item 14 principal accounting fees services principal accounting firm kpmg acted charter subsidiaries independent registered public accounting firm since 2002 subject ratification stockholders charters annual meeting kpmg expected serve independent registered public accounting firm 2018 services independent registered public accounting firm charters audit committee adopted policies procedures requiring preapproval nonaudit services may provided independent registered public accounting firm also complied continue comply provisions sarbanesoxley act 2002 related sec rules pertaining auditor independence audit committee preapproval audit nonaudit services audit fees years ended december 31 2017 2016 incurred fees related expenses professional services rendered kpmg audits charter subsidiaries’ financial statements including cco holdings review charter subsidiaries’ interim financial statements including cco holdings registration statement filings offering memoranda filings totaling approximately 9 million 12 million respectively auditrelated fees charter incurred auditrelated fees kpmg approximately 02 million 1 million years ended december 31 2017 2016 respectively services primarily related accounting reporting consultation services related transactions tax fees charter incurred tax fees kpmg approximately 2 million 3 million years ended december 31 2017 2016 respectively fees none charters audit committee appoints retains compensates oversees independent registered public accounting firm subject applicable board director andor stockholder ratification approves advance fees terms audit engagement nonaudit engagements nonaudit services prohibited section 10a securities exchange act 1934 amended respect independent registered public accounting firms preapprovals nonaudit services sometimes delegated single member charters audit committee however preapprovals made charters audit committee’s designee presented charters audit committee’s next regularly scheduled meeting charters audit committee obligation consult management matters charters audit committee approved 100 kpmg fees years ended december 31 2017 2016 year including 2017 respect proposed audit engagement charters audit committee reviews proposed risk assessment process establishing scope examination reports rendered capacity committee board charters audit committee oversees work independent registered public accounting firm including resolution disagreements management public accounting firm regarding financial reporting purpose preparing issuing audit report performing audit review attest services independent registered public accounting firm reports directly charters audit committee performing functions charters audit committee undertakes tasks responsibilities judgment effectively contribute implement purposes charters audit committee charter detail charters audit committee’s authority responsibilities see charters audit committee charter charters website wwwchartercom part iv item 15 item 14 principal accounting fees services audit fees auditrelated fees incurred related services provided kpmg llp kpmg discussed represent fees paid part charter engagement including audits performed charter subsidiaries including us audit fees incurred fees related expenses professional services rendered kpmg audits parent companies’ subsidiaries’ financial statements including three parent companies one subsidiary also public registrants review parent companies’ subsidiaries’ interim financial statements seven offering memorandums registration statement filings 2005 five offering memorandums registration statement filings 2004 totaling approximately 6 million 2005 2004 included total 2005 2004 fees related expenses 2 million audit internal control financial reporting required sarbanesoxley section 404 auditrelated fees incurred fees kpmg approximately 01 million year ended december 31 2004 services primarily related audit 401k plan advisory services associated sarbanesoxley section 404 implementation fees none charter’s audit committee appoints retains compensates oversees registered public accountants subject applicable board director andor shareholder ratification approves advance fees terms audit engagement nonaudit engagements nonaudit services prohibited section 10a securities exchange act 1934 amended registered public accountants preapprovals nonaudit services sometimes delegated single member charter’s audit committee however preapprovals made charter’s audit committee’s designee presented audit committee’s next regularly scheduled meeting charter’s audit committee obligation consult management matters charter’s audit committee approved 100 kpmg fees years ended december 31 2005 2004 year including 2005 respect proposed audit engagement charter’s audit committee reviews proposed risk assessment process establishing scope examination reports rendered capacity committee charter’s board charter’s audit committee oversees work registered public accounting firm including resolution disagreements management public accounting firm regarding financial reporting purpose preparing issuing audit report performing audit review attest services registered public accounting firm reports directly charter’s audit committee performing functions charter’s audit committee undertakes tasks responsibilities judgment effectively contribute implement purposes charter’s audit committee charter detail charter’s audit committee’s authority responsibilities see charter’s audit committee charter set forth appendix 2004 proxy statement filed sec june 25 2004 part iv item 15 item 14 principal accounting fees services charter’s audit committee appoints retains compensates oversees registered public accountants subject applicable board director andor shareholder ratification approves advance fees terms audit engagement nonaudit engagements nonaudit services prohibited section 10a securities exchange act 1934 amended registered public accountants preapprovals nonaudit services sometimes delegated single member charter’s audit committee however preapprovals made charter’s audit committee’s designee presented charter’s audit committee’s next regularly scheduled meeting charter’s audit committee obligation consult management matters charter’s audit committee approved 100 kpmg fees years ended december 31 2006 2005 year including 2006 respect proposed audit engagement charter’s audit committee reviews auditors proposed risk assessment process evaluating scope examination reports rendered capacity committee charter’s board charter’s audit committee oversees work registered public accounting firm including resolution disagreements management public accounting firm regarding financial reporting purpose preparing issuing audit report performing audit review attest services registered public accounting firm reports directly charter’s audit committee performing functions charter’s audit committee undertakes tasks responsibilities judgment effectively contribute implement purposes charter’s audit committee charter detail charter’s audit committee’s authority responsibilities see charter’s audit committee charter set forth exhibit 2006 proxy statement filed sec august 2 2006 audit fees years ended december 31 2006 2005 charter incurred fees related expenses professional services rendered kpmg audits charter subsidiaries’ financial statements including three subsidiaries 2006 four subsidiaries 2005 also public registrants review charter subsidiaries’ interim financial statements seven offering memoranda registration statement filings 2006 2005 totaling approximately 59 million 62 million respectively auditrelated fees charter incurred fees kpmg approximately 001 million 001 million year ended december 31 2006 2005 respectively services primarily related certain agreedupon procedures tax fees none fees none part iv item 15 item 14 principal accounting fees services charter’s audit committee appoints retains compensates oversees independent registered public accounting firm subject applicable board director andor stockholder ratification approves advance fees terms audit engagement nonaudit engagements nonaudit services prohibited section 10a securities exchange act 1934 amended respect independent registered public accounting firms preapprovals nonaudit services sometimes delegated single member charter’s audit committee however preapprovals made charter’s audit committee’s designee presented charter’s audit committee’s next regularly scheduled meeting charter’s audit committee obligation consult management matters charter’s audit committee approved 100 kpmg fees years ended december 31 2007 2006 year including 2007 respect proposed audit engagement charter’s audit committee reviews proposed risk assessment process establishing scope examination reports rendered capacity committee charter’s board charter’s audit committee oversees work independent registered public accounting firm including resolution disagreements management public accounting firm regarding financial reporting purpose preparing issuing audit report performing audit review attest services independent registered public accounting firm reports directly charter’s audit committee performing functions charter’s audit committee undertakes tasks responsibilities judgment effectively contribute implement purposes charter’s audit committee charter detail charter’s audit committee’s authority responsibilities see charter’s audit committee charter’s website wwwchartercom audit fees years ended december 31 2007 2006 charter incurred fees related expenses professional services rendered kpmg audits charter subsidiaries’ financial statements including three subsidiaries also public registrants review charter subsidiaries’ interim financial statements two registration statement filings 2007 seven offering memoranda registration statement filings 2006 totaling approximately 42 million 59 million respectively auditrelated fees charter incurred fees kpmg approximately 002 million 001 million years ended december 31 2007 2006 respectively services primarily related certain agreedupon procedures tax fees none fees none part iv item 15 item 14 principal accounting fees services principal accounting firm kpmg acted charter subsidiaries independent registered public accounting firm since 2002 subject ratification stockholders charters annual meeting kpmg expected serve independent registered public accounting firm 2019 services independent registered public accounting firm charters audit committee adopted policies procedures requiring preapproval nonaudit services may provided independent registered public accounting firm also complied continue comply provisions sarbanesoxley act 2002 related sec rules pertaining auditor independence audit committee preapproval audit nonaudit services audit fees years ended december 31 2018 2017 incurred fees related expenses professional services rendered kpmg audits charter subsidiaries’ financial statements including cco holdings review charter subsidiaries’ interim financial statements including cco holdings registration statement filings offering memoranda filings totaling approximately 8 million 9 million respectively auditrelated fees charter incurred auditrelated fees kpmg approximately 02 million years ended december 31 2018 2017 services primarily related diligence services 2018 accounting reporting consultation 2017 tax fees charter incurred tax fees kpmg approximately 1 million 2 million years ended december 31 2018 2017 respectively fees none charters audit committee appoints retains compensates oversees independent registered public accounting firm subject applicable board director andor stockholder ratification approves advance fees terms audit engagement nonaudit engagements nonaudit services prohibited section 10a securities exchange act 1934 amended respect independent registered public accounting firms preapprovals nonaudit services sometimes delegated single member charters audit committee however preapprovals made charters audit committee’s designee presented charters audit committee’s next regularly scheduled meeting charters audit committee obligation consult management matters charters audit committee approved 100 kpmg fees years ended december 31 2018 2017 year including 2018 respect proposed audit engagement charters audit committee reviews proposed risk assessment process establishing scope examination reports rendered capacity committee board charters audit committee oversees work independent registered public accounting firm including resolution disagreements management public accounting firm regarding financial reporting purpose preparing issuing audit report performing audit review attest services independent registered public accounting firm reports directly charters audit committee performing functions charters audit committee undertakes tasks responsibilities judgment effectively contribute implement purposes charters audit committee charter detail charters audit committee’s authority responsibilities see charters audit committee charter charters website wwwchartercom part iv item 15 item 14 principal accounting fees services principal accounting firm kpmg acted principal accountant 2009 2008 kpmg expected serve independent registered public accounting firm 2010 services independent registered public accounting firm charter’s audit committee adopted policies procedures requiring preapproval nonaudit services may provided independent registered public accounting firm also complied continue comply provisions sarbanesoxley act 2002 related sec rules pertaining auditor independence audit committee preapproval audit nonaudit services audit fees years ended december 31 2009 2008 charter incurred fees related expenses professional services rendered kpmg audits charter subsidiaries’ financial statements including two subsidiaries 2009 one subsidiary 2008 also public registrants review charter subsidiaries’ interim financial statements one registration statement 2009 two offering memoranda 2008 totaling approximately 55 million 39 million respectively auditrelated fees charter incurred fees related expenses kpmg approximately 01 million years ended december 31 2009 2008 services primarily related responses legal inquiries tax fees none fees none charter’s audit committee appoints retains compensates oversees independent registered public accounting firm subject applicable board director andor stockholder ratification approves advance fees terms audit engagement nonaudit engagements nonaudit services prohibited section 10a securities exchange act 1934 amended respect independent registered public accounting firms preapprovals nonaudit services sometimes delegated single member charter’s audit committee however preapprovals made charter’s audit committee’s designee presented charter’s audit committee’s next regularly scheduled meeting charter’s audit committee obligation consult management matters charter’s audit committee approved 100 kpmg fees years ended december 31 2009 2008 year including 2009 respect proposed audit engagement charter’s audit committee reviews proposed risk assessment process establishing scope examination reports rendered capacity committee board charter’s audit committee oversees work independent registered public accounting firm including resolution disagreements management public accounting firm regarding financial reporting purpose preparing issuing audit report performing audit review attest services independent registered public accounting firm reports directly charter’s audit committee performing functions charter’s audit committee undertakes tasks responsibilities judgment effectively contribute implement purposes charter’s audit committee charter detail charter’s audit committee’s authority responsibilities see charter’s audit committee charter’s website wwwchartercom part iv item 15 item 14 principal accounting fees services audit fees auditrelated fees incurred related services provided kpmg llp “kpmg” discussed represent fees paid part charter engagement including audits performed charter audit fees years ended december 31 2004 2003 incurred fees related expenses professional services rendered kpmg audits parent companies’ subsidiaries’ financial statements including three parent companies one subsidiary also public registrants review parent companies subsidiaries’ interim financial statements five offering memorandums registration statement filings 2004 two offering memorandums registration statement filings 2003 totaling approximately 62 million 32 million respectively included 2004 fees related expenses 19 million charter’s audit internal control financial reporting required sarbanesoxley section 404 auditrelated fees incurred fees kpmg approximately 01 million 04 million years ended december 31 2004 2003 respectively services 2004 primarily related audit 401k plan advisory services associated sarbanesoxley section 404 implementation 2003 services primarily related audit cable systems sold atlantic broadband finance llc advisory services associated sarbanesoxley section 404 implementation fees none charter’s audit committee appoints retains compensates oversees registered public accountants subject applicable board director andor shareholder ratification approves advance fees terms audit engagement nonaudit engagements nonaudit services prohibited section 10a securities exchange act 1934 amended registered public accountants authority extends audit nonaudit engagements charter subsidiaries including us preapprovals nonaudit services sometimes delegated single member audit committee however preapprovals made charter’s audit committee’s designee presented audit committee’s next regularly scheduled meeting charter’s audit committee obligation consult management matters charter’s audit committee approved 100 kpmg fees years ended december 31 2004 2003 year including 2004 respect proposed audit engagement charter’s audit committee reviews proposed risk assessment process establishing scope examination reports rendered capacity committee charter’s board charter’s audit committee oversees work registered public accounting firm including resolution disagreements management public accounting firm regarding financial reporting purpose preparing issuing audit report performing audit review attest services registered public accounting firm reports directly charter’s audit committee performing functions charter’s audit committee undertakes tasks responsibilities judgment effectively contribute implement purposes charter’s audit committee charter detail charter’s audit committee’s authority responsibilities see charter’s audit committee charter set forth appendix 2004 proxy statement filed sec june 25 2004 part iv item 15 item 14 principal accounting fees services charter’s audit committee appoints retains compensates oversees independent registered public accounting firm subject applicable board director andor stockholder ratification approves advance fees terms audit engagement nonaudit engagements nonaudit services prohibited section 10a securities exchange act 1934 amended respect independent registered public accounting firms preapprovals nonaudit services sometimes delegated single member charter’s audit committee however preapprovals made charter’s audit committee’s designee presented charter’s audit committee’s next regularly scheduled meeting charter’s audit committee obligation consult management matters charter’s audit committee approved 100 kpmg fees years ended december 31 2008 2007 year including 2008 respect proposed audit engagement charter’s audit committee reviews proposed risk assessment process establishing scope examination reports rendered capacity committee charter’s board charter’s audit committee oversees work independent registered public accounting firm including resolution disagreements management public accounting firm regarding financial reporting purpose preparing issuing audit report performing audit review attest services independent registered public accounting firm reports directly charter’s audit committee performing functions charter’s audit committee undertakes tasks responsibilities judgment effectively contribute implement purposes charter’s audit committee charter detail charter’s audit committee’s authority responsibilities see charter’s audit committee charter’s website wwwchartercom audit fees years ended december 31 2008 2007 charter incurred fees related expenses professional services rendered kpmg audits charter subsidiaries’ financial statements including one subsidiary 2008 three subsidiaries 2007 also public registrants review charter subsidiaries’ interim financial statements two offering memorandums 2008 2007 totaling approximately 39 million 42 million respectively auditrelated fees charter incurred auditrelated fees kpmg approximately 01 million 002 million years ended december 31 2008 2007 respectively services primarily related certain agreedupon procedures tax fees none fees none part iv item 15 item 14 principal accounting fees services principal accounting firm kpmg acted charter subsidiaries independent registered public accounting firm since 2002 subject ratification stockholders charters annual meeting kpmg expected serve independent registered public accounting firm 2021 services independent registered public accounting firm charters audit committee adopted policies procedures requiring preapproval nonaudit services may provided independent registered public accounting firm also complied continue comply provisions sarbanesoxley act 2002 related sec rules pertaining auditor independence audit committee preapproval audit nonaudit services audit fees years ended december 31 2020 2019 incurred fees related expenses professional services rendered kpmg audits charter subsidiaries’ financial statements including cco holdings review charter subsidiaries’ interim financial statements including cco holdings registration statement filings offering memoranda filings totaling approximately 9 million 8 million respectively auditrelated fees auditrelated fees kpmg incurred year ended december 31 2020 approximately 02 million incurred year ended december 31 2019 services primarily related diligence services tax fees charter incurred tax fees kpmg approximately 1 million 2 million years ended december 31 2020 2019 respectively fees none charters audit committee appoints retains compensates oversees independent registered public accounting firm subject applicable board director andor stockholder ratification approves advance fees terms audit engagement nonaudit engagements nonaudit services prohibited section 10a securities exchange act 1934 amended respect independent registered public accounting firms preapprovals nonaudit services sometimes delegated single member charters audit committee however preapprovals made charters audit committee’s designee presented charters audit committee’s next regularly scheduled meeting charters audit committee obligation consult management matters charters audit committee approved 100 kpmg fees years ended december 31 2020 2019 year including 2020 respect audit engagement charters audit committee reviews risk assessment process establishing scope examination reports rendered capacity committee board charters audit committee oversees work independent registered public accounting firm including resolution disagreements management public accounting firm regarding financial reporting purpose preparing issuing audit report performing audit review attest services independent registered public accounting firm reports directly charters audit committee performing functions charters audit committee undertakes tasks responsibilities judgment effectively contribute implement purposes charters audit committee charter detail charters audit committee’s authority responsibilities see charters audit committee charter charters website wwwchartercom part iv item 15 item 14 principal accounting fees services principal accounting firm kpmg acted charter subsidiaries independent registered public accounting firm since 2002 subject ratification stockholders charters annual meeting kpmg expected serve independent registered public accounting firm 2017 services independent registered public accounting firm charters audit committee adopted policies procedures requiring preapproval nonaudit services may provided independent registered public accounting firm also complied continue comply provisions sarbanesoxley act 2002 related sec rules pertaining auditor independence audit committee preapproval audit nonaudit services audit fees years ended december 31 2016 2015 incurred fees related expenses professional services rendered kpmg audits charter subsidiaries’ financial statements including cco holdings review charter subsidiaries’ interim financial statements including cco holdings registration statement filings offering memoranda filings totaling approximately 12 million 5 million respectively auditrelated fees charter incurred auditrelated fees kpmg approximately 1 million years ended december 31 2016 2015 services primarily related accounting reporting consultation services related transactions tax fees charter incurred tax fees kpmg approximately 3 million year ended december 31 2016 fees none charters audit committee appoints retains compensates oversees independent registered public accounting firm subject applicable board director andor stockholder ratification approves advance fees terms audit engagement nonaudit engagements nonaudit services prohibited section 10a securities exchange act 1934 amended respect independent registered public accounting firms preapprovals nonaudit services sometimes delegated single member charters audit committee however preapprovals made charters audit committee’s designee presented charters audit committee’s next regularly scheduled meeting charters audit committee obligation consult management matters charters audit committee approved 100 kpmg fees years ended december 31 2016 2015 year including 2016 respect proposed audit engagement charters audit committee reviews proposed risk assessment process establishing scope examination reports rendered capacity committee board charters audit committee oversees work independent registered public accounting firm including resolution disagreements management public accounting firm regarding financial reporting purpose preparing issuing audit report performing audit review attest services independent registered public accounting firm reports directly charters audit committee performing functions charters audit committee undertakes tasks responsibilities judgment effectively contribute implement purposes charters audit committee charter detail charters audit committee’s authority responsibilities see charters audit committee charter charters website wwwchartercom part iv item 15 item 14 principal accounting fees services principal accounting firm kpmg acted charter subsidiaries independent registered public accounting firm since 2002 subject ratification stockholders charters annual meeting kpmg expected serve independent registered public accounting firm 2020 services independent registered public accounting firm charters audit committee adopted policies procedures requiring preapproval nonaudit services may provided independent registered public accounting firm also complied continue comply provisions sarbanesoxley act 2002 related sec rules pertaining auditor independence audit committee preapproval audit nonaudit services audit fees years ended december 31 2019 2018 incurred fees related expenses professional services rendered kpmg audits charter subsidiaries’ financial statements including cco holdings review charter subsidiaries’ interim financial statements including cco holdings registration statement filings offering memoranda filings totaling approximately 8 million auditrelated fees charter incurred auditrelated fees kpmg approximately 02 million years ended december 31 2019 2018 services primarily related diligence services tax fees charter incurred tax fees kpmg approximately 2 million 1 million years ended december 31 2019 2018 respectively fees none charters audit committee appoints retains compensates oversees independent registered public accounting firm subject applicable board director andor stockholder ratification approves advance fees terms audit engagement nonaudit engagements nonaudit services prohibited section 10a securities exchange act 1934 amended respect independent registered public accounting firms preapprovals nonaudit services sometimes delegated single member charters audit committee however preapprovals made charters audit committee’s designee presented charters audit committee’s next regularly scheduled meeting charters audit committee obligation consult management matters charters audit committee approved 100 kpmg fees years ended december 31 2019 2018 year including 2019 respect audit engagement charters audit committee reviews risk assessment process establishing scope examination reports rendered capacity committee board charters audit committee oversees work independent registered public accounting firm including resolution disagreements management public accounting firm regarding financial reporting purpose preparing issuing audit report performing audit review attest services independent registered public accounting firm reports directly charters audit committee performing functions charters audit committee undertakes tasks responsibilities judgment effectively contribute implement purposes charters audit committee charter detail charters audit committee’s authority responsibilities see charters audit committee charter charters website wwwchartercom part iv item 15 item 7 management’s discussion analysis financial condition results operations reference made “part item 1a risk factors” “cautionary statement regarding forwardlooking statements” describe important factors could cause actual results differ expectations nonhistorical information contained herein addition following discussion read conjunction audited consolidated financial statements accompanying notes thereto cco holdings included “part ii item 8 financial statements supplementary data” overview second largest cable operator united states leading broadband communications services company providing video internet voice services approximately 272 million residential business customers december 31 2017 addition sell video online advertising inventory local regional national advertising customers fiberdelivered communications managed solutions large enterprise customers also operate regional sports networks local sports news community channels sell security home management services residential marketplace see “part item 1 business products services” description services including customer statistics different services first half 2017 completed rollout spp legacy twc legacy bright house markets simplifying offers improving packaging products allowing us deliver value new existing customers december 31 2017 approximately 60 residential customers spp package second half 2017 began converting remaining legacy twc legacy bright house analog markets alldigital platform enabling us deliver hd channels higher internet speeds bulk alldigital initiative take place 2018 corporate organization well marketing sales product development departments centralized field operations managed eleven regional areas designed represent combination designated marketing areas 2017 began migrating legacy twc legacy bright house customer care centers legacy charters model using virtualized usbased inhouse call centers focused deploying superior products service minimal service disruptions integrate information technology network operations intend continue insource legacy twc legacy bright house workforces call centers field operations expect lead lower customer churn longer customer lifetimes integration activities continue 2018 expectation 2019 substantially integrated practices systems legacy charter legacy twc legacy bright house 2018 also launch mobile product result growth costs new product line implementing operating strategy across legacy twc legacy bright house cannot certain able grow revenues maintain margins recent historical rates company realized revenue adjusted ebitda income operations periods presented follows millions percentages calculated using whole numbers minor differences may exist due rounding income operations year ended december 31 2016 reduced previously reported 899 million reflect adoption pension accounting guidance pro forma basis income operations years ended december 31 2016 2015 reduced previously reported 915 million 73 million respectively information see note 20 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” adjusted ebitda defined consolidated net income plus net interest expense income taxes depreciation amortization stock compensation expense loss extinguishment debt gain loss financial instruments net pension benefits income expense net operating income expenses merger restructuring costs special charges gain loss sale retirement assets see “use adjusted ebitda free cash flow” information adjusted ebitda free cash flow growth total revenue adjusted ebitda income operations primarily due transactions pro forma basis assuming transactions occurred january 1 2015 total revenue growth primarily due growth internet commercial businesses revenue growth 2017 offset lower advertising sales revenue due decrease political local advertising early contract termination benefit legacy twc legacy bright house 2016 addition items noted adjusted ebitda growth pro forma basis affected increases programming costs 2017 offset decreases costs service customers operating costs expenses income operations pro forma basis additionally affected increases depreciation amortization well changes merger restructuring costs approximately 91 90 91 revenues years ended december 31 2017 2016 2015 respectively attributable monthly subscription fees charged customers video internet voice commercial services provided cable systems generally customer subscriptions may discontinued customer time subject fee certain commercial customers remaining 9 10 9 revenue fiscal years 2017 2016 2015 respectively derived primarily advertising revenues franchise regulatory fee revenues collected us paid local authorities vod payperview programming installation processing fees reconnection fees charged customers commence reinstate service revenue regional sports news channels commissions related sale merchandise home shopping services incurred following transition costs connection transactions millions amounts included transition operating expenses transition capital expenditures represent incremental costs incurred integrate legacy twc legacy bright house operations bring three companies’ systems processes uniform operating structure costs incremental would incurred absent integration operating expenses associated transactions represent merger restructuring costs include advisory legal accounting fees employee retention costs employee termination costs exit costs critical accounting policies estimates certain accounting policies require management make difficult subjective andor complex judgments management discussed policies audit committee charter’s board directors audit committee reviewed following disclosure consider following policies critical understanding estimates assumptions judgments involved preparing financial statements uncertainties could affect results operations financial condition cash flows • property plant equipment • capitalization labor overhead costs • valuation impairment property plant equipment • useful lives property plant equipment • intangible assets • valuation impairment franchises • valuation impairment goodwill • valuation impairment amortization customer relationships • income taxes • litigation • programming agreements • pension plans addition items within financial statements require estimates judgment deemed critical allowance doubtful accounts valuations financial instruments changes estimates judgment items could also material impact financial statements property plant equipment cable industry capital intensive large portion resources spent capital activities associated extending rebuilding upgrading cable network december 31 2017 2016 net carrying amount property plant equipment consisting primarily cable distribution systems approximately 336 billion representing 23 total assets 327 billion representing 22 total assets respectively total capital expenditures years ended december 31 2017 2016 2015 approximately 87 billion 53 billion 18 billion respectively capitalization labor overhead costs associated network construction upgrades initial placement customer drop dwelling initial placement outlets within dwelling along costs associated initial deployment customer premise equipment necessary provide video internet voice services capitalized costs capitalized include materials direct labor certain indirect costs indirect costs associated activities personnel assist installation activities consist compensation overhead costs associated support functions capitalization based specific activities capitalized track costs composite basis fixed asset category cable system level specific asset basis assets sold retired remove estimated applicable cost accumulated depreciation costs disconnecting service removing customer premise equipment dwelling costs reconnect customer drop redeploy previously installed customer premise equipment charged operating expense incurred costs repairs maintenance charged operating expense incurred plant equipment replacement including replacement certain components betterments replacement cable drops outlets capitalized make judgments regarding installation construction activities capitalized capitalize direct labor overhead using standards developed actual costs applicable operational data calculate standards annually frequently circumstances dictate items labor rates overhead rates actual amount time required perform capitalizable activity example standard amounts time required perform capitalizable activities based studies time required perform activities overhead rates established based analysis nature costs incurred support capitalizable activities determination portion costs directly attributable capitalizable activities impact changes resulted studies material periods presented labor costs directly associated capital projects capitalized capitalizable activities performed connection installations include activities • dispatching “truck roll” customer’s dwelling business service connection placement new equipment • verification serviceability customer’s dwelling business ie determining whether customer’s dwelling capable receiving service cable network • customer premise activities performed inhouse field technicians thirdparty contractors connection installation replacement betterment equipment materials enable video internet voice services • verifying integrity customer’s network connection initiating test signals downstream headend customer premise equipment well testing signal levels utility pole pedestal judgment required determine extent overhead costs incurred result specific capital activities therefore capitalized primary costs included determination overhead rate employee benefits payroll taxes associated capitalized direct labor ii direct variable costs associated capitalizable activities iii cost support personnel care personnel dispatchers assist capitalizable installation activities iv indirect costs directly attributable capitalizable activities believe existing capitalization policies appropriate significant change nature extent system activities could affect management’s judgment extent capitalize direct labor overhead future monitor appropriateness capitalization policies perform updates internal studies ongoing basis determine whether facts circumstances warrant change capitalization policies capitalized direct labor overhead 17 billion 991 million 420 million respectively years ended december 31 2017 2016 2015 valuation impairment property plant equipment evaluate recoverability property plant equipment upon occurrence events changes circumstances indicating carrying amount asset may recoverable events changes circumstances could include factors impairment indefinite life assets changes technological advances fluctuations fair value assets adverse changes relationships local franchise authorities adverse changes market conditions deterioration current expected future operating results longlived asset deemed impaired carrying amount asset exceeds projected undiscounted future cash flows associated asset impairments longlived assets held used recorded years ended december 31 2017 2016 2015 utilize cost approach primary method used establish fair value property plant equipment connection business combinations cost approach considers amount required replace asset constructing purchasing new asset similar utility adjusts value consideration physical depreciation functional economic obsolescence valuation date cost approach relies management’s assumptions regarding current material labor costs required rebuild repurchase significant components property plant equipment along assumptions regarding age estimated remaining useful lives property plant equipment useful lives property plant equipment evaluate appropriateness estimated useful lives assigned property plant equipment based annual analysis useful lives revise lives extent warranted changing facts circumstances changes estimated useful lives result analysis reflected prospectively beginning period study completed analysis useful lives 2017 indicate significant changes useful lives effect oneyear decrease weighted average remaining useful life property plant equipment december 31 2017 would increase annual depreciation expense approximately 943 million effect oneyear increase weighted average remaining useful life property plant equipment december 31 2017 would decrease annual depreciation expense approximately 14 billion depreciation expense related property plant equipment totaled 78 billion 50 billion 19 billion years ended december 31 2017 2016 2015 respectively representing approximately 21 19 21 costs expenses respectively depreciation recorded using straightline composite method management’s estimate useful lives related assets listed intangible assets valuation impairment franchises net carrying value franchises december 31 2017 2016 approximately 673 billion representing 46 total assets 673 billion representing 45 total assets respectively information complete discussion value test franchise assets impairment see note 6 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” perform impairment assessment franchise assets annually frequently warranted events changes circumstances performed qualitative assessment 2017 assessment included consideration fair value appraisal performed tax purposes beginning 2017 december 31 2016 valuation date appraisal along multitude factors affect fair value franchise assets examples factors include environmental competitive changes within operating footprint actual projected operating performance consistency operating margins equity debt market trends including changes market capitalization changes regulatory political landscape among factors based assessment concluded likely estimated fair values franchise assets equals exceeds carrying values quantitative impairment test required appraisal indicated fair value franchise assets exceeded carrying value 40 aggregate unit accounting level franchise asset impairment testing amount fair value exceeded carrying value varied based extent unit accounting comprised operations acquired 2016 units accounting comprised entirely substantially newlyacquired operations appraisal fair value exceeded carrying value range 16 46 due recency transactions fair value units accounting comprised least 25 legacy charter operations exceeded carrying value range 29 264 valuation impairment goodwill net carrying value goodwill december 31 2017 2016 approximately 296 billion representing 20 total assets 295 billion representing 20 total assets respectively information complete discussion test goodwill impairment see note 6 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” perform impairment assessment goodwill annually november 30 franchise impairment testing elected perform qualitative assessment goodwill 2017 included fair value appraisal factors described based appraisal determined fair value goodwill exceeded carrying value approximately 53 given completion assessment absence significant adverse changes factors impacting fair value estimates concluded likely goodwill impaired valuation impairment amortization customer relationships net carrying value customer relationships december 31 2017 2016 approximately 120 billion representing 8 total assets 146 billion representing 10 total assets respectively amortization expense related customer relationships years ended december 31 2017 2016 2015 approximately 27 billion 19 billion 249 million respectively impairment customer relationships recorded years ended december 31 2017 2016 2015 information complete discussion valuation methodology amortization method see note 6 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” income taxes determining tax provision financial reporting purposes establish reserve uncertain tax positions unless positions determined “more likely not” sustained upon examination based technical merits evaluating whether tax position met morelikelythannot recognition threshold presume position examined appropriate taxing authority full knowledge relevant information tax position meets morelikelythannot recognition threshold measured determine amount benefit recognized financial statements tax position measured largest amount benefit greater 50 likelihood realized position ultimately resolved considerable judgment involved determining whether positions taken tax return “more likely not” sustained adjust uncertain tax reserve estimates periodically ongoing examinations settlements various taxing authorities well changes tax laws regulations interpretations tax years charter holdings charter holdco indirect parent companies income tax purposes currently examination irs charter holdings 2016 2017 tax years remain open examination assessment legacy charter’s tax years ending 2014 short period return dated may 17 2016 remain subject examination assessment years prior 2014 remain open solely purposes examination legacy charter’s loss credit carryforwards irs currently examining legacy twc’s income tax returns 2011 2014 legacy twc’s tax year 2015 remains subject examination assessment prior legacy twc’s separation time warner inc “time warner” march 2009 “separation” legacy twc included consolidated us federal certain state income tax returns time warner irs currently examining time warner’s 2008 2010 income tax returns time warner’s income tax returns 2005 2007 periods prior separation settled exception immaterial item referred irs appeals division anticipate examinations material impact consolidated financial position results operations addition also subject ongoing examinations tax returns state local tax authorities various periods activity related state local examinations material impact consolidated financial position results operations year ended december 31 2017 anticipate material impact future litigation legal contingencies high degree uncertainty loss contingency becomes estimable probable reserve established reserve reflects management’s best estimate probable cost ultimate resolution matter revised facts circumstances change reserve released matter ultimately brought closure statute limitations lapses established reserves certain matters although matters expected individually material adverse effect consolidated financial condition results operations liquidity matters could aggregate material adverse effect consolidated financial condition results operations liquidity programming agreements exercise judgment estimating programming expense associated certain video programming contracts policy record video programming costs based substance contractual agreements programming vendors generally multiyear agreements provide us make payments programming vendors agreed upon market rates based number customers provide programming service programming contract expires prior parties’ entry new agreement continue distribute service estimate programming costs period contract place consider previous contractual rates inflation status negotiations determining estimates programming contract terms finalized adjustment programming expense recorded necessary reflect terms new contract also make estimates recognition programming expense related items including allocation consideration exchanged parties among various items multipleelement transactions judgment also involved enter agreements result us receiving cash consideration programming vendor usually form advertising sales channel positioning fees launch support marketing support situations must determine based upon facts circumstances cash consideration recorded revenue reduction programming expense reduction another expense category eg marketing pension plans sponsor two qualified defined benefit pension plans twc pension plan twc union pension plan collectively “twc pension plans” provide pension benefits majority legacy twc employees also provide nonqualified defined benefit pension plan certain employees twc excess pension plan december 31 2017 accumulated benefit obligation fair value plan assets twc pension plans 36 billion 33 billion respectively net underfunded liability twc pension plans recorded 1 million noncurrent asset 5 million current liability 292 million longterm liability december 31 2016 accumulated benefit obligation fair value plan assets twc pension plans 33 billion 29 billion respectively net underfunded liability twc pension plans recorded 1 million noncurrent asset 6 million current liability 309 million longterm liability pension benefits based formulas reflect employees’ years service compensation employment period actuarial gains losses changes amount either benefit obligation fair value plan assets resulting experience different assumed changes assumptions elected follow marktomarket pension accounting policy recording actuarial gains losses annually fourth quarter earlier remeasurement event occurs interim period use december 31 measurement date pension plans recognized net periodic pension benefits 1 million 813 million 2017 2016 respectively net periodic pension benefit expense determined using certain assumptions including expected longterm rate return plan assets discount rate mortality assumptions determined discount rate used compute pension expense based yield large population highquality corporate bonds cash flows sufficient timing amount settle projected future defined benefit payments developing expected longterm rate return assets considered current pension portfolio’s composition past average rate earnings asset allocation targets used discount rate 420 january 1 2017 september 30 2017 388 october 1 2017 december 31 2017 compute 2017 pension expense decrease discount rate 25 basis points would result 173 million increase pension plan benefit obligation december 31 2017 net periodic pension expense recognized 2017 marktomarket accounting policy expected longterm rate return plan assets used compute 2017 pension expense 650 decrease expected longterm rate return 25 basis points 650 625 holding assumptions constant would result increase 2018 net periodic pension expense approximately 8 million see note 19 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” additional discussion assumptions results operations following table sets forth consolidated statements operations periods presented dollars millions except per share data revenues total revenues grew 126 billion 434 year ended december 