# Charter Communications, Inc.: Form 10-Q for the period ended Jun 30, 2016

- Company: [Charter Communications, Inc.](/companies/chtr.md) (CIK 1091667)
- Form: 10-Q
- Filed: 2016-08-09
- Accepted by EDGAR: Aug 9, 2016, 11:09 ET
- Period: 2016-06-30
- Accession: 0001091667-16-000549
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1091667/000109166716000549/chtr63016-10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1091667/000109166716000549/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2016-04-01 to 2016-06-30 | $6.16bn | us-gaap:Revenues |
| Revenue | 6 months, 2016-01-01 to 2016-06-30 | $8.69bn | us-gaap:Revenues |
| Operating income | 3 months, 2016-04-01 to 2016-06-30 | $690.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2016-01-01 to 2016-06-30 | $992.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2016-04-01 to 2016-06-30 | −$3.18bn | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2016-01-01 to 2016-06-30 | −$3.15bn | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2016-04-01 to 2016-06-30 | $3.07bn | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2016-01-01 to 2016-06-30 | $2.88bn | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2016-04-01 to 2016-06-30 | $15.17 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2016-01-01 to 2016-06-30 | $19.00 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2016-04-01 to 2016-06-30 | $16.73 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2016-01-01 to 2016-06-30 | $20.21 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2016-04-01 to 2016-06-30 | 205,214,266 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2016-01-01 to 2016-06-30 | 153,959,234 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2016-01-01 to 2016-06-30 | $2.01bn | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2016-01-01 to 2016-06-30 | $1.69bn | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 6 months, 2016-01-01 to 2016-06-30 | $99.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2016-06-30 | $555.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2016-06-30 | $2.33bn | us-gaap:AssetsCurrent |
| Total assets | at 2016-06-30 | $149.19bn | us-gaap:Assets |
| Current liabilities | at 2016-06-30 | $8.81bn | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2016-06-30 | $60.13bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2016-06-30 | $2.07bn | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2016-06-30 | $40.24bn | us-gaap:StockholdersEquity |
| Shares outstanding | at 2016-06-30 | 270,927,828 shares | dei:EntityCommonStockSharesOutstanding |

## Management's discussion and analysis

As filed, 71,339 characters.

### General

Charter Communications, Inc. (together with its controlled subsidiaries, “Charter") is the second largest cable operator in the United States and a leading broadband communications company providing video, Internet and voice services with approximately 25.6 million residential and commercial customers at June 30, 2016. We also sell video and online advertising inventory to local, regional and national advertising customers and networking and transport services (including cell tower backhaul services) and enterprise-class, cloud-enabled hosting, managed applications to business customers and own and operate regional sports networks and local sports, news and lifestyle channels. Our residential services also include security and home management services.

Charter is a holding company whose principal asset is a controlling equity interest in Charter Communications Holdings, LLC (“Charter Holdings”), an indirect owner of Charter Communications Operating, LLC ("Charter Operating") under which all of the operations reside. All significant intercompany accounts and transactions among consolidated entities have been eliminated.

### TWC Transaction

On May 18, 2016, the transactions contemplated by the Agreement and Plan of Mergers dated as of May 23, 2015 (the “Merger Agreement”), by and among Time Warner Cable Inc. ("Legacy TWC"), Charter Communications, Inc. prior to the closing of the Merger Agreement ("Legacy Charter"), CCH I, LLC, previously a wholly owned subsidiary of Legacy Charter ("New Charter") and certain other subsidiaries of New Charter were completed (the “TWC Transaction,” and together with the Bright House Transaction described below, the "Transactions"). As a result of the TWC Transaction, New Charter became the new public parent company that holds the operations of the combined companies and was renamed Charter Communications, Inc.

Pursuant to the terms of the Merger Agreement, upon consummation of the TWC Transaction, each outstanding share of Legacy TWC common stock (other than Legacy TWC common stock held by Liberty Broadband Corporation ("Liberty Broadband") and Liberty Interactive Corporation ("Liberty Interactive" and, collectively, the "Liberty Parties")), was converted into the right to receive, at the option of each such holder of Legacy TWC common stock, either (a) $100 in cash and Charter Class A common stock equivalent to 0.5409 shares of Legacy Charter Class A common stock (the "Option A Consideration") or (b) $115 in cash and Charter Class A common stock equivalent to 0.4562 shares of Legacy Charter common stock (the "Option B Consideration"). The actual number of shares of Charter Class A common stock that Legacy TWC stockholders received, excluding the Liberty Parties, was calculated by multiplying the exchange ratios of 0.5409 or 0.4562 specified above by 0.9042 (the "Parent Merger Exchange Ratio"), which was also the exchange ratio that was used to determine the number of shares of Charter Class A common stock that Legacy Charter stockholders received per share of Legacy Charter Class A common stock. Such exchange ratio did not impact the aggregate value represented by the shares of Charter Class A common stock issued in the TWC Transaction; however, it did impact the actual number of shares issued in the TWC Transaction.

Out of approximately 277 million shares of TWC common stock outstanding at the closing of the TWC Transaction, excluding TWC common stock held by the Liberty Parties, approximately 274 million shares were converted into the right to receive the Option A Consideration and approximately 3 million shares were converted into the right to receive the Option B Consideration. The Liberty Parties received approximately one share of Charter Class A common stock for each share of Legacy TWC common stock they owned (equivalent to 1.106 shares of Legacy Charter Class A common stock multiplied by the Parent Merger Exchange Ratio).

As of the date of acquisition, the total value of the TWC Transaction was approximately $85 billion, including cash, equity and Legacy TWC assumed debt. The purchase price also includes an estimated pre-combination vesting period fair value of $514 million for Legacy TWC equity awards converted into Charter awards upon closing of the TWC Transaction ("Converted TWC Awards") and $69 million of cash paid to former Legacy TWC employees and non-employee directors who held equity awards, whether vested or not vested.

### Bright House Transaction

Also, on May 18, 2016, Legacy Charter and Advance/Newhouse Partnership (“A/N”), the former parent of Bright House Networks, LLC (“Bright House”), completed their previously announced transaction, pursuant to a definitive Contribution Agreement (the “Contribution Agreement”), under which Charter acquired Bright House (the “Bright House Transaction”). Pursuant to the Bright House Transaction, Charter became the owner of the membership interests in Bright House and the other assets primarily related to Bright House (other than certain excluded assets and liabilities and non-operating cash). As of the date of acquisition, the purchase price totaled approximately $12.2 billion consisting of (a) $2 billion in cash, (b) 25 million convertible preferred units of Charter Holdings with a face amount of $2.5 billion that pay a 6% annual preferential dividend, (c) approximately 31.0 million common units of Charter Holdings that are exchangeable into Charter Class A common stock on a one-for-one basis and (d) one share of Charter Class B common stock.

### Liberty Transaction and Debt Financing for the Transactions

In connection with the TWC Transaction, Legacy Charter and Liberty Broadband completed their previously announced transactions pursuant to their investment agreement, in which Liberty Broadband purchased for cash approximately 22.0 million shares of Charter Class A common stock valued at $4.3 billion at the closing of the TWC Transaction to partially finance the cash portion of the TWC Transaction consideration. In connection with the Bright House Transaction, Liberty Broadband purchased approximately 3.7 million shares of Charter Class A common stock valued at $700 million at the closing of the Bright House Transaction.

Charter partially financed the cash portion of the purchase price of the Transactions with additional indebtedness and cash on hand. In 2015, we issued $15.5 billion aggregate principal amount of CCO Safari II, LLC ("CCO Safari II") senior secured notes, $3.8 billion aggregate principal amount of CCO Safari III, LLC ("CCO Safari III") senior secured bank loans and $2.5 billion aggregate principal amount of CCOH Safari, LLC ("CCOH Safari") senior unsecured notes. The net proceeds were initially deposited into an escrow account. Upon closing of the TWC Transaction and release of the proceeds, the CCOH Safari notes became obligations of CCO Holdings, LLC ("CCO Holdings") and CCO Holdings Capital Corp. ("CCO Holdings Capital"), and the CCO Safari II notes and CCO Safari III credit facilities became obligations of Charter Operating and Charter Communications Operating Capital Corp. CCOH Safari merged into CCO Holdings and CCO Safari II and CCO Safari III merged into Charter Operating. In connection with the closing of the Bright House Transaction, Charter Operating closed on a $2.6 billion aggregate principal amount term loan A facility.

### Transaction-Related Commitments

In connection with the regulatory approval process related to the Transactions, we made certain commitments described in our Annual Report on Form 10-K for the year ended December 31, 2015.

In addition, the Federal Communications Commission (the "FCC") order contained certain conditions including build out of an additional two million locations with access to a high-speed connection. At least one million of those connections must be in competition with another high-speed broadband provider in the market served. The FCC order also provides that Charter will not be permitted to charge usage-based prices or impose data caps and will be prohibited from charging interconnection fees for seven years, although the FCC sets forth a process in which the FCC could eliminate the conditions after five years.

Under the terms of the order with the Department of Justice ("DOJ"), Charter is prohibited from entering into or enforcing any agreement with a programmer that forbids, limits or creates incentives to limit the programmer’s provision of content to one or more on-line video distributors ("OVDs"). The settlement further provides that Charter will not be able to avail itself of other distributors’ most favored nation ("MFN") provisions if they are inconsistent with this prohibition. The settlement also prohibits Charter from retaliating against programmers for licensing to OVDs. These DOJ conditions are in force for seven years, although Charter may petition the DOJ to eliminate the conditions after five years.

### Corporate Entity Structure

The chart below sets forth our entity structure and that of our direct and indirect subsidiaries after closing of the Transactions. This chart does not include all of our affiliates and subsidiaries and, in some cases, we have combined separate entities for presentation purposes. The equity ownership percentages shown below are approximations. Indebtedness amounts shown below are principal amounts as of June 30, 2016. See Note 7 to the accompanying consolidated financial statements which also includes the accreted values of the indebtedness described below.

(1) As of June 30, 2016, Liberty Broadband beneficially owned approximately 17.4% of Charter’s Class A common stock and A/N beneficially owned approximately 13.0% of Charter’s Class A common stock, in each case assuming the exchange of the membership interests held by A/N for Charter's Class A common stock.

(2) In the Transactions, Legacy TWC transferred substantially all of its assets to TWC, LLC and merged with and into Spectrum Management Holding Company, LLC (formerly named Nina Company II, LLC) (“Spectrum Management”) with Spectrum Management as the surviving entity. Spectrum Management was the successor to the SEC reporting obligations of Legacy TWC (which have since been terminated or suspended).

(3) In connection with the Transactions, on May 18, 2016, the proceeds of $2.5 billion principal amount of senior notes previously issued by CCOH Safari and held in escrow were released from escrow, and CCOH Safari merged with and into CCO Holdings, which, among other things, assumed the obligations under these debt securities and agreed to guarantee, along with Time Warner Cable, LLC ("TWC, LLC"), Time Warner Cable Enterprises LLC ("TWCE") and substantially all of the operating subsidiaries of Charter Operating (collectively, the “Subsidiary Guarantors”), the Charter Operating notes, the TWC, LLC and TWCE debt securities and Charter Operating credit agreement.

(4) In connection with the Transactions, on May 18, 2016, (a) the proceeds of $15.5 billion principal amount of senior notes previously issued by CCO Safari II and held in escrow were released from escrow, and CCO Safari II merged with and into Charter Operating, which, among other things, assumed these debt obligations, (b) the $3.8 billion credit facility of CCO Safari III was issued, and CCO Safari III merged with and into Charter Operating, which, among other things, assumed the obligations under this credit agreement and (c) Charter Operating agreed to guarantee, along with the Subsidiary Guarantors the TWC, LLC senior notes and debentures and the TWCE senior debentures. As of June 30, 2016, the Charter Operating credit facilities were comprised of $2.6 billion aggregate principal amount term loan A facility, $1.4 billion aggregate principal amount term loan E facility, $1.2 billion aggregate principal amount term loan F facility, $998 million aggregate principal amount term loan H facility, $2.8 billion aggregate principal amount term loan I facility. Charter Operating also has availability under its revolving credit facility of approximately $2.8 billion as of June 30, 2016.

(5) In connection with the TWC Transaction, Legacy TWC transferred substantially all of its assets to TWC, LLC (fka TWC NewCo LLC), and, among other things, TWC, LLC assumed all the obligations under $20.4 billion principal amount of notes and debentures previously issued by Legacy TWC, and agreed to guarantee the Charter Operating and TWCE notes and debentures and the Charter Operating credit agreement.

(6) In connection with the Transactions, TWCE agreed to guarantee the Charter Operating and TWC, LLC notes and debentures and the Charter Operating credit agreement.

### Overview

As a result of the Transactions, we expect quarterly revenues to increase by over $7 billion year over year. We will also see an increase in expenses related to the increased scale and increases in expenses related to deploying our operating strategy and business model across the assets acquired in the Transactions. Launching Spectrum pricing and packaging and managing the all-digital transition in the Legacy TWC and Legacy Bright House footprint are key priorities and we expect to complete those initiatives by the end of 2018. Our Spectrum pricing and packaging simplifies our offers and improves our packaging of products, delivering more value to new and existing customers. Moving to an all-digital platform allows us to offer more HD channels and increase Internet speeds offered. Over time, we expect Adjusted EBITDA margins to increase as we benefit from Transaction synergies. By the end of 2016, we expect that our corporate organization, as well as our marketing, sales and product development departments, will be centralized. Field operations will be managed through eleven different regional areas, each designed to represent a logical combination of designated marketing areas and managed with largely the same set of field employees that were with the three companies prior to completion of the Transactions. Over a multi-year period, Legacy TWC and Legacy Bright House customer care centers will migrate to Charter's model of using virtualized, U.S.-based in-house call centers. We will focus on deploying superior products and service with minimal service disruptions as we integrate our information technology and network operations.

Since 2012, Charter has actively invested in its network and operations and improved the quality and value of the products and packages that it offers. As part of our effort to create more value for customers, we have focused on driving higher penetration of our triple play offering, which includes more than 200 HD channels in most of our markets, video on demand, Internet service, and fully-featured voice service. We believe that our enhanced product set combined with improved customer service has led to lower customer churn and longer customer lifetimes, allowing us to grow our customer base and revenue more quickly and economically. We believe that we will see similar results in the assets acquired in the Transactions as we deploy legacy Charter's operating strategy across the legacy TWC and Bright House footprints. We cannot, however, be certain that we will be able to grow revenues or maintain our margins at recent historical rates.

Our most significant competitors are direct broadcast satellite providers and certain telephone companies that offer services that provide features and functions similar to our Internet, video and voice services, including in some cases wireless services. These services are frequently offered in bundles similar to ours. In addition, some consumers have chosen to receive video over the Internet rather than through pay television services including from us.

