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CorporateJuly 27, 2017

Charter Announces Second Quarter 2017 Results

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    STAMFORD, Conn., July 27, 2017 /PRNewswire/ -- Charter Communications, Inc. (formerly known as CCH I, LLC, along with its subsidiaries, the "Company" or "Charter") today reported financial and operating results for the three and six months ended June 30, 2017. On May 18, 2016, Charter completed its transactions between the Company, Time Warner Cable Inc. ("Legacy TWC") and Charter Communications, Inc. ("Legacy Charter"), and Legacy Charter and Bright House Networks, LLC ("Legacy Bright House") (collectively, the "Transactions"). Pro forma1 results give effect to the Transactions as if they had closed on January 1, 2015 and include the operations of Legacy Charter, Legacy TWC and Legacy Bright House for the three and six months ended June 30, 2016.

    Charter Communications Logo.

    Key highlights:

    • During the second quarter of 2017, Charter completed the roll-out of its high-value Spectrum pricing, packaging and brand across the Legacy TWC and Legacy Bright House residential footprints, with the launch of Spectrum in Hawaii, in June.
    • Second quarter total customer relationships increased 211,000, compared to 231,000 on a pro forma basis during the second quarter of 2016, when excluding the impact of customer disconnect activity related to Legacy Bright House's seasonal customer plan in 2016.2 Second quarter total residential and SMB primary service units ("PSUs") increased by 243,000, while pro forma second quarter 2016 PSUs grew by 422,000, when adjusted for seasonal customer program changes at Legacy Bright House.
    • Second quarter revenues of $10.4 billion grew 3.9% on a pro forma basis, as compared to the prior year period, driven by residential revenue growth of 3.8% and commercial revenue growth of 9.5%. On an actual basis, second quarter revenue grew 68.1% year-over-year, driven primarily by the Transactions.
    • Second quarter Adjusted EBITDA3 of $3.8 billion grew 8.6% year-over-year on a pro forma basis, and 8.7% when excluding transition costs. On an actual basis, second quarter Adjusted EBITDA grew by 73.3%, driven primarily by the Transactions.
    • Net income attributable to Charter shareholders in the second quarter declined to $139 million from $248 million on a pro forma basis during the same period last year. The decline in year-over-year net income was driven by a pension curtailment gain in the second quarter of 2016 and an increase in depreciation and amortization in the second quarter of 2017, partly offset by a year-over-year increase in Adjusted EBITDA. On an actual basis, net income declined to $139 million from $3.1 billion during the second quarter of 2016, primarily driven by an income tax benefit in the prior year quarter.

    "With the rollout of our new pricing and packaging completed in June, we are now offering a simple, high value product across our 50 million passings, under one brand, Spectrum. That product is working in the marketplace, and we continue to see higher year-over-year customer connect volumes across our new footprint," said Tom Rutledge, Chairman and CEO of Charter Communications, Inc. "As we move forward with our integration, more of our customers are getting better products at better prices, which will drive higher customer satisfaction, lower churn and greater value into our business."

    1 See Exhibit 99.1 in the Company's Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2016 filed with the Securities and Exchange Commission on November 3, 2016, which includes reconciliations of the pro forma information to actual information for each quarter of 2015 and the first and second quarters of 2016. See the "Use of Adjusted EBITDA, Free Cash Flow and Pro Forma Information" section of this document for additional information.

    2 In the second quarter of 2017, Charter conformed the seasonal customer program in the Legacy Bright House footprint to Charter's program. For additional information, see footnote j on page 6 of the addendum to this release.

    3 Adjusted EBITDA and free cash flow are defined in the "Use of Adjusted EBITDA, Free Cash Flow and Pro Forma Information" section and are reconciled to consolidated net income and net cash flows from operating activities, respectively, in the addendum of this news release.

    Key Operating Results

     
     

    Approximate as of

     
     

    June 30, 2017 (a)

     

    June 30, 2016 (a)(j)

     

    Y/Y Change

    Footprint (b)

                   

    Estimated Video Passings

    49,615

       

    48,762

       

    1.7

    %

    Estimated Internet Passings

    49,309

       

    48,414

       

    1.8

    %

    Estimated Voice Passings

    48,587

       

    47,566

       

    2.1

    %

                     

    Penetration Statistics (c)

                   

    Video Penetration of Estimated Video Passings

    34.4

    %

     

    35.5

    %

     

    (1.1)

     ppts

    Internet Penetration of Estimated Internet Passings

    47.3

    %

     

    45.1

    %

     

    2.2

    ppts

    Voice Penetration of Estimated Voice Passings

    23.1

    %

     

    23.1

    %

     

     ppts

                     

    Customer Relationships (d)

                   

    Residential

    25,298

       

    24,306

       

    4.1

    %

    Small and Medium Business

    1,483

       

    1,333

       

    11.3

    %

    Total Customer Relationships

    26,781

       

    25,639

       

    4.5

    %

                     

    Residential

                   

    Primary Service Units ("PSUs")

                   

    Video

    16,646

       

    16,934

       

    (1.7)

    %

    Internet

    22,033

       

    20,667

       

    6.6

    %

    Voice

    10,378

       

    10,255

       

    1.2

    %

     

    49,057

       

    47,856

       

    2.5

    %

                     

    Quarterly Net Additions/(Losses)

                   

    Video

    (90)

       

    (152)

       

    40.8

    %

    Internet

    231

       

    236

       

    (2.1)

    %

    Voice

    14

       

    83

       

    (83.1)

    %

     

    155

       

    167

       

    (7.2)

    %

                     

    Single Play (e)

    10,177

       

    9,252

       

    10.0

    %

    Double Play (e)

    6,484

       

    6,559

       

    (1.1)

    %

    Triple Play (e)

    8,637

       

    8,495

       

    1.7

    %

                     

    Single Play Penetration (f)

    40.2

    %

     

    38.1

    %

     

    2.1

     ppts

    Double Play Penetration (f)

    25.6

    %

     

    27.0

    %

     

    (1.4)

    ppts

    Triple Play Penetration (f)

    34.1

    %

     

    35.0

    %

     

    (0.9)

     ppts

                     

    % Residential Non-Video Customer Relationships

    34.2

    %

     

    30.3

    %

     

    3.9

     ppts

                     

    Monthly Residential Revenue per Residential Customer (g)

    $109.46

       

    $109.74

       

    (0.3)

    %

                     

    Small and Medium Business

                   

    PSUs

                   

    Video

    425

       

    378

       

    12.4

    %

    Internet

    1,285

       

    1,148

       

    11.9

    %

    Voice

    847

       

    725

       

    16.8

    %

     

    2,557

       

    2,251

       

    13.6

    %

                     

    Quarterly Net Additions/(Losses)

                   

    Video

    14

       

    9

       

    55.6

    %

    Internet

    36

       

    41

       

    (12.2)

    %

    Voice

    38

       

    32

       

    18.8

    %

     

    88

       

    82

       

    7.3

    %

                     

    Monthly Small and Medium Business Revenue per Customer (h)

    $210.64

       

    $214.52

       

    (1.8)

    %

                     

    Enterprise PSUs (i)

                   

    Enterprise PSUs

    103

       

    90

       

    14.4

    %

     

     

     

    Footnotes

    In thousands, except per customer and penetration data. See footnotes to unaudited summary of operating statistics on page 6 of the addendum of this news release. The footnotes contain important disclosures regarding the definitions used for these operating statistics.

    All percentages are calculated using whole numbers. Minor differences may exist due to rounding.

