |
5.850% senior notes due May 1, 2017 | 2,000 |
| | 2,028 |
| | — |
| | — |
|
6.750% senior notes due July 1, 2018 | 2,000 |
| | 2,135 |
| | — |
| | — |
|
8.750% senior notes due February 14, 2019 | 1,250 |
| | 1,412 |
| | — |
| | — |
|
8.250% senior notes due April 1, 2019 | 2,000 |
| | 2,264 |
| | — |
| | — |
|
5.000% senior notes due February 1, 2020 | 1,500 |
| | 1,615 |
| | — |
| | — |
|
4.125% senior notes due February 15, 2021 | 700 |
| | 739 |
| | — |
| | — |
|
4.000% senior notes due September 1, 2021 | 1,000 |
| | 1,056 |
| | — |
| | — |
|
5.750% sterling senior notes due June 2, 2031 (a) | 770 |
| | 834 |
| | — |
| | — |
|
6.550% senior debentures due May 1, 2037 | 1,500 |
| | 1,691 |
| | — |
| | — |
|
7.300% senior debentures due July 1, 2038 | 1,500 |
| | 1,795 |
| | — |
| | — |
|
6.750% senior debentures due June 15, 2039 | 1,500 |
| | 1,730 |
| | — |
| | — |
|
5.875% senior debentures due November 15, 2040 | 1,200 |
| | 1,259 |
| | — |
| | — |
|
5.500% senior debentures due September 1, 2041 | 1,250 |
| | 1,258 |
| | — |
| | — |
|
5.250% sterling senior notes due July 15, 2042 (b) | 800 |
| | 771 |
| | — |
| | — |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
|
| | | | | | | | | | | | | | | |
4.500% senior debentures due September 15, 2042 | 1,250 |
| | 1,135 |
| | — |
| | — |
|
Time Warner Cable Enterprises LLC: | | | | | | | |
8.375% senior debentures due March 15, 2023 | 1,000 |
| | 1,273 |
| | — |
| | — |
|
8.375% senior debentures due July 15, 2033 | 1,000 |
| | 1,324 |
| | — |
| | — |
|
Total debt | 60,036 |
| | 61,747 |
| | 14,102 |
| | 13,945 |
|
Less current portion: | | | | | | | |
5.850% senior notes due May 1, 2017 | (2,000 | ) | | (2,028 | ) | | — |
| | — |
|
Long-term debt | $ | 58,036 |
| | $ | 59,719 |
| | $ | 14,102 |
| | $ | 13,945 |
|
| |
(a) | Principal amount includes £625 million valued at $770 million as of December 31, 2016 using the exchange rate at that date. |
| |
(b) | Principal amount includes £650 million valued at $800 million as of December 31, 2016 using the exchange rate at that date. |
The accreted values presented in the table above represent the principal amount of the debt less the original issue discount at the time of sale, deferred financing costs, and, (i) in regards to the Legacy TWC debt assumed, a fair value premium adjustment as a result of applying acquisition accounting plus/minus the accretion of those amounts to the balance sheet date and (ii) in regards to the fixed-rate British pound sterling denominated notes indenture purposes (the “Sterling Notes”), a remeasurement of the principal amount of the debt and any premium or discount into US dollars as of the balance sheet date. See Note 11. However, the amount that is currently payable if the debt becomes immediately due)due is equal to the principal amount of notes. See Note 25the debt. The Company has availability under the Charter Operating credit facilities of approximately $2.8 billion as of December 31, 2016.
In December 2016, Charter Operating entered into an amendment to its Credit Agreement decreasing the applicable LIBOR margin on the term loan A, term loan H, term loan I and revolver to 1.75%, 2.00%, 2.25% and 1.75%, respectively, eliminating the LIBOR floor on the term loan H and term loan I and extending the maturity of term loan H to 2022 and term loan I to 2024. The Company recorded a loss on extinguishment of debt of $1 million for the year ended December 31, 2016 related to the Proposed Restructuring.these transactions.
In February 2016, CCO Holdings and CCO Holdings Capital jointly issued $1.7 billion aggregate principal amount of 5.875% senior notes due 2024 (the “2024 Notes”) and, in April 2016, they issued $1.5 billion aggregate principal amount of 5.500% senior notes due 2026 (the “2026 Notes”) at a price of 100.075% of the aggregate principal amount. The net proceeds from both issuances were used to repurchase all of CCO Holdings’ 7.000% senior notes due 2019, 7.375% senior notes due 2020 and 6.500% senior notes due 2021 and to pay related fees and expenses and for general corporate purposes. These debt repurchases resulted in a loss on extinguishment of debt of $110 million for the year ended December 31, 2016.
In April 2015, CCO Holdings and CCO Holdings Capital closed on transactions in which they issued $1.15 billion aggregate principal amount of 5.125% senior unsecured notes due 2023 (the “2023 Notes”), $750 million aggregate principal amount of 5.375% senior unsecured notes due 2025 (the “2025 Notes”) and $800 million aggregate principal amount of 5.875% senior unsecured notes due 2027 (the “2027 Notes”). The net proceeds from the issuance of the 2023 Notes and 2025 Notes were used to finance tender offers and a subsequent call in which $1.0 billion aggregate principal amount of CCO Holdings’ outstanding 7.250% senior notes due 2017 and $700 million aggregate principal amount of CCO Holdings’ outstanding 8.125% senior notes due 2020 were repurchased, as well as for general corporate purposes. The net proceeds from the issuance of the 2027 Notes were used to call $800 million of the $1.4 billion aggregate principal amount of CCO Holdings’ outstanding 7.000% senior notes due 2019. These debt repurchases resulted in a loss on extinguishment of debt of $123 million for the year ended December 31, 2015.
The Company also recorded a loss on extinguishment of debt of approximately $3 million for the year ended December 31, 2015 as a result of the repayment of debt upon termination of the proposed transactions with Comcast Corporation (“Comcast”).
As discussed in Note 2, upon consummation of the Transactions, CCOH Safari merged into CCO Holdings and CCO Safari II and CCO Safari III merged into Charter Operating and, as a result, the Company assumed $21.8 billion aggregate principal amount of debt. During the year ended December 31, 2015, Charter incurred interest expense on this debt of approximately $474 million.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
CCO Holdings Notes
The CCO Holdings notes are senior debt obligations of CCO Holdings and CCO Holdings Capital Corp. Theyand rank equally with all other current and future unsecured, unsubordinated obligations of CCO Holdings and CCO Holdings Capital Corp. The CCO Holdings notesCapital. They are structurally subordinated to all obligations of subsidiaries of CCO Holdings, including the Charter Operating notes and the Charter Operating credit facilities.Holdings.
OnCCO Holdings may redeem some or after November 15, 2008, the issuersall of the CCO Holdings 8 ¾% senior 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 2017 through 2024.
In addition, at any time prior to varying dates in 2017 through 2021, CCO Holdings may redeem all or a partup to 35% (40% in regards to certain notes issued in 2015 and 2016) of the aggregate principal amount of the notes at a redemption price that declines ratably from the initial redemption price of 104.375% to a redemption price on or after November 15, 2011 of 100.0% of the principal amount of the CCO Holdings 8 ¾% senior notes redeemed,premium plus in each case, any accrued and unpaid interest.
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 CCO Holdings senior 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.
Charter Operating Notes
The Charter Operating notes are senior debt obligations of Charter Operating and Charter Communications Operating Capital Corp. To the extent of the value of the collateral (but subject to the prior lien of the credit facilities), they rank effectively senior to all of Charter Operating’s future unsecured senior indebtedness. The collateral currently consists of the capital stock of Charter Operating held by CCO Holdings, all of the intercompany obligations owing to CCO Holdings by Charter Operating or any subsidiary of Charter Operating, and substantially all of Charter Operating’s and the guarantors’ assets (other than the assets of CCO Holdings). CCO Holdings and those subsidiaries of Charter Operating that are guarantors of, or otherwise obligors with respect to, indebtedness under the Charter Operating credit facilities and related obligations, guarantee the Charter Operating notes.
Charter Operating may, at any time and from time to time, at their option, redeem the outstanding 8% second lien notes due 2012, in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the redemption date, plus the Make-Whole Premium. The Make-Whole Premium is an amount equal to the excess of (a) the present value of the remaining interest and principal payments due on an 8% senior second-lien note due 2012 to its final maturity date, computed using a discount rate equal to the Treasury Rate on such date plus 0.50%, over (b) the outstanding principal amount of such Note.
On or after April 30, 2009, Charter Operating may redeem all or a part of the 8 3/8% senior second lien notes at a redemption price that declines ratably from the initial redemption price of 104.188% to a redemption price on or after April 30, 2012 of 100% of the principal amount of the 8 3/8% senior second lien notes redeemed plus in each case accrued and unpaid interest.
In March 2008, Charter Operating issued $546 million principal amount of 10.875% senior second-lien notes due 2014, guaranteed by CCO Holdings and certain other subsidiaries of Charter Operating, in a private transaction. Net proceeds from the senior second-lien notes were used to reduce borrowings, but not commitments, under the revolving portion of the Charter Operating credit facilities.
The Charter Operating 10.875% senior second-lien notes may be redeemed at the option of Charter Operating on or after varying dates, in each case at a premium, plus the Make-Whole Premium. The Make-Whole Premium is an amount equal to the excess of (a) the present value of the remaining interest and principal payments due on a 10.875% senior second-lien note due 2014 to its final maturity date, computed using a discount rate equal to the Treasury Rate on such date plus 0.50%, over (b) the outstanding principal amount of such note. The Charter Operating 10.875% senior second-lien notes may be redeemed at any time on or after March 15, 2012 at specified prices. In the event of specified change of control events, Charter Operating must offer to purchase the Charter
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
Operating 10.875% senior second-lien notes at a purchase price equal to 101% of the total principal amount of the Charter Operating notes repurchased plus any accrued and unpaid interest thereon.
High-Yield Restrictive Covenants; Limitation on Indebtedness.
The indentures governing the CCO Holdings and Charter Operating notes contain certain covenants that restrict the ability of CCO Holdings, CCO Holdings Capital Corp., Charter Operating, Charter Communications Operating Capital Corp., and all of their restricted subsidiaries to:
| · | pay dividends on equity or repurchase equity; |
| · | sell all or substantially all of their assets or merge with or into other companies; |
| · | enter into sale-leasebacks; |
| · | in the case of restricted subsidiaries, create or permit to exist dividend or payment restrictions with respect to the bond issuers, guarantee their parent companies debt, or issue specified equity interests; |
| · | engage in certain transactions with affiliates; and |
CCO Holdings, Credit Facilityguarantee their parent companies debt, or issue specified equity interests;
engage in certain transactions with affiliates; and
grant liens.
The above limitations in certain circumstances regarding incurrence of debt, payment of dividends and making investments contained in the indentures of CCO Holdings credit facility consists of a $350 million term loan. The term loan matures on September 6, 2014. Thepermit CCO Holdings credit facility also allowsand its restricted subsidiaries to perform the Companyabove, so long as, after giving pro forma effect to enter into incremental term loans in the future, maturing onabove, the dates set forth inleverage ratio would be below a specified level for the notices establishing such term loans, but no earlier than the maturity date of the existing term loans. However, no assurance can be given that the Company could obtain such incremental term loans if CCO Holdings sought to do so. Borrowingsissuer. The leverage ratio under the CCO Holdings credit facility bear interest at a variable interest rate based on either LIBOR or a base rate plus, in either case, an applicable margin. indentures is 6.0 to 1.0.
Charter Operating Notes
The applicable margin for LIBOR term loans, other than incremental loans, is 2.50% above LIBOR. The applicable margin with respect to the incremental loans is to be agreed uponCharter Operating notes are guaranteed by CCO Holdings, TWC, LLC (as defined below), TWCE (as defined below) and substantially all of the lenders when the incremental loans are established. The CCO Holdings credit facility is secured by the equity interestsoperating subsidiaries of Charter Operating (collectively, the “Subsidiary Guarantors”). In addition, the Charter Operating notes are secured by a perfected first priority security interest in substantially all of the assets of Charter Operating to the extent such liens can be perfected under the Uniform Commercial Code by the filing of a financing statement and the liens rank equally with the liens on the collateral securing obligations under the Charter Operating credit facilities. Charter Operating may redeem some or all proceeds thereof.of the Charter Operating notes at any time at a premium.
The Charter Operating notes are subject to the terms and conditions of the indenture governing the Charter Operating notes. The Charter Operating notes contain customary representations and warranties and affirmative covenants with limited negative covenants. The Charter Operating indenture also contains customary events of default.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
Charter Operating Credit Facilities
The Charter Operating credit facilities provide borrowing availabilityhave an outstanding principal amount of up to $8.0$8.9 billion at December 31, 2016 as follows:
· | term loan A with a term loan with an initial total principal amount of $6.5 billion, which is repayable in equal quarterly installments, commencing March 31, 2008, and aggregating in each loan year to 1% of the original amount of the term loan, with the remaining balance due at final maturity on March 6, 2014; and |
· | a revolving line of credit of $1.5 billion, with a maturity date on March 6, 2013. |
The Charter Operating credit facilities also allow the Company to enter into incremental term loans in the future with an aggregate amount of up to $1.0 billion, with amortization as set forth in the notices establishing such term loans, but with no amortization greater than 1% prior to the final maturity of the existing term loan. In March 2008, Charter Operating borrowed $500 million principal amount of incremental term loans (the “Incremental Term Loans”) under$2.5 billion, which is repayable in quarterly installments and aggregating $132 million in 2017 and 2018, $231 million in 2019 and $264 million in 2020, with the Charter Operating credit facilities. The Incremental Term Loans have aremaining balance due at final maturity of March 6, 2014 and prior to this date will amortize in quarterly principal installments totaling 1% annually beginning on June 30, 2008. The Incremental Term Loans bear interest atMay 18, 2021. Pricing on term loan A is LIBOR plus 5.0%,1.75%;
term loan E with a remaining principal amount of approximately $1.4 billion, which is repayable in equal quarterly installments and aggregating $15 million in each loan year, with the remaining balance due at final maturity on July 1, 2020. Pricing on term loan E is LIBOR plus 2.25% with a LIBOR floor of 3.5%, and are otherwise governed by and subject0.75% (see Note 22 for amendments to the existing terms of the Charter Operating credit facilities. Net proceeds from the Incremental Term Loans were used for general corporate purposes. Although the Charter Operating credit facilities allowcompleted in 2017);
term loan F with a remaining principal amount of approximately $1.2 billion, which is repayable in equal quarterly installments and aggregating $12 million in each loan year, with the remaining balance due at final maturity on January 3, 2021. Pricing on term loan F is LIBOR plus 2.25% with a LIBOR floor of 0.75% (see Note 22 for amendments to the incurrenceCharter Operating credit facilities completed in 2017);
term loan H with a remaining principal amount of approximately $993 million, which is repayable in equal quarterly installments and aggregating $10 million in each loan year, with the remaining balance due at final maturity on January 15, 2022. Pricing on term loan H is LIBOR plus 2.00%;
term loan I with a remaining principal amount of approximately $2.8 billion, which is repayable in equal quarterly installments and aggregating $28 million in each loan year, with the remaining balance due at final maturity on January 15, 2024. Pricing on term loan I is LIBOR plus 2.25%; and
revolving loan allowing for borrowings of up to an additional $500$3.0 billion, maturing on May 18, 2021. Pricing on the revolving loan is LIBOR plus 1.75% with a commitment fee of 0.30%. As of December 31, 2016, $220 million in incremental term loans, no assurance can be given that additional incremental term loans could be obtained inof the future if Charter Operating soughtrevolving loan was utilized to do so especially after filingcollateralize a Chapter 11 bankruptcy proceedinglike principal amount of letters of credit out of $278 million of letters of credit issued on March 27, 2009. See Note 25.the Company’s behalf.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
Amounts outstanding under the Charter Operating credit facilities bear interest, at Charter Operating’s election, at a base rate or the Eurodollar rate (1.46% to 3.50%LIBOR (0.77% and 0.42% as of December 31, 20082016 and 4.87% to 5.24% as of December 31, 2007)2015, respectively), as defined, plus a margin for Eurodollaran applicable margin.
The Charter Operating credit facilities also allow us to enter into incremental term loans of up to 2.00%in the future, with amortization as set forth in the notices establishing such term loans. Although the Charter Operating credit facilities allow for the revolving credit facility and 2.00% forincurrence of a certain amount of incremental term loans subject to pro forma compliance with its financial maintenance covenants, no assurance can be given that the Company could obtain additional incremental term loan, and quarterly commitment feeloans in the future if Charter Operating sought to do so or what amount of 0.5% per annum is payable onincremental term loans would be allowable at any given time under the average daily unborrowed balanceterms of the revolvingCharter Operating credit facility.facilities.
The obligations of Charter Operating under the Charter Operating credit facilities (the “Obligations”) are guaranteed by Charter Operating’s immediate parent company, CCO Holdings, and the subsidiaries of Charter Operating, except for certain subsidiaries, including immaterial subsidiaries and subsidiaries precluded from guaranteeing by reason of provisions of other indebtedness to which they are subject (the “non-guarantor subsidiaries”).Subsidiary Guarantors. The Obligationsobligations are also secured by (i) a lien on substantially all of the assets of Charter Operating and its subsidiaries (other than assetsthe Subsidiary Guarantors, to the extent such lien can be perfected under the Uniform Commercial Code by the filing of the non-guarantor subsidiaries),a financing statement, and (ii) a pledge by CCO Holdings of the equity interests owned by it in Charter Operating or any of Charter Operating’s subsidiaries, as well as intercompany obligations owing to it by any of such entities.
As of December 31, 2008, outstanding borrowings under the Charter Operating credit facilities were approximately $8.2 billion and the unused total potential availability was approximately $27 million.Restrictive Covenants
Credit Facilities — Restrictive Covenants
Charter Operating Credit Facilities
The Charter Operating credit facilities contain representations and warranties, and affirmative and negative covenants customary for financings of this type. The financial covenants measure performance against standards set for leverage to be tested as of the end of each quarter. Additionally, theThe Charter Operating credit facilities contain provisions requiring mandatory loan prepayments under specific circumstances, including in connection with certain sales of assets, so long as the proceeds have not been reinvested in the business.
Additionally, the Charter Operating credit facilities provisions contain an allowance for restricted payments so long as the consolidated leverage ratio is no greater than 3.5 after giving pro forma effect to such restricted payment. The Charter Operating credit facilities permit Charter Operating and its subsidiaries to make distributions to pay interest on the Charter convertible notes, the Charter Holdings notes, the CIH notes, the CCH I notes, the CCH II notes, the CCO Holdings notes, the CCO Holdings credit facility,currently outstanding subordinated and the Charter Operating senior second-lien notes,parent company indebtedness, provided that, among other things, no default has occurred and is continuing under the Charter Operating credit facilities. Conditions to future borrowings include absence of a default or an event of default under theThe Charter Operating credit facilities and the continued accuracy in all material respectsalso contain customary events of the representations and warranties, including the absence since December 31, 2005 of any event, development, or circumstance that has had or could reasonably be expected to have a material adverse effect on the Company’s business.default.
