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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
______________
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2020
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the Transition Period From
to
Commission File Number: 001-33664
Charter Communications, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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84-1496755
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer Identification No.)
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400 Atlantic Street
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Stamford
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Connecticut
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06901
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(Address of Principal Executive Offices)
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(Zip Code)
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(203) 905-7801
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Class A Common Stock $.001 Par Value |
CHTR |
NASDAQ Global Select Market |
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
x
No
o
Indicate by check mark whether the registrants have submitted
electronically every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period
that the registrants were required to submit and post such files).
Yes
x
No
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See definition of “large
accelerated filer,” “accelerated filer,” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x Accelerated
filer
o Non-accelerated
filer
o Smaller
reporting company
☐ Emerging
growth company
☐
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
o
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). Yes
☐
No
x
Number of shares of Class A common stock outstanding as of
June 30, 2020: 204,899,176
Number of shares of Class B common stock outstanding as of
June 30, 2020: 1
CHARTER COMMUNICATIONS, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30,
2020
TABLE OF CONTENTS
This quarterly report on Form 10-Q is for the three and six
months ended June 30, 2020. The United States Securities and
Exchange Commission (“SEC”) allows us to “incorporate by
reference” information that we file with the SEC, which means that
we can disclose important information to you by referring you
directly to those documents. In this quarterly report, “Charter,”
“we,” “us” and “our” refer to Charter Communications, Inc. and its
subsidiaries.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This quarterly report includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended (the “Securities Act”), and Section 21E of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”),
regarding, among other things, our plans, strategies and prospects,
both business and financial including, without limitation, the
forward-looking statements set forth in the “Results of Operations”
and “Liquidity and Capital Resources” sections under Part I, Item
2. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in this quarterly report. Although we
believe that our plans, intentions and expectations as reflected in
or suggested by these forward-looking statements are reasonable, we
cannot assure you that we will achieve or realize these plans,
intentions or expectations. Forward-looking statements are
inherently subject to risks, uncertainties and assumptions
including, without limitation, the factors described under “Risk
Factors” under Part I, Item 1A of our most recent Form 10-K filed
with the SEC. Many of the forward-looking statements contained in
this quarterly report may be identified by the use of
forward-looking words such as “believe,” “expect,” “anticipate,”
“should,” “planned,” “will,” “may,” “intend,” “estimated,” “aim,”
“on track,” “target,” “opportunity,” “tentative,” “positioning,”
“designed,” “create,” “predict,” “project,” “initiatives,” “seek,”
“would,” “could,” “continue,” “ongoing,” “upside,” “increases,”
“focused on” and “potential,” among others. Important factors that
could cause actual results to differ materially from the
forward-looking statements we make in this quarterly report are set
forth in this quarterly report on Form 10-Q, in our annual report
on Form 10-K, and in other reports or documents that we file from
time to time with the SEC, and include, but are not limited
to:
•the
impact of the COVID-19 pandemic on the economy, our customers, our
vendors, local, state and federal governmental responses to the
pandemic and our businesses generally;
•our
ability to sustain and grow revenues and cash flow from operations
by offering Internet, video, voice, mobile, advertising and other
services to residential and commercial customers, to adequately
meet the customer experience demands in our service areas and to
maintain and grow our customer base, particularly in the face of
increasingly aggressive competition, the need for innovation and
the related capital expenditures;
•the
impact of competition from other market participants, including but
not limited to incumbent telephone companies, direct broadcast
satellite ("DBS") operators, wireless broadband and telephone
providers, digital subscriber line (“DSL”) providers, fiber to the
home providers and providers of video content over broadband
Internet connections;
•our
ability to obtain programming at reasonable prices or to raise
prices to offset, in whole or in part, the effects of higher
programming costs (including retransmission consents);
•our
ability to develop and deploy new products and technologies
including mobile products and any other consumer services and
service platforms;
•any
events that disrupt our networks, information systems or properties
and impair our operating activities or our reputation;
•the
effects of governmental regulation on our business including costs,
disruptions and possible limitations on operating flexibility
related to, and our ability to comply with, regulatory conditions
applicable to us as a result of the Time Warner Cable Inc. and
Bright House Networks, LLC transactions;
•general
business conditions, economic uncertainty or downturn, including
the impacts of the COVID-19 pandemic to unemployment levels and the
level of activity in the housing sector;
•the
ability to retain and hire key personnel;
•the
availability and access, in general, of funds to meet our debt
obligations prior to or when they become due and to fund our
operations and necessary capital expenditures, either through (i)
cash on hand, (ii) free cash flow, or (iii) access to the capital
or credit markets; and
•our
ability to comply with all covenants in our indentures and credit
facilities, any violation of which, if not cured in a timely
manner, could trigger a default of our other obligations under
cross-default provisions.
All forward-looking statements attributable to us or any person
acting on our behalf are expressly qualified in their entirety by
this cautionary statement. We are under no duty or obligation to
update any of the forward-looking statements after the date of this
quarterly report.