     

    During the second quarter, Charter completed the launch of its Spectrum brand, and residential pricing and packaging to residences in the Legacy TWC and Bright House footprints, with the roll-out of Spectrum in Hawaii. In July, Charter completed the launch of Spectrum pricing and packaging for small and medium businesses in Legacy TWC and Legacy Bright House markets.

    In June, Charter restarted all-digital efforts for the approximately 40% of Legacy TWC's footprint and 60% of Legacy Bright House's footprint that are not yet all-digital. All-digital allows Charter to offer more advanced products and services, and provides residential customers with two-way digital set-tops, which offer better picture quality, an interactive programming guide and video on demand on all TV outlets in the home.

    During the second quarter of 2017, Charter's residential customer relationships grew by 167,000, while pro forma second quarter 2016 customer relationships grew by 126,000, or 184,000 when adjusted for seasonal program changes made at Legacy Bright House.1,2 Residential PSUs increased by 155,000 in the second quarter of 2017, while pro forma second quarter 2016 PSUs increased by 167,000, or 340,000 when adjusted for seasonal program changes at Legacy Bright House. As of June 30, 2017, Charter had 25.3 million residential customer relationships and 49.1 million residential PSUs.

    Residential video customers decreased by 90,000 in the second quarter of 2017, while pro forma second quarter 2016 video customers decreased by 152,000, or 100,000 when adjusted for seasonal program changes at Legacy Bright House. Over the last twelve months, Legacy Charter grew residential video customers by 16,000 or 0.4%. As of June 30, 2017, Charter had 16.6 million residential video customers.

    Charter added 231,000 residential Internet customers in the second quarter of 2017, while pro forma second quarter 2016 Internet customers grew by 236,000, or 308,000 when adjusted for seasonal program changes at Legacy Bright House. Charter now offers minimum Internet speeds of at least 100 Mbps to over 50% of its total footprint, with nearly all of Charter's remaining footprint offering minimum Internet speeds of at least 60 Mbps. As of June 30, 2017, 93% of Legacy Charter's residential Internet customers subscribed to tiers that provided speeds of 60 Mbps or more compared to 52% at Legacy TWC and 78% at Legacy Bright House. The Company continues to see strong demand for its Internet service as consumers value the speed and reliability of Charter's Internet offering. As of June 30, 2017, Charter had 22.0 million residential Internet customers.

    During the second quarter of 2017, the Company added 14,000 residential voice customers, while pro forma second quarter 2016 voice customers grew by 83,000, or 132,000 when adjusted for seasonal program changes at Legacy Bright House. The year-over-year decline in voice net additions was primarily driven by higher churn at Legacy TWC resulting from promotions launched prior to the closing of the Transactions. As of June 30, 2017, Charter had 10.4 million residential voice customers.

    Second quarter residential revenue per customer relationship totaled $109.46, a slight decrease as compared to the prior year period, as promotional rate step-ups and modest rate adjustments, were offset by continued single play Internet sell-in and the migration of Legacy TWC and Legacy Bright House customers to higher-value Spectrum pricing and packaging.

    During the second quarter of 2017, SMB customer relationships grew by 44,000, versus customer growth of 47,000 during the second quarter of 2016. SMB PSUs increased 88,000, compared to 82,000 during the second quarter of 2016. As of June 30, 2017, Charter had 1.5 million SMB customer relationships and 2.6 million SMB PSUs.

    1 All customer data referred to herein for periods prior to the third quarter of 2016, are pro forma for the Transactions as if they had closed on January 1, 2015.

    2 See footnote j on page 6 of the addendum to this release for additional information regarding changes made to Legacy Bright House's seasonal customer program in the second quarter of 2017.

    Second Quarter Financial Results

     

    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 
    UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND OPERATING DATA
    (dollars in millions, except per share data)

     
     

    Three Months Ended June 30,

     

    2017

    Actual

     

    2016

    Pro Forma

     

    %
    Change

     

    2016

    Actual

     

    % Change

    REVENUES:

                     

    Video

    $

    4,124

       

    $

    4,125

       

    %

     

    $

    2,605

       

    58.3

    %

    Internet

    3,513

       

    3,133

       

    12.1

    %

     

    1,950

       

    80.2

    %

    Voice

    650

       

    729

       

    (10.9)

    %

     

    423

       

    53.4

    %

    Residential revenue

    8,287

       

    7,987

       

    3.8

    %

     

    4,978

       

    66.4

    %

    Small and medium business

    924

       

    843

       

    9.7

    %

     

    520

       

    77.7

    %

    Enterprise

    548

       

    501

       

    9.3

    %

     

    296

       

    85.1

    %

    Commercial revenue

    1,472

       

    1,344

       

    9.5

    %

     

    816

       

    80.4

    %

    Advertising sales

    381

       

    405

       

    (5.8)

    %

     

    237

       

    61.3

    %

    Other

    217

       

    233

       

    (6.8)

    %

     

    130

       

    67.0

    %

    Total Revenue

    10,357

       

    9,969

       

    3.9

    %

     

    6,161

       

    68.1

    %

                       

    COSTS AND EXPENSES:

                     

    Total operating costs and expenses

    6,510

       

    6,427

       

    1.3

    %

     

    3,941

       

    65.2

    %

    Adjusted EBITDA

    $

    3,847

       

    $

    3,542

       

    8.6

    %

     

    $

    2,220

       

    73.3

    %

                       

    Adjusted EBITDA margin

    37.1

    %

     

    35.5

    %

         

    36.0

    %

       
                       

    Capital Expenditures

    $

    2,148

       

    $

    2,075

           

    $

    1,260

         

    % Total Revenues

    20.7

    %

     

    20.8

    %

         

    20.4

    %

       
                       

    Net income attributable to Charter shareholders

    $

    139

       

    $

    248

           

    $

    3,067

         

    Earnings per common share attributable to Charter shareholders:

                     

    Basic

    $

    0.53

       

    $

    0.92

           

    $

    16.73

         

    Diluted

    $

    0.52

       

    $

    0.91

           

    $

    15.17

         
                       

    Net cash flows from operating activities

    $

    2,945

               

    $

    1,590

         

    Free cash flow

    $

    1,144

               

    $

    524

         

     

    Revenue

    On a pro forma basis, second quarter revenues rose 3.9% year-over-year to $10.4 billion, driven by growth in Internet and commercial revenues. On an actual basis, second quarter revenue increased 68.1% year-over-year, driven by the Transactions.

    Video revenues totaled $4.1 billion in the second quarter, and remained virtually unchanged compared to the prior year period on a pro forma basis, as annual and promotional rate adjustments and revenue allocation relating to the launch of Spectrum pricing and packaging in Legacy TWC and Legacy Bright House, were offset by a decrease in video customers over the last 12 months. On an actual basis, second quarter video revenues increased by 58.3% compared to the prior year period, driven by the Transactions.

    On a pro forma basis, Internet revenues grew 12.1%, compared to the year-ago quarter, to $3.5 billion, driven by growth in Internet customers during the last year, promotional rolloff and revenue allocation relating to the launch of Spectrum pricing and packaging in Legacy TWC and Legacy Bright House. On an actual basis, Internet revenues grew 80.2% year-over-year, as a result of the Transactions.

    Voice revenues totaled $650 million in the second quarter, a decrease of 10.9% on a pro forma basis compared to the second quarter of 2016, as promotions and value-based pricing more than offset voice customer growth over the last twelve months. Voice revenues increased 53.4% year-over-year, on an actual basis, driven by the Transactions.