The events of default under the Charter Operating credit facilities include, among other things:
| · | the failure to make payments when due or within the applicable grace period, |
| · | the failure to comply with specified covenants, including but not limited to a covenant to deliver audited financial statements for Charter Operating with an unqualified opinion from the Company’s independent accountants and without a “going concern” or like qualification or exception. |
| · | the failure to pay or the occurrence of events that cause or permit the acceleration of other indebtedness owing by CCO Holdings, Charter Operating, or Charter Operating’s subsidiaries in amounts in excess of $100 million in aggregate principal amount, |
| · | the failure to pay or the occurrence of events that result in the acceleration of other indebtedness owing by certain of CCO Holdings’ direct and indirect parent companies in amounts in excess of $200 million in aggregate principal amount, |
| · | Paul Allen and/or certain of his family members and/or their exclusively owned entities (collectively, the “Paul Allen Group”) ceasing to have the power, directly or indirectly, to vote at least 35% of the ordinary voting power of Charter Operating, |
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 20072016, 2015 AND 20062014
(dollars in millions, except where indicated)
| · | the consummation of any transaction resulting in any person or group (other than the Paul Allen Group) having power, directly or indirectly, to vote more than 35% of the ordinary voting power of Charter Operating, unless the Paul Allen Group holds a greater share of ordinary voting power of Charter Operating, and |
| · | Charter Operating ceasing to be a wholly-owned direct subsidiary of CCO Holdings, except in certain very limited circumstances. |
CCO Holdings Credit FacilityAssumed Legacy TWC Indebtedness
The Company assumed approximately $22.4 billion in aggregate principal amount of Time Warner Cable, LLC (successor to Legacy TWC outstanding debt obligations, “TWC, LLC”) senior notes and debentures and Time Warner Cable Enterprises LLC (“TWCE”) senior debentures with varying maturities. The Company applied acquisition accounting to Legacy TWC, and as a result, the debt assumed was adjusted to fair value using quoted market values as of the closing date. This fair value adjustment resulted in recognition of a net debt premium of approximately $2.4 billion.
TWC, LLC Senior Notes and Debentures
The TWC, LLC senior notes and debentures are guaranteed by CCO Holdings, Charter Operating, TWCE and the Subsidiary Guarantors and rank equally with the liens on the collateral securing obligations under the Charter Operating notes and credit facilityfacilities. Interest on each series of TWC, LLC senior notes and debentures is payable semi-annually (with the exception of the Sterling Notes, which is payable annually) in arrears.
The TWC, LLC indenture contains customary covenants that arerelating to restrictions on the ability of TWC, LLC or any material subsidiary to create liens and on the ability of TWC, LLC and TWCE to consolidate, merge or convey or transfer substantially similarall of their assets. The TWC, LLC indenture also contains customary events of default.
The TWC, LLC senior notes and debentures may be redeemed in whole or in part at any time at TWC, LLC’s option at a redemption price equal to the restrictive covenants forgreater of (i) all of the applicable principal amount being redeemed and (ii) the sum of the present values of the remaining scheduled payments on the applicable TWC, LLC senior notes and debentures discounted to the redemption date on a semi-annual basis (with the exception of the Sterling Notes, which are on an annual basis), at a comparable government bond rate plus a designated number of basis points as further described in the indenture and the applicable note or debenture, plus, in each case, accrued but unpaid interest to, but not including, the redemption date.
The Company may offer to redeem all, but not less than all, of the Sterling Notes in the event of certain changes in the tax laws of the U.S. (or any taxing authority in the U.S.). This redemption would be at a redemption price equal to 100% of the principal amount, together with accrued and unpaid interest on the Sterling Notes to, but not including, the redemption date.
TWCE Senior Debentures
The TWCE senior debentures are guaranteed by CCO Holdings, notes.Charter Operating, TWC, LLC and the Subsidiary Guarantors and rank equally with the liens on the collateral securing obligations under the Charter Operating notes and credit facilities. Interest on each series of TWCE senior debentures is payable semi-annually in arrears. The CCO Holdings credit facilityTWCE senior debentures are not redeemable before maturity.
The TWCE indenture contains provisions requiring mandatory loan prepayments under specific circumstances, including in connection with certain salescustomary covenants relating to restrictions on the ability of assets, so long asTWCE or any material subsidiary to create liens and on the proceeds have not been reinvested inability of TWC, LLC and TWCE to consolidate, merge or convey or transfer substantially all of their assets. The TWCE indenture also contains customary events of default.
Limitations on Distributions
Distributions by the business. The CCO Holdings credit facility permits CCO HoldingsCompany and its subsidiaries to a parent company for payment of principal on parent company notes are restricted under the indentures and credit facilities discussed above, unless there is no default under the applicable indenture and credit facilities, and unless each applicable subsidiary’s leverage ratio test is met at the time of such distribution. As of December 31, 2016, there was no default under any of these indentures or credit facilities and each subsidiary met its applicable leverage ratio tests based on December 31, 2016 financial results. Such distributions would be restricted, however, if any such subsidiary fails to meet these tests at the time of the contemplated distribution. In the past, certain subsidiaries have from time to time failed to meet their leverage ratio test. There can be no assurance that they will satisfy these tests at the time of the contemplated distribution. Distributions by Charter Operating for payment of principal on parent company notes are further restricted by the covenants in its credit facilities.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
However, without regard to leverage, during any calendar year or any portion thereof during which the borrower is a flow-through entity for tax purposes, and so long as no event of default exists, the borrower may make distributions to pay interestthe equity interests of the borrower in an amount sufficient to make permitted tax payments.
In addition to the limitation on the Charter convertible senior notes, the Charter Holdings notes, the CIH notes, the CCH I notes, the CCH II notes, the CCO Holdings notes, and the Charter Operating second-lien notes, provided that, among other things, no default has occurred and is continuingdistributions under the CCO Holdings credit facility.various indentures, distributions by the Company’s subsidiaries may be limited by applicable law, including the Delaware Limited Liability Company Act, under which the Company’s subsidiaries may make distributions if they have “surplus” as defined in the act.
Liquidity and Future Principal Payments
The Company continues to have significant amounts of debt, and its business requires significant cash to fund principal and interest payments on its debt, capital expenditures and ongoing operations. As set forth below, the Company has significant future principal payments. The Company continues to monitor the capital markets, and it expects to undertake refinancing transactions and utilize free cash flow and cash on hand to further extend or reduce the maturities of its principal obligations. The timing and terms of any refinancing transactions will be subject to market conditions.
Based upon outstanding indebtedness as of December 31, 2008,2016, the amortization of term loans, scheduled reductions in available borrowings of the revolving credit facilities, and the maturity dates for all senior and subordinated notes, and debentures, total future principal payments on the total borrowings under all debt agreements as of December 31, 2008,2016, are as follows:
Year | | Amount | |
| | | |
2009 | | $ | 70 | |
2010 | | | 70 | |
2011 | | | 70 | |
2012 | | | 1,170 | |
2013 | | | 2,185 | |
Thereafter | | | 8,247 | |
| | | | |
| | $ | 11,812 | |
|
| | | | |
Year | | Amount |
2017 | | $ | 2,197 |
|
2018 | | 2,197 |
|
2019 | | 3,546 |
|
2020 | | 5,216 |
|
2021 | | 5,128 |
|
Thereafter | | 41,752 |
|
| | |
| | $ | 60,036 |
|
10. Loans PayableReceivable (Payable) - Related Party
Loans payable - related party as of December 31, 2016 consists of loans from Charter Communications Holdings Company, LLC (“Charter Holdco”) to the Company of $640 million. Interest accrues on loans payable - related party at LIBOR plus 2%.
Loans receivable - related party as of December 31, 2015 consisted of loans from the Company to CCOH Safari II, LLC, CCOH Safari, CCO Safari II and CCO Safari III of $96 million, $34 million, $508 million and $55 million, respectively, which were settled with the Company upon the merger of the Safari Escrow Entities into the Company. Loans payable-related party as of December 31, 2008 consists2015 consisted of loans from Charter Holdco and CCH II, LLC to the Company of $13$48 million and $227 million, respectively. Loans payable-related party as of December 31, 2007 consists of loans from Charter Holdco and CCH II to Charter Operating of $123 million and $209$285 million, respectively.
11. Minority Interest
Minority interest on the Company’s consolidated balance sheets as of December 31, 2008 and 2007 represents Mr. Paul G. Allen’s, Charter’s chairman and controlling shareholder, 5.6% preferred membership interests in CC VIII, LLC (“CC VIII”), an indirect subsidiary of the Company, of $676 million and $663 million, respectively. CII owns 30% of the CC VIII preferred membership interests. CCH I, the Company’s indirect parent, directly owns the remaining 70% of these preferred interests. The common membership interests in CC VIII are indirectly owned by Charter Operating. As a result, minority interest at CCO Holdings represents 100% of the preferred membership interests. Minority interest in the accompanying consolidated statements of operations includes the 2% accretion of the preferred membership interests plus approximately 18.6% of CC VIII’s income, net of accretion.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
12. Comprehensive Loss
The Company reports changes in the fair value of interest rate agreements designated as hedging the variability of cash flows associated with floating-rate debt obligations, that meet the effectiveness criteria of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, in accumulated other comprehensive loss. Comprehensive loss for the years ended December 31, 2008, 2007, and 2006 was $1.7 billion, $474 million, and $194 million, respectively.
13. Accounting for Derivative Instruments and Hedging Activities
The Company uses derivative instruments to manage interest rate swap agreementsrisk on variable debt and foreign exchange risk on the Sterling Notes, and does not hold or issue derivative instruments for speculative trading purposes.
Interest rate derivative instruments are used to manage its interest costs and to reduce the Company’s exposure to increases in floating interest rates. The Company’s policy is to manageCompany manages its exposure to fluctuations in interest rates by maintaining a mix of fixed and variable rate debt within a targeted range.debt. Using interest rate swap agreements,derivative instruments, the Company agrees to exchange, at specified intervals through 2013,2017, the difference between fixed and variable interest amounts calculated by reference to agreed-upon notional principal amounts. At the banks’ option, certain interest rate swap agreements may be extended through 2014.
The Company’s hedging policy does not permit it to hold or issue derivative instruments for speculative trading purposes. The Company does, however, have certain interest rate derivative instruments that have been designated as cash flow hedging instruments. Such instruments effectively convert variable interest payments on certain debt instruments into fixed payments. For qualifying hedges, SFAS No. 133 allows derivative gains and losses to offset related results on hedged items in the consolidated statement of operations. The Company has formally documented, designated and assessed the effectiveness of transactions that receive hedge accounting. For the years ended December 31, 2008, 2007, and 2006, change in value of derivatives includes gains of $0, $0, and $2 million, respectively, which represent cash flow hedge ineffectiveness on interest rate hedge agreements. This ineffectiveness arises from differences between critical terms of the agreements and the related hedged obligations.
Changes in the fair value of interest rate agreements that are designated as hedging instruments of the variability of cash flows associated with floating-rate debt obligations, and that meet the effectiveness criteria specified by SFAS No. 133 are reported in accumulated other comprehensive loss. For the years ended December 31, 2008, 2007, and 2006, losses of $180 million, $123 million and $1 million, respectively, related to derivative instruments designated as cash flow hedges, were recorded in accumulated other comprehensive loss. The amounts are 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 affects earnings (losses).
Certain interest rate derivative instruments are not designated as hedges as they do not meet the effectiveness criteria specified by SFAS No. 133. However, management believes 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 as a change in value of derivatives in the Company’s consolidated statements of operations. For the years ended December 31, 2008, 2007, and 2006, change in value of derivatives includes losses of $62 million and $46 million and gains of $4 million, respectively, resulting from interest rate derivative instruments not designated as hedges.
As of December 31, 2008, 2007,2016 and 2006,2015, the Company had outstanding $4.3$850 million and $1.1 billion, $4.3 billion, and $1.7 billion,respectively, in notional amounts of interest rate swapsderivative instruments outstanding. The notional amounts of interest rate derivative instruments do not represent amounts exchanged by the
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
parties and, thus, are not a measure of exposure to credit loss. The amounts exchanged arewere determined by reference to the notional amount and the other terms of the contracts.
14.Upon closing of the TWC Transaction, the Company acquired interest rate derivative instrument assets with a fair value of $85 million (excluding accrued interest), which were terminated and settled with their respective counterparties in the second quarter of 2016 with an $88 million cash payment to the Company of which $14 million was for interest accrued through the date of termination. The termination resulted in an $11 million loss for the year ended December 31, 2016 which was recorded in gain (loss) on financial instruments, net in the consolidated statements of operations.
Upon closing of the TWC Transaction, the Company assumed cross-currency derivative instrument liabilities with a fair value of $72 million (excluding accrued interest). Cross-currency derivative instruments are used to effectively convert £1.275 billion aggregate principal amount of fixed-rate British pound sterling denominated debt, including annual interest payments and the payment of principal at maturity, to fixed-rate U.S. dollar denominated debt. The cross-currency swaps have maturities of June 2031 and July 2042. The Company is required to post collateral on the cross-currency derivative instruments when the derivative contracts are in a liability position. In May 2016, the Company entered into a collateral holiday agreement for 80% of both the 2031 and 2042 cross-currency swaps, which eliminates the requirement to post collateral for three years.
The effect of derivative instruments on the consolidated balance sheets is presented in the table below:
|
| | | | | | | |
| December 31, |
| 2016 | | 2015 |
Interest Rate Derivatives | | | |
Accrued interest | $ | 5 |
| | $ | 3 |
|
Other long-term liabilities | $ | — |
| | $ | 10 |
|
Accumulated other comprehensive loss | $ | (5 | ) | | $ | (13 | ) |
| | | |
Cross-Currency Derivatives | | | |
Other long-term liabilities | $ | 251 |
| | $ | — |
|
The Company’s interest rate and cross-currency derivative instruments are not designated as hedges and are marked to fair value each period, with the impact recorded as a gain or loss on financial instruments, net in the consolidated statements of operations. While these derivative instruments are not designated as cash flow hedges for accounting purposes, management continues to believe such instruments are correlated with the respective debt, thus managing associated risk.
The effect of financial instruments on the consolidated statements of operations is presented in the table below.
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2016 | | 2015 | | 2014 |
Gain (Loss) on Financial Instruments, Net: | | | | | |
Change in fair value of interest rate derivative instruments | $ | 8 |
| | $ | 5 |
| | $ | 12 |
|
Change in fair value of cross-currency derivative instruments | (179 | ) | | — |
| | — |
|
Remeasurement of Sterling Notes to U.S. dollars | 279 |
| | — |
| | — |
|
Loss on termination of interest rate derivative instruments | (11 | ) | | — |
| | — |
|
Loss reclassified from accumulated other comprehensive loss due to discontinuance of hedge accounting | (8 | ) | | (9 | ) | | (19 | ) |
| $ | 89 |
| | $ | (4 | ) | | $ | (7 | ) |
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
12. Fair Value Measurements
The accounting guidanceestablishes 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 InstrumentsAssets and Liabilities
The Company has estimated the fair value of its financial instruments as of December 31, 20082016 and 20072015 using available market information or other appropriate valuation methodologies. Considerable judgment, however, is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented in the accompanying consolidated financial statements are not necessarily indicative of the amounts the Company would realize in a current market exchange.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
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 fair valueCompany’s cash and cash equivalents as of interest rate agreements representsDecember 31, 2016 were primarily invested in money market funds. Money market funds are valued at the estimated amount the Company would receive or pay upon termination of the agreements adjusted for Charter Operating’s credit risk. Management believes that the sellers of the interest rate agreements will be able to meet their obligations under the agreements. In addition, some of the interest rate agreements are with certain of the participating banks under the Company’s credit facilities, thereby reducing the exposure to credit loss. The Company has policies regarding the financial stability and credit standing of major counterparties. Nonperformanceclosing price reported by the counterparties is not anticipated nor would it have a material adverse effect on the Company’s consolidated financial condition or results of operations.
The estimated fair value of the Company’s notes at December 31, 2008 and 2007 are based on quoted market prices and the fair value of the credit facilities is based on dealer quotations.
A summary of the carrying value and fair value of the Company’s debt at December 31, 2008 and 2007 is as follows:
| | 2008 | | 2007 |
| | Carrying | | Fair | | Carrying | | Fair |
| | Value | | Value | | Value | | Value |
Debt | | | | | | | | | | | | | | | |
CCO Holdings debt | | $ | 796 | | | $ | 505 | | | $ | 795 | | | $ | 761 |
Charter Operating debt | | | 2,397 | | | | 1,923 | | | | 1,870 | | | | 1,807 |
Credit facilities | | | 8,596 | | | | 6,187 | | | | 7,194 | | | | 6,723 |
The Company adopted SFAS No. 157, Fair Value Measurements, on its financial assets and liabilities effective January 1, 2008, and hasfund sponsor from an established process for determiningactively traded exchange which approximates fair value. The Company has deferred adoption of SFAS No. 157 on its nonfinancial assets and liabilities including fair value measurements under SFAS No. 142 and SFAS No. 144 of franchises, goodwill, property, plant, and equipment, and other long-term assets until January 1, 2009 as permitted by FASB Staff Position (“FSP”) 157-2. Fair value is based upon quotedmoney market prices, where available. If such valuation methods are not available, fair value is based on internally or externally developed models using market-based or independently-sourced market parameters, where available. Fair value may be subsequently adjusted to ensure that those assets and liabilities are recorded at fair value. The Company’s methodology may produce a fair value that may not be indicative of net realizable value or reflective of future fair values, butfunds potentially subject the Company believes its methods are appropriate and consistent with other market peers.to concentration of credit risk. The useamount invested within any one financial instrument did not exceed $250 million as of different methodologies or assumptions to determine the fair valueDecember 31, 2016. As of certainDecember 31, 2016, there were no significant concentrations of financial instruments could result in a different fair value estimate as of the Company’s reporting date.single investee, industry or geographic location.
SFAS No. 157 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. |
Interest rate derivativesderivative instruments are valued using a present value calculation based on an implied forward LIBOR curve (adjusted for Charter Operating’s and counterparties’ credit risk). The weighted average pay rate for the Company’s currently effective interest rate derivative instruments was 1.59% and are classified within level 21.61% at December 31, 2016 and 2015, respectively (exclusive of the valuation hierarchy. applicable spreads).
The Company’s interest rate derivativesfinancial instruments that are accounted for at fair value on a recurring basis and totaled $411 million andare presented in the table below.
F-22 |
| | | | | | | | | | | | | | | |
| December 31, 2016 | | December 31, 2015 |
| Level 1 | | Level 2 | | Level 1 | | Level 2 |
Assets | | | | | | | |
Money market funds | $ | 1,003 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | | | |
Liabilities | | | | | | | |
Interest rate derivative instruments | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | 13 |
|
Cross-currency derivative instruments | $ | — |
| | $ | 251 |
| | $ | — |
| | $ | — |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 20072016, 2015 AND 20062014
(dollars in millions, except where indicated)
A summary of the carrying value and fair value of the Company’s debt at December 31, 2016 and 2015 is as follows:
$169 million
|
| | | | | | | | | | | | | | | | |
| | December 31, 2016 | | December 31, 2015 |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Debt | | | | | | | | |
Senior notes and debentures | | $ | 52,933 |
| | $ | 55,203 |
| | $ | 10,443 |
| | $ | 10,718 |
|
Credit facilities | | $ | 8,814 |
| | $ | 8,943 |
| | $ | 3,502 |
| | $ | 3,500 |
|
The estimated fair value of the Company’s senior notes and debentures as of December 31, 20082016 and 2007, respectively. 2015 is based on quoted market prices in active markets and is classified within Level 1 of the valuation hierarchy, while the estimated fair value of the Company’s credit facilities is based on quoted market prices in inactive markets and is classified within Level 2.
Non-financial Assets and Liabilities
The weighted average interest pay rateCompany’s nonfinancial assets such as equity-method investments, franchises, property, plant, and equipment, and other intangible assets are not measured at fair value on a recurring basis; however, they are subject to fair value adjustments in certain circumstances, such as upon a business combination and when there is evidence that an impairment may exist. No impairments were recorded in 2016, 2015 and 2014. Upon closing of the Transactions, all of Legacy TWC and Legacy Bright House nonfinancial assets and liabilities were recorded at fair values. See Note 2.