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except share data)
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June 30,
2020 |
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December 31,
2019 |
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(unaudited) |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
$ |
2,097 |
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$ |
3,483 |
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Accounts receivable, less allowance for doubtful accounts of $218
and $151, respectively
|
1,994 |
|
|
2,227 |
|
|
Prepaid expenses and other current assets |
674 |
|
|
761 |
|
|
Total current assets |
4,765 |
|
|
6,471 |
|
|
|
|
|
|
|
RESTRICTED CASH |
5 |
|
|
66 |
|
|
|
|
|
|
|
INVESTMENT IN CABLE PROPERTIES: |
|
|
|
|
Property, plant and equipment, net of accumulated depreciation of
$29,138 and $27,656, respectively
|
34,074 |
|
|
34,591 |
|
|
Customer relationships, net |
6,486 |
|
|
7,453 |
|
|
Franchises |
67,322 |
|
|
67,322 |
|
|
Goodwill |
29,554 |
|
|
29,554 |
|
|
Total investment in cable properties, net |
137,436 |
|
|
138,920 |
|
|
|
|
|
|
|
OTHER NONCURRENT ASSETS |
2,930 |
|
|
2,731 |
|
|
|
|
|
|
|
Total assets |
$ |
145,136 |
|
|
$ |
148,188 |
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
Accounts payable and accrued liabilities |
$ |
8,436 |
|
|
$ |
8,885 |
|
|
Current portion of long-term debt |
706 |
|
|
3,500 |
|
|
Total current liabilities |
9,142 |
|
|
12,385 |
|
|
|
|
|
|
|
LONG-TERM DEBT |
77,663 |
|
|
75,578 |
|
|
DEFERRED INCOME TAXES |
17,789 |
|
|
17,711 |
|
|
OTHER LONG-TERM LIABILITIES |
4,141 |
|
|
3,703 |
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY: |
|
|
|
|
Class A common stock; $0.001 par value; 900 million shares
authorized;
|
|
|
|
|
212,393,939 and 209,975,963 shares issued,
respectively
|
— |
|
|
— |
|
|
Class B common stock; $0.001 par value; 1,000 shares
authorized;
|
|
|
|
|
1 share issued and outstanding
|
— |
|
|
— |
|
|
Preferred stock; $0.001 par value; 250 million shares
authorized;
no shares issued and outstanding
|
— |
|
|
— |
|
|
Additional paid-in capital |
31,661 |
|
|
31,405 |
|
|
Retained earnings |
1,202 |
|
|
40 |
|
|
Treasury stock at cost; 7,494,763 and no shares,
respectively
|
(3,507) |
|
|
— |
|
|
Accumulated other comprehensive loss |
— |
|
|
— |
|
|
Total Charter shareholders’ equity |
29,356 |
|
|
31,445 |
|
|
Noncontrolling interests |
7,045 |
|
|
7,366 |
|
|
Total shareholders’ equity |
36,401 |
|
|
38,811 |
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
$ |
145,136 |
|
|
$ |
148,188 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
1
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions, except per share data)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
Six Months Ended June 30, |
|
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
REVENUES |
$ |
11,696 |
|
|
$ |
11,347 |
|
|
$ |
23,434 |
|
|
$ |
22,553 |
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES: |
|
|
|
|
|
|
|
|
Operating costs and expenses (exclusive of items shown separately
below)
|
7,297 |
|
|
7,244 |
|
|
14,729 |
|
|
14,480 |
|
|
Depreciation and amortization |
2,428 |
|
|
2,500 |
|
|
4,925 |
|
|
5,050 |
|
|
Other operating expenses, net |
2 |
|
|
62 |
|
|
9 |
|
|
57 |
|
|
|
9,727 |
|
|
9,806 |
|
|
19,663 |
|
|
19,587 |
|
|
Income from operations |
1,969 |
|
|
1,541 |
|
|
3,771 |
|
|
2,966 |
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES): |
|
|
|
|
|
|
|
|
Interest expense, net
|
(957) |
|
|
(945) |
|
|
(1,937) |
|
|
(1,870) |
|
|
Loss on extinguishment of debt |
(36) |
|
|
— |
|
|
(63) |
|
|
— |
|
|
Gain (loss) on financial instruments, net
|
64 |
|
|
(119) |
|
|
(254) |
|
|
(82) |
|
|
Other pension benefits, net |
11 |
|
|
9 |
|
|
21 |
|
|
18 |
|
|
Other expense, net |
(9) |
|
|
(16) |
|
|
— |
|
|
(126) |
|
|
|
(927) |
|
|
(1,071) |
|
|
(2,233) |
|
|
(2,060) |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
1,042 |
|
|
470 |
|
|
1,538 |
|
|
906 |
|
|
Income tax expense
|
(166) |
|
|
(84) |
|
|
(195) |
|
|
(203) |
|
|
Consolidated net income |
876 |
|
|
386 |
|
|
1,343 |
|
|
703 |
|
|
Less: Net income attributable to noncontrolling
interests |
(110) |
|
|
(72) |
|
|
(181) |
|
|
(136) |
|
|
Net income attributable to Charter shareholders |
$ |
766 |
|
|
$ |
314 |
|
|
$ |
1,162 |
|
|
$ |
567 |
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CHARTER
SHAREHOLDERS: |
|
|
|
|
|
|
|
|
Basic |
$ |
3.72 |
|
|
$ |
1.41 |
|
|
$ |
5.62 |
|
|
$ |
2.54 |
|
|
Diluted |
$ |
3.63 |
|
|
$ |
1.39 |
|
|
$ |
5.48 |
|
|
$ |
2.50 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
205,777,438 |
|
|
222,392,274 |
|
|
206,804,371 |
|
|
223,505,016 |
|
|
Weighted average common shares outstanding, diluted
|
210,906,946 |
|
|
225,942,172 |
|
|
212,158,218 |
|
|
226,889,745 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
2
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY
(dollars in millions)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock |
Class B Common Stock |
Additional Paid-in Capital |
Retained Earnings |
Treasury Stock |
Accumulated Other Comprehensive Loss |
Total Charter Shareholders’ Equity |
Non-controlling Interests |
Total Shareholders’ Equity |
|
BALANCE, December 31, 2019 |
$ |
— |
|
$ |
— |
|
$ |
31,405 |
|
$ |
40 |
|
$ |
— |
|
$ |
— |
|
$ |
31,445 |
|
$ |
7,366 |
|
$ |
38,811 |
|
|
Consolidated net income |
— |
|
— |
|
— |
|
396 |
|
— |
|
— |
|
396 |
|
71 |
|
467 |
|
|
Stock compensation expense |
— |
|
— |
|
90 |
|
— |
|
— |
|
— |
|
90 |
|
— |
|
90 |
|
|
Exercise of stock options |
— |
|
— |
|
93 |
|
— |
|
— |
|
— |
|
93 |
|
— |
|
93 |
|
|
Issuance of equity |
— |
|
— |