31 2017 compared 2016 grew 192 billion 1973 year ended december 31 2016 compared 2015 revenue growth primarily reflects transactions increases number residential internet commercial business customers price adjustments well growth expanded basic video penetration offset decrease limited basic video customers transactions increased revenues years ended 2017 2016 compared corresponding prior periods approximately 114 billion 186 billion respectively pro forma basis assuming transactions occurred january 1 2015 total revenue growth 39 70 years ended december 31 2017 2016 compared corresponding prior periods revenues service offering follows dollars millions percentages calculated using whole numbers minor differences may exist due rounding video revenues consist primarily revenues basic digital video services provided residential customers well franchise fees equipment video installation revenue residential video customers decreased 292000 2017 excluding impacts transactions increased 42000 2016 increases video revenues attributable following dollars millions pro forma basis assuming transactions occurred january 1 2015 residential video customers decreased 226000 2016 increases video revenues attributable following dollars millions residential internet customers grew 1171000 2017 excluding impacts transactions grew 461000 customers 2016 increases internet revenues residential customers attributable following dollars millions pro forma basis assuming transactions occurred january 1 2015 residential internet customers increased 1463000 2016 increases internet revenues attributable following dollars millions residential voice customers grew 100000 2017 excluding impacts transactions grew 95000 customers 2016 increases voice revenues residential customers attributable following dollars millions pro forma basis assuming transactions occurred january 1 2015 residential voice customers increased 368000 2016 increase voice revenues attributable following dollars millions small medium business psus increased 326000 2017 excluding impacts transactions increased 128000 2016 increases small medium business commercial revenues attributable following dollars millions pro forma basis assuming transactions occurred january 1 2015 small medium business psus increased 291000 2016 increases small medium business commercial revenues attributable following dollars millions enterprise psus increased 17000 2017 excluding impacts transactions increased 6000 2016 pro forma basis assuming transactions occurred january 1 2015 enterprise psus increased 16000 2016 transactions increased enterprise commercial revenues years ended 2017 2016 compared corresponding prior periods approximately 655 million 10 billion respectively pro forma basis assuming transactions occurred january 1 2015 enterprise commercial revenues increased 185 million 207 million years ended 2017 2016 respectively compared corresponding prior periods primarily due growth customers advertising sales revenues consist primarily revenues commercial advertising customers programmers vendors well local cable advertising regional sports news channels advertising sales revenues increased 2017 2016 primarily due transactions increased advertising sales revenues years ended 2017 2016 compared corresponding prior periods 425 million 898 million respectively pro forma basis assuming transactions occurred january 1 2015 advertising sales revenues decreased 186 million increased 172 million years ended 2017 2016 respectively compared corresponding prior periods primarily due political advertising revenues consist revenue regional sports news channels excluding intercompany charges advertising sales channels home shopping late payment fees wire maintenance fees miscellaneous revenues increase 2017 2016 primarily due transactions increased revenues years ended 2017 2016 compared corresponding prior periods 255 million 429 million respectively pro forma basis assuming transactions occurred january 1 2015 revenues decreased 26 million increased 33 million years ended 2017 2016 respectively compared corresponding prior periods primarily due settlement incurred 2016 related early contract termination legacy twc legacy bright house operating costs expenses increases operating costs expenses attributable following dollars millions programming costs approximately 106 billion 70 billion 27 billion representing 40 38 42 operating costs expenses years ended december 31 2017 2016 2015 respectively increase operating costs expenses years ended 2017 2016 compared corresponding prior periods primarily due transactions increase expense attributable following dollars millions increases expense years ended 2017 2016 compared corresponding prior periods primarily due transactions pro forma basis assuming transactions occurred january 1 2015 increases operating costs expenses exclusive items shown separately consolidated statements operations attributable following dollars millions pro forma basis assuming transactions occurred january 1 2015 programming costs approximately 96 billion 90 billion representing 37 36 total operating costs expenses years ended december 31 2016 2015 respectively programming costs consist primarily costs paid programmers basic digital premium vod payperview programming increase programming costs pro forma basis assuming transactions occurred january 1 2015 primarily result contractual rate adjustments including renewals increases amounts paid retransmission consents higher expanded basic video package customers higher payperview events offset synergies result transactions expect programming expenses continue increase due variety factors including annual increases imposed programmers additional selling power result media consolidation increased demands owners broadcast stations payment retransmission consent linking carriage services retransmission consent additional programming particularly new services unable fully pass increases customers expect able future without potential loss customers costs service customers decreased 144 million 2017 compared 2016 pro forma basis assuming transactions occurred january 1 2015 primarily due benefits combining legacy twc legacy bright house charter including lower employee benefit maintenance costs higher labor material capitalization increases placement new customer equipment improved productivity pro forma basis assuming transactions occurred january 1 2015 change expense attributable following dollars millions corporate costs stock compensation expense decreased 2017 compared 2016 primarily result lower headcount result integration synergies increase corporate costs 2016 compared 2015 relates primarily increases number employees including increases engineering increase advertising sales expense relates primarily higher advertising sales revenue stock compensation expense increased 2016 compared 2015 primarily due increases headcount value equity issued depreciation amortization depreciation amortization expense increased 37 billion 48 billion 2017 2016 compared corresponding prior periods primarily result additional depreciation amortization related transactions inclusive incremental amounts result higher fair values recorded acquisition accounting 2017 higher capital expenditures operating expenses net changes operating expenses net attributable following dollars millions changes merger restructuring costs primarily due approximately 279 million 611 million employee retention employee termination costs incurred 2017 2016 respectively information see note 14 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” interest expense net interest expense increased 992 million 2017 2016 13 billion 2016 2015 increase 2017 compared 2016 primarily due increase weighted average debt outstanding 117 billion primarily result issuance notes 2017 general corporate purposes including distributions parent companies stock buybacks interest expense associated debt assumed legacy twc also increased interest expense year ended december 31 2017 compared corresponding period 2016 approximately 336 million increase 2016 compared 2015 primarily due increase 594 million interest expense associated debt incurred fund transactions 604 million associated debt assumed legacy twc loss extinguishment debt loss extinguishment debt 40 million 111 million 126 million years ended december 31 2017 2016 2015 primarily represents losses recognized result repurchase cco holdings notes amendments charter operatings credit facilities information see note 9 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” gain loss financial instruments net gains losses financial instruments recognized due changes fair value interest rate cross currency derivative instruments foreign currency remeasurement fixedrate british pound sterling denominated notes “sterling notes” us dollars information see note 11 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” pension benefits pension benefits decreased 898 million 2017 compared 2016 increased 899 million 2016 compared 2015 primarily due pension curtailment gain 675 million remeasurement gain 195 million recognized 2016 opposed remeasurement losses 55 million recognized 2017 information see note 19 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” expense net expense net primarily represents equity losses equitymethod investments information see note 7 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” income tax benefit expense recognized income tax expense 23 million 3 million years ended december 31 2017 2016 respectively income tax benefit 210 million year ended december 31 2015 income tax expense recognized 2017 2016 primarily increases deferred tax liabilities well current federal state income tax expense income tax benefit 2015 primarily due deemed liquidation charter holdco solely federal state income tax purposes offset income tax expense recognized primarily increases deferred tax liabilities information see note 16 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” net income attributable noncontrolling interest net income attributable noncontrolling interest 2017 2016 relates thirdparty interest cv viera llp consolidated joint venture small cable system florida assumed transactions net income attributable noncontrolling interest 2015 included 2 accretion preferred membership interests cc viii llc “cc viii” plus approximately 186 cc viii’s income net accretion december 31 2015 cc viii preferred interest held cch llc contributed cc viii subsequently canceled net income attributable cco holdings member net income attributable cco holdings member 882 million 15 billion 308 million years ended december 31 2017 2016 2015 respectively primarily result factors described pro forma basis assuming transactions occurred january 1 2015 net income attributable cco holdings member 19 billion 608 million years ended december 31 2016 2015 respectively use adjusted ebitda free cash flow use certain measures defined us generally accepted accounting principles “gaap” evaluate various aspects business adjusted ebitda free cash flow nongaap financial measures considered addition substitute consolidated net income net cash flows operating activities reported accordance gaap terms defined us may comparable similarly titled measures used companies adjusted ebitda free cash flow reconciled consolidated net income net cash flows operating activities respectively adjusted ebitda eliminates significant noncash depreciation amortization expense results capitalintensive nature businesses well noncash special items unaffected capital structure investment activities however measure limited reflect periodic costs certain capitalized tangible intangible assets used generating revenues cash cost financing costs evaluated financial measures free cash flow defined net cash flows operating activities less capital expenditures changes accrued expenses related capital expenditures management charter’s board directors use adjusted ebitda free cash flow assess performance ability service debt fund operations make additional investments internally generated funds addition adjusted ebitda generally correlates leverage ratio calculation credit facilities outstanding notes determine compliance covenants contained facilities notes documents previously filed sec purpose calculating compliance leverage covenants use adjusted ebitda presented excluding certain expenses paid operating subsidiaries charter entities debt covenants refer expenses management fees amount 11 billion 930 million 322 million years ended december 31 2017 2016 2015 respectively liquidity capital resources overview significant amounts debt principal amount debt december 31 2017 690 billion consisting 95 billion credit facility debt 406 billion investment grade senior secured notes 189 billion highyield senior unsecured notes business requires significant cash fund principal interest payments debt projected cash needs projected sources liquidity depend upon among things actual results timing amount expenditures launch new mobile services expect initial funding period grow new product well negative working capital impacts timing devicerelated cash flows provide handset tablet customers pursuant equipment installment plans free cash flow 37 billion 40 billion 745 million years ended december 31 2017 2016 2015 respectively december 31 2017 amount available credit facilities approximately 36 billion cash hand approximately 330 million expect utilize free cash flow cash hand availability credit facilities well future refinancing transactions extend maturities obligations timing terms refinancing transactions subject market conditions among considerations additionally may time depending market conditions factors use cash hand proceeds securities offerings borrowings retire debt open market purchases privately negotiated purchases tender offers redemption provisions believe sufficient liquidity cash hand free cash flow charter operating’s revolving credit facility well access capital markets fund projected cash needs continue evaluate deployment cash hand anticipated future free cash flow including invest business growth strategic opportunities including mergers acquisitions well distributions parent company stock repurchases dividends charters target leverage remains 4 45 times 35 times charter operating level leverage ratio 45 december 31 2017 may increase total amount indebtedness maintain leverage within charters target leverage range years ended december 31 2017 2016 charter purchased approximately 334 million 51 million shares respectively charter class common stock approximately 116 billion 13 billion respectively december 31 2017 charter remaining board authority purchase additional 11 billion charter’s class common stock andor charter holdings common units charter obligated acquire particular amount common stock timing purchases may occur cannot predicted largely depend market conditions potential uses capital purchases may include open market purchases tender offers negotiated transactions extent purchases occur cco holdings subsidiaries primary source funding purchases distributions parent companies possible acquisitions swaps dispositions arise actively review objectives including among considerations improving operational efficiency clustering product development technology capabilities business achieving appropriate return targets may participate extent believe possibilities present attractive opportunities however assurance actually complete acquisitions dispositions system swaps transactions material operations results december 2016 charter entered letter agreement letter agreement requires sell charter holdings monthly basis number shares charter class common stock charter holdings common units represents pro rata participation affiliates repurchases shares charter class common stock persons effected charter immediately preceding calendar month purchase price equal average price paid charter shares repurchased persons immediately preceding calendar month charter right terminate suspend pro rata repurchase arrangement prospective basis charter holdings repurchased shares class common stock charter holdings common units affiliates aggregate purchase price 537 million threshold met december 21 2017 charter entered amendment letter agreement resetting aggregate purchase price 400 million charter holdings purchased 48 million 08 million charter holdings common units average price per unit 34703 28983 17 billion 218 million years ended december 31 2017 2016 respectively free cash flow free cash flow decreased 296 million increased 33 billion years ended december 31 2017 2016 compared corresponding prior periods respectively due following contractual obligations following table summarizes payment obligations december 31 2017 longterm debt certain contractual obligations commitments inclusive parent company obligations commitments expense pushed us dollars millions table presents maturities longterm debt outstanding december 31 2017 refer notes 9 18 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” description longterm debt contractual obligations commitments b interest payments variable debt estimated using amounts outstanding december 31 2017 average implied forward london interbank offering rate “libor” rates applicable quarter interest rate reset based yield curve effect december 31 2017 actual interest payments differ based actual libor rates actual amounts outstanding applicable periods c lease certain facilities equipment noncancelable capital operating leases capital lease obligations represented 123 million total capital operating lease obligations december 31 2017 leases rental costs charged expense years ended december 31 2017 2016 2015 321 million 215 million 49 million respectively pay programming fees multiyear contracts typically based flat fee per customer may fixed term may cases escalate term programming costs included accompanying statement operations approximately 106 billion 70 billion 27 billion years ended december 31 2017 2016 2015 respectively certain programming agreements based flat fee per month guaranteed minimum payments table sets forth aggregate guaranteed minimum commitments programming contracts e “other” represents guaranteed minimum commitments including rights negotiated directly content owners distribution companyowned channels networks commitments related role advertising distribution sales agent third partyowned channels networks commitments customer premise equipment vendors contractual obligations related thirdparty network augmentation following items included contractual obligations table obligations fixed andor determinable due various factors discussed however incur costs part operations • rent utility poles used operations generally pole rentals cancelable short notice anticipate rentals recur rent expense incurred pole rental attachments years ended december 31 2017 2016 2015 167 million 115 million 53 million respectively • pay franchise fees multiyear franchise agreements based percentage revenues generated video service per year also pay franchise related costs public education grants multiyear agreements franchise fees franchiserelated costs included accompanying statement operations 705 million 534 million 212 million years ended december 31 2017 2016 2015 respectively • 291 million letters credit 137 million secured charter operating credit facility primarily various casualty carriers collateral reimbursement workers compensation auto liability general liability claims • minimum pension funding requirements presented table amounts determined beyond 2017 made cash contributions qualified pension plans 2017 however permitted make discretionary cash contributions qualified pension plans 2018 nonqualified pension plan contributed 18 million 2017 continue make contributions 2018 extent benefits paid see part item 1 business transactionrelated commitments listing commitments result transactions historical operating investing financing activities cash equivalents held 330 million 13 billion cash equivalents december 31 2017 2016 respectively operating activities net cash provided operating activities increased 28 billion year ended december 31 2017 compared year ended december 31 2016 primarily due increase adjusted ebitda 47 billion offset increase cash paid interest net 12 billion result transactions longterm debt issued general corporate purposes including distributions parent companies stock buybacks well changes operating assets liabilities excluding change accrued interest provided 595 million less cash year ended december 31 2017 net cash provided operating activities increased 62 billion year ended december 31 2016 compared year ended december 31 2015 primarily due increase adjusted ebitda 72 billion offset increase cash paid interest net 14 billion primarily result transactions investing activities net cash used investing activities years ended december 31 2017 2016 80 billion 48 billion respectively net cash provided investing activities year ended december 31 2015 17 billion increase cash used 2017 compared 2016 primarily due increases capital expenditures result transactions increase cash used 2016 compared 2015 primarily due repayment 2015 35 billion net proceeds held escrow upon termination proposed transactions comcast corporation well increase capital expenditures financing activities net cash used financing activities years ended december 31 2017 2016 2015 46 billion 27 billion 42 billion respectively increases cash used years primarily due increases distributions offset increases borrowings longterm debt exceeding repayments capital expenditures significant ongoing capital expenditure requirements capital expenditures 87 billion 53 billion 18 billion years ended december 31 2017 2016 2015 respectively increase driven transactions pro forma basis assuming transactions occurred january 1 2015 increase 2017 compared 2016 driven higher cpe purchases spp alldigital initiative early inventory purchases operationally stage 2018 activity higher support capital investments line extensions see table details actual amount capital expenditures 2018 depend number factors including alldigital transition legacy twc legacy bright house markets spend related product development growth rates residential commercial businesses capital expenditures funded primarily cash flows operating activities borrowings credit facility addition accrued liabilities related capital expenditures increased 820 million 603 million 28 million years ended december 31 2017 2016 2015 respectively following tables present major capital expenditures categories actual pro forma basis assuming transactions occurred january 1 2015 accordance national cable telecommunications association “ncta” disclosure guidelines years ended december 31 2017 2016 2015 disclosure intended provide consistency reporting capital expenditures among peer companies cable industry disclosure guidelines required disclosures gaap impact accounting capital expenditures gaap dollars millions customer premise equipment includes costs incurred customer residence secure new customers revenue generating units also includes customer installation costs customer premise equipment eg settop boxes cable modems b scalable infrastructure includes costs related customer premise equipment secure growth new customers revenue generating units provide service enhancements eg headend equipment c line extensions include network costs associated entering new service areas eg fibercoaxial cable amplifiers electronic equipment makeready design engineering upgraderebuild includes costs modify replace existing fibercoaxial cable networks including betterments e support capital includes costs associated replacement enhancement nonnetwork assets due technological physical obsolescence eg nonnetwork equipment land buildings vehicles f transition represents incremental costs incurred integrate legacy twc legacy bright house operations bring three companies’ systems processes uniform operating structure debt december 31 2017 accreted value total debt approximately 702 billion summarized dollars millions accreted values presented table represent principal amount debt less original issue discount time sale deferred financing costs regards legacy twc debt assumed fair value premium adjustments result applying acquisition accounting plus accretion amounts balance sheet date however amount currently payable debt becomes immediately due equal principal amount debt regards sterling notes principal amount debt premium discount remeasured us dollars balance sheet date availability credit facilities approximately 36 billion december 31 2017 b general obligors right redeem notes set forth table whole part option beginning various times prior stated maturity dates subject certain conditions upon payment outstanding principal amount plus specified redemption premium accrued unpaid interest c principal amount includes £625 million valued 845 million december 31 2017 using exchange rate december 31 2017 principal amount includes £650 million valued 879 million december 31 2017 using exchange rate december 31 2017 see note 9 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” details regarding outstanding debt financing arrangements including certain information maturities covenants restrictions related debt financing arrangements agreements instruments governing debt financing arrangements complicated consult agreements instruments filed sec detailed information december 31 2017 charter operating consolidated leverage ratio approximately 30 10 consolidated first lien leverage ratio 29 10 ratios compliance ratios required charter operating credit facilities 50 10 consolidated leverage ratio 40 10 consolidated first lien leverage ratio failure charter operating maintain financial covenants would result event default charter operating credit facilities debt cco holdings see “part item 1a risk factors agreements instruments governing debt contain restrictions limitations could significantly affect ability operate business well significantly affect liquidity” recently issued accounting standards see note 20 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” discussion recently issued accounting standards item 7a item 7 management’s discussion analysis financial condition results operations reference made item 1a risk factors cautionary statement regarding forwardlooking statements describes important factors could cause actual results differ expectations nonhistorical information contained herein addition following discussion read conjunction audited consolidated financial statements cco holdings subsidiaries years ended december 31 2005 2004 2003 introduction parent companies continue pursue opportunities improve parent companies’ liquidity parent companies’ efforts regard resulted completion number financing transactions 2005 2006 follows · january 2006 sale parent companies cch ii cch ii capital corp additional 450 million principal amount 10250 senior notes due 2010 · october 2005 entry us 600 million senior bridge loan agreement various lenders reduced 435 million result issuance cch ii notes · september 2005 exchange direct indirect parent companies charter holdings cch cih approximately 68 billion total principal amount outstanding debt securities charter holdings private placement new debt securities · august 2005 sale 300 million 8 34 senior notes due 2013 · march june 2005 issuance 333 million charter operating notes exchange 346 million charter holdings notes · repurchase 2005 136 million charter’s 475 convertible senior notes due 2006 leaving 20 million principal amount outstanding · march 2005 redemption cc v holdings llc’s outstanding 11875 senior discount notes due 2008 total cost 122 million years 1999 2001 grew significantly principally acquisitions cable businesses financed debt lesser extent equity current plans pursue significant acquisitions however may pursue exchanges nonstrategic assets divestitures sale cable systems atlantic broadband finance llc therefore believe historical growth rates accurate indicators future growth industrys significant operational challenges include competition dbs providers dsl service providers believe competition dbs resulted net analog video customer losses decreased growth rates digital video customers competition dsl providers combined limited opportunities expand customer base approximately 33 analog video customers subscribe highspeed internet services resulted decreased growth rates highspeed internet customers recent past grown revenues offsetting video customer losses price increases sales incremental advanced services highspeed internet video demand digital video recorders high definition television expect continue grow revenues price increases continued growth highspeed internet incremental new services including telephone high definition television vod dvr service historically ability fund operations investing activities depended continued access credit facilities expect continue borrow credit facilities time fund cash needs occurrence event default credit facilities could result borrowings facilities unavailable us could event payment default acceleration trigger events default parent companies’ outstanding notes would material adverse effect us approximately 30 million indebtedness credit facilities scheduled mature 2006 expect fund payment indebtedness borrowings revolving credit facilities overview operations approximately 86 revenues years ended december 31 2005 2004 respectively attributable monthly subscription fees charged customers video highspeed internet telephone commercial services provided cable systems generally customer subscriptions may discontinued customer time remaining 14 revenue derived primarily advertising revenues franchise fee revenues collected us paid local franchising authorities payperview vod programming users charged fee individual programs viewed installation reconnection fees charged customers commence reinstate service commissions related sale merchandise home shopping services increased revenues past three years primarily sale digital video highspeed internet services new existing customers price increases video services offset part dispositions systems going forward goal increase revenues offsetting video customer losses price increases sales incremental advanced services telephone highspeed internet video demand digital video recorders high definition television success efforts grow revenues improve margins impacted ability compete companies easier access financing greater personnel resources greater brand name recognition longestablished relationships regulatory authorities customers often fewer regulatory burdens additionally controlling cost operations critical particularly cable programming costs historically increased rates excess inflation expected continue increase attempting control costs operations maintaining strict controls expenses specifically focused managing cost structure managing workforce control cost increases improve productivity leveraging size purchasing activities expenses primarily consist operating costs selling general administrative expenses depreciation amortization expense interest expense operating costs primarily include programming costs cost workforce cable service related expenses advertising sales costs franchise fees expenses related customer billings loss operations decreased 20 billion year ended december 31 2004 income 343 million year ended december 31 2005 positive operating margin defined income loss operations divided revenues 7 negative operating margin 41 years ended december 31 2005 2004 respectively improvement loss operations negative operating margin income operations positive operating margin year end december 31 2005 principally due impairment franchises 24 billion recorded third quarter 2004 recur 2005 year ended december 31 2003 income operations 516 million year ended december 31 2004 loss operations 20 billion negative operating margin 41 year ended december 31 2004 whereas year ending december 31 2003 positive operating margin 11 decline income operations operating margin year end december 31 2004 principally due impairment franchises 24 billion recorded third quarter 2004 year ended december 31 also includes gain sale certain cable systems atlantic broadband finance llc substantially offset increase option compensation expense special charges compared year ended december 31 2003 although expect charges impairment future comparable magnitude potential charges could occur due changes market conditions history net losses expect continue report net losses foreseeable future net losses principally attributable insufficient revenue cover combination operating costs interest costs incur debt depreciation expenses incur resulting capital investments made cable properties amortization impairment franchise intangibles expect expenses impairment franchises remain significant therefore expect continue report net losses foreseeable future results operations following table sets forth percentages revenues items accompanying consolidated statements operations constitute indicated periods dollars millions year ended december 31 2005 compared year ended december 31 revenues overall increase revenues 2005 compared 2004 principally result increase 312000 121900 highspeed internet customers digital video customers respectively well price increases video highspeed internet services offset partially decrease 107000 analog video customers 12 million credits issued hurricane katrina rita impacted customers related service outages restored service impacted customers included reduction analog video customers reducing increase digital video highspeed internet customers 26800 analog video customers 12000 digital video customers 600 highspeed internet customers sold cable system sales texas west virginia closed july 2005 cable system sales atlantic broadband finance llc closed march april 2004 cable system sales texas west virginia closed july 2005 collectively referred section systems sales reduced increase revenues approximately 38 million goal increase revenues improving customer service believe stabilize analog video customer base increase number customers purchase bundled services including highspeed internet digital video telephone services addition vod highdefinition television dvr services addition intend increase revenues expanding marketing services commercial customers average monthly revenue per analog video customer increased 6802 year ended december 31 2004 7368 year ended december 31 2005 primarily result price increases incremental revenues advanced services average monthly revenue per analog video customer represents total annual revenue divided twelve divided average number analog video customers respective period revenues service offering follows dollars millions video revenues consist primarily revenues analog digital video services provided noncommercial customers approximately 108 million increase video revenues result price increases incremental video revenues existing customers approximately 17 million result increase digital video customers increases offset decreases approximately 59 million related decrease analog video customers approximately 29 million resulting system sales approximately 9 million credits issued hurricanes katrina rita impacted customers related service outages approximately 138 million increase revenues highspeed internet services provided noncommercial customers related increase average number customers receiving highspeed internet services whereas approximately 35 million related increase average price service increase offset approximately 3 million credits issued hurricanes katrina rita impacted customers related service outages 3 million resulting system sales revenues telephone services increased primarily result increase 76100 telephone customers 2005 advertising sales revenues consist primarily revenues commercial advertising customers programmers vendors advertising sales revenues increased primarily result increase local advertising sales offset decline national advertising sales addition increase offset decrease 1 million result system sales years ended december 31 2005 2004 received 15 million 16 million respectively advertising sales revenues programmers commercial revenues consist primarily revenues cable video highspeed internet services provided commercial customers commercial revenues increased primarily result increase commercial highspeed internet revenues increase reduced approximately 3 million result system sales revenues consist revenues franchise fees equipment rental customer installations home shopping dialup internet service late payment fees wire maintenance fees miscellaneous revenues years ended december 31 2005 2004 franchise fees represented approximately 54 52 respectively total revenues increase revenues primarily result increase franchise fees 14 million installation revenue 8 million offset decrease 2 million equipment rental 2 million processing fees addition revenues offset approximately 2 million result system sales operating expenses overall increase operating expenses reduced approximately 15 million result system sales programming costs 14 billion 13 billion representing 62 63 total operating expenses years ended december 31 2005 2004 respectively key expense components percentage revenues follows dollars millions programming costs consist primarily costs paid programmers analog premium digital channels payperview programming increase programming result price increases particularly sports programming partially offset decrease analog video customers additionally increase programming costs reduced 11 million result systems sales programming costs offset amortization payments received programmers support launches new channels 42 million 62 million year ended december 31 2005 2004 respectively programming costs year ended december 31 2004 also include 5 million reduction related settlement dispute techtv inc related party see note 21 accompanying consolidated financial statements contained item 8 financial statements supplementary data cable programming costs increased every year operated excess customary inflationary costofliving increases expect continue increase due variety factors including annual increases imposed programmers additional programming provided customers result system rebuilds bandwidth reallocation increase channel capacity 2006 expect programming costs increase higher rate 2005 costs determined part outcome programming negotiations 2006 likely subject offsetting events otherwise affected factors similar ones mentioned preceding paragraph increasing programming costs resulted declining operating margins video services unable pass cost increases customers expect partially offset resulting margin compression traditional video services revenue advanced video services increased telephone revenues highspeed internet revenues advertising revenues commercial service revenues service costs consist primarily service personnel salaries benefits franchise fees system utilities cost providing highspeed internet telephone service maintenance pole rental expense increase service costs resulted primarily increased labor maintenance costs support improved service levels advanced products increased costs providing highspeed internet telephone service result increase customers higher fuel prices increase service costs reduced 4 million result system sales advertising sales expenses consist costs related traditional advertising services provided advertising customers including salaries benefits commissions advertising sales expenses increased primarily result increased salary benefit commission costs selling general administrative expenses overall increase selling general administrative expenses reduced 6 million result system sales key components expense percentage revenues follows dollars millions general administrative expenses consist primarily salaries benefits rent expense billing costs call center costs internal network costs bad debt expense property taxes increase general administrative expenses resulted primarily increases salaries benefits 43 million professional fees associated consulting services 18 million related investments improve service levels customer care centers well increase 13 million legal professional fees offset decreases bad debt expense 17 million related reduction use discounted pricing property taxes 6 million property casualty insurance 6 million system sales 6 million marketing expenses increased result increased investment targeted marketing campaigns depreciation amortization depreciation amortization expense increased 4 million 2005 increase depreciation related increase capital expenditures partially offset lower depreciation result systems sales certain assets becoming fully depreciated impairment franchises performed impairment assessment third quarter 2004 use lower projected growth rates resulting revised estimates future cash flows valuation primarily result increased competition led recognition 24 billion impairment charge year ended december 31 2004 annual assessment 2005 result impairment asset impairment charges asset impairment charges year ended december 31 2005 represent writedown assets related cable asset sales fair value less costs sell see note 4 accompanying consolidated financial statements contained item 8 financial statements supplementary data gain loss sale assets net loss sale assets year ended december 31 2005 primarily represents loss recognized disposition plant equipment gain sale assets year ended december 31 2004 primarily represents pretax gain 106 million realized sale systems atlantic broadband finance llc closed march april 2004 offset losses recognized disposition plant equipment option compensation expense net option compensation expense decreased 17 million 55 year ended december 31 2005 compared year ended december 31 2004 option compensation expense year ended december 31 2005 primarily represents options expensed accordance sfas 123 accounting stockbased compensation sfas 123 option compensation expense year ended december 31 2004 primarily represents 22 million related options expensed accordance sfas 123 decrease option compensation expense primarily result decrease fair value options granted related decrease price charter’s class common stock combined decrease number options granted additionally year ended december 31 2004 expensed approximately 8 million related stock option exchange program employees offered right exchange stock options vested unvested issued charter communications option plan 2001 stock incentive plan exercise price 10 per share shares restricted charter class common stock instances cash see note 17 accompanying consolidated financial statements contained item 8 financial statements supplementary data information regarding option compensation plans hurricane asset retirement loss hurricane asset retirement loss represents loss associated writeoff net book value assets destroyed hurricanes katrina rita third quarter 2005 special charges net special charges year ended december 31 2005 represent approximately 6 million severance related costs management realignment 1 million related legal settlements special charges year ended december 31 2004 represents approximately 85 million part settlement consolidated federal class actions state derivative actions federal derivative action lawsuits approximately 10 million litigation costs related settlement 2004 national class action suit see note 22 accompanying consolidated financial statements contained item 8 financial statements supplementary data approximately 12 million severance related costs workforce reduction realignment special charges year ended december 31 offset 3 million received third party settlement dispute unfavorable contracts settlements unfavorable contracts settlements year ended december 31 2004 relates changes estimated legal reserves established connection prior business combinations based evaluation current facts circumstances longer required interest expense net interest expense increased 131 million 23 year ended december 31 2005 compared year ended december 31 2004 increase net interest expense result increase average borrowing rate 679 year ended december 31 2004 761 year ended december 31 2005 increase 753 million average debt outstanding 78 billion 2004 85 billion 2005 gain derivative instruments hedging activities net gain derivative instruments hedging activities decreased 19 million year ended december 31 2005 compared year ended december 31 2004 decrease primarily result decrease gains interest rate agreements qualify hedge accounting sfas 133 accounting derivative instruments hedging activities decreased gain 65 million year ended december 31 2004 47 million year ended december 31 2005 coupled decrease gains interest rate agreements result hedge ineffectiveness designated hedges decreased 4 million year ended december 31 2004 3 million year ended december 31 2005 loss extinguishment debt loss extinguishment debt year ended december 31 2005 primarily represents losses related redemption subsidiary’s cc v holdings llc 11875 notes due 2008 see note 9 accompanying consolidated financial statements contained item 8 financial statements supplementary data loss extinguishment debt year ended december 31 2004 represents writeoff deferred financing fees third party costs related charter communications operating refinancing april 2004 net income year ended december 31 2005 represents gain realized exchange interest equity investee investment larger enterprise net income year ended december 31 2004 represents gains realized equity investments minority interest minority interest represents 2 accretion preferred membership interests indirect subsidiary cc viii llc pro rata share profits losses cc viii llc income tax benefit expense income tax expense year ended december 31 2005 recognized increases deferred tax liabilities current federal state income tax expenses certain indirect corporate subsidiaries income tax benefit year ended december 31 2004 directly related impairment franchises deferred tax liabilities indirect corporate subsidiaries decreased result writedown franchise assets financial statement purposes expect recognize similar benefit associated impairment franchises future periods however actual tax provision calculations future periods result current future temporary differences well future operating results cumulative effect accounting change net tax cumulative effect accounting change 840 million net minority interest effects 19 million tax effects 16 million 2004 represents impairment charge recorded result adoption topic d108 net loss net loss decreased 31 billion 2005 compared 2004 result factors described impact net loss 2005 asset impairment charges extinguishment debt increase net loss approximately 45 million impact net loss 2004 impairment franchises cumulative effect accounting change increase net loss approximately 30 billion liquidity capital resources introduction section contains discussion liquidity capital resources including discussion cash position sources uses cash access credit facilities financing sources historical financing activities cash needs capital expenditures outstanding debt overview 2006 30 million debt matures 2007 additional 280 million matures 2008 beyond significant additional amounts become due remaining longterm debt obligations recent financing transactions october 2005 entered senior bridge loan agreement jpmorgan chase bank na credit suisse cayman islands branch deutsche bank ag cayman islands branch lenders whereby lenders committed make loans us aggregate amount 600 million upon issuance 450 million cch ii notes discussed commitment bridge loan reduced 435 million may draw upon facility january 2 2006 september 29 2006 loans mature sixth anniversary first borrowing bridge loan business requires significant cash fund debt service costs capital expenditures ongoing operations historically funded requirements cash flows operating activities borrowings credit facilities equity contributions parent companies sales assets issuances debt securities cash hand however mix funding sources changes period year ended december 31 2005 generated 10 billion net cash flows operating activities paying cash interest 650 million addition company used 11 billion purchases property plant equipment finally used 574 million net cash flows financing activities expect mix sources funds continue change future based overall needs relative cash flow availability funds credit facilities subsidiaries parent companies’ access debt markets timing possible asset sales ability generate cash flows operating activities continue explore asset dispositions one several possible actions could take future improve liquidity presently consider unannounced future asset sales significant source liquidity expect cash hand cash flows operating activities amounts available credit facilities bridge loan adequate meet parent companies’ cash needs 2006 believe cash flows operating activities amounts available credit facilities bridge loan sufficient fund operations satisfy parent companies’ interest principal repayment obligations 2007 beyond advised charter working financial advisors address funding requirements however assurance funding available us parent companies addition mr allen charter’s chairman controlling shareholder affiliates obligated purchase equity contribute loan funds us parent companies debt covenants ability operate depends upon among things continued access capital including credit charter operating credit facilities bridge loan charter operating credit facilities along indentures bridge loan contain certain restrictive covenants require us maintain specified financial ratios meet financial tests provide audited financial statements unqualified opinion independent auditors december 31 2005 compliance covenants indentures bridge loan credit facilities expect remain compliance covenants next twelve months december 31 2005 potential availability credit facilities totaled approximately 553 million none limited covenants addition january 2 2006 additional borrowing availability 600 million bridge loan reduced 435 million result issuance cch ii notes continued access credit facilities bridge loan subject remaining compliance covenants including covenants tied operating performance events non compliance occur funding credit facilities bridge loan may available defaults potentially debt obligations could occur event default debt instruments could result acceleration payment obligations debt certain circumstances crossdefaults debt obligations could material adverse effect consolidated financial condition results operations parent company debt obligations financial liquidity problems parent companies could cause serious disruption business material adverse effect business results operations failure charter holdings cih cch ii satisfy debt payment obligations bankruptcy filing respect charter holdings cih cch ii would give lenders credit facilities right accelerate payment obligations facilities acceleration would default indenture governing notes charter’s ability make interest payments convertible senior notes 2009 repay outstanding principal convertible senior notes 20 million 863 million respectively depend ability raise additional capital andor receipt payments distributions charter holdco subsidiaries including us 2005 distributed 925 million cash cch ii 60 million subsequently distributed charter holdco december 31 2005 charter holdco owed 22 million intercompany loans subsidiaries available pay interest principal charters convertible senior notes addition charter 98 million governmental securities pledged security next four scheduled semiannual interest payments charter’s 5875 convertible senior notes december 31 2005 charter holdings cih cch ii approximately 94 billion principal amount