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CHARTER COMMUNICATIONS, INC. /MO/ filed this Form 8-K on 07/27/2017
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NEWS

Charter Announces Second Quarter 2017 Results

Stamford, Connecticut - July 27, 2017 - 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.

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.

1



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
%
 

 
 
 
 
 
 
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.
    

2



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.

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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
 
2016
 
 
 
2016
 
 
 
Actual
 
Pro Forma
 
% Change
 
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

4



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.


5



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

6



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.


7



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

8



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.


# # #

Contact:
Media: 
Analysts:
Justin Venech
Stefan Anninger
203-905-7818
203-905-7955


9



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.

10


 
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.

Addendum to Charter Communications, Inc. Second Quarter 2017 Earnings Release
Page 1 of 8


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.

Addendum to Charter Communications, Inc. Second Quarter 2017 Earnings Release
Page 2 of 8



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


Addendum to Charter Communications, Inc. Second Quarter 2017 Earnings Release
Page 3 of 8


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


Addendum to Charter Communications, Inc. Second Quarter 2017 Earnings Release
Page 4 of 8


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.

Addendum to Charter Communications, Inc. Second Quarter 2017 Earnings Release
Page 5 of 8


(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.

Addendum to Charter Communications, Inc. Second Quarter 2017 Earnings Release
Page 6 of 8


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.

Addendum to Charter Communications, Inc. Second Quarter 2017 Earnings Release
Page 7 of 8


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

 
$