|
23 |
|
— |
|
— |
|
— |
|
23 |
|
— |
|
23 |
|
|
Purchases of treasury stock |
— |
|
— |
|
— |
|
— |
|
(2,352) |
|
— |
|
(2,352) |
|
— |
|
(2,352) |
|
|
Purchase of noncontrolling interest, net of tax |
— |
|
— |
|
(149) |
|
— |
|
— |
|
— |
|
(149) |
|
(195) |
|
(344) |
|
|
Change in noncontrolling interest ownership, net of tax |
— |
|
— |
|
82 |
|
— |
|
— |
|
— |
|
82 |
|
(109) |
|
(27) |
|
|
Distributions to noncontrolling interest |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(39) |
|
(39) |
|
|
BALANCE, March 31, 2020 |
— |
|
— |
|
31,544 |
|
436 |
|
(2,352) |
|
— |
|
29,628 |
|
7,094 |
|
36,722 |
|
|
Consolidated net income |
— |
|
— |
|
— |
|
766 |
|
— |
|
— |
|
766 |
|
110 |
|
876 |
|
|
Stock compensation expense |
— |
|
— |
|
90 |
|
— |
|
— |
|
— |
|
90 |
|
— |
|
90 |
|
|
Exercise of stock options |
— |
|
— |
|
28 |
|
— |
|
— |
|
— |
|
28 |
|
— |
|
28 |
|
|
Purchases of treasury stock |
— |
|
— |
|
— |
|
— |
|
(1,155) |
|
— |
|
(1,155) |
|
— |
|
(1,155) |
|
|
Purchase of noncontrolling interest, net of tax |
— |
|
— |
|
(42) |
|
— |
|
— |
|
— |
|
(42) |
|
(69) |
|
(111) |
|
|
Change in noncontrolling interest ownership, net of tax |
— |
|
— |
|
41 |
|
— |
|
— |
|
— |
|
41 |
|
(52) |
|
(11) |
|
|
Distributions to noncontrolling interest |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(38) |
|
(38) |
|
|
BALANCE, June 30, 2020 |
$ |
— |
|
$ |
— |
|
$ |
31,661 |
|
$ |
1,202 |
|
$ |
(3,507) |
|
$ |
— |
|
$ |
29,356 |
|
$ |
7,045 |
|
$ |
36,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock |
Class B Common Stock |
Additional Paid-in Capital |
Retained Earnings |
Treasury Stock |
Accumulated Other Comprehensive Loss |
Total Charter Shareholders’ Equity |
Non-controlling Interests |
Total Shareholders’ Equity |
|
BALANCE, December 31, 2018 |
$ |
— |
|
$ |
— |
|
$ |
33,507 |
|
$ |
2,780 |
|
$ |
— |
|
$ |
(2) |
|
$ |
36,285 |
|
$ |
7,987 |
|
$ |
44,272 |
|
|
Consolidated net income |
— |
|
— |
|
— |
|
253 |
|
— |
|
— |
|
253 |
|
64 |
|
317 |
|
|
Stock compensation expense |
— |
|
— |
|
85 |
|
— |
|
— |
|
— |
|
85 |
|
— |
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
— |
|
— |
|
44 |
|
— |
|
— |
|
— |
|
44 |
|
— |
|
44 |
|
|
Purchases of treasury stock |
— |
|
— |
|
— |
|
— |
|
(940) |
|
— |
|
(940) |
|
— |
|
(940) |
|
|
Purchase of noncontrolling interest, net of tax |
— |
|
— |
|
(15) |
|
— |
|
— |
|
— |
|
(15) |
|
(74) |
|
(89) |
|
|
Change in noncontrolling interest ownership, net of tax |
— |
|
— |
|
22 |
|
— |
|
— |
|
— |
|
22 |
|
(29) |
|
(7) |
|
|
Distributions to noncontrolling interest |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(39) |
|
(39) |
|
|
BALANCE, March 31, 2019 |
— |
|
— |
|
33,643 |
|
3,033 |
|
(940) |
|
(2) |
|
35,734 |
|
7,909 |
|
43,643 |
|
|
Consolidated net income |
— |
|
— |
|
— |
|
314 |
|
— |
|
— |
|
314 |
|
72 |
|
386 |
|
|
Stock compensation expense |
— |
|
— |
|
82 |
|
— |
|
— |
|
— |
|
82 |
|
— |
|
82 |
|
|
Exercise of stock options |
— |
|
— |
|
37 |
|
— |
|
— |
|
— |
|
37 |
|
— |
|
37 |
|
|
Purchases of treasury stock |
— |
|
— |
|
— |
|
— |
|
(861) |
|
— |
|
(861) |
|
— |
|
(861) |
|
|
Purchase of noncontrolling interest, net of tax |
— |
|
— |
|
(37) |
|
— |
|
— |
|
— |
|
(37) |
|
(111) |
|
(148) |
|
|
Change in noncontrolling interest ownership, net of tax |
— |
|
— |
|
17 |
|
— |
|
— |
|
— |
|
17 |
|
(23) |
|
(6) |
|
|
Distributions to noncontrolling interest |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(39) |
|
(39) |
|
|
BALANCE, June 30, 2019 |
$ |
— |
|
$ |
— |
|
$ |
33,742 |
|
$ |
3,347 |
|
$ |
(1,801) |
|
$ |
(2) |
|
$ |
35,286 |
|
$ |
7,808 |
|
$ |
43,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
3
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
2020 |
|
2019 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
Consolidated net income |
$ |
1,343 |
|
|
$ |
703 |
|
|
Adjustments to reconcile consolidated net income to net cash flows
from operating activities: |
|
|
|
|
Depreciation and amortization |
4,925 |
|
|
5,050 |
|
|
Stock compensation expense |
180 |
|
|
167 |
|
|
Noncash interest income, net |
(21) |
|
|
(72) |
|
|
Other pension benefits, net |
(21) |
|
|
(18) |
|
|
Loss on extinguishment of debt |
63 |
|
|
— |
|
|
Loss on financial instruments, net |
254 |
|
|
82 |
|
|
Deferred income taxes |
101 |
|
|
137 |
|
|
Other, net |
(17) |
|
|
151 |
|
|
Changes in operating assets and liabilities, net of effects from
acquisitions and dispositions: |
|
|
|
|
Accounts receivable |
233 |
|
|
(337) |
|
|
Prepaid expenses and other assets |
(164) |
|
|
(176) |
|
|
Accounts payable, accrued liabilities and other |
(127) |
|
|
(240) |
|
|
Net cash flows from operating activities |
6,749 |
|
|
5,447 |
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
Purchases of property, plant and equipment |
(3,338) |
|
|
(3,262) |
|
|
Change in accrued expenses related to capital
expenditures |
(174) |
|
|
(428) |
|
|
Real estate investments through variable interest
entities |
(81) |
|
|
(64) |
|
|
Other, net |
(8) |
|
|
8 |
|
|
Net cash flows from investing activities |
(3,601) |
|
|
(3,746) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
Borrowings of long-term debt |
7,322 |
|
|
10,714 |
|
|
Repayments of long-term debt |
(7,892) |
|
|
(10,123) |
|
|
Payments for debt issuance costs |
(62) |
|
|
(32) |
|
|
Issuance of equity |
23 |
|
|
— |
|
|
Purchase of treasury stock |
(3,507) |
|
|
(1,801) |
|
|
Proceeds from exercise of stock options |
121 |
|
|
81 |
|
|
Purchase of noncontrolling interest |
(518) |
|
|
(254) |
|
|
Distributions to noncontrolling interest |
(77) |
|
|
(78) |
|
|
Borrowings for real estate investments through variable interest