highyield notes outstanding approximately 105 million 0 684 million 86 billion maturing 2007 2008 2009 thereafter respectively charter holdings cih cch ii need raise additional capital receive distributions payments us order satisfy debt obligations however significant indebtedness ability parent companies raise additional capital reasonable rates uncertain distributions charter’s subsidiaries parent company including charter cchc charter holdco charter holdings cih cch ii payment principal parent company notes restricted indentures governing cih notes cch notes cch ii notes cco holdings notes charter operating notes unless default applicable subsidiary’s leverage ratio test met time distribution case charter’s convertible senior notes specified tests met quarter ended december 31 2005 default indentures subsidiary met applicable leverage ratio tests based december 31 2005 financial results distributions would restricted however subsidiary fails meet tests past certain subsidiaries time failed meet leverage ratio test assurance satisfy tests time distribution distributions charter operating cco holdings payment principal parent company notes restricted covenants credit facilities bridge loan respectively distributions cih cch ii cco holdings charter operating parent company payment parent company interest permitted default aforementioned indentures however distributions payment interest charter’s convertible senior notes limited applicable subsidiary’s leverage ratio test met specified tests met assurance satisfy tests time distribution january 30 2006 parent companies cch ii cch ii capital corp issued 450 million debt securities proceeds provided directly indirectly us used funds reduce borrowings commitments revolving portion credit facilities september 2005 charter holdings wholly owned subsidiaries cch cih completed exchange approximately 68 billion total principal amount outstanding debt securities charter holdings private placement new debt securities holders charter holdings notes due 2009 2010 exchanged 34 billion principal amount notes 29 billion principal amount new 11 cch notes due 2015 holders charter holdings notes due 2011 2012 exchanged 845 million principal amount notes 662 million principal amount 11 cch notes due 2015 addition holders charter holdings notes due 2011 2012 exchanged 25 billion principal amount notes 25 billion principal amount various series new cih notes series new cih notes interest rate provisions payment cash interest series old charter holdings notes cih notes exchanged addition maturities series extended three years specific limitations charter holdings indentures governing charter holdings notes permit charter holdings make distributions charter holdco payment interest principal convertible senior notes giving effect distribution charter holdings incur additional debt leverage ratio 875 10 default charter holdings’ indentures specified tests met quarter ended december 31 2005 default charter holdings’ indentures charter holdings met leverage ratio test based december 31 2005 financial results distributions would restricted however charter holdings fails meet tests past charter holdings time failed meet leverage ratio test assurance charter holdings satisfy tests time distribution periods distributions restricted indentures governing charter holdings notes permit charter holdings subsidiaries make specified investments restricted payments charter holdco charter amount determined formula long default indentures ability incur additional debt may limited restrictive covenants indentures bridge loan credit facilities assurances given experience liquidity problems obtain sufficient additional financing timely basis debt becomes due adverse market conditions increased competition unfavorable events time additional capital borrowing capacity required beyond amounts internally generated available credit facilities bridge loan additional debt equity financings would consider • issuing equity parent company level proceeds could loaned contributed us • issuing debt securities may structural priority existing notes • reducing expenses capital expenditures may impair ability increase revenue • selling assets • requesting waivers amendments respect credit facilities availability terms would subject market conditions strategies successful could forced restructure obligations seek protection bankruptcy laws addition find necessary engage recapitalization similar transaction noteholders might receive principal interest payments contractually entitled issuance charter operating notes exchange charter holdings notes march june 2005 subsidiary charter operating consummated exchange transactions small number institutional holders charter holdings 825 senior notes due 2007 pursuant charter operating issued private placement transactions approximately 333 million principal amount 8375 senior second lien notes due 2014 exchange approximately 346 million charter holdings 825 senior notes due 2007 sale assets july 2005 closed sale certain cable systems texas west virginia closed sale additional cable system nebraska october 2005 total sales price approximately 37 million representing total 33000 analog video customers march 2004 closed sale certain cable systems florida pennsylvania maryland delaware west virginia atlantic broadband finance llc closed sale additional cable system new york atlantic broadband finance llc april 2004 total net proceeds sale systems approximately 735 million proceeds used repay portion revolving credit facilities acquisition january 2006 closed purchase certain cable systems minnesota seren innovations inc acquired approximately 18900 analog video customers 14800 telephone customers total purchase price approximately 43 million summary outstanding contractual obligations following table summarizes payment obligations december 31 2005 longterm debt certain contractual obligations commitments dollars millions 1 table presents maturities longterm debt outstanding december 31 2005 refer notes 9 22 accompanying consolidated financial statements contained item 8 financial statements supplementary data description longterm debt contractual obligations commitments 2 interest payments variable debt estimated using amounts outstanding december 31 2005 average implied forward london interbank offering rate libor rates applicable quarter interest rate reset based yield curve effect december 31 2005 actual interest payments differ based actual libor rates actual amounts outstanding applicable periods 3 represents amounts required pay interest rate hedge agreements estimated using average implied forward libor applicable rates quarter interest rate reset based yield curve effect december 31 2005 4 pay programming fees multiyear contracts ranging three ten years typically based flat fee per customer may fixed term may cases escalate term programming costs included accompanying statement operations 14 billion 13 billion years ended december 31 2005 2004 respectively certain programming agreements based flat fee per month guaranteed minimum payments table sets forth aggregate guaranteed minimum commitments programming contracts 5 represents guaranteed minimum commitments consist primarily commitments billing services vendors following items included contractual obligations table obligations fixed andor determinable due various factors discussed however incur costs part operations · also rent utility poles used operations generally pole rentals cancelable short notice anticipate rentals recur rent expense incurred pole rental attachments years ended december 31 2005 2004 46 million 43 million respectively · pay franchise fees multiyear franchise agreements based percentage revenues earned video service per year also pay franchise related costs public education grants multiyear agreements franchise fees franchiserelated costs included accompanying statement operations 170 million 164 million years ended december 31 2005 2004 respectively · also 165 million letters credit primarily various worker’s compensation property casualty general liability carriers collateral reimbursement claims letters credit reduce amount may borrow credit facilities historical operating financing investing activities held 3 million cash equivalents december 31 2005 compared 546 million december 31 2004 year ended december 31 2005 generated 10 billion net cash flows operating activities paying cash interest 650 million addition used approximately 11 billion purchases property plant equipment finally used 574 million net cash flows financing activities operating activities net cash provided operating activities decreased 118 million 10 12 billion year ended december 31 2004 10 billion year ended december 31 2005 year ended december 31 2005 net cash provided operating activities decreased primarily result increase cash interest expense 127 million corresponding prior period investing activities net cash used investing activities years ended december 31 2005 2004 10 billion 191 million respectively investing activities used 827 million cash year ended december 31 2005 corresponding period 2004 primarily result cash provided proceeds sale certain cable systems atlantic broadband finance llc 2004 recur 2005 combined increased cash used capital expenditures financing activities net cash used financing activities 574 million 515 million years ended december 31 2005 2004 respectively increase cash used year ended december 31 2005 compared corresponding period 2004 primarily result increase distributions offset decrease payments debt issuance costs capital expenditures significant ongoing capital expenditure requirements capital expenditures 11 billion 893 million years ended december 31 2005 2004 respectively majority capital expenditures 2005 2004 related customer premise equipment costs see table details capital expenditures funded primarily cash flows operating activities issuance debt borrowings credit facilities addition years ended december 31 2005 2004 liabilities related capital expenditures increased 13 million decreased 33 million respectively increase capital expenditures 2005 compared 2004 result expected increases scalable infrastructure costs related telephone services deployment advanced digital settop terminals capital expenditures replace plant equipment destroyed hurricanes katrina rita 2006 expect capital expenditures approximately 10 billion 11 billion expect nature expenditures continue composed primarily purchases customer premise equipment related telephone advanced services support capital scalable infrastructure costs expect fund capital expenditures 2006 primarily cash flows operating activities borrowings credit facilities adopted capital expenditure disclosure guidance developed eleven publicly traded cable system operators including charter support national cable telecommunications association ncta disclosure intended provide consistency reporting operating statistics capital expenditures customers among peer companies cable industry disclosure guidelines required disclosure gaap impact accounting capital expenditures gaap following table presents major capital expenditures categories accordance ncta disclosure guidelines years ended december 31 2005 2004 dollars millions customer premise equipment includes costs incurred customer residence secure new customers revenue units additional bandwidth revenues also includes customer installation costs accordance sfas 51 customer premise equipment eg settop terminals cable modems etc b scalable infrastructure includes costs related customer premise equipment network secure growth new customers revenue units additional bandwidth revenues provide service enhancements eg headend equipment c line extensions include network costs associated entering new service areas eg fibercoaxial cable amplifiers electronic equipment makeready design engineering upgraderebuild includes costs modify replace existing fibercoaxial cable networks including betterments e support capital includes costs associated replacement enhancement nonnetwork assets due technological physical obsolescence eg nonnetwork equipment land buildings vehicles description outstanding debt december 31 2005 actual total debt approximately 90 billion summarized dollars millions accreted value presented generally represents principal amount notes less original issue discount time sale plus accretion balance sheet date b general obligors right redeem notes set forth table whole part option beginning various times prior stated maturity dates subject certain conditions upon payment outstanding principal amount plus specified redemption premium accrued unpaid interest additional information see note 9 accompanying consolidated financial statements contained item 8 financial statements supplementary data c january 2006 parent companies cch ii cch ii capital corp issued 450 million principal amount 10250 senior notes due 2010 proceeds used pay credit facilities december 31 2005 2004 longterm debt totaled approximately 90 billion 83 billion respectively debt comprised approximately 57 billion 55 billion credit facility debt 33 billion 28 billion accreted amount highyield notes december 31 2005 2004 respectively december 31 2005 2004 weighted average interest rate credit facility debt approximately 78 68 weighted average interest rate highyield notes approximately 83 82 respectively resulting blended weighted average interest rate 80 73 respectively interest rate approximately 51 59 total principal amount debt effectively fixed including effects interest rate hedge agreements december 31 2005 2004 respectively fair value highyield notes 32 billion 29 billion december 31 2005 2004 respectively fair value credit facilities 57 billion 55 billion december 31 2005 2004 respectively fair value highyield notes based quoted market prices fair value credit facilities based dealer quotations charter operating credit facilities general charter operating credit facilities amended restated concurrently sale 15 billion senior secondlien notes april 2004 among things defer maturities increase availability facilities enable charter operating acquire interests lenders cc vi operating cc viii operating falcon credit facilities thereby consolidating credit facilities one amended restated charter operating credit agreement charter operating credit facilities provide borrowing availability 65 billion follows · two term facilities term facility total principal amount 20 billion 125 matures 2007 30 matures 2008 375 matures 2009 20 matures 2010 ii term b facility total principal amount 30 billion shall repayable 27 equal quarterly installments aggregating loan year 1 original amount term b facility remaining balance due final maturity 2011 · revolving credit facility total amount 15 billion maturity date 2010 amounts outstanding charter operating credit facilities bear interest charter operating’s election base rate eurodollar rate defined plus margin eurodollar loans 300 term facility revolving credit facility 325 term b facility base rate loans 200 term facility revolving credit facility 225 term b facility quarterly commitment fee 75 payable average daily unborrowed balance revolving credit facilities obligations subsidiaries charter operating credit facilities obligations guaranteed charter operating’s immediate parent company cco holdings subsidiaries charter operating except immaterial subsidiaries precluded guaranteeing reason provisions indebtedness subject nonguarantor subsidiaries primarily renaissance subsidiaries obligations also secured lien assets charter operating subsidiaries assets nonguarantor subsidiaries extent lien perfected uniform commercial code filing financing statement ii pledge cco holdings equity interests owned charter operating charter operatings subsidiaries well intercompany obligations owing entities upon charter holdings leverage ratio defined indenture governing charter holdings senior notes senior discount notes 875 10 charter operating credit facilities require 11875 notes due 2008 issued cc v holdings llc redeemed leverage ratio determined 875 10 cc v holdings llc redeemed notes march 2005 cc v holdings llc subsidiaries nonguarantor subsidiaries became guarantors obligations granted lien assets lien perfected uniform commercial code filing financing statement charter operating credit facilities restrictive covenants charter operating credit facilities contain representations warranties affirmative negative covenants customary financings type financial covenants measure performance standards set leverage debt service coverage interest coverage tested end quarter maximum allowable leverage ratio 425 10 minimum allowable interest coverage ratio 125 10 minimum allowable debt service coverage ratio 105 10 additionally charter operating credit facilities contain provisions requiring mandatory loan prepayments specific circumstances including significant amounts assets sold proceeds reinvested assets useful business borrower within specified period upon incurrence certain indebtedness ratio senior first lien debt operating cash flow greater 20 10 charter operating credit facilities permit charter operating subsidiaries make distributions pay interest cco holdings senior notes cch ii senior notes cch senior notes cih senior notes charter holdings senior notes charter convertible senior notes provided among things default occurred continuing charter operating credit facilities charter operating credit facilities restrict ability charter operating subsidiaries make distributions purpose repaying indebtedness parent companies except repayments certain indebtedness existing time credit facilities amended restated provided certain conditions met including satisfaction 15 10 interest coverage ratio test minimum available liquidity requirement 250 million conditions future borrowings include absence default event default charter operating credit facilities continued accuracy material respects representations warranties including absence since december 31 2003 event development circumstance could reasonably expected material adverse effect business events default charter operating credit facilities include among things failure make payments due within applicable grace period ii failure comply specified covenants including limited covenant deliver audited financial statements unqualified opinion independent auditors iii failure pay occurrence events cause permit acceleration indebtedness owing cco holdings charter operating charter operating’s subsidiaries amounts excess 50 million aggregate principal amount iv failure pay occurrence events result acceleration indebtedness owing certain cco holdings’ direct indirect parent companies amounts excess 200 million aggregate principal amount v paul allen andor certain family members andor exclusively owned entities collectively paul allen group ceasing power directly indirectly vote least 35 ordinary voting power charter operating vi consummation transaction resulting person group paul allen group power directly indirectly vote 35 ordinary voting power charter operating unless paul allen group holds greater share ordinary voting power charter operating vii certain charter operating’s indirect direct parent companies indebtedness excess 500 million aggregate principal amount remains undefeased three months prior final maturity indebtedness viii charter operating ceasing whollyowned direct subsidiary cco holdings except certain limited circumstances outstanding notes cco holdings llc notes ¾ senior notes due 2013 november 2003 august 2005 cco holdings cco holdings capital corp jointly issued 500 million 300 million respectively total principal amount 8¾ senior notes due 2013 interest cco holdings senior notes accrues 8¾ per year payable semiannually arrears may 15 november 15 time prior november 15 2006 issuers cco holdings senior notes may redeem 35 total principal amount cco holdings senior notes extent public equity proceeds received pro rata basis redemption price equal 10875 principal amount cco holdings senior notes redeemed plus accrued unpaid interest november 15 2008 issuers cco holdings senior notes may redeem part notes redemption price declines ratably initial redemption price 104375 redemption price november 15 2011 1000 principal amount cco holdings senior notes redeemed plus case accrued unpaid interest senior floating rate notes due 2010 december 2004 cco holdings cco holdings capital corp jointly issued 550 million total principal amount senior floating rate notes due 2010 cco holdings senior floating rate notes annual interest rate libor plus 4125 resets payable quarterly arrears march 15 june 15 september 15 december 15 time prior december 15 2006 cco holdings cco holdings capital corp may redeem 35 notes amount exceed amount proceeds one public equity offerings redemption price equal 100 principal amount plus premium equal interest rate per annum applicable notes date notice redemption given plus accrued unpaid interest redemption date provided least 65 original aggregate principal amount notes issued remains outstanding redemption cco holdings cco holdings capital corp may redeem notes whole part issuers’ option december 15 2006 december 14 2007 102 principal amount december 15 2007 december 14 2008 101 principal amount december 15 2008 par case plus accrued unpaid interest additional terms cco holdings senior notes senior floating rate notes cco holdings notes general unsecured obligations cco holdings cco holdings capital corp rank equally current future unsubordinated obligations cco holdings cco holdings capital corp cco holdings notes structurally subordinated obligations subsidiaries cco holdings including renaissance notes charter operating notes charter operating credit facilities event specified change control events cco holdings must offer purchase outstanding cco holdings senior notes holders purchase price equal 101 total principal amount notes plus accrued unpaid interest indenture governing cco holdings senior notes contains restrictive covenants limit certain transactions activities cco holdings restricted subsidiaries including covenants summarized substantially cco holdings direct indirect subsidiaries currently restricted subsidiaries covenant indenture governing cco holdings senior notes restricts incurrence debt issuance preferred stock permits cco holdings subsidiaries incur issue specified amounts debt preferred stock giving pro forma effect incurrence issuance cco holdings could meet leverage ratio consolidated debt four times ebitda defined recent fiscal quarter internal financial reports available 45 10 addition regardless whether leverage ratio could met long default exists would result incurrence issuance cco holdings restricted subsidiaries permitted incur issue · 975 billion debt credit facilities including debt credit facilities outstanding issue date cco holdings senior notes · 75 million debt incurred finance purchase capital lease new assets · 300 million additional debt purpose · items indebtedness specific purposes intercompany debt refinancing existing debt interest rate swaps provide protection fluctuation interest rates restricted subsidiaries cco holdings generally permitted issue debt securities contractually subordinated debt issuing subsidiary preferred stock either case public rule 144a offering cco holdings indenture permits cco holdings restricted subsidiaries incur debt one category later reclassify debt another category charter operating credit facilities generally impose restrictive limitations incurring new debt cco holdings indenture subsidiaries subject credit facilities permitted utilize full debt incurrence would otherwise available cco holdings indenture covenants generally cco holdings indenture · cco holdings restricted subsidiaries permitted pay dividends equity interests repurchase interests make specified restricted payments cco holdings incur 100 new debt leverage ratio test requires cco holdings meet 45 10 leverage ratio giving effect transaction default exists would exist consequence incurrence conditions met restricted payments permitted total amount 100 cco holdings consolidated ebitda defined minus 13 times consolidated interest expense plus 100 new cash appraised noncash equity proceeds received cco holdings allocated debt incurrence covenant cumulatively fiscal quarter commenced october 1 2003 plus 100 million addition cco holdings may make distributions restricted payments long default exists would caused transaction · repurchase management equity interests amounts exceed 10 million per fiscal year · pay regardless existence default passthrough tax liabilities respect ownership equity interests charter holdings restricted subsidiaries · pay regardless existence default interest due charter convertible notes charter holdings notes cih notes cch notes cch ii notes · purchase redeem refinance charter holdings notes cih notes cch notes cch ii notes charter notes direct indirect parent company notes long cco holdings could incur 100 indebtedness 45 10 leverage ratio test referred default · make specified restricted payments including merger fees 125 transaction value repurchases using concurrent new issuances certain dividends existing subsidiary preferred equity interests indenture governing cco holdings senior notes restricts cco holdings restricted subsidiaries making investments except specified permitted investments creating new unrestricted subsidiaries default indenture cco holdings could incur 100 new debt 45 10 leverage ratio test described giving effect transaction permitted investments include · investments cco holdings restricted subsidiaries cco holdings restricted subsidiaries entities become restricted subsidiaries result investment · investments aggregating 100 new cash equity proceeds received cco holdings since november 10 2003 extent proceeds allocated restricted payments covenant described · investments 750 million outstanding time · certain specified additional investments customers suppliers ordinary course business investments received connection permitted asset sales cco holdings permitted grant liens assets specified permitted liens permitted liens include liens securing debt obligations incurred subsidiaries credit facilities liens securing purchase price new assets liens securing indebtedness 50 million specified liens incurred ordinary course business lien covenant restrict liens assets subsidiaries cco holdings cco holdings cco holdings capital coissuer generally permitted sell substantially assets merge companies unless leverage ratio transaction would greater leverage ratio immediately prior transaction unless cco holdings subsidiaries could incur 100 new debt 450 10 leverage ratio test described giving effect transaction default exists surviving entity us entity assumes cco holdings senior notes cco holdings restricted subsidiaries may generally otherwise sell assets case restricted subsidiaries issue equity interests unless receive consideration least equal fair market value assets equity interests consisting least 75 cash assumption liabilities securities converted cash within 60 days productive assets cco holdings restricted subsidiaries required within 365 days asset sale either commit use net cash proceeds specified threshold acquire assets including current assets used useful businesses use net cash proceeds repay debt offer repurchase cco holdings senior notes remaining proceeds cco holdings restricted subsidiaries may generally engage sale leaseback transactions unless time transaction cco holdings could incurred secured indebtedness amount equal present value net rental payments made lease sale assets application proceeds permitted covenant restricting asset sales cco holdings restricted subsidiaries may generally enter restrictions ability make dividends distributions transfer assets cco holdings terms materially restrictive governing debt lien asset sale lease similar agreements existing entered indenture unless restrictions customary terms materially impair cco holdings ability repay notes restricted subsidiaries cco holdings generally permitted guarantee pledge assets secure debt cco holdings unless guarantying subsidiary issues guarantee notes comparable priority tenor waives rights reimbursement indemnity subrogation arising guarantee transaction least one year indenture also restricts ability cco holdings restricted subsidiaries enter certain transactions affiliates involving consideration excess 15 million without determination board directors transaction terms less favorable armslength transactions affiliates involving 50 million without receiving independent opinion fairness transaction holders cco holdings notes bridge loan october 2005 cco holdings cco holdings capital corp guarantor thereunder entered bridge loan lenders whereby lenders committed make loans cco holdings aggregate amount 600 million january 2006 upon issuance 450 million principal amount cch ii notes commitment bridge loan agreement reduced 435 million cco holdings may subject certain conditions including satisfaction certain conditions borrowing credit facilities draw upon facility january 2 2006 september 29 2006 loans mature sixth anniversary first borrowing bridge loan accrue interest rate equal adjusted libor rate plus spread initially 450 basis points increase additional 25 basis points end sixmonth period following date first borrowing b additional 25 basis points end next two subsequent three month periods c 625 basis points end next two subsequent threemonth periods beginning first anniversary first date cco holdings borrows bridge loan time thereafter lender option receive exchange notes terms described exchange notes exchange loan repaid date upon earlier x date least majority loans outstanding exchanged exchange notes date 18 months first date cco holdings borrows bridge loan remainder loans automatically exchanged exchange notes conditions draw shall default bridge loan ii representations warranties bridge loan shall true correct material respects iii conditions borrowing charter operating credit facilities certain exceptions shall satisfied aggregate unused commitment reduced 100 net proceeds certain asset sales extent net proceeds used prepay loans exchange notes however asset sales generate net proceeds less 75 million subject commitment reduction obligation unless aggregate net proceeds asset sales exceed 200 million case aggregate unused commitment reduced amount excess cco holdings required prepay loans redeem offer repurchase exchange notes issued net proceeds issuance equity incurrence debt charter subsidiaries certain exceptions ii certain asset sales extent used purposes permitted bridge loan covenants events default applicable cco holdings bridge loan similar covenants events default indenture senior secured notes cch various additional limitations exchange notes mature sixth anniversary first borrowing bridge loan exchange notes bear interest rate equal rate would borne loans mandatory redemption provisions apply exchange notes applied loans except cco holdings required make offer redeem upon occurrence change control 101 principal amount plus accrued unpaid interest exchange notes held person initial lender affiliate thereof noncallable first three years first borrowing date b thereafter callable par plus accrued interest plus premium equal 50 coupon effect first anniversary first borrowing date premium shall decline 25 coupon fourth year zero thereafter otherwise exchange notes callable time 100 amount thereof plus accrued unpaid interest charter communications operating llc notes april 27 2004 charter operating charter communications operating capital corp jointly issued 11 billion 8 senior secondlien notes due 2012 400 million 8 38 senior secondlien notes due 2014 total gross proceeds 15 billion march june 2005 charter operating consummated exchange transactions small number institutional holders charter holdings 825 senior notes due 2007 pursuant charter operating issued private placement transactions approximately 333 million principal amount 8 38 senior secondlien notes due 2014 exchange approximately 346 million charter holdings 825 senior notes due 2007 interest charter operating notes payable semiannually arrears april 30 october 30 charter operating notes sold private transaction subject registration requirements securities act 1933 charter operating notes expected benefit exchange registration rights except specified limited circumstances issue date charter operating notes restrictions contained charter holdings indentures charter operating note guarantees even though charter operating’s immediate parent cco holdings certain subsidiaries obligors andor guarantors charter operating credit facilities upon occurrence guarantee pledge date generally fifth business day charter holdings leverage ratio certified 875 10 cco holdings subsidiaries charter operating guarantors otherwise obligors respect indebtedness charter operating credit facilities related obligations required guarantee charter operating notes note guarantee guarantor · senior obligation guarantor · structurally senior outstanding cco holdings notes except case cco holdings’ note guarantee structurally pari passu senior notes outstanding cch ii notes outstanding cch notes outstanding cih notes outstanding charter holdings notes outstanding charter convertible senior notes subject provisions charter operating indenture permit interest subject meeting 425 10 leverage ratio test principal payments made thereon · senior right payment future subordinated indebtedness guarantor result leverage ratio test met cco holdings certain subsidiaries provided additional guarantees described first quarter 2005 subsidiaries charter operating except cco nr sub llc certain subsidiaries deemed material designated nonrecourse subsidiaries charter operating credit facilities restricted subsidiaries charter operating charter operating notes unrestricted subsidiaries generally subject restrictive covenants charter operating indenture event specified change control events charter operating must offer purchase charter operating notes purchase price equal 101 total principal amount charter operating notes repurchased plus accrued unpaid interest thereon limitations incurrence debt contained indenture governing charter operating notes permit charter operating restricted subsidiaries guarantors charter operating notes incur additional debt issue shares preferred stock giving pro forma effect incurrence charter operating could meet leverage ratio test ratio consolidated debt four times ebitda defined recent fiscal quarter internal financial reports available 425 10 addition regardless whether leverage ratio test could met long default exists would result incurrence issuance charter operating restricted subsidiaries permitted incur issue · 68 billion debt credit facilities incurrence permitted charter operating restricted subsidiaries guarantors charter operating notes long guarantors including debt credit facilities outstanding issue date charter operating notes · 75 million debt incurred finance purchase capital lease assets · 300 million additional debt purpose · items indebtedness specific purposes refinancing existing debt interest rate swaps provide protection fluctuation interest rates subject meeting leverage ratio test debt existing time acquisition restricted subsidiary indenture governing charter operating notes permits charter operating incur debt one categories later reclassify debt different category charter operating credit facilities generally impose restrictive limitations incurring new debt charter operating indenture subsidiaries subject charter operating credit facilities permitted utilize full debt incurrence would otherwise available charter operating indenture covenants generally charter operating’s indenture charter operating restricted subsidiaries permitted pay dividends equity interests repurchase interests make specified restricted payments charter operating could incur 100 new debt leverage ratio test requires charter operating meet 425 10 leverage ratio giving effect transaction default exists would exist consequence incurrence conditions met restricted payments permitted total amount 100 charter operating’s consolidated ebitda defined minus 13 times consolidated interest expense plus 100 new cash appraised noncash equity proceeds received charter operating allocated debt incurrence covenant cumulatively fiscal quarter commenced april 1 2004 plus 100 million addition charter operating may make distributions restricted payments long default exists would caused transaction · repurchase management equity interests amounts exceed 10 million per fiscal year · regardless existence default pay passthrough tax liabilities respect ownership equity interests charter operating restricted subsidiaries · pay regardless existence default interest due charter convertible notes charter holdings notes cih notes cch notes cch ii notes cco holdings notes · purchase redeem refinance charter holdings notes cih notes cch notes cch ii notes cco holdings notes charter convertible notes direct indirect parent company notes long charter operating could incur 100 indebtedness 425 10 leverage ratio test referred default · make specified restricted payments including merger fees 125 transaction value repurchases using concurrent new issuances certain dividends existing subsidiary preferred equity interests indenture governing charter operating notes restricts charter operating restricted subsidiaries making investments except specified permitted investments creating new unrestricted subsidiaries default indenture charter operating could incur 100 new debt 425 10 leverage ratio test described giving effect transaction permitted investments include · investments charter operating restricted subsidiaries charter operating restricted subsidiaries entities become restricted subsidiaries result investment · investments aggregating 100 new cash equity proceeds received charter operating since april 27 2004 extent proceeds allocated restricted payments covenant described · investments 750 million outstanding time · certain specified additional investments customers suppliers ordinary course business investments received connection permitted asset sales charter operating restricted subsidiaries permitted grant liens senior liens securing charter operating notes permitted liens assets secure indebtedness obligations giving effect incurrence senior secured leverage ratio generally ratio obligations secured first priority liens four times ebitda defined recent fiscal quarter internal financial reports available would exceed 375 10 permitted liens include liens securing indebtedness obligations permitted credit facilities liens securing purchase price new assets liens securing indebtedness 50 million specified liens incurred ordinary course business charter operating charter communications operating capital corp coissuer generally permitted sell substantially assets merge companies unless leverage ratio transaction would greater leverage ratio immediately prior transaction unless charter operating subsidiaries could incur 100 new debt 425 10 leverage ratio test described giving effect transaction default exists surviving entity us entity assumes charter operating notes charter operating restricted subsidiaries generally may otherwise sell assets case restricted subsidiaries issue equity interests unless receive consideration least equal fair market value assets equity interests consisting least 75 cash assumption liabilities securities converted cash within 60 days productive assets charter operating restricted subsidiaries required within days asset sale either commit use net cash proceeds specified threshold acquire assets including current assets used useful businesses use net cash proceeds repay debt offer repurchase charter operating notes remaining proceeds charter operating restricted subsidiaries may generally engage sale leaseback transactions unless time transaction charter operating could incurred secured indebtedness amount equal present value net rental payments made lease sale assets application proceeds permitted covenant restricting asset sales charter operating’s restricted subsidiaries may generally enter restrictions ability make dividends distributions transfer assets charter operating terms materially restrictive governing debt lien asset sale lease similar agreements existing charter operating entered indenture governing charter operating senior secondlien notes unless restrictions customary terms materially impair charter operating’s ability repay charter operating notes restricted subsidiaries charter operating generally permitted guarantee pledge assets secure debt charter operating unless guarantying subsidiary issues guarantee notes comparable priority tenor waives rights reimbursement indemnity subrogation arising guarantee transaction least one year indenture also restricts ability charter operating restricted subsidiaries enter certain transactions affiliates involving consideration excess 15 million without determination board directors transaction terms less favorable armslength transactions affiliates involving 50 million without receiving independent opinion fairness transaction holders charter operating notes charter operating restricted subsidiaries generally permitted transfer equity interests restricted subsidiaries unless transfer equity interests restricted subsidiary restricted subsidiary remains restricted subsidiary net proceeds equity sale applied accordance asset sales covenant guarantee pledge date charter operating notes secured secondpriority lien charter operating’s assets secure obligations charter operating charter operating credit facility specified related obligations collateral secures obligations charter operating respect 8 senior secondlien notes due 2012 38 senior secondlien notes due 2014 ratable basis collateral consists substantially charter operating’s assets security interests may perfected uniform commercial code filing financing statement including capital stock intercompany obligations including limited · capital stock charter operating’s direct subsidiaries including limited cco nr holdings llc · intercompany obligations owing charter operating including limited intercompany notes cc vi operating cc viii operating falcon notes supported guarantees collateral supported subsidiaries’ credit facilities prior amendment restatement charter operating credit facilities since occurrence guarantee pledge date collateral charter operating notes consists charter operating’s subsidiaries’ assets secure obligations charter operating subsidiary charter operating respect charter operating credit facilities related obligations collateral currently consists capital stock charter operating held cco holdings intercompany obligations owing cco holdings charter operating subsidiary charter operating substantially charter operating’s guarantors’ assets cco holdings security interests may perfected uniform commercial code filing financing statement including capital stock intercompany obligations including limited · certain exceptions capital stock limited case capital stock foreign subsidiaries 66 capital stock first tier foreign subsidiaries held charter operating guarantor · certain exceptions intercompany obligations owing charter operating guarantor march 2005 cc v holdings llc redeemed full notes outstanding cc v indenture following redemption cc v holdings llc subsidiaries guaranteed charter operating credit facilities related obligations secured guarantees firstpriority liens guaranteed notes secured charter operating senior second lien notes secondpriority liens substantially assets security interests may perfected uniform commercial code filing financing statement including capital stock intercompany obligations addition charter operating subsidiaries exercise option redeem full notes outstanding renaissance indenture provided leverage condition remains satisfied renaissance entities required provide corresponding guarantees charter operating credit facilities related obligations note guarantees secure charter operating notes charter operating credit facilities related obligations corresponding liens event additional liens granted charter operating subsidiaries secure obligations charter operating credit facilities related obligations second priority liens assets granted secure charter operating notes liens subject provisions intercreditor agreement none charter operating affiliates parties notwithstanding foregoing sentence second priority liens need provided time lien would otherwise granted guarantee pledge availability period leverage condition satisfied second priority liens required provided accordance foregoing sentence prior fifth business day commencement next succeeding guarantee pledge availability period renaissance media notes 10 senior discount notes due 2008 issued renaissance media louisiana llc renaissance media tennessee llc renaissance media holdings capital corporation renaissance media group llc guarantor united states trust company new york trustee renaissance media group llc direct indirect parent company issuers subsidiary charter operating renaissance 10 notes renaissance guarantee unsecured unsubordinated debt issuers guarantor respectively october 1998 issuers renaissance notes exchanged 163 million original issued outstanding renaissance notes equivalent value new renaissance notes form terms new renaissance notes material respects form terms original renaissance notes except issuance new renaissance notes registered securities act interest renaissance notes payable semiannually arrears cash rate 10 per year renaissance notes redeemable option issuers thereof whole part initially 105 principal amount maturity plus accrued interest declining 100 principal amount maturity plus accrued interest april 15 2006 acquisition renaissance triggered change control provisions renaissance notes required us offer purchase renaissance notes purchase price equal 101 accreted value date purchase plus accrued interest may 1999 made offer repurchase renaissance notes holders renaissance notes representing 30 total principal amount outstanding maturity tendered renaissance notes repurchase limitations incurrence debt contained indenture governing renaissance notes permit renaissance media group restricted subsidiaries incur additional debt long default indenture · giving effect incurrence renaissance media group could meet leverage ratio consolidated debt four times consolidated ebitda defined recent quarter 675 10 regardless whether leverage ratio could met · greater 200 million 45 times renaissance media groups consolidated annualized ebitda defined · amount equal 5 renaissance media groups consolidated total assets finance purchase new assets · two times sum net cash proceeds new equity issuances capital contributions b 80 fair market value property received renaissance media group issuer capital contribution case received issue date renaissance notes allocated make restricted payments · items indebtedness specific purposes intercompany debt refinancing existing debt interest rate swaps provide protection fluctuation interest rates indenture governing renaissance notes permits us incur debt one categories reclassify debt different category indenture governing renaissance notes renaissance media group restricted subsidiaries permitted pay dividends equity interests repurchase interests make restricted investments make specified restricted payments renaissance media group could incur 100 additional debt incurrence test requires renaissance media group meet 675 10 leverage ratio giving effect transaction indebtedness covenant default exists would occur consequence thereof conditions met renaissance media group restricted subsidiaries permitted make restricted payments total amount exceed result 100 renaissance media groups consolidated ebitda defined minus 130 consolidated interest expense plus 100 new cash equity proceeds received renaissance media group allocated indebtedness covenant plus returns certain investments cumulatively june 1998 renaissance media group restricted subsidiaries may make permitted investments 2 million related businesses specified permitted investments restricted payments 10 million dividends 6 year net cash proceeds public equity offerings specified restricted payments without meeting foregoing test renaissance media group restricted subsidiaries permitted grant liens assets specified permitted liens unless corresponding liens granted secure renaissance notes permitted liens include liens securing debt permitted incurred credit facilities liens securing debt incurred incurrence indebtedness test amounts greater 200 million 45 times renaissance media groups consolidated ebitda defined liens deposits acquisitions 10 estimated purchase price liens securing permitted financings new assets liens securing debt permitted incurred restricted subsidiaries specified liens incurred ordinary course business renaissance media group issuers renaissance notes generally permitted sell otherwise dispose substantially assets merge companies unless consolidated net worth transaction would equal greater consolidated net worth immediately prior transaction unless renaissance media group could incur 100 additional debt incurrence test would require meet leverage ratio 675 100 giving effect transaction renaissance media group subsidiaries may generally otherwise sell assets case subsidiaries equity interests unless receive consideration least equal fair market value assets consisting least 75 cash temporary cash investments assumption debt charter holdings restricted subsidiaries required within 12 months asset sale either commit use net cash proceeds specified threshold either acquire assets used related businesses use net cash proceeds repay debt offer repurchase renaissance notes remaining proceeds renaissance media group restricted subsidiaries may generally engage sale leaseback transactions unless lease term exceed three years proceeds applied accordance covenant limiting asset sales renaissance media groups restricted subsidiaries may generally enter restrictions abilities make dividends distributions transfer assets renaissance media group except restrictive customary comparable financings restricted subsidiaries renaissance media group permitted guarantee pledge assets secure debt renaissance media group restricted subsidiaries unless guarantying subsidiary issues guarantee renaissance notes comparable priority tenor waives rights reimbursement indemnity subrogation arising guarantee transaction renaissance media group restricted subsidiaries generally permitted issue sell equity interests restricted subsidiaries except sales common stock restricted subsidiaries long proceeds sale applied accordance asset sale covenant issuances result restricted subsidiary longer restricted subsidiary remaining investment subsidiary permitted covenant limiting restricted payments indenture governing renaissance notes also restricts ability renaissance media group restricted subsidiaries enter certain transactions affiliates involving consideration excess 2 million without determination disinterested members board directors transaction terms less favorable arms length transactions affiliates involving 4 million affiliates without receiving independent opinion fairness transaction renaissance media group covenants subject additional specified exceptions general covenants subsidiaries credit agreements restrictive indentures crossdefaults indentures certain parent companies subsidiaries include various events default including crossdefault provisions failure issuers restricted subsidiaries pay final maturity thereof principal amount indebtedness principal amount 100 million default indebtedness resulting acceleration would result event default indenture governing applicable notes renaissance indenture contains