13. Operating Costs and Expenses
Operating costs and expenses, exclusive of items shown separately in the consolidated statements of operations, consist of the following for the periods presented:
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2016 | | 2015 | | 2014 |
Programming | $ | 7,034 |
| | $ | 2,678 |
| | $ | 2,459 |
|
Regulatory, connectivity and produced content | 1,467 |
| | 435 |
| | 428 |
|
Costs to service customers | 5,173 |
| | 1,705 |
| | 1,679 |
|
Marketing | 1,699 |
| | 628 |
| | 617 |
|
Transition costs | 156 |
| | 72 |
| | 14 |
|
Other | 3,141 |
| | 908 |
| | 776 |
|
| $ | 18,670 |
| | $ | 6,426 |
| | $ | 5,973 |
|
Programming costs consist primarily of costs paid to programmers for basic, premium, digital, video on demand, and pay-per-view programming. Regulatory, connectivity and produced content costs represent payments to franchise and regulatory authorities, costs directly related to providing video, Internet and voice services as well as payments for sports, local and news content produced by the Company. Included in regulatory, connectivity and produced content costs is content acquisition costs for the Los Angeles Lakers’ basketball games and Los Angeles Dodgers’ baseball games which are recorded as games are exhibited over the applicable season. Costs to service customers include costs related to field operations, network operations and customer care for the Company’s interest rate swap agreements was 4.93%residential and 4.93% at Decembersmall and medium business customers, including internal and third-party labor for installations, service and repairs, maintenance, billing and collection, occupancy and vehicle costs. Marketing costs represent the costs of marketing to current and potential commercial and residential customers including labor costs. Transition costs represent incremental costs incurred to integrate the TWC and Bright House operations and to increase the scale of the Company’s business as a result of the Transactions. See Note 2. Other includes bad debt expense, corporate overhead, advertising sales expenses, indirect costs associated with the Company’s enterprise business customers and regional sports and news networks, property tax expense and insurance expense and stock compensation expense, among others.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008 and 2007, respectively.2016, 2015 AND 2014
(dollars in millions, except where indicated)
15.
14. Other Operating (Income) Expenses, Net
Other operating (income) expenses, net consist of the following for the years presented:
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2016 | | 2015 | | 2014 |
Merger and restructuring costs | $ | 708 |
| | $ | 70 |
| | $ | 38 |
|
Other pension benefits | (899 | ) | | — |
| | — |
|
Special charges, net | 17 |
| | 15 |
| | 14 |
|
(Gain) loss on sale of assets, net | (3 | ) | | 4 |
| | 10 |
|
| $ | (177 | ) | | $ | 89 |
| | $ | 62 |
|
Merger and restructuring costs
Merger and restructuring costs represent costs incurred in connection with merger and acquisition transactions and related restructuring, such as advisory, legal and accounting fees, employee retention costs, employee termination costs related to the Transactions and other exit costs. The Company expects to incur additional merger and restructuring costs in connection with the Transactions. Changes in accruals for merger and restructuring costs from January 1, 2016 through December 31, 2016 are presented below:
|
| | | | | | | | | | | | | | | | | | | |
| Employee Retention Costs | | Employee Termination Costs | | Transaction and Advisory Costs | | Other Costs | | Total |
Liability, December 31, 2015 | $ | — |
| | $ | — |
| | $ | 33 |
| | $ | — |
| | $ | 33 |
|
Liability assumed in the Transactions | 80 |
| | 9 |
| | 3 |
| | — |
| | 92 |
|
Costs incurred | 26 |
| | 337 |
| | 66 |
| | 31 |
| | 460 |
|
Cash paid | (99 | ) | | (102 | ) | | (71 | ) | | (31 | ) | | (303 | ) |
Remaining liability, December 31, 2016 | $ | 7 |
| | $ | 244 |
| | $ | 31 |
| | $ | — |
| | $ | 282 |
|
| | Year Ended December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | |
(Gain) loss on sale of assets, net | | $ | 13 | | | $ | (3 | ) | | $ | 8 | |
Special charges, net | | | 56 | | | | (14 | ) | | | 13 | |
| | | | | | | | | | | | |
| | $ | 69 | | | $ | (17 | ) | | $ | 21 | |
In addition to the costs indicated above, the Company recorded $248 million of expense related to accelerated vesting of equity awards of terminated employees for the year ended December 31, 2016.
Other pension benefits
Other pension benefits include the pension curtailment gain, remeasurement gain, expected return on plan assets and interest cost components of net periodic pension benefit. See Note 19.
Special charges, net
Special charges, net primarily includes employee termination costs not related to the Transactions and net amounts of litigation settlements.
(Gain) loss on sale of assets, net
(Gain) loss on sale of assets, net represents the net (gain) loss recognized on the salesales and disposals of fixed assets and cable systems.
Special charges, net
Special charges, net for the year ended December 31, 2008 includes severance charges and litigation related items, including settlement costs associated with the15. Sjoblom litigation (see Note 21), offset by favorable insurance settlements related to hurricane Katrina claims. Special charges, net for the year ended December 31, 2007, primarily represents favorable legal settlements of approximately $20 million offset by severance associated with the closing of call centers and divisional restructuring. Special charges, net for the year ended December 31, 2006 primarily represent severance associated with the closing of call centers and divisional restructuring. Stock Compensation Plans
16. Loss on Extinguishment of Debt
| | Year Ended December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | |
CCO Holdings notes redemption | | $ | -- | | | $ | (19 | ) | | $ | -- | |
Charter Operating credit facilities refinancing | | | -- | | | | (13 | ) | | | (27 | ) |
| | | | | | | | | | | | |
| | $ | -- | | | $ | (32 | ) | | $ | (27 | ) |
In April 2007, CCO Holdings redeemed $550 million of its senior floating rate notes due December 15, 2010 resulting in a loss on extinguishment of debt of approximately $19 million for the year ended December 31, 2007, included in loss on extinguishment of debt on the Company’s consolidated statements of operations.
In March 2007,Legacy Charter’s 2009 Stock Incentive Plan (assumed by Charter Operating refinanced its facilities resulting in a loss on extinguishment of debt for the year ended December 31, 2007 of approximately $13 million included in loss on extinguishment of debt on the Company’s consolidated statements of operations.
In April 2006, Charter Operating completed a $6.85 billion refinancing of its credit facilities including a new $350 million revolving/term facility (which converts to a term loan no later than April 2007), a $5.0 billion term loan due in 2013 and certain amendments to the existing $1.5 billion revolving credit facility. In addition, the refinancing reduced margins on Eurodollar rate term loans to 2.625% from a weighted average of 3.15% previously and margins on base rate term loans to 1.625% from a weighted average of 2.15% previously. Concurrent with this refinancing, the CCO Holdings bridge loan was terminated. The refinancing resulted in a loss on extinguishment of debt for the year ended December 31, 2006 of approximately $27 million.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
17. Other Expense, Net
Other expense, net consistsupon closing of the followingTransactions) provides for years presented:
| | Year Ended December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | |
Minority interest (Note 11) | | $ | (13 | ) | | $ | (22 | ) | | $ | (20 | ) |
Gain (loss) on investment | | | (1 | ) | | | (2 | ) | | | 13 | |
Other, net | | | (5 | ) | | | -- | | | | 3 | |
| | | | | | | | | | | | |
| | $ | (19 | ) | | $ | (24 | ) | | $ | (4 | ) |
18. Stock Compensation Plans
Charter hasgrants of nonqualified stock compensation plans (the “Plans”) which provide for the grant of non-qualifiedoptions, incentive stock options, stock appreciation rights, dividend equivalent rights, performance units and performance shares, share awards, phantom stock, and/or shares of restricted stock (sharesunits and restricted stock. Directors, officers and other
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
employees of restricted stock not to exceed 20.0the Company and its subsidiaries, as well as others performing consulting services for the Company, are eligible for grants under the 2009 Stock Incentive Plan. In April 2016, Charter’s board of directors and stockholders approved an additional 9 million shares of Charter Class A common stock), as each term is defined in the Plans. Employees, officers, consultants and directors ofstock (or units convertible into Charter and its subsidiaries and affiliates are eligible to receive grantsClass A common stock) under the Plans. The 20012009 Stock Incentive Plan which now allows for the issuance of up to a total of 90.021 million shares of Charter Class A common stock (or units convertible into Charter Class A common stock).
Under Charter's Long-Term Incentive Program (“LTIP”), a program administered underAt the 2001 Stock Incentive Plan, employees of Charter and its subsidiaries whose pay classifications exceeded a certain level were eligible in 2006 and 2007 to receive stock options, and more senior level employees were eligible to receive stock options and performance units. The stock options vest 25% on eachclosing of the first four anniversaries of the date of grant. Generally, options expire 10 years from the grant date. The performance units became performance shares on or about the first anniversary of the grant date, conditional upon Charter's performance against financial performance measures established by Charter’s management and approved by its board of directors as of the time of the award. The performance shares become shares ofTWC Transaction, Legacy TWC employee equity awards were converted into Charter Class A common stock equity awards on the thirdsame terms and conditions as were applicable under the Legacy TWC equity awards, except that the number of shares covered by each award and the option exercise prices were adjusted for the Stock Award Exchange Ratio (as defined in the Merger Agreement) such that the intrinsic value of the Converted TWC Awards was approximately equal to that of the original awards at the closing of the Transactions. The Converted TWC Awards represented approximately 4.2 million Charter restricted stock units and 0.8 million Charter stock options (0.5 million of which were exercisable at the time of conversion) and continue to be subject to the terms of the Legacy TWC equity plans. The Converted TWC Awards were measured at their fair value as of the closing of the TWC Transaction. Of that fair value, $514 million related to Legacy TWC employee pre-combination service and was treated as consideration transferred in the TWC Transaction (see Note 2), while $539 million relates to post-combination service and is being amortized to stock compensation expense over the remaining vesting period of the awards. The fair values of the Converted TWC Awards were based on a valuation using assumptions developed by management and other information compiled by management including, but not limited to, historical volatility and exercise trends of Legacy Charter and Legacy TWC. The Parent Merger Exchange Ratio was also applied to outstanding Legacy Charter equity awards and option exercise prices; however, the terms of the equity awards did not change as a result of the Transactions.
Legacy Charter Stock options and restricted stock units cliff vest upon the three year anniversary of each grant. Stock options generally expire ten years from the grant date of the performance units. In March 2008, Charter adopted the 2008 incentive program to allow for the issuance of performance units and restricted stock under the 2001 Stock Incentive Planunits have no voting rights. Certain stock options and for the issuancerestricted stock units vest based on achievement of performance cash. Under the 2008 incentive program, subject to meeting performance criteria, performance units and performance cash are deposited into a performance bank of which one-third of the balance is paid out each year.stock price hurdles. Restricted stock granted under this programgenerally vests annually over a three-year periodone year beginning from the date of grant. DuringLegacy TWC restricted stock units that were converted into Charter restricted stock units generally vest 50% on each of the year ended third and fourth anniversary of the grant date. Legacy TWC stock options that were converted into Charter stock options vest ratably over a four-year period and expire ten years from the grant date.
As of December 31, 2008, Charter granted $82016, total unrecognized compensation remaining to be recognized in future periods totaled $262 million for stock options, $1 million for restricted stock and $279 million for restricted stock units and the weighted average period over which they are expected to be recognized is 4 years for stock options, 4 months for restricted stock and 3 years for restricted stock units. The Company recorded $244 million, $78 million and $55 million of performance cash under Charter’s 2008 incentive programstock compensation expense for the years ended December 31, 2016, 2015 and recognized $22014, respectively, which is included in operating costs and expenses. The Company also recorded $248 million of expense for the year ended December 31, 2008.2016 related to accelerated vesting of equity awards of terminated employees which is recorded in merger and restructuring costs.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 20072016, 2015 AND 20062014
(dollars in millions, except where indicated)
A summary of the activity for Charter’s stock options (after applying the Parent Merger Exchange Ratio) for the years ended December 31, 2008, 2007,2016, 2015 and 2006,2014, is as follows (amounts(shares in thousands, except per share data):
| | 2008 | | | 2007 | | | 2006 | | |
| | | | | Weighted | | | | | | Weighted | | | | | | Weighted | | |
| | | | | Average | | | | | | Average | | | | | | Average | | | | | | | | | | | | | | | | | | | | |
| | | | | Exercise | | | | | | Exercise | | | | | | Exercise | | Year Ended December 31, |
| | Shares | | | Price | | | Shares | | | Price | | | Shares | | | Price | | 2016 | | 2015 | | 2014 |
| | | | | | | | | | | | | | | | | | | Shares | | Weighted Average Exercise Price | | Aggregate Intrinsic Value | | Shares | | Weighted Average Exercise Price | | Aggregate Intrinsic Value | | Shares | | Weighted Average Exercise Price | | Aggregate Intrinsic Value |
Outstanding, beginning of period | | | 25,682 | | | $ | 4.02 | | | | 26,403 | | | $ | 3.88 | | | | 29,127 | | | $ | 4.47 | | 3,923 |
| | $ | 122.03 |
| | | | 3,336 |
| | $ | 95.44 |
| | | | 2,841 |
| | $ | 66.20 |
| | |
Granted | | | 45 | | | | 1.19 | | | | 4,549 | | | | 2.77 | | | | 6,065 | | | | 1.28 | | 5,999 |
| | $ | 218.91 |
| | | | 1,176 |
| | $ | 177.14 |
| | | | 1,116 |
| | $ | 151.24 |
| | |
Converted TWC Awards | | 839 |
| | $ | 86.46 |
| | | | — |
| | $ | — |
| | | | — |
| | $ | — |
| | |
Exercised | | | (53 | ) | | | 1.18 | | | | (2,759 | ) | | | 1.57 | | | | (1,049 | ) | | | 1.41 | | (1,015 | ) | | $ | 96.33 |
| | $ | 146 |
| | (524 | ) | | $ | 72.27 |
| | $ | 68 |
| | (579 | ) | | $ | 58.07 |
| | $ | 55 |
|
Cancelled | | | (3,630 | ) | | | 5.27 | | | | (2,511 | ) | | | 2.98 | | | | (7,740 | ) | | | 4.39 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Canceled | | (154 | ) | | $ | 173.98 |
| | | | (65 | ) | | $ | 155.23 |
| | | | (42 | ) | | $ | 115.65 |
| | |
Outstanding, end of period | | | 22,044 | | | $ | 3.82 | | | | 25,682 | | | $ | 4.02 | | | | 26,403 | | | $ | 3.88 | | 9,592 |
| | $ | 181.39 |
| | $ | 1,022 |
| | 3,923 |
| | $ | 122.03 |
| | | | 3,336 |
| | $ | 95.44 |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average remaining contractual life | | 6 years | | | | | | | 7 years | | | | | | | 8 years | | | | | | 8 |
| years | | | | 7 |
| years | | | | 7 |
| years | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Options exercisable, end of period | | | 15,787 | | | $ | 4.53 | | | | 13,119 | | | $ | 5.88 | | | | 10,984 | | | $ | 6.62 | | 1,665 |
| | $ | 71.71 |
| | $ | 360 |
| | 1,224 |
| | $ | 61.88 |
| | | | 1,193 |
| | $ | 61.76 |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Options expected to vest, end of period | | 7,686 |
| | $ | 205.49 |
| | $ | 634 |
| | | | | | | | | | | | |
Weighted average fair value of options granted | | $ | 0.90 | | | | | | | $ | 1.86 | | | | | | | $ | 0.96 | | | | | | $ | 47.42 |
| | | | | | $ | 66.20 |
| | | | | | $ | 60.92 |
| | | | |
The following table summarizes information aboutA summary of the activity for Charter’s restricted stock options outstanding and exercisable as of (after applying the Parent Merger Exchange Ratio) for the years ended December 31, 2008 (amounts2016, 2015 and 2014, is as follows (shares in thousands, except per share data):
| | Options Outstanding | | Options Exercisable |
| | | | Weighted- | | | | | | Weighted- | | |
| | | | Average | | Weighted- | | | | Average | | Weighted- |
| | | | Remaining | | Average | | | | Remaining | | Average |
Range of | | Number | | Contractual | | Exercise | | Number | | Contractual | | Exercise |
Exercise Prices | | Outstanding | | Life | | Price | | Exercisable | | Life | | Price |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | $ | 1.00 | — | | $ | 1.36 | | 8,278 | | 7 years | | | 1.17 | | 5,528 | | 7 years | | 1.17 |
| | $ | 1.53 | — | | $ | 1.96 | | 2,821 | | 6 years | | | 1.55 | | 2,178 | | 6 years | | 1.55 |
| | $ | 2.66 | — | | $ | 3.35 | | 4,981 | | 7 years | | | 2.89 | | 2,229 | | 6 years | | 2.92 |
| | $ | 4.30 | — | | $ | 5.17 | | 3,566 | | 5 years | | | 5.00 | | 3,454 | | 5 years | | 5.02 |
| | $ | 9.13 | — | | $ | 12.27 | | 1,008 | | 3 years | | | 11.19 | | 1,008 | | 3 years | | 11.19 |
| | $ | 13.96 | — | | $ | 20.73 | | 1,168 | | 1 year | | | 18.41 | | 1,168 | | 1 year | | 18.41 |
| | $ | 21.20 | — | | $ | 23.09 | | 222 | | 2 years | | | 22.86 | | 222 | | 2 years | | 22.86 |
|
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2016 | | 2015 | | 2014 |
| Shares | | Weighted Average Grant Price | | Shares | | Weighted Average Grant Price | | Shares | | Weighted Average Grant Price |
Outstanding, beginning of period | 197 |
| | $ | 65.79 |
| | 390 |
| | $ | 63.30 |
| | 590 |
| | $ | 62.09 |
|
Granted | 10 |
| | $ | 231.83 |
| | 6 |
| | $ | 201.34 |
| | 8 |
| | $ | 153.25 |
|
Vested | (197 | ) | | $ | 65.79 |
| | (199 | ) | | $ | 65.16 |
| | (208 | ) | | $ | 63.43 |
|
Canceled | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
|
Outstanding, end of period | 10 |
| | $ | 231.81 |
| | 197 |
| | $ | 65.79 |
| | 390 |
| | $ | 63.30 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 20072016, 2015 AND 20062014
(dollars in millions, except where indicated)
A summary of the activity for Charter’s restricted Class A common stock units (after applying the Parent Merger Exchange Ratio) for the years ended December 31, 2008, 2007,2016, 2015 and 2006,2014, is as follows (amounts(shares in thousands, except per share data):
| | 2008 | | 2007 | | 2006 | |
| | | | Weighted | | | | Weighted | | | | Weighted | |
| | | | Average | | | | Average | | | | Average | | | | | | | | | | | | |
| | | | Grant | | | | Grant | | | | Grant | Year Ended December 31, |
| | Shares | | Price | | Shares | | Price | | Shares | | Price | 2016 | | 2015 | | 2014 |
| | | | | | | | | | | | | | Shares | | Weighted Average Grant Price | | Shares | | Weighted Average Grant Price | | Shares | | Weighted Average Grant Price |
Outstanding, beginning of period | | | 4,112 | | $ | 2.87 | | 3,033 | | $ | 1.96 | | 4,713 | | $ | 2.08 | 337 |
| | $ | 150.96 |
| | 294 |
| | $ | 115.01 |
| | 260 |
| | $ | 82.64 |
|
Granted | | | 10,761 | | 0.85 | | 2,753 | | 3.64 | | 906 | | 1.28 | 895 |
| | $ | 213.09 |
| | 148 |
| | $ | 179.17 |
| | 139 |
| | $ | 151.00 |
|
Converted TWC Awards | | 4,162 |
| | $ | 224.90 |
| | — |
| | $ | — |
| | — |
| | $ | — |
|
Vested | | | (2,298) | | 2.36 | | (1,208) | | 1.83 | | (2,278) | | 1.62 | (1,739 | ) | | $ | 219.60 |
| | (90 | ) | | $ | 78.65 |
| | (94 | ) | | $ | 77.67 |
|
Cancelled | | | (566) | | 1.57 | | (466) | | 4.37 | | (308) | | 4.37 | |
| | | | | | | | | | | | | | |
Canceled | | (342 | ) | | $ | 219.91 |
| | (15 | ) | | $ | 155.43 |
| | (11 | ) | | $ | 124.44 |
|
Outstanding, end of period | | | 12,009 | | $ | 1.21 | | 4,112 | | $ | 2.87 | | 3,033 | | $ | 1.96 | 3,313 |
| | $ | 192.41 |
| | 337 |
| | $ | 150.96 |
| | 294 |
| | $ | 115.01 |
|
A summary of the activity for Charter’s performance units and shares for the years ended December 31, 2008, 2007, and 2006, is as follows (amounts in thousands, except per share data):
| | 2008 | | 2007 | | 2006 |
| | | | Weighted | | | | Weighted | | | | Weighted |
| | | | Average | | | | Average | | | | Average |
| | | | Grant | | | | Grant | | | | Grant |
| | Shares | | Price | | Shares | | Price | | Shares | | Price |
| | | | | | | | | | | | | | | | | | |
Outstanding, beginning of period | | | 28,013 | | $ | 2.16 | | | 15,206 | | $ | 1.27 | | | 5,670 | | $ | 3.09 |
Granted | | | 10,137 | | | 0.84 | | | 14,797 | | | 2.95 | | | 13,745 | | | 1.22 |
Vested | | | (1,562) | | | 1.49 | | | (41) | | | 1.23 | | | -- | | | -- |
Cancelled | | | (3,551) | | | 2.08 | | | (1,949) | | | 1.51 | | | (4,209) | | | 3.58 |
| | | | | | | | | | | | | | | | | | |
Outstanding, end of period | | | 33,037 | | $ | 1.80 | | | 28,013 | | $ | 2.16 | | | 15,206 | | $ | 1.27 |
As of December 31, 2008, deferred compensation remaining to be recognized in future periods totaled $41 million.