entities |
24 |
|
|
— |
|
|
Distributions to variable interest entities noncontrolling
interest |
(4) |
|
|
— |
|
|
Other, net |
(25) |
|
|
(127) |
|
|
Net cash flows from financing activities |
(4,595) |
|
|
(1,620) |
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED
CASH |
(1,447) |
|
|
81 |
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of
period |
3,549 |
|
|
765 |
|
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of
period |
$ |
2,102 |
|
|
$ |
846 |
|
|
|
|
|
|
|
CASH PAID FOR INTEREST |
$ |
1,985 |
|
|
$ |
2,017 |
|
|
CASH PAID FOR TAXES |
$ |
50 |
|
|
$ |
43 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
4
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where
indicated)
1. Organization and Basis of Presentation
Organization
Charter Communications, Inc. (together with its controlled
subsidiaries, “Charter,” or the “Company”) is a leading broadband
connectivity company and cable operator. Over an advanced
communications network, the Company offers a full range of
state-of-the-art residential and business services including
Spectrum Internet, TV, Mobile and Voice. For small and medium-sized
companies, Spectrum Business®
delivers the same suite of broadband products and services coupled
with special features and applications to enhance productivity,
while for larger businesses and government entities, Spectrum
Enterprise provides highly customized, fiber-based solutions.
Spectrum Reach®
delivers tailored advertising and production for the modern media
landscape. The Company also distributes award-winning news
coverage, sports and high-quality original programming to its
customers through Spectrum Networks and Spectrum
Originals.
Charter is a holding company whose principal asset is a controlling
equity interest in Charter Communications Holdings, LLC (“Charter
Holdings”), an indirect owner of Charter Communications Operating,
LLC (“Charter Operating”) under which substantially all of the
operations reside. All significant intercompany accounts and
transactions among consolidated entities have been
eliminated.
The Company’s operations are managed and reported to its Chairman
and Chief Executive Officer (“CEO”), the Company’s chief operating
decision maker, on a consolidated basis. The CEO assesses
performance and allocates resources based on the consolidated
results of operations. Under this organizational and reporting
structure, the Company has one reportable segment, cable
services.
Basis of Presentation
The accompanying consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting
principles (“GAAP”) and the rules and regulations of the Securities
and Exchange Commission (the “SEC”). Accordingly, certain
information and footnote disclosures typically included in
Charter’s Annual Report on Form 10-K have been condensed or omitted
for this quarterly report. The accompanying consolidated financial
statements are unaudited and are subject to review by regulatory
authorities. However, in the opinion of management, such financial
statements include all adjustments, which consist of only normal
recurring adjustments, necessary for a fair presentation of the
results for the periods presented. Interim results are not
necessarily indicative of results for a full year.
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Areas involving significant judgments and
estimates include capitalization of labor and overhead costs,
impairments of franchises and goodwill, pension benefits and income
taxes. Actual results could differ from those
estimates.
Certain prior period amounts have been reclassified to conform with
the 2020 presentation.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where
indicated)
2. Franchises, Goodwill and Other Intangible
Assets
Indefinite-lived and finite-lived intangible assets consist of the
following as of June 30, 2020 and December 31,
2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020 |
|
|
|
|
|
December 31, 2019 |
|
|
|
|
|
|
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Carrying Amount |
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Carrying Amount |
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchises |
|
$ |
67,322 |
|
|
$ |
— |
|
|
$ |
67,322 |
|
|
$ |
67,322 |
|
|
$ |
— |
|
|
$ |
67,322 |
|
|
Goodwill |
|
29,554 |
|
|
— |
|
|
29,554 |
|
|
29,554 |
|
|
— |
|
|
29,554 |
|
|
Trademarks |
|
159 |
|
|
— |
|
|
159 |
|
|
159 |
|
|
— |
|
|
159 |
|
|
|
|
$ |
97,035 |
|
|
$ |
— |
|
|
$ |
97,035 |
|
|
$ |
97,035 |
|
|
$ |
— |
|
|
$ |
97,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
$ |
18,230 |
|
|
$ |
(11,744) |
|
|
$ |
6,486 |
|
|
$ |
18,230 |
|
|
$ |
(10,777) |
|
|
$ |
7,453 |
|
|
Other intangible assets |
|
405 |
|
|
(141) |
|
|
264 |
|
|
405 |
|
|
(122) |
|
|
283 |
|
|
|
|
$ |
18,635 |
|
|
$ |
(11,885) |
|
|
$ |
6,750 |
|
|
$ |
18,635 |
|
|
$ |
(10,899) |
|
|
$ |
7,736 |
|
Amortization expense related to customer relationships and other
intangible assets for the three and six months ended June 30,
2020 was $478 million and $986 million, respectively, and $548
million and $1.1 billion for the three and six months ended
June 30, 2019, respectively.
The Company expects amortization expense on its finite-lived
intangible assets will be as follows:
|
|
|
|
|
|
|
|
|
|
Six months ended December 31, 2020 |
|
$ |
889 |
|
|
2021 |
|
1,599 |
|
|
2022 |
|
1,329 |
|
|
2023 |
|
1,072 |
|
|
2024 |
|
821 |
|
|
Thereafter |
|
1,040 |
|
|
|
|
$ |
6,750 |
|
Actual amortization expense in future periods will differ from
these estimates as a result of new intangible asset acquisitions or
divestitures, changes in useful lives, impairments and other
relevant factors.