similar crossdefault provision 10 million threshold applies issuers renaissance notes restricted subsidiaries result event default related failure repay principal maturity acceleration indebtedness charter holdings notes cih notes cch notes cch ii notes cco holdings notes charter operating notes charter operating credit facilities renaissance notes could cause crossdefaults parent companies’ subsidiaries’ indentures interest rate risk use interest rate risk management derivative instruments interest rate swap agreements interest rate collar agreements collectively referred herein interest rate agreements required terms credit facilities subsidiaries policy manage interest costs using mix fixed variable rate debt using interest rate swap agreements agree exchange specified intervals 2007 difference fixed variable interest amounts calculated reference agreedupon notional principal amount interest rate collar agreements used limit exposure derive benefits interest rate fluctuations variable rate debt within certain range rates interest rate risk management agreements held issued speculative trading purposes december 31 2005 2004 outstanding 18 billion 27 billion 20 million 20 million respectively notional amounts interest rate swaps collars respectively notional amounts interest rate instruments represent amounts exchanged parties thus measure exposure credit loss see item 7a item 7 management’s discussion analysis financial condition results operations reference made “item 1a risk factors” “cautionary statement regarding forwardlooking statements” describes important factors could cause actual results differ expectations nonhistorical information contained herein addition following discussion read conjunction audited consolidated financial statements cco holdings subsidiaries years ended december 31 2006 2005 2004 overview cco holdings broadband communications company operating united states approximately 573 million customers december 31 2006 cco holdings capital corp whollyowned subsidiary cco holdings formed exists solely coissuer public debt issued cco holdings cco holdings direct subsidiary cch ii indirect subsidiary charter holdings charter holdings indirect subsidiary charter hybrid fiber coaxial cable network offer customers traditional cable video programming analog digital refer video service highspeed internet access advanced broadband cable services ondemand high definition television service dvr many markets telephone service approximately 88 revenues years ended december 31 2006 2005 respectively attributable monthly subscription fees charged customers video highspeed internet telephone commercial services provided cable systems generally customer subscriptions may discontinued customer time remaining 12 revenue derived primarily advertising revenues franchise fee revenues collected us paid local franchising authorities payperview ondemand programming users charged fee individual programs viewed installation reconnection fees charged customers commence reinstate service commissions related sale merchandise home shopping services industrys significant operational challenges include competition dbs providers dsl service providers believe competition dbs resulted net analog video customer losses addition dbs competition combined increasingly limited opportunities expand customer base approximately 52 analog video customers subscribe digital video service resulted decreased growth rates digital video customers competition dsl providers resulted decreased growth rates highspeed internet customers recent past grown revenues offsetting analog video customer losses price increases sales incremental services highspeed internet ondemand dvr high definition television telephone expect continue grow revenues price increases number customers purchase bundled services sales incremental video services including high definition television ondemand dvr service addition expect increase revenues expanding sales services commercial customers expenses primarily consist operating costs selling general administrative expenses depreciation amortization expense interest expense operating costs primarily include programming costs cost workforce cable service related expenses advertising sales costs franchise fees selling general administrative expenses primarily include salaries benefits rent expense billing costs call center costs internal network costs bad debt expense property taxes controlling expenses impacts ability improve margins attempting control costs operations maintaining strict controls expenses specifically focused managing cost structure managing workforce control cost increases improve productivity leveraging growth increasing size purchasing activities addition reviewing pricing programming packaging strategies operating income continuing operations increased 367 million year ended december 31 2006 304 million year ended december 31 2005 positive operating margins defined operating income continuing operations divided revenues 7 6 years ended december 31 2006 2005 respectively improvement operating income continuing operations operating margin year ended december 31 2006 principally due increase revenue expenses result increased customers highspeed internet digital video advanced services well overall rate increases operating loss continuing operations 19 billion year ended december 31 2004 negative operating margin 40 year ended december 31 2004 increase operating income continuing operations positive operating margin year ended december 31 2005 principally due impairment franchises 23 billion recorded third quarter 2004 recur 2005 although expect charges impairment future comparable magnitude potential charges could occur due changes market conditions history net losses expect continue report net losses foreseeable future net losses principally attributable insufficient revenue cover combination operating expenses interest expenses incur debt depreciation expenses incur resulting capital investments made continue make cable properties expect expenses remain significant beginning 2004 continuing january 2007 sold several cable systems reflects strategy divest geographically nonstrategic assets allow efficient operations also increasing liquidity 2004 sold cable systems representing total approximately 228500 analog video customers 2005 closed sale certain cable systems representing total approximately 33000 analog video customers 2006 sold cable systems serving total approximately 390300 analog video customers january 2007 completed sale additional cable systems representing approximately 34400 analog video customers result sales improved geographic footprint reducing number headends increasing number customers per headend reducing number states majority customers reside 2006 determined west virginia cable systems part system sales disclosed comprised operations cash flows financial reporting purposes met criteria discontinued operations accordingly results operations west virginia cable systems including gain sale approximately 200 million recorded third quarter 2006 presented discontinued operations net tax year ended december 31 2006 prior periods presented herein reclassified conform current presentation results operations following table sets forth percentages revenues items accompanying consolidated statements operations constitute indicated periods dollars millions revenues average monthly revenue per analog video customer measured annual basis increased 74 2005 82 2006 average monthly revenue per analog video customer represents total annual revenue divided twelve divided average number analog video customers respective period revenue growth primarily reflects increases number customers price increases incremental video revenues ondemand dvr highdefinition television services cable system sales net acquisitions reduced increase revenues approximately 24 million revenues service offering follows dollars millions video revenues consist primarily revenues analog digital video services provided noncommercial customers analog video customers decreased 210700 customers 2006 137200 related system sales net acquisitions digital video customers increased 127800 customers 2006 increase reduced sale net acquisitions 42100 digital customers increase video revenues attributable following dollars millions highspeed internet customers grew 283600 customers 2006 20900 related system sales net acquisitions increase highspeed internet revenues noncommercial customers attributable following dollars millions revenues telephone services increased primarily result increase 324300 telephone customers 2006 14500 related acquisitions approximately 6 million increase telephone revenue related acquisition advertising sales revenues consist primarily revenues commercial advertising customers programmers vendors advertising sales revenues increased primarily result increase local national advertising sales including political advertising addition increase offset decrease 1 million result system sales years ended december 31 2006 2005 received 17 million 15 million respectively advertising sales revenues programmers commercial revenues consist primarily revenues cable video highspeed internet services provided commercial customers commercial revenues increased primarily result increase commercial highspeed internet revenues increase reduced approximately 1 million result system sales revenues consist revenues franchise fees equipment rental customer installations home shopping dialup internet service late payment fees wire maintenance fees miscellaneous revenues years ended december 31 2006 2005 franchise fees represented approximately 52 54 respectively total revenues increase revenues primarily result increases franchise fees result increases revenues upon fees apply increases installation revenues increase reduced approximately 2 million result system sales operating expenses increase operating expenses attributable following dollars millions programming costs approximately 15 billion 14 billion representing 61 62 total operating expenses years ended december 31 2006 2005 respectively programming costs consist primarily costs paid programmers analog premium digital payperview programming increase programming costs primarily result rate increases particularly sports programming addition programming costs increased result reductions amounts amortization payments received programmers support launches new channels amounts amortized programming expenses 32 million 41 million 2006 2005 respectively expect programming expenses continue increase due variety factors including annual increases imposed programmers additional programming including highdefinition ondemand programming provided customers labor costs increased due increase headcount support improved service levels telephone deployment selling general administrative expenses increase selling general administrative expenses attributable following dollars millions depreciation amortization depreciation amortization expense decreased 89 million 2006 decrease depreciation primarily result systems sales certain assets becoming fully depreciated asset impairment charges asset impairment charges years ended december 31 2006 2005 represent writedown assets related cable asset sales fair value less costs sell see note 4 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” operating expenses net decrease operating expenses net attributable following dollars millions information see note 15 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” interest expense net interest expense increased 75 million 2006 increase net interest expense result increase average borrowing rate 76 2005 82 2006 increase average debt outstanding 85 billion 2005 87 billion 2006 loss extinguishment debt information see note 9 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” income net decrease income net attributable following dollars millions information see note 17 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” income tax expense income tax expense 2006 2005 recognized increases deferred tax liabilities current federal state income tax expenses certain indirect corporate subsidiaries income discontinued operations net tax income discontinued operations net tax increased 2006 compared 2005 due gain 200 million recognized 2006 sale west virginia systems net loss impact net loss 2006 2005 asset impairment charges extinguishment debt gain discontinued operations decrease net loss approximately 14 million increase net loss approximately 45 million respectively liquidity capital resources introduction section contains discussion liquidity capital resources including discussion cash position sources uses cash access credit facilities financing sources historical financing activities cash needs capital expenditures outstanding debt overview debt liquidity business requires significant cash fund debt service costs capital expenditures ongoing operations historically funded requirements cash flows operating activities borrowings credit facilities equity contributions parent companies proceeds sales assets issuances debt securities cash hand however mix funding sources changes period year ended december 31 2006 generated 12 billion net cash flows operating activities paying cash interest 718 million addition received proceeds sale assets approximately 10 billion used 11 billion purchases property plant equipment finally net cash flows used financing activities 11 billion expect mix sources funds continue change future based overall needs relative cash flow availability funds credit facilities subsidiaries parent companies’ access debt markets charter’s access equity markets timing possible asset sales ability generate cash flows operating activities continue explore asset dispositions one several possible actions could take future improve liquidity presently consider future asset sales significant source liquidity result credit facility refinancing expect cash hand cash flows operating activities amounts available credit facilities adequate meet parent companies’ cash needs 2008 believe cash flows operating activities amounts available credit facilities may sufficient fund operations satisfy parent companies’ interest principal repayment obligations 2009 sufficient fund needs 2010 beyond advised charter continues work financial advisors concerning approach addressing liquidity debt maturities overall balance sheet leverage significant level debt december 31 2006 accreted value total debt approximately 86 billion summarized dollars millions accreted value presented generally represents principal amount notes less original issue discount time sale plus accretion balance sheet date b general obligors right redeem notes set forth table whole part option beginning various times prior stated maturity dates subject certain conditions upon payment outstanding principal amount plus specified redemption premium accrued unpaid interest additional information see note 9 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” 2007 25 million debt matures 2008 additional 50 million matures 2009 beyond significant additional amounts become due remaining longterm debt obligations following table summarizes payment obligations december 31 2006 longterm debt certain contractual obligations commitments dollars millions 1 table presents maturities longterm debt outstanding december 31 2006 refer notes 9 21 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” description longterm debt contractual obligations commitments include 303 million loans payable related party 2 interest payments variable debt estimated using amounts outstanding december 31 2006 average implied forward london interbank offering rate libor rates applicable quarter interest rate reset based yield curve effect december 31 2006 actual interest payments differ based actual libor rates actual amounts outstanding applicable periods 3 represents amounts required pay interest rate hedge agreements estimated using average implied forward libor applicable rates quarter interest rate reset based yield curve effect december 31 2006 4 company leases certain facilities equipment noncancelable operating leases rental costs charged expense years ended december 31 2006 2005 23 million 22 million respectively 5 pay programming fees multiyear contracts ranging three ten years typically based flat fee per customer may fixed term may cases escalate term programming costs included accompanying statement operations approximately 15 billion 14 billion years ended december 31 2006 2005 respectively certain programming agreements based flat fee per month guaranteed minimum payments table sets forth aggregate guaranteed minimum commitments programming contracts 6 “other” represents guaranteed minimum commitments consist primarily commitments billing services vendors following items included contractual obligations table obligations fixed andor determinable due various factors discussed however incur costs part operations · rent utility poles used operations generally pole rentals cancelable short notice anticipate rentals recur rent expense incurred pole rental attachments years ended december 31 2006 2005 44 million · pay franchise fees multiyear franchise agreements based percentage revenues generated video service per year also pay franchise related costs public education grants multiyear agreements franchise fees franchiserelated costs included accompanying statement operations 175 million 165 million years ended december 31 2006 2005 respectively · also 147 million letters credit primarily various worker’s compensation property casualty general liability carriers collateral reimbursement claims letters credit reduce amount may borrow credit facilities credit facility availability ability operate depends upon among things continued access capital including credit charter operating credit facilities charter operating credit facilities along indentures contain certain restrictive covenants require us maintain specified financial ratios meet financial tests provide audited financial statements unqualified opinion independent auditors december 31 2006 compliance covenants credit facilities well indentures expect remain compliance covenants next twelve months december 31 2006 potential availability credit facilities totaled approximately 13 billion although actual availability time 11 billion limits imposed covenant restrictions continued access credit facilities subject remaining compliance covenants including covenants tied operating performance events noncompliance occur funding credit facilities may available defaults potentially debt obligations could occur event default debt instruments could result acceleration payment obligations debt certain circumstances crossdefaults debt obligations could material adverse effect consolidated financial condition results operations parent company debt obligations financial liquidity problems parent companies could case serious disruption business material adverse effect business results operations failure charter holdings cih cch ii satisfy debt payment obligations bankruptcy filing respect charter holdings cih cch ii would give lenders credit facilities right accelerate payment obligations facilities acceleration would default indenture governing notes consolidated basis parent companies significant level debt including debt totaled approximately 191 billion december 31 2006 limitations distributions charter’s ability make interest payments convertible senior notes 2009 repay outstanding principal convertible senior notes 413 million depend ability raise additional capital andor receipt payments distributions charter holdco subsidiaries december 31 2006 charter holdco owed 3 million intercompany loans subsidiaries 8 million cash available pay interest principal charter’s convertible senior notes addition charter 50 million us government securities pledged security semiannual interest payments charter’s convertible senior notes scheduled 2007 cchc also holds 450 million charter’s convertible senior notes result cchc continues hold notes cchc receive interest payments convertible senior notes pledged government securities cumulative amount interest payments expected received cchc may available distributed pay interest outstanding 413 million convertible senior notes due 2008 may 2009 although cchc may use amounts purposes december 31 2006 charter holdings cih cch ii approximately 99 billion principal amount highyield notes outstanding approximately 105 million 0 415 million 94 billion maturing 2007 2008 2009 thereafter respectively charter holdings cih cch ii need raise additional capital receive distributions payments us order satisfy debt obligations however significant indebtedness ability parent companies raise additional capital reasonable rates uncertain year ended december 31 2006 distributed 12 billion cash parent company distributions charter’s subsidiaries parent company including charter holdco cchc charter holdings cih cch ii payment principal parent company notes restricted indentures governing cih notes cch notes cch ii notes cco holdings notes charter operating notes unless default applicable indenture applicable subsidiary’s leverage ratio test met time distribution case distributions charter operating payment principal portion outstanding cco holdings notes specified tests met quarter ended december 31 2006 default indentures subsidiary met applicable leverage ratio tests based december 31 2006 financial results distributions would restricted however subsidiary fails meet tests time contemplated distribution past certain subsidiaries time failed meet leverage ratio test assurance satisfy tests time contemplated distribution distributions charter operating payment principal parent company notes restricted covenants credit facilities distributions cih cch ii cco holdings charter operating parent company payment parent company interest permitted default aforementioned indentures case distributions charter operating payment interest portion outstanding cco holdings notes charter operating’s leverage ratio specified tests met indentures governing charter holdings notes permit charter holdings make distributions charter holdco payment interest principal charter’s convertible senior notes giving effect distribution charter holdings incur additional debt leverage ratio 875 10 default charter holdings’ indentures specified tests met quarter ended december 31 2006 default charter holdings’ indentures specified tests met distributions would restricted however charter holdings fails meet tests time contemplated distribution past charter holdings time failed meet leverage ratio test assurance charter holdings satisfy tests time contemplated distribution periods distributions restricted indentures governing charter holdings notes permit charter holdings subsidiaries make specified investments restricted payments charter holdco charter amount determined formula long default indentures addition limitation distributions various indentures discussed distributions subsidiaries may limited applicable law see “risk factors holding company structure outstanding notes structurally subordinated right payment liabilities subsidiaries restrictions subsidiary’s debt instruments applicable law limit ability provide funds us various debt issuers” access capital ability incur additional debt may limited restrictive covenants indentures credit facilities assurances given experience liquidity problems obtain sufficient additional financing timely basis debt becomes due adverse market conditions increased competition unfavorable events time additional capital borrowing capacity required beyond amounts internally generated available credit facilities additional debt equity financings would consider · issuing equity parent company level proceeds could loaned contributed us · issuing debt securities may structural priority existing notes · reducing expenses capital expenditures may impair ability increase revenue grow operating cash flows · selling assets · requesting waivers amendments respect credit facilities availability terms would subject negotiation cannot assured strategies successful could forced restructure obligations seek bankruptcy protection addition find necessary engage recapitalization similar transaction noteholders might receive full principal interest payments contractually entitled recent financing transactions completed many capital transactions since formation charter 2007 2006 completed following capital transactions impacted liquidity march 2007 entered charter credit facility refinancing see “part item 1 business recent event” january 2006 direct parent companies cch ii cch ii capital corp issued 450 million debt securities proceeds provided charter operating used funds reduce borrowings commitments revolving portion credit facilities april 2006 charter operating completed 685 billion refinancing credit facilities including new 350 million revolvingterm facility converts term loan later april 2007 50 billion term loan due 2013 certain amendments existing 15 billion revolving credit facility addition refinancing reduced margins eurodollar rate term loans 2625 weighted average 315 previously margins base rate term loans 1625 weighted average 215 previously concurrent refinancing cco holdings bridge loan terminated september 2006 charter holdings wholly owned subsidiaries cch ii completed exchange approximately 797 million total principal amount outstanding debt securities charter holdings holders charter holdings notes due 20092010 tendered 308 million principal amount notes 250 million principal amount new 1025 cch ii notes due 2013 37 million principal amount 11 cch notes due 2015 holders charter holdings notes due 20112012 tendered 490 million principal amount notes 425 million principal amount 11 cch notes due 2015 charter holdings notes received exchanges thereafter distributed charter holdings retired also september 2006 cchc cch ii completed exchange 450 million principal amount charter’s outstanding 5875 senior convertible notes due 2009 188 million cash 45 million shares charter’s class common stock 146 million principal amount 1025 cch ii notes due 2010 convertible notes received exchange held cchc sale assets 2006 closed asset sales total net proceeds approximately 10 billion used net proceeds asset sales reduce borrowings commitments revolving portion credit facilities also 2006 recorded asset impairment charges 159 million related cable systems meeting criteria assets held sale acquisition january 2006 closed purchase certain cable systems minnesota seren innovations inc acquired approximately 17500 analog video customers 8000 digital video customers 13200 highspeed internet customers 14500 telephone customers total purchase price approximately 42 million historical operating financing investing activities cash equivalents held 28 million cash equivalents december 31 2006 compared 3 million december 31 2005 operating activities net cash provided operating activities increased 189 million 18 10 billion year ended december 31 2005 12 billion year ended december 31 2006 year ended december 31 2006 net cash provided operating activities increased primarily result changes operating assets liabilities provided 239 million cash year ended december 31 2006 corresponding period 2005 offset increase cash interest expense 81 million corresponding prior period investing activities net cash used investing activities years ended december 31 2006 2005 65 million 10 billion respectively investing activities used 953 million less cash year ended december 31 2006 corresponding period 2005 primarily due 10 billion proceeds received 2006 sale assets including cable systems financing activities net cash used financing activities 11 billion 574 million years ended december 31 2006 2005 respectively increase cash used year ended december 31 2006 compared corresponding period 2005 primarily result increase repayments longterm debt capital expenditures significant ongoing capital expenditure requirements capital expenditures 11 billion years ended december 31 2006 2005 majority capital expenditures 2006 2005 related scalable infrastructure customer premise equipment see table details capital expenditures funded primarily cash flows operating activities issuance debt borrowings credit facilities addition years ended december 31 2006 2005 liabilities related capital expenditures increased 24 million 13 million respectively 2007 expect capital expenditures approximately 12 billion expect nature expenditures continue composed primarily purchases customer premise equipment related telephone advanced services support capital scalable infrastructure expect fund capital expenditures 2007 primarily cash flows operating activities borrowings credit facilities adopted capital expenditure disclosure guidance developed eleven publicly traded cable system operators including charter support national cable telecommunications association “ncta” disclosure intended provide consistency reporting capital expenditures customers among peer companies cable industry disclosures required disclosures gaap impact accounting capital expenditures gaap following table presents major capital expenditures categories accordance ncta disclosure guidelines years ended december 31 2006 2005 dollars millions customer premise equipment includes costs settop boxes cable modems etc used customer residence secure new customers revenue generating units additional bandwidth also includes customer installation costs accordance sfas 51 b scalable infrastructure includes costs related customer premise equipment network secure growth new customers revenue generating units additional bandwidth revenues provide service enhancements eg headend equipment c line extensions include network costs eg fibercoaxial cable amplifiers electronic equipment makeready design engineering associated entering new service areas upgraderebuild includes costs modify replace existing fibercoaxial cable networks including betterments e support capital includes costs associated replacement enhancement nonnetwork assets eg nonnetwork equipment land buildings vehicles due technological physical obsolescence description outstanding debt overview december 31 2006 2005 longterm debt totaled approximately 86 billion 90 billion respectively debt comprised approximately 54 billion 57 billion credit facility debt 32 billion 33 billion accreted amount highyield notes december 31 2006 2005 respectively see first table “ liquidity capital resources overview debt liquidity” debt outstanding issuer december 31 2006 2005 blended weighted average interest rate debt 82 80 respectively interest rate approximately 49 51 total principal amount debt effectively fixed including effects interest rate hedge agreements december 31 2006 2005 respectively fair value highyield notes 33 billion 32 billion december 31 2006 2005 respectively fair value credit facilities 54 billion 57 billion december 31 2006 2005 respectively fair value highyield notes based quoted market prices fair value credit facilities based dealer quotations following description summary certain provisions credit facilities notes “debt agreements” summary restate terms debt agreements entirety describe terms debt agreements instruments governing debt agreements complicated consult agreements instruments detailed information regarding debt agreements charter operating credit facilities general march 2007 entered charter credit facility refinancing see “part item 1 business recent event” description reflects charter operating credit facilities place december 31 2006 charter operating credit facilities amended restated april 2006 among things defer maturities increase availability facilities charter operating credit facilities provide borrowing availability 685 billion follows • term facility total principal amount 50 billion repayable 23 equal quarterly installments commencing september 30 2007 aggregating loan year 1 original amount term facility remaining balance due final maturity 2013 • revolving credit facility 15 billion maturity date 2010 • revolving credit facility “rt facility” 3500 million converts term loans later april 2007 repayable terms term facility described amounts outstanding charter operating credit facilities bear interest charter operating’s election base rate eurodollar rate defined plus margin eurodollar loans 300 revolving credit facility rt facility converted term loans 2625 term facility rt facility loans converting term loans base rate loans 200 revolving credit facility rt facility converted term loans 1625 term facility rt facility loans converting term loans quarterly commitment fee 75 payable average daily unborrowed balance revolving credit facility converted term loans rt facility obligations charter operating charter operating credit facilities “obligations” guaranteed charter operating’s immediate parent company cco holdings subsidiaries charter operating except certain subsidiaries including immaterial subsidiaries precluded guaranteeing reason provisions indebtedness subject “nonguarantor subsidiaries” obligations also secured lien substantially assets charter operating subsidiaries assets nonguarantor subsidiaries ii pledge cco holdings equity interests owned charter operating well intercompany obligations owing charter operating charter operating credit facilities restrictive covenants charter operating credit facilities contain representations warranties affirmative negative covenants customary financings type financial covenants measure performance standards set leverage interest coverage tested end quarter maximum allowable leverage ratio 425 10 maturity additionally charter operating credit facilities contain provisions requiring mandatory loan prepayments specific circumstances including connection certain sales assets long proceeds reinvested business charter operating credit facilities permit charter operating subsidiaries make distributions pay interest charter convertible notes cchc notes charter holdings notes cih notes cch notes cch ii notes cco holdings notes charter operating secondlien notes provided among things default occurred continuing charter operating credit facilities conditions future borrowings include absence default event default charter operating credit facilities continued accuracy material respects representations warranties including absence since december 31 2005 event development circumstance could reasonably expected material adverse effect business events default charter operating credit facilities include among things · failure make payments due within applicable grace period · failure comply specified covenants including limited covenant deliver audited financial statements unqualified opinion independent auditors · failure pay occurrence events cause permit acceleration indebtedness owing cco holdings charter operating charter operating’s subsidiaries amounts excess 50 million aggregate principal amount · failure pay occurrence events result acceleration indebtedness owing certain cco holdings’ direct indirect parent companies amounts excess 200 million aggregate principal amount · paul allen andor certain family members andor exclusively owned entities collectively “paul allen group” ceasing power directly indirectly vote least 35 ordinary voting power charter operating · consummation transaction resulting person group paul allen group power directly indirectly vote 35 ordinary voting power charter operating unless paul allen group holds greater share ordinary voting power charter operating · certain charter operating’s indirect direct parent companies charter operating subsidiaries indebtedness excess 500 million aggregate principal amount remains undefeased three months prior final maturity indebtedness · charter operating ceasing whollyowned direct subsidiary cco holdings except certain limited circumstances outstanding notes cco holdings llc notes november 2003 august 2005 cco holdings cco holdings capital corp jointly issued 500 million 300 million respectively total principal amount 8¾ senior notes due 2013 “ccoh 2013 notes” december 2004 issued 550 million total principal amount senior floating rate notes due 2010 “ccoh 2010 notes together ccoh 2013 notes ccoh notes” cco holdings senior floating rate notes annual interest rate libor plus 4125 resets payable quarterly arrears march 15 june 15 september 15 december 15 cco holdings notes senior debt obligations cco holdings cco holdings capital corp rank equally current future unsecured unsubordinated obligations cco holdings cco holdings capital corp cco holdings notes structurally subordinated obligations subsidiaries cco holdings including charter operating notes charter operating credit facilities charter communications operating llc notes april 27 2004 charter operating charter communications operating capital corp jointly issued 11 billion 8 senior secondlien notes due 2012 400 million 8 38 senior secondlien notes due 2014 march june 2005 charter operating consummated exchange transactions small number institutional holders charter holdings 825 senior notes due 2007 pursuant charter operating issued private placement transactions approximately 333 million principal amount 8 38 senior secondlien notes due 2014 exchange approximately 346 million charter holdings 825 senior notes due 2007 subject specified limitations cco holdings subsidiaries charter operating guarantors otherwise obligors respect indebtedness charter operating credit facilities related obligations required guarantee charter operating notes note guarantee guarantor · senior obligation guarantor · structurally senior outstanding cco holdings notes except case cco holdings’ note guarantee structurally pari passu senior notes outstanding cch ii notes outstanding cch notes outstanding cih notes outstanding charter holdings notes outstanding charter convertible senior notes · senior right payment future subordinated indebtedness guarantor · effectively senior relevant subsidiarys unsecured indebtness extent value collateral subject prior lien credit facilities charter operating notes related note guarantees secured secondpriority lien charter operating’s subsidiaries’ assets secure obligations charter operating subsidiary charter operating respect charter operating credit facilities related obligations collateral currently consists capital stock charter operating held cco holdings intercompany obligations owing cco holdings charter operating subsidiary charter operating substantially charter operating’s guarantors’ assets cco holdings security interests may perfected uniform commercial code filing financing statement including capital stock intercompany obligations including limited · certain exceptions capital stock limited case capital stock foreign subsidiaries 66 capital stock first tier foreign subsidiaries held charter operating guarantor · certain exceptions intercompany obligations owing charter operating guarantor event additional liens granted charter operating subsidiaries secure obligations charter operating credit facilities related obligations second priority liens assets granted secure charter operating notes liens subject provisions intercreditor agreement none charter operating affiliates parties notwithstanding foregoing sentence second priority liens need provided time lien would otherwise granted guarantee pledge availability period leverage condition satisfied second priority liens required provided accordance foregoing sentence prior fifth business day commencement next succeeding guarantee pledge availability period charter operating notes senior debt obligations charter operating charter communications operating capital corp extent value collateral subject prior lien credit facilities rank effectively senior charter operating’s future unsecured senior indebtedness redemption provisions high yield notes various notes issued us subsidiaries included table may redeemed accordance following table redeemable maturity indicated charter operating may prior april 30 2007 event qualified equity offering providing sufficient proceeds redeem 35 aggregate principal amount charter operating notes redemption price 108375 respect 8 38 senior secondlien notes due 2014 notes redemption price 108 respect 8 senior secondlien notes due 2012 charter operating may time option redeem outstanding 8 second lien notes due 2012 whole part redemption price equal 100 principal amount thereof plus accrued unpaid interest redemption date plus makewhole premium makewhole premium amount equal excess present value remaining interest principal payments due 8 senior secondlien notes due 2012 final maturity date computed using discount rate equal treasury rate date plus 050 b outstanding principal amount note event specified change control event occurs respective issuers notes must offer repurchase outstanding notes 101 principal amount accrued value applicable plus accrued unpaid interest summary restrictive covenants high yield notes following description summary certain restrictions debt agreements summary restate terms debt agreements entirety describe restrictions debt agreements instruments governing debt agreements complicated consult agreements instruments detailed information regarding debt agreements notes issued cco holdings charter operating together “note issuers” issued pursuant indentures contain covenants restrict ability note issuers subsidiaries among things · incur indebtedness · pay dividends make distributions respect capital stock restricted payments · issue equity · make investments · create liens · sell assets · consolidate merge sell substantially assets · enter sale leaseback transactions · create restrictions ability restricted subsidiaries make certain payments · enter transactions affiliates however covenants subject number important qualifications exceptions set forth brief summary certain restrictive covenants restrictions additional debt limitations incurrence debt issuance preferred stock contained various indentures permit respective notes issuers restricted subsidiaries incur additional debt issue preferred stock long giving pro forma effect incurrence leverage ratio would specified level note issuers follows addition regardless whether leverage ratio could met long default exists would result incurrence issuance issuer restricted subsidiaries permitted issue among permitted indebtedness · amount debt credit facilities otherwise allocated indicated · cco holdings 975 billion · charter operating 68 billion · 75 million debt incurred finance purchase capital lease new assets · 300 million additional debt purpose · items indebtedness specific purposes intercompany debt refinancing existing debt interest rate swaps provide protection fluctuation interest rates indebtedness single facility agreement may incurred part one categories listed part another generally may also later reclassified another category including debt incurred leverage ratio accordingly indebtedness credit facilities incurred combination categories permitted indebtedness listed march 2007 cco entered charter operating credit agreement see “part item 1 recent event” charter operating credit agreement maximum allowable leverage ratio cco 5 1 maximum allowable first lien leverage ratio 4 1 thereby allowing cco incur credit facility indebtedness entering charter operating credit agreement maximum allowable leverage ratio 425 1 restricted subsidiaries note issuers generally permitted issue subordinated debt securities restrictions distributions generally various indentures note issuers respective restricted subsidiaries permitted pay dividends repurchase equity interests make specified restricted payments applicable issuer incur 100 new debt applicable leverage ratio test giving effect transaction default exists would exist consequence incurrence conditions met restricted payments may made total amount following amounts applicable issuer indicated · cco holdings sum 100 cco holdings’ consolidated ebitda defined minus 13 times consolidated interest expense defined plus 100 new cash appraised noncash equity proceeds received cco holdings allocated certain investments cumulatively october 1 2003 plus 100 million · charter operating sum 100 charter operating’s consolidated ebitda defined minus 13 times consolidated interest expense defined plus 100 new cash appraised noncash equity proceeds received charter operating allocated certain investments cumulatively april 1 2004 plus 100 million addition note issuers may make distributions restricted payments long default exists would caused transactions among distributions restricted payments · repurchase management equity interests amounts exceed 10 million per fiscal year · regardless existence default pay passthrough tax liabilities respect ownership equity interests applicable issuer restricted subsidiaries · make specified restricted payments including merger fees 125 transaction value repurchases using concurrent new issuances certain dividends existing subsidiary preferred equity interests cco holdings charter operating respective restricted subsidiaries may make distributions restricted payments long certain defaults exist even applicable leverage test referred met enable certain parents pay interest certain indebtedness ii long applicable issuer could incur 100 indebtedness applicable leverage ratio test referred enable certain parents purchase redeem refinance certain indebtedness restrictions investments note issuers respective restricted subsidiaries may make investments except permitted investments ii giving effect transaction leverage would applicable leverage ratio permitted investments include among others · investments generally among restricted subsidiaries restricted subsidiaries applicable issuer · cco holdings · investments aggregating 750 million time outstanding · investments aggregating 100 new cash equity proceeds received cco holdings since november 10 2003 extent proceeds allocated restricted payments covenant · charter operating · investments aggregating 750 million time outstanding · investments aggregating 100 new cash equity proceeds received cco holdings since april 27 2004 extent proceeds allocated restricted payments covenant restrictions liens charter operating restricted subsidiaries permitted grant liens senior liens securing charter operating notes permitted liens assets secure indebtedness obligations giving effect incurrence senior secured leverage ratio generally ratio obligations secured first priority liens four times ebitda defined recent fiscal quarter internal financial reports available would exceed 375 10 restrictions liens note issuers applies liens assets issuers restrict liens assets subsidiaries respect note issuers permitted liens include liens securing indebtedness obligations credit facilities subject specified limitations case charter operating liens securing purchase price financed new assets liens securing indebtedness 50 million specified liens restrictions sale assets mergers note issuers generally permitted sell substantially assets merge companies unless leverage ratio transaction would greater leverage ratio immediately prior transaction unless giving effect transaction leverage would applicable leverage ratio applicable issuer default exists surviving entity us entity assumes applicable notes note issuers restricted subsidiaries may generally otherwise sell assets case restricted subsidiaries issue equity interests excess 100 million unless receive consideration least equal fair market value assets equity interests consisting least 75 cash assumption liabilities securities converted cash within 60 days productive assets note issuers restricted subsidiaries required within 365 days asset sale either use commit use net cash proceeds specified threshold acquire assets used useful businesses use net cash proceeds repay specified debt offer repurchase issuer’s notes remaining proceeds restrictions sale leaseback transactions note issuers restricted subsidiaries may generally engage sale leaseback transactions unless time transaction applicable issuer could incurred secured indebtedness leverage ratio test amount equal present value net rental payments made lease sale assets application proceeds permitted covenant restricting asset sales prohibitions restricting dividends note issuers’ restricted subsidiaries may generally enter arrangements involving restrictions ability make dividends distributions transfer assets applicable note issuer unless restrictions respect financing arrangements terms restrictive governing credit facilities existing entered applicable indentures materially restrictive customary terms comparable financings materially impair applicable note issuers’ ability make payments notes affiliate transactions indentures also restrict ability note issuers restricted subsidiaries enter certain transactions affiliates involving consideration excess 15 million without determination board directors applicable note issuer transaction complies covenant transactions affiliates involving 50 million without receiving opinion fairness holders transaction financial point view issued accounting appraisal investment banking firm national standing cross acceleration indentures certain parent companies subsidiaries include various events default including cross acceleration provisions failure issuers restricted subsidiaries pay final maturity thereof principal amount indebtedness principal amount 100 million default indebtedness resulting acceleration would result event default indenture governing applicable notes result event default related failure repay principal maturity acceleration indebtedness charter holdings notes cih notes cch notes cch ii notes cco holdings notes charter operating notes charter operating credit facilities could cause crossdefaults parent companies’ subsidiary’s indentures recently issued accounting standards september 2006 sec issued sab 108 considering effects prior year misstatements quantifying misstatements current year financial statements addresses effects prior year uncorrected misstatements quantifying misstatements current year financial statements misstatements required quantified using balancesheet “ironcurtain” incomestatement approach “rollover” evaluated whether either approach results material error light quantitative qualitative factors sab 108 effective fiscal years ending november 15 2006 adopted sab 108 effective fiscal year ended december 31 2006 adoption sab 108 material impact financial statements june 2006 fasb issued fin 48 accounting uncertainty income taxesan interpretation fasb statement 109 provides criteria recognition measurement presentation disclosure uncertain tax positions tax benefit uncertain position may recognized “more likely not” position sustainable based technical merits fin 48 effective fiscal years beginning december 15 2006 adopt fin 48 effective january 1 2007 currently assessing impact fin 48 financial statements september 2006 fasb issued sfas 157 fair value measurements establishes framework measuring fair value expands disclosures fair value measurements sfas 157 effective fiscal years beginning november 15 2007 interim periods within fiscal years adopt sfas 157 effective january 1 2008 expect adoption sfas 157 material impact financial statements february 2007 fasb issued sfas 159 fair value option financial assets financial liabilities including amendment fasb statement 115 allows measurement fair value eligible financial assets liabilities otherwise measured fair value fair value option eligible item elected unrealized gains losses item shall reported current earnings subsequent reporting date sfas 159 also establishes presentation disclosure requirements designed draw comparison different measurement attributes company elects similar types assets liabilities sfas 159 effective fiscal years beginning november 15 2007 early adoption permitted currently assessing impact