In the first quarter of 2009, the majority of restricted stock and performance units and shares were forfeited, and the remaining will be cancelled in connection with the Proposed Restructuring. See Note 25.
19.16. Income Taxes
CCO Holdings is a single member limited liability company not subject to income tax. CCO Holdings holds all operations through indirect subsidiaries. The majority of these indirect subsidiaries are limited liability companies that are not subject to income tax. However, certain of the limited liability companiesCertain indirect subsidiaries that are required to file separate returns are subject to federal and state income tax. In addition, certain of CCO Holdings’ indirect subsidiaries are corporations that are subjecttax provision reflects the tax provision of the entities required to income tax.file separate returns.
For the year ended December 31, 2008, the Company recorded income tax benefit related to decreases in deferred tax liabilities of certain of its indirect subsidiaries attributable to the write-down of franchise assets for financial statement purposes and not for tax purposes. Income Tax Benefit (Expense)
For the years ended December 31, 20072016, 2015, and 2006,2014, the Company recorded deferred income tax expense related to increases in deferredbenefit (expense) as shown below. The tax liabilities and current federal and state income taxes primarily related to differences in accounting for franchises at our indirect corporate subsidiaries and limited liability companies that are subject to income tax. However, the actual tax provision calculations in future periods will be the result ofvary based on current and future temporary differences, as well as future operating results.
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2016 | | 2015 | | 2014 |
Current benefit (expense): | | | | | | |
Federal income taxes | | $ | — |
| | $ | (1 | ) | | $ | (1 | ) |
State income taxes | | 3 |
| | (3 | ) | | (2 | ) |
Current income tax benefit (expense) | | 3 |
| | (4 | ) | | (3 | ) |
| | | | | | |
Deferred benefit (expense): | | | | | | |
Federal income taxes | | — |
| | 180 |
| | (7 | ) |
State income taxes | | (6 | ) | | 34 |
| | (3 | ) |
Deferred income tax benefit (expense) | | (6 | ) | | 214 |
| | (10 | ) |
Income tax benefit (expense) | | $ | (3 | ) | | $ | 210 |
| | $ | (13 | ) |
Income tax is recognized primarily through decreases (increases) in deferred tax liabilities, as well as through current federal and state income tax expense. Income tax benefit for the year ended December 31, 2015 was primarily the result of the deemed liquidation of Charter Holdco in July 2015. After the deemed liquidation of Charter Holdco, all taxable income, gains, losses, deductions and credits of Charter Holdco and its indirect subsidiaries were treated as income of Charter. The tax provision in future periods will vary based on future operating results, as well as future book versus tax differences.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 20072016, 2015 AND 20062014
(dollars in millions, except where indicated)
Current and deferred income tax benefit (expense) is as follows:
| | December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
Current expense: | | | | | | | | | |
Federal income taxes | | $ | (2 | ) | | $ | (3 | ) | | $ | (3 | ) |
State income taxes | | | (5 | ) | | | (5 | ) | | | (4 | ) |
| | | | | | | | | | | | |
Current income tax expense | | | (7 | ) | | | (8 | ) | | | (7 | ) |
| | | | | | | | | | | | |
Deferred benefit (expense): | | | | | | | | | | | | |
Federal income taxes | | | 28 | | | | 4 | | | | -- | |
State income taxes | | | 19 | | | | (16 | ) | | | -- | |
| | | | | | | | | | | | |
Deferred income tax benefit (expense) | | | 47 | | | | (12 | ) | | | -- | |
| | | | | | | | | | | | |
Total income benefit (expense) | | $ | 40 | | | $ | (20 | ) | | $ | (7 | ) |
Income tax benefit for the year ended December 31, 2008 included $32 million of deferred tax benefit related to the impairment of franchises. Income tax for the year ended December 31, 2007 includes $18 million of deferred income tax expense previously recorded at the Company’s indirect parent company. This adjustment should have been recorded by the Company in prior periods.
The Company’s effective tax rate differs from that derived by applying the applicable federal income tax rate of 35%, and average state income tax rate of 2.3%, 2.9%, and 5% for the years ended December 31, 2008, 2007,2016, 2015, and 2006,2014, respectively, as follows:
| | December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | |
Statutory federal income tax benefit | | $ | 530 | | | $ | 116 | | | $ | 149 | |
Statutory state income tax benefit, net | | | 35 | | | | 10 | | | | 21 | |
Losses allocated to limited liability companies not subject to income taxes | | | (565 | ) | | | (127 | ) | | | (165 | ) |
Franchises | | | 47 | | | | (12 | ) | | | -- | |
Valuation allowance provided and other | | | (7 | ) | | | (7 | ) | | | (12 | ) |
| | | | | | | | | | | | |
Income tax benefit (expense) | | $ | 40 | | | $ | (20 | ) | | $ | (7 | ) |
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2016 | | 2015 | | 2014 |
Statutory federal income taxes | | $ | (511 | ) | | $ | (50 | ) | | $ | (26 | ) |
Statutory state income taxes, net | | (3 | ) | | (3 | ) | | (2 | ) |
Income (losses) allocated to limited liability companies not subject to income taxes | | 511 |
| | 50 |
| | 18 |
|
Change in valuation allowance | | — |
| | 20 |
| | (1 | ) |
Organizational restructuring | | — |
| | 192 |
| | — |
|
Other | | — |
| | 1 |
| | (2 | ) |
Income tax benefit (expense) | | $ | (3 | ) | | $ | 210 |
| | $ | (13 | ) |
Deferred Tax Assets (Liabilities)
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
The tax effects of these temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 20082016 and 2007 for the indirect subsidiaries of the Company which are included in long-term liabilities2015 are presented below.
| | December 31, | |
| | 2008 | | | 2007 | |
Deferred tax assets: | | | | | | |
Net operating loss carryforward | | $ | 97 | | | $ | 111 | |
Other | | | 2 | | | | 8 | |
| | | | | | | | |
Total gross deferred tax assets | | | 99 | | | | 119 | |
Less: valuation allowance | | | (60 | ) | | | (70 | ) |
| | | | | | | | |
Deferred tax assets | | $ | 39 | | | $ | 49 | |
| | | | | | | | |
Deferred tax liabilities: | | | | | | | | |
Property, plant & equipment | | $ | (36 | ) | | $ | (37 | ) |
Franchises | | | (182 | ) | | | (238 | ) |
| | | | | | | | |
Deferred tax liabilities | | | (218 | ) | | | (275 | ) |
| | | | | | | | |
Net deferred tax liabilities | | $ | (179 | ) | | $ | (226 | ) |
|
| | | | | | | | |
| | December 31, |
| | 2016 | | 2015 |
Deferred tax assets: | | | | |
Loss carryforwards | | $ | — |
| | $ | 4 |
|
Accrued and other | | 2 |
| | — |
|
Deferred tax assets | | $ | 2 |
| | $ | 4 |
|
| | | | |
Deferred tax liabilities: | | | | |
Indefinite-lived intangibles | | (14 | ) | | (15 | ) |
Property, plant and equipment | | (11 | ) | | (10 | ) |
Other intangibles | | (2 | ) | | (1 | ) |
Accrued and other | | — |
| | (6 | ) |
Deferred tax liabilities | | (27 | ) | | (32 | ) |
Net deferred tax liabilities | | $ | (25 | ) | | $ | (28 | ) |
As of December
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008,2016, 2015 AND 2014
(dollars in millions, except where indicated)
Uncertain Tax Positions
In connection with the TWC Transaction, the Company had deferredassumed $181 million of gross unrecognized tax assetsbenefits, exclusive of $99 million,interest and penalties, which primarily relate toare recorded within other long-term liabilities. The net operating loss carryforwardsamount of certain ofthe unrecognized tax benefits that could impact the effective tax rate is $191 million. The Company has determined that it is reasonably possible that its indirect corporate subsidiaries and limited liability companies subject to state income tax. These net operating loss carryforwards (generally expiring in years 2009 through 2028) are subject to certain return limitations. A valuation allowance of $60 million exists with respect to these carry forwardsexisting reserve for uncertain tax positions as of December 31, 2008.2016 could decrease by $35 million during the year ended December 31, 2017 related to various ongoing audits, settlement discussions and expiration of statute of limitations with various state and local agencies; however, various events could cause the Company’s current expectations to change in the future. These uncertain tax positions, if ever recognized in the financial statements, would be recorded in the consolidated statements of operations as part of the income tax provision. A reconciliation of the beginning and ending amount of unrecognized tax benefits, exclusive of interest and penalties, included in other long-term liabilities on the accompanying consolidated balance sheets of the Company is as follows:
|
| | | |
BALANCE, December 31, 2015 | $ | — |
|
Additions on tax positions assumed in the TWC Transaction | 181 |
|
Reductions on settlements and expirations with taxing authorities | (22 | ) |
| |
BALANCE, December 31, 2016 | $ | 159 |
|
No tax years for Charter, Charter Holdings, or Charter Holdco, ourCommunications Holding Company, LLC, the Company’s indirect parent companies, for income tax purposes, are currently under examination by the Internal Revenue Service. TaxIRS. Legacy Charter’s tax years ending 2006, 2007 and 20082013 through the short period return dated May 17, 2016 remain subject to examination.
In Januaryexamination and assessment. Years prior to 2013 remain open solely for purposes of examination of Legacy Charter’s loss and credit carryforwards. The IRS is currently examining Legacy TWC’s income tax returns for 2011 and 2012. Legacy TWC’s tax years ending 2013 through 2015 remain subject to examination and assessment. Prior to Legacy TWC’s separation from Time Warner Inc. (“Time Warner”) in March 2009 (the “Separation”), Legacy TWC was included in the consolidated U.S. federal and certain state income tax returns of Time Warner. The IRS is currently examining Time Warner’s 2008 through 2010 income tax returns. Time Warner’s income tax returns for 2005 to 2007, which are periods prior to the Company adopted FIN 48, Accounting for Uncertainty in Income Taxes—Separation, were settled with the exception of an Interpretation of FASB Statement No. 109, which provides criteria forimmaterial item that has been referred to the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits.IRS Appeals Division. The Company does not believe it has taken any significant positionsanticipate that wouldthese examinations will have a material impact on the Company’s consolidated financial position or results of operations. In addition, the Company is also subject to ongoing examinations of the Company’s tax returns by state and local tax authorities for various periods. Activity related to these state and local examinations did not meethave a material impact on the “more likely than not” criteria and require disclosure.Company’s consolidated financial position or results of operations in 2016, nor does the Company anticipate a material impact in the future.
17. Related Party Transactions
The following sets forth certain transactions in which the Company and the directors, executive officers, and affiliates of the Company are involved. Unless otherwise disclosed, management believes eachinvolved or, in the case of the transactions described below was on terms no less favorable to the Company than could have been obtained from independent third parties.management arrangements, subsidiaries that are debt issuers that pay certain of their parent companies for services.
Charter is a party to management arrangements with Charter HoldcoSpectrum Management and certain of itstheir subsidiaries. Under these agreements, Charter, Spectrum Management and Charter Holdco provide management services for the cable systems owned or operated by their subsidiaries. The management services include such services as centralized customer billing services, data processing and related support, benefits administration and coordination of insurance coverage and self-insurance programs for medical, dental and workers’ compensation claims. Costs associated with providing these services are charged directly to the Company’s operating subsidiaries and are included within operating costs in the accompanying consolidated statements of operations. Such costs totaled $213 million, $213 million, and $231 million for the years ended December 31, 2008, 2007, and 2006, respectively.subsidiaries. All other costs incurred on behalf of Charter’s operating subsidiaries are considered a part of the management fee andfee. These costs are recorded as a component of operating costs and expenses, in the accompanying consolidated financial statements. The management fee charged to the Company’s operating subsidiaries approximated the expenses incurred by Spectrum Management, Charter Holdco and Charter on behalf of the Company’s operating subsidiaries in 2016, 2015 and 2014.
Liberty Broadband and A/N
On May 23, 2015, in connection with the execution of the Merger Agreement and the amendment of the Contribution Agreement, Charter entered into the Amended and Restated Stockholders Agreement with Liberty Broadband, A/N and Legacy Charter (the “Stockholders Agreement”) and the Charter Holdings Limited Liability Operating Agreement (“LLC Agreement”) with Liberty Broadband and A/N. As of the closing of the Merger Agreement and the Contribution Agreement on May 18, 2016, the Stockholders Agreement replaced Legacy Charter’s existing stockholders agreement with Liberty Broadband, dated September 29, 2014, and
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 20072016, 2015 AND 20062014
(dollars in millions, except where indicated)
superseded the amended and restated stockholders agreement among Legacy Charter, Charter, Liberty Broadband and A/N, dated March 31, 2015.
selling, general
Under the terms of the Stockholders Agreement, the number of Charter’s directors is fixed at 13, and administrative expense,includes its chief executive officer. Upon the closing of the Bright House Transaction, two designees selected by A/N became members of the board of directors of Charter and three designees selected by Liberty Broadband continued as members of the board of directors of Charter. The remaining eight directors are not affiliated with either A/N or Liberty Broadband. Each of A/N and Liberty Broadband is entitled to nominate at least one director to each of the committees of Charter’s board of directors, subject to applicable stock exchange listing rules and certain specified voting or equity ownership thresholds for each of A/N and Liberty Broadband, and provided that the Nominating and Corporate Governance Committee and the Compensation and Benefit Committee each have at least a majority of directors independent from A/N, Liberty Broadband and the Company (referred to as the “unaffiliated directors”). Each of the Nominating and Corporate Governance Committee and the Compensation and Benefits Committee is currently comprised of three unaffiliated directors and one designee of each of A/N and Liberty Broadband. A/N and Liberty Broadband also have certain other committee designation and other governance rights. Upon the closing of the Bright House Transaction, Mr. Thomas Rutledge, the Company’s Chief Executive Officer (“CEO”), became the chairman of the board of Charter.
In December 2016, Charter and A/N entered into a letter agreement (the "Letter Agreement") in which A/N exchanged Charter Holdings common units for shares of Charter Class A common stock and the accompanying consolidated financial statements.Company purchased from A/N Charter Holdings common units. The Letter Agreement also requires pro rata participation by A/N and its affiliates in any repurchases of shares of Charter Class A common stock until A/N has sold shares or units totaling $537 million ($218 million has already been completed), subject to Liberty Broadband's right of first refusal to purchase shares or units from A/N upon A/N's sale to any third party, excluding the Company. Pursuant to the TRA between Charter and A/N, Charter must pay to A/N 50% of the tax benefit when realized by Charter from the step-up in tax basis resulting from any future exchange or sale of the preferred and common units.
The Company is aware that Dr. John Malone may be deemed to have a 36.4% voting interest in Liberty Interactive and is Chairman of the board of directors, an executive officer position, of Liberty Interactive. Liberty Interactive owns 38.3% of the common stock of HSN, Inc. (“HSN”) and has the right to elect 20% of the board members of HSN. Liberty Interactive wholly owns QVC, Inc. (“QVC”). The Company has programming relationships with HSN and QVC which pre-date the transaction with Liberty Media. For the years ended December 31, 2008, 2007,2016, 2015 and 2006,2014, the management fee chargedCompany recorded payments in aggregate of approximately $53 million, $17 million and $14 million, respectively, from HSN and QVC as part of channel carriage fees and revenue sharing arrangements for home shopping sales made to customers in the Company’s operating subsidiaries approximatedfootprint.
Dr. Malone and Mr. Steven Miron, each a member of Charter’s board of directors, also serve on the expenses incurred by Charter Holdcoboard of directors of Discovery Communications, Inc., (“Discovery”) and Charter on behalfthe Company is aware that Dr. Malone owns 5.2% in the aggregate of the Company’s operating subsidiaries.common stock of Discovery and has a 28.7% voting interest in Discovery for the election of directors. The Company’s previous credit facilities prohibited paymentsCompany is aware that Advance/Newhouse Programming Partnership (“A/N PP”), an affiliate of management feesA/N and in excess of 3.5% of revenues until repayment ofwhich Mr. Miron is the outstanding indebtedness. In the event any portion of the management fee due and payable was not paid, it would be deferred by Charter and accrued as a liability of such subsidiaries. Any deferred amount of the management fee would bear interest at the rate of 10% per year, compounded annually, from the date it was due and payable until the date paid.
Mr. Allen, the controlling shareholder of Charter, and a number of his affiliates have interests in various entities that provide services or programming to Charter’s subsidiaries. Given the diverse nature of Mr. Allen’s investment activities and interests, and to avoid the possibility of future disputes as to potential business, Charter and Charter Holdco, under the terms of their respective organizational documents, may not, and may not allow their subsidiaries to engage in any business transaction outside the cable transmission business except for certain existing approved investments. Charter or Charter Holdco or any of their subsidiaries may not pursue, or allow their subsidiaries to pursue, a business transaction outside of this scope, unless Mr. Allen consents to Charter or its subsidiaries engaging in the business transaction. The cable transmission business means the business of transmitting video, audio, including telephone, and data over cable systems owned, operated or managed by Charter, Charter Holdco or any of their subsidiaries from time to time.