3. Investments
Real Estate Investments through Variable Interest
Entities
In July 2018, the Company entered into a build-to-suit lease
arrangement with a single-asset special purpose entity ("SPE
Building 1") to build the first building in the building complex
for the new Charter headquarters in Stamford, Connecticut. The SPE
Building 1 obtained a first-lien mortgage note to finance the
construction with fixed monthly payments through July 15, 2035 with
a 5.612% coupon interest rate. All payments of the mortgage note
are guaranteed by Charter. The initial term of the lease is 15
years commencing August 1, 2020, with no termination options. At
the end of the lease term there is a mirrored put option for the
SPE to sell the property to Charter and call option for Charter to
purchase the property for a fixed purchase price.
In April 2020, the Company entered into a build-to-suit lease
agreement with a second special purpose entity (“SPE Building 2”)
to build the adjoining building and atrium, in the building complex
for the new Charter headquarters in Stamford, Connecticut. As of
June 30, 2020, Charter does not guarantee the financing for SPE
Building 2. The initial term of the lease is 15 years commencing
February 26, 2022, with no termination options. At the end of the
lease term there is a put option for the SPE Building 2 to sell the
property to Charter for a fixed price. If SPE Building 2 does not
exercise the put option and Company exercises its first renewal
term there is call option for Charter to purchase property for a
fixed purchase price in year 3 of the first renewal
term.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where
indicated)
As the Company has determined that SPE Building 1 and SPE Building
2 (collectively, the "SPEs") are variable interest entities
("VIEs") of which the Company became the primary beneficiary upon
the effectiveness of the arrangements in July 2018 and April 2020,
respectively, the Company has consolidated the assets and
liabilities of the SPEs in its consolidated balance sheets as of
June 30, 2020 and December 31, 2019 as
follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020 |
|
December 31, 2019 |
|
Assets |
|
|
|
|
|
|
|
|
Restricted cash |
$ |
5 |
|
|
$ |
66 |
|
|
Property, plant and equipment |
$ |
389 |
|
|
$ |
295 |
|
|
Liabilities |
|
|
|
|
Current liabilities |
$ |
24 |
|
|
$ |
11 |
|
|
Other long-term liabilities |
$ |
371 |
|
|
$ |
350 |
|
Property, plant and equipment includes land, a parking garage and
building construction costs, including the capitalization of
qualifying interest. Other long-term liabilities includes mortgage
note liabilities and liability-classified noncontrolling interests
for the SPEs recorded at amortized cost with accretion towards
settlement of the put/call option in the leases. As of
June 30, 2020 and December 31, 2019, other long-term
liabilities include $335 million and $339 million, respectively, in
SPE Building 1 mortgage note liability.
The consolidated statement of cash flows for the six months ended
June 30, 2020 includes a decrease to restricted cash of
$61 million related to $81 million in building
construction costs for the SPEs and $4 million in
distributions to noncontrolling interests for SPE Building 1 offset
by $24 million in borrowings for real estate investments for
SPE Building 2. The consolidated statement of cash flows for the
six months ended June 30, 2019 includes a decrease to
restricted cash of $64 million related to building
construction costs for SPE Building 1.
Equity Investments
The Company recorded impairments on equity investments of
approximately $11 million and $121 million during the three
and six months ended June 30, 2019 which were recorded in
other expense, net in the consolidated statements of
operations.
4. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following
as of June 30, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020 |
|
December 31, 2019 |
|
Accounts payable – trade |
$ |
667 |
|
|
$ |
786 |
|
|
Deferred revenue |
471 |
|
|
460 |
|
|
Accrued liabilities: |
|
|
|
|
Programming costs |
2,033 |
|
|
2,042 |
|
|
Labor |
919 |
|
|
1,028 |
|
|
Capital expenditures |
1,211 |
|
|
1,441 |
|
|
Interest |
1,040 |
|
|
1,052 |
|
|
Taxes and regulatory fees |
582 |
|
|
537 |
|
|
Property and casualty |
472 |
|
|
458 |
|
|
Operating lease liabilities |
223 |
|
|
214 |
|
|
Other |
818 |
|
|
867 |
|
|
|
$ |
8,436 |
|
|
$ |
8,885 |
|
5. Leases
Operating lease expenses were $108 million and $216 million for the
three and six months ended June 30, 2020, respectively, and
$109 million and $216 million for the three and six months ended
June 30, 2019, respectively, inclusive of $32 million
and
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where
indicated)
$67 million for the three and six months ended June 30, 2020,
respectively, and $30 million and $65 million for the three and six
months ended June 30, 2019, respectively, of both short-term
lease costs and variable lease costs that were not included in the
measurement of operating lease liabilities.
Cash paid for amounts included in the measurement of operating
lease liabilities, recorded as operating cash flows in the
statements of cash flows, were $147 million for both the six months
ended June 30, 2020 and 2019.
Operating lease right-of-use assets obtained in exchange for
operating lease obligations were $164 million and $161 million for
the six months ended June 30, 2020 and 2019,
respectively.
Supplemental balance sheet information related to leases is as
follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020 |
|
December 31, 2019 |
|
|
|
|
|
|
Operating lease right-of-use assets: |
|
|
|
|
Included within other noncurrent assets |
$ |
1,132 |
|
|
$ |
1,092 |
|
|
|
|
|
|
|
Operating lease liabilities: |
|
|
|
|
Current portion included within accounts payable and accrued
liabilities |
$ |
223 |
|
|
$ |
214 |
|
|
Long-term portion included within other long-term
liabilities |
1,022 |
|
|
979 |
|
|
|
$ |
1,245 |
|
|
$ |
1,193 |
|
|
|
|
|
|
|
Weighted average remaining lease term for operating
leases |
6.4 years |
|
6.6 years |
|
Weighted average discount rate for operating leases |
4.2 |
% |
|
4.4 |
% |
Maturities of lease liabilities are as follows.
|
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
|
Six months ended December 31, 2020 |
$ |
149 |
|
|
|
|
2021 |
282 |
|
|
|
|
2022 |
245 |
|
|
|
|
2023 |
216 |
|
|
|
|
2024 |
178 |
|
|
|
|
Thereafter |
441 |
|
|
|
|
Undiscounted lease cash flow commitments
|
1,511 |
|
|
|
|
Reconciling impact from discounting |
(266) |
|
|
|
|
Lease liabilities on consolidated balance sheet as of June 30,
2020
|
$ |
1,245 |
|
|
|
The Company has $61 million and $62 million of finance lease
liabilities recognized in the consolidated balance sheets as of
June 30, 2020 and December 31, 2019, respectively,
included within accounts payable and accrued liabilities and other
long-term liabilities.