Total revenue growth was 154% and 81% for the three and six months ended June 30, 2016 compared to the corresponding periods in 2015, respectively, due to the Transactions and growth in our video, Internet and commercial businesses. For the three months ended June 30, 2016 and 2015, Adjusted EBITDA was $2.2 billion and $848 million, respectively, and for the six months ended June 30, 2016 and 2015, Adjusted EBITDA was $3.1 billion and $1.6 billion, respectively. Adjusted EBITDA is defined as consolidated net income (loss) plus net interest expense, income tax expense, depreciation and amortization, stock compensation expense, loss on extinguishment of debt, (gain) loss on financial instruments, net, other expense, net and other operating expenses, such as merger and restructuring costs, other pension benefits, special charges and gain (loss) on sale or retirement of assets. See “—Use of Adjusted EBITDA and Free Cash Flow” for further information on Adjusted EBITDA and free cash flow. Adjusted EBITDA increased 162% and 88% for the three and six months ended June 30, 2016 compared to the corresponding periods in 2015 as a result of the Transactions and an increase in residential and commercial revenues offset by increases in programming costs, marketing costs and other operating costs. For the three months ended June 30, 2016 and 2015, our income from operations was $690 million and $269 million, respectively, and for the six months ended June 30, 2016 and 2015, our income from operations was $992 million and $518 million, respectively. In addition to the factors discussed above, income from operations for the three and six months ended June 30, 2016 was affected by increases in depreciation and amortization, merger and restructuring costs and stock compensation expense.

On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, total revenue growth was 7% for both the three and six months ended June 30, 2016 compared to the corresponding periods in 2015 due to growth in our Internet and commercial businesses. On a pro forma basis, Adjusted EBITDA growth was 9% for both the three and six months ended June 30, 2016 compared to the corresponding periods in 2015, respectively, due to an increase in residential and commercial revenues offset by increases in programming costs and other operating costs.

We incurred the following transition costs in connection with the Transactions.

|  | Three Months Ended June 30, 2016 | 2015 | Six Months Ended June 30, 2016 | 2015 |
| --- | ---: | ---: | ---: | ---: |
| Operating expenses | $25 | $17 | $46 | $38 |
| Other operating expenses | $556 | $19 | $570 | $32 |
| Interest expense | $133 | $26 | $390 | $112 |
| Capital expenditures | $111 | $28 | $164 | $42 |

We have a history of net losses. Our net losses were principally attributable to insufficient revenue to cover the combination of operating expenses, interest expenses that we incur because of our debt, depreciation expenses resulting from the capital investments we have made and continue to make in our cable properties, amortization expenses related to our customer relationship intangibles and higher non-cash income tax expense. We will incur significant increases in interest expense and depreciation and amortization as a result of the Transactions and will incur restructuring and transition costs for at least one to two years, and as a result, absent non-recurring impacts such as the reversal of the income tax valuation allowance in the second quarter of 2016, we may continue to incur net losses in the foreseeable future.

All customer statistics as of June 30, 2016 include operations of Legacy TWC, Legacy Bright House and Legacy Charter each of which is based on the legacy company's reporting methodology. Such methodologies differ and these differences may be material. Once statistical reporting is fully integrated, all prior periods will be recast to reflect a consistent methodology. The following table summarizes our customer statistics for video, Internet and voice as of June 30, 2016 and 2015 (in thousands except per customer data and footnotes).

| Customer Relationships (b) | Approximate as of June 30, 2016 (a) | 2015 (a) |
| --- | ---: | ---: |
| Residential | 24,306 | 6,108 |
| Small and Medium Business | 1,333 | 359 |
| Total Customer Relationships | 25,639 | 6,467 |
| **Residential Primary Service Units ("PSU")** |  |  |
| Video | 16,934 | 4,282 |
| Internet | 20,667 | 4,982 |
| Voice | 10,255 | 2,514 |
|  | 47,856 | 11,778 |
| Monthly Residential Revenue per Residential Customer (c) | $109.99 | $110.85 |
| **Small and Medium Business PSUs** |  |  |
| Video | 378 | 100 |
| Internet | 1,148 | 316 |
| Voice | 725 | 197 |
|  | 2,251 | 613 |
| Monthly Small and Medium Business Revenue per Customer (d) | $236.68 | $179.93 |
| **Enterprise PSUs (e)** | 90 | 27 |

(a) We calculate the aging of customer accounts based on the monthly billing cycle for each account. On that basis, as of June 30, 2016 and 2015, customers include approximately 208,600 and 39,400 customers, respectively, whose accounts were over 60 days past due, approximately 14,000 and 2,000 customers, respectively, whose accounts were over 90 days past due, and approximately 8,000 and 900 customers, respectively, whose accounts were over 120 days past due.

(b) 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.

(c) Monthly residential revenue per residential customer is calculated as total residential video, Internet and voice quarterly revenue divided by three divided by average residential customer relationships during the respective quarter.

(d) Monthly small and medium business revenue per customer is calculated as total small and medium business quarterly revenue divided by three divided by average small and medium business customer relationships during the respective quarter.

(e) Enterprise PSUs represent the aggregate number of fiber service offerings counting each separate service offering as an individual PSU.

### Critical Accounting Policies and Estimates

For a discussion of our critical accounting policies and the means by which we develop estimates therefore, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2015 Annual Report on Form 10-K. Other than as described below, there have been no material changes from the critical accounting policies described in our Form 10-K.

### Pension Plans

Upon completion of the TWC Transaction, Charter assumed Legacy TWC’s pension plans. We sponsor two qualified defined benefit pension plans, the TWC Pension Plan and the TWC Union Pension Plan (collectively, the "TWC Pension Plans"), that provide pension benefits to a majority of Legacy TWC employees. We also provide a nonqualified defined benefit pension plan for certain employees under the TWC Excess Pension Plan. As of June 30, 2016, the accumulated benefit obligation and fair value of plan assets for the TWC Pension Plans was $3.6 billion and $2.9 billion, respectively, and the net underfunded liability of the TWC Pension Plans was recorded as a $6 million current pension liability and $641 million long-term pension liability.

Pension benefits are based on formulas that reflect the employees’ years of service and compensation during their employment period. Actuarial gains or losses are changes in the amount of either the benefit obligation or the fair value of plan assets resulting from experience different from that assumed or from changes in assumptions. We have elected to follow a mark-to-market pension accounting policy for recording the actuarial gains or losses annually during the fourth quarter, or earlier if a remeasurement event occurs during an interim period. We use a December 31 measurement date for our pension plans.

Pension expense is determined using certain assumptions, including the expected long-term rate of return on plan assets, discount rate and expected rate of compensation increases. We determined the discount rate used to compute pension expense based on the yield of a large population of high-quality corporate bonds with cash flows sufficient in timing and amount to settle projected future defined benefit payments. In developing the expected long-term rate of return on assets, we considered the current pension portfolio’s composition, past average rate of earnings, and our future asset allocation targets. The long-term rate of return on plan assets may be adjusted in future periods as we assess the portfolio composition and revise asset allocation targets and overall investment directions to meet the future needs of the plans, which may include lower return-seeking assets than the currently constructed portfolio. See Note 19 to the accompanying consolidated financial statements for additional discussion on these assumptions.

### Results of Operations

We completed the Transactions on May 18, 2016 and have included the Legacy TWC and Legacy Bright House operating results since the closing of the acquisitions. In accordance with U.S. generally accepted accounting principles ("GAAP"), operating results from Legacy TWC and Legacy Bright House prior to the acquisition have been excluded. For purposes of management's discussion and analysis, we have given explanations of increases and decreases in our results of operations on an actual basis, as well as on a pro forma basis assuming the Transactions occurred as of January 1, 2015. Due to the size of the Transactions, we believe that providing a discussion of our results of operations on a pro forma basis provides management and investors a more meaningful perspective on our 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 as of January 1, 2015, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position.

See Exhibit 99.1 in this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2016 for pro forma financial information for each quarter of 2015 and the first and second quarter of 2016.

The following table sets forth the consolidated statements of operations for the periods presented (dollars in millions, except per share data):

|  | Three Months Ended June 30, 2016 | 2015 | Six Months Ended June 30, 2016 | 2015 |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $6,161 | $2,430 | $8,691 | $4,792 |
| Costs and Expenses: |  |  |  |  |
| Operating costs and expenses (exclusive of items shown separately below) | 4,004 | 1,601 | 5,675 | 3,182 |
| Depreciation and amortization | 1,436 | 528 | 1,975 | 1,042 |
| Other operating expenses, net | 31 | 32 | 49 | 50 |
|  | 5,471 | 2,161 | 7,699 | 4,274 |
| Income from operations | 690 | 269 | 992 | 518 |
| Other Expenses: |  |  |  |  |
| Interest expense, net | (593) | (229) | (1,047) | (518) |
| Loss on extinguishment of debt | (110) | (128) | (110) | (128) |
| Gain (loss) on financial instruments, net | (50) | 1 | (55) | (5) |
| Other expense, net | (2) | — | (5) | — |
|  | (755) | (356) | (1,217) | (651) |
| Loss before income taxes | (65) | (87) | (225) | (133) |
| Income tax benefit (expense) | 3,179 | (35) | 3,151 | (70) |
| Consolidated net income (loss) | 3,114 | (122) | 2,926 | (203) |
| Less: Net income attributable to noncontrolling interests | (47) | — | (47) | — |
| Net income (loss) attributable to Charter shareholders | $3,067 | $(122) | $2,879 | $(203) |
| EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO CHARTER SHAREHOLDERS: |  |  |  |  |
| Basic | $16.73 | $(1.21) | $20.21 | $(2.01) |
| Diluted | $15.17 | $(1.21) | $19.00 | $(2.01) |
| Weighted average common shares outstanding, basic | 183,362,776 | 101,074,644 | 142,457,435 | 101,017,146 |
| Weighted average common shares outstanding, diluted | 205,214,266 | 101,074,644 | 153,959,234 | 101,017,146 |

***Revenues.*** Total revenues grew $3.7 billion or 154% for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015, and grew $3.9 billion or 81% for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015. Revenue growth primarily reflects the Transactions and increases in the number of residential Internet and triple play customers and in commercial business customers, growth in expanded basic and digital penetration, promotional and annual rate increases, and higher advanced services penetration offset by a decrease in basic video customers. The Transactions increased revenues for three and six months ended June 30, 2016 as compared to the three and six months June 30, 2015 by approximately $3.6 billion. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, total revenue growth was 7% for both the three and six months ended June 30, 2016 compared to the corresponding periods in 2015.

Revenues by service offering were as follows (dollars in millions; all percentages are calculated using whole numbers. Minor differences may exist due to rounding):

|  | Three Months Ended June 30, Actual 2016 2015 % Change | Pro forma 2016 2015 % Change |
| --- | ---: | ---: |
| Video | $2,605 $1,148 127% | $4,143 $4,074 2% |
| Internet | 1,950 743 163% | 3,132 2,797 12% |
| Voice | 423 135 214% | 730 706 3% |
| Residential revenue | 4,978 2,026 146% | 8,005 7,577 6% |
| Small and medium business | 520 190 174% | 842 744 13% |
| Enterprise | 296 88 233% | 503 442 14% |
| Commercial revenue | 816 278 193% | 1,345 1,186 13% |
| Advertising sales | 237 79 200% | 405 390 4% |
| Other | 130 47 176% | 233 217 8% |
|  | $6,161 $2,430 154% | $9,988 $9,370 7% |
|  | **Six Months Ended June 30,** |  |
|  | **Actual** | **Pro forma** |
|  | **2016** **2015** **% Change** | **2016** **2015** **% Change** |
| Video | $3,775 $2,277 66% | $8,235 $8,072 2% |
| Internet | 2,754 1,460 89% | 6,168 5,526 12% |
| Voice | 558 269 108% | 1,459 1,412 3% |
| Residential revenue | 7,087 4,006 77% | 15,862 15,010 6% |
| Small and medium business | 722 372 95% | 1,649 1,460 13% |
| Enterprise | 395 175 124% | 997 877 14% |
| Commercial revenue | 1,117 547 104% | 2,646 2,337 13% |
| Advertising sales | 309 145 113% | 770 731 5% |
| Other | 178 94 90% | 473 433 10% |
|  | $8,691 $4,792 81% | $19,751 $18,511 7% |

50

Video revenues consist primarily of revenues from basic and digital video services provided to our residential customers, as well as franchise fees, equipment rental and video installation revenue. Excluding the impacts of the Transactions, residential video customers increased by 43,000 from June 30, 2015 to June 30, 2016.

The increase in video revenues is attributable to the following (dollars in millions):

|  | Three months ended June 30, 2016 compared to three months ended June 30, 2015 Increase / (Decrease) | Six months ended June 30, 2016 compared to six months ended June 30, 2015 Increase / (Decrease) |
| --- | ---: | ---: |
| Incremental video services, price adjustments and bundle revenue allocation | $27 | $73 |
| Increase in average basic video customers | 10 | 12 |
| Decrease in video on demand and pay-per-view | (10) | (17) |
| TWC Transaction | 1,228 | 1,228 |
| Bright House Transaction | 202 | 202 |
|  | $1,457 | $1,498 |

On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, residential video customers decreased by 30,000 from June 30, 2015 to June 30, 2016 and the increase in video revenues is attributable to the following (dollars in millions):

|  | Three months ended June 30, 2016 compared to three months ended June 30, 2015 Increase / (Decrease) | Six months ended June 30, 2016 compared to six months ended June 30, 2015 Increase / (Decrease) |
| --- | ---: | ---: |
| Incremental video services, price adjustments and bundle revenue allocation | $123 | $246 |
| Decrease in video on demand and pay-per-view | (45) | (63) |
| Decrease in average basic video customers | (9) | (20) |
|  | $69 | $163 |

Excluding the impacts of the Transactions, residential Internet customers grew by 476,000 customers from June 30, 2015 to June 30, 2016. The increase in Internet revenues from our residential customers is attributable to the following (dollars in millions):

|  | Three months ended June 30, 2016 compared to three months ended June 30, 2015 Increase / (Decrease) | Six months ended June 30, 2016 compared to six months ended June 30, 2015 Increase / (Decrease) |
| --- | ---: | ---: |
| Increase in average residential Internet customers | $72 | $140 |
| Service level changes, price adjustments and bundle revenue allocation | 17 | 36 |
| TWC Transaction | 956 | 956 |
| Bright House Transaction | 162 | 162 |
|  | $1,207 | $1,294 |

51

On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, residential Internet customers increased by 1,620,000 from June 30, 2015 to June 30, 2016 and the increase in Internet revenues is attributable to the following (dollars in millions):

|  | Three months ended June 30, 2016 compared to three months ended June 30, 2015 Increase / (Decrease) | Six months ended June 30, 2016 compared to six months ended June 30, 2015 Increase / (Decrease) |
| --- | ---: | ---: |
| Increase in average residential Internet customers | $239 | $465 |
| Service level changes, price adjustments and bundle revenue allocation | 96 | 177 |
|  | $335 | $642 |