sfas 159 financial statements believe recently issued yet effective accounting pronouncements adopted would material effect accompanying financial statements item 7a item 7 management’s discussion analysis financial condition results operations reference made “item 1a risk factors” “cautionary statement regarding forwardlooking statements” describe important factors could cause actual results differ expectations nonhistorical information contained herein addition following discussion read conjunction audited consolidated financial statements charter holdings cch ii cco holdings subsidiaries years ended december 31 2007 2006 2005 overview charter holdings including indirect subsidiaries cch ii cco holdings operating subsidiary charter operating operate broadband communications businesses united states approximately 56 million customers december 31 2007 hybrid fiber coaxial cable network offer customers traditional cable video programming analog digital refer video service highspeed internet access telephone services well advanced broadband services ondemand high definition television service dvr results charter holdings cch ii cco holdings discussed operating activities take place subsidiary charter operating subsidiaries results operations identical operating income continuing operations approximately 89 88 revenues years ended december 31 2007 2006 respectively attributable monthly subscription fees charged customers video highspeed internet telephone commercial services provided cable systems generally customer subscriptions may discontinued customer time remaining 11 12 revenue derived primarily advertising revenues franchise fee revenues collected us paid local franchising authorities payperview ondemand programming users charged fee individual programs viewed installation reconnection fees charged customers commence reinstate service commissions related sale merchandise home shopping services cable industrys significant competitive challenges stem dbs providers dsl service providers addition telephone companies either offer making upgrades networks allow offer services provide features functions similar video highspeed internet telephone services also offer bundles similar believe competition dbs telephone companies resulted net video customer losses addition face increasingly limited opportunities expand customer base approximately 56 video customers subscribe digital video service factors contributed decreased growth rates digital video customers similarly competition dsl providers along increasing penetration highspeed internet service homes computers resulted decreased growth rates highspeed internet customers recent past grown revenues offsetting video customer losses price increases sales incremental services highspeed internet ondemand dvr high definition television telephone expect continue grow revenues price increases highspeed internet upgrades increases number customers purchase bundled services including highspeed internet telephone sales incremental advanced services including wireless networking high definition television ondemand dvr service addition expect increase revenues expanding sales services commercial customers however cannot assure able grow revenues historical rates expenses primarily consist operating costs selling general administrative expenses depreciation amortization expense interest expense operating costs primarily include programming costs cost workforce cable service related expenses advertising sales costs franchise fees selling general administrative expenses primarily include salaries benefits rent expense billing costs call center costs internal network costs bad debt expense property taxes attempting control costs operations maintaining strict controls expenses specifically focused managing cost structure improving workforce productivity leveraging growth increasing effectiveness purchasing activities operating income continuing operations increased 548 million year ended december 31 2007 367 million year ended december 31 2006 positive operating margins defined operating income continuing operations divided revenues 9 7 years ended december 31 2007 2006 respectively improvement operating income continuing operations operating margin years ended december 31 2007 2006 principally due increase revenue expenses result increased customers highspeed internet digital video telephone customers well overall rate increases history net losses expect continue report net losses foreseeable future net losses principally attributable insufficient revenue cover combination operating expenses interest expenses incur high amounts debt depreciation expenses resulting capital investments made continue make cable properties expect expenses remain significant beginning 2004 continuing 2007 sold several cable systems divest geographically nonstrategic assets allow efficient operations also reducing debt increasing liquidity 2006 2007 closed sale certain cable systems representing total approximately 390300 85100 video customers respectively result sales improved geographic footprint reducing number headends increasing number customers per headend reducing number states majority customers reside also made certain geographically strategic acquisitions 2006 2007 adding 17600 25500 video customers respectively 2006 determined west virginia cable systems part system sales disclosed comprised operations cash flows financial reporting purposes met criteria discontinued operations accordingly results operations west virginia cable systems including gain sale approximately 200 million recorded third quarter 2006 presented discontinued operations net tax year ended december 31 2006 prior periods presented herein reclassified conform current presentation results operations following tables set forth percentages revenues items accompanying consolidated statements operations constitute indicated periods dollars millions revenues average monthly revenue per video customer measured annual basis increased 82 2006 93 2007 average monthly revenue per video customer represents total annual revenue divided twelve divided average number video customers respective period revenue growth 2007 2006 primarily reflects increases number customers price increases incremental video revenues ondemand dvr highdefinition television services cable system sales net acquisitions 2006 2007 reduced increase revenues 2007 compared 2006 approximately 90 million revenues service offering follows dollars millions video revenues consist primarily revenues analog digital video services provided noncommercial customers video customers decreased 213400 customers 2007 97100 related system sales net acquisitions digital video customers increased 112000 customers 2007 increase 2007 reduced sale net acquisitions 38100 digital customers increase video revenues attributable following dollars millions highspeed internet customers grew 280300 customers 2007 increase 2007 reduced system sales net acquisitions 8800 highspeed internet customers increase highspeed internet revenues noncommercial customers attributable following dollars millions revenues telephone services increased primarily result increase 513500 telephone customers 2007 500 related acquisitions advertising sales revenues consist primarily revenues commercial advertising customers programmers vendors 2007 advertising sales revenues decreased primarily result decrease national advertising sales including political advertising result decreases advertising sales revenues programmers decrease 3 million result system sales years ended december 31 2007 2006 received 13 million 17 million respectively advertising sales revenues vendors commercial revenues consist primarily revenues services provided commercial customers commercial revenues increased primarily result increase commercial highspeed internet revenues increases reduced approximately 6 million 2007 result system sales revenues consist franchise fees equipment rental customer installations home shopping late payment fees wire maintenance fees miscellaneous revenues years ended december 31 2007 2006 franchise fees represented approximately 47 52 respectively total revenues increase primarily result increases universal service fund revenues wire maintenance fees late payment fees increase reduced approximately 7 million result system sales operating expenses increase operating expenses attributable following dollars millions programming costs approximately 16 billion 15 billion representing 60 61 total operating expenses years ended december 31 2007 2006 respectively programming costs consist primarily costs paid programmers analog premium digital ondemand payperview programming increases programming costs primarily result contractual rate increases programming costs also offset amortization payments received programmers support launches new channels 22 million 32 million 2007 2006 respectively expect programming expenses continue increase due variety factors including annual increases imposed programmers amounts paid retransmission consent additional programming including highdefinition ondemand programming provided customers labor costs increased due increase headcount support improved service levels telephone deployment selling general administrative expenses increase selling general administrative expenses attributable following dollars millions depreciation amortization depreciation amortization expense decreased 26 million 2007 decrease depreciation primarily result system sales certain assets becoming fully depreciated 8 million decrease due impact changes useful lives certain assets impairment franchises largely driven increased competition experienced us peers lowered projected revenue expense growth rates increased projected capital expenditures accordingly revised estimates future cash flows compared used prior valuations result recorded 178 million impairment year ended december 31 2007 valuation completed october 1 2006 showed franchise values excess book value thus resulted impairments asset impairment charges asset impairment charges years ended december 31 2007 2006 represent writedown assets related cable asset sales fair value less costs sell see note 4 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” operating income expenses net decrease operating expenses net attributable following dollars millions information see note 15 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” interest expense net charter holdings net interest expense 18 billion years ended december 31 2007 2006 impact increase average debt outstanding 187 billion 2006 192 billion 2007 partially offset impact decrease average borrowing rate 96 2006 93 2007 cch ii net interest expense increased 39 million 2007 2006 increase net interest expense result increase average debt outstanding 109 billion 2006 119 billion 2007 partially offset decrease average borrowing rate 86 2006 81 2007 cco holdings net interest expense increased 10 million 2007 2006 increase net interest expense result increase average debt outstanding 87 billion 2006 94 billion 2007 partially offset decrease average borrowing rate 82 2006 76 2007 gain loss extinguishment debt gain loss extinguishment debt consists following years ended december 31 2007 2006 dollars millions information see notes 9 16 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” income expense net decrease income net attributable following dollars millions information see note 17 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” income tax expense income tax expense recognized increases deferred tax liabilities current federal state income tax expenses certain indirect subsidiaries income tax expense year ended december 31 2007 includes 18 million income tax expense previously recorded indirect parent company income discontinued operations net tax income discontinued operations net tax decreased 2007 compared 2006 due sale west virginia systems july 2006 net loss impact net loss 2007 2006 asset impairment charges impairment franchises extinguishment debt gain sale discontinued operations net related tax effects charter holdings increase net loss approximately 267 million decrease net loss approximately 160 million respectively cch ii cco holdings increase net loss 264 million decrease net loss approximately 52 million respectively liquidity capital resources introduction section contains discussion liquidity capital resources including discussion cash position sources uses cash access credit facilities financing sources historical financing activities cash needs capital expenditures outstanding debt overview debt liquidity significant amounts debt december 31 2007 accreted value charter holdings’ cch ii’s cco holdings’ total debt approximately 195 billion 123 billion 99 billion respectively summarized dollars millions accreted values presented generally represent principal amount notes less original issue discount time sale plus accretion balance sheet date however certain notes recorded financial reporting purposes values different current accreted value legal purposes notes indenture purposes amount currently payable debt becomes immediately due december 31 2007 accreted value charter holdings’ cch ii’s cco holdings’ debt legal purposes notes indentures purposes 194 billion 123 billion 99 billion respectively b general obligors right redeem notes set forth table except respect 10000 charter holdings notes due 2009 1075 charter holdings notes due 2009 9625 charter holdings notes due 2009 whole part option beginning various times prior stated maturity dates subject certain conditions upon payment outstanding principal amount plus specified redemption premium accrued unpaid interest additional information see note 9 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” 2008 65 million charter operating’s credit facility matures 2009 additional 188 million charter holdings’ notes mature 65 million charter operating’s credit facility matures 2010 beyond significant additional amounts become due remaining longterm debt obligations following tables summarize payment obligations december 31 2007 longterm debt certain contractual obligations commitments dollars millions 1 tables present maturities longterm debt outstanding december 31 2007 refer notes 9 21 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” description longterm debt contractual obligations commitments include 123 million 123 million 332 million loans payable related party charter holdings cch ii cco holdings respectively 2 interest payments variable debt estimated using amounts outstanding december 31 2007 average implied forward london interbank offering rate libor rates applicable quarter interest rate reset based yield curve effect december 31 2007 actual interest payments differ based actual libor rates actual amounts outstanding applicable periods 3 represents amounts required pay interest rate hedge agreements estimated using average implied forward libor applicable rates quarter interest rate reset based yield curve effect december 31 2007 4 lease certain facilities equipment noncancelable operating leases rental costs charged expense years ended december 31 2007 2006 23 million 23 million respectively 5 pay programming fees multiyear contracts ranging three ten years typically based flat fee per customer may fixed term may cases escalate term programming costs included accompanying statement operations approximately 16 billion 15 billion years ended december 31 2007 2006 respectively certain programming agreements based flat fee per month guaranteed minimum payments table sets forth aggregate guaranteed minimum commitments programming contracts 6 “other” represents guaranteed minimum commitments consist primarily commitments billing services vendors following items included contractual obligations tables obligations fixed andor determinable due various factors discussed however incur costs part operations · rent utility poles used operations generally pole rentals cancelable short notice anticipate rentals recur rent expense incurred pole rental attachments years ended december 31 2007 2006 47 million 44 million respectively · pay franchise fees multiyear franchise agreements based percentage revenues generated video service per year also pay franchise related costs public education grants multiyear agreements franchise fees franchiserelated costs included accompanying statement operations 172 million 175 million years ended december 31 2007 2006 respectively · also 136 million letters credit primarily various worker’s compensation property casualty general liability carriers collateral reimbursement claims letters credit reduce amount may borrow credit facilities business requires significant cash fund debt service costs capital expenditures ongoing operations historically funded requirements cash flows operating activities borrowings credit facilities equity contributions parent companies proceeds sales assets issuances debt securities cash hand however mix funding sources changes period year ended december 31 2007 charter holdings cch ii cco holdings generated 323 million 11 billion 14 billion net cash flows operating activities paying cash interest 18 billion 980 million 728 million respectively addition used 12 billion purchases property plant equipment finally charter holdings cch ii net cash flows provided financing activities 825 million 26 million respectively cco holdings net cash used financing activities 226 million expect mix sources funds continue change future based overall needs relative cash flow availability funds credit facilities subsidiaries parent companies’ access debt markets charter’s access equity markets timing possible asset sales based ability generate cash flows operating activities consolidated basis parent companies significant level debt totaled approximately 199 billion december 31 2007 receipt march 2008 net proceeds charter operating 10875 2nd lien notes due 2014 incremental term loans expect cash hand cash flows operating activities amounts available charter operating’s credit facilities adequate fund parent companies’ projected cash needs including scheduled maturities 2009 believe cash flows operating activities amounts available credit facilities sufficient fund parent companies’ projected cash needs 2010 primarily result cch ii 22 billion senior notes maturing september 2010 thereafter projected cash needs projected sources liquidity depend upon among things actual results timing amount capital expenditures ongoing compliance charter operating credit facilities including obtaining unqualified audit opinion independent accountants although parent companies able refinance otherwise fund repayment debt past parent companies may able access additional sources refinancing similar terms pricing currently place otherwise obtain sources funding continuation recent turmoil credit markets general economic downturn could adversely impact terms andor pricing need raise additional liquidity access capital significant amount debt could negatively affect ability access additional capital future additionally ability incur additional debt may limited restrictive covenants indentures credit facilities assurances given experience liquidity problems obtain sufficient additional financing timely basis debt becomes due adverse market conditions increased competition unfavorable events time additional capital borrowing capacity required beyond amounts internally generated available credit facilities would consider • issuing equity charter holdco level proceeds could loaned contributed us • issuing debt securities may structural priority existing notes • reducing expenses capital expenditures may impair ability increase revenue grow operating cash flows • selling assets • requesting waivers amendments respect credit facilities may available acceptable terms cannot assured strategies successful could forced restructure obligations seek protection bankruptcy laws addition find necessary engage recapitalization similar transaction noteholders might receive principal interest payments contractually entitled credit facility availability ability operate depends upon among things continued access capital including credit charter operating credit facilities charter operating credit facilities along indentures cco holdings credit facility contain certain restrictive covenants require us maintain specified leverage ratios meet financial tests provide annual audited financial statements unqualified opinion independent accountants december 31 2007 compliance covenants indentures credit facilities expect remain compliance covenants next twelve months december 31 2007 potential availability charter operating’s revolving credit facility totaled approximately 10 billion none limited covenant restrictions continued access revolving credit facility subject remaining compliance covenants including covenants tied charter operating’s leverage ratio first lien leverage ratio event noncompliance occur funding revolving credit facility may available defaults potentially debt obligations could occur event default debt instruments could result acceleration payment obligations debt certain circumstances crossdefaults parent companies’ debt obligations could material adverse effect consolidated financial condition results operations parent company debt obligations financial liquidity problems parent companies could cause serious disruption business material adverse effect business results operations failure charter holdings cih cch ii cco holdings satisfy debt payment obligations could bankruptcy respect charter holdings cih cch ii cco holdings would give lenders credit facilities right accelerate payment obligations facilities acceleration would default indenture governing notes limitations distributions long charter’s convertible senior notes remain outstanding otherwise converted shares common stock charter must pay interest convertible senior notes repay principal amount october 2007 charter holdco completed exchange offer 364 million charter’s 5875 convertible senior notes due november 2009 exchanged 479 million charter’s 650 convertible senior notes approximately 49 million charter’s 5875 convertible senior notes remain outstanding charter’s ability make interest payments convertible senior notes repay outstanding principal convertible senior notes depend ability raise additional capital andor receipt payments distributions charter holdco subsidiaries december 31 2007 charter holdco owed 123 million intercompany loans charter operating 62 million cash amounts available pay interest principal charter’s convertible senior notes distributions charter’s subsidiaries parent company payment principal parent company notes restricted indentures governing cih notes cch notes cch ii notes cco holdings notes charter operating notes cco holdings credit facility unless default applicable indenture credit facility unless applicable subsidiary’s leverage ratio test met time distribution quarter ended december 31 2007 default indentures credit facilities subsidiary met applicable leverage ratio tests based december 31 2007 financial results distributions would restricted however subsidiary fails meet tests time contemplated distribution past certain subsidiaries time failed meet leverage ratio test assurance satisfy tests time contemplated distribution distributions charter operating payment principal parent company notes restricted covenants charter operating credit facilities distributions cih cch ii cco holdings charter operating parent company payment parent company interest permitted default aforementioned indentures cco holdings credit facility indentures governing charter holdings notes permit charter holdings make distributions charter holdco payment interest principal charter’s convertible senior notes giving effect distribution charter holdings incur additional debt leverage ratio 875 10 default charter holdings’ indentures specified tests met quarter ended december 31 2007 default charter holdings’ indentures specified tests met charter holdings met leverage ratio test based december 31 2007 financial results distributions would restricted however charter holdings fails meet tests time contemplated distribution past charter holdings time failed meet leverage ratio test assurance charter holdings satisfy tests time contemplated distribution periods distributions restricted indentures governing charter holdings notes permit charter holdings subsidiaries make specified investments restricted payments charter holdco charter amount determined formula long default indentures addition limitation distributions various indentures discussed distributions subsidiaries may limited applicable law see “risk factors holding company structure outstanding notes structurally subordinated right payment liabilities subsidiaries restrictions subsidiaries’ debt instruments applicable law limit ability provide funds us various debt issuers” historical operating financing investing activities cash equivalents charter holdings cch ii cco holdings held 13 million 7 million 2 million respectively cash equivalents december 31 2007 compared 38 million 32 million 28 million december 31 2006 respectively operating activities net cash provided operating activities charter holdings increased 16 million 5 307 million year ended december 31 2006 323 million year ended december 31 2007 primarily result revenues increasing faster rate cash operating expenses offset increase 80 million interest cash pay obligations changes operating assets liabilities provided 45 million less cash year ended december 31 2007 corresponding period 2006 net cash provided operating activities cch ii increased 93 million 9 10 billion year ended december 31 2006 11 billion year ended december 31 2007 primarily result revenues increasing faster rate cash operating expenses offset increase 44 million interest cash pay obligations changes operating assets liabilities provided 7 million less cash year ended december 31 2007 corresponding period 2006 net cash provided operating activities cco holdings increased 135 million 11 12 billion year ended december 31 2006 14 billion year ended december 31 2007 primarily result revenues increasing faster rate cash operating expenses changes operating assets liabilities provided 6 million cash year ended december 31 2007 corresponding period 2006 offset increase 16 million interest cash pay obligations period investing activities net cash used investing activities charter holdings cch ii cco holdings years ended december 31 2007 2006 12 billion 65 million respectively investing activities used 11 billion cash year ended december 31 2007 corresponding period 2006 primarily due 10 billion proceeds received 2006 sale assets including cable systems financing activities net cash provided financing activities charter holdings cch ii 825 million 26 million net cash used financing activities cco holdings 226 million year ended december 31 2007 respectively net cash used financing activities charter holdings cch ii cco holdings 218 million 935 million 11 billion year ended december 31 2006 respectively increase cash provided charter holdings cch ii decrease cash used cco holdings year ended december 31 2007 compared corresponding period 2006 primarily result increase borrowings longterm debt capital expenditures significant ongoing capital expenditure requirements capital expenditures 12 billion 11 billion years ended december 31 2007 2006 respectively capital expenditures increased result spending customer premise equipment support capital meet increased digital highspeed internet telephone customer growth see table details capital expenditures funded primarily cash flows operating activities issuance debt borrowings credit facilities addition years ended december 31 2007 2006 liabilities related capital expenditures decreased 2 million increased 24 million respectively 2008 expect capital expenditures approximately 12 billion expect nature expenditures continue composed primarily purchases customer premise equipment related telephone advanced services support capital scalable infrastructure funded expect continue fund capital expenditures 2008 primarily cash flows operating activities borrowings credit facilities adopted capital expenditure disclosure guidance developed eleven publicly traded cable system operators including charter support national cable telecommunications association “ncta” disclosure intended provide consistency reporting capital expenditures among peer companies cable industry disclosure guidelines required disclosures accounting principles generally accepted united states “gaap” impact accounting capital expenditures gaap following table presents major capital expenditures categories accordance ncta disclosure guidelines years ended december 31 2007 2006 dollars millions customer premise equipment includes costs incurred customer residence secure new customers revenue units additional bandwidth revenues also includes customer installation costs accordance sfas 51 financial reporting cable television companies customer premise equipment eg settop boxes cable modems etc b scalable infrastructure includes costs related customer premise equipment network secure growth new customers revenue units additional bandwidth revenues provide service enhancements eg headend equipment c line extensions include network costs associated entering new service areas eg fibercoaxial cable amplifiers electronic equipment makeready design engineering upgraderebuild includes costs modify replace existing fibercoaxial cable networks including betterments e support capital includes costs associated replacement enhancement nonnetwork assets due technological physical obsolescence eg nonnetwork equipment land buildings vehicles description outstanding debt overview following description summary certain provisions credit facilities notes “debt agreements” summary restate terms debt agreements entirety describe terms debt agreements instruments governing debt agreements complicated consult agreements instruments detailed information regarding debt agreements see organizational chart page 4 first table “ liquidity capital resources overview debt liquidity” debt outstanding issuer credit facilities general charter operating credit facilities charter operating credit facilities amended restated march 2007 among things defer maturities increase availability charter operating credit facilities provide borrowing availability 80 billion follows • term loan total principal amount 65 billion repayable equal quarterly installments commencing march 31 2008 aggregating loan year 1 original amount term loan remaining balance due final maturity march 6 2014 • revolving line credit 15 billion maturity date march 6 2013 charter operating credit facilities also allow us enter incremental term loans future aggregate amount 10 billion amortization set forth notices establishing term loans amortization greater 1 prior final maturity existing term loan however assurance given incremental term loans could obtained charter operating sought amounts outstanding charter operating credit facilities bear interest charter operating’s election base rate eurodollar rate defined plus margin eurodollar loans 200 revolving credit facility 200 term loan quarterly commitment fees 05 per annum payable average daily unborrowed balance revolving credit facility obligations charter operating charter operating credit facilities “obligations” guaranteed charter operating’s immediate parent company cco holdings subsidiaries charter operating except certain subsidiaries including immaterial subsidiaries precluded guaranteeing reason provisions indebtedness subject “nonguarantor subsidiaries” obligations also secured lien substantially assets charter operating subsidiaries assets nonguarantor subsidiaries extent lien perfected uniform commercial code filing financing statement ii pledge cco holdings equity interests owned charter operating charter operating’s subsidiaries well intercompany obligations owing entities cco holdings credit facility march 2007 cco holdings entered credit agreement “cco holdings credit facility” consists 350 million term loan facility matures september 2014 cco holdings credit facility also allows us enter incremental term loans future maturing dates set forth notices establishing term loans earlier maturity date existing term loans however assurance given incremental term loans could obtained cco holdings sought borrowings cco holdings credit facility bear interest variable interest rate based either libor base rate plus either case applicable margin applicable margin libor term loans incremental loans 250 libor applicable margin respect incremental loans agreed upon cco holdings lenders incremental loans established cco holdings credit facility secured equity interests charter operating proceeds thereof credit facilities restrictive covenants charter operating credit facilities charter operating credit facilities contain representations warranties affirmative negative covenants customary financings type financial covenants measure performance standards set leverage tested end quarter additionally charter operating credit facilities contain provisions requiring mandatory loan prepayments specific circumstances including connection certain sales assets long proceeds reinvested business charter operating credit facilities permit charter operating subsidiaries make distributions pay interest charter convertible notes cchc notes charter holdings notes cih notes cch notes cch ii notes cco holdings notes cco holdings credit facility charter operating secondlien notes provided among things default occurred continuing credit facilities conditions future borrowings include absence default event default credit facilities continued accuracy material respects representations warranties including absence since december 31 2005 event development circumstance could reasonably expected material adverse effect business events default charter operating credit facilities include among things • failure make payments due within applicable grace period • failure comply specified covenants including limited covenant annually deliver audited financial statements unqualified opinion independent accountants • failure pay occurrence events cause permit acceleration indebtedness owing cco holdings charter operating charter operating’s subsidiaries amounts excess 100 million aggregate principal amount • failure pay occurrence events result acceleration indebtedness owing certain cco holdings’ direct indirect parent companies amounts excess 200 million aggregate principal amount • paul allen andor certain family members andor exclusively owned entities collectively “paul allen group” ceasing power directly indirectly vote least 35 ordinary voting power charter operating • consummation transaction resulting person group paul allen group power directly indirectly vote 35 ordinary voting power charter operating unless paul allen group holds greater share ordinary voting power charter operating • charter operating ceasing whollyowned direct subsidiary cco holdings except certain limited circumstances cco holdings credit facility cco holdings credit facility contains covenants substantially similar restrictive covenants cco holdings notes except leverage ratio 550 10 see “summary restricted covenants high yield notes” cco holdings credit facility contains provisions requiring mandatory loan prepayments specific circumstances including connection certain sales assets long proceeds reinvested business cco holdings credit facility permits cco holdings subsidiaries make distributions pay interest cci convertible senior notes cchc notes charter holdings notes cih notes cch notes cch ii notes cco holdings notes charter operating secondlien notes provided among things default occurred continuing cco holdings credit facility outstanding notes charter communications operating llc notes april 27 2004 charter operating charter communications operating capital corp jointly issued 11 billion 8 senior secondlien notes due 2012 400 million 8 38 senior secondlien notes due 2014 march june 2005 charter operating consummated exchange transactions small number institutional holders charter holdings 825 senior notes due 2007 pursuant charter operating issued private placement transactions approximately 333 million principal amount 8 38 senior secondlien notes due 2014 exchange approximately 346 million charter holdings 825 senior notes due 2007 march 2006 charter operating exchanged 37 million renaissance media group llc 10 senior discount notes due 2008 37 million principal amount charter operating 8 38 senior secondlien notes due 2014 subject specified limitations cco holdings subsidiaries charter operating guarantors otherwise obligors respect indebtedness charter operating credit facilities related obligations required guarantee charter operating notes note guarantee guarantor · senior obligation guarantor · structurally senior outstanding cco holdings notes except case cco holdings’ note guarantee structurally pari passu senior notes outstanding cch ii notes outstanding cch notes outstanding cih notes outstanding charter holdings notes outstanding charter convertible senior notes · senior right payment future subordinated indebtedness guarantor · effectively senior relevant subsidiary’s unsecured indebtedness extent value collateral subject prior lien credit facilities charter operating notes related note guarantees secured secondpriority lien charter operating’s subsidiaries’ assets secure obligations charter operating subsidiary charter operating respect charter operating credit facilities related obligations collateral currently consists capital stock charter operating held cco holdings intercompany obligations owing cco holdings charter operating subsidiary charter operating substantially charter operating’s guarantors’ assets cco holdings security interests may perfected uniform commercial code filing financing statement including capital stock intercompany obligations including limited · certain exceptions capital stock limited case capital stock foreign subsidiaries 66 capital stock first tier foreign subsidiaries held charter operating guarantor · certain exceptions intercompany obligations owing charter operating guarantor event additional liens granted charter operating subsidiaries secure obligations charter operating credit facilities related obligations second priority liens assets granted secure charter operating notes liens subject provisions intercreditor agreement none charter operating affiliates parties notwithstanding foregoing sentence second priority liens need provided time lien would otherwise granted guarantee pledge availability period leverage condition satisfied second priority liens required provided accordance foregoing sentence prior fifth business day commencement next succeeding guarantee pledge availability period charter operating notes senior debt obligations charter operating charter communications operating capital corp extent value collateral subject prior lien credit facilities rank effectively senior charter operating’s future unsecured senior indebtedness cco holdings llc notes november 2003 august 2005 cco holdings cco holdings capital corp jointly issued 500 million 300 million respectively total principal amount 8¾ senior notes due 2013 “ccoh 2013 notes” ccoh 2013 notes senior debt obligations cco holdings cco holdings capital corp rank equally current future unsecured unsubordinated obligations cco holdings cco holdings capital corp including cco holdings credit facility ccoh 2013 notes structurally subordinated obligations subsidiaries cco holdings including charter operating notes charter operating credit facilities cch ii llc notes september 2003 january 2006 cch ii cch ii capital corp jointly issued approximately 22 billion total principal amount 1025 senior notes due 2010 “cch ii 2010 notes” september 2006 issued 250 million total principal amount 1025 senior notes due 2013 “cch ii 2013 notes” together cch ii 2010 notes “cch ii notes” exchange aggregate 270 million certain charter holdings notes cch ii notes senior debt obligations cch ii cch ii capital corp rank equally current future unsecured unsubordinated obligations cch ii cch ii capital corp cch ii 2013 notes guaranteed senior unsecured basis charter holdings cch ii notes structurally subordinated obligations subsidiaries cch ii including cco holdings notes charter operating notes charter operating credit facilities cch llc notes september 2005 cch capital corp jointly issued 35 billion total principal amount 11 senior secured notes due october 2015 exchange aggregate amount 42 billion certain charter holdings notes september 2006 issued additional 462 million total principal amount notes exchange aggregate 527 million certain charter holdings notes guaranteed senior unsecured basis charter holdings secured pledge 100 equity interest cch i’s wholly owned direct subsidiary cch ii pledge cc viii interests proceeds thereof pledges subject significant limitations described related pledge agreement cch notes senior debt obligations cch capital corp extent value collateral rank senior cch i’s future unsecured senior indebtedness cch notes structurally subordinated obligations subsidiaries cch including cch ii notes cco holdings notes charter operating notes charter operating credit facilities cch holdings llc notes september 2005 cih cch holdings capital corp jointly issued 25 billion total principal amount 992 1350 senior accreting notes due 2014 2015 exchange aggregate amount 24 billion charter holdings notes due 2011 2012 issued six series notes varying interest rates set forth table “liquidity capital resources overview debt liquidity” notes guaranteed senior unsecured basis charter holdings cih notes senior debt obligations cih cch holdings capital corp rank equally current future unsecured unsubordinated obligations cih cch holdings capital corp cih notes structurally subordinated obligations subsidiaries cih including cch notes cch ii notes cco holdings notes charter operating notes charter operating credit facilities charter communications holdings llc notes march 1999 january 2002 charter holdings charter communications holdings capital corporation “charter capital” jointly issued 102 billion total principal amount notes 578 million total principal amount outstanding december 31 2007 notes issued 15 series notes maturities 2007 2012 varying interest rates set forth table “liquidity capital resources overview debt liquidity” charter holdings notes senior debt obligations charter holdings charter capital rank equally current future unsecured unsubordinated obligations charter holdings charter capital structurally subordinated obligations charter holdings’ subsidiaries including cih notes cch notes cch ii notes cco holdings notes charter operating notes charter operating credit facilities redemption provisions high yield notes various notes issued subsidiaries included table may redeemed accordance following table redeemable maturity indicated charter operating may time option redeem outstanding 8 second lien notes due 2012 whole part redemption price equal 100 principal amount thereof plus accrued unpaid interest redemption date plus makewhole premium makewhole premium amount equal excess present value remaining interest principal payments due 8 senior secondlien notes due 2012 final maturity date computed using discount rate equal treasury rate date plus 050 b outstanding principal amount note cch ii may prior october 1 2009 event qualified equity offering providing sufficient proceeds redeem 35 aggregate principal amount cch ii notes redemption price 11025 principal amount plus accrued unpaid interest cch may prior october 1 2008 event qualified equity offering providing sufficient proceeds redeem 35 aggregate principal amount cch notes redemption price 111 principal amount plus accrued unpaid interest event specified change control event occurs respective issuers notes must offer repurchase outstanding notes 101 principal amount accrued value applicable plus accrued unpaid interest summary restrictive covenants high yield notes following description summary certain restrictions debt agreements summary restate terms debt agreements entirety describe restrictions debt agreements instruments governing debt agreements complicated consult agreements instruments detailed information regarding debt agreements notes issued charter holdings cih cch ii cco holdings charter operating together “note issuers” issued pursuant indentures contain covenants restrict ability note issuers subsidiaries among things · incur indebtedness · pay dividends make distributions respect capital stock restricted payments · issue equity · make investments · create liens · sell assets · consolidate merge sell substantially assets · enter sale leaseback transactions · create restrictions ability restricted subsidiaries make certain payments · enter transactions affiliates however covenants subject number important qualifications exceptions set forth brief summary certain restrictive covenants restrictions additional debt limitations incurrence debt issuance preferred stock contained various indentures permit respective notes issuers restricted subsidiaries incur additional debt issue preferred stock long giving pro forma effect incurrence leverage ratio would specified level note issuers follows addition regardless whether leverage ratio could met long default exists would result incurrence issuance issuer restricted subsidiaries permitted issue among permitted indebtedness · amount debt credit facilities otherwise allocated indicated · charter operating 68 billion · cih cch ii cco holdings 975 billion · charter holdings 35 billion · 75 million debt incurred finance purchase capital lease new assets · 300 million additional debt purpose · charter holdings cih may incur additional debt amount equal 200 proceeds new cash equity proceeds received since march 1999 date first indenture allocated restricted payments permitted investments “equity proceeds basket” · items indebtedness specific purposes intercompany debt refinancing existing debt interest rate swaps provide protection fluctuation interest rates indebtedness single facility agreement may incurred part one categories listed part another generally may also later reclassified another category including debt incurred leverage ratio accordingly indebtedness credit facilities incurred combination categories permitted indebtedness listed restricted subsidiaries note issuers generally permitted issue subordinated debt securities restrictions distributions generally various indentures note issuers respective restricted subsidiaries permitted pay dividends repurchase equity interests make specified restricted payments applicable issuer incur 100 new debt applicable leverage ratio test giving effect transaction default exists would exist consequence incurrence conditions met restricted payments may made total amount following amounts applicable issuer indicated · charter operating sum 100 charter operating’s consolidated ebitda defined minus 13 times consolidated interest expense defined plus 100 new cash appraised noncash equity proceeds received charter operating allocated certain investments cumulatively april 1 2004 plus 100 million · cco holdings sum 100 cco holdings’ consolidated ebitda defined minus 13 times consolidated interest expense defined plus 100 new cash appraised noncash equity proceeds received cco holdings allocated certain investments cumulatively october 1 2003 plus 100 million · cch ii sum 100 cch ii’s consolidated ebitda defined minus 13 times consolidated interest expense defined plus 100 new cash appraised noncash equity proceeds received cch ii allocated certain investments cumulatively july 1 2003 plus 100 million · cch sum 100 cch i’s consolidated ebitda defined minus 13 times consolidated interest expense defined plus 100 new cash appraised noncash equity proceeds received cch allocated certain investments cumulative september 28 2005 plus 100 million · cih sum greater 500 million b 100 cih’s consolidated ebitda defined minus 12 times consolidated interest expense defined plus 100 new cash appraised noncash equity proceeds received cih allocated debt incurrence covenant permitted investments cumulatively september 28 2005 · charter holdings sum 100 charter holdings’ consolidated ebitda defined minus 12 times consolidated interest expense defined plus 100 new cash appraised noncash equity proceeds received charter holdings allocated debt incurrence covenant permitted investments cumulatively march 1999 date first charter holdings indenture plus 100 million addition note issuers may make distributions restricted payments long default exists would caused transactions among distributions restricted payments · repurchase management equity interests amounts exceed 10 million per fiscal year · regardless existence default pay passthrough tax liabilities respect ownership equity interests applicable issuer restricted subsidiaries · make specified restricted payments including merger fees 125 transaction value repurchases using concurrent new issuances certain dividends existing subsidiary preferred equity interests cih cch ii cco holdings charter operating respective restricted subsidiaries may make distributions restricted payments long certain defaults exist even applicable leverage test referred met enable certain parents pay interest certain indebtedness ii long applicable issuer could incur 100 indebtedness applicable leverage ratio test referred enable certain parents purchase redeem refinance certain indebtedness restrictions investments note issuers respective restricted subsidiaries may make investments except permitted investments ii giving effect transaction leverage would applicable leverage ratio permitted investments include among others · investments generally among restricted subsidiaries restricted subsidiaries applicable issuer · charter operating · investments aggregating 750 million time outstanding · investments aggregating 100 new cash equity proceeds received charter operating since april 27 2004 extent proceeds allocated restricted payments covenant · cco holdings · investments aggregating 750 million time outstanding · investments aggregating 100 new cash equity proceeds received cco holdings since november 10 2003 extent proceeds allocated restricted payments covenant · cch ii · investments aggregating 750 million time outstanding · investments aggregating 100 new cash equity proceeds received cch ii since september 23 2003 extent proceeds allocated restricted payments covenant · cch · investments aggregating 750 million time outstanding · investments aggregating 100 new cash equity proceeds received cch since september 28 2005 extent proceeds allocated restricted payments covenant · cih · investments aggregating 750 million time outstanding · investments aggregating 100 new cash equity proceeds received cih since march 1999 allocated debt incurrence restricted payments covenant cih existence times periods · charter holdings · investments productive assets including equity investments aggregating 150 million since march 1999 · investments aggregating 50 million since march 1999 · investments aggregating 100 new cash equity proceeds received charter holdings since march 1999 allocated debt incurrence restricted payments covenant restrictions liens charter operating restricted subsidiaries permitted grant liens senior liens securing charter operating notes permitted liens assets secure indebtedness obligations giving effect incurrence senior secured leverage ratio generally ratio obligations secured first priority liens four times ebitda defined recent fiscal quarter internal financial reports available would exceed 375 10 restrictions liens note issuers applies liens assets issuers restrict liens assets