Mr. Allen or his affiliates own or have owned equity interests or warrants to purchase equity interests in various entities with which the Company does business or which provides it with products, services or programming. Among these entities are Oxygen Media Corporation (“Oxygen Media”), Digeo, Inc. (“Digeo”), and Microsoft Corporation. Mr. AllenCEO, owns 100% of the Series A preferred stock of Discovery and 100% of the Series C preferred stock of Discovery, representing approximately 34.0% of the outstanding equity of Vulcan Ventures Incorporated (“Vulcan Ventures”Discovery’s stock, on an as-converted basis. A/N PP has the right to appoint three directors out of a total of ten directors to Discovery’s board to be elected by the holders of Discovery’s Series A preferred stock. In addition, Dr. Malone is a member of the board of directors of Lions Gate Entertainment Corp. ("Lions Gate", parent company of Starz, Inc.) and Vulcan Inc. and isowns approximately 5.9% in the president of Vulcan Ventures. Ms. Jo Allen Patton is a directoraggregate of the Companycommon stock of Lions Gate and the President and Chief Executive Officer of Vulcan Inc. and is a director and Vice President of Vulcan Ventures. Mr. Lance Conn is a directorhas 8.1% of the Company and is Executive Vice Presidentvoting power, pursuant to his ownership of Vulcan Inc. and Vulcan Ventures. The various cable, media, Internet and telephone companies in which Mr. Allen has invested may mutually benefit one another.Lions Gate Class A voting shares. The Company can give no assurance, nor should you expect, that anypurchases programming from both Discovery and Lions Gate pursuant to agreements entered into prior to Dr. Malone and Mr. Miron joining Charter’s board of these business relationships will be successful, thatdirectors. Based on publicly available information, the Company will realize any benefits from these relationshipsdoes not believe that either Discovery or that the Company will enter into any business relationshipsLions Gate would currently be considered related parties. The amounts paid in the future with Mr. Allen’s affiliated companies.
Mr. Allenaggregate to Discovery and his affiliates have made,Lions Gate represent less than 3% of total operating costs and in the future likely will make, numerous investments outside of the Company and its business. The Company cannot provide any assurance that, in the event that the Company or any of its subsidiaries enter into transactions in the future with any affiliate of Mr. Allen, such transactions will be on terms as favorable to the Company as terms it might have obtained from an unrelated third party. Also, conflicts could arise with respect to the allocation of corporate opportunities between the Company and Mr. Allen and his affiliates. The Company has not instituted any formal plan or arrangement to address potential conflicts of interest.
In 2009, pursuant to indemnification provisions in the October 2005 settlement with Mr. Allen regarding the CC VIII interest, the Company reimbursed Vulcan Inc. approximately $3 million in legal expenses.
Oxygen. Oxygen Media LLC ("Oxygen") provides programming content to the Company pursuant to a carriage agreement. Under the carriage agreement, the Company paid Oxygen approximately $6 million, $8 million, and $8 millionexpenses for the years ended December 31, 2008, 2007,2016, 2015 and 2006, respectively.2014.
In 2005,Equity Investments
The Company and its parent companies have agreements with certain equity-method investees (see Note 7) pursuant to an amended equity issuance agreement, Oxygen Media delivered 1which the Company has made or received related party transaction payments. The Company and its parent companies recorded payments to equity-method investees totaling $171 million shares of Oxygen Preferred Stockand $28 million during the years ended December 31, 2016 and 2015, respectively. The Company recorded advertising revenues from transactions with a liquidation preference of $33.10 per share plus accrued dividends to Charter Holdco. In November 2007, Oxygen was sold to an unrelated third party and Charter Holdco received approximately $35equity-method investees totaling $7 million representing its liquidation preference on its preferred stock. Mr. Allen and his affiliates also no longer have an interest in Oxygen.during the year ended December 31, 2016.
Digeo, Inc. In March 2001, Charter Ventures and Vulcan Ventures Incorporated formed DBroadband Holdings, LLC for the sole purpose of purchasing equity interests in Digeo. In connection with the execution of the broadband carriage agreement, DBroadband Holdings, LLC purchased an equity interest in Digeo funded by contributions from
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 20072016, 2015 AND 20062014
(dollars in millions, except where indicated)
Vulcan Ventures Incorporated. At that time, the equity interest was subject to a priority return of capital to Vulcan Ventures up to the amount contributed by Vulcan Ventures on Charter Ventures’ behalf. After Vulcan Ventures recovered its amount contributed (the “Priority Return”), Charter Ventures should have had a 100% profit interest in DBroadband Holdings, LLC. Charter Ventures was not required to make any capital contributions, including capital calls to DBroadband Holdings, LLC. DBroadband Holdings, LLC therefore was not included in the Company’s consolidated financial statements. Pursuant to an amended version of this arrangement, in 2003, Vulcan Ventures contributed a total of $29 million to Digeo, $7 million of which was contributed on Charter Ventures’ behalf, subject to Vulcan Ventures’ aforementioned priority return. Since the formation of DBroadband Holdings, LLC, Vulcan Ventures has contributed approximately $56 million on Charter Ventures’ behalf. On October 3, 2006, Vulcan Ventures and Digeo recapitalized Digeo. In connection with such recapitalization, DBroadband Holdings, LLC consented to the conversion of its preferred stock holdings in Digeo to common stock, and Vulcan Ventures surrendered its Priority Return to Charter Ventures. As a result, DBroadband Holdings, LLC is now included in the Company’s consolidated financial statements. Such amounts are immaterial. After the recapitalization, DBroadband Holdings, LLC owns 1.8% of Digeo, Inc’s common stock. Digeo, Inc. is therefore not included in the Company’s consolidated financial statements. In December 2007, the Digeo, Inc. common stock was transferred to Charter Operating, and DBroadband Holdings, LLC was dissolved.
The Company paid Digeo Interactive approximately $0, $0, and $2 million for the years ended December 31, 2008, 2007, and 2006, respectively, for customized development of the i-channels and the local content tool kit.
On June 30, 2003, Charter Holdco entered into an agreement with Motorola, Inc. for the purchase of 100,000 DVR units. The software for these DVR units is being supplied by Digeo Interactive, LLC under a license agreement entered into in April 2004. Pursuant to a software license agreement with Digeo Interactive for the right to use Digeo's proprietary software for DVR units, the Company paid approximately $1 million, $2 million, and $3 million in license and maintenance fees in 2008, 2007, and 2006, respectively.
The Company paid approximately $1 million, $10 million, and $11 million for the years ended December 31, 2008, 2007, and 2006, respectively, in capital purchases under an agreement with Digeo Interactive for the development, testing and purchase of 70,000 Digeo PowerKey DVR units. Total purchase price and license and maintenance fees during the term of the definitive agreements are expected to be approximately $41 million. The definitive agreements are terminable at no penalty to Charter in certain circumstances.
In May 2008, Charter Operating entered into an agreement with Digeo Interactive, LLC, a subsidiary of Digeo, Inc., for the minimum purchase of high-definition DVR units for approximately $21 million. This minimum purchase commitment is subject to reduction as a result of certain specified events such as the failure to deliver units timely and catastrophic failure. The software for these units is being supplied under a software license agreement with Digeo Interactive, LLC; the cost of which is expected to be approximately $2 million for the initial licenses and on-going maintenance fees of approximately $0.3 million annually, subject to reduction to coincide with any reduction in the minimum purchase commitment. For the year ended December 31, 2008, Charter has purchased approximately $1 million of DVR units from Digeo Interactive, LLC under these agreements.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
21.18. Commitments and Contingencies
Commitments
The following table summarizes the Company’scontractual payment obligations for the Company and its parent companies as of December 31, 2008 for its contractual obligations.2016.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter |
Capital and Operating Lease Obligations (a) | $ | 1,324 |
| | $ | 259 |
| | $ | 225 |
| | $ | 180 |
| | $ | 142 |
| | 108 |
| | $ | 410 |
|
Programming Minimum Commitments (b) | 310 |
| | 225 |
| | 37 |
| | 26 |
| | 22 |
| | — |
| | — |
|
Other (c) | 13,187 |
| | 1,334 |
| | 810 |
| | 704 |
| | 664 |
| | 539 |
| | 9,136 |
|
| $ | 14,821 |
| | $ | 1,818 |
| | $ | 1,072 |
| | $ | 910 |
| | $ | 828 |
| | $ | 647 |
| | $ | 9,546 |
|
| | Total | | | 2009 | | | 2010 | | | 2011 | | | 2012 | | | 2013 | | | Thereafter | |
| | | | | | | | | | | | | | | | | | | | | |
Contractual Obligations | | | | | | | | | | | | | | | | | | | | | |
Capital and Operating Lease Obligations (1) | | $ | 96 | | | $ | 22 | | | $ | 20 | | | $ | 15 | | | $ | 12 | | | $ | 9 | | | $ | 18 | |
Programming Minimum Commitments (2) | | | 687 | | | | 315 | | | | 101 | | | | 105 | | | | 110 | | | | 56 | | | | -- | |
Other (3) | | | 475 | | | | 368 | | | | 66 | | | | 22 | | | | 19 | | | | -- | | | | -- | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 1,258 | | | $ | 705 | | | $ | 187 | | | $ | 142 | | | $ | 141 | | | $ | 65 | | | $ | 18 | |
| (1) |
(a) | The Company leases certain facilities and equipment under noncancelablenon-cancelable capital and operating leases. Leases and rental costs charged to expense for the years ended December 31, 2008, 2007,2016, 2015 and 2006,2014 were $24$215 million $23, $49 million and $23, $43 million, respectively. |
| (2) |
(b) | The Company pays programming fees under multi-year contracts ranging from three to ten years, typically based on a flat fee per customer, which may be fixed for the term, or may in some cases escalate over the term. Programming costs included in the accompanying statement of operations were $1.6$7.0 billion, $1.6$2.7 billion and $1.5$2.5 billion for the years ended December 31, 2008, 2007,2016, 2015 and 2006,2014 respectively. Certain of the Company’s programming agreements are based on a flat fee per month or have guaranteed minimum payments. The table sets forth the aggregate guaranteed minimum commitments under the Company’s programming contracts. |
| (3) “Other” |
(c) | “Other” represents other guaranteed minimum commitments, which consist primarily ofincluding rights negotiated directly with content owners for distribution on Company-owned channels or networks and commitments related to the Company’s role as an advertising and distribution sales agent for third party-owned channels or networks as well as commitments to the Company’s billing servicescustomer premise equipment vendors. |
The following items are not included in the contractual obligation table due to various factors discussed below. However, the Company incurs these costs as part of its operations:
| · | The Company also rents utility poles used in its operations. Generally, pole rentals are cancelable on short notice, but the Company anticipates that such rentals will recur. Rent expense incurred for pole rental attachments for the years ended December 31, 2008, 2007, and 2006, was $47 million, $47 million, and $44 million, respectively. |
The Company rents utility poles used in its operations. Generally, pole rentals are cancelable on short notice, but the Company anticipates that such rentals will recur. Rent expense incurred for pole rental attachments for the years ended December 31, 2016, 2015 and 2014 was $115 million, $53 million and $49 million, respectively.
The Company pays franchise fees under multi-year franchise agreements based on a percentage of revenues generated from video service per year. The Company also pays other franchise related costs, such as public education grants, under multi-year agreements. Franchise fees and other franchise-related costs included in the accompanying statement of operations were $534 million, $212 million and $208 million for the years ended December 31, 2016, 2015 and 2014 respectively.
| · | The Company pays franchise fees under multi-year franchise agreements based on a percentage of revenues generated from video service per year. The Company also pays other franchise related costs, such as public education grants, under multi-year agreements. Franchise fees and other franchise-related costs included in the accompanying statement of operations were $179 million, $172 million, and $175 million for the years ended December 31, 2008, 2007, and 2006, respectively. |
The Company also has $278 million in letters of credit, of which $220 million is secured under the Charter Operating credit facility, primarily to its various casualty carriers as collateral for reimbursement of workers' compensation, auto liability and general liability claims.
| · | The Company also has $158 million in letters of credit, primarily to its various worker’s compensation, property and casualty, and general liability carriers, as collateral for reimbursement of claims. These letters of credit reduce the amount the Company may borrow under its credit facilities. |
Minimum pension funding requirements have not been presented in the table above as such amounts have not been determined beyond 2016. The Company made no cash contributions to the qualified pension plans in 2016; however, the Company is permitted to make discretionary cash contributions to the qualified pension plans in 2017. For the nonqualified pension plan, the Company contributed $5 million during 2016 and will continue to make contributions in 2017 to the extent benefits are paid.
Legal Proceedings
In 2014, following an announcement by Comcast and Legacy TWC of their intent to merge, Breffni Barrett and others filed suit in the Supreme Court of the State of New York for the County of New York against Comcast, Legacy TWC and their respective officers and directors. Later five similar class actions were consolidated with this matter (the “NY Actions”). The NY Actions were settled in July 2014, however, such settlement was terminated following the termination of the Comcast and TWC merger in April 2015. In May 2015, Charter and TWC announced their intent to merge. Subsequently, the parties in the NY Actions filed
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 20072016, 2015 AND 20062014
(dollars in millions, except where indicated)
a Second Consolidated Class Action Complaint (the “Second Amended Complaint”), removing Comcast as a defendant and naming TWC, the members of the TWC board of directors, Charter and the merger subsidiaries as defendants. The Second Amended Complaint generally alleges, among other things, that the members of the TWC board of directors breached their fiduciary duties to TWC stockholders during the Charter merger negotiations and by entering into the merger agreement and approving the mergers, and that Charter aided and abetted such breaches of fiduciary duties. The complaint sought, among other relief, injunctive relief enjoining the stockholder vote on the mergers, unspecified declaratory and equitable relief, compensatory damages in an unspecified amount, and costs and attorneys’ fees.
In September 2015, the parties entered into a memorandum of understanding (“MOU”) to settle the action. Pursuant to the MOU, the defendants issued certain supplemental disclosures relating to the mergers on a Form 8-K, and plaintiffs agreed to release with prejudice all claims that could have been asserted against defendants in connection with the mergers. The settlement is conditioned on, among other things, approval by the New York Supreme Court. That court gave preliminary approval to the settlement in October 2016. A hearing to consider final approval of this settlement is set for March 2017. In the event that the New York Supreme Court does not approve the settlement, Charter intends to vigorously defend this case.
In August 2015, a purported stockholder of Charter, Matthew Sciabacucchi, filed a lawsuit in the Delaware Court of Chancery, on behalf of a putative class of Charter stockholders, challenging the transactions between Charter, TWC, A/N, and Liberty Broadband announced by Charter on May 26, 2015 (collectively, the “Transactions”). The lawsuit names as defendants Liberty Broadband, Charter, the board of directors of Charter, and New Charter. Plaintiff alleged that the Transactions improperly benefit Liberty Broadband at the expense of other Charter shareholders, and that Charter issued a false and misleading proxy statement in connection with the Transactions. Plaintiff requested, among other things, that the Delaware Court of Chancery enjoin the September 21, 2015 special meeting of Charter stockholders at which Charter stockholders were asked to vote on the Transactions until the defendants disclosed certain information relating to Charter and the Transactions. The disclosures demanded by the plaintiff included (i) certain unlevered free cash flow projections for Charter and (ii) a Form of Proxy and Right of First Refusal Agreement (“Proxy”) by and among Liberty Broadband, A/N, Charter and New Charter, which was referenced in the description of the Second Amended and Restated Stockholders Agreement, dated May 23, 2015, among Charter, New Charter, Liberty Broadband and A/N. On September 9, 2015, Charter issued supplemental disclosures containing unlevered free cash flow projections for Charter. In return, the plaintiff agreed its disclosure claims were moot and withdrew its application to enjoin the Charter stockholder vote on the Transactions. Charter has filed a motion to dismiss this litigation but the court has not yet ruled upon it. Charter denies any liability, believes that it has substantial defenses, and intends to vigorously defend this suit.
The California Attorney General and the Alameda County, California District Attorney are investigating whether certain of Legacy Charter’s waste disposal policies, procedures and practices are in violation of the California Business and Professions Code and the California Health and Safety Code. That investigation was commenced in January 2014. A similar investigation involving Legacy TWC was initiated in February 2012. Charter is cooperating with these investigations. While the Company is unable to predict the outcome of these investigations, it does not expect that the outcome will have a material effect on its operations, financial condition, or cash flows.
On December 19, 2011, Sprint Communications Company L.P. (“Sprint”) filed a complaint in the U.S. District Court for the District of Kansas alleging that Legacy TWC infringes 12 U.S. patents purportedly relating to Voice over Internet Protocol (“VoIP”) services. Over the course of the litigation Sprint dismissed its claims relating to five of the asserted patents, and shortly before trial Sprint dropped its claims with respect to two additional patents. A trial on the remaining five patents began on February 13, 2017. Sprint and Charter have completed the presentation of their evidence in the trial, and the jury is deliberating with a decision expected at any time. The plaintiff is seeking monetary damages of approximately $150 million. The plaintiff is also claiming that TWC willfully infringed the patents, and may seek up to treble damages as well as attorneys’ fees and costs. Charter intends to vigorously defend against this lawsuit. However, no assurances can be made that such defenses would ultimately be successful. At this time, the Company does not expect that the outcome of this litigation will have a material adverse effect on its operations, financial condition or cash flows although the ultimate outcome of the litigation cannot be predicted.
LitigationOn October 23, 2015, the New York Office of the Attorney General (the “NY AG”) began an investigation of Legacy TWC's advertised Internet speeds and other Internet product advertising. On February 1, 2017, the NY AG filed suit in the Supreme Court for the State of New York alleging that Legacy TWC's advertising of Internet speeds was false and misleading. The suit seeks restitution and injunctive relief. The Company denies that Legacy TWC engaged in any wrongdoing and the Company intends to defend itself vigorously. However, no assurances can be made that such defenses would ultimately be successful. At this time,
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
the Company does not expect that the outcome of this litigation will have a material adverse effect on its operations, financial condition or cash flows.
The Company and its parent companies are defendantsis a defendant or co-defendantsco-defendant in several unrelated lawsuits claiminginvolving alleged infringement of various patents relating to various aspects of its businesses. Other industry participants are also defendants in certain of these cases, and, in many cases, the Company expects that any potential liability would be the responsibility of its equipment vendors pursuant to applicable contractual indemnification provisions.cases. In the event that a court ultimately determines that the Company infringes on any intellectual property rights, itthe 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.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, the lawsuits could be material to the Company’s consolidated results of operations of any one period, and 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.
In the ordinary course of business, the Company and its parent companies may face employment law claims, including claims under the Fair Labor Standards Act and wage and hour laws of the states in which we operate. On August 15, 2007, a complaint was filed, on behalf of both nationwide and state of Wisconsin classes of certain categories of current and former Charter technicians, against Charter in the United States District Court for the Western District of Wisconsin (Sjoblom v. Charter Communications, LLC and Charter Communications, Inc.), alleging that Charter violated the Fair Labor Standards Act and Wisconsin wage and hour laws by failing to pay technicians for certain hours claimed to have been worked. While the Company believes it has substantial factual and legal defenses to the claims at issue, in order to avoid the cost and distraction of continuing to litigate the case, the Company reached a settlement with the plaintiffs, which received final approval from the court on January 26, 2009. The Company has accrued settlement costs associated with the Sjoblom case. The Company has been subjected, in the normal course of business, to the assertion of other similar claims and could be subjected to additional such claims. The Company can notcannot predict the ultimate outcome of any such claims.claims nor can it reasonably estimate a range of possible loss.
The Company and its parent companies areis party to lawsuits, claims and claimsregulatory inquiries that arise in the ordinary course of conducting its business.business, including lawsuits claiming violation of wage and hour laws and breach of contract by vendors, including by three programmers. The ultimate outcome of these other legal matters pending against the Company or its subsidiaries 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.