Excluding the impacts of the Transactions, residential voice customers grew by 138,000 customers from June 30, 2015 to June 30, 2016. The increase in voice revenues from our residential customers is attributable to the following (dollars in millions):

|  | Three months ended June 30, 2016 compared to three months ended June 30, 2015 Increase / (Decrease) | Six months ended June 30, 2016 compared to six months ended June 30, 2015 Increase / (Decrease) |
| --- | ---: | ---: |
| Increase in average residential voice customers | $8 | $16 |
| Price adjustments and bundle revenue allocation | (4) | (11) |
| TWC Transaction | 243 | 243 |
| Bright House Transaction | 41 | 41 |
|  | $288 | $289 |

On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, residential voice customers increased by 856,000 from June 30, 2015 to June 30, 2016 and the increase in voice revenues is attributable to the following (dollars in millions):

|  | Three months ended June 30, 2016 compared to three months ended June 30, 2015 Increase / (Decrease) | Six months ended June 30, 2016 compared to six months ended June 30, 2015 Increase / (Decrease) |
| --- | ---: | ---: |
| Increase in average residential voice customers | $68 | $149 |
| Price adjustments and bundle revenue allocation | (44) | (102) |
|  | $24 | $47 |

52

Excluding the impacts of the Transactions, small and medium business PSUs grew by 126,000 from June 30, 2015 to June 30, 2016. The increase in small and medium business commercial revenues is attributable to the following (dollars in millions):

|  | Three months ended June 30, 2016 compared to three months ended June 30, 2015 Increase / (Decrease) | Six months ended June 30, 2016 compared to six months ended June 30, 2015 Increase / (Decrease) |
| --- | ---: | ---: |
| Increase in small and medium business customers | $36 | $69 |
| Price adjustments | (15) | (28) |
| TWC Transaction | 265 | 265 |
| Bright House Transaction | 44 | 44 |
|  | $330 | $350 |

On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, small and medium business PSUs increased by 273,000 from June 30, 2015 to June 30, 2016 and the increase in small and medium business commercial revenues is attributable to the following (dollars in millions):

|  | Three months ended June 30, 2016 compared to three months ended June 30, 2015 Increase / (Decrease) | Six months ended June 30, 2016 compared to six months ended June 30, 2015 Increase / (Decrease) |
| --- | ---: | ---: |
| Increase in small and medium business customers | $100 | $194 |
| Price adjustments | (2) | (5) |
|  | $98 | $189 |

Excluding the impacts of the Transactions, enterprise PSUs increased 6,000 from June 30, 2015 to June 30, 2016. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, enterprise PSUs increased by 16,000 from June 30, 2015 to June 30, 2016. The Transactions increased enterprise commercial revenues for the three and six months ended June 30, 2016 compared to the corresponding periods in 2015 by $196 million. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, enterprise commercial revenues increased $61 million and $120 million during the three and six months ended June 30, 2016, respectively, compared to the corresponding periods in 2015 primarily due to growth in customers.

Advertising sales revenues consist primarily of revenues from commercial advertising customers, programmers and other vendors, as well as local cable and advertising on regional sports and news channels. Advertising sales revenues increased $158 million and $164 million during the three and six months ended June 30, 2016, respectively, compared to the corresponding periods in 2015 primarily due to the Transactions. The Transactions increased advertising sales revenues for the three and six months ended June 30, 2016 compared to the corresponding periods in 2015 by $159 million. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, advertising sales revenues increased $15 million and $39 million during the three and six months ended June 30, 2016, respectively, compared to the corresponding periods in 2015 primarily due to an increase in national sales and political advertising.

Other revenues consist of revenue from regional sports and news channels (excluding intercompany charges or advertising sales on those channels), home shopping, late payment fees, wire maintenance fees and other miscellaneous revenues. Other revenues increased $83 million and $84 million during the three and six months ended June 30, 2016, respectively, compared to the corresponding periods in 2015 primarily as a result of the Transactions. The Transactions increased other revenues for the three and six months ended June 30, 2016 compared to the corresponding periods in 2015 by $84 million. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, other revenues increased $16 million and $40 million during the three and six months ended June 30, 2016, respectively, compared to the corresponding periods in 2015 primarily due to a settlement related to an early contract termination and an increase in processing fees.

***Operating costs and expenses.*** The increases in our operating costs and expenses, exclusive of items shown separately in the consolidated statements of operations, are attributable to the following (dollars in millions):

|  | Three months ended June 30, 2016 compared to three months ended June 30, 2015 Increase / (Decrease) | Six months ended June 30, 2016 compared to six months ended June 30, 2015 Increase / (Decrease) |
| --- | ---: | ---: |
| Programming | $870 | $907 |
| Regulatory, connectivity and produced content | 207 | 212 |
| Costs to service customers | 655 | 653 |
| Marketing | 219 | 231 |
| Transition costs | 8 | 8 |
| Other | 444 | 482 |
|  | $2,403 | $2,493 |

Programming costs were approximately $1.5 billion and $671 million, representing 38% and 42% of total operating costs and expenses for the three months ended June 30, 2016 and 2015, respectively, and $2.2 billion and $1.3 billion, representing 40% and 42% of total operating costs and expenses for the six months ended June 30, 2016 and 2015, respectively. The increases in operating costs and expenses for the the three and six months ended June 30, 2016 compared to the corresponding prior periods were primarily due to the Transactions which increased operating costs and expenses by approximately $2.3 billion.

The increase in other expense is attributable to the following (dollars in millions):

|  | Three months ended June 30, 2016 compared to three months ended June 30, 2015 Increase / (Decrease) | Six months ended June 30, 2016 compared to six months ended June 30, 2015 Increase / (Decrease) |
| --- | ---: | ---: |
| Corporate costs | $123 | $140 |
| Stock compensation expense | 44 | 49 |
| Advertising sales expense | 74 | 77 |
| Enterprise | 69 | 72 |
| Other | 134 | 144 |
|  | $444 | $482 |

The increases in other expense for the the three and six months ended June 30, 2016 compared to the corresponding prior periods were primarily due to the Transactions which increased other expense by approximately $415 million.

On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, increases in our operating costs and expenses, exclusive of items shown separately in the consolidated statements of operations, are attributable to the following (dollars in millions):

|  | Three months ended June 30, 2016 compared to three months ended June 30, 2015 Increase / (Decrease) | Six months ended June 30, 2016 compared to six months ended June 30, 2015 Increase / (Decrease) |
| --- | ---: | ---: |
| Programming | $167 | $343 |
| Regulatory, connectivity and produced content | 3 | 20 |
| Costs to service customers | 37 | 88 |
| Marketing | 30 | 67 |
| Transition costs | 8 | 8 |
| Other | 92 | 166 |
|  | $337 | $692 |

On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, programming costs were approximately $2.4 billion and $2.3 billion, representing 37% and 36% of total operating costs and expenses for the three months ended June 30, 2016 and 2015, respectively, and $4.8 billion and $4.5 billion, representing 37% of total operating costs and expenses for both the six months ended June 30, 2016 and 2015.

Programming costs consist primarily of costs paid to programmers for basic, digital, premium, video on demand, and pay-per-view programming. The increase in pro forma programming costs is primarily a result of annual contractual rate adjustments, including increases in amounts paid for retransmission consents and the introduction of new networks offset by lower pay-per-view programming expenses. We expect to realize programming cost synergies as a result of the Transactions, however, those synergies were largely offset by non-recurring items during the three months ended June 30, 2016. We expect pro forma programming expenses will continue to increase due to a variety of factors, including annual increases imposed by programmers with additional selling power as a result of media consolidation, increased demands by owners of broadcast stations for payment for retransmission consent or linking carriage of other services to retransmission consent, and additional programming, particularly new sports services. We have been unable to fully pass these increases on to our customers nor do we expect to be able to do so in the future without a potential loss of customers.

On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, the increase in other expense is attributable to the following (dollars in millions):

|  | Three months ended June 30, 2016 compared to three months ended June 30, 2015 Increase / (Decrease) | Six months ended June 30, 2016 compared to six months ended June 30, 2015 Increase / (Decrease) |
| --- | ---: | ---: |
| Corporate costs | $26 | $68 |
| Stock compensation expense | 11 | 16 |
| Advertising sales expense | 19 | 33 |
| Enterprise | 17 | 36 |
| Property tax and insurance | 5 | 21 |
| Other | 14 | (8) |
|  | $92 | $166 |

55

The increases in corporate costs relate primarily to increases in the number of employees. Stock compensation expense increased primarily due to increases in headcount and the value of equity issued.

***Depreciation and amortization.*** Depreciation and amortization expense increased by $908 million and $933 million during the three and six months ended June 30, 2016, respectively, compared to the corresponding periods in 2015 primarily as a result of $792 million of additional depreciation and amortization related to the TWC Transaction and $119 million of additional depreciation and amortization related to the Bright House Transaction inclusive of the incremental amounts as a result of the higher fair values recorded in acquisition accounting.

***Other operating expenses, net.*** The changes in other operating expenses, net are attributable to the following (dollars in millions):

|  | Three months ended June 30, 2016 compared to three months ended June 30, 2015 Increase / (Decrease) | Six months ended June 30, 2016 compared to six months ended June 30, 2015 Increase / (Decrease) |
| --- | ---: | ---: |
| Merger and restructuring costs | $537 | $538 |
| Other pension benefits | (520) | (520) |
| Special charges, net | (8) | (6) |
| (Gain) loss on sale of assets, net | (10) | (13) |
|  | $(1) | $(1) |

The increase in merger and restructuring costs is primarily due to approximately $262 million of Legacy Charter and Legacy TWC contingent financing and advisory transaction fees paid at the closing of the Transactions as well as approximately $280 million of employee retention and employee termination costs. Other pension benefits includes the pension curtailment gain of $675 million, net remeasurement loss of $157 million, expected return on plan assets of $23 million offset by interest costs of $21 million. For more information, see Notes 13 and 19 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”

***Interest expense, net.*** Net interest expense increased by $364 million and $529 million for the three and six months ended June 30, 2016, respectively, compared to the corresponding periods in 2015 primarily as a result of an increase of approximately $221 million and $392 million, respectively, of interest expense associated with the debt incurred to fund the Transactions, and $116 million associated with debt assumed from Legacy TWC.

***Loss on extinguishment of debt.*** Loss on extinguishment of debt of $110 million for the three and six months ended June 30, 2016 and $128 million for the three and six months ended June 30, 2015 primarily represent losses recognized as a result of the repurchase of CCO Holdings notes. For more information, see Note 7 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”

***Gain (loss) on financial instruments, net.*** Interest rate derivative instruments are used to manage our interest costs and to reduce our exposure to increases in floating interest rates, and cross-currency derivative instruments are used to manage foreign exchange risk related to the foreign currency denominated debt assumed in the TWC Transaction. We recorded losses of $50 million and $55 million during the three and six months ended June 30, 2016, respectively, and gains of $1 million and losses of $5 million during the three and six months ended June 30, 2015, respectively. The losses recognized during the three and six months ended June 30, 2016 consist primarily of approximately $185 million realized due to the change in fair value of cross-currency derivative instruments and $11 million realized upon termination of Legacy TWC interest rate swap derivative instruments offset by approximately $147 million gain due to the remeasurement of the fixed-rate British pound sterling denominated notes (the "Sterling Notes") into U.S. dollars. For more information, see Note 10 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”

***Other expense, net.*** Other expense, net of $2 million and $5 million for the three and six months ended June 30, 2016, respectively, primarily represents equity losses on our equity-method investments. For more information, see Note 5 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”

***Income tax benefit (expense).*** We recognized an income tax benefit of $3.2 billion for both the three and six months ended June 30, 2016 and income tax expense of $35 million and $70 million for the three and six months ended June 30, 2015, respectively. Certain of the deferred tax liabilities that were assumed in connection with the closing of the TWC Transaction will reverse and provide a source of future taxable income, resulting in a reduction of substantially all of Legacy Charter’s preexisting valuation allowance associated with its deferred tax assets of approximately $3.3 billion. Such release of Legacy Charter’s valuation allowance was recognized directly to income tax benefit in the consolidated statements of operations for the three and six months ended June 30, 2016. The tax provision in future periods will vary based on current and future temporary differences, as well as future operating results. For more information, see Note 14 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”

Income tax expense in 2015 was recognized primarily through increases in deferred tax liabilities related to Legacy Charter’s franchises, which are characterized as indefinite lived for book financial reporting purposes, as well as, to a lesser extent, through current federal and state income tax expense. Current federal and state income tax expense included $12 million and $3 million for the three months ended June 30, 2016 and 2015, respectively, and $13 million and $4 million for the six months ended June 30, 2016 and 2015, respectively.

***Net income attributable to noncontrolling interest.*** Net income attributable to noncontrolling interest for financial reporting purposes represents A/N's portion of Charter Holdings' net income based on its effective common unit ownership interest of approximately 10% and on the preferred dividend of $18 million for the three and six months ended June 30, 2016. For more information, see Note 9 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”

***Net income (loss) attributable to Charter shareholders.*** Net income attributable to Charter shareholders increased from a net loss of $122 million for the three months ended June 30, 2015 to net income of $3.1 billion for the three months ended June 30, 2016, and increased from a net loss of $203 million for the six months ended June 30, 2015 to net income of $2.9 billion for the six months ended June 30, 2016 primarily as a result of the factors described above. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, net income attributable to Charter shareholders increased from $107 million for the three months ended June 30, 2015 to $280 million for the three months ended June 30, 2016, and increased from $157 million for the six months ended June 30, 2015 to $525 million for the six months ended June 30, 2016.

### Use of Adjusted EBITDA and Free Cash Flow

We use certain measures that are not defined by U.S. generally accepted accounting principles ("GAAP") to evaluate various aspects of our 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 (loss) and net cash flows from operating activities reported in accordance with GAAP. These terms, as defined by us, may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA and free cash flow are reconciled to consolidated net income (loss) and net cash flows from operating activities, respectively, below.