    Commercial revenues rose to $1.5 billion, an increase of 9.5% on a pro forma basis over the prior year period, driven by SMB revenue growth of 9.7% and enterprise revenue growth of 9.3%. On an actual basis, commercial revenues grew 80.4% year-over-year, as a result of the Transactions.

    Second quarter advertising sales revenues of $381 million decreased 5.8% on a pro forma basis compared to the year-ago quarter, driven by a decrease in political, local and barter advertising revenue. On an actual basis, advertising sales grew 61.3% year-over-year, driven by the Transactions. Other revenues fell to $217 million, a decrease of 6.8% on a pro forma basis compared to the year-ago quarter, due to a benefit in the second quarter of 2016 related to a contractual settlement at Legacy TWC and Legacy Bright House. On an actual basis, other revenues grew 67.0% year-over-year, as a result of the Transactions.

    Operating Costs and Expenses

    On a pro forma basis, second quarter total operating costs and expenses increased by $83 million, or 1.3%, compared to the year-ago period. On an actual basis, total operating costs and expenses grew by 65.2% year-over-year as a result of the Transactions.

    Second quarter programming expense increased by $232 million, or 9.6% on a pro forma basis, as compared to the second quarter of 2016, reflecting contractual programming increases, renewals and improving expanded basic video sell-in at Legacy TWC, partly offset by Transactions synergies.

    Costs to service customers decreased by $77 million or 3.9% on a pro forma basis year-over-year, as a result of benefits from the combination of the three companies and lower bad debt expense.

    Marketing expenses decreased by $15 million, or 2.4% year-over-year, on a pro forma basis, due to efficiencies from the consolidation of marketing strategies following the Transactions. Other expenses decreased by $44 million, or 5.2% on a pro forma basis, as compared to the second quarter of 2016, driven primarily by Transactions synergies.

    Adjusted EBITDA

    Second quarter Adjusted EBITDA of $3.8 billion grew by 8.6% year-over-year on a pro forma basis, reflecting revenue growth and operating expense growth of 3.9% and 1.3%, respectively. Excluding transition costs of $30 million in the second quarter of 2017 and $25 million in the prior year period, pro forma Adjusted EBITDA grew by 8.7% year-over-year.

    On an actual basis, Adjusted EBITDA grew by 73.3% year-over-year, due to the Transactions.

    Net Income Attributable to Charter Shareholders

    Net income attributable to Charter shareholders totaled $139 million in the second quarter of 2017, compared to pro forma net income of $248 million in the second quarter of 2016. The year-over-year decrease in pro forma net income was primarily driven by a pension curtailment gain related to Charter's announcement to freeze TWC's legacy defined benefit plans in the second quarter of 2016 and higher depreciation and amortization in the second quarter of 2017, partly offset by higher Adjusted EBITDA and lower severance-related and transactions expenses. Net income per basic common share attributable to Charter shareholders totaled $0.53 in the second quarter of 2017 compared to $0.92, on a pro forma basis, during the same period last year. The decrease was primarily the result of the factors described above, partially offset by a 2.6% decrease in pro forma weighted average shares outstanding versus the prior year period.

    On an actual basis, net income attributable to Charter shareholders totaled $139 million during the second quarter of 2017, compared to $3.1 billion in the second quarter of 2016. The decrease in net income was primarily due to an income tax benefit in the second quarter of 2016 related to the reduction of substantially all of Charter's historical valuation allowance associated with its deferred tax assets, and higher interest expense, partly offset by higher income from operations as a result of the Transactions. Actual net income per basic common share attributable to Charter shareholders totaled $0.53 in the second quarter of 2017 compared to $16.73 during the same period last year. The decrease was primarily the result of the factors described above, and a 43.7% increase in weighted average shares outstanding versus the prior year period, also a result of the Transactions.

    Capital Expenditures

    Property, plant and equipment expenditures totaled $2.148 billion in the second quarter of 2017, compared to $2.075 billion, on a pro forma basis, during the second quarter of 2016. The pro forma year-over-year increase in capital expenditures was driven by an increase in CPE spending related to higher customer connect volumes driven by the launch of Spectrum pricing and packaging in Legacy TWC and Legacy Bright House and the related higher set-top box placement rate per Spectrum connect, and CPE inventory. The decrease in scalable infrastructure was related to the timing of spend. Transition capital expenditures accounted for $86 million of capital expenditures in the second quarter of 2017, versus $111 million in the second quarter of 2016. Excluding transition-related expenditures, second quarter 2017 capital expenditures totaled $2.062 billion, compared to $1.964 billion, on a pro forma basis, during the same period last year.

    On an actual basis, second quarter 2017 capital expenditures increased by $888 million as compared to the prior year, due to the Transactions.

    Cash Flow and Free Cash Flow

    During the second quarter of 2017, net cash flows from operating activities totaled $2.9 billion, compared to $1.6 billion in the second quarter of 2016. The year-over-year increase in net cash flows from operating activities was primarily due to higher Adjusted EBITDA, partly offset by higher cash paid for interest in the second quarter of 2017 versus the second quarter of 2016, following the close of the Transactions.

    Free cash flow for the second quarter of 2017 totaled $1.1 billion, compared to $524 million during the same period last year. The increase was related to higher net cash flows from operating activities in the second quarter of 2017 versus the second quarter of 2016, given the close of the Transactions, partly offset by higher actual capital expenditures.

    Liquidity & Financing

    As of June 30, 2017, total principal amount of debt was $61.8 billion and Charter's credit facilities provided approximately $2.8 billion of additional liquidity in excess of Charter's $694 million cash position.

    In April, Charter redeemed Time Warner Cable, LLC's 5.850% senior secured notes due 2017.

    Also in April, CCO Holdings, LLC and CCO Holdings Capital Corp. issued $1.25 billion of 5.125% senior unsecured notes due 2027, which form part of the same series of senior unsecured notes that were originally issued on February 6, 2017, and Charter Communications Operating, LLC ("Charter Operating") and Charter Communications Operating Capital Corp. issued $1.25 billion of 5.375% senior secured notes due 2047. The net proceeds were used to pay related fees and expenses and for general corporate purposes, including buybacks of Charter Class A common stock or common units of Charter Communications Holdings, LLC.

    In July, Charter Operating and Charter Communications Operating Capital Corp. issued $1.0 billion of 3.75% senior secured notes due 2028, and an additional $500 million of 5.375% senior secured notes due 2047. The net proceeds will be used to pay related fees and expenses and for general corporate purposes, including potential buybacks of Charter Class A common stock or common units of Charter Communications Holdings, LLC.

    Share Repurchases

    During the three months ended June 30, 2017, Charter purchased approximately 11.2 million shares of Charter Class A common stock and Charter Holdings common units for approximately $3.7 billion.

    Conference Call

    Charter will host a conference call on Thursday, July 27, 2017 at 10:00 a.m. Eastern Time (ET) related to the contents of this release.

    The conference call will be webcast live via the Company's investor relations website at ir.charter.com. The call will be archived under the "Financial Information" section two hours after completion of the call. Participants should go to the webcast link no later than 10 minutes prior to the start time to register.

    Those participating via telephone should dial 866-919-0894 no later than 10 minutes prior to the call. International participants should dial 706-679-9379. The conference ID code for the call is 32866159.

    A replay of the call will be available at 855-859-2056 or 404-537-3406 beginning two hours after the completion of the call through the end of business on August 9, 2017. The conference ID code for the replay is 32866159.