subsidiaries respect note issuers permitted liens include liens securing indebtedness obligations credit facilities subject specified limitations case charter operating liens securing purchase price financed new assets liens securing indebtedness 50 million specified liens restrictions sale assets mergers note issuers generally permitted sell substantially assets merge companies unless leverage ratio transaction would greater leverage ratio immediately prior transaction unless giving effect transaction leverage would applicable leverage ratio applicable issuer default exists surviving entity us entity assumes applicable notes note issuers restricted subsidiaries may generally otherwise sell assets case restricted subsidiaries issue equity interests excess 100 million unless receive consideration least equal fair market value assets equity interests consisting least 75 cash assumption liabilities securities converted cash within 60 days productive assets note issuers restricted subsidiaries required within 365 days asset sale either use commit use net cash proceeds specified threshold acquire assets used useful businesses use net cash proceeds repay specified debt offer repurchase issuer’s notes remaining proceeds restrictions sale leaseback transactions note issuers restricted subsidiaries may generally engage sale leaseback transactions unless time transaction applicable issuer could incurred secured indebtedness leverage ratio test amount equal present value net rental payments made lease sale assets application proceeds permitted covenant restricting asset sales prohibitions restricting dividends note issuers’ restricted subsidiaries may generally enter arrangements involving restrictions ability make dividends distributions transfer assets applicable note issuer unless restrictions respect financing arrangements terms restrictive governing credit facilities existing entered applicable indentures materially restrictive customary terms comparable financings materially impair applicable note issuers’ ability make payments notes affiliate transactions indentures also restrict ability note issuers restricted subsidiaries enter certain transactions affiliates involving consideration excess 15 million without determination board directors applicable note issuer transaction complies covenant transactions affiliates involving 50 million without receiving opinion fairness holders transaction financial point view issued accounting appraisal investment banking firm national standing cross acceleration indentures certain parent companies subsidiaries include various events default including cross acceleration provisions failure issuers restricted subsidiaries pay final maturity thereof principal amount indebtedness principal amount 100 million default indebtedness resulting acceleration would result event default indenture governing applicable notes result event default related failure repay principal maturity acceleration indebtedness charter holdings notes cih notes cch notes cch ii notes cco holdings notes charter operating notes charter operating credit facilities could cause crossdefaults parent companies’ indentures recently issued accounting standards september 2006 fasb issued sfas 157 fair value measurements establishes framework measuring fair value expands disclosures fair value measurements sfas 157 effective fiscal years beginning november 15 2007 interim periods within fiscal years adopt sfas 157 effective january 1 2008 february 2008 fasb issued fasb staff position fsp 1572 effective date fasb statement 157 deferred effective date sfas 157 fiscal years beginning november 15 2008 nonfinancial assets nonfinancial liabilities expect adoption sfas 157 material impact financial statements february 2007 fasb issued sfas 159 fair value option financial assets financial liabilities including amendment fasb statement 115 allows measurement fair value eligible financial assets liabilities otherwise measured fair value fair value option eligible item elected unrealized gains losses item shall reported current earnings subsequent reporting date sfas 159 also establishes presentation disclosure requirements designed draw comparison different measurement attributes company elects similar types assets liabilities sfas 159 effective fiscal years beginning november 15 2007 expect adoption sfas 159 material impact financial statements december 2007 fasb issued sfas 141r business combinations applying acquisition method sfas 160 consolidations provide guidance accounting reporting business combinations minority interests consolidated financial statements sfas 141r sfas 160 effective fiscal years beginning december 15 2008 early adoption prohibited currently assessing impact sfas 141r sfas 160 financial statements believe recently issued yet effective accounting pronouncements adopted would material effect accompanying financial statements item 7a item 7 management’s discussion analysis financial condition results operations reference made “part item 1a risk factors” “cautionary statement regarding forwardlooking statements” describe important factors could cause actual results differ expectations nonhistorical information contained herein addition following discussion read conjunction audited consolidated financial statements accompanying notes thereto cco holdings included “part ii item 8 financial statements supplementary data” overview second largest cable operator united states leading broadband communications services company providing video internet voice services approximately 281 million residential small medium business customers december 31 2018 also recently launched spectrum mobile service residential customers addition sell video online advertising inventory local regional national advertising customers fiberdelivered communications managed solutions large enterprise customers also operate regional sports networks local sports news community channels see “part item 1 business products services” description services including customer statistics different services since close transactions 2016 focused integrating practices systems legacy charter legacy twc legacy bright house centralizing product marketing sales service operations insourcing legacy twc legacy bright house workforces call centers field operations rolling spp legacy twc legacy bright house service areas 2018 completed conversion remaining legacy twc legacy bright house analog service areas alldigital platform enabling us deliver hd channels higher internet speeds december 31 2018 nearly footprint alldigital additionally doubled minimum internet speeds 200 mbps number service areas additional cost new existing internet customers 2018 leveraging docsis 31 technology also expanded availability spectrum internet gig service nearly footprint integration nearly complete focused operating one company unified product marketing service infrastructure allow us accelerate growth innovate faster significantly less customerfacing change expected 2019 focused deploying superior products service minimal service disruptions expect growing levels productivity result lower customer churn longer customer lifetimes improved productivity fewer customer calls truck rolls 75 residential customer base currently spp packages expect additional benefits higher spp penetration current spp customers roll introductory pricing combined modest price increases expect continue drive customer relationship growth sales video internet wireline mobile voice packaged services additionally completion alldigital conversion rollout docsis 31 technology across footprint integration legacy twc legacy bright house mostly complete expect meaningful reduction capital expenditures dollars percent revenue 2019 end second quarter 2018 launched mobile product spectrum mobile mvno reseller agreement verizon spectrum mobile service offered residential customers subscribing internet service runs verizons mobile network combined existing network inhome outdoor wifi hotspots began mass market advertising spectrum mobile september 2018 also continue explore ways manage network drive even mobile traffic network continued deployment inhome outdoor wifi hotspots 2018 invested mobile operating partnership comcast corporation portion representing equity investment partnership portion representing prepayment software development related services mobile back office platform partnership delivers services reflect services capital operating expense depending nature services delivered believe spectrumbranded mobile services drive higher sales core products create longer customer lives increase profitability cash flow time result growth costs associated new mobile product line cannot certain able grow revenues maintain margins recent historical rates year ended december 31 2018 mobile product line increased revenues 106 million reduced adjusted ebitda free cash flow approximately 240 million 594 million respectively continue launch mobile service scale business expect continued negative impacts adjusted ebitda well negative working capital impacts timing devicerelated cash flows provide handset tablet customers pursuant equipment installment plans 2019 intend expand spectrum mobile bringyourowndevice byod program across key sales channels include broader set devices believe byod program lower cost consumers switching mobile carriers reduce shortterm working capital impact selling new mobile devices installment plans company realized revenue adjusted ebitda income operations periods presented follows millions percentages calculated using whole numbers minor differences may exist due rounding income operations year ended december 31 2016 reduced previously reported reflect adoption pension accounting guidance 899 million 915 million actual pro forma basis respectively adjusted ebitda defined consolidated net income plus net interest expense income taxes depreciation amortization stock compensation expense loss extinguishment debt gain loss financial instruments net pension benefits income expense net operating income expenses merger restructuring costs special charges gain loss sale retirement assets see “use adjusted ebitda free cash flow” information adjusted ebitda free cash flow growth total revenue adjusted ebitda income operations primarily due growth residential internet commercial business customers well increase advertising sales revenue primarily due increase political revenue adjusted ebitda growth additionally affected increases operating costs expenses primarily programming 2018 mobile income operations also affected changes depreciation amortization well decreases merger restructuring costs approximately 91 90 revenues years ended december 31 2018 2017 2016 respectively attributable monthly subscription fees charged customers video internet voice commercial services provided cable systems generally customer subscriptions may discontinued customer time subject fee certain commercial customers remaining 9 10 revenue fiscal years 2018 2017 2016 respectively derived primarily advertising revenues franchise regulatory fee revenues collected us paid local authorities vod payperview programming installation processing fees reconnection fees charged customers commence reinstate service revenue regional sports news channels commissions related sale merchandise home shopping services critical accounting policies estimates certain accounting policies require management make difficult subjective andor complex judgments management discussed policies audit committee charter’s board directors audit committee reviewed following disclosure consider following policies critical understanding estimates assumptions judgments involved preparing financial statements uncertainties could affect results operations financial condition cash flows • property plant equipment • capitalization labor overhead costs • valuation impairment property plant equipment • useful lives property plant equipment • intangible assets • valuation impairment franchises • valuation impairment goodwill • valuation impairment amortization customer relationships • income taxes • litigation • programming agreements • pension plans addition items within financial statements require estimates judgment deemed critical allowance doubtful accounts valuations financial instruments changes estimates judgment items could also material impact financial statements property plant equipment cable industry capital intensive large portion resources spent capital activities associated extending rebuilding upgrading cable network december 31 2018 2017 net carrying amount property plant equipment consisting primarily cable distribution systems approximately 347 billion representing 24 total assets 336 billion representing 23 total assets respectively total capital expenditures years ended december 31 2018 2017 2016 approximately 91 billion 87 billion 53 billion respectively capitalization labor overhead costs associated network construction upgrades initial placement customer drop dwelling initial placement outlets within dwelling along costs associated initial deployment customer premise equipment necessary provide video internet voice services capitalized costs capitalized include materials direct labor certain indirect costs indirect costs associated activities personnel assist installation activities consist compensation overhead costs associated support functions capitalization based specific activities capitalized track costs composite basis fixed asset category cable system level specific asset basis assets sold retired remove estimated applicable cost accumulated depreciation costs disconnecting service removing customer premise equipment dwelling costs reconnect customer drop redeploy previously installed customer premise equipment charged operating expense incurred costs repairs maintenance charged operating expense incurred plant equipment replacement including replacement certain components betterments replacement cable drops outlets capitalized make judgments regarding installation construction activities capitalized capitalize direct labor overhead using standards developed actual costs applicable operational data calculate standards annually frequently circumstances dictate items labor rates overhead rates actual amount time required perform capitalizable activity example standard amounts time required perform capitalizable activities based studies time required perform activities overhead rates established based analysis nature costs incurred support capitalizable activities determination portion costs directly attributable capitalizable activities impact changes resulted studies material periods presented labor costs directly associated capital projects capitalized capitalizable activities performed connection installations include activities • dispatching “truck roll” customer’s dwelling business service connection placement new equipment • verification serviceability customer’s dwelling business ie determining whether customer’s dwelling capable receiving service cable network • customer premise activities performed inhouse field technicians thirdparty contractors connection installation replacement betterment equipment materials enable video internet voice services • verifying integrity customer’s network connection initiating test signals downstream headend customer premise equipment well testing signal levels utility pole pedestal judgment required determine extent overhead costs incurred result specific capital activities therefore capitalized primary costs included determination overhead rate employee benefits payroll taxes associated capitalized direct labor ii direct variable costs associated capitalizable activities iii cost support personnel care personnel dispatchers assist capitalizable installation activities iv indirect costs directly attributable capitalizable activities believe existing capitalization policies appropriate significant change nature extent system activities could affect management’s judgment extent capitalize direct labor overhead future monitor appropriateness capitalization policies perform updates internal studies ongoing basis determine whether facts circumstances warrant change capitalization policies capitalized direct labor overhead 18 billion 17 billion 991 million respectively years ended december 31 2018 2017 2016 valuation impairment property plant equipment evaluate recoverability property plant equipment upon occurrence events changes circumstances indicating carrying amount asset may recoverable events changes circumstances could include factors impairment indefinite life assets changes technological advances fluctuations fair value assets adverse changes relationships local franchise authorities adverse changes market conditions deterioration current expected future operating results longlived asset deemed impaired carrying amount asset exceeds projected undiscounted future cash flows associated asset impairments longlived assets held use recorded years ended december 31 2018 2017 2016 utilize cost approach primary method used establish fair value property plant equipment connection business combinations cost approach considers amount required replace asset constructing purchasing new asset similar utility adjusts value consideration physical depreciation functional economic obsolescence valuation date cost approach relies management’s assumptions regarding current material labor costs required rebuild repurchase significant components property plant equipment along assumptions regarding age estimated remaining useful lives property plant equipment useful lives property plant equipment evaluate appropriateness estimated useful lives assigned property plant equipment based annual analysis useful lives revise lives extent warranted changing facts circumstances changes estimated useful lives result analysis reflected prospectively beginning period study completed analysis useful lives 2018 indicate significant changes useful lives fixed assets effect oneyear decrease weighted average remaining useful life property plant equipment december 31 2018 would increase annual depreciation expense approximately 571 million effect oneyear increase weighted average remaining useful life property plant equipment december 31 2018 would decrease annual depreciation expense approximately 854 million depreciation expense related property plant equipment totaled 79 billion 78 billion 50 billion years ended december 31 2018 2017 2016 respectively representing approximately 21 19 costs expenses respectively depreciation recorded using straightline composite method management’s estimate useful lives related assets listed intangible assets valuation impairment franchises net carrying value franchises december 31 2018 2017 approximately 673 billion representing 46 total assets information complete discussion value test franchise assets impairment see note 5 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” perform impairment assessment franchise assets annually frequently warranted events changes circumstances performed qualitative assessment 2018 assessment included consideration fair value appraisal performed tax purposes beginning 2018 december 31 2017 valuation date appraisal along multitude factors affect fair value franchise assets examples factors include environmental competitive changes within operating footprint actual projected operating performance consistency operating margins equity debt market trends including changes market capitalization changes regulatory political landscape among factors based assessment concluded likely estimated fair values franchise assets equals exceeds carrying values quantitative impairment test required appraisal indicated fair value franchise assets exceeded carrying value approximately 69 aggregate unit accounting level franchise asset impairment testing amount fair value exceeded carrying value varied based extent unit accounting comprised operations acquired 2016 units accounting comprised entirely substantially newlyacquired operations appraisal fair value exceeded carrying value range 21 70 due recency transactions fair value units accounting comprised least 25 legacy charter operations exceeded carrying value range 54 289 valuation impairment goodwill net carrying value goodwill december 31 2018 2017 approximately 296 billion representing 20 total assets information complete discussion test goodwill impairment see note 5 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” perform impairment assessment goodwill annually november 30 franchise impairment testing elected perform qualitative assessment goodwill 2018 included fair value appraisal factors described based appraisal determined fair value goodwill exceeded carrying value approximately 18 given completion assessment absence significant adverse changes factors impacting fair value estimates concluded likely goodwill impaired valuation impairment amortization customer relationships net carrying value customer relationships december 31 2018 2017 approximately 96 billion representing 7 total assets 120 billion representing 8 total assets respectively amortization expense related customer relationships years ended december 31 2018 2017 2016 approximately 24 billion 27 billion 19 billion respectively impairment customer relationships recorded years ended december 31 2018 2017 2016 information complete discussion valuation methodology amortization method see note 5 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” income taxes determining tax provision financial reporting purposes establish reserve uncertain tax positions unless positions determined “more likely not” sustained upon examination based technical merits evaluating whether tax position met morelikelythannot recognition threshold presume position examined appropriate taxing authority full knowledge relevant information tax position meets morelikely thannot recognition threshold measured determine amount benefit recognized financial statements tax position measured largest amount benefit greater 50 likelihood realized position ultimately resolved considerable judgment involved determining whether positions taken tax return “more likely not” sustained adjust uncertain tax reserve estimates periodically ongoing examinations settlements various taxing authorities well changes tax laws regulations interpretations tax years charter holdco indirect parent companies income tax purposes currently examination irs charters 2016 2018 tax years remain open examination assessment legacy charter’s tax years ending 2015 short period return dated may 17 2016 remain subject examination assessment years prior 2015 remain open solely purposes examination legacy charter’s loss credit carryforwards irs currently examining charter holdings income tax returns 2016 charter holdings’ 2017 2018 tax years remain open examination assessment irs currently examining legacy twc’s income tax returns 2011 2014 legacy twc’s tax year 2015 remains subject examination assessment prior legacy twc’s separation time warner inc “time warner” march 2009 “separation” legacy twc included consolidated us federal certain state income tax returns time warner irs currently examining time warner’s 2008 2010 income tax returns anticipate examinations material impact consolidated financial position results operations addition also subject ongoing examinations tax returns state local tax authorities various periods activity related state local examinations material impact consolidated financial position results operations year ended december 31 2018 anticipate material impact future litigation legal contingencies high degree uncertainty loss contingency becomes estimable probable reserve established reserve reflects management’s best estimate probable cost ultimate resolution matter revised facts circumstances change reserve released matter ultimately brought closure statute limitations lapses established reserves certain matters although matters expected individually material adverse effect consolidated financial condition results operations liquidity matters could aggregate material adverse effect consolidated financial condition results operations liquidity programming agreements exercise judgment estimating programming expense associated certain video programming contracts policy record video programming costs based substance contractual agreements programming vendors generally multiyear agreements provide us make payments programming vendors agreed upon market rates based number customers provide programming service programming contract expires prior parties’ entry new agreement continue distribute service estimate programming costs period contract place consider previous contractual rates inflation status negotiations determining estimates programming contract terms finalized adjustment programming expense recorded necessary reflect terms new contract also make estimates recognition programming expense related items including allocation consideration exchanged parties among various items multipleelement transactions judgment also involved enter agreements result us receiving cash consideration programming vendor usually form advertising sales channel positioning fees launch support marketing support situations must determine based upon facts circumstances cash consideration recorded revenue reduction programming expense reduction another expense category eg marketing pension plans sponsor two qualified defined benefit pension plans twc pension plan twc union pension plan collectively “twc pension plans” provide pension benefits majority legacy twc employees also provide nonqualified defined benefit pension plan certain employees twc excess pension plan december 31 2018 accumulated benefit obligation fair value plan assets twc pension plans 30 billion 29 billion respectively net underfunded liability twc pension plans recorded 1 million noncurrent asset 4 million current liability 95 million longterm liability december 31 2017 accumulated benefit obligation fair value plan assets twc pension plans 36 billion 33 billion respectively net underfunded liability twc pension plans recorded 1 million noncurrent asset 5 million current liability 292 million longterm liability pension benefits based formulas reflect employees’ years service compensation employment period actuarial gains losses changes amount either benefit obligation fair value plan assets resulting experience different assumed changes assumptions elected follow marktomarket pension accounting policy recording actuarial gains losses annually fourth quarter earlier remeasurement event occurs interim period use december 31 measurement date pension plans recognized net periodic pension benefits 192 million 1 million 813 million 2018 2017 2016 respectively net periodic pension benefit expense determined using certain assumptions including expected longterm rate return plan assets discount rate mortality assumptions determined discount rate used compute pension expense based yield large population highquality corporate bonds cash flows sufficient timing amount settle projected future defined benefit payments developing expected longterm rate return assets considered current pension portfolio’s composition past average rate earnings asset allocation targets used discount rate 368 january 1 2018 september 30 2018 424 october 1 2018 december 31 2018 compute 2018 pension expense decrease discount rate 25 basis points would result 137 million increase pension plan benefit obligation december 31 2018 net periodic pension expense recognized 2018 marktomarket accounting policy expected longterm rate return plan assets used compute 2018 pension expense 575 decrease expected longterm rate return 25 basis points 575 550 holding assumptions constant would result increase 2019 net periodic pension expense approximately 7 million see note 18 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” additional discussion assumptions results operations following table sets forth consolidated statements operations periods presented dollars millions except per share data revenues total revenues grew 20 billion 49 year ended december 31 2018 compared 2017 grew 126 billion 434 year ended december 31 2017 compared 2016 revenue growth primarily reflects increases number residential internet commercial business customers price adjustments well launch mobile service 2018 offset decrease limited basic video customers transactions increased revenues year ended 2017 compared 2016 approximately 114 billion pro forma basis assuming transactions occurred january 1 2015 total revenue growth 39 year ended december 31 2017 compared year ended december 31 2016 revenues service offering follows dollars millions percentages calculated using whole numbers minor differences may exist due rounding video revenues consist primarily revenues basic digital video services provided residential customers well franchise fees equipment service fees video installation revenue increases video revenues attributable following dollars millions increases related rate changes primarily due price adjustments including promotional rolloff service level changes bundle revenue allocation residential video customers decreased 296000 301000 2018 2017 respectively pro forma basis assuming transactions occurred january 1 2015 increase video revenues attributable following dollars millions increases internet revenues residential customers attributable following dollars millions residential internet customers grew 1107000 1159000 2018 2017 respectively increases related rate changes primarily due price adjustments including promotional rolloff bundle revenue allocation pro forma basis assuming transactions occurred january 1 2015 increase internet revenues attributable following dollars millions changes voice revenues residential customers attributable following dollars millions decreases related rate changes primarily due valuebased pricing bundle revenue allocation residential voice customers decreased 289000 grew 93000 2018 2017 respectively pro forma basis assuming transactions occurred january 1 2015 decrease voice revenues attributable following dollars millions increases small medium business commercial revenues attributable following dollars millions small medium business psus increased 337000 340000 2018 2017 respectively decreases related rate changes primarily due value pricing related spp net promotional rolloff price adjustments pro forma basis assuming transactions occurred january 1 2015 increase small medium business commercial revenues attributable following dollars millions enterprise revenues increased 155 million year ended december 31 2018 compared corresponding period 2017 primarily due growth customers enterprise psus increased 28000 29000 2018 2017 respectively transactions increased enterprise commercial revenues year ended december 31 2017 compared corresponding prior period approximately 655 million pro forma basis assuming transactions occurred january 1 2015 enterprise revenues increased 198 million year ended december 31 2017 compared corresponding prior period advertising sales revenues consist primarily revenues commercial advertising customers programmers vendors well local cable advertising regional sports news channels advertising sales revenues increased 275 million year ended december 31 2018 compared corresponding period 2017 primarily due increase political continued rollout addressability newer advanced advertising products allows targeted media purchases using inventory advertising sales revenues increased 2017 compared 2016 primarily due transactions increased advertising sales revenues year ended december 31 2017 compared corresponding prior period 425 million pro forma basis assuming transactions occurred january 1 2015 advertising sales revenues decreased 186 million 2017 compared 2016 primarily due decrease political advertising mobile revenues represent approximately 97 million device revenues approximately 9 million service revenues related mobile service december 31 2018 134000 mobile lines revenues consist revenue regional sports news channels excluding intercompany charges advertising sales channels home shopping late payment fees wire maintenance fees miscellaneous revenues increase year ended december 31 2018 compared corresponding period 2017 primarily due increase late payment fees revenues increased 2017 compared 2016 primarily due transactions increased revenues year ended december 31 2017 compared corresponding prior period 255 million pro forma basis assuming transactions occurred january 1 2015 revenues decreased 26 million 2017 compared corresponding prior period primarily due settlement incurred 2016 related early contract termination legacy twc legacy bright house operating costs expenses increases operating costs expenses exclusive items shown separately consolidated statements operations attributable following dollars millions programming costs approximately 111 billion 106 billion 70 billion representing 40 38 operating costs expenses years ended december 31 2018 2017 2016 respectively programming costs consist primarily costs paid programmers basic digital premium vod payperview programming increase programming costs primarily result contractual rate adjustments including renewals increases amounts paid retransmission consents partly offset lower video customers payperview onetime programming benefits year ended december 31 2018 expect programming expenses continue increase due variety factors including annual increases imposed programmers additional selling power result media consolidation increased demands owners broadcast stations payment retransmission consent linking carriage services retransmission consent additional programming particularly new services unable fully pass increases customers expect able future without potential loss customers regulatory connectivity produced content increased 146 million year ended december 31 2018 compared corresponding period 2017 primarily due adoption accounting standards update 201409 january 1 2018 results reclassification expenses related amortization upfront fees paid market serve customers reside mdus recorded depreciation amortization expense prioryear period regulatory connectivity produced content expenses well higher regulatory fees related higher revenue information see note 19 accompanying consolidated financial statements contained “item 1 financial statements” costs service customers increased 92 million 2018 compared 2017 primarily due increase bad debt expense mobile costs 346 million year ended december 31 2018 comprised mobile launch costs mobile device costs mobile service operating costs increases expense attributable following dollars millions increases categories operating costs expenses 2017 compared 2016 primarily due transactions pro forma basis assuming transactions occurred january 1 2015 increase operating costs expenses 2017 compared 2016 exclusive items shown separately consolidated statements operations attributable following dollars millions pro forma basis assuming transactions occurred january 1 2015 programming costs approximately 96 billion representing 37 total operating costs expenses year ended december 31 2016 increase programming costs pro forma basis primarily result contractual rate adjustments including renewals increases amounts paid retransmission consents higher payperview events offset synergies result transactions costs service customers decreased 173 million 2017 compared 2016 pro forma basis assuming transactions occurred january 1 2015 primarily due benefits combining legacy twc legacy bright house charter including lower employee benefit maintenance costs higher labor material capitalization increases placement new customer equipment improved productivity pro forma basis assuming transactions occurred january 1 2015 change expense attributable following dollars millions corporate costs stock compensation expense decreased 2017 compared 2016 primarily result lower headcount result integration synergies depreciation amortization depreciation amortization expense decreased 272 million increased 37 billion 2018 2017 compared corresponding prior periods decrease year ended december 31 2018 compared 2017 primarily due decrease depreciation amortization certain assets acquired legacy twc legacy bright house become fully depreciated offset increase depreciation result recent capital expenditures increase year ended december 31 2017 compared 2016 impacted additional depreciation amortization related transactions inclusive incremental amounts result higher fair values recorded acquisition accounting operating expenses net changes operating expenses net attributable following dollars millions changes merger restructuring costs primarily due 70 million 279 million 611 million employee retention employee termination costs incurred 2018 2017 2016 respectively changes special charges net primarily due changes employee termination costs related transactions net amounts litigation settlements 2018 2017 special charges net also includes 22 million 83 million charge related withdrawal liability multiemployer pension plan respectively increase loss sale assets net year ended december 31 2018 compared year ended december 31 2017 primarily due impairment nonstrategic assets information see note 13 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” interest expense net interest expense increased 464 million 2018 2017 992 million 2017 2016 increases 2018 2017 compared corresponding prior periods primarily due increase weighted average debt outstanding approximately 66 billion 116 billion respectively primarily result issuance notes 2018 2017 general corporate purposes including distributions parent companies stock buybacks interest expense associated debt assumed legacy twc also increased interest expense year ended december 31 2017 compared corresponding period 2016 approximately 336 million loss extinguishment debt loss extinguishment debt 40 million 111 million years ended december 31 2017 2016 respectively primarily represents losses recognized result repurchase cco holdings notes amendments charter operatings credit facilities information see note 8 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” gain loss financial instruments net gains losses financial instruments recognized due changes fair value interest rate cross currency derivative instruments foreign currency remeasurement fixedrate british pound sterling denominated notes “sterling notes” us dollars information see note 10 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” pension benefits pension benefits increased 191 million 2018 compared 2017 primarily due net remeasurement gain 122 million recognized 2018 opposed remeasurement losses 55 million recognized 2017 pension benefits decreased 898 million 2017 compared 2016 primarily due remeasurement losses 55 million recognized 2017 opposed pension curtailment gain 675 million remeasurement gain 195 million recognized 2016 information see note 18 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” expense net expense net primarily represents equity losses equitymethod investments information see note 6 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” income tax expense recognized income tax expense 16 million 23 million 3 million years ended december 31 2018 2017 2016 respectively information see note 15 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” net income attributable noncontrolling interest net income attributable noncontrolling interest relates thirdparty interest cv viera llp consolidated joint venture small cable system florida net income attributable cco holdings member net income attributable cco holdings member 16 billion 882 million 15 billion years ended december 31 2018 2017 2016 respectively primarily result factors described pro forma basis assuming transactions occurred january 1 2015 net income attributable cco holdings member 19 billion year ended december 31 2016 use adjusted ebitda free cash flow use certain measures defined us generally accepted accounting principles “gaap” evaluate various aspects business adjusted ebitda free cash flow nongaap financial measures considered addition substitute consolidated net income net cash flows operating activities reported accordance gaap terms defined us may comparable similarly titled measures used companies adjusted ebitda free cash flow reconciled consolidated net income net cash flows operating activities respectively adjusted ebitda eliminates significant noncash depreciation amortization expense results capitalintensive nature businesses well noncash special items unaffected capital structure investment activities however measure limited reflect periodic costs certain capitalized tangible intangible assets used generating revenues cash cost financing costs evaluated financial measures free cash flow defined net cash flows operating activities less capital expenditures changes accrued expenses related capital expenditures management charter’s board directors use adjusted ebitda free cash flow assess performance ability service debt fund operations make additional investments internally generated funds addition adjusted ebitda generally correlates leverage ratio calculation credit facilities outstanding notes determine compliance covenants contained facilities notes documents previously filed sec purpose calculating compliance leverage covenants use adjusted ebitda presented excluding certain expenses paid operating subsidiaries charter entities debt covenants refer expenses management fees amount 11 billion 11 billion 930 million years ended december 31 2018 2017 2016 respectively liquidity capital resources overview significant amounts debt principal amount debt december 31 2018 720 billion consisting 100 billion credit facility debt 430 billion investment grade senior secured notes 189 billion highyield senior unsecured notes business requires significant cash fund principal interest payments debt projected cash needs projected sources liquidity depend upon among things actual results timing amount expenditures launch new mobile services expect initial funding period grow new product well negative working capital impacts timing devicerelated cash flows provide handset tablet customers pursuant equipment installment plans free cash flow 21 billion 37 billion 40 billion years ended december 31 2018 2017 2016 respectively decrease free cash flow 2018 compared 2017 primarily due unfavorable change working capital well increase cash paid interest capital expenditures december 31 2018 amount available credit facilities approximately 28 billion cash hand approximately 300 million expect utilize free cash flow cash hand availability credit facilities well future refinancing transactions extend maturities obligations timing terms refinancing transactions subject market conditions among considerations additionally may time depending market conditions factors use cash hand proceeds securities offerings borrowings retire debt open market purchases privately negotiated purchases tender offers redemption provisions believe sufficient liquidity cash hand free cash flow charter operating’s revolving credit facility well access capital markets fund projected cash needs continue evaluate deployment cash hand anticipated future free cash flow including invest business growth strategic opportunities including mergers acquisitions well distributions parent companies stock repurchases dividends charters target leverage net debt last twelve months adjusted ebitda remains 4 45 times 35 times charter operating level leverage ratio 45 december 31 2018 expect increase total amount indebtedness maintain leverage within charters target leverage range years ended december 31 2018 2017 2016 charter purchased approximately 141 million 334 million 51 million shares respectively charter class common stock approximately 43 billion 116 billion 13 billion respectively december 2017 charter entered amendment letter agreement letter agreement requires sell charter holdings monthly basis number shares charter class common stock charter holdings common units represents pro rata participation affiliates repurchases shares charter class common stock persons effected charter immediately preceding calendar month purchase price equal average price paid charter shares repurchased persons immediately preceding calendar month charter right terminate suspend pro rata repurchase arrangement prospective basis charter holdings repurchased shares class common stock charter holdings common units affiliates aggregate purchase price 400 million threshold reached charter holdings purchased 21 million 48 million 08 million charter holdings common units average price per unit 30890 34703 28983 656 million 17 billion 218 million years ended december 31 2018 2017 2016 respectively december 31 2018 charter remaining board authority purchase additional 480 million charter’s class common stock andor charter holdings common units charter obligated acquire particular amount common stock timing purchases may occur cannot predicted largely depend market conditions potential uses capital purchases may include open market purchases tender offers negotiated transactions extent purchases occur cco holdings subsidiaries primary source funding purchases distributions parent companies possible acquisitions swaps dispositions arise actively review objectives including among considerations improving operational efficiency geographic clustering assets product development technology capabilities business achieving appropriate return targets may participate extent believe possibilities present attractive opportunities however assurance actually complete acquisitions dispositions system swaps transactions material operations results recent events january 2019 charter operating charter communications operating capital corp jointly issued 125 billion aggregate principal amount 5050 senior notes due 2029 price 99935 aggregate principal amount additional 750 million aggregate principal amount 575 senior notes due 2048 price 94970 aggregate principal amount net proceeds used pay related fees expenses general corporate purposes including distributions parent companies fund buybacks charter class common stock charter holdings common units well repay certain indebtedness including repay maturity time warner cable llcs 875 senior notes due 2019 january 2019 charter operating entered amendment credit agreement raising additional 17 billion term loan a3 increasing revolving loan capacity 475 billion well extending maturities portion term loan a2 portion revolving loan 2024 pricing new term loan a3 libor plus 150 free cash flow free cash flow decreased 17 billion 296 million years ended december 31 2018 2017 compared corresponding prior periods respectively due following free cash flow reduced 594 million due mobile year ended december 31 2018 compared corresponding prior period impacts negatively affecting working capital expenditures adjusted ebitda decrease working capital year ended december 31 2018 compared corresponding prior period excluding change accrued interest primarily due timing fourth quarter 2017 capital expenditures payments contractual obligations following table summarizes payment obligations december 31 2018 longterm debt certain contractual obligations commitments inclusive parent company obligations commitments expense pushed us dollars millions table presents maturities longterm debt outstanding december 31 2018 refer notes 8 17 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” description longterm debt contractual obligations commitments b interest payments variable debt estimated using amounts outstanding december 31 2018 average implied forward libor rates applicable quarter interest rate reset based yield curve effect december 31 2018 actual interest payments differ based actual libor rates actual amounts outstanding applicable periods c lease certain facilities equipment noncancelable capital operating leases capital lease obligations represented 111 million total capital operating lease obligations december 31 2018 lease rental costs charged expense years ended december 31 2018 2017 2016 382 million 321 million 215 million respectively pay programming fees multiyear contracts typically based flat fee per customer may fixed term may cases escalate term programming costs included accompanying statement operations approximately 111 billion 106 billion 70 billion years ended december 31 2018 2017 2016 respectively certain programming agreements based flat fee per month guaranteed minimum payments table sets forth aggregate guaranteed minimum commitments programming contracts e “other” represents guaranteed minimum commitments including rights negotiated directly content owners distribution companyowned channels networks commitments related role advertising distribution sales agent third partyowned channels networks commitments customer premise equipment device vendors contractual obligations related thirdparty network augmentation following items included contractual obligations table obligations fixed andor determinable due various factors discussed however incur costs part operations • rent utility poles used operations generally pole rentals cancelable short notice anticipate rentals recur rent expense incurred pole rental attachments years ended december 31 2018 2017 2016 171 million 167 million 115 million respectively • pay franchise fees multiyear franchise agreements based percentage revenues generated video service per year also pay franchise related costs public education grants multiyear agreements franchise fees franchiserelated costs included accompanying statement operations 747 million 705 million 534 million years ended december 31 2018 2017 2016 respectively • 358 million letters credit 138 million secured charter operating credit facility primarily various casualty carriers collateral reimbursement workers compensation auto liability general liability claims • minimum pension funding requirements presented table amounts determined beyond 2018 made cash contributions qualified pension plans 2018 however permitted make discretionary cash contributions qualified pension plans 2019 nonqualified pension plan contributed 6 million 2018 continue make contributions 2019 extent benefits paid see part item 1 business transactionrelated commitments listing commitments result transactions historical operating investing financing activities cash equivalents held 300 million 330 million cash equivalents december 31 2018 2017 respectively operating activities net cash provided operating activities increased 49 million year ended december 31 2018 compared year ended december 31 2017 primarily due increase adjusted ebitda 735 million decrease merger restructuring costs 210 million offset changes working capital excluding change accrued interest accrued expenses related capital expenditures used 413 million cash increase cash paid interest net 449 million net cash provided operating activities increased 28 billion year ended december 31 2017 compared year ended december 31 2016 primarily due increase adjusted ebitda 47 billion offset increase cash paid interest net 12 billion result transactions longterm debt issued general corporate purposes including distributions parent companies stock buybacks well changes operating assets liabilities excluding change accrued interest accrued expenses related capital expenditures provided 812 million less cash year ended december 31 2017 investing activities net cash used investing activities years ended december 31 2018 2017 2016 97 billion 80 billion 48 billion respectively changes cash used primarily due increases capital expenditures changes accrued expenses related capital expenditures financing activities net cash used financing activities decreased 26 billion year ended december 31 2018 compared year ended december 31 2017 primarily due decrease