Adjusted EBITDA is defined as consolidated net income (loss) plus net interest expense, income tax (benefit) expense, depreciation and amortization, stock compensation expense, loss on extinguishment of debt, (gain) loss on financial instruments, other expense, net and other operating expenses, such as merger and restructuring costs, other pension benefits, 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 our businesses as well as other non-cash or special items, and is unaffected by our 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 our 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 our 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 Securities and Exchange Commission (the "SEC")). For the purpose of calculating compliance with leverage covenants, we use Adjusted EBITDA, as presented, excluding certain expenses paid by our operating subsidiaries to other Charter entities. Our debt covenants refer to these expenses as management fees, which were $202 million and $76 million for the three months ended

June 30, 2016 and 2015, respectively, and $304 million and $152 million for the six months ended June 30, 2016 and 2015, respectively.

|  | Three Months Ended June 30, 2016 Actual | 2015 | Six Months Ended June 30, 2016 | 2015 |
| --- | ---: | ---: | ---: | ---: |
| Consolidated net income (loss) | $3,114 | $(122) | $2,926 | $(203) |
| Plus: Interest expense, net | 593 | 229 | 1,047 | 518 |
| Income tax (benefit) expense | (3,179) | 35 | (3,151) | 70 |
| Depreciation and amortization | 1,436 | 528 | 1,975 | 1,042 |
| Stock compensation expense | 63 | 19 | 87 | 38 |
| Loss on extinguishment of debt | 110 | 128 | 110 | 128 |
| (Gain) loss on financial instruments, net | 50 | (1) | 55 | 5 |
| Other, net | 33 | 32 | 54 | 50 |
| Adjusted EBITDA | $2,220 | $848 | $3,103 | $1,648 |
| Net cash flows from operating activities | $1,590 | $531 | $2,014 | $1,059 |
| Less: Purchases of property, plant and equipment | (1,260) | (432) | (1,689) | (783) |
| Change in accrued expenses related to capital expenditures | 194 | 59 | 138 | (17) |
| Free cash flow | $524 | $158 | $463 | $259 |

|  | Three Months Ended June 30, 2016 Pro Forma | 2015 | Six Months Ended June 30, 2016 | 2015 |
| --- | ---: | ---: | ---: | ---: |
| Consolidated net income | $369 | $164 | $697 | $260 |
| Plus: Interest expense, net | 723 | 745 | 1,431 | 1,546 |
| Income tax (benefit) expense | 181 | 70 | 337 | 99 |
| Depreciation and amortization | 2,276 | 2,209 | 4,441 | 4,370 |
| Stock compensation expense | 72 | 61 | 138 | 122 |
| Loss on extinguishment of debt | 110 | 128 | 110 | 128 |
| (Gain) loss on financial instruments, net | 50 | (1) | 55 | 5 |
| Other, net | (239) | (126) | (234) | (119) |
| Adjusted EBITDA | $3,542 | $3,250 | $6,975 | $6,411 |

### Liquidity and Capital Resources

### Introduction

This section contains a discussion of our liquidity and capital resources, including a discussion of our cash position, sources and uses of cash, access to credit facilities and other financing sources, historical financing activities, cash needs, capital expenditures and outstanding debt.

### Overview of Our Contractual Obligations and Liquidity

We have significant amounts of debt. The principal amount of our debt as of June 30, 2016 was $60.3 billion, consisting of $9.0 billion of credit facility debt, $37.9 billion of investment grade senior secured notes and $13.4 billion of high-yield senior unsecured notes. Our business requires significant cash to fund principal and interest payments on our debt. As of June 30, 2016, $98 million of our long-term debt matures in 2016, $2.2 billion in 2017, $2.2 billion in 2018, $3.5 million in 2019, $5.2 billion in 2020 and $47.0 billion thereafter.

Our projected cash needs and projected sources of liquidity depend upon, among other things, our actual results, and the timing and amount of our expenditures. Free cash flow was $524 million and $158 million for the three months ended June 30, 2016 and 2015, respectively, and $463 million and $259 million for the six months ended June 30, 2016 and 2015, respectively. As of June 30, 2016, the amount available under our credit facilities was approximately $2.8 billion and cash on hand was approximately $555 million. We expect to utilize free cash flow, cash on hand and availability under our credit facilities as well as future refinancing transactions to further extend the maturities of or reduce the principal on our obligations. The timing and terms of any refinancing transactions will be subject to market conditions. Additionally, we may, from time to time, and depending on market conditions and other factors, use cash on hand and the proceeds from securities offerings or other borrowings to retire our debt through open market purchases, privately negotiated purchases, tender offers or redemption provisions. We believe we have sufficient liquidity from cash on hand, free cash flow and Charter Operating's revolving credit facility as well as access to the capital markets to fund our projected operating cash needs.

We continue to evaluate the deployment of our anticipated future free cash flow including to invest in our business growth and other strategic opportunities, including mergers and acquisitions as well as stock repurchases and dividends and to reduce our leverage. Our target leverage remains at 4 to 4.5 times, and 3.5 times at the Charter Operating level. Charter’s board of directors recently authorized management to engage in opportunistic share repurchases of up to $750 million in any six-month period provided that Charter’s net debt remains within its then current target leverage range. Charter is not obligated to acquire any particular amount of common stock, and the timing of any purchases that may occur cannot be predicted and will largely depend on market conditions and other potential uses of capital. Purchases may include open market purchases or negotiated transactions. As possible acquisitions, swaps or dispositions arise in our industry, we actively review them against our objectives including, among other considerations, improving the operational efficiency, clustering or technology capabilities of our business and achieving appropriate return targets, and we may participate to the extent we believe these possibilities present attractive opportunities. However, there can be no assurance that we will actually complete any acquisitions, dispositions or system swaps, or that any such transactions will be material to our operations or results.

### Free Cash Flow

Free cash flow increased $366 million and $204 million during the three and six months ended June 30, 2016 compared to the corresponding prior periods in 2015, respectively, due to the following (dollars in millions).

|  | Three months ended June 30, 2016 compared to three months ended June 30, 2015 Increase / (Decrease) | Six months ended June 30, 2016 compared to six months ended June 30, 2015 Increase / (Decrease) |
| --- | ---: | ---: |
| Increase in Adjusted EBITDA | $1,372 | $1,455 |
| Changes in working capital, excluding change in accrued interest | 451 | 480 |
| Increase in cash paid for interest, net | (242) | (435) |
| Increase in capital expenditures | (828) | (906) |
| Other, net | (387) | (390) |
|  | $366 | $204 |

59

### Contractual Obligations

The following table summarizes our payment obligations as of June 30, 2016 under our long-term debt and certain other contractual obligations and commitments (dollars in millions).

|  | Payments by Period Total | Remainder of 2016 | 2017-2018 | 2019-2020 | More than 5 years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Long-Term Debt Principal Payments (a) | $60,264 | $98 | $4,394 | $8,762 | $47,010 |
| Long-Term Debt Interest Payments (b) | 39,850 | 1,673 | 6,460 | 5,675 | 26,042 |
| Capital and Operating Lease Obligations (c) | 1,239 | 161 | 424 | 258 | 396 |
| Programming Minimum Commitments (d) | 411 | 114 | 258 | 39 | — |
| Other (e) | 12,750 | 463 | 1,259 | 985 | 10,043 |
| Total | $114,514 | $2,509 | $12,795 | $15,719 | $83,491 |

(a) The table presents maturities of long-term debt outstanding as of June 30, 2016. Refer to Note 7 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements” for a description of our long-term debt.

(b) Interest payments on variable debt are estimated using amounts outstanding as of June 30, 2016 and the average implied forward London Interbank Offering Rate (“LIBOR”) rates applicable for the quarter during the interest rate reset based on the yield curve in effect at June 30, 2016. Actual interest payments will differ based on actual LIBOR rates and actual amounts outstanding for applicable periods.

(c) We lease certain facilities and equipment under noncancelable capital and operating leases. Leases and rental costs charged to expense for the three months ended June 30, 2016 and 2015 were $44 million and $12 million, respectively, and for the six months ended June 30, 2016 and 2015 were $57 million and $24 million, respectively.

(d) We pay programming fees under multi-year contracts ranging from three to ten years, typically based on a flat fee per customer, which may be fixed for the term, or may in some cases escalate over the term. Programming costs included in the accompanying statement of operations were approximately $1.5 billion and $671 million for the three months ended June 30, 2016 and 2015, respectively, and $2.2 billion and $1.3 billion for the six months ended June 30, 2016 and 2015, respectively. Certain of our programming agreements are based on a flat fee per month or have guaranteed minimum payments. The table sets forth the aggregate guaranteed minimum commitments under our programming contracts.

(e) “Other” represents other guaranteed minimum commitments, including programming rights negotiated directly with content owners for distribution on Company-owned channels or networks and commitments related to our role as an advertising and distribution sales agent for third party-owned channels or networks as well as commitments to our customer premise equipment vendors.

Charter has agreed to certain commitments that were effective upon the consummation of the Transactions. See "Transaction-Related Commitments" for more information. Additionally, see Note 17 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements” for items not included in the contractual obligations table, but we incur as part of operations.

### Limitations on Distributions

Distributions by Charter’s subsidiaries to a parent company for payment of principal on parent company notes are restricted under indentures and credit facilities governing our indebtedness, unless there is no default under the applicable indenture and credit facilities, and unless each applicable subsidiary’s leverage ratio test is met at the time of such distribution. As of June 30, 2016, there was no default under any of these indentures or credit facilities, and each subsidiary met its applicable leverage ratio tests based on June 30, 2016 financial results. Such distributions would be restricted, however, if any such subsidiary fails to meet these tests at the time of the contemplated distribution. In the past, certain subsidiaries have from time to time failed to meet their leverage ratio test. There can be no assurance that they will satisfy these tests at the time of the contemplated distribution. Distributions by Charter Operating for payment of principal on parent company notes are further restricted by the covenants in its credit facilities.

However, without regard to leverage, during any calendar year or any portion thereof during which the borrower is a flow-through entity for tax purposes, and so long as no event of default exists, the borrower may make distributions to the equity interests of the borrower in an amount sufficient to make permitted tax payments.

In addition to the limitation on distributions under the various indentures discussed above, distributions by our subsidiaries may be limited by applicable law, including the Delaware Limited Liability Company Act, under which our subsidiaries may only make distributions if they have “surplus” as defined in the act.

### Historical Operating, Investing, and Financing Activities

***Cash and Cash Equivalents.*** We held $555 million and $5 million in cash and cash equivalents as of June 30, 2016 and December 31, 2015, respectively. We also held $22.3 billion in restricted cash and cash equivalents as of December 31, 2015 representing proceeds of debt raised to fund the cash portion of the TWC Transaction consideration that were held in escrow until consummation of the TWC Transaction.

***Operating Activities.*** Net cash provided by operating activities increased $955 million during the six months ended June 30, 2016 compared to the six months ended June 30, 2015, primarily due to an increase in Adjusted EBITDA of $1.5 billion offset by an increase in cash paid for interest, net of $435 million.

***Investing Activities.*** Net cash used in investing activities was $8.1 billion and cash provided by investing activities was $6.2 billion for the six months ended June 30, 2016 and 2015, respectively. The increase in cash used was primarily due to the acquisitions of TWC and Bright House in 2016 as compared to the repayment in 2015 of $7.1 billion of net proceeds held in escrow upon the termination of the proposed transactions with Comcast as well as an increase in capital expenditures due to the Transactions.

***Financing Activities.*** Net cash provided by financing activities was $6.6 billion and cash used in financing activities was $7.3 billion for the six months ended June 30, 2016 and 2015, respectively. The increase in cash provided was primarily due to the issuance of $5 billion of equity to Liberty Broadband to fund a portion of the acquisition of TWC and Bright House in 2016 as compared to the repayment in 2015 of $7.1 billion of net proceeds held in escrow upon the termination of the proposed transactions with Comcast.

### Capital Expenditures

We have significant ongoing capital expenditure requirements. Capital expenditures were $1.3 billion and $432 million for the three months ended June 30, 2016 and 2015, respectively, and $1.7 billion and $783 million for the six months ended June 30, 2016 and 2015, respectively. The increase was driven by the Transactions. On a pro forma basis, assuming the Transactions occurred as of January 1, 2015, the increase was driven by higher product development investments, transition capital expenditures incurred in connection with the Transactions and support capital investments versus the prior year. See the table below for more details.

The actual amount of our capital expenditures in 2016 will depend on a number of factors, including the pace of transition planning to service a larger customer base as a result of the Transactions and growth rates of both our residential and commercial businesses.

Our capital expenditures are funded primarily from cash flows from operating activities and borrowings on our credit facility. In addition, our accrued liabilities related to capital expenditures increased by $138 million and decreased by $17 million for the six months ended June 30, 2016 and 2015, respectively.

The following tables present our major capital expenditures categories on an actual and pro forma basis, assuming the Transactions occurred as of January 1, 2015, in accordance with National Cable and Telecommunications Association ("NCTA") disclosure guidelines for the three and six months ended June 30, 2016 and 2015. The disclosure is intended to provide more consistency in the reporting of capital expenditures among peer companies in the cable industry. These disclosure guidelines are not required disclosures under GAAP, nor do they impact our accounting for capital expenditures under GAAP (dollars in millions):

|  | Actual Three Months Ended June 30, 2016 | 2015 | Six Months Ended June 30, 2016 | 2015 |
| --- | ---: | ---: | ---: | ---: |
| Customer premise equipment (a) | $378 | $135 | $515 | $285 |
| Scalable infrastructure (b) | 386 | 118 | 496 | 193 |
| Line extensions (c) | 171 | 48 | 218 | 87 |
| Upgrade/rebuild (d) | 110 | 33 | 151 | 56 |
| Support capital (e) | 215 | 98 | 309 | 162 |
| Total capital expenditures | $1,260 | $432 | $1,689 | $783 |
| Capital expenditures included in total related to: |  |  |  |  |
| Commercial services | $191 | $65 | $255 | $116 |
| Transition | $111 | $28 | $164 | $42 |

|  | Pro Forma Three Months Ended June 30, 2016 | 2015 | Six Months Ended June 30, 2016 | 2015 |
| --- | ---: | ---: | ---: | ---: |
| Customer premise equipment (a) | $651 | $698 | $1,412 | $1,385 |
| Scalable infrastructure (b) | 640 | 466 | 1,115 | 858 |
| Line extensions (c) | 277 | 244 | 502 | 488 |
| Upgrade/rebuild (d) | 171 | 166 | 305 | 267 |
| Support capital (e) | 336 | 281 | 575 | 441 |
| Total capital expenditures | $2,075 | $1,855 | $3,909 | $3,439 |

(a) Customer premise equipment includes costs incurred at the customer residence to secure new customers and revenue generating units. It also includes 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).

### Recently Issued Accounting Standards

See Note 21 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements” for a discussion of recently issued accounting standards.

## Market risk

As filed, 4,277 characters.

We use derivative instruments to manage interest rate risk on variable debt and foreign exchange risk on the Sterling Notes, and do not hold or issue derivative instruments for speculative trading purposes.

Interest rate derivative instruments are used to manage interest costs and to reduce our exposure to increases in floating interest rates. We manage our exposure to fluctuations in interest rates by maintaining a mix of fixed and variable-rate debt. Using interest rate derivative instruments, we agree to exchange, at specified intervals through 2017, the difference between fixed and variable interest amounts calculated by reference to agreed-upon notional principal amounts.

Upon closing of the TWC Transaction, we assumed cross-currency derivative instruments. 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 derivative instruments have maturities of June 2031 and July 2042. We are required to post collateral on the cross-currency derivative instruments when such instruments are in a liability position. In May 2016, we 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. For more information, see Note 10 to the accompanying consolidated financial statements contained in “Item 1. Financial Statements.”