    Additional Information Available on Website

    The information in this press release should be read in conjunction with the financial statements and footnotes contained in the Company's Quarterly Report on Form 10-Q for the three and six months ended June 30, 2017, which will be posted on the "Financial Information" section of our investor relations website at ir.charter.com, when it is filed with the Securities and Exchange Commission (the "SEC"). A slide presentation to accompany the conference call and a trending schedule containing historical customer and financial data will also be available in the "Financial Information" section.

    Use of Adjusted EBITDA, Free Cash Flow and Pro Forma Information

    The company uses certain measures that are not defined by U.S. generally accepted accounting principles ("GAAP") to evaluate various aspects of its business. Adjusted EBITDA and free cash flow are non-GAAP financial measures and should be considered in addition to, not as a substitute for, consolidated net income and net cash flows from operating activities reported in accordance with GAAP. These terms, as defined by Charter, may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA and free cash flow are reconciled to consolidated net income and net cash flows from operating activities, respectively, in the Addendum to this release.

    Adjusted EBITDA is defined as consolidated net income plus net interest expense, income taxes, depreciation and amortization, stock compensation expense, loss on extinguishment of debt, (gain) loss on financial instruments, other pension benefits, other (income) expense, net and other operating (income) expenses, such as merger and restructuring costs, special charges and (gain) loss on sale or retirement of assets. As such, it eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of the Company's businesses as well as other non-cash or special items, and is unaffected by the Company's capital structure or investment activities. However, this measure is limited in that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues and the cash cost of financing. These costs are evaluated through other financial measures.

    Free cash flow is defined as net cash flows from operating activities, less capital expenditures and changes in accrued expenses related to capital expenditures.

    Management and Charter's board of directors use Adjusted EBITDA and free cash flow to assess Charter's performance and its ability to service its debt, fund operations and make additional investments with internally generated funds. In addition, Adjusted EBITDA generally correlates to the leverage ratio calculation under the Company's credit facilities or outstanding notes to determine compliance with the covenants contained in the facilities and notes (all such documents have been previously filed with the the SEC). For the purpose of calculating compliance with leverage covenants, the Company uses Adjusted EBITDA, as presented, excluding certain expenses paid by its operating subsidiaries to other Charter entities. The Company's debt covenants refer to these expenses as management fees, which were $256 million and $202 million for the three months ended June 30, 2017 and 2016, respectively, and were $529 million and $304 million for the six months ended June 30, 2017 and 2016, respectively.

    Pro forma results give effect to the Transactions as if they had closed on January 1, 2015 and include the operations of Legacy Charter, Legacy TWC and Legacy Bright House for the three and six months ended June 30, 2016. Due to the transformative nature of the Transactions, the Company believes that providing a discussion of its results of operations on a pro forma basis provides management and investors a more meaningful perspective on the Company's financial and operational performance and trends. The results of operations data on a pro forma basis are provided for illustrative purposes only and are based on available information and assumptions that Charter believes are reasonable and do not purport to represent what the actual consolidated results of operations of Charter would have been had the Transactions occurred on January 1, 2015, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position. Exhibit 99.1 in the Company's Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2016 filed with the SEC on November 3, 2016 provides pro forma financial information for each quarter of 2015 and the first and second quarters of 2016 and a reconciliation of the pro forma financial information to the actual results of operations of the Company.

    About Charter

    Charter (NASDAQ: CHTR) is a leading broadband communications company and the second largest cable operator in the United States. Charter provides a full range of advanced broadband services, including Spectrum TV™ video entertainment programming, Spectrum Internet™ access, and Spectrum Voice™. Spectrum Business™ similarly provides scalable, tailored, and cost-effective broadband communications solutions to business organizations, such as business-to-business Internet access, data networking, business telephone, video and music entertainment services, and wireless backhaul. Charter's advertising sales and production services are sold under the Spectrum Reach™ brand. More information about Charter can be found at charter.com.

    CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

    This communication includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things, our plans, strategies and prospects, both business and financial.  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" from time to time in our filings with the SEC.  Many of the forward-looking statements contained in this communication may be identified by the use of forward-looking words such as "believe," "expect," "anticipate," "should," "planned," "will," "may," "intend," "estimated," "aim," "on track," "target," "opportunity," "tentative," "positioning," "designed," "create," "predict," "project," "initiatives," "seek," "would," "could," "continue," "ongoing," "upside," "increases" and "potential," among others.  Important factors that could cause actual results to differ materially from the forward-looking statements we make in this communication are set forth in our annual report on Form 10-K, and in other reports or documents that we file from time to time with the SEC, and include, but are not limited to:

    • our ability to promptly, efficiently and effectively integrate acquired operations;
    • our ability to sustain and grow revenues and cash flow from operations by offering video, Internet, voice, advertising and other services to residential and commercial customers, to adequately meet the customer experience demands in our markets and to maintain and grow our customer base, particularly in the face of increasingly aggressive competition, the need for innovation and the related capital expenditures;
    • the impact of competition from other market participants, including but not limited to incumbent telephone companies, direct broadcast satellite operators, wireless broadband and telephone providers, digital subscriber line ("DSL") providers, fiber to the home providers, video provided over the Internet by (i) market participants that have not historically competed in the multichannel video business, (ii) traditional multichannel video distributors, and (iii) content providers that have historically licensed cable networks to multichannel video distributors, and providers of advertising over the Internet;
    • general business conditions, economic uncertainty or downturn, unemployment levels and the level of activity in the housing sector;
    • our ability to obtain programming at reasonable prices or to raise prices to offset, in whole or in part, the effects of higher programming costs (including retransmission consents);
    • our ability to develop and deploy new products and technologies including wireless products, our cloud-based user interface, Spectrum Guide®, and downloadable security for set-top boxes, and any other cloud-based consumer services and service platforms;
    • the effects of governmental regulation on our business or potential business combination transactions 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 Inc. and Bright House Networks, LLC Transactions;
    • any events that disrupt our networks, information systems or properties and impair our operating activities or our reputation;
    • the ability to retain and hire key personnel;
    • the availability and access, in general, of funds to meet our debt obligations prior to or when they become due and to fund our operations and necessary capital expenditures, either through (i) cash on hand, (ii) free cash flow, or (iii) access to the capital or credit markets; and
    • our ability to comply with all covenants in our indentures and credit facilities, any violation of which, if not cured in a timely manner, could trigger a default of our other obligations under cross-default provisions.

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

    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES  

    UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND OPERATING DATA 

    (dollars in millions, except per share data)   

     
     

    Three Months Ended June 30,

     

    Six Months Ended June 30,

     

    2017

     

    2016

         

    2017

     

    2016

       
     

    Actual

     

    Actual

     

    % Change

     

    Actual

     

    Actual

     

    % Change

    REVENUES:

                         

    Video

    $

    4,124

       

    $

    2,605

       

    58.3

    %

     

    $

    8,203

       

    $

    3,775

       

    117.3

    %

    Internet

    3,513

       

    1,950

       

    80.2

    %

     

    6,911

       

    2,754

       

    151.0

    %

    Voice

    650

       

    423

       

    53.4

    %

     

    1,344

       

    558

       

    140.6

    %

    Residential revenue

    8,287

       

    4,978

       

    66.4

    %

     

    16,458

       

    7,087

       

    132.2

    %

    Small and medium business

    924

       

    520

       

    77.7

    %

     

    1,824

       

    722

       

    152.5

    %

    Enterprise

    548

       

    296

       

    85.1

    %

     

    1,087

       

    395

       

    175.1

    %

    Commercial revenue

    1,472

       

    816

       

    80.4

    %

     

    2,911

       