The related finance lease right-of-use assets are recorded in
property, plant and equipment, net.
The Company’s finance leases were not considered material for
further supplemental lease disclosures.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where
indicated)
6. Long-Term Debt
Long-term debt consists of the following as of June 30, 2020
and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020 |
|
|
|
December 31, 2019 |
|
|
|
|
Principal Amount |
|
Accreted Value |
|
Principal Amount |
|
Accreted Value |
|
CCO Holdings, LLC: |
|
|
|
|
|
|
|
|
5.250% senior notes due September 30, 2022
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,250 |
|
|
$ |
1,241 |
|
|
5.125% senior notes due February 15, 2023
|
— |
|
|
— |
|
|
1,000 |
|
|
995 |
|
|
4.000% senior notes due March 1, 2023
|
500 |
|
|
498 |
|
|
500 |
|
|
497 |
|
|
5.125% senior notes due May 1, 2023
|
— |
|
|
— |
|
|
1,150 |
|
|
1,145 |
|
|
5.750% senior notes due September 1, 2023
|
— |
|
|
— |
|
|
500 |
|
|
497 |
|
|
5.750% senior notes due January 15, 2024
|
— |
|
|
— |
|
|
150 |
|
|
149 |
|
|
5.875% senior notes due April 1, 2024
|
1,700 |
|
|
1,691 |
|
|
1,700 |
|
|
1,690 |
|
|
5.375% senior notes due May 1, 2025
|
750 |
|
|
746 |
|
|
750 |
|
|
746 |
|
|
5.750% senior notes due February 15, 2026
|
2,500 |
|
|
2,473 |
|
|
2,500 |
|
|
2,471 |
|
|
5.500% senior notes due May 1, 2026
|
1,500 |
|
|
1,492 |
|
|
1,500 |
|
|
1,491 |
|
|
5.875% senior notes due May 1, 2027
|
800 |
|
|
796 |
|
|
800 |
|
|
796 |
|
|
5.125% senior notes due May 1, 2027
|
3,250 |
|
|
3,224 |
|
|
3,250 |
|
|
3,222 |
|
|
5.000% senior notes due February 1, 2028
|
2,500 |
|
|
2,470 |
|
|
2,500 |
|
|
2,469 |
|
|
5.375% senior notes due June 1, 2029
|
1,500 |
|
|
1,501 |
|
|
1,500 |
|
|
1,501 |
|
|
4.750% senior notes due March 1, 2030
|
3,050 |
|
|
3,041 |
|
|
3,050 |
|
|
3,041 |
|
|
4.500% senior notes due August 15, 2030
|
2,750 |
|
|
2,750 |
|
|
— |
|
|
— |
|
|
4.500% senior notes due May 1, 2032
|
1,400 |
|
|
1,387 |
|
|
— |
|
|
— |
|
|
Charter Communications Operating, LLC: |
|
|
|
|
|
|
|
|
3.579% senior notes due July 23, 2020
|
— |
|
|
— |
|
|
2,000 |
|
|
1,997 |
|
|
4.464% senior notes due July 23, 2022
|
3,000 |
|
|
2,989 |
|
|
3,000 |
|
|
2,987 |
|
|
Senior floating rate notes due February 1, 2024 |
900 |
|
|
902 |
|
|
900 |
|
|
902 |
|
|
4.500% senior notes due February 1, 2024
|
1,100 |
|
|
1,094 |
|
|
1,100 |
|
|
1,093 |
|
|
4.908% senior notes due July 23, 2025
|
4,500 |
|
|
4,473 |
|
|
4,500 |
|
|
4,471 |
|
|
3.750% senior notes due February 15, 2028
|
1,000 |
|
|
988 |
|
|
1,000 |
|
|
987 |
|
|
4.200% senior notes due March 15, 2028
|
1,250 |
|
|
1,241 |
|
|
1,250 |
|
|
1,240 |
|
|
5.050% senior notes due March 30, 2029
|
1,250 |
|
|
1,241 |
|
|
1,250 |
|
|
1,241 |
|
|
2.800% senior notes due April 1, 2031
|
1,600 |
|
|
1,582 |
|
|
— |
|
|
— |
|
|
6.384% senior notes due October 23, 2035
|
2,000 |
|
|
1,983 |
|
|
2,000 |
|
|
1,982 |
|
|
5.375% senior notes due April 1, 2038
|
800 |
|
|
786 |
|
|
800 |
|
|
786 |
|
|
6.484% senior notes due October 23, 2045
|
3,500 |
|
|
3,467 |
|
|
3,500 |
|
|
3,467 |
|
|
5.375% senior notes due May 1, 2047
|
2,500 |
|
|
2,506 |
|
|
2,500 |
|
|
2,506 |
|
|
5.750% senior notes due April 1, 2048
|
2,450 |
|
|
2,391 |
|
|
2,450 |
|
|
2,391 |
|
|
5.125% senior notes due July 1, 2049
|
1,250 |
|
|
1,240 |
|
|
1,250 |
|
|
1,240 |
|
|
4.800% senior notes due March 1, 2050
|
2,800 |
|
|
2,797 |
|
|
2,800 |
|
|
2,798 |
|
|
3.700% senior notes due April 1, 2051
|
1,400 |
|
|
1,379 |
|
|
— |
|
|
— |
|
|
6.834% senior notes due October 23, 2055
|
500 |
|
|
495 |
|
|
500 |
|
|
495 |
|
|
Credit facilities |
10,288 |
|
|
10,213 |
|
|
10,427 |
|
|
10,345 |
|
|
Time Warner Cable, LLC: |
|
|
|
|
|
|
|
|
5.000% senior notes due February 1, 2020
|
— |
|
|
— |
|
|
1,500 |
|
|
1,503 |
|
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where
indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.125% senior notes due February 15, 2021
|
700 |
|
|
706 |
|
|
700 |
|
|
711 |
|
|
4.000% senior notes due September 1, 2021
|
1,000 |
|
|
1,015 |
|
|
1,000 |
|
|
1,021 |
|
|
5.750% sterling senior notes due June 2, 2031
(a)
|
775 |
|
|
827 |
|
|
828 |
|
|
886 |
|
|
6.550% senior debentures due May 1, 2037
|
1,500 |
|
|
1,672 |
|
|
1,500 |
|
|
1,675 |
|
|
7.300% senior debentures due July 1, 2038
|
1,500 |
|
|
1,768 |
|
|
1,500 |
|
|
1,772 |
|
|
6.750% senior debentures due June 15, 2039
|
1,500 |
|
|
1,709 |
|
|
1,500 |
|
|
1,713 |
|
|
5.875% senior debentures due November 15, 2040
|
1,200 |
|
|
1,254 |
|
|
1,200 |
|
|
1,255 |
|
|
5.500% senior debentures due September 1, 2041
|
1,250 |
|
|
1,258 |
|
|
1,250 |
|
|
1,258 |
|
|
5.250% sterling senior notes due July 15, 2042
(b)
|
805 |
|
|
778 |
|
|
861 |
|
|
831 |
|
|
4.500% senior debentures due September 15, 2042
|
1,250 |
|
|
1,143 |
|
|
1,250 |
|
|
1,142 |
|
|
Time Warner Cable Enterprises LLC: |
|
|
|
|
|
|
|
|
8.375% senior debentures due March 15, 2023