As of June 30, 2016 and December 31, 2015, the principal amount of our debt was approximately $60.3 billion and $35.9 billion, respectively. As of December 31, 2015, this included $21.8 billion of debt which proceeds were held in escrow pending consummation of the TWC Transaction. As of June 30, 2016 and December 31, 2015, the weighted average interest rate on the credit facility debt, including the effects of our interest rate swap agreements, was approximately 3.2% and 3.3%, respectively, and the weighted average interest rate on the senior notes was approximately 5.9% and 5.5%, respectively, resulting in a blended weighted average interest rate of 5.5% and 5.1%, respectively. The interest rate on approximately 87% and 83% of the total principal amount of our debt was effectively fixed, including the effects of our interest rate swap agreements as of June 30, 2016 and December 31, 2015, respectively.

The table set forth below summarizes the fair values and contract terms of financial instruments subject to interest rate risk maintained by us as of June 30, 2016 (dollars in millions).

| Debt: | 2016 | 2017 | 2018 | 2019 | 2020 | Thereafter | Total | Fair Value |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Fixed-Rate | $— | $2,000 | $2,000 | $3,250 | $3,500 | $40,500 | $51,250 | $56,258 |
| Average Interest Rate | —% | 5.85% | 6.75% | 8.44% | 4.19% | 5.76% | 5.86% |  |
| Variable Rate | $98 | $197 | $197 | $296 | $1,716 | $6,510 | $9,014 | $8,978 |
| Average Interest Rate | 2.85% | 2.91% | 3.04% | 3.67% | 3.59% | 4.22% | 4.01% |  |
| Interest Rate Instruments: |  |  |  |  |  |  |  |  |
| Variable to Fixed-Rate | $250 | $850 | $— | $— | $— | $— | $1,100 | $15 |
| Average Pay Rate | 3.89% | 3.84% | —% | —% | —% | —% | 3.86% |  |
| Average Receive Rate | 2.91% | 3.04% | —% | —% | —% | —% | 3.01% |  |

As of June 30, 2016, we had $1.1 billion 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 our exposure to credit loss. The amounts exchanged are determined by reference to the notional amount and the other terms of the contracts.

The estimated fair value of the interest rate derivative instruments is determined using a present value calculation based on an implied forward LIBOR curve (adjusted for Charter Operating’s and counterparties’ credit risk). Interest rates on variable-rate debt are estimated using the average implied forward LIBOR for the year of maturity based on the yield curve in effect at June 30, 2016 including applicable bank spread.

## Controls and procedures

As filed, 2,439 characters.

As of the end of the period covered by this report, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of Charter's design and operation of disclosure controls and procedures with respect to the information generated for use in this quarterly report. The evaluation was based upon reports and certifications provided by a number of executives. Based on, and as of the date of that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that Charter's disclosure controls and procedures were effective to provide reasonable assurances that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon the evaluation, we believe that our controls provide such reasonable assurances.

On May 18, 2016, we acquired Legacy TWC and Legacy Bright House. As a result of the Transactions, we have incorporated internal controls over significant processes specific to the acquisitions and to post-acquisition activities that we believe to be appropriate and necessary in consideration of the related integration, including controls associated with the Transactions for the valuations of certain assets acquired and liabilities assumed, as well as adoption of common financial reporting and internal control practices for the combined company. As we further integrate Legacy TWC and Legacy Bright House, we will continue to review the internal control to validate that the internal controls are effective and integrated appropriately.

Except as described above in the preceding paragraph, during the quarter ended June 30, 2016, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 83,047 characters.

### Risks Related to the Integration of the Transactions

***If we are not able to successfully integrate our business with that of TWC and Bright House within the anticipated time frame, or at all, the anticipated cost savings and other benefits of the Transactions may not be realized fully, or at all, or may take longer to realize than expected. In such circumstance, we may not perform as expected and the value of our Class A common stock may be adversely affected.***

Until the closing of the Transactions, Legacy Charter, Legacy TWC and Legacy Bright House operated independently, and there can be no assurances that their businesses can be integrated successfully. We now have significantly more systems, assets, investments, businesses, customers and employees than each company did prior to the Transactions. It is possible that the integration process could result in the loss of key Legacy Charter, Legacy TWC and/or Legacy Bright House employees, the loss of subscribers and customers, the disruption of our ongoing businesses or in unexpected integration issues, higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated. The process of integrating Legacy TWC and Legacy Bright House with the Legacy Charter operations will require significant capital expenditures and the expansion of certain operations and operating and financial systems. Management will be required to devote a significant amount of time and attention to the integration process and there is a significant degree of difficulty and management involvement inherent in that process. These difficulties include:

- integrating the companies’ operations and corporate functions;
- integrating the companies’ technologies, networks and customer service platforms;
- integrating and unifying the product offerings and services available to customers;
- harmonizing the companies’ operating practices, employee development and compensation programs, internal controls and other policies, procedures and processes;
- maintaining existing relationships and agreements with customers, providers, programmers and other vendors and avoiding delays in entering into new agreements with prospective customers, providers and vendors;
- addressing possible differences in business backgrounds, corporate cultures and management philosophies;
- consolidating the companies’ administrative and information technology infrastructure;
- coordinating programming and marketing efforts;
- coordinating geographically dispersed organizations;
- integrating information, purchasing, provisioning, accounting, finance, sales, billing, payroll, reporting and regulatory compliance systems;
- integrating and unifying the product offerings and services available to customers, including customer premise equipment and video user interfaces;
- completing the conversion of analog systems to all-digital for the systems acquired from TWC and Bright House; and
- attracting and retaining the necessary personnel associated with the acquired assets.

Even if the new businesses are successfully integrated, it may not be possible to realize the benefits that are expected to result from the Transactions, or realize these benefits within the time frame that is expected. For example, the elimination of duplicative costs may not be possible or may take longer than anticipated, or the benefits from the Transactions may be offset by costs incurred or delays in integrating the businesses and increased operating costs. If the combined company fails to realize the anticipated benefits from the transactions, its liquidity, results of operations, financial condition and/or share price may be adversely affected. In addition, at times, the attention of certain members of our management and resources may be focused on the integration of the businesses and diverted from day-to-day business operations, which may disrupt the business of the combined company.

***If the operating results of Legacy TWC and/or Legacy Bright House are less than Charter’s expectations, or an increase in the capital expenditures to upgrade and maintain those assets as well as to keep pace with technological developments are greater than expected, Charter may not achieve the expected level of financial results from the Transactions.***

Charter will derive a portion of its continuing revenues and earnings per share from the operation of Legacy TWC and Legacy Bright House. Therefore, any negative impact on these companies or the operating results derived from such companies could harm the combined company’s operating results.

The businesses of Charter, Legacy TWC and Legacy Bright House are characterized by rapid technological change and the introduction of new products and services. Charter intends to make investments in the combined business and transition toward only using two-way all-digital set-top boxes. The increase in capital expenditures necessary for the transition toward two-way set-top boxes in the business may negatively impact the expected financial results from the Transactions. The combined company may not be able to fund the capital expenditures necessary to keep pace with technological developments, execute the plans to do so, or anticipate the demand of its customers for products and services requiring new technology or bandwidth. Charter’s inability to maintain, expand and upgrade its existing or combined businesses could materially adversely affect its financial condition and results of operations.

The Transactions are being accounted for as an acquisition by Charter in accordance with accounting principles generally accepted in the United States. Under the acquisition method of accounting, the assets and liabilities of Legacy TWC and Legacy Bright House have been recorded, as of the date of completion of the Transactions, at their respective fair values and added to those of Charter. The reported financial condition and results of operations of Charter issued after completion of the Transactions will reflect Charter balances and results after completion of the Transactions, but will not be restated retroactively to reflect the historical financial position or results of operations of Legacy Charter for periods prior to the Transactions.

The excess of the purchase price over those fair values has been recorded as goodwill. To the extent the value of goodwill or intangibles becomes impaired, Charter may be required to incur material charges relating to such impairment. Such a potential impairment charge could have a material impact on Charter’s operating results.

***As a result of the closing of the Transactions, our businesses are subject to the conditions set forth in the FCC Order and the DOJ Consent Decree and those imposed by state utility commissions and local franchise authorities, and there can be no assurance that these conditions will not have an adverse effect on our businesses and results of operations.***

In connection with the Transactions, the FCC Order, the DOJ Consent Decree, and the approvals from state utility commissions and local franchise authorities incorporated numerous commitments and voluntary conditions made by the parties and imposed numerous conditions on our businesses relating to the operation of our business and other matters. Among other things, (i) we will not be permitted to charge usage-based prices or impose data caps and will be prohibited from charging interconnection fees for qualifying parties; (ii) we will be prohibited from entering into or enforcing any agreement with a programmer that forbids, limits or creates incentives to limit the programmer’s provision of content to on-line video distributors ("OVDs") and cannot retaliate against programmers for licensing to OVDs; (iii) we will not be able to avail ourself of other distributors’ most favored nation ("MFN") provisions if they are inconsistent with this prohibition; (iv) we must undertake a number of actions designed to promote diversity; (v) we must appoint an independent compliance monitor and comply with a broad array of reporting requirements; and (v) we must satisfy various other conditions relating to our high-speed Internet services, including building out an additional two million locations with access to a high-speed connection of at least 60 megabits per second with at least one million of those connections in competition with another high-speed broadband provider in the market served, and implementing a reduced price high-speed internet program for low income families. These and other conditions and commitments relating to the Transactions are of varying duration, ranging from three to seven years. Although we cannot predict how the conditions will be administered or what effects they will have on our businesses, we do not expect them to have a material adverse effect on our business or results of operations. In light of the breadth and duration of the conditions and potential changes in market conditions during the time the conditions and commitments are in effect, however, there can be no assurance that our compliance, and ability to comply, with the conditions will not have a material adverse effect on our business or results of operations.

### Risks Related to Our Indebtedness

***We have a significant amount of debt and may incur significant additional debt, including secured debt, in the future, which could adversely affect our financial health and our ability to react to changes in our business.***

We have a significant amount of debt and may (subject to applicable restrictions in our debt instruments) incur additional debt in the future. As of June 30, 2016, our total principal amount of debt was approximately $60.3 billion.

Our significant amount of debt could have consequences, such as:

- impact our ability to raise additional capital at reasonable rates, or at all;
- make us vulnerable to interest rate increases, in part because approximately 13% of our borrowings as of June 30, 2016 were, and may continue to be, subject to variable rates of interest;
- expose us to increased interest expense to the extent we refinance existing debt with higher cost debt;
- require us to dedicate a significant portion of our cash flow from operating activities to make payments on our debt, reducing our funds available for working capital, capital expenditures, and other general corporate expenses;
- limit our flexibility in planning for, or reacting to, changes in our business, the cable and telecommunications industries, and the economy at large;
- place us at a disadvantage compared to our competitors that have proportionately less debt; and
- adversely affect our relationship with customers and suppliers.

If current debt amounts increase, the related risks that we now face will intensify.

***The agreements and instruments governing our debt contain restrictions and limitations that could significantly affect our ability to operate our business, as well as significantly affect our liquidity.***

Our credit facilities and the indentures governing our debt contain a number of significant covenants that could adversely affect our ability to operate our business, our liquidity, and our results of operations. These covenants restrict, among other things, our and our subsidiaries’ ability to:

- incur additional debt;
- repurchase or redeem equity interests and debt;
- issue equity;
- make certain investments or acquisitions;
- pay dividends or make other distributions;
- dispose of assets or merge;
- enter into related party transactions; and
- grant liens and pledge assets.

Additionally, the Charter Operating credit facilities require Charter Operating to comply with a maximum total leverage covenant and a maximum first lien leverage covenant. The breach of any covenants or obligations in our indentures or credit facilities, not otherwise waived or amended, could result in a default under the applicable debt obligations and could trigger acceleration of those obligations, which in turn could trigger cross defaults under other agreements governing our long-term indebtedness. In addition, the secured lenders under the Charter Operating credit facilities and the holders of the Charter Operating notes could foreclose on their collateral, which includes equity interests in our subsidiaries, and exercise other rights of secured creditors.

***We depend on generating sufficient cash flow to fund our debt obligations, capital expenditures, and ongoing operations.***

We are dependent on our cash on hand and cash flow from operations to fund our debt obligations, capital expenditures and ongoing operations. Our ability to service our debt and to fund our planned capital expenditures and ongoing operations will depend on our ability to continue to generate cash flow and our access (by dividend or otherwise) to additional liquidity sources at the applicable obligor. Our ability to continue to generate cash flow is dependent on many factors, including:

- 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, DSL 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, high 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);
- the development and deployment of new products and technologies including our cloud-based user interface, Spectrum Guide®, and downloadable security for set-top boxes;
- the effects of governmental regulation on our business or potential business combination transactions; and
- any events that disrupt our networks, information systems or properties and impair our operating activities and negatively impact our reputation.

Some of these factors are beyond our control. If we are unable to generate sufficient cash flow or we are unable to access additional liquidity sources, we may not be able to service and repay our debt, operate our business, respond to competitive challenges, or fund our other liquidity and capital needs.

***Restrictions in our subsidiaries' debt instruments and under applicable law limit their ability to provide funds to us and our subsidiaries that are debt issuers.***

Our primary assets are our equity interests in our subsidiaries. Our operating subsidiaries are separate and distinct legal entities and are not obligated to make funds available to their debt issuer holding companies for payments on our notes or other obligations in the form of loans, distributions, or otherwise. Charter Operating’s ability to make distributions to Charter or CCO Holdings, our other primary debt issuers other than TWC, LLC and TWCE, to service debt obligations is subject to its compliance with the terms of its credit facilities, and restrictions under applicable law. TWC LLC’s and TWCE's ability to make distributions to Charter, CCO Holdings or Charter Operating to service debt obligations is subject to restrictions under applicable law. See “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Limitations on Distributions.” Under the Delaware Limited Liability Company Act (the “Act”), our subsidiaries may only make distributions if the relevant entity has “surplus” as defined in the Act. Under fraudulent transfer laws, our subsidiaries may not pay dividends if the relevant entity is insolvent or is rendered insolvent thereby. The measures of insolvency for purposes of these fraudulent transfer laws vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, an entity would be considered insolvent if:

- the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all its assets;
- the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or
- it could not pay its debts as they became due.

While we believe that our relevant subsidiaries currently have surplus and are not insolvent, these subsidiaries may become insolvent in the future. Our direct or indirect subsidiaries include the borrowers and guarantors under the Charter Operating credit facilities and notes, under the CCO Holdings notes and under the TWC, LLC and TWCE notes. As of June 30, 2016, our total principal amount of debt was approximately $60.3 billion.

In the event of bankruptcy, liquidation, or dissolution of one or more of our subsidiaries, that subsidiary's assets would first be applied to satisfy its own obligations, and following such payments, such subsidiary may not have sufficient assets remaining to make payments to its parent company as an equity holder or otherwise. In that event, the lenders under Charter Operating's credit facilities and notes and any other indebtedness of our subsidaries whose interests are secured by substantially all of our operating assets, and all holders of other debt of Charter Operating, CCO Holdings and TWC will have the right to be paid in full before us from any of our subsidiaries' assets.