    1,117

       

    160.5

    %

    Advertising sales

    381

       

    237

       

    61.3

    %

     

    718

       

    309

       

    132.9

    %

    Other

    217

       

    130

       

    67.0

    %

     

    434

       

    178

       

    143.8

    %

    Total Revenue

    10,357

       

    6,161

       

    68.1

    %

     

    20,521

       

    8,691

       

    136.1

    %

    COSTS AND EXPENSES:

                         

    Programming

    2,649

       

    1,541

       

    71.9

    %

     

    5,253

       

    2,244

       

    134.1

    %

    Regulatory, connectivity and produced content

    532

       

    317

       

    67.2

    %

     

    1,030

       

    429

       

    139.7

    %

    Costs to service customers

    1,907

       

    1,189

       

    60.4

    %

     

    3,855

       

    1,647

       

    134.0

    %

    Marketing

    601

       

    382

       

    57.6

    %

     

    1,183

       

    547

       

    116.3

    %

    Transition costs

    30

       

    25

       

    21.9

    %

     

    81

       

    46

       

    77.3

    %

    Other expense

    791

       

    487

       

    62.3

    %

     

    1,618

       

    675

       

    139.8

    %

    Total operating costs and expenses (exclusive of items shown separately below)

    6,510

       

    3,941

       

    65.2

    %

     

    13,020

       

    5,588

       

    133.0

    %

    Adjusted EBITDA

    3,847

       

    2,220

       

    73.3

    %

     

    7,501

       

    3,103

       

    141.7

    %

    Adjusted EBITDA margin

    37.1

    %

     

    36.0

    %

         

    36.5

    %

     

    35.7

    %

       

    Depreciation and amortization

    2,595

       

    1,436

           

    5,145

       

    1,975

         

    Stock compensation expense

    65

       

    63

           

    134

       

    87

         

    Other operating expenses, net

    135

       

    551

           

    229

       

    569

         

    Income from operations

    1,052

       

    170

           

    1,993

       

    472

         

    OTHER EXPENSES:

                         

    Interest expense, net

    (749)

       

    (593)

           

    (1,462)

       

    (1,047)

         

    Loss on extinguishment of debt

    (1)

       

    (110)

           

    (35)

       

    (110)

         

    Loss on financial instruments, net

    (70)

       

    (50)

           

    (32)

       

    (55)

         

    Other pension benefits

    13

       

    520

           

    26

       

    520

         

    Other expense, net

    (2)

       

    (2)

           

    (11)

       

    (5)

         
     

    (809)

       

    (235)

           

    (1,514)

       

    (697)

         

    Income (loss) before income taxes

    243

       

    (65)

           

    479

       

    (225)

         

    Income tax benefit (expense)

    (48)

       

    3,179

           

    (73)

       

    3,151

         

    Consolidated net income

    195

       

    3,114

           

    406

       

    2,926

         

    Less: Net income attributable to noncontrolling interests

    (56)

       

    (47)

           

    (112)

       

    (47)

         

    Net income attributable to Charter shareholders

    $

    139

       

    $

    3,067

           

    $

    294

       

    $

    2,879

         

    EARNINGS PER COMMON SHARE

                         

    ATTRIBUTABLE TO CHARTER SHAREHOLDERS:

                       

    Basic

    $

    0.53

       

    $

    16.73

           

    $

    1.11

       

    $

    20.21

         

    Diluted

    $

    0.52

       

    $

    15.17

           

    $

    1.09

       

    $

    19.00

         

    Weighted average common shares outstanding, basic

    263,460,911

       

    183,362,776

           

    266,217,549

       

    142,457,435

         

    Weighted average common shares outstanding, diluted

    267,309,261

       

    205,214,266

           

    270,249,433

       

    153,959,234

         

     

    Adjusted EBITDA is a non-GAAP term.  See page 7 of this addendum for the reconciliation of Adjusted EBITDA to consolidated net income as defined by GAAP.  All percentages are calculated using whole numbers. Minor differences may exist due to rounding.

    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES  

    UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND OPERATING DATA 

    (dollars in millions, except per share data)    

     
     

    Three Months Ended June 30,

     

    Six Months Ended June 30,

     

    2017

     

    2016

         

    2017

     

    2016

       
     

    Actual

     

    Pro Forma

     

    % Change

     

    Actual

     

    Pro Forma

     

    % Change

    REVENUES:

                         

    Video

    $

    4,124

       

    $

    4,125

       

    %

     

    $

    8,203

       

    $

    8,198

       

    0.1

    %

    Internet

    3,513

       

    3,133

       

    12.1

    %

     

    6,911

       

    6,170

       

    12.0

    %

    Voice

    650

       

    729

       

    (10.9)

    %

     

    1,344

       

    1,458

       

    (7.9)

    %

    Residential revenue

    8,287

       

    7,987

       

    3.8

    %

     

    16,458

       

    15,826

       

    4.0

    %

    Small and medium business

    924

       

    843

       

    9.7

    %

     

    1,824

       

    1,651

       

    10.5

    %

    Enterprise

    548

       

    501

       

    9.3

    %

     

    1,087

       

    991

       

    9.7

    %

    Commercial revenue

    1,472

       

    1,344

       

    9.5

    %

     

    2,911

       

    2,642

       

    10.2

    %

    Advertising sales

    381

       

    405

       

    (5.8)

    %

     

    718

       

    770

       

    (6.7)

    %

    Other

    217

       

    233

       

    (6.8)

    %

     

    434

       

    473

       

    (8.3)

    %

    Total Revenue

    10,357

       

    9,969

       

    3.9

    %

     

    20,521

       

    19,711

       

    4.1

    %

    COSTS AND EXPENSES:

                         

    Programming

    2,649

       

    2,417

       

    9.6

    %

     

    5,253

       

    4,824

       

    8.9

    %

    Regulatory, connectivity and produced content

    532

       

    550

       

    (3.3)

    %

     

    1,030

       

    1,055

       

    (2.4)

    %

    Costs to service customers

    1,907

       

    1,984

       

    (3.9)

    %

     

    3,855

       

    3,917

       

    (1.6)

    %

    Marketing

    601

       

    616

       

    (2.4)

    %

     

    1,183

       

    1,208

       

    (2.1)

    %

    Transition costs

    30

       

    25

       

    21.9

    %

     

    81

       

    46

       

    77.3

    %

    Other expense

    791

       

    835

       

    (5.2)

    %

     

    1,618

       

    1,686

       

    (4.0)

    %

    Total operating costs and expenses (exclusive of items shown separately below)

    6,510

       

    6,427

       

    1.3

    %

     

    13,020

       

    12,736

       

    2.2

    %

    Adjusted EBITDA

    3,847

       

    3,542

       

    8.6

    %

     

    7,501

       

    6,975

       

    7.5

    %

    Adjusted EBITDA margin

    37.1

    %

     

    35.5

    %

         

    36.5

    %

     

    35.4

    %

       

    Depreciation and amortization

    2,595

       

    2,338

           

    5,145

       

    4,623

         

    Stock compensation expense

    65

       

    72

           

    134

       

    138

         

    Other operating expenses, net

    135

       

    289

           

    229

       

    312

         

    Income from operations

    1,052

       

    843

           

    1,993

       

    1,902

         

    OTHER EXPENSES:

                         

    Interest expense, net

    (749)

       

    (723)

           

    (1,462)

       

    (1,431)

         

    Loss on extinguishment of debt

    (1)

       

    (110)

           

    (35)

       

    (110)

         

    Loss on financial instruments, net

    (70)