distributions parent companies offset decrease amount borrowings longterm debt exceeded repayments net cash used financing activities increased 19 billion year ended december 31 2017 compared year ended december 31 2016 primarily due increase distributions parent companies offset increase amount borrowings longterm debt exceeded repayments capital expenditures significant ongoing capital expenditure requirements capital expenditures 91 billion 87 billion 53 billion years ended december 31 2018 2017 2016 respectively increase 2018 compared 2017 primarily due higher scalable infrastructure related timing spend planned product improvements higher support capital investments due timing spend mobile higher line extensions result regulatory merger conditions offset decrease cpe expenditures due timing pro forma basis assuming transactions occurred january 1 2015 increase 2017 compared 2016 driven higher cpe purchases spp alldigital initiative early inventory purchases operationally stage 2018 activity higher support capital investments line extensions see table details currently expect capital expenditures excluding capital expenditures related mobile approximately 7 billion 2019 versus 89 billion 2018 expectation lower capital expenditures 2019 versus 2018 primarily driven expectation lower customer premise equipment spend completion alldigital conversion lower scalable infrastructure spend completion rollout docsis 31 technology across footprint lower support capital spend substantial completion integration legacy twc legacy bright house actual amount capital expenditures 2019 depend number factors including spend related product development growth rates residential commercial businesses capital expenditures funded primarily cash flows operating activities borrowings credit facility addition accrued liabilities related capital expenditures decreased 470 million increased 820 million 603 million years ended december 31 2018 2017 2016 respectively following tables present major capital expenditures categories actual pro forma basis assuming transactions occurred january 1 2015 accordance national cable telecommunications association “ncta” disclosure guidelines years ended december 31 2018 2017 2016 disclosure guidelines required disclosures gaap impact accounting capital expenditures gaap dollars millions customer premise equipment includes costs incurred customer residence secure new customers revenue generating units including customer installation costs customer premise equipment eg settop boxes cable modems b scalable infrastructure includes costs related customer premise equipment secure growth new customers revenue generating units provide service enhancements eg headend equipment c line extensions include network costs associated entering new service areas eg fibercoaxial cable amplifiers electronic equipment makeready design engineering upgraderebuild includes costs modify replace existing fibercoaxial cable networks including betterments e support capital includes costs associated replacement enhancement nonnetwork assets due technological physical obsolescence eg nonnetwork equipment land buildings vehicles debt december 31 2018 accreted value total debt approximately 728 billion summarized dollars millions accreted values presented table represent principal amount debt adjusted original issue discount premium time sale deferred financing costs regards legacy twc debt assumed fair value premium adjustments result applying acquisition accounting plus accretion amounts balance sheet date however amount currently payable debt becomes immediately due equal principal amount debt regards sterling notes principal amount debt premium discount remeasured us dollars balance sheet date availability credit facilities approximately 28 billion december 31 2018 b general obligors right redeem notes set forth table whole part option beginning various times prior stated maturity dates subject certain conditions upon payment outstanding principal amount plus specified redemption premium accrued unpaid interest c principal amount includes £625 million valued 796 million december 31 2018 using exchange rate december 31 2018 principal amount includes £650 million valued 827 million december 31 2018 using exchange rate december 31 2018 see note 8 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” details regarding outstanding debt financing arrangements including certain information maturities covenants restrictions related debt financing arrangements agreements instruments governing debt financing arrangements complicated consult agreements instruments filed sec detailed information december 31 2018 charter operating consolidated leverage ratio approximately 31 10 consolidated first lien leverage ratio 30 10 ratios compliance ratios required charter operating credit facilities 50 10 consolidated leverage ratio 40 10 consolidated first lien leverage ratio failure charter operating maintain financial covenants would result event default charter operating credit facilities debt cco holdings see “part item 1a risk factors agreements instruments governing debt contain restrictions limitations could significantly affect ability operate business well significantly affect liquidity” recently issued accounting standards see note 19 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” discussion recently issued accounting standards item 7a item 7 management’s discussion analysis financial condition results operations reference made “part item 1a risk factors” “cautionary statement regarding forwardlooking statements” describe important factors could cause actual results differ expectations nonhistorical information contained herein addition following discussion read conjunction audited consolidated financial statements accompanying notes thereto cco holdings subsidiaries included “item 8 financial statements supplementary data” emergence reorganization proceedings related events march 27 2009 debtors filed voluntary petitions bankruptcy court seeking relief bankruptcy code november 17 2009 bankruptcy court entered confirmation order confirming plan effective date plan consummated emerged bankruptcy upon emergence bankruptcy adopted fresh start accounting accordance accounting principles generally accepted united states “gaap” accompanying consolidated statements operations cash flows contained “item 8 financial statements supplementary data” present results operations sources uses cash eleven months ended november 30 2009 predecessor ii one month ended december 31 2009 successor however purposes management’s discussion analysis results operations sources uses cash form 10k combined current year results operations predecessor successor results operations predecessor successor comparable due change basis resulting emergence bankruptcy combined presentation made solely explain changes results operations periods presented financial statements also compare combined results operations sources uses cash twelve months ended december 31 2009 corresponding period prior years believe combined results operations twelve months ended december 31 2009 provide management investors meaningful perspective ongoing financial operational performance trends combine results operations predecessor successor manner overview broadband communications company operating united states approximately 53 million customers december 31 2009 offer customers traditional cable video programming basic digital refer video service highspeed internet access telephone services well advanced broadband services ondemand high definition television service dvr see part item 1 business products services description services including customers approximately 88 86 revenues years ended december 31 2009 2008 respectively attributable monthly subscription fees charged customers video highspeed internet telephone commercial services provided cable systems generally customer subscriptions may discontinued customer time remaining 12 14 revenue fiscal years 2009 2008 respectively derived primarily advertising revenues franchise fee revenues collected us paid local franchising authorities payperview ondemand programming installation reconnection fees charged customers commence reinstate service commissions related sale merchandise home shopping services believe weakened economic conditions united states including continued downturn housing market past year increases unemployment continued competition adversely affected consumer demand services especially premium services contributed increase number homes replace traditional telephone service wireless service thereby impacting growth telephone business also negative impact advertising revenue conditions affected net customer additions revenue growth 2009 conditions improve believe growth business results operations adversely affected may contribute future impairments franchises goodwill significant competitors dbs providers certain telephone companies offer services provide features functions similar video highspeed internet telephone services including cases wireless services also offer services bundles similar see “business competition” recent past grown revenues offsetting video customer losses price increases sales incremental services highspeed internet ondemand dvr high definition television telephone expect continue grow revenues manner addition expect increase revenues expanding sales services commercial customers however expect able grow revenues recent historical rates expenses primarily consist operating costs selling general administrative expenses depreciation amortization expense impairment franchise intangibles interest expense operating costs primarily include programming costs cost workforce cable service related expenses advertising sales costs franchise fees selling general administrative expenses primarily include salaries benefits rent expense billing costs call center costs internal network costs bad debt expense property taxes control costs operations maintaining strict controls expenditures specifically focused managing cost structure improving workforce productivity leveraging scale increasing effectiveness purchasing activities years ended december 31 2009 2008 2007 adjusted earnings loss interest expense income taxes depreciation amortization “adjusted ebitda” 25 billion 23 billion 21 billion respectively see “use adjusted ebitda” information adjusted ebitda increase adjusted ebitda principally due increased sales bundled services improved cost efficiencies years ended december 31 2009 2008 loss operations 979 million 614 million respectively increase loss operations year ended december 31 2009 compared year ended december 31 2008 result increase impairment franchises 15 billion 2008 22 billion 2009 offset increases adjusted ebitda discussed favorable litigation settlements 2009 income operations 548 million year ended december 31 2007 significantly impacted impairment franchises history net losses net losses principally attributable insufficient revenue cover combination operating expenses interest expenses incurred debt impairment franchises depreciation expenses resulting capital investments made continue make cable properties beginning 2004 continuing 2009 sold several cable systems divest geographically nonstrategic assets allow efficient operations also reducing debt increasing liquidity 2007 2008 2009 closed sale certain cable systems representing total approximately 85100 14100 13200 video customers respectively result sales improved geographic footprint reducing number headends increasing number customers per headend reducing number states majority customers reside also made certain geographically strategic acquisitions 2007 2009 adding 25500 1900 video customers respectively critical accounting policies estimates certain accounting policies require management make difficult subjective complex judgments management discussed policies audit committee charter’s board directors audit committee reviewed following disclosure consider following policies critical understanding estimates assumptions judgments involved preparing financial statements uncertainties could affect results operations financial condition cash flows · property plant equipment · capitalization labor overhead costs · impairment · valuation fresh start accounting · useful lives property plant equipment · intangible assets · impairment franchises · valuation fresh start accounting · sensitivity · income taxes · litigation addition items within financial statements require estimates judgment deemed critical allowance doubtful accounts valuations derivative instruments changes estimates judgment items could also material impact financial statements property plant equipment cable industry capital intensive large portion resources spent capital activities associated extending rebuilding upgrading cable network december 31 2009 2008 net carrying amount property plant equipment consisting primarily cable network assets approximately 68 billion representing 42 total assets 50 billion representing 36 total assets respectively total capital expenditures years ended december 31 2009 2008 2007 approximately 11 billion 12 billion 12 billion respectively effective december 1 2009 applied fresh start accounting requires assets liabilities reflected fair value upon application fresh start accounting adjusted property plant equipment reflect fair value fresh start adjustments resulted 20 billion increase total property plant equipment capitalization labor overhead costs associated network construction initial customer installations including initial installations new additional advanced services installation refurbishments addition network equipment necessary provide new advanced services capitalized capitalization based specific activities capitalized track costs fixed asset category cable system level specific asset basis assets sold retired remove estimated applicable cost accumulated depreciation costs capitalized part initial customer installations include materials direct labor certain indirect costs indirect costs associated activities personnel assist connecting activating new service consist compensation overhead costs associated support functions costs disconnecting service customer’s dwelling reconnecting service previously installed dwelling charged operating expense period incurred service offerings mature reconnect activity increases capitalizable installations continue decrease therefore service expenses increase costs repairs maintenance charged operating expense incurred equipment replacement including replacement certain components betterments including replacement cable drops pole dwelling capitalized make judgments regarding installation construction activities capitalized capitalize direct labor overhead using standards developed actual costs applicable operational data calculate standards annually frequently circumstances dictate items labor rates overhead rates actual amount time required perform capitalizable activity example standard amounts time required perform capitalizable activities based studies time required perform activities overhead rates established based analysis nature costs incurred support capitalizable activities determination portion costs directly attributable capitalizable activities impact changes resulted studies material periods presented labor costs directly associated capital projects capitalized capitalizable activities performed connection customer installations include activities · dispatching “truck roll” customer’s dwelling service connection · verification serviceability customer’s dwelling ie determining whether customer’s dwelling capable receiving service cable network andor receiving advanced internet services · customer premise activities performed inhouse field technicians thirdparty contractors connection customer installations installation network equipment connection installation expanded services equipment replacement betterment · verifying integrity customer’s network connection initiating test signals downstream headend customer’s digital settop box judgment required determine extent overhead costs incurred result specific capital activities therefore capitalized primary costs included determination overhead rate employee benefits payroll taxes associated capitalized direct labor ii direct variable costs associated capitalizable activities consisting primarily installation construction vehicle costs iii cost support personnel dispatchers directly assist capitalizable installation activities iv indirect costs directly attributable capitalizable activities believe existing capitalization policies appropriate significant change nature extent system activities could affect management’s judgment extent capitalize direct labor overhead future monitor appropriateness capitalization policies perform updates internal studies ongoing basis determine whether facts circumstances warrant change capitalization policies capitalized internal direct labor overhead 199 million 199 million 194 million respectively years ended december 31 2009 2008 2007 impairment evaluate recoverability property plant equipment upon occurrence events changes circumstances indicating carrying amount asset may recoverable events changes circumstances could include factors impairment indefinitelife franchises changes technological advances fluctuations fair value assets adverse changes relationships local franchise authorities adverse changes market conditions deterioration current expected future operating results longlived asset deemed impaired carrying amount asset exceeds projected undiscounted future cash flows associated asset impairments longlived assets held used recorded years ended december 31 2009 2008 2007 however approximately 56 million impairment assets held sale recorded year ended december 31 2007 fresh start accounting discussed effective december 1 2009 applied fresh start accounting resulting approximately 20 billion increase total property plant equipment cost approach primary method used establish fair value property plant equipment connection application fresh start accounting cost approach considers amount required replace asset constructing purchasing new asset similar utility adjusts value consideration forms depreciation appraisal date follows · physical depreciation loss value usefulness attributable solely use asset physical causes wear tear exposure elements · functional obsolescence loss value due factors inherent asset due changes technology design process resulting inadequacy overcapacity lack functional utility excess operating costs · economic obsolescence loss value unfavorable external conditions economics industry geographic area change ordinances cost approach relies management’s assumptions regarding current material labor costs required rebuild repurchase significant components property plant equipment along assumptions regarding age estimated useful lives property plant equipment illustrative purposes impact oneyear change estimated remaining useful life holding assumptions unchanged fair value property plant equipment would approximately 800 million useful lives property plant equipment evaluate appropriateness estimated useful lives assigned property plant equipment based annual analyses useful lives revise lives extent warranted changing facts circumstances changes estimated useful lives result analyses reflected prospectively beginning period study completed connection application fresh start accounting december 1 2009 management made assumptions regarding remaining useful lives existing property plant equipment evaluated appropriateness useful lives applied future additions property plant equipment effect oneyear decrease weighted average remaining useful life property plant equipment december 31 2009 would increase annual depreciation expense approximately 196 million effect oneyear increase weighted average remaining useful life property plant equipment december 31 2009 would decrease annual depreciation expense approximately 222 million depreciation expense related property plant equipment totaled 13 billion years ended december 31 2009 2008 2007 representing approximately 17 18 24 costs expenses respectively depreciation recorded using straightline composite method management’s estimate useful lives related assets listed intangible assets recorded significant amount cost related franchises pursuant granted right operate cable distribution network throughout service areas net carrying value franchises december 31 2009 2008 approximately 53 billion representing 33 total assets 74 billion representing 54 total assets respectively effective december 1 2009 applied fresh start accounting adjusted franchises customer relationships goodwill reflect fair value also established previously unrecorded intangible assets fair values value customer relationships goodwill increased 23 billion representing 14 total assets 951 million representing 6 total assets december 31 2009 respectively net carrying amount customer relationships goodwill 9 million 68 million respectively december 31 2008 impairment franchises franchise intangible assets meet specified indefinitelife criteria must tested impairment annually frequently warranted events changes circumstances determining whether franchises indefinitelife considered likelihood franchise renewals expected costs franchise renewals technological state associated cable systems view whether compliance technology upgrading requirements specified franchise agreement concluded december 31 2009 2008 substantially franchises qualify indefinitelife treatment costs associated franchise renewals amortized straightline basis 10 years represents management’s best estimate average term franchises franchise amortization expense years ended december 31 2009 2008 2007 approximately 2 million 2 million 3 million respectively intangible assets amortization expense including customer relationships years ended december 31 2009 2008 2007 approximately 34 million 5 million 4 million respectively franchise rights represent value attributed agreements authorizations local state authorities allow access homes cable service areas franchises tested impairment annually frequently warranted events changes circumstances franchises aggregated essentially inseparable units accounting conduct valuations units accounting generally represent geographical clustering cable systems groups systems managed management believes grouping represents highest best use assets result continued economic pressure customers recent economic downturn along increased competition determined projected future growth would lower previously anticipated annual impairment testing december 2008 accordingly determined sufficient indicators existed require us perform interim franchise impairment analysis september 30 2009 date filing quarterly report form 10q quarter ended september 30 2009 determined impairment franchises probable could reasonably estimated accordingly quarter ended september 30 2009 recorded preliminary noncash franchise impairment charge 29 billion represented best estimate impairment franchise assets finalized franchise impairment analysis quarter ended december 31 2009 recorded reduction noncash franchise impairment charge 691 million recorded noncash franchise impairment charges 15 billion 178 million years ended december 31 2008 2007 respectively impairment charge recorded 2008 primarily result impact economic downturn along increased competition impairment charge recorded 2007 primarily result increase competition fresh start accounting effective date applied fresh start accounting adjusted franchise goodwill intangible assets including customer relationships reflect fair value valuations based present value projected tax cash flows resulted value property plant equipment franchises customer relationships unit accounting result applying fresh start accounting recorded goodwill 951 million represents excess reorganization value amounts assigned assets information see note 2 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” determined estimated fair value unit accounting utilizing income approach model based present value estimated discrete future cash flows attributable intangible assets identified unit assuming discount rate approach makes use unobservable factors projected revenues expenses capital expenditures discount rate applied estimated cash flows determination discount rate based weighted average cost capital approach uses market participant’s cost equity aftertax cost debt reflects risks inherent cash flows estimated discounted future cash flows using reasonable appropriate assumptions including among others penetration rates basic digital video highspeed internet telephone revenue growth rates operating margins capital expenditures assumptions derived based charter’s peers’ historical operating performance adjusted current expected competitive economic factors surrounding cable industry estimates assumptions made valuations inherently subject significant uncertainties many beyond control assurance results achieved primary assumptions reasonable possibility occurrence variation would significantly affect measurement value include assumptions regarding revenue growth programming expense growth rates amount timing capital expenditures discount rate utilized assumptions used consistent current internal forecasts differ assumptions used annual impairment testing december 2008 result economic competitive environment discussed previously change assumptions reflects lower anticipated growth revenues experienced 2009 expected reduction future cash flows compared used december 2008 valuations franchises valuation purposes defined future economic benefits right solicit service potential customers customer marketing rights right deploy market new services interactivity telephone potential customers service marketing rights fair value determined based estimated discrete discounted future cash flows using assumptions consistent internal forecasts franchise aftertax cash flow calculated aftertax cash flow generated potential customers obtained less anticipated customer churn new services added customers future periods sum present value franchises aftertax cash flow years 1 10 continuing value aftertax cash flow beyond year 10 yields fair value franchises increased 62 million result application fresh start accounting subsequent finalization franchise impairment charge fresh start accounting franchises recorded fair value 53 billion franchises expected generate cash flows indefinitely continue tested impairment annually customer relationships valuation purposes represent value business relationship existing customers less anticipated customer churn calculated projecting discrete future aftertax cash flows customers including right deploy market additional services customers present value aftertax cash flows yields fair value customer relationships recorded 24 billion customer relationships connection application fresh start accounting effective date customer relationships amortized accelerated method useful lives 1115 years based period current customers expected generate cash flows sensitivity result impairment franchises taken 2009 application fresh start accounting carrying values franchises intangible assets reset estimated fair values november 30 2009 consequently decline estimated fair values intangible assets would result additional impairments possible impairments required could material may need recorded prior fourth quarter 2010 ie interim period results operations factors require assets tested impairment interim date management reason believe one unit accounting likely incur impairments intangible assets economic conditions applicable time valuations indicate combination assumptions utilized valuations reasonable market conditions change assumptions resulting impact valuations consequently fair value intangible assets illustrative purposes used discount rate assessing fair value intangible assets november 30 2009 1 higher across units accounting holding assumptions unchanged fair value franchises customer relationships would decreased approximately 11 billion 280 million respectively used discount rate 1 lower fair value franchises customer relationships would increased approximately 15 billion 321 million respectively income taxes operations held charter holdco direct indirect subsidiaries charter holdco majority subsidiaries generally limited liability companies subject income tax however certain limited liability companies subject state income tax addition subsidiaries corporations subject federal state income tax remaining taxable income gains losses deductions credits charter holdco pass members llc agreement governed charter holdco prior emergence bankruptcy contained special loss income allocation provisions pursuant operation provisions applicable us federal income tax law cumulative amount losses charter holdco allocated vulcan cable iii inc entity owned mr allen subsequently merged cii excess amount would allocated entities losses charter holdco allocated among members proportion respective percentage ownership charter holdco common membership units effective charter’s emergence bankruptcy november 30 2009 charter holdco’s llc agreement amended section 704b book income loss allocated among members charter holdco members’ capital accounts adjusted nearly possible reflect amount member would received charter holdco liquidated section 704b book values allocation taxable income loss follow section 704b book allocations generally reflect member’s respective percentage ownership charter holdco common membership interests except extent certain required allocations pursuant section 704c internal revenue code connection plan charter cii mr allen charter holdco entered exchange agreement “exchange agreement” pursuant cii right require charter exchange portion cii’s membership interest charter holdco 100 cii 1000 cash shares charter’s class common stock taxable transaction ii merge cii charter whollyowned subsidiary charter taxfree transaction undertake taxfree transaction similar taxable transaction subclause subject cii meeting certain conditions addition charter right certain circumstances involving change control charter require cii effect exchange transaction type elected cii subclauses ii election subject certain limitations december 28 2009 cii exercised right exchange agreement charter exchange 81 common membership interest charter holdco 1000 cash 907698 shares charter’s class common stock fully taxable transaction charter’s deferred tax liability increased 100 million result transaction charter also received stepup tax basis charter holdco’s assets section 743 code relative interest charter holdco acquired cii based upon taxable exchange occurred december 28 2009 cii fulfilled conditions necessary allow elect taxfree transaction time remaining term exchange agreement february 8 2010 remaining interest exchanged charter holdco became 100 owned charter ownership cii transferred charter result first quarter 2010 charter’s deferred tax liabilities increased relative taxable gain inherent cii’s previous 19 charter holdco interest december 31 2009 charter approximately 63 billion federal tax net operating losses resulting gross deferred tax asset approximately 22 billion expiring years 2014 2028 losses arose operation charter holdco subsidiaries addition december 31 2009 charter state tax net operating losses resulting gross deferred tax asset net federal tax benefit approximately 209 million generally expiring years 2010 2028 due uncertainties projected future taxable income valuation allowances established gross deferred tax assets book accounting purposes except deferred benefits available offset certain deferred tax liabilities tax net operating losses accumulate used offset charter’s future taxable income consummation plan generated “ownership change” defined section 382 code result charter subject annual limitation use net operating losses charter’s net operating loss carryforwards reduced amount cancellation debt income resulting plan allocable charter limitation charter’s ability use net operating losses conjunction net operating loss expiration provisions could reduce ability use portion charter’s net operating losses offset future taxable income could result charter required make material cash tax payments charter’s ability make income tax payments depend time liquidity ability raise additional capital andor receipt payments distributions charter holdco subsidiaries including us december 31 2009 2008 cco holdings recorded net deferred income tax liabilities 213 million 179 million respectively part net liability december 31 2009 2008 deferred tax assets 121 million 99 million respectively primarily relate financial tax losses generated indirect corporate subsidiaries assessing realizability deferred tax assets management considers whether likely portion deferred tax assets realized due history losses unable assume future taxable income analysis accordingly valuation allowances established except deferred benefits available offset certain deferred tax liabilities reverse time accordingly deferred tax assets offset corresponding valuation allowance 31 million 60 million december 31 2009 2008 respectively tax years charter holdco indirect parent companies currently examination internal revenue service tax years ending 2006 2009 remain subject examination assessment years prior 2006 remain open solely purposes examination charter’s net operating loss credit carryforwards litigation legal contingencies high degree uncertainty loss contingency becomes estimable probable reserve established reserve reflects managements best estimate probable cost ultimate resolution matter revised facts circumstances change reserve released matter ultimately brought closure statute limitations lapses established reserves certain matters resolved unfavorably resulting payment obligations excess managements best estimate outcome resolution could material adverse effect consolidated financial condition results operations liquidity results operations following table sets forth percentages revenues items accompanying consolidated statements operations constituted periods presented dollars millions revenues average monthly revenue per basic video customer measured annual basis increased 93 2007 105 2008 114 2009 average monthly revenue per video customer represents total annual revenue divided twelve divided average number basic video customers respective period revenue growth primarily reflects increases number telephone highspeed internet digital video customers price increases incremental video revenues ondemand dvr highdefinition television services offset decrease basic video customers asset sales net acquisitions 2007 2008 2009 reduced increase revenues 2009 compared 2008 approximately 17 million 2008 compared 2007 approximately 31 million revenues service offering follows dollars millions video revenues consist primarily revenues basic digital video services provided noncommercial customers basic video customers decreased 212400 174200 customers 2009 2008 respectively 12400 2009 16700 2008 related asset sales net acquisitions digital video customers increased 84700 213000 customers 2009 2008 respectively increase 2009 2008 reduced asset sales net acquisitions 1200 7600 digital customers respectively increases video revenues attributable following dollars millions residential highspeed internet customers grew 187100 192700 customers 2009 2008 respectively increase 2008 reduced asset sales net acquisitions 5600 highspeed internet customers increase 2009 included asset acquisitions net sales 400 highspeed internet customers increases highspeed internet revenues residential customers attributable following dollars millions revenues telephone services increased 158 million 220 million 2009 2008 respectively result increase 247100 389500 telephone customers 2009 2008 respectively including increase 1 million 2009 related higher average rates offset decrease 10 million 2008 related lower average rates commercial revenues consist primarily revenues services provided commercial customers commercial revenues increased primarily result increased sales charter business bundle® primarily small mediumsized businesses increases reduced approximately 1 million 2009 2 million 2008 result asset sales advertising sales revenues consist primarily revenues commercial advertising customers programmers vendors 2009 advertising sales revenues decreased primarily result significant decreases revenues political automotive retail sectors coupled decrease 2 million related asset sales 2008 advertising sales revenues increased primarily result increases political advertising sales advertising sales vendors offset significant decreases revenues automotive furniture sectors decrease 2 million related asset sales years ended december 31 2009 2008 2007 received 41 million 39 million 15 million respectively advertising sales revenues vendors revenues consist franchise fees regulatory fees customer installations home shopping late payment fees wire maintenance fees miscellaneous revenues years ended december 31 2009 2008 2007 franchise fees represented approximately 45 46 respectively total revenues decrease revenues 2009 primarily result decreases home shopping increase revenues 2008 primarily result increases franchise regulatory fees wire maintenance fees increases reduced approximately 1 million 2009 3 million 2008 result asset sales operating expenses increases operating expenses attributable following dollars millions programming costs approximately 17 billion 16 billion 16 billion representing 60 59 60 total operating expenses years ended december 31 2009 2008 2007 respectively programming costs consist primarily costs paid programmers basic premium digital ondemand payperview programming increases programming costs primarily result annual contractual rate adjustments offset part asset sales customer losses programming costs also offset amortization payments received programmers 26 million 33 million 25 million 2009 2008 2007 respectively expect programming expenses continue increase higher rate 2009 due variety factors including amounts paid retransmission consent annual increases imposed programmers additional programming including highdefinition ondemand payperview programming provided customers selling general administrative expenses increases decreases selling general administrative expenses attributable following dollars millions depreciation amortization depreciation amortization expense increased 6 million decreased 18 million 2009 2008 respectively 2009 increase primarily result increased amortization associated increase customer relationships part applying fresh start accounting 2008 decrease depreciation primarily result asset sales certain assets becoming fully depreciated 81 million decrease due impact changes useful lives certain assets 2007 offset depreciation capital expenditures impairment franchises recorded impairment 22 billion 15 billion 178 million years ended december 31 2009 2008 2007 respectively impairments recorded 2009 2008 largely driven lower expected revenue growth resulting current economic downturn increased competition impairment recorded 2007 largely driven increased competition asset impairment charges asset impairment charges year ended december 31 2007 represent writedown cable systems meeting criteria assets held sale fair value less costs sell operating income expenses net changes operating income expenses net attributable following dollars millions decrease special charges 2009 compared 2008 result favorable litigation settlements 2009 compared unfavorable litigation settlements 2008 information see note 15 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” interest expense net interest expense decreased 183 million 2009 2008 increased 42 million 2008 2007 decrease 2009 compared 2008 due decrease weighted average interest rate 69 2008 compared 67 2009 excluding effect interest calculated prime rate compared libor 2 penalty interest incremental cost recorded reorganization items net increase net interest expense 2007 2008 result average debt outstanding increasing 94 billion 2007 103 billion 2008 offset decrease average borrowing rate 76 2007 69 2008 change value derivatives interest rate swaps held manage interest costs reduce exposure increases floating interest rates expensed change fair value derivatives qualify hedge accounting cash flow hedge ineffectiveness interest rate swap agreements upon filing chapter 11 bankruptcy counterparties interest rate swap agreements terminated underlying contracts upon emergence bankruptcy received payment market value interest rate swap agreement measured date counterparties terminated loss change value derivatives increased 46 million 2007 62 million 2008 decreased 4 million 2009 loss due plan effects loss due plan effects represents loss recorded result consummation plan information see note 2 accompanying condensed consolidated financial statements contained “item 8 financial statements supplementary data” gain due fresh start accounting adjustments upon emergence bankruptcy company applied fresh start accounting gain due fresh start accounting adjustments represents net gains recognized result adjusting assets liabilities fair value information see note 2 accompanying condensed consolidated financial statements contained “item 8 financial statements supplementary data” reorganizations items net reorganization items net 553 million year ended december 31 2009 represent items income expense gain loss realized incurred reorganization chapter 11 bankruptcy code information see note 16 accompanying condensed consolidated financial statements contained “item 8 financial statements supplementary data” income expense net changes income expense net attributable following dollars millions information see note 17 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” income tax benefit expense income tax expense year ended december 31 2009 realized result increases certain deferred tax liabilities certain indirect subsidiaries increases primarily attributable fresh start accounting adjustments financial statement purposes tax purposes offset part 71 million deferred tax benefit related impairment franchises however actual tax provision calculations future periods result current future temporary differences well future operating results income tax benefit year ended december 31 2008 included 32 million deferred tax benefit related impairment franchises 3 million deferred tax benefit related asset acquisitions sales occurring 2008 income tax expense 2007 recognized increases deferred tax liabilities current federal state income tax expenses certain indirect subsidiaries income tax expense year ended december 31 2007 includes 18 million income tax expense previously recorded indirect parent company net income loss noncontrolling interest noncontrolling interest includes 2 accretion preferred membership interests cc viii plus approximately 186 cc viii’s income net accretion net income loss impact net income loss result impairment charges reorganization items gains due plan effects fresh start accounting extinguishment debt net tax increase net income approximately 28 billion 2009 increase net loss approximately 15 billion 264 million 2008 2007 respectively use adjusted ebitda use certain measures defined gaap evaluate various aspects business adjusted ebitda nongaap financial measure considered addition substitute net income loss reported accordance gaap term defined us may comparable similarly titled measures used companies adjusted ebitda reconciled consolidated net income loss adjusted ebitda defined consolidated net income loss plus net interest expense income taxes depreciation amortization gains realized due plan effects fresh start accounting adjustments reorganization items impairment franchises asset impairment charges stock compensation expense operating expenses special charges loss sale retirement assets eliminates significant noncash depreciation amortization expense results capitalintensive nature businesses well noncash nonrecurring items unaffected capital structure investment activities adjusted ebitda used management charter’s board directors evaluate performance business reason significant component charter’s annual incentive compensation program however measure limited reflect periodic costs certain capitalized tangible intangible assets used generating revenues cash cost financing management evaluates costs financial measures believe adjusted ebitda provides information useful investors assessing performance ability service debt fund operations make additional investments internally generated funds addition adjusted ebitda generally correlates leverage ratio calculation credit facilities outstanding notes determine compliance covenants contained facilities notes documents previously filed united states securities exchange commission adjusted ebitda includes management fee expenses amount 136 million 131 million 129 million years ended december 31 2009 2008 2007 respectively expense amounts excluded purposes calculating compliance leverage covenants liquidity capital resources introduction section contains discussion liquidity capital resources including discussion cash position sources uses cash access credit facilities financing sources historical financing activities cash needs capital expenditures outstanding debt overview debt liquidity parent company significant amounts debt business requires significant cash fund principal interest payments parent company’s debt december 31 2009 70 million longterm debt matures 2010 2011 12 billion 2012 22 billion 2013 82 billion 2014 continue monitor capital markets expect undertake refinancing transactions utilize cash flows operating activities cash hand extend reduce maturities principal obligations currently concentrated 2014 timing terms refinancing transactions subject market conditions business also requires significant cash fund capital expenditures ongoing operations projected cash needs projected sources liquidity depend upon among things actual results timing amount expenditures prior parent companies’ bankruptcy filing parent companies funded cash requirements cash flows operating activities borrowings credit facilities proceeds sales assets issuances debt equity securities cash hand upon filing bankruptcy continuing plan consummated charter operating longer access revolving feature revolving credit facility 14 billion 15 billion facility utilized rely cash hand cash flows operating activities fund projected operating cash needs believe sufficient liquidity sources fund projected operating cash needs 2011 december 31 2009 accreted value total debt approximately 112 billion summarized dollars millions upon effectiveness plan applied fresh start accounting adjusted debt reflect fair value therefore december 31 2009 accreted values presented represent fair value notes effective date plus accretion balance sheet date however amount currently payable debt becomes immediately due equal principal amount notes b general obligors right redeem notes set forth table whole part option beginning various times prior stated maturity dates subject certain conditions upon payment outstanding principal amount plus specified redemption premium accrued unpaid interest additional information see note 8 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” c includes 69 billion principal amount term loans repayable equal quarterly installments aggregating loan year 1 original amount term loan remaining balance due final maturity march 6 2014 13 billion principal amount credit facility maturity date march 6 2013 following table summarizes payment obligations december 31 2009 longterm debt certain contractual obligations commitments dollars millions 1 table presents maturities longterm debt outstanding december 31 2009 refer notes 8 21 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” description longterm debt contractual obligations commitments 2 interest payments variable debt estimated using amounts outstanding december 31 2009 average implied forward london interbank offering rate libor rates applicable quarter interest rate reset based yield curve effect december 31 2009 actual interest payments differ based actual libor rates actual amounts outstanding applicable periods 3 lease certain facilities equipment noncancelable operating leases rental costs charged expense years ended december 31 2009 2008 2007 25 million 24 million 23 million respectively 4 pay programming fees multiyear contracts ranging three ten years typically based flat fee per customer may fixed term may cases escalate term programming costs included accompanying statement operations approximately 17 billion 16 billion 16 billion years ended december 31 2009 2008 2007 respectively certain programming agreements based flat fee per month guaranteed minimum payments table sets forth aggregate guaranteed minimum commitments programming contracts 5 “other” represents guaranteed minimum commitments consist primarily commitments billing services vendors following items included contractual obligations table obligations fixed andor determinable due various factors discussed however incur costs part operations · rent utility poles used operations generally pole rentals cancelable short notice anticipate rentals recur rent expense incurred pole rental attachments years ended december 31 2009 2008 2007 47 million · pay franchise fees multiyear franchise agreements based percentage revenues generated video service per year also pay franchise related costs public education grants multiyear agreements franchise fees franchiserelated costs included accompanying statement operations 176 million 179 million 172 million years ended december 31 2009 2008 2007 respectively · also 124 million letters credit primarily various worker’s compensation property casualty general liability carriers collateral reimbursement claims limitations distributions charter’s subsidiaries parent company payment principal parent company notes restricted indentures credit facilities governing parent company’s indebtedness unless default applicable indenture credit facilities unless applicable subsidiary’s leverage ratio test met time distribution december 31 2009 default indentures credit facilities however meet applicable leverage ratio test based december 31 2009 financial results result distributions us parent company would restricted time continue restricted unless tests met distributions charter operating payment principal parent company notes restricted covenants credit facilities distributions cco holdings charter operating parent company payment parent company interest permitted default aforementioned indentures cco holdings charter operating credit facilities addition limitation distributions various indentures discussed distributions charter operating may limited applicable law including delaware limited liability company act may make distributions “surplus” defined act see “part item 1a risk factors restrictions subsidiary’s debt instruments applicable law limit ability provide funds various debt issuers” historical operating investing financing activities cash equivalents held 533 million cash equivalents including restricted cash december 31 2009 compared 948 million december 31 2008 operating activities net cash provided operating activities decreased 711 million 15 billion year ended december 31 2008 756 million year ended december 31 2009 primarily result cash reorganization items 431 million changes operating assets liabilities used 747 million cash period offset decrease 193 million cash paid interest revenues increasing faster rate cash expenses net cash provided operating activities increased 94 million 14 billion year ended december 31 2007 15 billion year ended december 31 2008 primarily