|
1,000 |
|
|
1,126 |
|
|
1,000 |
|
|
1,148 |
|
|
8.375% senior debentures due July 15, 2033
|
1,000 |
|
|
1,277 |
|
|
1,000 |
|
|
1,284 |
|
|
Total debt |
77,768 |
|
|
78,369 |
|
|
78,416 |
|
|
79,078 |
|
|
Less current portion: |
|
|
|
|
|
|
|
|
5.000% senior notes due February 1, 2020 |
— |
|
|
— |
|
|
(1,500) |
|
|
(1,503) |
|
|
3.579% senior notes due July 23, 2020 |
— |
|
|
— |
|
|
(2,000) |
|
|
(1,997) |
|
|
4.125% senior notes due February 15, 2021 |
(700) |
|
|
(706) |
|
|
— |
|
|
— |
|
|
Long-term debt |
$ |
77,068 |
|
|
$ |
77,663 |
|
|
$ |
74,916 |
|
|
$ |
75,578 |
|
(a)Principal
amount includes £625 million remeasured at $775 million and $828
million as of June 30, 2020 and December 31, 2019,
respectively, using the exchange rate at the respective
dates.
(b)Principal
amount includes £650 million remeasured at $805 million and $861
million as of June 30, 2020 and December 31, 2019,
respectively, using the exchange rate at the respective
dates.
The accreted values presented in the table above represent the
principal amount of the debt adjusted for original issue discount
or premium at the time of sale, deferred financing costs, and, in
regards to debt assumed in acquisitions, fair value premium
adjustments as a result of applying acquisition accounting plus the
accretion of those amounts to the balance sheet date. However, the
amount that is currently payable if the debt becomes immediately
due is equal to the principal amount of the debt. In regards to the
fixed-rate British pound sterling denominated notes (the “Sterling
Notes”), the principal amount of the debt and any premium or
discount is remeasured into US dollars as of each balance sheet
date. See Note 9. The Company has availability under the Charter
Operating credit facilities of approximately $4.7 billion as of
June 30, 2020.
In February 2020, CCO Holdings, LLC ("CCO Holdings") and CCO
Holdings Capital Corp. jointly issued $1.65 billion aggregate
principal amount of 4.500% senior unsecured notes due 2030 at par
and in March 2020, an additional $1.1 billion of the same
series of notes were issued at a price of 102.5% of the aggregate
principal amount. Also in March 2020, CCO Holdings and CCO Holdings
Capital Corp. issued $1.4 billion aggregate principal amount
of 4.500% senior unsecured notes due 2032 at par. The net proceeds
were used to pay related fees and expenses and for general
corporate purposes, including repaying certain indebtedness,
including repayment of all of CCO Holdings' 5.250% senior notes due
September 30, 2022, 5.125% senior notes due February 15, 2023,
5.125% senior notes due May 1, 2023, 5.750% senior notes due
September 1, 2023 and 5.750% senior notes due January 15, 2024, as
well as funding buybacks of Charter Class A common stock and
Charter Holdings common units. The Company recorded a loss on
extinguishment of debt of $36 million and $63 million during the
three and six months ended June 30, 2020, respectively,
related to these transactions.
In July 2020, CCO Holdings and CCO Holdings Capital Corp. jointly
issued $1.5 billion aggregate principal amount of 4.250%
senior unsecured notes due 2031 at par and later in July 2020, an
additional $1.5 billion of the same series of notes were
issued at a price of 102%. The net proceeds will be used to pay
related fees and expenses and for general corporate purposes,
including repaying certain indebtedness, including repayment of all
of CCO Holdings' 5.875% senior notes due April 1, 2024, as well as
funding buybacks of Charter Class A common stock and Charter
Holdings common units.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where
indicated)
The CCO Holdings notes are senior debt obligations of CCO Holdings
and CCO Holdings Capital Corp. and rank equally with all other
current and future unsecured, unsubordinated obligations of CCO
Holdings and CCO Holdings Capital Corp. They are structurally
subordinated to all obligations of subsidiaries of CCO
Holdings.
CCO Holdings may redeem some or all of the notes at any time at a
premium. Beginning in 2028 and 2029, the optional redemption price
declines to 100% of the principal amount, plus accrued and unpaid
interest, if any.
In addition, at any time prior to varying dates in 2023, CCO
Holdings may redeem up to 40% 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 notes
from the holders at a purchase price equal to 101% of the total
principal amount of the notes, plus any accrued and unpaid
interest.
In April 2020, Charter Operating and Charter Communications
Operating Capital Corp. jointly issued $1.6 billion aggregate
principal amount of 2.800% senior secured notes due April 2031 at a
price of 99.561% of the aggregate principal amount and
$1.4 billion aggregate principal amount of 3.700% senior
secured notes due April 2051 at a price of 99.217% of the aggregate
principal amount. The net proceeds were used to pay related fees
and expenses and for general corporate purposes.