       

    (50)

           

    (32)

       

    (55)

         

    Other pension benefits

    13

       

    526

           

    26

       

    536

         

    Other income (expense), net

    (2)

       

    2

           

    (11)

       

    10

         
     

    (809)

       

    (355)

           

    (1,514)

       

    (1,050)

         

    Income before income taxes

    243

       

    488

           

    479

       

    852

         

    Income tax expense

    (48)

       

    (157)

           

    (73)

       

    (272)

         

    Consolidated net income

    195

       

    331

           

    406

       

    580

         

    Less: Net income attributable to noncontrolling interests

    (56)

       

    (83)

           

    (112)

       

    (153)

         

    Net income attributable to Charter shareholders

    $

    139

       

    $

    248

           

    $

    294

       

    $

    427

         

    EARNINGS PER COMMON SHARE

                         

    ATTRIBUTABLE TO CHARTER SHAREHOLDERS:

                       

    Basic

    $

    0.53

       

    $

    0.92

           

    $

    1.11

       

    $

    1.58

         

    Diluted

    $

    0.52

       

    $

    0.91

           

    $

    1.09

       

    $

    1.56

         

    Weighted average common shares outstanding, basic

    263,460,911

       

    270,464,654

           

    266,217,549

       

    270,105,143

         

    Weighted average common shares outstanding, diluted

    267,309,261

       

    273,802,246

           

    270,249,433

       

    273,469,536

         

     

    Pro forma results reflect certain acquisitions of cable systems in 2016 as if they occurred as of January 1, 2015.  Adjusted EBITDA is a non-GAAP term.  See page 7 of this addendum for the reconciliation of Adjusted EBITDA to consolidated net income as defined by GAAP.  All percentages are calculated using whole numbers. Minor differences may exist due to rounding.

    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 

    CONDENSED CONSOLIDATED BALANCE SHEETS

    (dollars in millions)

     
     

    June 30,

     

    December 31,

     

    2017

     

    2016

     

    (unaudited)

       

    ASSETS

         

    CURRENT ASSETS:

         

    Cash and cash equivalents

    $

    694

       

    $

    1,535

     

    Accounts receivable, net

    1,489

       

    1,432

     

    Prepaid expenses and other current assets

    381

       

    333

     

    Total current assets

    2,564

       

    3,300

     
           

    INVESTMENT IN CABLE PROPERTIES:

         

    Property, plant and equipment, net

    32,948

       

    32,963

     

    Customer relationships, net

    13,231

       

    14,608

     

    Franchises

    67,316

       

    67,316

     

    Goodwill

    29,554

       

    29,509

     

    Total investment in cable properties, net

    143,049

       

    144,396

     
           

    OTHER NONCURRENT ASSETS

    1,347

       

    1,371

     
           

    Total assets

    $

    146,960

       

    $

    149,067

     
           

    LIABILITIES AND SHAREHOLDERS' EQUITY

         

    CURRENT LIABILITIES:

         

    Accounts payable and accrued liabilities

    $

    8,123

       

    $

    7,544

     

    Current portion of long-term debt

       

    2,028

     

    Total current liabilities

    8,123

       

    9,572

     
           

    LONG-TERM DEBT

    63,248

       

    59,719

     

    DEFERRED INCOME TAXES

    26,574

       

    26,665

     

    OTHER LONG-TERM LIABILITIES

    2,582

       

    2,745

     
           

    SHAREHOLDERS' EQUITY:

         

    Controlling interest

    36,628

       

    40,139

     

    Noncontrolling interests

    9,805

       

    10,227

     

    Total shareholders' equity

    46,433

       

    50,366

     
           

    Total liabilities and shareholders' equity

    $

    146,960

       

    $

    149,067

     

     

    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 

    UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

    (dollars in millions)

     
     

    Three Months Ended June 30,

     

    Six Months Ended June 30,

     

    2017

     

    2016

     

    2017

     

    2016

    CASH FLOWS FROM OPERATING ACTIVITIES:

                 

    Consolidated net income

    $

    195

       

    $

    3,114

       

    $

    406

       

    $

    2,926

     

    Adjustments to reconcile consolidated net income to net cash flows from operating activities:

                 

    Depreciation and amortization

    2,595

       

    1,436

       

    5,145

       

    1,975

     

    Stock compensation expense

    65

       

    63

       

    134

       

    87

     

    Accelerated vesting of equity awards

    20

       

    145

       

    37

       

    145

     

    Noncash interest income, net

    (88)

       

    (48)

       

    (196)

       

    (41)

     

    Other pension benefits

    (13)

       

    (520)

       

    (26)

       

    (520)

     

    Loss on extinguishment of debt

    1

       

    110

       

    35

       

    110

     

    Loss on financial instruments, net

    70

       

    50

       

    32

       

    55

     

    Deferred income taxes

    26

       

    (3,192)

       

    42

       

    (3,164)

     

    Other, net

    2

       

    (3)

       

    8

       

     

    Changes in operating assets and liabilities, net of effects from acquisitions:

                 

    Accounts receivable

    (175)

       

    (124)

       

    61

       

    (100)

     

    Prepaid expenses and other assets

    60

       

    32

       

    (23)

       

    11

     

    Accounts payable, accrued liabilities and other

    187

       

    527

       

    133

       

    530

     

    Net cash flows from operating activities

    2,945

       

    1,590

       

    5,788

       

    2,014

     
                   

    CASH FLOWS FROM INVESTING ACTIVITIES:

                 

    Purchases of property, plant and equipment

    (2,148)

       

    (1,260)

       

    (3,703)

       

    (1,689)

     

    Change in accrued expenses related to capital expenditures

    347

       

    194

       

    197

       

    138

     

    Purchases of cable systems, net of cash acquired

       

    (28,810)

       

       

    (28,810)

     

    Change in restricted cash and cash equivalents

       

    22,313

       

       

    22,264

     

    Other, net

    (42)

       

    (4)

       

    (49)

       

    (6)

     

    Net cash flows from investing activities

    (1,843)

       

    (7,567)

       

    (3,555)

       

    (8,103)

     
                   

    CASH FLOWS FROM FINANCING ACTIVITIES:

                 

    Borrowings of long-term debt

    2,506

       

    3,858

       

    7,146

       

    5,997

     

    Repayments of long-term debt

    (2,054)

       

    (3,343)

       

    (5,529)

       

    (4,070)

     

    Payments for debt issuance costs

    (21)

       

    (266)

       

    (42)

       

    (283)

     

    Issuance of equity

       

    5,000

       

       

    5,000

     

    Purchase of treasury stock

    (3,328)

       

    (84)

       

    (4,223)

       

    (99)

     

    Proceeds from exercise of stock options

    14

       

    19

       

    86

       

    24

     

    Purchase of noncontrolling interest

    (402)

       

       

    (429)

       

     

    Distributions to noncontrolling interest

    (37)

       

    (18)

       

    (75)

       

    (18)

     

    Proceeds from termination of interest rate derivatives

       

    88

       

       

    88

     

    Other, net

    (6)

       

       

    (8)

       

     

    Net cash flows from financing activities

    (3,328)

       

    5,254

       

    (3,074)

       

    6,639

     
                   

    NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

    (2,226)

       

    (723)

       

    (841)

       

    550

     

    CASH AND CASH EQUIVALENTS, beginning of period

    2,920

       

    1,278

       

    1,535

       

    5

     

    CASH AND CASH EQUIVALENTS, end of period

    $

    694

       

    $

    555

       

    $

    694

       

    $

    555

     
                   

