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SEC Filings

10-Q
CHARTER COMMUNICATIONS, INC. /MO/ filed this Form 10-Q on 10/26/2017
Entire Document
 

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



Pursuant to the Letter Agreement (see Note 14), Charter Holdings purchased from A/N 1.4 million Charter Holdings common units at an average price per unit of $355.83, or $493 million during the three months ended September 30, 2017, and 2.7 million Charter Holdings common units at an average price per unit of $341.49, or $922 million during the nine months ended September 30, 2017. The common units purchased during the nine months ended September 30, 2017 are reflected as a reduction in noncontrolling interest based on net carrying value of approximately $582 million with the remaining $340 million recorded as reduction of additional paid-in-capital, net of $131 million of deferred income taxes. As of September 30, 2017, A/N held 25.7 million Charter Holdings common units in addition to shares of Charter Class A common stock.

Noncontrolling interest and additional paid-in-capital were also adjusted during the nine months ended September 30, 2017 due to the changes in Charter Holdings' ownership. These adjustments resulted in a decrease to noncontrolling interest of approximately $336 million and a corresponding increase to additional paid-in-capital of $336 million, net of $128 million of deferred income taxes, for the nine months ended September 30, 2017.

8.     Accounting for Derivative Instruments and Hedging Activities

The Company uses derivative instruments to manage interest rate risk on variable debt and foreign exchange risk on the Sterling Notes, and does not hold or issue derivative instruments for speculative trading purposes.

Interest rate derivative instruments are used to manage interest costs and to reduce the Company’s exposure to increases in floating interest rates. The Company manages its exposure to fluctuations in interest rates by maintaining a mix of fixed and variable rate debt. Using interest rate derivative instruments, the Company agrees to exchange, at specified intervals through 2017, the difference between fixed and variable interest amounts calculated by reference to agreed-upon notional principal amounts. As of September 30, 2017 and December 31, 2016, the Company had $850 million in notional amounts of interest rate derivative instruments outstanding. The notional amounts of interest rate derivative instruments do not represent amounts exchanged by the parties and, thus, are not a measure of exposure to credit loss. The amounts exchanged were determined by reference to the notional amount and the other terms of the contracts.

Cross-currency derivative instruments are used to effectively convert £1.275 billion aggregate principal amount of fixed-rate British pound sterling denominated debt, including annual interest payments and the payment of principal at maturity, to fixed-rate U.S. dollar denominated debt. The cross-currency swaps have maturities of June 2031 and July 2042. The Company is required to post collateral on the cross-currency derivative instruments when the derivative contracts are in a liability position. In May 2016, the Company entered into a collateral holiday agreement for 80% of both the 2031 and 2042 cross-currency swaps, which eliminates the requirement to post collateral for three years.

The effect of derivative instruments on the consolidated balance sheets is presented in the table below:

 
September 30, 2017
 
December 31, 2016
Interest Rate Derivatives
 
 
 
Accrued interest
$
1

 
$
5

Accumulated other comprehensive loss
$
(1
)
 
$
(5
)
 
 
 
 
Cross-Currency Derivatives
 
 
 
Other long-term liabilities
$
125

 
$
251


The Company’s interest rate and cross-currency derivative instruments are not designated as hedges and are marked to fair value each period, with the impact recorded as a gain or loss on financial instruments, net in the consolidated statements of operations. While these derivative instruments are not designated as cash flow hedges for accounting purposes, management continues to believe such instruments are closely correlated with the respective debt, thus managing associated risk.


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