10-QPeriod: Q2 FY2016

CHARTER COMMUNICATIONS, INC. /MO/ Quarterly Report for Q2 Ended Jun 30, 2016

Filed August 9, 2016For Securities:CHTR

Summary

Charter Communications, Inc. (CHTR) reported significant changes in its second quarter 2016 filing, primarily driven by the completion of the Time Warner Cable (TWC) and Bright House transactions on May 18, 2016. These transformative acquisitions resulted in a dramatic increase in total assets and liabilities, reflecting the integration of these substantial businesses. The company reported a substantial net income of $3.1 billion for the quarter, a significant swing from a net loss in the prior year, largely due to a substantial income tax benefit from the reversal of a valuation allowance. Revenues also saw a substantial increase, reflecting the combined operations. Financially, the balance sheet shows a dramatic growth in property, plant, and equipment, franchises, customer relationships, and goodwill, all post-acquisition. The company's debt also increased significantly to fund these transactions. Management is focused on integrating the acquired operations, achieving synergies, and executing its 'Spectrum' pricing and packaging strategy, as well as an all-digital transition. While the company has a substantial debt load, it believes it has sufficient liquidity from cash on hand, free cash flow, and credit facilities to fund its needs.

Financial Highlights

50 data points
Beta

Revenue

$6.16B

Net Income

$3.07B

49.8% Net Margin

EPS (Diluted)

$15.17

Total Assets

$149.19B

Cash & Equivalents

$555.00M

Free Cash Flow

$330.00M

Financial Statements
Beta
Revenue$6.16B
Operating Expenses$5.99B
Operating Income$170.00M
Net Income$3.07B
EPS (Basic)$16.73
EPS (Diluted)$15.17
Shares Outstanding (Basic)183.36M
Shares Outstanding (Diluted)205.21M

Key Highlights

  • 1Completion of the Time Warner Cable (TWC) and Bright House transactions on May 18, 2016, significantly altering the company's scale and financial structure.
  • 2Reported a net income of $3.1 billion for the three months ended June 30, 2016, a substantial improvement from a net loss in the prior year, largely driven by a $3.2 billion income tax benefit from the release of a valuation allowance.
  • 3Total assets increased from $39.3 billion at December 31, 2015, to $149.2 billion at June 30, 2016, primarily due to the acquisitions.
  • 4Long-term debt increased significantly from $35.7 billion to $60.1 billion to finance the transactions.
  • 5Revenues for the quarter increased by 154% year-over-year to $6.2 billion, reflecting the combined operations.
  • 6Adjusted EBITDA more than doubled year-over-year to $2.2 billion, indicating improved operational performance from the combined entities.
  • 7The company incurred substantial merger and restructuring costs ($556 million for the quarter) related to the integration of TWC and Bright House.

Frequently Asked Questions

The primary driver was the completion of the acquisitions of Time Warner Cable (TWC) and Bright House Networks on May 18, 2016. These transactions significantly expanded the company's operations, assets, revenues, and debt.

The acquisitions led to a dramatic increase in assets, particularly in property, plant, and equipment, franchises, customer relationships, and goodwill. Consequently, liabilities, especially long-term debt, also increased substantially to fund these acquisitions.

The company reported a significant income tax benefit of $3.2 billion. This was primarily due to the reversal of a valuation allowance on deferred tax assets, which was possible because the acquired businesses are expected to generate future taxable income, making the utilization of these deferred tax assets more likely.

Charter's immediate priorities include integrating the acquired operations, achieving cost synergies, implementing its 'Spectrum' pricing and packaging strategy, and completing the transition to an all-digital platform across the combined customer base.

Charter's debt increased significantly due to the acquisitions. The company plans to manage this debt through a combination of its substantial free cash flow, existing cash on hand, availability under its credit facilities, and potential future refinancing transactions to extend maturities or reduce principal.