***Some of our outstanding debt is subject to change of control provisions. We may not have the ability to raise the funds necessary to fulfill our obligations under our indebtedness following a change of control, which would place us in default under the applicable debt instruments.***

We may not have the ability to raise the funds necessary to fulfill our obligations under our notes and our credit facilities following a change of control. Under the indentures governing the CCO Holdings' notes, upon the occurrence of specified change of control events, the debt issuer is required to offer to repurchase all of its outstanding notes. However, we may not have sufficient access to funds at the time of the change of control event to make the required repurchase of the applicable notes, and Charter Operating is limited in its ability to make distributions or other payments to any debt issuer to fund any required repurchase. In addition, a change of control under the Charter Operating credit facilities would result in a default under those credit facilities, which would trigger a default under the indentures governing the CCO Holdings' notes, the Charter Operating notes and the TWC and TWCE notes. Because such credit facilities and notes are obligations of Charter Operating and its subsidiaries, the credit facilities would have to be repaid before Charter Operating's assets could be available to CCO Holdings to repurchase their notes. Any failure to make or complete a change of control offer would place CCO Holdings in default under their notes. The failure of our subsidiaries to make a change of control offer or repay the amounts accelerated under their notes and credit facilities would place them in default under such agreements.

### Risks Related to Our Business

***We operate in a very competitive business environment, which affects our ability to attract and retain customers and can adversely affect our business, operations and financial results.***

The industry in which we operate is highly competitive and has become more so in recent years. In some instances, we compete against companies with fewer regulatory burdens, better access to financing, greater personnel resources, greater resources for marketing, greater and more favorable brand name recognition, and long-established relationships with regulatory authorities and customers. Increasing consolidation in the cable industry and the repeal of certain ownership rules have provided additional benefits to certain of our competitors, either through access to financing, resources, or efficiencies of scale. We could also face additional competition from multi-channel video providers if they began distributing video over the Internet to customers residing outside their current territories.

Our principal competitors for video services throughout our territory are DBS providers. The two largest DBS providers are DirecTV (which is owned by AT&T) and DISH Network. Competition from DBS, including intensive marketing efforts with aggressive pricing, exclusive programming and increased HD broadcasting has had an adverse impact on our ability to retain customers. DBS companies have also expanded their activities in the MDU market.

Telephone companies, including two major telephone companies, AT&T and Verizon, offer video and other services in competition with us, and we expect they will increasingly do so in the future. Upgraded portions of these networks carry two-way video, data services and provide digital voice services similar to ours. In the case of Verizon, FIOS high-speed data services offer speeds as high as or higher than ours. In addition, these companies continue to offer their traditional telephone services, as well as service bundles that include wireless voice services provided by affiliated companies. Based on our internal estimates, we believe that AT&T (excluding DirecTV) and Verizon are offering video services in areas serving approximately 32% and 12%, respectively, of our estimated residential passings and we have experienced customer losses in these areas. AT&T and Verizon have also launched campaigns to capture more of the MDU market. When AT&T or Verizon have introduced or expanded their offering of video products in our market areas, we have seen a decrease in our video revenue as AT&T and Verizon typically roll out aggressive marketing and discounting campaigns to launch their products. Additionally, in July 2015, AT&T completed its acquisition of DirecTV, the nation’s largest DBS provider and in connection with that acquisition, AT&T committed to expand fiber to the premises services to 12.5 million locations. This transaction created an even larger competitor for Charter’s video services that has the ability to expand its video service offerings to include bundled wireless offerings.

Due to consumer electronic innovations, content owners are allowing consumers to watch Internet-delivered content on televisions, personal computers, tablets, gaming boxes connected to televisions and mobile devices, some without charging a fee to access the content. Technological advancements, such as video on demand, new video formats, and Internet streaming and downloading, have increased the number of entertainment and information delivery choices available to consumers, and intensified the challenges posed by audience fragmentation. For example, online video services continue to offer consumers alternatives including Hulu, Netflix, Amazon and Apple. In 2015, HBO and CBS began selling their programming direct to consumers over the Internet. DISH Network launched Sling TV which includes ESPN among other programming, and Sony launched PlayStation Vue which includes 85+ TV channels. The increasing number of choices available to audiences could also negatively impact advertisers’ willingness to purchase advertising from us, as well as the price they are willing to pay for advertising.

With respect to our Internet access services, we face competition, including intensive marketing efforts and aggressive pricing, from telephone companies, primarily AT&T and Verizon, and other providers of DSL, fiber-to-the-node and fiber-to-the-home services. DSL service competes with our Internet service and is often offered at prices lower than our Internet services, although often at speeds lower than the speeds we offer. Fiber-to-the-node networks can provide faster Internet speeds than conventional DSL, but still cannot typically match our Internet speeds. Fiber-to-the-home networks, however, can provide Internet speeds equal to or greater than our current Internet speeds. In addition, in many of our markets, DSL providers have entered into co-marketing arrangements with DBS providers to offer service bundles combining video services provided by a DBS provider with DSL and traditional telephone and wireless services offered by the telephone companies and their affiliates. These service bundles offer customers similar pricing and convenience advantages as our bundles. Wireless voice providers have also been providing data services that compete with our Internet service. Although these wireless data services are at speeds lower than those we offer, wireless service providers continue to consider the development and deployment of faster services with 5G as a recent example.

Continued growth in our residential voice business faces risks. The competitive landscape for residential and commercial telephone services is intense; we face competition from providers of Internet telephone services, as well as incumbent telephone companies. Further, we face increasing competition for residential voice services as more consumers in the United States are replacing traditional telephone service with wireless service. We expect to continue to price our voice product aggressively as part of our triple play strategy which could negatively impact our revenue from voice services to the extent we do not increase volume.

The existence of more than one cable system operating in the same territory is referred to as an overbuild. Overbuilds could adversely affect our growth, financial condition, and results of operations, by creating or increasing competition. We are aware of traditional overbuild situations impacting certain of our markets, however, we are unable to predict the extent to which additional overbuild situations may occur.

In order to attract new customers, from time to time we make promotional offers, including offers of temporarily reduced price or free service. These promotional programs result in significant advertising, programming and operating expenses, and also may require us to make capital expenditures to acquire and install customer premise equipment. Customers who subscribe to our services as a result of these offerings may not remain customers following the end of the promotional period. A failure to retain customers could have a material adverse effect on our business.

Mergers, joint ventures, and alliances among franchised, wireless, or private cable operators, DBS providers, local exchange carriers, and others, may provide additional benefits to some of our competitors, either through access to financing, resources, or efficiencies of scale, or the ability to provide multiple services in direct competition with us.

Our services may not allow us to compete effectively. Competition may reduce our expected growth of future cash flows which may contribute to future impairments of our franchises and goodwill and our ability to meet cash flow requirements, including debt service requirements.

***We face risks relating to competition for the leisure time and discretionary spending of audiences, which has intensified in part due to advances in technology and changes in consumer expectations and behavior.***

In addition to the various competitive factors discussed above, we are subject to risks relating to increasing competition for the leisure time, shifting consumer needs and discretionary spending of consumers. We compete with all other sources of entertainment, news and information delivery, as well as a broad range of communications products and services. Technological advancements, such as new video formats and Internet streaming and downloading of programming that can be viewed on televisions, computers, smartphones and tablets, many of which have been beneficial to us, have nonetheless increased the number of entertainment and information delivery choices available to consumers and intensified the challenges posed by audience fragmentation.

Newer products and services, particularly alternative methods for the distribution, sale and viewing of content will likely continue to be developed, further increasing the number of competitors that we face. The increasing number of choices available to audiences, including low-cost or free choices, could negatively impact not only consumer demand for our products and services, but also advertisers’ willingness to purchase advertising from us. We compete for the sale of advertising revenue with television networks and stations, as well as other advertising platforms, such as radio, print and, increasingly, online media. Our failure to effectively anticipate or adapt to new technologies and changes in consumer expectations and behavior could significantly adversely affect our competitive position and our business and results of operations.

***Our exposure to the economic conditions of our current and potential customers, vendors and third parties could adversely affect our cash flow, results of operations and financial condition.***

We are exposed to risks associated with the economic conditions of our current and potential customers, the potential financial instability of our customers and their financial ability to purchase our products. If there were a general economic downturn, we may experience increased cancellations by our customers or unfavorable changes in the mix of products purchased, including an increase in the number of homes that replace their video service with Internet-delivered and/or over-air content, which would negatively impact our ability to attract customers, increase rates and maintain or increase revenue. In addition, providing video services is an established and highly penetrated business. Our ability to gain new video subscribers is dependent to a large extent on growth in occupied housing in our service areas, which is influenced by both national and local economic conditions. Weak economic conditions may also have a negative impact on our advertising revenue. These events have adversely affected us in the past, and may adversely affect our cash flow, results of operations and financial condition if a downturn were to occur.

In addition, we are susceptible to risks associated with the potential financial instability of the vendors and third parties on which we rely to provide products and services or to which we outsource certain functions. The same economic conditions that may affect our customers, as well as volatility and disruption in the capital and credit markets, also could adversely affect vendors and third parties and lead to significant increases in prices, reduction in output or the bankruptcy of our vendors or third parties upon which we rely. Any interruption in the services provided by our vendors or by third parties could adversely affect our cash flow, results of operation and financial condition.

### We face risks inherent in our commercial business.

We may encounter unforeseen difficulties as we increase the scale of our service offerings to businesses. We sell Internet access, data networking and fiber connectivity to cellular towers and office buildings, video and business voice services to businesses and have increased our focus on growing this business. In order to grow our commercial business, we expect to continue investment in technology, equipment and personnel focused on the commercial business. Commercial business customers often require service level agreements and generally have heightened customer expectations for reliability of services. If our efforts to build the infrastructure to scale the commercial business are not successful, the growth of our commercial services business would be limited. We depend on interconnection and related services provided by certain third parties for the growth of our commercial business. As a result, our ability to implement changes as the services grow may be limited. If we are unable to meet these service level requirements or expectations, our commercial business could be adversely affected. Finally, we expect advances in communications technology, as well as changes in the marketplace and the regulatory and legislative environment. Consequently, we are unable to predict the effect that ongoing or future developments in these areas might have on our voice and commercial businesses and operations.

***Programming costs are rising at a much faster rate than wages or inflation, and we may not have the ability to reduce or moderate the growth rates of, or pass on to our customers, our increasing programming costs, which would adversely affect our cash flow and operating margins.***

Video programming has been, and is expected to continue to be, our largest operating expense item. In recent years, the cable industry has experienced a rapid escalation in the cost of programming. We expect programming costs to continue to increase because of a variety of factors including amounts paid for retransmission consent, annual increases imposed by programmers with additional selling power as a result of media consolidation, incremental programming, including new sports services, out-of-home or non-linear programming and attempts by programmers to replace advertising revenue they are losing to online marketing options and as a result of declining viewership ratings. The inability to fully pass these programming cost increases on to our customers has had an adverse impact on our cash flow and operating margins associated with the video product. We have programming contracts that have expired and others that will expire at or before the end of 2016. There can be no assurance that these agreements will be renewed on acceptable, favorable or comparable terms, or at all. Two programmers have filed lawsuits against us regarding which legacy programming arrangements apply after the closing of the Transactions, and there can be no assurance that other programmers will not bring similar suits in the future. To the extent that we are unable to reach agreement with programmers on terms that we believe are reasonable, we may be forced to remove such programming channels from our line-up, which could result in a further loss of customers. Our failure to carry programming that is attractive to our subscribers could adversely impact our subscriber levels, operations and financial results. In addition, if our high-speed data subscribers are unable to access desirable content online because content providers block or limit access by our subscribers as a class, our ability to gain and retain subscribers, especially high-speed data subscribers, may be negatively impacted.

Increased demands by owners of some broadcast stations for carriage of other services or payments to those broadcasters for retransmission consent are likely to further increase our programming costs. Federal law allows commercial television broadcast stations to make an election between “must-carry” rights and an alternative “retransmission-consent” regime. When a station opts for the latter, cable operators are not allowed to carry the station’s signal without the station’s permission. In some cases, we carry stations under short-term arrangements while we attempt to negotiate new long-term retransmission agreements. If negotiations with these programmers prove unsuccessful, they could require us to cease carrying their signals, possibly for an indefinite period. Any loss of stations could make our video service less attractive to customers, which could result in less subscription and advertising revenue. In retransmission-consent negotiations, broadcasters often condition consent with respect to one station on carriage of one or more other stations or programming services in which they or their affiliates have an interest. Carriage of these other services, as well as increased fees for retransmission rights, may increase our programming expenses and diminish the amount of capacity we have available to introduce new services, which could have an adverse effect on our business and financial results.

***Our inability to respond to technological developments and meet customer demand for new products and services could adversely affect our ability to compete effectively.***

We operate in a highly competitive, consumer-driven and rapidly changing environment. Our success is, to a large extent, dependent on our ability to acquire, develop, adopt, upgrade and exploit new and existing technologies to address consumers’ changing demands and distinguish our services from those of our competitors. We may not be able to accurately predict technological trends or the success of new products and services. If we choose technologies or equipment that are less effective, cost-efficient or attractive to customers than those chosen by our competitors, if we offer services that fail to appeal to consumers, are not available at competitive prices or that do not function as expected, or we are not able to fund the expenditures necessary to keep pace with technological developments, our competitive position could deteriorate, and our business and financial results could suffer.

The ability of some of our competitors to introduce new technologies, products and services more quickly than we do may adversely affect our competitive position. Furthermore, advances in technology, decreases in the cost of existing technologies or changes in competitors’ product and service offerings may require us in the future to make additional research and development expenditures or to offer at no additional charge or at a lower price certain products and services that we currently offer to customers separately or at a premium. In addition, the uncertainty of our ability, and the costs, to obtain intellectual property rights from third parties could impact our ability to respond to technological advances in a timely and effective manner.

The implementation of our network-based user interface, Spectrum Guide, and downloadable security necessary for our Worldbox set-top box strategy, may ultimately be unsuccessful or more expensive than anticipated. In order to realize the benefits of our Worldbox technology, we must implement our downloadable conditional access security in our regional video networks. Our inability to maintain and expand our upgraded systems and provide advanced services such as a state of the art user interface in a timely manner, or to anticipate the demands of the marketplace, could materially adversely affect our ability to attract and retain customers. Consequently, our growth, financial condition and results of operations could suffer materially.

***We depend on third party service providers, suppliers and licensors; thus, if we are unable to procure the necessary services, equipment, software or licenses on reasonable terms and on a timely basis, our ability to offer services could be impaired, and our growth, operations, business, financial results and financial condition could be materially adversely affected.***

We depend on a limited number of third party service providers, suppliers and licensors to supply some of the services, hardware, software and operational support necessary to provide some of our services. Some of our hardware, software and operational support vendors, and service providers represent our sole source of supply or have, either through contract or as a result of intellectual property rights, a position of some exclusivity. If any of these parties breaches or terminates its agreement with us or otherwise fails to perform its obligations in a timely manner, demand exceeds these vendors’ capacity, they experience operating or financial difficulties, they significantly increase the amount we pay for necessary products or services, or they cease production of any necessary product due to lack of demand, profitability or a change in ownership or are otherwise unable to provide the equipment or services we need in a timely manner, at our specifications and at reasonable prices, our ability to provide some services might be materially adversely affected, or the need to procure or develop alternative sources of the affected materials or services might delay our ability to serve our customers. In addition, the existence of only a limited number of vendors of key technologies can lead to less product innovation and higher costs. These events could materially and adversely affect our ability to retain and attract customers and our operations, business, financial results and financial condition.