19. Employee Benefit Plans
Pension Plans
Upon completion of the TWC Transaction, the Company assumed sponsorship of Legacy TWC’s pension plans. The Company sponsors two qualified defined benefit pension plans, the TWC Pension Plan and the TWC Union Pension Plan, that provide pension benefits to a majority of Legacy TWC employees. The Company also provides a nonqualified defined benefit pension plan for certain employees under the TWC Excess Pension Plan.
Regulation
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
Changes in the Cable Industryprojected benefit obligation, fair value of plan assets and funded status of the pension plans from January 1, 2016 through December 31, 2016 are presented below:
|
| | | |
| 2016 |
Projected benefit obligation at beginning of year | $ | — |
|
Benefit obligation assumed in the TWC Transaction | 4,009 |
|
Service cost | 86 |
|
Interest cost | 87 |
|
Curtailment amendment | (675 | ) |
Actuarial gain | (149 | ) |
Benefits paid | (98 | ) |
Projected benefit obligation at end of year | $ | 3,260 |
|
| |
Accumulated benefit obligation at end of year | $ | 3,260 |
|
| |
Fair value of plan assets at beginning of year | $ | — |
|
Fair value of plan assets acquired in the TWC Transaction | 2,877 |
|
Actual return on plan assets | 162 |
|
Employer contributions | 5 |
|
Benefits paid | (98 | ) |
Fair value of plan assets at end of year | $ | 2,946 |
|
| |
Funded status | $ | (314 | ) |
The operationprojected benefit obligation, accumulated benefit obligation and fair value of plan assets for the qualified pension plans and the nonqualified pension plan as of December 31, 2016 consisted of the following:
|
| | | | | | | |
| Qualified Pension Plans | | Nonqualified Pension Plan |
| December 31, 2016 |
Projected benefit obligation | $ | 3,204 |
| | $ | 56 |
|
Accumulated benefit obligation | $ | 3,204 |
| | $ | 56 |
|
Fair value of plan assets | $ | 2,946 |
| | $ | — |
|
Pretax amounts recognized in the consolidated balance sheet as of December 31, 2016 consisted of the following:
|
| | | |
| December 31, 2016 |
Noncurrent asset | $ | 1 |
|
Current liability | (6 | ) |
Long-term liability | (309 | ) |
Net amounts recognized in consolidated balance sheet | $ | (314 | ) |
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
The components of net periodic benefit costs for the year ended December 31, 2016 consisted of the following:
|
| | | |
| Year Ended December 31, 2016 |
Service cost | $ | 86 |
|
Interest cost | 87 |
|
Expected return on plan assets | (116 | ) |
Pension curtailment gain | (675 | ) |
Remeasurement gain | (195 | ) |
Net periodic pension benefit | $ | (813 | ) |
The $195 million remeasurement gain recorded during the year ended December 31, 2016 was primarily driven by the effects of an increase of the discount rate from 3.99% at the closing date of the TWC Transaction to 4.20% at December 31, 2016 and a gain to record pension assets at December 31, 2016 fair values.
Weighted average assumptions used to determine benefit obligations as of December 31, 2016 consisted of the following:
|
| | |
| December 31, 2016 |
Discount rate | 4.20 | % |
Rate of compensation increase | — | % |
The weighted average of discount rates used to measure the projected benefit obligation at the closing date of the TWC Transaction was 3.99%. The rate of compensation increase used to measure the projected benefit obligation as of the closing of the TWC Transaction was an age-graded average increase of 4.25%. The Company utilized the RP 2015/MP2015 mortality tables published by the Society of Actuaries to measure the benefit obligations as of December 31, 2016 and the closing date of the TWC Transaction.
Weighted average assumptions used to determine net periodic benefit costs for the year ended December 31, 2016 consisted of the following:
|
| | |
| Year Ended December 31, 2016 |
Expected long-term rate of return on plan assets | 6.50 | % |
Discount rate (a) | 3.72 | % |
Rate of compensation increase (b) | — | % |
| |
(a) | The discount rate used to determine net periodic pension benefit was 3.99% from the closing date of the TWC Transaction through remeasurement date (June 30, 2016), and was 3.72% from remeasurement date through December 31, 2016. |
| |
(b) | The rate of compensation increase used to determine net periodic pension benefit was 4.25% from the closing date of the TWC Transaction through remeasurement date (June 30, 2016), and 0% thereafter. See “Pension Plan Curtailment Amendment” below for further discussion. |
In developing the expected long-term rate of return on plan assets, the Company considered the pension portfolio’s composition, past average rate of earnings and the Company’s future asset allocation targets. The weighted average expected long-term rate of return on plan assets used to determine net periodic pension benefit for the year ended December 31, 2017 is expected to be 6.50%. The Company determined the discount rates used to determine benefit obligations and net periodic pension benefit based on the yield of a cable system is extensively regulatedlarge population of high quality corporate bonds with cash flows sufficient in timing and amount to settle projected future defined benefit payments.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
Pension Plan Curtailment Amendment
Following the closing of the TWC Transaction, Charter amended the pension plans to freeze future benefit accruals to current active plan participants as of August 31, 2016. Effective September 1, 2016, no future compensation increases or future service will be credited to participants of the pension plans and new hires are not eligible to participate in the plans. Upon announcement and approval of the plan amendment, the assumptions underlying the pension liability and pension asset values were reassessed utilizing remeasurement date assumptions in accordance with Charter’s mark-to-market pension accounting policy to record gains and losses in the period in which a remeasurement event occurs. The $675 million curtailment gain recorded during the year ended December 31, 2016 was primarily driven by the Federal Communications Commission (“FCC”reduction of the compensation rate assumption to 0% in accordance with the terms of the plan amendment, reflecting the pension liability at its accumulated benefit obligation instead of its projected benefit obligation at the remeasurement date.
Pension Plan Assets
The assets of the qualified pension plans are held in a master trust in which the qualified pension plans are the only participating plans (the “Master Trust”),. The investment policy for the qualified pension plans is to achieve a reasonable long-term rate of return on plan assets with an acceptable level of risk in order to maintain adequate funding levels. The investment portfolio is a mix of fixed-income and equity securities with the objective of matching plan liability performance, diversifying risk and achieving a target investment return. The pension plan’s Investment Committee establishes risk mitigation policies and regularly monitors investment performance, investment allocation policies, and the execution of these strategies. The Investment Committee engages a third-party investment firm with responsibility of executing the directives of the Investment Committee, monitoring the performance of individual investment managers of the Master Trust, and making adjustments and changes within defined parameters when necessary. On a periodic basis, the Investment Committee conducts a broad strategic review of its portfolio construction and investment allocation policies. Neither the Company, the Investment Committee, nor the third-party investment firm manages any assets internally or directly utilizes derivative instruments or hedging; however, the investment mandate of some state governmentsinvestment managers allows the use of derivatives as components of their standard portfolio management strategies. Pension assets are managed in a balanced portfolio comprised of two major components: a return-seeking portion and most local governments.a liability-matching portion. The FCC hasexpected role of return-seeking investments is to achieve a reasonable long-term growth of pension assets with a prudent level of risk, while the authorityrole of liability-matching investments is to enforceprovide a partial hedge against liability performance associated with changes in interest rates. The objective within return-seeking investments is to achieve asset diversity in order to balance return and volatility.
The Company adopted an investment strategy referred to as a de-risking glide path to increase the fixed income allocation as the funded status of the qualified pension plans improves. As the qualified pension plans reach set funded status milestones, the assets will be rebalanced to shift more assets from equity to fixed income. Based on the progress with this strategy, the target investment allocation for pension fund assets is permitted to vary within specified ranges subject to Investment Committee approval for return-seeking securities and liability-matching securities. The target and actual investment allocation of the qualified pension plans by asset category as of December 31, 2016 consisted of the following:
|
| | | | | |
| Target | | Actual Allocation |
| Allocation | | December 31, 2016 |
Return-seeking securities | 75.0 | % | | 64.4 | % |
Liability-matching securtties | 25.0 | % | | 35.4 | % |
Other investments | — | % | | 0.2 | % |
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
The following table sets forth the investment assets of the qualified pension plans, which exclude accrued investment income and other receivables, accrued liabilities, and investments with a fair value measured at net asset value per share as a practical expedient, by level within the fair value hierarchy as of December 31, 2016:
|
| | | | | | | | | | | | | | | |
| December 31, 2016 |
| Fair Value | | Level 1 | | Level 2 | | Level 3 |
Cash | $ | 2 |
| | $ | 2 |
| | $ | — |
| | $ | — |
|
Common stocks: | | | | | | | |
Domestic(a) | 1,065 |
| | 1,065 |
| | — |
| | — |
|
International(a) | 391 |
| | 391 |
| | — |
| | — |
|
Commingled equity funds(b) | 348 |
| | — |
| | 348 |
| | — |
|
Other equity securities(c) | 3 |
| | 3 |
| | — |
| | — |
|
Corporate debt securities(d) | 394 |
| | — |
| | 394 |
| | — |
|
Commingled bond funds(b) | 273 |
| | — |
| | 273 |
| | — |
|
U.S. Treasury debt securities(a) | 260 |
| | 260 |
| | — |
| | — |
|
Collective trust funds(e) | 75 |
| | — |
| | 75 |
| | — |
|
U.S. government agency asset-backed debt securities(f) | 53 |
| | — |
| | 53 |
| | — |
|
Corporate asset-backed debt securities(g) | 2 |
| | — |
| | 2 |
| | — |
|
Other fixed-income securities(h) | 89 |
| | — |
| | 89 |
| | — |
|
Total investment assets | 2,955 |
| | $ | 1,721 |
| | $ | 1,234 |
| | $ | — |
|
Accrued investment income and other receivables(i) | 107 |
| | | | | | |
Accrued liabilities(i) | (120 | ) | | | | | | |
Investments measured at net asset value (j) | 4 |
| | | | | | |
Fair value of plan assets | $ | 2,946 |
| | | | | | |
| |
(a) | Common stocks, mutual funds and U.S. Treasury debt securities are valued at the closing price reported on the active market on which the individual securities are traded. No single industry comprised a significant portion of common stock held by the qualified pension plan as of December 31, 2016. |
| |
(b) | Commingled equity funds and commingled bond funds are valued using the net asset value provided by the administrator of the fund. The net asset value is based on the readily determinable value of the underlying assets owned by the fund, less liabilities, and then divided by the number of units outstanding. |
| |
(c) | Other equity securities consist of preferred stocks, which are valued at the closing price reported on the active market on which the individual securities are traded. |
| |
(d) | Corporate debt securities are valued based on observable prices from the new issue market, benchmark quotes, secondary trading and dealer quotes. An option adjusted spread model is incorporated to adjust spreads of issues that have early redemption features and final spreads are added to the U.S. Treasury curve. |
| |
(e) | Collective trust funds primarily consist of short-term investment strategies comprised of instruments issued or fully guaranteed by the U.S. government and/or its agencies and are valued using the net asset value provided by the administrator of the fund. The net asset value is based on the readily determinable value of the underlying assets owned by the fund, less liabilities, and then divided by the number of units outstanding. |
| |
(f) | U.S. government agency asset-backed debt securities consist of pass-through mortgage-backed securities issued by the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association valued using available trade information, dealer quotes, market indices and research reports, spreads, bids and offers. |
| |
(g) | Corporate asset-backed debt securities primarily consist of pass-through mortgage-backed securities issued by U.S. and foreign corporations valued using available trade information, dealer quotes, market indices and research reports, spreads, bids and offers. |
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
| |
(h) | Other fixed-income securities consist of foreign government debt securities, municipal bonds and U.S. government agency debt securities, which are valued based on observable prices from the new issue market, benchmark quotes, secondary trading and dealer quotes. An option adjusted spread model is incorporated to adjust spreads of issues that have early redemption features and final spreads are added to the U.S. Treasury curve. |
| |
(i) | Accrued investment income and other receivables includes amounts receivable under foreign exchange contracts of $70 million as of December 31, 2016. Accrued liabilities includes amounts accrued under foreign exchange contracts of $71 million as of December 31, 2016. The fair value of the assets and liabilities associated with these foreign exchange contracts are presented on a gross basis and are valued using the exchange rates in effect for the applicable currencies as of the valuation date (a Level 1 fair value measurement). |
| |
(j) | Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. These investments primarily consist of hedge funds valued utilizing net asset value provided by the administrator of the fund, which is based on the value of the underlying assets owned by the fund, less liabilities, and then divided by the number of units outstanding. Shares of the fund are not redeemable and the underlying assets are anticipated to be liquidated and distributed to investors in the near term. There are no material unfunded commitments with respect to these investments. The fair value amounts presented in this table are intended to permit the reconciliation of the fair value hierarchy to the total fair value of plan assets discussed throughout this footnote. |
Pension Plan Contributions
The Company made no cash contributions to the qualified pension plans during the year ended December 31, 2016; however, the Company may make discretionary cash contributions to the qualified pension plans in the future. Such contributions will be dependent on a variety of factors, including current and expected interest rates, asset performance, the funded status of the qualified pension plans and management’s judgment. For the nonqualified unfunded pension plan, the Company will continue to make contributions during 2017 to the extent benefits are paid.
Benefit payments for the pension plans are expected to be $170 million in 2017, $174 million in 2018, $177 million in 2019, $180 million in 2020, $182 million in 2021 and $911 million in 2022 to 2026.
Multiemployer Plans
Upon completion of the TWC Transaction, Charter assumed Legacy TWC’s multiemployer plans. The Company contributes to a number of multiemployer plans under the terms of collective-bargaining agreements that cover its regulations throughunion-represented employees. Such multiemployer plans provide medical, pension and retirement savings benefits to active employees and retirees. The Company made contributions to multiemployer plans of $31 million for the impositionyear ended December 31, 2016.
The risks of substantial fines,participating in multiemployer pension plans are different from single-employer pension plans in the issuance of cease and desist orders and/or the impositionfollowing aspects: (a) assets contributed to a multiemployer pension plan by one employer may be used to provide benefits to employees of other administrative sanctions, such asparticipating employers, (b) if a participating employer stops contributing to the revocationmultiemployer pension plan, the unfunded obligations of FCC licenses neededthe plan may be borne by the remaining participating employers and (c) if the Company chooses to operate certain transmission facilities usedstop participating in connection with cable operations. The 1996 Telecom Act alteredany of the regulatory structure governing the nation’s communications providers. It removed barriers to competition in both the cable television market and the telephone market. Among other things,multiemployer pension plans, it reduced the scope of cable rate regulation and encouraged additional competition in the video programming industry by allowing telephone companies to provide video programming in their own telephone service areas.
Future legislative and regulatory changes could adversely affect the Company’s operations, including, without limitation, additional regulatory requirements the Company may be required to comply withpay those plans an amount based on the underfunded status of the plan, referred to as it offers new services such as telephone.a withdrawal liability.
22. EmployeeThe multiemployer pension plans to which the Company contributes each received a Pension Protection Act “green” zone status in 2015. The zone status is based on the most recent information the Company received from the plan and is certified by the plan’s actuary. Among other factors, plans in the green zone are at least 80% funded.
Defined Contribution Benefit PlanPlans
The Company’s employees may participate in the Charter Communications, Inc. 401(k) Plan (the “401(k) Plan”). Upon completion of the TWC Transaction, Charter assumed Legacy TWC’s defined contribution plan, the TWC Savings Plan. In June 2016, the Company announced changes to both the 401(k) Plan and the TWC Savings Plan that were effective September 1, 2016 and effective January 1, 2017, the 401(k) Plan and TWC Savings Plan merged into one plan. Employees that qualify for participation can contribute up to 50% of their salary, on a pre-tax basis, subject to a maximum contribution limit as determined by the Internal Revenue Service. For each payroll period, the Company will contribute to the 401(k) Plan (a) the total amount of the salary reduction the employee elects to defer between 1%
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
and 50% and (b) aThe Company’s matching contribution is discretionary and is equal to 50%100% of the amount of the salary reduction the participant elects to defer (up to 5%6% of the participant’s payrolleligible compensation), excluding any catch-up contributions. The Company made contributions to the 401(k) plan totaling $8 million, $7 million, and $8 million for the years ended December 31, 2008, 2007, and 2006, respectively.
23. Recently Issued Accounting Standards
In December 2007, the FASB issued SFAS No. 141R, Business Combinations: Applying the Acquisition Method, which provides guidance on the accounting and reporting for business combinations. SFAS No. 141R is effective for fiscal years beginning after December 15, 2008. The Company will adopt SFAS No. 141R effective January 1, 2009. We do not expect that the adoption of SFAS No. 141R will have a material impact on the Company’s financial statements.
In December 2007, the FASB issued SFAS No. 160, Consolidations, which provides guidance on the accounting and reporting for minority interests in consolidated financial statements. SFAS No. 160 requires losses to be allocated to non-controlling (minority) interests even when such amounts are deficits. As such, future losses will be allocated between Charter and the Charter Holdco non-controlling interest. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. The Company will adopt SFAS No. 160 effective January 1, 2009. The Company does not expect that the adoption of SFAS No. 160 will have a material impact on its financial statements.
In February 2008, the FASB issued FASB Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157, which deferred the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008 for nonfinancial assets and nonfinancial liabilities. The Company will apply SFAS No. 157 to nonfinancial assets and nonfinancial liabilities beginning January 1, 2009. The Company is in the process of assessing the impact of SFAS No. 157 on its financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133, which requires companies to disclose their objectives and strategies for using derivative instruments, whether or not designated as hedging instruments under SFAS No. 133. SFAS No. 161 is effective for interim periods and fiscal years beginning after November 15, 2008. The Company will adopt SFAS No. 161 effective January 1, 2009. The Company does not expect that the adoption of SFAS No. 161 will have a material impact on its financial statements.
In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets, which amends the factors to be considered in renewal or extension assumptions used to determine the useful life of a recognized intangible asset. FSP FAS 142-3 is effective for interim periods and fiscal years beginning after December 15, 2008. The Company will adopt FSP FAS 142-3 effective January 1, 2009. The Company does not expect that the adoption of FSP FAS 142-3 will have a material impact on its financial statements.
In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), which specifies that issuers of convertible debt instruments that may be settled in cash upon conversion should separately account for the liability and equity components in a manner reflecting their nonconvertible debt borrowing rate when interest costs are recognized in subsequent periods. FSP APB 14-1 is effective for interim periods and fiscal years beginning after December 15, 2008. The Company will adopt FSP APB 14-1 effective January 1, 2009. The Company does not expect that the adoption of FSP APB 14-1 will have a material impact on its financial statements.
The Company does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on its accompanying financial statements.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
24. Parent Company Only Financial Statements
As the result of limitations on, and prohibitions of, distributions, substantially all of the net assets of the consolidated subsidiaries are restricted from distribution to CCO Holdings, the parent company. The following condensed parent-only financial statements of CCO Holdings account for the investment in its subsidiaries under the equity method of accounting. The financial statements should be read in conjunction with the consolidated financial statements of the Company and notes thereto.