In June 2020, Charter Operating and Charter Communications
Operating Capital Corp. redeemed all of their 3.579% senior secured
notes due July 2020.
The Charter Operating notes are guaranteed by CCO Holdings and
substantially all of the operating subsidiaries of Charter
Operating. 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.
7. Common Stock
The following represents the Company's purchase of Charter Class A
common stock and the effect on the consolidated statements of cash
flows during the three and six months ended June 30, 2020 and
2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|
2020 |
|
|
|
2019 |
|
|
|
2020 |
|
|
|
2019 |
|
|
|
|
Shares |
|
$ |
|
Shares |
|
$ |
|
Shares |
|
$ |
|
Shares |
|
$ |
|
Share buybacks |
2,028,234 |
|
|
$ |
1,026 |
|
|
2,247,279 |
|
|
$ |
837 |
|
|
6,480,783 |
|
|
$ |
3,202 |
|
|
4,862,996 |
|
|
$ |
1,707 |
|
|
Income tax withholding |
247,651 |
|
|
129 |
|
|
63,425 |
|
|
24 |
|
|
583,305 |
|
|
305 |
|
|
278,040 |
|
|
94 |
|
|
Exercise cost |
188,923 |
|
|
|
|
90,951 |
|
|
|
|
430,675 |
|
|
|
|
185,170 |
|
|
|
|
|
2,464,808 |
|
|
$ |
1,155 |
|
|
2,401,655 |
|
|
$ |
861 |
|
|
7,494,763 |
|
|
$ |
3,507 |
|
|
5,326,206 |
|
|
$ |
1,801 |
|
As of June 30, 2020, Charter had remaining board authority to
purchase an additional $837 million of Charter’s Class A common
stock and/or Charter Holdings common units. The Company also
withholds shares of its Class A common stock in payment of income
tax withholding owed by employees upon vesting of equity awards as
well as exercise costs owed by employees upon exercise of stock
options.
In 2019, Charter’s board of directors approved the retirement of
the then currently held treasury stock and those shares were
retired as of December 31, 2019. The Company accounts for
treasury stock using the cost method and includes treasury stock as
a component of total shareholders’ equity.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where
indicated)
In March 2020, pursuant to the terms of the Amended and Restated
Stockholders Agreement with Liberty Broadband Corporation (“Liberty
Broadband”), Advance/Newhouse Partnership (“A/N”) and Charter,
dated May 23, 2015, Charter, Liberty and A/N closed on transactions
in which Liberty Broadband and A/N exercised their preemptive right
to purchase 35,112 and 20,182 shares, respectively, of Charter
Class A common stock for a total purchase price of approximately
$23 million.
8. Noncontrolling Interests
Noncontrolling interests represents consolidated subsidiaries of
which the Company owns less than 100%. The Company is a holding
company whose principal asset is a controlling equity interest in
Charter Holdings, the indirect owner of the Company’s cable
systems. Noncontrolling interests on the Company’s balance sheet
consist primarily of A/N's equity interests in Charter Holdings,
which is comprised of a common ownership interest and a convertible
preferred ownership interest.
Net income of Charter Holdings attributable to A/N’s common
noncontrolling interest for financial reporting purposes is based
on the effective common ownership interest of approximately 8%, and
was $72 million and $105 million for the three and six months ended
June 30, 2020, respectively, and $34 million and $60 million
or the three and six months ended June 30, 2019, respectively.
Net income of Charter Holdings attributable to A/N's preferred
noncontrolling interest for financial reporting purposes is based
on the preferred dividend which was $37 million and $75 million for
each of the three and six months ended June 30, 2020 and 2019,
respectively.
The following table represents Charter Holdings' purchase of
Charter Holdings common units from A/N pursuant to the Letter
Agreement (see Note 18) and the effect on total shareholders'
equity during the three and six months ended June 30, 2020 and
2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
Six Months Ended June 30, |
|
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Number of units purchased |
280,069 |
|
|
447,793 |
|
|
1,075,676 |
|
|
750,735 |
|
|
Average price per unit |
$ |
445.15 |
|
|
$ |
358.21 |
|
|
$ |
481.68 |
|
|
$ |
338.12 |
|
|
Amount of units purchased |
$ |
125 |
|
|
$ |
161 |
|
|
$ |
518 |
|
|
$ |
254 |
|
|
Decrease in noncontrolling interest based on carrying
value |
$ |
(69) |
|
|
$ |
(111) |
|
|
$ |
(264) |
|
|
$ |
(185) |
|
|
Decrease in additional paid-in-capital, net of tax |
$ |
(42) |
|
|
$ |
(37) |
|
|
$ |
(191) |
|
|
$ |
(52) |
|
Total shareholders' equity was also adjusted during the three and
six months ended June 30, 2020 and 2019 due to the changes in
Charter Holdings' ownership as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
Six Months Ended June 30, |
|
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Decrease in noncontrolling interest |
$ |
(52) |
|
|
$ |
(23) |
|
|
$ |
(161) |
|
|
$ |
(52) |
|
|
Increase in additional paid-in-capital, net of tax |
$ |
41 |
|
|
$ |
17 |
|
|
$ |
123 |
|
|
$ |
39 |
|
9. Accounting for Derivative Instruments and Hedging
Activities
The Company uses derivative instruments to manage foreign exchange
risk on the Sterling Notes, and does not hold or issue derivative
instruments for speculative trading purposes.
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 April
2019, the Company entered into a collateral holiday agreement for
60% of both the 2031 and 2042 cross-currency swaps, which
eliminates the requirement to post collateral for three years, as
well as a ten year collateral cap on the remaining 40% of the
cross-currency swaps which limits the required collateral posting
on that 40% of the cross-currency swaps to $150
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in millions, except per share amounts and where
indicated)
million. The fair value of the Company's cross-currency derivatives
was $589 million and $224 million and is included in other
long-term liabilities on its consolidated balance sheets as of
June 30, 2020 and December 31, 2019,
respectively.
The Company’s 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 hedges for accounting purposes, management
continues to believe such instruments are closely 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
Six Months Ended June 30, |
|
|
|
|
2020 |
|
2019 |
|
|