    CASH PAID FOR INTEREST

    $

    761

       

    $

    544

       

    $

    1,653

       

    $

    1,014

     

    CASH PAID FOR TAXES

    $

    32

       

    $

    4

       

    $

    33

       

    $

    4

     

     

    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES

    UNAUDITED SUMMARY OF OPERATING STATISTICS

    (in thousands, except per customer and penetration data)

     
     

    Approximate as of

     

    June 30,
    2017 (a)

     

    March 31,
    2017 (a)

     

    December 31,
    2016 (a)

     

    June 30,
    2016 (a)(j)

    Footprint (b)

                 

    Estimated Video Passings

    49,615

       

    49,401

       

    49,229

       

    48,762

     

    Estimated Internet Passings

    49,309

       

    49,123

       

    48,955

       

    48,414

     

    Estimated Voice Passings

    48,587

       

    48,331

       

    48,142

       

    47,566

     
                   

    Penetration Statistics (c)

                 

    Video Penetration of Estimated Video Passings

    34.4

    %

     

    34.7

    %

     

    35.0

    %

     

    35.5

    %

    Internet Penetration of Estimated Internet Passings

    47.3

    %

     

    46.9

    %

     

    46.2

    %

     

    45.1

    %

    Voice Penetration of Estimated Voice Passings

    23.1

    %

     

    23.1

    %

     

    23.1

    %

     

    23.1

    %

                   

    Customer Relationships (d)

                 

    Residential

    25,298

       

    25,131

       

    24,801

       

    24,306

     

    Small and Medium Business

    1,483

       

    1,439

       

    1,404

       

    1,333

     

    Total Customer Relationships

    26,781

       

    26,570

       

    26,205

       

    25,639

     
                   

    Residential

                 

    Primary Service Units ("PSUs")

                 

    Video

    16,646

       

    16,736

       

    16,836

       

    16,934

     

    Internet

    22,033

       

    21,802

       

    21,374

       

    20,667

     

    Voice

    10,378

       

    10,364

       

    10,327

       

    10,255

     
     

    49,057

       

    48,902

       

    48,537

       

    47,856

     
                   

    Pro Forma Quarterly Net Additions/(Losses)

                 

    Video

    (90)

       

    (100)

       

    (51)

       

    (152)

     

    Internet

    231

       

    428

       

    357

       

    236

     

    Voice

    14

       

    37

       

    39

       

    83

     
     

    155

       

    365

       

    345

       

    167

     
                   

    Single Play (e)

    10,177

       

    9,980

       

    9,640

       

    9,252

     

    Double Play (e)

    6,484

       

    6,540

       

    6,586

       

    6,559

     

    Triple Play (e)

    8,637

       

    8,611

       

    8,575

       

    8,495

     
                   

    Single Play Penetration (f)

    40.2

    %

     

    39.7

    %

     

    38.9

    %

     

    38.1

    %

    Double Play Penetration (f)

    25.6

    %

     

    26.0

    %

     

    26.6

    %

     

    27.0

    %

    Triple Play Penetration (f)

    34.1

    %

     

    34.3

    %

     

    34.6

    %

     

    35.0

    %

                   

    % Residential Non-Video Customer Relationships

    34.2

    %

     

    33.4

    %

     

    32.1

    %

     

    30.3

    %

                   

    Pro Forma Monthly Residential Revenue per Residential Customer (g)

    $

    109.46

       

    $

    109.11

       

    $

    109.77

       

    $

    109.74

     
                   

    Small and Medium Business

                 

    PSUs

                 

    Video

    425

       

    411

       

    400

       

    378

     

    Internet

    1,285

       

    1,249

       

    1,219

       

    1,148

     

    Voice

    847

       

    809

       

    778

       

    725

     
     

    2,557

       

    2,469

       

    2,397

       

    2,251

     
                   

    Pro Forma Quarterly Net Additions/(Losses)

                 

    Video

    14

       

    11

       

    12

       

    9

     

    Internet

    36

       

    30

       

    34

       

    41

     

    Voice

    38

       

    31

       

    27

       

    32

     
     

    88

       

    72

       

    73

       

    82

     
                   

    Pro Forma Monthly Small and Medium Business Revenue per Customer (h)

    $

    210.64

       

    $

    211.21

       

    $

    214.25

       

    $

    214.52

     
                   

    Enterprise PSUs (i)

                 

    Enterprise PSUs

    103

       

    99

       

    97

       

    90

     

     

    Pro forma results reflect certain acquisitions of cable systems in 2016 as if they occurred as of January 1, 2015.  All percentages are calculated using whole numbers. Minor differences may exist due to rounding.  See footnotes to unaudited summary of operating statistics on page 6 of this addendum.

    (a)

    All customer statistics include the operations of Legacy TWC, Legacy Bright House and Legacy Charter each of which is based on individual legacy company reporting methodology.  These methodologies differ and their differences may be material.  Statistical reporting will be conformed over time to a single Charter reporting methodology.

       
     

    We calculate the aging of customer accounts based on the monthly billing cycle for each account.  On that basis, at June 30, 2017, March 31, 2017, December 31, 2016 and June 30, 2016, actual customers include approximately 209,500, 168,400, 208,400 and 208,600 customers, respectively, whose accounts were over 60 days past due, approximately 14,800, 13,300, 15,500 and 14,000 customers, respectively, whose accounts were over 90 days past due and approximately 8,700, 7,900, 8,000 and 8,000 customers, respectively, whose accounts were over 120 days past due.

       

    (b)

    Passings represent our estimate of the number of units, such as single family homes, apartment and condominium units and small and medium business and enterprise sites passed by our cable distribution network in the areas where we offer the service indicated.  These estimates are based upon the information available at this time and are updated for all periods presented when new information becomes available.

       

    (c)

    Penetration represents residential, small and medium business and enterprise customers as a percentage of estimated passings for the service indicated.

       

    (d)

    Customer relationships include the number of customers that receive one or more levels of service, encompassing video, Internet and voice services, without regard to which service(s) such customers receive.  Customers who reside in residential multiple dwelling units ("MDUs") and that are billed under bulk contracts are counted based on the number of billed units within each bulk MDU.  Total customer relationships excludes enterprise customer relationships.

       

    (e)

    Single play, double play and triple play customers represent customers that subscribe to one, two or three of Charter service offerings, respectively.

       

    (f)

    Single play, double play and triple play penetration represents the number of residential single play, double play and triple play customers, respectively, as a percentage of residential customer relationships.

       

    (g)

    Pro forma monthly residential revenue per residential customer is calculated as total pro forma residential video, Internet and voice quarterly revenue divided by three divided by average pro forma residential customer relationships during the respective quarter.

       

    (h)

    Pro forma monthly small and medium business revenue per customer is calculated as total pro forma small and medium business quarterly revenue divided by three divided by average pro forma small and medium business customer relationships during the respective quarter.

       

    (i)

    Enterprise PSUs represents the aggregate number of fiber service offerings counting each separate service offering at each customer location as an individual PSU.

       

    (j)

    In the second quarter of 2017, Charter conformed the seasonal customer program in the Legacy Bright House footprint to Charter's program. Prior to the plan change, Legacy Bright House customers enrolling in the seasonal plan were charged a one-time fee and counted as customer disconnects, and as new connects, when moving off the seasonal plan. Under Charter's seasonal plan, residential customers pay a reduced monthly fee while the seasonal plan is active and remain reported as customers. Excluding the impact of customer disconnect activity related to the previous seasonal plan, Legacy Bright House residential customer relationships at June 30, 2016, would have been higher by approximately 58,000, and video, Internet and voice PSUs and net additions for the second quarter of 2016, would have been higher by 52,000, 72,000 and 49,000 respectively.