CCO Holdings, LLC (Parent Company Only)
Condensed Balance Sheet
| | December 31, | |
| | 2008 | | | 2007 | |
ASSETS | | | | | | |
Cash and cash equivalents | | $ | 2 | | | $ | 2 | |
Receivable – related party | | | 15 | | | | 18 | |
Investment in subsidiaries | | | 18 | | | | 2,760 | |
Loans receivable - subsidiaries | | | 297 | | | | 275 | |
Other assets | | | 9 | | | | 11 | |
| | | | | | | | |
Total assets | | $ | 341 | | | $ | 3,066 | |
| | | | | | | | |
LIABILITIES AND MEMBER’S EQUITY(DEFICIT) | | | | | | | | |
Current liabilities | | $ | 8 | | | $ | 9 | |
Long-term debt | | | 1,146 | | | | 1,145 | |
Member’s equity (deficit) | | | (813 | ) | | | 1,912 | |
| | | | | | | | |
Total liabilities and member’s equity (deficit) | | $ | 341 | | | $ | 3,066 | |
Condensed Statement of Operations
| | Year Ended December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | |
Interest expense | | $ | (74 | ) | | $ | (84 | ) | | $ | (108 | ) |
Other expense | | | -- | | | | (19 | ) | | | (3 | ) |
Equity in losses of subsidiaries | | | (1,399 | ) | | | (247 | ) | | | (82 | ) |
| | | | | | | | | | | | |
Net loss | | $ | (1,473 | ) | | $ | (350 | ) | | $ | (193 | ) |
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
Condensed Statements of Cash Flows
| | Year Ended December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | |
Net loss | | $ | (1,473 | ) | | $ | (350 | ) | | $ | (193 | ) |
Noncash interest expense | | | 3 | | | | 2 | | | | 5 | |
Equity in losses of subsidiaries | | | 1,399 | | | | 247 | | | | 82 | |
Loss on extinguishment of debt | | | -- | | | | 8 | | | | 3 | |
Changes in operating assets and liabilities | | | (20 | ) | | | (25 | ) | | | (19 | ) |
| | | | | | | | | | | | |
Net cash flows from operating activities | | | (91 | ) | | | (118 | ) | | | (122 | ) |
| | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
Distributions from subsidiaries | | | 1,163 | | | | 1,767 | | | | 1,274 | |
Loan to subsidiary | | | -- | | | | -- | | | | (148 | ) |
| | | | | | | | | | | | |
Net cash flows from investing activities | | | 1,163 | | | | 1,767 | | | | 1,126 | |
| | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | |
Proceeds from debt issuance | | | -- | | | | 350 | | | | -- | |
Repayments of long-term debt | | | -- | | | | (550 | ) | | | -- | |
Contributions from parent companies | | | -- | | | | -- | | | | 148 | |
Distributions to parent companies | | | (1,072 | ) | | | (1,447 | ) | | | (1,151 | ) |
Payments for debt issuance costs | | | -- | | | | (2 | ) | | | -- | |
| | | | | | | | | | | | |
Net cash flows from financing activities | | | (1,072 | ) | | | (1,649 | ) | | | (1,003 | ) |
| | | | | | | | | | | | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | -- | | | | -- | | | | 1 | |
CASH AND CASH EQUIVALENTS, beginning of year | | | 2 | | | | 2 | | | | 1 | |
| | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS, end of year | | $ | 2 | | | $ | 2 | | | $ | 2 | |
25. Subsequent Events (unaudited)
Proposed Restructuring
The Proposed Restructuring is expected to be funded with cash from operations, an exchange of debt of CCH II for other debt at CCH II, the issuance of $267 million of additional debt and estimated proceeds of $1.6 billion of an equity rights offering for which Charter has received a back-stop commitment from certain Noteholders. In addition to the Restructuring Agreements, the Noteholders have entered into commitment letters with Charter pursuant to which they have agreed to exchange and/or purchase, as applicable, certain securities of Charter.
The Restructuring Agreements further contemplate that upon consummation of the Plan (i) the notes and bank debt of Charter’s subsidiaries, Charter Operating and CCO Holdings will remain outstanding, (ii) holders of notes issued by CCH II will receive new CCH II notes and/or cash, (iii) holders of notes issued by CCH I will receive shares of Charter’s new Class A Common Stock, (iv) holders of notes issued by CIH will receive warrants to purchase shares of common stock in Charter, (v) holders of notes of Charter Holdings will receive warrants to purchase shares of Charter’s new Class A Common Stock, (vi) holders of convertible notes issued by Charter will receive cash and preferred stock issued by Charter, (vii) holders of common stock will not receive any amounts on account of their common stock, which will be cancelled, and (viii) trade creditors will be paid in full. In addition, as part of the Proposed Restructuring, it is expected that consideration will be paid by holders of CCH I notes to other entities participating in the financial restructuring.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
Pursuant to a separate restructuring agreement among Charter, Mr. Allen, and an entity controlled by Mr. Allen (the “Allen Agreement”), in settlement of their rights, claims and remedies against Charter and its subsidiaries, and in addition to any amounts received by virtue of their holding any claims of the type set forth above, upon consummation of the Plan, Mr. Allen or his affiliates will be issued a number of shares of the new Class B Common Stock of Charter such that the aggregate voting power of such shares of new Class B Common Stock shall be equal to 35% of the total voting power of all new capital stock of Charter. Each share of new Class B Common Stock will be convertible, at the option of the holder, into one share of new Class A Common Stock, and will be subject to significant restrictions on transfer. Certain holders of new Class A Common Stock and new Class B Common Stock will receive certain customary registration rights with respect to their shares. Upon consummation of the Plan, Mr. Allen or his affiliates will also receive (i) warrants to purchase shares of new Class A common stock of Charter in an aggregate amount equal to 4% of the equity value of reorganized Charter, after giving effect to the rights offering, but prior to the issuance of warrants and equity-based awards provided for by the Plan, (ii) $85 million principal amount of new CCH II notes, (iii) $25 million in cash for amounts owing to CII under a management agreement, (iv) up to $20 million in cash for reimbursement of fees and expenses in connection with the Proposed Restructuring, and (v) an additional $150 million in cash. The warrants described above shall have an exercise price per share based on a total equity value equal to the sum of the equity value of reorganized Charter, plus the gross proceeds of the rights offering, and shall expire seven years after the date of issuance. In addition, on the effective date of the Plan, CII will retain a 1% equity interest in reorganized Charter Holdco and a right to exchange such interest into new Class A common stock of Charter.
The Allen Agreement contains similar provisions to those provisions of the Restructuring Agreements. There is no assurance that the treatment of creditors outlined above will not change significantly. For example, because the Proposed Restructuring is contingent on reinstatement of the Company’s credit facilities and notes, failure to reinstate such debt would require Charter to revise the Proposed Restructuring. Moreover, if reinstatement does not occur and current capital market conditions persist, the Company and its parent companies may not be able to secure adequate new financing and the cost of new financing would likely be materially higher. The Proposed Restructuring would result in the reduction of Charter’s debt by approximately $8 billion.
Interest Payments
Two of the Company’s parent companies, CIH and Charter Holdings, did not make scheduled payments of interest due on January 15, 2009 on certain of their outstanding senior notes (the “Overdue Payment Notes”). Each of the respective governing indentures (the “Indentures”) for the Overdue Payment Notes permits a 30-day grace period for such interest payments through (and including) February 15, 2009. On February 13, 2009, Charter paid the full amount of the January interest payment to the paying agent for the members of the ad-hoc committee of holders of the Overdue Payment Notes, which constitutes payment under the Indentures.
One of the Company’s parent companies, CCH II, did not make its scheduled payment of interest on March 16, 2009 on certain of its outstanding senior notes. The governing indenture for such notes permits a 30-day grace period for such interest payments, and Charter and its subsidiaries, including CCH II, filed voluntary Chapter 11 Bankruptcy prior to the expiration of the grace period.
Charter Operating Credit Facility
On February 3, 2009, Charter Operating made a request to the administrative agent under the Charter Operating credit facilities credit agreement (the “Credit Agreement”), to borrow additional revolving loans under the Credit Agreement. Such borrowing request complied with the provisions of the Credit Agreement including section 2.2 (“Procedure for Borrowing”) thereof. Subsequently, Charter received a notice from the administrative agent asserting that one or more Events of Default (as defined in the Credit Agreement) had occurred and was continuing under the Credit Agreement. In response, Charter sent a letter to the administrative agent, among other things, stating that no Event of Default under the Credit Agreement occurred or was continuing and requesting the administrative agent to rescind its notice of default and fund Charter Operating’s borrowing request. The administrative agent subsequently sent a letter stating that it continues to believe that one or more events of default occurred and was continuing. As a result, with the exception of one lender who funded approximately $0.4 million, the lenders under the Credit Agreement have failed to fund Charter Operating’s borrowing request.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 20072016, 2015 AND 20062014
(dollars in millions, except where indicated)
paid by the Company on a per pay period basis. The Company made contributions to the 401(k) plans totaling $147 million, $23 million and $19 million for the years ended December 31, 2016, 2015 and 2014, respectively.
For employees who are not eligible to participate in the Company’s long-term incentive plan and who are not covered by a collective bargaining agreement, the Company offers a contribution to the new Retirement Accumulation Plan ("RAP"), equal to 3% of eligible pay. The Company made contributions to the RAP totaling $48 million for the year ended December 31, 2016.
20. Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The new standard provides a single principles-based, five-step model to be applied to all contracts with customers, which steps are to (1) identify the contract(s) with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when each performance obligation is satisfied. More specifically, revenue will be recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services. ASU 2014-09 will be effective, reflecting the one-year deferral, for interim and annual periods beginning after December 15, 2017 (January 1, 2018 for the Company). Early adoption of the standard is permitted but not before the original effective date. Companies can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is currently in the process of evaluating which method of transition will be utilized. The Company is continuing to assess all potential impacts that the adoption of ASU 2014-09 will have on its consolidated financial statements, including developing new accounting policies, internal controls and processes to facilitate the adoption of the standard. The most significant impacts upon adoption are anticipated to result from the deferral over a period of time instead of recognized immediately of (1) the residential installation revenues which represent nonrefundable up-front fees that convey a material right to the customer and (2) the internal and external commission expenses which represent costs of obtaining a contract.
In April 2015, the FASB issued ASU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”), which provides guidance in determining whether fees for purchasing cloud computing services (or hosted software solutions) are considered internal-use software or should be considered a service contract. The cloud computing agreement that includes a software license should be accounted for in the same manner as internal-use software if customer has contractual right to take possession of the software during the hosting period without significant penalty and it is feasible to either run the software on customer’s hardware or contract with another vendor to host the software. Arrangements that don’t meet the requirements for internal-use software should be accounted for as a service contract. ASU 2015-05 was effective for interim and annual periods beginning after December 15, 2015 (January 1, 2016 for the Company). The adoption of ASU 2015-05 did not have a material impact on the Company’s financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. Lessees are allowed to account for short-term leases (i.e., leases with a term of 12 months or less) off-balance sheet, consistent with current operating lease accounting. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. ASU 2016-02 will be effective for interim and annual periods beginning after December 15, 2018 (January 1, 2019 for the Company). Early adoption is permitted. The new standard requires a modified retrospective transition through a cumulative-effect adjustment as of the beginning of the earliest period presented in the financial statements. The Company is currently in the process of evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements including identifying the population of leases, evaluating technology solutions and collecting lease data.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. The new standard (1) requires all excess tax benefits and deficiencies to be recognized as income tax expense or benefit in the income statement in the period in which they occur regardless of whether the benefit reduces taxes payable in the current period, (2) requires classification of excess tax benefits as an operating activity on the statements of cash flows, (3) allows an entity to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur and (4) causes the threshold under which employee share-based awards partially settled in cash can
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
qualify for equity classification to increase to the maximum statutory tax rates in the applicable jurisdiction. ASU 2016-09 will be effective for interim and annual periods after December 15, 2016 (January 1, 2017 for the Company). The new standard generally requires a modified retrospective transition through a cumulative-effect adjustment as of the beginning of the period of adoption, with certain provisions requiring either a prospective or retrospective transition. The Company adopted ASU 2016-09 on January 1, 2017. The Company will prospectively record a deferred tax benefit or expense associated with the difference between book and tax for stock compensation expense. On March 27, 2009,January 1, 2017, the Company will also establish an accounting policy election to assume zero forfeitures for stock award grants and account for forfeitures when they occur which will prospectively impact stock compensation expense. Other aspects of adoption ASU 2016-09 are not anticipated to have a material impact to the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which clarifies how entities should classify cash receipts and cash payments related to eight specific cash flow matters on the statement of cash flows, with the objective of reducing existing diversity in practice. ASU 2016-15 will be effective for interim and annual periods beginning after December 15, 2017 (January 1, 2018 for the Company). Early adoption is permitted. The Company is currently in the process of evaluating the impact that the adoption of ASU 2016-15 will have on its consolidated financial statements.
21. Consolidating Schedules
Each of Charter CharterOperating, TWC, LLC, TWCE, CCO Holdings and all other Charter entities filed a petition for relief under Chapter 11certain subsidiaries jointly, severally, fully and unconditionally guarantee the outstanding debt securities of the United States Bankruptcy Codeothers (other than the CCO Holdings notes) on an unsecured senior basis and the condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered. Certain Charter Operating subsidiaries that are regulated telephone entities only become guarantor subsidiaries upon approval by regulators. This information is not intended to present the financial position, results of operations and cash flows of the individual companies or groups of companies in accordance with generally accepted accounting principles.
The “Charter Operating and Restricted Subsidiaries” column is presented to comply with the terms of the Credit Agreement.
The “Unrestricted Subsidiary” column included in the United States Bankruptcy Courtcondensed consolidating financial statements for the Southern Districtyears ended December 31, 2016 and 2015 consists of New York. Later on March 27, 2009, JPMorgan Chase Bank, N. A., as Administrative AgentCCO Safari which was a non-recourse subsidiary under the Credit Agreement filedand held the CCO Safari Term G Loans that were repaid in April 2015.
Condensed consolidating financial statements as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 follow.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
|
| | | | | | | | | | | | | | | |
CCO Holdings, LLC and Subsidiaries |
Condensed Consolidating Balance Sheet |
As of December 31, 2016 |
| | | | | | | |
| Guarantor Subsidiaries | | | | |
| CCO Holdings | | Charter Operating and Restricted Subsidiaries | | Eliminations | | CCO Holdings Consolidated |
ASSETS | | | | | | | |
CURRENT ASSETS: | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 1,324 |
| | $ | — |
| | $ | 1,324 |
|
Accounts receivable, net | — |
| | 1,387 |
| | — |
| | 1,387 |
|
Receivables from related party | 62 |
| | — |
| | (62 | ) | | — |
|
Prepaid expenses and other current assets | — |
| | 300 |
| | — |
| | 300 |
|
Total current assets | 62 |
| | 3,011 |
| | (62 | ) | | 3,011 |
|
| | | | | | | |
INVESTMENT IN CABLE PROPERTIES: | | | | | | | |
Property, plant and equipment, net | — |
| | 32,718 |
| | — |
| | 32,718 |
|
Customer relationships, net | — |
| | 14,608 |
| | — |
| | 14,608 |
|
Franchises | — |
| | 67,316 |
| | — |
| | 67,316 |
|
Goodwill | — |
| | 29,509 |
| | — |
| | 29,509 |
|
Total investment in cable properties, net | — |
| | 144,151 |
| | — |
| | 144,151 |
|
| | | | | | | |
INVESTMENT IN SUBSIDIARIES | 88,760 |
| | — |
| | (88,760 | ) | | — |
|
LOANS RECEIVABLE – RELATED PARTY | 494 |
| | — |
| | (494 | ) | | — |
|
OTHER NONCURRENT ASSETS | — |
| | 1,157 |
| | — |
| | 1,157 |
|
| | | | | | | |
Total assets | $ | 89,316 |
| | $ | 148,319 |
| | $ | (89,316 | ) | | $ | 148,319 |
|
| | | | | | | |
LIABILITIES AND MEMBER’S EQUITY | | | | | | | |