Our cable systems have historically been restricted to using one of two proprietary conditional access security systems, which we believe has limited the number of manufacturers producing set-top boxes for such systems. As an alternative, Charter has developed a conditional access security system which may be downloaded into set-top boxes with features we specify that could be provided by a variety of manufacturers. We refer to our specified set-top box as our Worldbox. In order to realize the benefits of our Worldbox technology, we must now implement the conditional access security system across our video network. We cannot provide assurances that this implementation will ultimately be successful or completed in the expected timeframe or at the expected budget.

***Our business may be adversely affected if we cannot continue to license or enforce the intellectual property rights on which our business depends.***

We rely on patent, copyright, trademark and trade secret laws and licenses and other agreements with our employees, customers, suppliers and other parties to establish and maintain our intellectual property rights in technology and the products and services used in our operations. Also, because of the rapid pace of technological change, we both develop our own technologies, products and services and rely on technologies developed or licensed by third parties. However, any of our intellectual property rights could be challenged or invalidated, or such intellectual property rights may not be sufficient to permit us to take advantage of current industry trends or otherwise to provide competitive advantages, which could result in costly redesign efforts, discontinuance of certain product or service offerings or other competitive harm. We may not be able to obtain or continue to obtain licenses from these third parties on reasonable terms, if at all. In addition, claims of intellectual property infringement could require us to enter into royalty or licensing agreements on unfavorable terms, incur substantial monetary liability or be enjoined preliminarily or permanently from further use of the intellectual property in question, which could require us to change our business practices or offerings and limit our ability to compete effectively. Even unsuccessful claims can be time-consuming and costly to defend and may divert management’s attention and resources away from our business. In recent years, the number of intellectual property infringement claims has been increasing in the communications and entertainment industries, and, with increasing frequency, we are party to litigation alleging that certain of our services or technologies infringe the intellectual property rights of others.

***Various events could disrupt our networks, information systems or properties and could impair our operating activities and negatively impact our reputation and financial results.***

Network and information systems technologies are critical to our operating activities, both for our internal uses, such as network management and supplying services to our customers, including customer service operations and programming delivery. Network or information system shutdowns or other service disruptions caused by events such as computer hacking, dissemination of computer viruses, worms and other destructive or disruptive software, “cyber attacks,” process breakdowns, denial of service attacks and other malicious activity pose increasing risks. Both unsuccessful and successful “cyber attacks” on companies have continued to increase in frequency, scope and potential harm in recent years. While we develop and maintain systems seeking to prevent systems-related events and security breaches from occurring, the development and maintenance of these systems is costly and requires ongoing monitoring and updating as techniques used in such attacks become more sophisticated and change frequently. We, and the third parties on which we rely, may be unable to anticipate these techniques or implement adequate preventative measures. While from time to time attempts have been made to access our network, these attempts have not as yet resulted in any material release of information, degradation or disruption to our network and information systems.

Our network and information systems are also vulnerable to damage or interruption from power outages, telecommunications failures, accidents, natural disasters (including extreme weather arising from short-term or any long-term changes in weather patterns), terrorist attacks and similar events. Further, the impacts associated with extreme weather or long-term changes in weather patterns, such as rising sea levels or increased and intensified storm activity, may cause increased business interruptions or may require the relocation of some of our facilities. Our system redundancy may be ineffective or inadequate, and our disaster recovery planning may not be sufficient for all eventualities.

Any of these events, if directed at, or experienced by, us or technologies upon which we depend, could have adverse consequences on our network, our customers and our business, including degradation of service, service disruption, excessive call volume to call centers, and damage to our or our customers' equipment and data. Large expenditures may be necessary to repair or replace damaged property, networks or information systems or to protect them from similar events in the future. Moreover, the amount and scope of insurance that we maintain against losses resulting from any such events or security breaches may not be sufficient to cover our losses or otherwise adequately compensate us for any disruptions to our business that may result. Any such significant service disruption could result in damage to our reputation and credibility, customer dissatisfaction and ultimately a loss of customers or revenue. Any significant loss of customers or revenue, or significant increase in costs of serving those customers, could adversely affect our growth, financial condition and results of operations.

Furthermore, our operating activities could be subject to risks caused by misappropriation, misuse, leakage, falsification or accidental release or loss of information maintained in our information technology systems and networks and those of our third-party vendors, including customer, personnel and vendor data. We provide certain confidential, proprietary and personal information to third parties in connection with our business, and there is a risk that this information may be compromised.

As a result of the increasing awareness concerning the importance of safeguarding personal information, the potential misuse of such information and legislation that has been adopted or is being considered regarding the protection, privacy and security of personal information, information-related risks are increasing, particularly for businesses like ours that process, store and transmit large amount of data, including personal information for our customers. We could be exposed to significant costs if such risks were to materialize, and such events could damage our reputation, credibility and business and have a negative impact on our revenue. We could be subject to regulatory actions and claims made by consumers in private litigations involving privacy issues related to consumer data collection and use practices. We also could be required to expend significant capital and other resources to remedy any such security breach.

***For tax purposes, we could experience a deemed ownership change in the future that could limit our ability to use our tax loss carryforwards.***

We had approximately $11.5 billion of federal tax net operating loss carryforwards resulting in a gross deferred tax asset of approximately $4.0 billion as of May17, 2016. Federal tax net operating loss carryforwards expire in the years 2019 through 2035. These losses resulted from the operations of Charter Holdco and its subsidiaries. In addition, we had state tax net operating loss carryforwards resulting in a gross deferred tax asset (net of federal tax benefit) of approximately $289 million as of May17, 2016. State tax net operating loss carryforwards generally expire in the years 2016 through 2035.

In the past, we have experienced “ownership changes” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). In general, an “ownership change” occurs whenever the percentage of the stock of a corporation owned, directly or indirectly, by “5-percent stockholders” (within the meaning of Section 382 of the Code) increases by more than 50 percentage points over the lowest percentage of the stock of such corporation owned, directly or indirectly, by such “5-percent stockholders” at any time over the preceding three years. As a result, Charter is subject to an annual limitation on the use of our loss carryforwards which existed at November 30, 2009 for the first “ownership change,” those that existed at May 1, 2013 for the second “ownership change,” and those created at May 18, 2016 for the third "ownership change." The limitation on our ability to use our loss carryforwards, in conjunction with the loss carryforward expiration provisions, could reduce our ability to use a portion of our loss carryforwards to offset future taxable income, which could result in us being required to make material cash tax payments. Our ability to make such income tax payments, if any, will depend at such time on our liquidity or our ability to raise additional capital, and/or on receipt of payments or distributions from Charter Holdco and its subsidiaries.

If we were to experience additional ownership changes in the future (as a result of purchases and sales of stock by our “5-percent stockholders,” new issuances or redemptions of our stock, certain acquisitions of our stock and issuances, redemptions, sales or other dispositions or acquisitions of interests in our “5-percent stockholders”), our ability to use our loss carryforwards could become subject to further limitations.

***If Legacy TWC’s Separation Transactions (as defined below), including the Distribution (as defined below), do not qualify as tax-free, either as a result of actions taken or not taken by TWC or as a result of the failure of certain representations by Legacy TWC to be true, Legacy TWC has agreed to indemnify Time Warner Inc. for its taxes resulting from such disqualification, which would be significant.***

As part of Legacy TWC’s separation from Time Warner Inc. (“Time Warner”) in March 2009 (the “Separation”), Time Warner received a private letter ruling from the IRS and Time Warner and TWC received opinions of tax counsel confirming that the transactions undertaken in connection with the Separation, including the transfer by a subsidiary of Time Warner of its 12.43% non-voting common stock interest in TW NY to TWC in exchange for 80 million newly issued shares of Legacy TWC’s Class A common stock, Legacy TWC’s payment of a special cash dividend to holders of Legacy TWC’s outstanding Class A and Class B common stock, the conversion of each share of Legacy TWC’s outstanding Class A and Class B common stock into one share of Legacy TWC common stock, and the pro-rata dividend of all shares of Legacy TWC common stock held by Time Warner to holders of record of Time Warner’s common stock (the “Distribution” and, together with all of the transactions, the “Separation Transactions”), should generally qualify as tax-free to Time Warner and its stockholders for U.S. federal income tax purposes. The ruling and opinions rely on certain facts, assumptions, representations and undertakings from Time Warner and Legacy TWC regarding the past and future conduct of the companies’ businesses and other matters. If any of these facts, assumptions, representations or undertakings are incorrect or not otherwise satisfied, Time Warner and its stockholders may not be able to rely on the ruling or the opinions and could be subject to significant tax liabilities. Notwithstanding the private letter ruling and opinions, the IRS could determine on audit that the Separation Transactions should be treated as taxable transactions if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated, or for other reasons, including as a result of significant changes in the stock ownership of Time Warner or Legacy TWC after the Distribution.

Under the tax sharing agreement among Time Warner and Legacy TWC, Legacy TWC generally would be required to indemnify Time Warner against its taxes resulting from the failure of any of the Separation Transactions to qualify as tax-free as a result of (i) certain actions or failures to act by Legacy TWC or (ii) the failure of certain representations made by Legacy TWC to be true. In addition, even if Legacy TWC bears no contractual responsibility for taxes related to a failure of the Separation Transactions to qualify for their intended tax treatment, Treasury regulation section 1.1502-6 imposes on Legacy TWC several liability for all Time Warner federal income tax obligations relating to the period during which Legacy TWC was a member of the Time Warner federal consolidated tax group, including the date of the Separation Transactions. Similar provisions may apply under foreign, state or local law. Absent Legacy TWC causing the Separation Transactions to not qualify as tax-free, Time Warner has indemnified Legacy TWC against such several liability arising from a failure of the Separation Transactions to qualify for their intended tax treatment.

***If we are unable to retain key employees, our ability to manage our business could be adversely affected.***

Our operational results have depended, and our future results will depend, upon the retention and continued performance of our management team. Our ability to retain and hire new key employees for management positions could be impacted adversely by the competitive environment for management talent in the broadband communications industry. The loss of the services of key members of management and the inability or delay in hiring new key employees could adversely affect our ability to manage our business and our future operational and financial results.

***Our inability to successfully acquire and integrate other businesses, assets, products or technologies could harm our operating results.***

We continuously evaluate and pursue small and large acquisitions and strategic investments in businesses, products or technologies that we believe could complement or expand our business or otherwise offer growth or cost-saving opportunities. From time to time, we may enter into letters of intent with companies with which we are negotiating for potential acquisitions or investments, or as to which we are conducting due diligence. An investment in, or acquisition of, complementary businesses, products or technologies in the future could materially decrease the amount of our available cash or require us to seek additional equity or debt financing. We may not be successful in negotiating the terms of any potential acquisition, conducting thorough due diligence, financing the acquisition or effectively integrating the acquired business, product or technology into our existing business and operations. Our due diligence may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired business, product or technology, including issues related to intellectual property, product quality or product architecture, regulatory compliance practices, revenue recognition or other accounting practices, or employee or customer issues.

Additionally, in connection with any acquisitions we complete, including the recently completed Transactions, we may not achieve the growth, synergies or other financial and operating benefits we expected to achieve, and we may incur write-downs, impairment charges or unforeseen liabilities that could negatively affect our operating results or financial position or could otherwise harm our business. Even if we are able to integrate the business operations obtained in such transactions successfully, it is not possible to predict with certainty if or when these cost synergies, growth opportunities and benefits will occur, or the extent to which they actually will be achieved. For example, the benefits from such transactions may be offset by costs incurred in integrating new business operations or in obtaining or attempting to obtain regulatory approvals, or increased operating costs that may be experienced as a result of the transactions. Realization of any benefits and cost synergies could be affected by the factors described in other risk factors and a number of factors beyond our control, as applicable, including, without limitation, general economic conditions, increased operating costs, the response of competitors and vendors and regulatory developments. Further, contemplating or completing an acquisition and integrating an acquired business, product or technology, individually or across multiple opportunities, could divert management and employee time and resources from other matters.

### Risks Related to Ownership Position of Liberty Broadband Corporation and Advance/Newhouse Partnership

***Liberty Broadband and A/N have governance rights that give them influence over corporate transactions and other matters.***

Liberty Broadband currently owns a significant amount of Charter Class A common stock and is entitled to certain governance rights with respect to Charter. A/N currently owns a significant amount of membership interests in our subsidiary Charter Communications Holdings, LLC that are convertible in our Charter Class A common stock and is entitled to certain governance rights with respect to Charter. Members of the Charter board of directors include directors who are also officers and directors of Liberty Broadband and directors who are current or former officers and directors of A/N. Dr. John Malone is the Chairman of Liberty Broadband, and Mr. Greg Maffei is the president and chief executive officer of Liberty Broadband. Steven Miron is the Chief Executive Officer of A/N and Michael Newhouse is an officer or director of several of A/N’s affiliates. As of June 30, 2016, Liberty Broadband beneficially held approximately 17.4% of Charter’s Class A common stock and A/N beneficially held approximately 13.0% of Charter’s Class A common stock, in each case assuming the conversion of the membership interests held by A/N. Pursuant to the stockholders agreement between Liberty Broadband, A/N and Charter dated March 31, 2015, Liberty Broadband currently has the right to designate up to three directors as nominees for Charter’s board of directors and A/N currently has the right to designate up to two directors as nominees for Charter’s board of directors with one designated director to be appointed to each of the audit committee, the nominating and corporate governance committee, the compensation and benefits committee and the Finance Committee, in each case provided that each maintains certain specified voting or equity ownership thresholds and each nominee meets certain applicable requirements or qualifications.

In connection with the TWC Transaction, Liberty Broadband and Liberty Interactive entered into a proxy and right of first refusal agreement, pursuant to which Liberty Interactive granted Liberty Broadband an irrevocable proxy to vote all Charter Class A common stock owned beneficially or of record by Liberty Interactive, with certain exceptions. In addition, at the closing of the Bright House Transaction, A/N and Liberty Broadband entered into a proxy agreement pursuant to which A/N granted to Liberty Broadband a 5-year irrevocable proxy (which we refer to as the “A/N proxy”) to vote, subject to certain exceptions, that number of shares of New Charter Class A common stock and New Charter Class B common stock, in each case held by A/N (such shares are referred to as the “proxy shares”), that will result in Liberty Broadband having voting power in New Charter equal to 25.01% of the outstanding voting power of New Charter, provided, that the voting power of the proxy shares is capped at 7.0% of the outstanding voting power of New Charter. Therefore, giving effect to the Liberty Interactive proxy and the A/N proxy and the voting cap contained in the stockholders agreement, Liberty Broadband has 25.01% of the outstanding voting power in Charter.