     

    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES  

    UNAUDITED RECONCILIATION OF NON-GAAP MEASURES TO GAAP MEASURES 

    (dollars in millions)

     
     

    Three Months Ended June 30,

     

    Six Months Ended June 30,

     

    2017

     

    2016

     

    2017

     

    2016

     

    Actual

     

    Actual

     

    Actual

     

    Actual

                   

    Consolidated net income

    $

    195

       

    $

    3,114

       

    $

    406

       

    $

    2,926

     

    Plus:  Interest expense, net

    749

       

    593

       

    1,462

       

    1,047

     

    Income tax (benefit) expense

    48

       

    (3,179)

       

    73

       

    (3,151)

     

    Depreciation and amortization

    2,595

       

    1,436

       

    5,145

       

    1,975

     

    Stock compensation expense

    65

       

    63

       

    134

       

    87

     

    Loss on extinguishment of debt

    1

       

    110

       

    35

       

    110

     

    Loss on financial instruments, net

    70

       

    50

       

    32

       

    55

     

    Other pension benefits

    (13)

       

    (520)

       

    (26)

       

    (520)

     

    Other, net

    137

       

    553

       

    240

       

    574

     
                   

    Adjusted EBITDA (a)

    3,847

       

    2,220

       

    7,501

       

    3,103

     

    Less:  Purchases of property, plant and equipment

    (2,148)

       

    (1,260)

       

    (3,703)

       

    (1,689)

     
                   

    Adjusted EBITDA less capital expenditures

    $

    1,699

       

    $

    960

       

    $

    3,798

       

    $

    1,414

     
                   

    Net cash flows from operating activities

    $

    2,945

       

    $

    1,590

       

    $

    5,788

       

    $

    2,014

     

    Less:  Purchases of property, plant and equipment

    (2,148)

       

    (1,260)

       

    (3,703)

       

    (1,689)

     

    Change in accrued expenses related to capital expenditures

    347

       

    194

       

    197

       

    138

     
                   

    Free cash flow

    $

    1,144

       

    $

    524

       

    $

    2,282

       

    $

    463

     
                   
     

    Three Months Ended June 30,

     

    Six Months Ended June 30,

     

    2017

     

    2016

     

    2017

     

    2016

     

    Actual

     

    Pro Forma (b)

     

    Actual

     

    Pro Forma (b)

                   

    Consolidated net income

    $

    195

       

    $

    331

       

    $

    406

       

    $

    580

     

    Plus:  Interest expense, net

    749

       

    723

       

    1,462

       

    1,431

     

    Income tax expense

    48

       

    157

       

    73

       

    272

     

    Depreciation and amortization

    2,595

       

    2,338

       

    5,145

       

    4,623

     

    Stock compensation expense

    65

       

    72

       

    134

       

    138

     

    Loss on extinguishment of debt

    1

       

    110

       

    35

       

    110

     

    Loss on financial instruments, net

    70

       

    50

       

    32

       

    55

     

    Other pension benefits

    (13)

       

    (526)

       

    (26)

       

    (536)

     

    Other, net

    137

       

    287

       

    240

       

    302

     
                   

    Adjusted EBITDA (a)

    3,847

       

    3,542

       

    7,501

       

    6,975

     

    Less:  Purchases of property, plant and equipment

    (2,148)

       

    (2,075)

       

    (3,703)

       

    (3,909)

     
                   

    Adjusted EBITDA less capital expenditures

    $

    1,699

       

    $

    1,467

       

    $

    3,798

       

    $

    3,066

     
       

    (a)   

    See pages 1 and 2 of this addendum for detail of the components included within Adjusted EBITDA. 

    (b)   

    Pro forma results reflect certain acquisitions of cable systems in 2016 as if they occurred as of January 1, 2015. 

     

    The above schedule is presented in order to reconcile Adjusted EBITDA and free cash flows, both non-GAAP measures, to the most directly comparable GAAP measures in accordance with Section 401(b) of the Sarbanes-Oxley Act.

    CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 

     UNAUDITED CAPITAL EXPENDITURES

    (dollars in millions)

     
     

    Three Months Ended June 30,

     

    Six Months Ended June 30,

     

    2017

     

    2016

     

    2017

     

    2016

     

    Actual

     

    Actual

     

    Actual

     

    Actual

                   

    Customer premise equipment (a)

    $

    1,017

       

    $

    378

       

    $

    1,724

       

    $

    515

     

    Scalable infrastructure (b)

    382

       

    386

       

    650

       

    496

     

    Line extensions (c)

    297

       

    171

       

    545

       

    218

     

    Upgrade/rebuild (d)

    145

       

    110

       

    252

       

    151

     

    Support capital (e)

    307

       

    215

       

    532

       

    309

     
                   

       Total capital expenditures

    $

    2,148

       

    $

    1,260

       

    $

    3,703

       

    $

    1,689

     
                   

    Capital expenditures included in total related to:
     

                 

    Commercial services

    $

    334

       

    $

    196

       

    $

    602

       

    $

    260

     

    Transition (f)

    $

    86

       

    $

    111

       

    $

    162

       

    $

    164

     
                   
     

    Three Months Ended June 30,

     

    Six Months Ended June 30,

     

    2017

     

    2016

     

    2017

     

    2016

     

    Actual

     

    Pro Forma (g)

     

    Actual

     

    Pro Forma (g)

                   

    Customer premise equipment (a)

    $

    1,017

       

    $

    651

       

    $

    1,724

       

    $

    1,412

     

    Scalable infrastructure (b)

    382

       

    640

       

    650

       

    1,115

     

    Line extensions (c)

    297

       

    277

       

    545

       

    502

     

    Upgrade/rebuild (d)

    145

       

    171

       

    252

       

    305

     

    Support capital (e)

    307

       

    336

       

    532

       

    575

     
                   

       Total capital expenditures

    $

    2,148

       

    $

    2,075

       

    $

    3,703

       

    $

    3,909

     
                   

    Capital expenditures included in total related to:
     

                 

    Commercial services

    $

    334

       

    $

    338

       

    $

    602

       

    $

    625

     

    Transition (f)

    $

    86

       

    $

    111

       

    $

    162

       

    $

    164

     
       

    (a)   

    Customer premise equipment includes costs incurred at the customer residence to secure new customers and revenue generating units, including customer installation costs and customer premise equipment (e.g., set-top boxes and cable modems).

    (b)   

    Scalable infrastructure includes costs, not related to customer premise equipment, to secure growth of new customers and revenue generating units, or provide service enhancements (e.g., headend equipment).

    (c)   

    Line extensions include network costs associated with entering new service areas (e.g., fiber/coaxial cable, amplifiers, electronic equipment, make-ready and design engineering).

    (d)  

    Upgrade/rebuild includes costs to modify or replace existing fiber/coaxial cable networks, including betterments.

    (e)   

    Support capital includes costs associated with the replacement or enhancement of non-network assets due to technological and physical obsolescence (e.g., non-network equipment, land, buildings and vehicles).

    (f)    

    Transition represents incremental costs incurred to integrate the Legacy TWC and Legacy Bright House operations and to bring the three companies' systems and processes into a uniform operating structure.

    (g)  

    Pro forma results reflect certain acquisitions of cable systems in 2016 as if they occurred as of January 1, 2015. 

     

     

    SOURCE Charter Communications, Inc.