| | | | | | | |
CURRENT LIABILITIES: | | | | | | | |
Accounts payable and accrued liabilities | $ | 219 |
| | $ | 6,678 |
| | $ | — |
| | $ | 6,897 |
|
Payables to related party | — |
| | 683 |
| | (62 | ) | | 621 |
|
Current portion of long-term debt | — |
| | 2,028 |
| | — |
| | 2,028 |
|
Total current liabilities | 219 |
| | 9,389 |
| | (62 | ) | | 9,546 |
|
| | | | | | | |
LONG-TERM DEBT | 13,259 |
| | 46,460 |
| | — |
| | 59,719 |
|
LOANS PAYABLE – RELATED PARTY | — |
| | 1,134 |
| | (494 | ) | | 640 |
|
DEFERRED INCOME TAXES | — |
| | 25 |
| | — |
| | 25 |
|
OTHER LONG-TERM LIABILITIES | — |
| | 2,526 |
| | — |
| | 2,526 |
|
| | | | | | | |
MEMBER’S EQUITY | | | | | | | |
Controlling interest | 75,838 |
| | 88,760 |
| | (88,760 | ) | | 75,838 |
|
Noncontrolling interests | — |
| | 25 |
| | — |
| | 25 |
|
Total member’s equity | 75,838 |
| | 88,785 |
| | (88,760 | ) | | 75,863 |
|
| | | | | | | |
Total liabilities and member’s equity | $ | 89,316 |
| | $ | 148,319 |
| | $ | (89,316 | ) | | $ | 148,319 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
|
| | | | | | | | | | | | | | | |
CCO Holdings, LLC and Subsidiaries |
Condensed Consolidating Balance Sheet |
As of December 31, 2015 |
|
| Guarantor Subsidiaries | | | | |
| CCO Holdings | | Charter Operating and Restricted Subsidiaries | | Eliminations | | CCO Holdings Consolidated |
ASSETS | | | | | | | |
CURRENT ASSETS: | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | 5 |
|
Accounts receivable, net | — |
| | 264 |
| | — |
| | 264 |
|
Receivables from related party | 14 |
| | — |
| | (14 | ) | | — |
|
Prepaid expenses and other current assets | — |
| | 55 |
| | — |
| | 55 |
|
Total current assets | 14 |
| | 324 |
| | (14 | ) | | 324 |
|
| | | | | | | |
INVESTMENT IN CABLE PROPERTIES: | | | | | | | |
Property, plant and equipment, net | — |
| | 8,317 |
| | — |
| | 8,317 |
|
Customer relationships, net | — |
| | 856 |
| | — |
| | 856 |
|
Franchises | — |
| | 6,006 |
| | — |
| | 6,006 |
|
Goodwill | — |
| | 1,168 |
| | — |
| | 1,168 |
|
Total investment in cable properties, net | — |
| | 16,347 |
| | — |
| | 16,347 |
|
| | | | | | | |
INVESTMENT IN SUBSIDIARIES | 11,303 |
| | — |
| | (11,303 | ) | | — |
|
LOANS RECEIVABLE – RELATED PARTY | 613 |
| | 563 |
| | (483 | ) | | 693 |
|
OTHER NONCURRENT ASSETS | — |
| | 116 |
| | — |
| | 116 |
|
| | | | | | | |
Total assets | $ | 11,930 |
| | $ | 17,350 |
| | $ | (11,800 | ) | | $ | 17,480 |
|
| | | | | | | |
LIABILITIES AND MEMBER’S EQUITY | | | | | | | |
| | | | | | | |
CURRENT LIABILITIES: | | | | | | | |
Accounts payable and accrued liabilities | $ | 165 |
| | $ | 1,311 |
| | $ | — |
| | $ | 1,476 |
|
Payables to related party | — |
| | 345 |
| | (14 | ) | | 331 |
|
Total current liabilities | 165 |
| | 1,656 |
| | (14 | ) | | 1,807 |
|
| | | | | | | |
LONG-TERM DEBT | 10,443 |
| | 3,502 |
| | — |
| | 13,945 |
|
LOANS PAYABLE – RELATED PARTY | — |
| | 816 |
| | (483 | ) | | 333 |
|
DEFERRED INCOME TAXES | — |
| | 28 |
| | — |
| | 28 |
|
OTHER LONG-TERM LIABILITIES | — |
| | 45 |
| | — |
| | 45 |
|
| | | | | | | |
MEMBER’S EQUITY | 1,322 |
| | 11,303 |
| | (11,303 | ) | | 1,322 |
|
| | | | | | | |
Total liabilities and member’s equity | $ | 11,930 |
| | $ | 17,350 |
| | $ | (11,800 | ) | | $ | 17,480 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
|
| | | | | | | | | | | | | | | |
CCO Holdings, LLC and Subsidiaries |
Condensed Consolidating Statement of Operations |
For the year ended December 31, 2016 |
| | | | | | | |
| Guarantor Subsidiaries | | | | |
| CCO Holdings | | Charter Operating and Restricted Subsidiaries | | Eliminations | | CCO Holdings Consolidated |
REVENUES | $ | — |
| | $ | 29,003 |
| | $ | — |
| | $ | 29,003 |
|
| | | | | | | |
COSTS AND EXPENSES: | | | | | | | |
Operating costs and expenses (exclusive of items shown separately below) | — |
| | 18,670 |
| | — |
| | 18,670 |
|
Depreciation and amortization | — |
| | 6,902 |
| | — |
| | 6,902 |
|
Other operating income, net | — |
| | (177 | ) | | — |
| | (177 | ) |
| — |
| | 25,395 |
| | — |
| | 25,395 |
|
Income from operations | — |
| | 3,608 |
| | — |
| | 3,608 |
|
| | | | | | | |
OTHER INCOME (EXPENSES): | | | | | | | |
Interest expense, net | (727 | ) | | (1,396 | ) | | — |
| | (2,123 | ) |
Loss on extinguishment of debt | (110 | ) | | (1 | ) | | — |
| | (111 | ) |
Gain on financial instruments, net | — |
| | 89 |
| | — |
| | 89 |
|
Other expense, net | — |
| | (3 | ) | | — |
| | (3 | ) |
Equity in income of subsidiaries | 2,293 |
| | — |
| | (2,293 | ) | | — |
|
| 1,456 |
| | (1,311 | ) | | (2,293 | ) | | (2,148 | ) |
| | | | | | | |
Income before income taxes | 1,456 |
| | 2,297 |
| | (2,293 | ) | | 1,460 |
|
INCOME TAX EXPENSE | — |
| | (3 | ) | | — |
| | (3 | ) |
Consolidated net income | 1,456 |
| | 2,294 |
| | (2,293 | ) | | 1,457 |
|
Less: Net income – noncontrolling interests | — |
| | (1 | ) | | — |
| | (1 | ) |
Net income | $ | 1,456 |
| | $ | 2,293 |
| | $ | (2,293 | ) | | $ | 1,456 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
|
| | | | | | | | | | | | | | | | | | | |
CCO Holdings, LLC and Subsidiaries |
Condensed Consolidating Statement of Operations |
For the year ended December 31, 2015 |
| | | | | | | | | |
| Guarantor Subsidiaries | | | | | | |
| CCO Holdings | | Charter Operating and Restricted Subsidiaries | | Unrestricted Subsidiary | | Eliminations | | CCO Holdings Consolidated |
REVENUES | $ | — |
| | $ | 9,754 |
| | $ | — |
| | $ | — |
| | $ | 9,754 |
|
| | | | | | | | | |
COSTS AND EXPENSES: | | | | | | | | | |
Operating costs and expenses (exclusive of items shown separately below) | — |
| | 6,426 |
| | — |
| | — |
| | 6,426 |
|
Depreciation and amortization | — |
| | 2,125 |
| | — |
| | — |
| | 2,125 |
|
Other operating expenses, net | — |
| | 89 |
| | — |
| | — |
| | 89 |
|
| — |
| | 8,640 |
| | — |
| | — |
| | 8,640 |
|
Income from operations | — |
| | 1,114 |
| | — |
| | — |
| | 1,114 |
|
| | | | | | | | | |
OTHER INCOME (EXPENSES): | | | | | | | | | |
Interest expense, net | (642 | ) | | (151 | ) | | (47 | ) | | — |
| | (840 | ) |
Loss on extinguishment of debt | (123 | ) | | — |
| | (3 | ) | | — |
| | (126 | ) |
Loss on financial instruments, net | — |
| | (4 | ) | | — |
| | — |
| | (4 | ) |
Equity in income (loss) of subsidiaries | 1,073 |
| | (50 | ) | | — |
| | (1,023 | ) | | — |
|
| 308 |
| | (205 | ) | | (50 | ) | | (1,023 | ) | | (970 | ) |
| | | | | | | | | |
Income (loss) before income taxes | 308 |
| | 909 |
| | (50 | ) | | (1,023 | ) | | 144 |
|
INCOME TAX BENEFIT | — |
| | 210 |
| | — |
| | — |
| | 210 |
|
Consolidated net income (loss) | 308 |
| | 1,119 |
| | (50 | ) | | (1,023 | ) | | 354 |
|
Less: Net income – noncontrolling interest | — |
| | (46 | ) | | — |
| | — |
| | (46 | ) |
Net income (loss) | $ | 308 |
| | $ | 1,073 |
| | $ | (50 | ) | | $ | (1,023 | ) | | $ | 308 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
|
| | | | | | | | | | | | | | | | | | | |
CCO Holdings, LLC and Subsidiaries |
Condensed Consolidating Statement of Operations |
For the year ended December 31, 2014 |
| | | | | | | | | |
| Guarantor Subsidiaries | | | | | | |
| CCO Holdings | | Charter Operating and Restricted Subsidiaries | | Unrestricted Subsidiary | | Eliminations | | CCO Holdings Consolidated |
REVENUES | $ | — |
| | $ | 9,108 |
| | $ | — |
| | $ | — |
| | $ | 9,108 |
|
| | | | | | | | | |
COSTS AND EXPENSES: | | | | | | | | | |
Operating costs and expenses (exclusive of items shown separately below) | — |
| | 5,973 |
| | — |
| | — |
| | 5,973 |
|
Depreciation and amortization | — |
| | 2,102 |
| | — |
| | — |
| | 2,102 |
|
Other operating expenses, net | — |
| | 62 |
| | — |
| | — |
| | 62 |
|
| — |
| | 8,137 |
| | — |
| | — |
| | 8,137 |
|
Income from operations | — |
| | 971 |
| | — |
| | — |
| | 971 |
|
| | | | | | | | | |
OTHER INCOME AND (EXPENSES): | | | | | | | | | |
Interest expense, net | (679 | ) | | (165 | ) | | (45 | ) | | — |
| | (889 | ) |
Loss on financial instruments, net | — |
| | (7 | ) | | — |
| | — |
| | (7 | ) |
Equity in income (loss) of subsidiaries | 697 |
| | (45 | ) | | — |
| | (652 | ) | | — |
|
| 18 |
| | (217 | ) | | (45 | ) | | (652 | ) | | (896 | ) |
| | | | | | | | | |
Income (loss) before income taxes | 18 |
| | 754 |
| | (45 | ) | | (652 | ) | | 75 |
|
INCOME TAX EXPENSE | — |
| | (13 | ) | | — |
| | — |
| | (13 | ) |
Consolidated net income (loss) | 18 |
| | 741 |
| | (45 | ) | | (652 | ) | | 62 |
|
Less: Net income – noncontrolling interest | — |
| | (44 | ) | | — |
| | — |
| | (44 | ) |
Net income (loss) | $ | 18 |
| | $ | 697 |
| | $ | (45 | ) | | $ | (652 | ) | | $ | 18 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
|
| | | | | | | | | | | | | | | |
CCO Holdings, LLC and Subsidiaries |
Condensed Consolidating Statement of Comprehensive Income |
For the year ended December 31, 2016 |
| | | | | | | |
| Guarantor Subsidiaries | | | | |
| CCO Holdings | | Charter Operating and Restricted Subsidiaries | | Eliminations | | CCO Holdings Consolidated |
Consolidated net income | $ | 1,456 |
| | $ | 2,294 |
| | $ | (2,293 | ) | | $ | 1,457 |
|
Net impact of interest rate derivative instruments | 8 |
| | 8 |
| | (8 | ) | | 8 |
|
Foreign currency translation adjustment | (2 | ) | | (2 | ) | | 2 |
| | (2 | ) |
Consolidated comprehensive income | 1,462 |
| | 2,300 |
| | (2,299 | ) | | 1,463 |
|
Less: Comprehensive income attributable to noncontrolling interests | — |
| | (1 | ) | | — |
| | (1 | ) |
Comprehensive income | $ | 1,462 |
| | $ | 2,299 |
| | $ | (2,299 | ) | | $ | 1,462 |
|
|
| | | | | | | | | | | | | | | | | | | |
CCO Holdings, LLC and Subsidiaries |
Condensed Consolidating Statement of Comprehensive Income (Loss) |
For the year ended December 31, 2015 |
| | | | | | | | | |
| Guarantor Subsidiaries | | | | | | |
| CCO Holdings | | Charter Operating and Restricted Subsidiaries | | Unrestricted Subsidiary | | Eliminations | | CCO Holdings Consolidated |
Consolidated net income (loss) | $ | 308 |
| | $ | 1,119 |
| | $ | (50 | ) | | $ | (1,023 | ) | | $ | 354 |
|
Net impact of interest rate derivative instruments | 9 |
| | 9 |
| | — |
| | (9 | ) | | 9 |
|
Consolidated comprehensive income (loss) | 317 |
| | 1,128 |
| | (50 | ) | | (1,032 | ) | | 363 |
|
Less: Comprehensive income attributable to noncontrolling interests | — |
| | (46 | ) | | — |
| | — |
| | (46 | ) |
Comprehensive income (loss) | $ | 317 |
| | $ | 1,082 |
| | $ | (50 | ) | | $ | (1,032 | ) | | $ | 317 |
|
|
| | | | | | | | | | | | | | | | | | | |
CCO Holdings, LLC and Subsidiaries |
Condensed Consolidating Statement of Comprehensive Income (Loss) |
For the year ended December 31, 2014 |
| | | | | | | | | |
| Guarantor Subsidiaries | | | | | | |
| CCO Holdings | | Charter Operating and Restricted Subsidiaries | | Unrestricted Subsidiary | | Eliminations | | CCO Holdings Consolidated |
Consolidated net income (loss) | $ | 18 |
| | $ | 741 |
| | $ | (45 | ) | | $ | (652 | ) | | $ | 62 |
|
Net impact of interest rate derivative instruments | 19 |
| | 19 |
| | — |
| | (19 | ) | | 19 |
|
Consolidated comprehensive income (loss) | 37 |
| | 760 |
| | (45 | ) | | (671 | ) | | 81 |
|
Less: Comprehensive income attributable to noncontrolling interests | — |
| | (44 | ) | | — |
| | — |
| | (44 | ) |
Comprehensive income (loss) | $ | 37 |
| | $ | 716 |
| | $ | (45 | ) | | $ | (671 | ) | | $ | 37 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
|
| | | | | | | | | | | | | | | |
CCO Holdings, LLC and Subsidiaries |
Condensed Consolidating Statement of Cash Flows |
For the year ended December 31, 2016 |
| | | | | | | |
| Guarantor Subsidiaries | | | | |
| CCO Holdings | | Charter Operating and Restricted Subsidiaries | | Eliminations | | CCO Holdings Consolidated |
NET CASH FLOWS FROM OPERATING ACTIVITIES | $ | (711 | ) | | $ | 9,476 |
| | $ | — |
| | $ | 8,765 |
|
| | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | |
Purchases of property, plant and equipment | — |
| | (5,325 | ) | | — |
| | (5,325 | ) |
Change in accrued expenses related to capital expenditures | — |
| | 603 |
| | — |
| | 603 |
|
Purchases of cable systems, net | — |
| | (7 | ) | | — |
| | (7 | ) |
Contribution to subsidiaries | (437 | ) | | — |
| | 437 |
| | — |
|
Distributions from subsidiaries | 5,096 |
| | — |
| | (5,096 | ) | | — |
|
Other, net | — |
| | (22 | ) | | — |
| | (22 | ) |
Net cash flows from investing activities | 4,659 |
| | (4,751 | ) | | (4,659 | ) | | (4,751 | ) |
| | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | |
Borrowings of long-term debt | 3,201 |
| | 9,143 |
| | — |
| | 12,344 |
|
Repayments of long-term debt | (2,937 | ) | | (7,584 | ) | | — |
| | (10,521 | ) |
Payments loans payable - related parties | (71 | ) | | (182 | ) | | — |
| | (253 | ) |
Payment for debt issuance costs | (73 | ) | | (211 | ) | | — |
| | (284 | ) |
Proceeds from termination of interest rate derivatives | — |
| | 88 |
| | — |
| | 88 |
|
Contributions from parent | 478 |
| | 437 |
| | (437 | ) | | 478 |
|
Distributions to parent | (4,546 | ) | | (5,096 | ) | | 5,096 |
| | (4,546 | ) |
Other, net | — |
| | (1 | ) | | — |
| | (1 | ) |
Net cash flows from financing activities | (3,948 | ) | | (3,406 | ) | | 4,659 |
| | (2,695 | ) |
| | | | | | | |
NET INCREASE IN CASH AND CASH EQUIVALENTS | — |
| | 1,319 |
| | — |
| | 1,319 |
|
CASH AND CASH EQUIVALENTS, beginning of period | — |
| | 5 |
| | — |
| | 5 |
|
| | | | | | | |
CASH AND CASH EQUIVALENTS, end of period | $ | — |
| | $ | 1,324 |
| | $ | — |
| | $ | 1,324 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
|
| | | | | | | | | | | | | | | | | | | |
CCO Holdings, LLC and Subsidiaries |
Condensed Consolidating Statement of Cash Flows |
For the year ended December 31, 2015 |
| | | | | | | | | |
| Guarantor Subsidiaries | | | | | | |
| CCO Holdings | | Charter Operating and Restricted Subsidiaries | | Unrestricted Subsidiary | | Eliminations | | CCO Holdings Consolidated |
NET CASH FLOWS FROM OPERATING ACTIVITIES | $ | (663 | ) | | $ | 3,275 |
| | $ | (55 | ) | | $ | — |
| | $ | 2,557 |
|
| | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | |
Purchases of property, plant and equipment | — |
| | (1,840 | ) | | — |
| | — |
| | (1,840 | ) |
Change in accrued expenses related to capital expenditures | — |
| | 28 |
| | — |
| | — |
| | 28 |
|
Contribution to subsidiaries | (46 | ) | | (24 | ) | | — |
| | 70 |
| | — |
|
Distributions from subsidiaries | 715 |
| | — |
| | — |
| | (715 | ) | | — |
|
Change in restricted cash and cash equivalents | — |
| | — |
| | 3,514 |
| | — |
| | 3,514 |
|
Other, net | — |
| | (12 | ) | | — |
| | — |
| | (12 | ) |
Net cash flows from investing activities | 669 |
| | (1,848 | ) | | 3,514 |
| | (645 | ) | | 1,690 |
|
| | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | |
Borrowings of long-term debt | 2,700 |
| | 1,555 |
| | — |
| | — |
| | 4,255 |
|
Repayments of long-term debt | (2,598 | ) | | (1,745 | ) | | (3,483 | ) | | — |
| | (7,826 | ) |
Payments loans payable - related parties | (18 | ) | | (563 | ) | | — |
| | — |
| | (581 | ) |
Payment for debt issuance costs | (24 | ) | | — |
| | — |
| | — |
| | (24 | ) |
Contributions from parent | 15 |
| | 46 |
| | 24 |
| | (70 | ) | | 15 |
|
Distributions to parent | (82 | ) | | (715 | ) | | — |
| | 715 |
| | (82 | ) |
Other, net | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
Net cash flows from financing activities | (6 | ) | | (1,422 | ) | | (3,459 | ) | | 645 |
| | (4,242 | ) |
| | | | | | | | | |
NET INCREASE IN CASH AND CASH EQUIVALENTS | — |
| | 5 |
| | — |
| | — |
| | 5 |
|
CASH AND CASH EQUIVALENTS, beginning of period | — |
| | — |
| | — |
| | — |
| | — |
|
| | | | | | | | | |
CASH AND CASH EQUIVALENTS, end of period | $ | — |
| | $ | 5 |
| | $ | — |
| | $ | — |
| | $ | 5 |
|
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(dollars in millions, except where indicated)
|
| | | | | | | | | | | | | | | | | | | |
CCO Holdings, LLC and Subsidiaries |
Condensed Consolidating Statement of Cash Flows |
For the year ended December 31, 2014 |
| | | | | | | | | |
| Guarantor Subsidiaries | | | | | | |
| CCO Holdings | | Charter Operating and Restricted Subsidiaries | | Unrestricted Subsidiary | | Eliminations | | CCO Holdings Consolidated |
NET CASH FLOWS FROM OPERATING ACTIVITIES: | $ | (665 | ) | | $ | 3,086 |
| | $ | (37 | ) | | $ | — |
| | $ | 2,384 |
|
| | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | |
Purchases of property, plant and equipment | — |
| | (2,221 | ) | | — |
| | — |
| | (2,221 | ) |
Change in accrued expenses related to capital expenditures | — |
| | 33 |
| | — |
| | — |
| | 33 |
|
Sales of cable systems, net | — |
| | 11 |
| | — |
| | — |
| | 11 |
|
Contribution to subsidiaries | (100 | ) | | (71 | ) | | — |
| | 171 |
| | — |
|
Distributions from subsidiaries | 1,132 |
| | — |
| | — |
| | (1,132 | ) | | — |
|
Change in restricted cash and cash equivalents | — |
| | — |
| | (3,514 | ) | | — |
| | (3,514 | ) |
Other, net | — |
| | (11 | ) | | 1 |
| | — |
| | (10 | ) |
Net cash flows from investing activities | 1,032 |
| | (2,259 | ) | | (3,513 | ) | | (961 | ) | | (5,701 | ) |
| | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | |
Borrowings of long-term debt | — |
| | 1,823 |
| | 3,483 |
| | — |
| | 5,306 |
|
Repayments of long-term debt | (350 | ) | | (1,630 | ) | | — |
| | — |
| | (1,980 | ) |
Payments loans payable - related parties | (112 | ) | | — |
| | — |
| | — |
| | (112 | ) |
Payment for debt issuance costs | — |
| | — |
| | (4 | ) | | — |
| | (4 | ) |
Contributions from parent | 100 |
| | 100 |
| | 71 |
| | (171 | ) | | 100 |
|
Distributions to parent | (5 | ) | | (1,132 | ) | | — |
| | 1,132 |
| | (5 | ) |
Other, net | — |
| | (4 | ) | | — |
| | — |
| | (4 | ) |
Net cash flows from financing activities | (367 | ) | | (843 | ) | | 3,550 |
| | 961 |
| | 3,301 |
|
| | | | | | | | | |
NET DECREASE IN CASH AND CASH EQUIVALENTS | — |
| | (16 | ) | | — |
| | — |
| | (16 | ) |
CASH AND CASH EQUIVALENTS, beginning of period | — |
| | 16 |
| | — |
| | — |
| | 16 |
|
| | | | | | | | | |
CASH AND CASH EQUIVALENTS, end of period | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
22. Subsequent Events
In January 2017, Charter Operating entered into an adversary proceeding in bankruptcy court against Charter Operatingamendment to its Credit Agreement decreasing the applicable LIBOR margin on both the term loan E and term loan F to 2.00% and eliminating the LIBOR floor.
In February 2017, CCO Holdings and CCO Holdings seeking a declaration that there have been eventsCapital Corp. closed on transactions in which they issued $1.0 billion aggregate principal amount of default under the Credit Agreement. Such a judgment would prevent Charter Operating5.125% senior notes due May 1, 2027. The net proceeds were used to redeem CCO Holdings’ 6.625% senior notes due 2022, pay related fees and CCO Holdings from reinstating the termsexpenses and provisions of the Credit Agreement through the bankruptcy proceeding. Although it has not yet answered the complaint, Charter denies the allegations made by JP Morgan and intends to vigorously contest this matter.for general corporate purposes.