The stockholders agreement and Charter’s amended and restated certificate of incorporation fixes the size of the board at 13 directors. Liberty Broadband and A/N are required to vote (subject to the applicable voting cap) their respective shares of Charter Class A common stock and Charter Class B common stock for the director nominees nominated by the nominating and corporate governance committee of the board of directors, including the respective designees of Liberty Broadband and A/N, and against any other nominees, except that, with respect to the unaffiliated directors, Liberty Broadband and A/N must instead vote in the same proportion as the voting securities are voted by stockholders other than A/N and Liberty Broadband or any group which includes any of them are voted, if doing so would cause a different outcome with respect to the unaffiliated directors. As a result of their rights under the stockholders agreement and their significant equity and voting stakes in Charter, Liberty Broadband and/or A/N, who may have interests different from those of other stockholders, will be able to exercise substantial influence over certain matters relating to the governance of Charter, including the approval of significant corporate actions, such as mergers and other business combination transactions.

***The stockholders agreement provides A/N and Liberty Broadband with preemptive rights with respect to issuances of Charter equity in connection with certain transactions, and in the event that A/N or Liberty Broadband exercises these rights, holders of Charter Class A common stock may experience further dilution.***

The stockholders agreement provides that A/N and Liberty Broadband will have certain contractual preemptive rights over issuances of Charter equity securities in connection with capital raising transactions, merger and acquisition transactions, and in certain other circumstances. Holders of Charter Class A common stock will not be entitled to similar preemptive rights with respect to such transactions. As a result, if Liberty Broadband and/or A/N elect to exercise their preemptive rights, (i) these parties would not experience the dilution experienced by the other holders of Charter Class A common stock, and (ii) such other holders of Charter Class A common stock may experience further dilution of their interest in Charter upon such exercise.

### Risks Related to Regulatory and Legislative Matters

***Our business is subject to extensive governmental legislation and regulation, which could adversely affect our business.***

Regulation of the cable industry has increased cable operators' operational and administrative expenses and limited their revenues. Cable operators are subject to various laws and regulations including those covering the following:

- the provisioning and marketing of cable equipment and compatibility with new digital technologies;
- customer and employee privacy and data security;
- limited rate regulation of video service;
- copyright royalties for retransmitting broadcast signals;
- when a cable system must carry a particular broadcast station and when it must first obtain retransmission consent to carry a broadcast station;
- the provision of channel capacity to unaffiliated commercial leased access programmers;
- limitations on our ability to enter into exclusive agreements with multiple dwelling unit complexes and control our inside wiring;
- the provision of high-speed Internet service, including net neutrality or open Internet rules;
- the provision of voice communications;
- cable franchise renewals and transfers;
- equal employment opportunity, emergency alert systems, disability access, technical standards, marketing practices, customer service, and consumer protection; and
- approval for mergers and acquisitions often accompanied by the imposition of restrictions and requirements on an applicant's business in order to secure approval of the proposed transaction.

Additionally, many aspects of these laws and regulations are often the subject of judicial proceedings and administrative or legislative proposals. There are also ongoing efforts to amend or expand the federal, state, and local regulation of some of the services offered over our cable systems, which may compound the regulatory risks we already face. Congress and various federal agencies are also considering legislation and rules that would further regulate us, such as new privacy restrictions, including new restrictions on the use of personal and profiling information for behavioral advertising, regulation of business data service offerings, and requirements to make video services available on third party set-top boxes and other devices on a disaggregated basis. Congress and various federal agencies are also considering the adoption of new data security and cybersecurity legislation and regulation that could result in additional network and information security requirements for our business. These new laws, as well as existing legal and regulatory obligations, and increased enforcement by the FCC and other agencies, could affect our operations and require significant expenditures.

***Changes to existing statutes, rules, regulations, or interpretations thereof, or adoption of new ones, could have an adverse effect on Charter’s business.***

Legislators and regulators at all levels of government frequently consider changing, and sometimes do change, existing statutes, rules, regulations, or interpretations thereof, or prescribe new ones. Any future legislative, judicial, regulatory or administrative actions may increase Charter’s costs or impose additional restrictions on Charter’s businesses. For example, on February 26, 2015, the FCC adopted an order that (1) reclassified broadband Internet service as a Title II service, (2) applied certain existing Title II provisions and associated regulations, (3) forbore from applying a range of other existing Title II provisions and associated regulations, but to varying degrees indicated that this forbearance may be only temporary, and (4) issued new rules expanding disclosure requirements and prohibiting blocking, throttling, paid prioritization, and unreasonable interference with the ability of end users and edge providers to reach each other. The order also subjected broadband providers’ Internet traffic exchange rates and practices to potential FCC oversight for the first time and created a mechanism for third parties to file complaints regarding these matters. The U.S. Court of Appeal upheld the order in full on June 14, 2016, although petitioners have requested a rehearing.

The FCC is considering numerous other regulatory changes. For example, the FCC is considering the appropriate regulatory framework for VoIP service, including whether that service should be regulated under Title II. In addition, the FCC recently issued a proposal to impose new regulations on our point to point transport service as well as other commercial data services (“business data services”). As a result, the FCC may price regulate business data services as common carriage services and impose additional restrictions on contracting terms. Charter cannot predict future developments in these areas, and we are already subject to Charter-specific conditions regarding certain Internet practices as a result of the FCC’s approval of the TWC Transaction and the Bright House Transaction (discussed above), but any changes to the regulatory framework for Charter’s Internet or VoIP services could have a negative impact on its business and results of operations.

The FCC is also considering the possibility of new navigation device rules. On February 18, 2016, the FCC adopted a Notice of Proposed Rulemaking proposing rules that would require us to make disaggregated “information flows” available to set-top boxes and apps supplied by third parties in accordance with standards to be developed by a standard setting body. Various parties have advanced alternative approaches to reduce consumer dependency on traditional operator provided set-top boxes, which the FCC is considering.

In a separate Notice of Proposed Rulemaking, issued by the FCC on April 1, 2016, the FCC proposed extending and expanding customer privacy and information security obligations to broadband Internet service providers. The proposed rules would place heightened restrictions on the use of customer information that Internet service providers obtain from the provision of broadband Internet access service (including increased notice, consumer choice, and security), and the proposed rules are inconsistent with many existing privacy and security frameworks.

It remains uncertain what rules, if any, will ultimately be adopted in these proceedings and what operating or financial impact any such rules might have on us, including on the security of the content we obtain from programmers that is delivered over any third party navigation device, customer privacy and the user experience. In addition, the FCC’s Enforcement Bureau has been actively investigating certain industry practices of various companies and imposing forfeitures for alleged regulatory violations.

***Our cable system franchises are subject to non-renewal or termination. The failure to renew a franchise in one or more key markets could adversely affect our business.***

Our cable systems generally operate pursuant to franchises, permits, and similar authorizations issued by a state or local governmental authority controlling the public rights-of-way. Many franchises establish comprehensive facilities and service requirements, as well as specific customer service standards and monetary penalties for non-compliance. In many cases, franchises are terminable if the franchisee fails to comply with significant provisions set forth in the franchise agreement governing system operations. Franchises are generally granted for fixed terms and must be periodically renewed. Franchising authorities may resist granting a renewal if either past performance or the prospective operating proposal is considered inadequate. Franchise authorities often demand concessions or other commitments as a condition to renewal. In some instances, local franchises have not been renewed at expiration, and we have operated and are operating under either temporary operating agreements or without a franchise while negotiating renewal terms with the local franchising authorities.

We cannot assure you that we will be able to comply with all significant provisions of our franchise agreements and certain of our franchisers have from time to time alleged that we have not complied with these agreements. Additionally, although historically we have renewed our franchises without incurring significant costs, we cannot assure you that we will be able to renew, or to renew as favorably, our franchises in the future. A termination of or a sustained failure to renew a franchise in one or more key markets could adversely affect our business in the affected geographic area.

***Our cable system franchises are non-exclusive. Accordingly, local and state franchising authorities can grant additional franchises and create additional competition for our products, resulting in overbuilds, which could adversely affect results of operations.***

Our cable system franchises are non-exclusive. Consequently, local and state franchising authorities can grant additional franchises to competitors in the same geographic area or operate their own cable systems. In some cases, local government entities and municipal utilities may legally compete with us on more favorable terms. The FCC recently adopted an order (currently under appeal) rejecting state laws in North Carolina and Tennessee that restricted municipalities from providing broadband service. In addition, potential competitors (like Google) have recently pursued and obtained local franchises that are more favorable than the incumbent operator’s franchise. As a result, competing operators may build systems in areas in which we hold franchises.

The FCC has adopted rules that streamline entry for new competitors (particularly those affiliated with telephone companies) and reduce franchising burdens for these new entrants. At the same time, a substantial number of states have adopted new franchising laws, principally designed to streamline entry for new competitors, and often provide advantages for these new entrants that are not immediately available to existing operators.

Broadband delivery of video content is not necessarily subject to the same franchising obligations applicable to our traditional cable systems. The FCC administers a program that collects Universal Service Fund contributions from telecommunications service providers and uses them to subsidize the provision of telecommunications services in high-cost areas and to low-income consumers and the provision of Internet and telecommunications services to schools, libraries and certain health care providers. A variety of regulatory changes may lead the FCC to expand the collection of Universal Service Fund contributions to encompass Internet service providers. The FCC already has begun to redirect the expenditure of some Universal Service Fund subsidies to broadband deployment in ways that could assist competitors.

***Local franchise authorities have the ability to impose additional regulatory constraints on our business, which could further increase our expenses.***

In addition to the franchise agreement, cable authorities in some jurisdictions have adopted cable regulatory ordinances that further regulate the operation of cable systems. This additional regulation increases the cost of operating our business. Local franchising authorities may impose new and more restrictive requirements. Local franchising authorities who are certified to regulate rates in the communities where they operate generally have the power to reduce rates and order refunds on the rates charged for basic service and equipment.

***Tax legislation and administrative initiatives or challenges to our tax positions could adversely affect our results of operations and financial condition.***

We operate cable systems in locations throughout the United States and, as a result, we are subject to the tax laws and regulations of federal, state and local governments. From time to time, various legislative and/or administrative initiatives may be proposed that could adversely affect our tax positions. There can be no assurance that our effective tax rate or tax payments will not be adversely affected by these initiatives. Certain states and localities have imposed or are considering imposing new or additional taxes or fees on our services or changing the methodologies or base on which certain fees and taxes are computed. Potential changes include additional taxes or fees on our services which could impact our customers, combined reporting and other changes to general business taxes, central/unit-level assessment of property taxes and other matters that could increase our income, franchise, sales, use and/or property tax liabilities. In addition, federal, state and local tax laws and regulations are extremely complex and subject to varying interpretations. There can be no assurance that our tax positions will not be challenged by relevant tax authorities or that we would be successful in any such challenge.

***Further regulation of the cable industry could impair our ability to raise rates to cover our increasing costs, resulting in increased losses.***

Currently, rate regulation of cable systems is strictly limited to the basic service tier and associated equipment and installation activities, and the FCC recently revised its rules, in response to changed market conditions, to make it more difficult for local franchising authorities to assert rate regulation authority. However, the FCC and Congress continue to be concerned that cable rate increases are exceeding inflation. It is possible that either the FCC or Congress will further restrict the ability of cable system operators to implement rate increases for our video services or even for our high-speed Internet and voice services. Should this occur, it would impede our ability to raise our rates. If we are unable to raise our rates in response to increasing costs, our losses would increase.

There has been legislative and regulatory interest in requiring companies that own multiple cable networks to make each of them available on a standalone, rather than a bundled basis to cable operators, and in requiring cable operators to offer historically bundled programming services on an á la carte basis to consumers. While any new regulation or legislation designed to enable cable operators to purchase programming on a standalone basis could be beneficial to Charter, any regulation or legislation that limits how we sell programming could adversely affect our business.

***Actions by pole owners might subject us to significantly increased pole attachment costs.***

Pole attachments are cable wires that are attached to utility poles. Cable system attachments to investor-owned public utility poles historically have been regulated at the federal or state level, generally resulting in favorable pole attachment rates for attachments used to provide cable service. In contrast, utility poles owned by municipalities or cooperatives are not subject to federal regulation and are generally exempt from state regulation. Future regulatory changes in this area could impact the pole attachment rates we pay utility companies.

***Changes in channel carriage regulations could impose significant additional costs on us.***

Cable operators also face significant regulation of their video channel carriage. We can be required to devote substantial capacity to the carriage of programming that we might not carry voluntarily, including certain local broadcast signals; local public, educational and governmental access (“PEG”) programming; and unaffiliated, commercial leased access programming (required channel capacity for use by persons unaffiliated with the cable operator who desire to distribute programming over a cable system). The FCC adopted revised commercial leased access rules which would dramatically reduce the rate we can charge for leasing this capacity and dramatically increase our administrative burdens, but these remain stayed while under appeal. Legislation has been introduced in Congress in the past that, if adopted, could impact our carriage of broadcast signals by eliminating the cable industry’s compulsory copyright license. The FCC also continues to consider changes to the rules affecting the relationship between programmers (including broadcasters) and multichannel video distributors. Future regulatory changes could disrupt existing programming commitments, interfere with our preferred use of limited channel capacity, increase our programming costs, and limit our ability to offer services that would maximize our revenue potential. It is possible that other legal restraints will be adopted limiting our discretion over programming decisions.

***Our voice service is subject to regulatory burdens which may increase, causing us to incur additional costs.***

We offer voice communications services over our broadband network using VoIP services. The FCC has ruled that competitive telephone companies that support VoIP services, such as those we offer our customers, are entitled to interconnect with incumbent providers of traditional telecommunications services, which ensures that our VoIP services can compete in the market. The scope of these interconnection rights are being reviewed in a current FCC proceeding, which may affect our ability to compete in the provision of voice services or result in additional costs. The FCC has also declared that certain VoIP services are not subject to traditional state public utility regulation. The full extent of the FCC preemption of state and local regulation of VoIP services is not yet clear, and at least one state (Minnesota) has asserted jurisdiction over the company’s VoIP services. We have filed a legal challenge to that jurisdictional assertion, which is now pending before a federal district court in Minnesota. Telecommunications companies generally are subject to other significant regulation which could also be extended to VoIP providers. If additional telecommunications regulations are applied to our VoIP service, it could cause us to incur additional costs. The FCC has already extended certain traditional telecommunications carrier requirements to many VoIP providers such as us, including E911, Universal Service fund collection, CALEA, privacy of Customer Proprietary Network Information, number porting, network outage reporting, rural call completion reporting, back-up power obligations, disability access and discontinuance of service requirements.

Filed Aug 9, 2016.
Source: SEC EDGAR, the filing index for accession 0001091667-16-000549. Last ingested by Listed: Nov 6, 2026, 11:35 ET. No prices; not investment advice.