result revenue growth highspeed internet telephone driven bundled services well improved cost efficiencies offset increase 37 million interest cash pay obligations changes operating assets liabilities provided 37 million less cash period investing activities net cash used investing activities primarily used purchase property plant equipment 12 billion years ended december 31 2009 2008 2007 financing activities net cash used financing activities 17 million year ended december 31 2009 net cash provided financing activities 689 million year ended december 31 2008 decrease cash provided year ended december 31 2009 compared corresponding period 2008 primarily result borrowings longterm debt 2009 net cash provided financing activities 689 million year ended december 31 2008 net cash used financing activities 226 million year ended december 31 2007 increase cash provided year ended december 31 2008 compared corresponding period 2007 primarily result increase amount borrowings exceeded repayments longterm debt decrease distributions capital expenditures significant ongoing capital expenditure requirements capital expenditures 11 billion 12 billion 12 billion years ended december 31 2009 2008 2007 respectively see table details capital expenditures funded primarily cash flows operating activities issuance debt addition liabilities related capital expenditures decreased 10 million 39 million 2 million years ended december 31 2009 2008 2007 respectively 2010 expect capital expenditures approximately 12 billion expect nature expenditures continue composed primarily purchases customer premise equipment related telephone advanced services support capital scalable infrastructure actual amount capital expenditures depends deployment advanced broadband services offerings may need additional capital accelerated growth highspeed internet telephone digital customers increased need respond competitive pressures expanding delivery advanced services adopted capital expenditure disclosure guidance developed eleven publicly traded cable system operators including charter support national cable telecommunications association “ncta” disclosure intended provide consistency reporting capital expenditures among peer companies cable industry disclosure guidelines required disclosures gaap impact accounting capital expenditures gaap following table presents major capital expenditures categories accordance ncta disclosure guidelines years ended december 31 2009 2008 2007 dollars millions customer premise equipment includes costs incurred customer residence secure new customers revenue units additional bandwidth revenues also includes customer installation costs customer premise equipment eg settop boxes cable modems etc b scalable infrastructure includes costs related customer premise equipment network secure growth new customers revenue units additional bandwidth revenues provide service enhancements eg headend equipment c line extensions include network costs associated entering new service areas eg fibercoaxial cable amplifiers electronic equipment makeready design engineering upgraderebuild includes costs modify replace existing fibercoaxial cable networks including betterments e support capital includes costs associated replacement enhancement nonnetwork assets due technological physical obsolescence eg nonnetwork equipment land buildings vehicles description outstanding debt overview december 31 2009 2008 blended weighted average interest rate debt 43 64 respectively interest rate approximately 27 64 total principal amount debt effectively fixed including effects interest rate hedge agreements december 31 2009 2008 respectively fair value highyield notes 33 billion 24 billion december 31 2009 2008 respectively fair value credit facilities 80 billion 62 billion december 31 2009 2008 respectively fair value highyield notes credit facilities based quoted market prices following description summary certain provisions credit facilities notes “debt agreements” summary restate terms debt agreements entirety describe terms debt agreements instruments governing debt agreements complicated consult agreements instruments detailed information regarding debt agreements credit facilities general charter operating credit facilities effective date charter operating credit facilities remain outstanding although revolving line credit longer available new borrowings remains substantially drawn maturity interest terms charter operating credit facilities outstanding principal amount 82 billion december 31 2009 follows • term loan remaining principal amount 64 billion repayable equal quarterly installments aggregating loan year 1 original amount term loan remaining balance due final maturity march 6 2014 • incremental term loan remaining principal amount 491 million payable march 6 2014 prior date amortize quarterly principal installments totaling 1 annually • revolving credit facility 13 billion maturity date march 6 2013 charter operating credit facilities also allow us enter incremental term loans future aggregate amount additional 500 million amortization set forth notices establishing term loans amortization greater 1 prior final maturity existing term loan although charter operating credit facilities allow incurrence additional 500 million incremental term loans assurance given could obtain additional incremental term loans future charter operating sought amounts outstanding charter operating credit facilities bear interest charter operating’s election base rate libor defined plus margin libor loans 200 revolving credit facility term loan current incremental term loan bears interest libor plus 50 libor floor 35 charter operating’s election base rate plus margin 400 charter operating currently elected base rate incremental term loan obligations charter operating charter operating credit facilities “obligations” guaranteed charter operating’s immediate parent company cco holdings subsidiaries charter operating except certain subsidiaries including immaterial subsidiaries precluded guaranteeing reason provisions indebtedness subject “nonguarantor subsidiaries” obligations also secured lien substantially assets charter operating subsidiaries assets nonguarantor subsidiaries extent lien perfected uniform commercial code filing financing statement ii pledge cco holdings equity interests owned charter operating charter operating’s subsidiaries well intercompany obligations owing entities cco holdings credit facility march 2007 cco holdings entered credit agreement “cco holdings credit facility” consists 350 million term loan facility matures september 2014 cco holdings credit facility also allows us enter incremental term loans future maturing dates set forth notices establishing term loans earlier maturity date existing term loans however assurance given could obtain incremental term loans cco holdings sought borrowings cco holdings credit facility bear interest variable interest rate based either libor base rate plus either case applicable margin applicable margin libor term loans incremental loans 250 libor event default occur cco holdings would able elect libor would pay interest base rate plus applicable margin applicable margin respect incremental loans agreed upon cco holdings lenders incremental loans established cco holdings credit facility secured equity interests charter operating proceeds thereof credit facilities restrictive covenants charter operating credit facilities charter operating credit facilities contain representations warranties affirmative negative covenants customary financings type financial covenants measure performance standards set leverage tested end quarter additionally charter operating credit facilities contain provisions requiring mandatory loan prepayments specific circumstances including connection certain sales assets long proceeds reinvested business charter operating credit facilities permit charter operating subsidiaries make distributions pay interest subordinated parent company indebtedness provided among things default occurred continuing credit facilities events default charter operating credit facilities include among things • failure make payments due within applicable grace period • failure comply specified covenants including limited covenant deliver audited financial statements charter operating unqualified opinion independent accountants without “going concern” like qualification exception • failure pay occurrence events cause permit acceleration indebtedness owing cco holdings charter operating charter operating’s subsidiaries amounts excess 100 million aggregate principal amount • failure pay occurrence events result acceleration indebtedness owing certain cco holdings’ direct indirect parent companies amounts excess 200 million aggregate principal amount • mr allen andor certain family members andor exclusively owned entities collectively “paul allen group” ceasing power directly indirectly vote least 35 ordinary voting power management charter operating fully diluted basis • consummation transaction resulting person group paul allen group power directly indirectly vote 35 ordinary voting power management charter operating fully diluted basis unless paul allen group holds greater share ordinary voting power management charter operating • charter operating ceasing whollyowned direct subsidiary cco holdings except certain limited circumstances cco holdings credit facility cco holdings credit facility contains covenants substantially similar restrictive covenants cco holdings notes except leverage ratio 550 10 see “summary restricted covenants notes” cco holdings credit facility contains provisions requiring mandatory loan prepayments specific circumstances including connection certain sales assets long proceeds reinvested business cco holdings credit facility permits cco holdings subsidiaries make distributions pay interest cch ii notes cco holdings notes charter operating credit facilities charter operating secondlien notes provided among things default occurred continuing cco holdings credit facility notes provided brief description notes issued cco holdings charter operating cco holdings notes november 2003 august 2005 cco holdings cco holdings capital corp jointly issued 500 million 300 million respectively total principal amount 8¾ senior notes due 2013 “ccoh 2013 notes” ccoh 2013 notes senior debt obligations cco holdings cco holdings capital corp rank equally current future unsecured unsubordinated obligations cco holdings cco holdings capital corp ccoh 2013 notes structurally subordinated obligations subsidiaries cco holdings including charter operating notes charter operating credit facilities charter operating notes december 31 2009 charter operating 11 billion principal amount 80 senior secondlien notes due 2012 770 million principal amount 8 38 senior secondlien notes due 2014 546 million principal amount 10875 senior secondlien notes due 2014 subject specified limitations cco holdings subsidiaries charter operating guarantors otherwise obligors respect indebtedness charter operating credit facilities related obligations required guarantee charter operating notes note guarantee guarantor · senior obligation guarantor · structurally senior outstanding cco holdings notes except case cco holdings’ note guarantee structurally pari passu senior notes outstanding cch ii notes · senior right payment future subordinated indebtedness guarantor · effectively senior relevant subsidiary’s unsecured indebtedness extent value collateral subject prior lien credit facilities charter operating notes related note guarantees secured secondpriority lien charter operating’s subsidiaries’ assets secure obligations charter operating subsidiary charter operating respect charter operating credit facilities related obligations collateral currently consists capital stock charter operating held cco holdings intercompany obligations owing cco holdings charter operating subsidiary charter operating substantially charter operating’s guarantors’ assets cco holdings security interests may perfected uniform commercial code filing financing statement including capital stock intercompany obligations including limited · certain exceptions capital stock limited case capital stock foreign subsidiaries 66 capital stock first tier foreign subsidiaries held charter operating guarantor · certain exceptions intercompany obligations owing charter operating guarantor event additional liens granted charter operating subsidiaries secure obligations charter operating credit facilities related obligations second priority liens assets granted secure charter operating notes liens subject provisions intercreditor agreement none charter operating affiliates parties notwithstanding foregoing sentence second priority liens need provided time lien would otherwise granted guarantee pledge availability period leverage condition satisfied second priority liens required provided accordance foregoing sentence prior fifth business day commencement next succeeding guarantee pledge availability period charter operating notes senior debt obligations charter operating charter communications operating capital corp extent value collateral subject prior lien credit facilities rank effectively senior charter operating’s future unsecured senior indebtedness redemption provisions notes various notes included table may redeemed accordance following table redeemable maturity indicated charter operating may time option redeem outstanding 8 second lien notes due 2012 whole part redemption price equal 100 principal amount thereof plus accrued unpaid interest redemption date plus makewhole premium makewhole premium amount equal excess present value remaining interest principal payments due 8 senior secondlien notes due 2012 final maturity date computed using discount rate equal treasury rate date plus 050 b outstanding principal amount note charter operating may redeem outstanding 10875 senior secondlien notes due 2014 option varying dates case premium plus makewhole premium makewhole premium amount equal excess present value remaining interest principal payments due 10875 senior secondlien note due 2014 final maturity date computed using discount rate equal treasury rate date plus 050 b outstanding principal amount note charter operating 10875 senior secondlien notes may redeemed time march 15 2012 specified prices event specified change control event occurs respective issuers notes must offer repurchase outstanding notes 101 principal amount accrued value applicable plus accrued unpaid interest summary restrictive covenants notes following description summary certain restrictions debt agreements remain outstanding following effectiveness plan summary restate terms debt agreements entirety describe restrictions debt agreements instruments governing debt agreements complicated consult agreements instruments detailed information regarding debt agreements notes issued certain subsidiaries together “note issuers” issued pursuant indentures contain covenants restrict ability note issuers subsidiaries among things · incur indebtedness · pay dividends make distributions respect capital stock restricted payments · issue equity · make investments · create liens · sell assets · consolidate merge sell substantially assets · enter sale leaseback transactions · create restrictions ability restricted subsidiaries make certain payments · enter transactions affiliates however covenants subject number important qualifications exceptions set forth brief summary certain restrictive covenants restrictions additional debt limitations incurrence debt issuance preferred stock contained various indentures permit respective notes issuers restricted subsidiaries incur additional debt issue preferred stock long giving pro forma effect incurrence leverage ratio would specified level note issuers leverage ratios cco holdings charter operating follows issuer leverage ratio cco holdings 45 1 charter operating 425 1 addition regardless whether leverage ratio could met long default exists would result incurrence issuance issuer restricted subsidiaries permitted issue among permitted indebtedness · amount debt credit facilities otherwise allocated indicated · cco holdings 975 billion · charter operating 68 billion · 75 million debt incurred finance purchase capital lease new assets · 300 million additional debt purpose · items indebtedness specific purposes intercompany debt refinancing existing debt interest rate swaps provide protection fluctuation interest rates indebtedness single facility agreement may incurred part one categories listed part another generally may also later reclassified another category including debt incurred leverage ratio accordingly indebtedness credit facilities incurred combination categories permitted indebtedness listed restricted subsidiaries note issuers generally permitted issue subordinated debt securities restrictions distributions generally various indentures note issuers respective restricted subsidiaries permitted pay dividends repurchase equity interests make specified restricted payments applicable issuer incur 100 new debt applicable leverage ratio test giving effect transaction default exists would exist consequence incurrence conditions met restricted payments may made total amount following amounts applicable issuer indicated · cco holdings sum 100 cco holdings’ consolidated ebitda defined minus 13 times consolidated interest expense defined plus 100 new cash appraised noncash equity proceeds received cco holdings allocated certain investments cumulatively october 1 2003 plus 100 million · charter operating sum 100 charter operating’s consolidated ebitda defined minus 13 times consolidated interest expense defined plus 100 new cash appraised noncash equity proceeds received charter operating allocated certain investments cumulatively april 1 2004 plus 100 million addition note issuers may make distributions restricted payments long default exists would caused transactions among distributions restricted payments · repurchase management equity interests amounts exceed 10 million per fiscal year · regardless existence default pay passthrough tax liabilities respect ownership equity interests applicable issuer restricted subsidiaries · make specified restricted payments including merger fees 125 transaction value repurchases using concurrent new issuances certain dividends existing subsidiary preferred equity interests cco holdings charter operating respective restricted subsidiaries may make distributions restricted payments long certain defaults exist even applicable leverage test referred met enable certain parents pay interest certain indebtedness ii long applicable issuer could incur 100 indebtedness applicable leverage ratio test referred enable certain parents purchase redeem refinance certain indebtedness restrictions investments note issuers respective restricted subsidiaries may make investments except permitted investments ii giving effect transaction leverage would applicable leverage ratio permitted investments include among others · investments generally among restricted subsidiaries restricted subsidiaries applicable issuer · cco holdings · investments aggregating 750 million time outstanding · investments aggregating 100 new cash equity proceeds received cco holdings since november 10 2003 extent proceeds allocated restricted payments covenant · charter operating · investments aggregating 750 million time outstanding · investments aggregating 100 new cash equity proceeds received cco holdings since april 27 2004 extent proceeds allocated restricted payments covenant restrictions liens charter operating restricted subsidiaries permitted grant liens senior liens securing charter operating notes permitted liens assets secure indebtedness obligations giving effect incurrence senior secured leverage ratio generally ratio obligations secured first priority liens four times ebitda defined recent fiscal quarter internal financial reports available would exceed 375 10 restrictions liens note issuers applies liens assets issuers restrict liens assets subsidiaries respect note issuers permitted liens include liens securing indebtedness obligations credit facilities subject specified limitations case charter operating liens securing purchase price financed new assets liens securing indebtedness 50 million specified liens restrictions sale assets mergers note issuers generally permitted sell substantially assets merge companies unless leverage ratio transaction would greater leverage ratio immediately prior transaction unless giving effect transaction leverage would applicable leverage ratio applicable issuer default exists surviving entity us entity assumes applicable notes note issuers restricted subsidiaries may generally otherwise sell assets case restricted subsidiaries issue equity interests excess 100 million unless receive consideration least equal fair market value assets equity interests consisting least 75 cash assumption liabilities securities converted cash within 60 days productive assets note issuers restricted subsidiaries required within 365 days asset sale either use commit use net cash proceeds specified threshold acquire assets used useful businesses use net cash proceeds repay specified debt offer repurchase issuer’s notes remaining proceeds restrictions sale leaseback transactions note issuers restricted subsidiaries may generally engage sale leaseback transactions unless time transaction applicable issuer could incurred secured indebtedness leverage ratio test amount equal present value net rental payments made lease sale assets application proceeds permitted covenant restricting asset sales prohibitions restricting dividends note issuers’ restricted subsidiaries may generally enter arrangements involving restrictions ability make dividends distributions transfer assets applicable note issuer unless restrictions respect financing arrangements terms restrictive governing credit facilities existing entered applicable indentures materially restrictive customary terms comparable financings materially impair applicable note issuers’ ability make payments notes affiliate transactions indentures also restrict ability note issuers restricted subsidiaries enter certain transactions affiliates involving consideration excess 15 million without determination board directors applicable note issuer transaction complies covenant transactions affiliates involving 50 million without receiving opinion fairness holders transaction financial point view issued accounting appraisal investment banking firm national standing cross acceleration indentures certain parent companies include various events default including cross acceleration provisions failure issuers restricted subsidiaries pay final maturity thereof principal amount indebtedness principal amount 100 million default indebtedness resulting acceleration would result event default indenture governing applicable notes result event default related failure repay principal maturity acceleration indebtedness cch ii notes cco holdings notes cco holdings credit facility charter operating notes charter operating credit facilities could cause crossdefaults parent companies’ indentures recently issued accounting standards october 2009 fasb issued guidance included asc 60525 revenue recognition multipleelement arrangements “asc 60525” requires entities allocate revenue arrangement using estimated selling prices delivered goods services based selling price hierarchy guidance eliminates residual method revenue allocation requires revenue allocated using relative selling price method guidance included asc 60525 applied prospective basis revenue arrangements entered materially modified fiscal years beginning june 15 2010 adopt guidance included asc 60525 effective january 1 2011 expect adoption guidance included asc 60525 material impact financial statements believe recently issued yet effective accounting pronouncements adopted would material effect accompanying financial statements item 7a item 7 management’s discussion analysis financial condition results operations reference made “certain trends uncertainties” section “cautionary statement regarding forwardlooking statements” describes important factors could cause actual results differ expectations nonhistorical information contained herein addition following discussion read conjunction audited consolidated financial statements charter communications inc subsidiaries years ended december 31 2004 2003 2002 introduction 2004 completed several transactions improved liquidity efforts regard resulted completion number transactions 2004 follows historically ability fund operations investing activities depended continued access credit subsidiaries’ credit facilities expect continue borrow subsidiaries’ credit facilities time fund cash needs occurrence event default subsidiaries’ credit facilities could result borrowings facilities unavailable us could event payment default acceleration trigger events default notes subsidiaries’ outstanding notes would material adverse effect us approximately 30 million indebtedness subsidiaries’ credit facilities scheduled mature 2005 expect fund payment indebtedness borrowings subsidiaries’ revolving credit facilities overview operations approximately 86 revenues years ended december 31 2004 2003 attributable monthly subscription fees charged customers video highspeed data telephone commercial services provided cable systems generally customer subscriptions may discontinued customer time remaining 14 revenue derived primarily advertising revenues franchise fee revenues collected us paid local franchising authorities payperview vod programming users charged fee individual programs viewed installation reconnection fees charged customers commence reinstate service commissions related sale merchandise home shopping services increased revenues past three years primarily sale digital video highspeed data services new existing customers price increases video services offset part dispositions systems going forward goal increase revenues stabilizing analog video customer base implementing price increases certain services packages increasing number customers purchase highspeed data services digital video new products services voip telephony vod high definition television dvr service accomplish increasing prices certain services offering new bundling services combining digital video advanced services highspeed data service high definition television believe attractive price points success efforts grow revenues improve margins impacted ability compete companies often fewer regulatory burdens easier access financing greater personnel resources greater brand name recognition longestablished relationships regulatory authorities customers additionally controlling cost operations critical particularly cable programming costs historically increased rates excess inflation expected continue increase attempting control costs operations maintaining strict controls expenses specifically focused managing cost structure renegotiating programming agreements reduce rate historical increases programming cost managing workforce control increases improve productivity leveraging size purchasing activities expenses primarily consist operating costs selling general administrative expenses depreciation amortization expense interest expense operating costs primarily include programming costs cost workforce cable service related expenses advertising sales costs franchise fees expenses related customer billings income operations decreased 516 million year ended december 31 2003 loss operations 20 billion year ended december 31 2004 negative operating margin defined income loss operations divided revenues 41 year ended december 31 2004 whereas year ended december 31 2003 positive operating margin 11 decline income operations operating margin year ended december 31 2004 principally due impairment franchises 24 billion recorded third quarter 2004 year ended december 31 2004 also includes gain sale certain cable systems atlantic broadband finance llc substantially offset increase option compensation expense special charges compared year ended december 31 2003 history net losses expect continue report net losses foreseeable future net losses principally attributable insufficient revenue cover interest costs high level debt depreciation expenses incur resulting capital investments made cable properties amortization impairment franchise intangibles expect expenses impairment franchises remain significant therefore expect continue report net losses foreseeable future results operations following table sets forth percentages revenues items accompanying consolidated statements operations constitute indicated periods dollars millions year ended december 31 2004 compared year ended december 31 2003 revenues increased 158 million 3 48 billion year ended december 31 2003 50 billion year ended december 31 2004 increase principally result increase 318800 2800 highspeed data customers digital video customers respectively well price increases video highspeed data services offset partially decrease 439800 analog video customers included reduction analog video customers reducing increase digital video highspeed data customers 230800 analog video customers 83300 digital video customers 37800 highspeed data customers sold cable system sales atlantic broadband finance llc closed march april 2004 collectively cable system sale wavedivision holdings llc october 2003 referred herein “systems sales” systems sales reduced increase revenues 160 million goal increase revenues improving customer service believe stabilize analog video customer base implementing price increases certain services packages increasing number customers purchase highspeed data services digital video advanced products services voip telephony vod high definition television dvr service average monthly revenue per analog video customer increased 6192 year ended december 31 2003 6802 year ended december 31 2004 primarily result price increases incremental revenues advanced services average monthly revenue per analog video customer represents total annual revenue divided twelve divided average number analog video customers respective period revenues service offering follows dollars millions video revenues consist primarily revenues analog digital video services provided noncommercial customers video revenues decreased 88 million 3 35 billion year ended december 31 2003 34 billion year ended december 31 2004 approximately 116 million decrease result systems sales approximately additional 65 million related decline analog video customers decreases offset increases approximately 66 million resulting price increases incremental video revenues existing customers approximately 27 million resulting increase digital video customers revenues highspeed data services provided noncommercial customers increased 185 million 33 556 million year ended december 31 2003 741 million year ended december 31 2004 approximately 163 million increase related increase average number customers receiving highspeed data services whereas approximately 35 million related increase average price service increase highspeed data revenues reduced approximately 12 million result systems sales advertising sales revenues consist primarily revenues commercial advertising customers programmers vendors advertising sales increased 26 million 10 263 million year ended december 31 2003 289 million year ended december 31 2004 primarily result increase national advertising campaigns election related advertising increase offset decrease 7 million result system sales years ended december 31 2004 2003 received 16 million 15 million respectively advertising revenue vendors commercial revenues consist primarily revenues cable video highspeed data services commercial customers commercial revenues increased 34 million 17 204 million year ended december 31 2003 238 million year ended december 31 2004 primarily result increase commercial highspeed data revenues increase reduced approximately 14 million result systems sales revenues consist revenues franchise fees telephony revenue equipment rental customer installations home shopping dialup internet service late payment fees wire maintenance fees miscellaneous revenues year ended december 31 2004 2003 franchise fees represented approximately 49 48 respectively total revenues increased 1 million 335 million year ended december 31 2003 336 million year ended december 31 2004 increase primarily result increase home shopping infomercial revenue partially offset approximately 11 million result systems sales operating expenses operating expenses increased 128 million 7 20 billion year ended december 31 2003 21 billion year ended december 31 2004 increase operating expenses reduced approximately 59 million result system sales programming costs included accompanying consolidated statements operations 13 billion 12 billion representing 63 64 total operating expenses years ended december 31 2004 2003 respectively key expense components percentage revenues follows dollars millions programming costs consist primarily costs paid programmers analog premium digital channels payperview programming increase programming costs 70 million 6 year ended december 31 2004 year ended december 31 2003 result price increases particularly sports programming increased number channels carried systems increase digital video customers partially offset decrease analog video customers additionally increase programming costs reduced 42 million result systems sales programming costs offset amortization payments received programmers support launches new channels 59 million 62 million years ended december 31 2004 2003 respectively programming costs year ended december 31 2004 also include 5 million reduction related settlement dispute techtv inc related party see note 22 consolidated financial statements contained “item 8 financial statements supplementary data” every year operated cable programming costs increased excess us inflation costofliving increases expect continue increase variety factors including inflationary negotiated annual increases additional programming provided customers increased costs purchase produce programming 2005 expect programming costs increase higher rate 2004 costs determined part outcome programming negotiations 2005 likely subject offsetting events otherwise affected factors similar ones mentioned preceding paragraph increasing programming costs result declining operating margins video services extent unable pass cost increases customers expect partially offset resulting margin compression traditional video services revenue advanced video services increased highspeed data revenues advertising revenues commercial service revenues advertising sales expenses consist costs related traditional advertising services provided advertising customers including salaries benefits commissions advertising sales expenses increased 10 million 11 primarily result increased salary benefit commission costs increase advertising sales expenses reduced 2 million result system sales service costs consist primarily service personnel salaries benefits franchise fees system utilities internet service provider fees maintenance pole rental expense increase service costs 48 million 8 resulted primarily additional activity associated ongoing infrastructure maintenance increase service costs reduced 15 million result system sales selling general administrative expenses selling general administrative expenses increased 31 million 3 940 million year ended december 31 2003 971 million year ended december 31 2004 increase selling general administrative expenses reduced 22 million result system sales key components expense percentage revenues follows dollars millions general administrative expenses consist primarily salaries benefits rent expense billing costs call center costs internal network costs bad debt expense property taxes increase general administrative expenses 16 million 2 resulted primarily increases costs associated commercial business 21 million third party call center costs resulting increased emphasis customer service 10 million bad debt expense 10 million offset decreases costs associated salaries benefits 21 million rent expense 3 million marketing expenses increased 15 million 14 result increased investment marketing branding campaigns depreciation amortization depreciation amortization expense increased 42 million 3 15 billion 2004 increase depreciation related increase capital expenditures partially offset lower depreciation result systems sales impairment franchises performed impairment assessment third quarter 2004 use lower projected growth rates resulting revised estimates future cash flows valuation primarily result increased competition led recognition 24 billion impairment charge year ended december 31 2004 gain loss sale fixed assets net gain sale fixed assets 86 million year ended december 31 2004 primarily represents pretax gain 104 million realized sale systems atlantic broadband finance llc closed march april 2004 offset losses recognized disposition plant equipment loss sale fixed assets 5 million year ended december 31 2003 represents loss recognized disposition plant equipment offset gain 21 million recognized sale cable systems port orchard washington closed october 1 2003 option compensation expense net option compensation expense 31 million year ended december 31 2004 primarily represents 22 million related options granted expensed accordance sfas 123 accounting stockbased compensation additionally year ended december 31 2004 expensed approximately 8 million related stock option exchange program employees offered right exchange stock options vested unvested issued 1999 charter communications option plan 2001 stock incentive plan exercise price 10 per share shares restricted charter class common stock instances cash exchange offer closed february 2004 option compensation expense 4 million year ended december 31 2003 primarily represents options expensed accordance sfas 123 accounting stockbased compensation see note 19 consolidated financial statements contained “item 8 financial statements supplementary data” information regarding option compensation plans special charges net special charges 104 million year ended december 31 2004 represents approximately 85 million aggregate value charter class common stock warrants purchase charter class common stock contemplated issued part settlement consolidated federal class actions state derivative actions federal derivative action lawsuits approximately 10 million litigation costs related tentative settlement south carolina national class action suit settlements subject final documentation court approval approximately 12 million severance related costs workforce reduction realignment special charges year ended december 31 2004 offset 3 million received third party settlement dispute special charges 21 million year ended december 31 2003 represents approximately 26 million severance related costs workforce reduction partially offset 5 million credit settlement internet service provider excitehome related conversion 145000 highspeed data customers charter pipeline service 2001 unfavorable contracts settlements unfavorable contracts settlements 5 million year ended december 31 2004 relates changes estimated legal reserves established connection prior business combinations based evaluation current facts circumstances longer required unfavorable contracts settlements 72 million year ended december 31 2003 represents settlement estimated liabilities recorded connection prior business combinations majority benefit approximately 52 million due renegotiation 2003 major programming contract liability recorded market portion agreement connection 1999 2000 acquisition remaining benefit relates reversal previously recorded liabilities longer required interest expense net interest expense increased 60 million 12 500 million year ended december 31 2003 560 million year ended december 31 2004 increase net interest expense result increase average borrowing rate 572 year ended december 31 2003 679 year ended december 31 2004 offset decrease 476 million average debt outstanding 82 billion 2003 78 billion 2004 gain derivative instruments hedging activities net gain derivative instruments hedging activities increased 4 million gain 65 million year ended december 31 2003 gain 69 million year ended december 31 2004 increase primarily result increase gains interest rate agreements qualify hedge accounting sfas 133 accounting derivative instruments hedging activities increased gain 57 million year ended december 31 2003 gain 65 million year ended december 31 2004 coupled decrease gains interest rate agreements result hedge ineffectiveness designated hedges decreased 8 million year ended december 31 2003 4 million year ended december 31 2004 loss extinguishment debt loss extinguishment debt 21 million year ended december 31 2004 represents writeoff deferred financing fees third party costs related charter operating refinancing april 2004 net expense decreased 12 million 9 million 2003 income 3 million 2004 expense 2003 included 11 million associated amending revolving credit facility subsidiaries costs associated terminated debt transactions recur 2004 addition gains equity investments increased 3 million 2004 2003 minority interest minority interest represents 2 accretion preferred membership interests indirect subsidiary cc viii llc since june 6 2003 pro rata share profits losses cc viii llc income tax benefit expense income tax benefit 35 million income tax expense 13 million recognized years ended december 31 2004 2003 respectively income tax benefit recognized year ended december 31 2004 directly related impairment franchises discussed deferred tax liabilities indirect corporate subsidiaries decreased result writedown franchise assets financial statement purposes tax purposes expect recognize similar benefit associated impairment franchises future periods however actual tax provision calculations future periods result current future temporary differences well future operating results income tax expense recognized year ended december 31 2003 represents increases deferred tax liabilities current federal state income tax expenses certain indirect corporate subsidiaries cumulative effect accounting change net tax cumulative effect accounting change 840 million net minority interest effects 19 million tax effects 16 million 2004 represents impairment charge recorded result adoption emerging issues task force “eitf” topic d108 use residual method value acquired assets goodwill net income loss net loss increased 34 billion net income 30 million 2003 net loss 33 billion 2004 result factors described impact net loss 2004 impairment franchises cumulative effect accounting change increase net loss approximately 30 billion impact net income 2003 gain sale systems unfavorable contracts settlements net income tax impacts increase net income 93 million liquidity capital resources introduction section contains discussion liquidity capital resources including discussion cash position sources uses cash access credit facilities financing sources historical financing activities cash needs capital expenditures outstanding debt overview business requires significant cash fund debt service costs capital expenditures ongoing operations historically funded requirements cash flows operating activities borrowings credit facilities equity contributions parent companies borrowings parent companies sales assets issuances debt securities cash hand however mix funding sources changes period year ended december 31 2004 generated 12 billion net cash flows operating activities paying cash interest 532 million addition generated approximately 744 million 2004 sales assets substantially used fund operations including capital expenditures finally net cash used financing activities 515 million included among things 738 million distributions primarily fund parent company interest december 2004 cco holdings issued 550 million notes debt issuance net cash flows operating activities primary reasons cash hand increased 461 million 546 million december 31 2004 cash hand used repay outstanding borrowings charter operating revolving credit facility series transactions executed february 2005 expect mix sources funds continue change future based overall needs relative cash flow availability funds credit facilities subsidiaries access debt markets timing possible asset sales ability generate cash flows operating activities presently consider future asset sales significant source liquidity however continue explore asset dispositions one several possible actions could take future improve liquidity expect cash hand cash flows operating activities amounts available credit facilities adequate meet parent companies cash needs 2005 cash flows operating activities amounts available credit facilities may sufficient permit us fund operations satisfy parent companies’ principal repayment obligations come due 2006 believe amounts sufficient fund operations satisfy repayment obligations thereafter likely parent companies require additional funding repay debt maturing 2006 advised parent companies working financial advisors address funding requirements however assurance funding available although mr allen affiliates purchased equity parent companies past mr allen affiliates obligated purchase equity contribute loan funds us parent companies future credit facilities covenants ability operate depends upon among things continued access capital including credit charter operating credit facilities credit facilities along subsidiaries’ indentures subject certain restrictive covenants require us maintain specified financial ratios meet financial tests provide audited financial statements unqualified opinion independent auditors december 31 2004 compliance covenants indentures credit facilities indentures subsidiaries expect remain compliance covenants next twelve months december 31 2004 borrowing availability credit facilities 804 million none restricted due covenants continued access credit facilities subject remaining compliance applicable covenants credit facilities including covenants tied operating performance operating performance results noncompliance covenants certain events noncompliance credit facilities indentures governing debt occurs funding credit facilities may available defaults potentially debt obligations could occur event default covenants governing debt instruments could result acceleration payment obligations debt certain circumstances crossdefaults debt obligations could material adverse effect consolidated financial condition results operations charter operating credit facilities require us redeem cc v holdings notes within 45 days first date charter holdings leverage ratio less 875 10 march 2005 cc v holdings llc redeemed outstanding notes 103958 principal amount plus accrued unpaid interest date redemption total cost redemption including accrued unpaid interest approximately 122 million funded redemption borrowings charter operating credit facilities parent company debt obligations financial liquidity problems parent companies could cause serious disruption business material adverse effect business results operations failure charter holdings satisfy debt payment obligations bankruptcy filing respect charter holdings would give lenders charter operating credit facilities right accelerate payment obligations facilities acceleration would default indenture governing notes december 31 2004 charter approximately 10 billion principal amount senior convertible notes outstanding approximately 156 million 863 million maturing 2006 2009 respectively december 31 2004 charter holdings approximately 89 billion principal amount highyield notes outstanding approximately 451 million 34 billion 50 billion maturing 2007 2009 thereafter respectively december 31 2004 cch ii approximately 16 billion principal amount highyield notes outstanding maturing 2010 charter holdings cch ii need raise additional capital receive distributions payments us order satisfy debt obligations however significant indebtedness ability parent companies raise additional capital reasonable rates uncertain indentures governing cch ii notes cco holdings notes charter operating notes however restrict entities subsidiaries making distributions parent companies including charter holdco charter holdings payment principal parent company debt obligations case unless default applicable indenture specified leverage ratio test met time event cch ii cco holdings charter operating meet applicable leverage ratio test respective indentures result prohibited making distributions respective direct parent time charter required register april 21 2005 recently issued 5875 convertible notes due 2009 convertible notes registered date charter incur liquidated damages defined related indenture incurred liquidated damages accrue rate 25 50 per annum accreted principal amount convertible notes amounts accrue long convertible notes remain unregistered exceed maximum period two years original issuance date payable monthly cash conjunction issuing convertible notes charter also filed registration statement sell 150 million shares charter’s class common stock pursuant share lending agreement shares required registered april 1 2005 shares registered date charter incur liquidated damages defined related indenture incurred liquidated damages accrue paid cash additional principal monthly basis liquidated damages accrue rate 25 75 per month accreted principal amount convertible notes amounts accrue long convertible notes remain unregistered exceed maximum period two years original issuance date specific limitations charter holdings indentures governing charter holdings notes permit charter holdings make distributions charter holdco payment interest principal charter’s convertible senior notes giving effect distribution charter holdings incur additional debt leverage ratio 875 10 default charter holdings’ indentures specified tests met quarter ended december 31 2004 default charter holdings’ indentures specified tests met addition charter holdings met leverage ratio 875 10 based december 31 2004 financial results result distributions charter holdings charter holdco currently restricted distributions restricted however charter holdings fails meet leverage ratio test time event past charter holdings time failed meet leverage ratio test assurance charter holdings satisfy test future periods distributions restricted indentures governing charter holdings notes permit charter holdings subsidiaries make specified investments charter holdco charter amount determined formula long default indentures december 31 2004 charter holdco 106 million cash hand owed 29 million intercompany loans subsidiaries available pay interest charter’s 475 convertible senior notes expected approximately 7 million 2005 addition charter 144 million securities pledged security first six interest payments charter’s 5875 convertible senior notes past parent companies accessed equity highyield debt markets source capital fund subsidiaries’ operations believe parent companies’ continued access debt markets depend market conditions light among things significant levels debt ratings general economic conditions business condition cable telecommunications technology industry unable raise required capital reasonable terms parent companies could elect cause us distribute otherwise pay extent available permitted indentures governing subsidiaries’ notes necessary funds pay principal interest amounts due charter’s charter holdings’ cch ii’s debt could negatively impact liquidity time additional capital borrowing capacity required beyond amounts internally generated available credit facilities additional debt equity financings would consider • issuing debt equity charter holdco level proceeds could loaned contributed us • issuing debt securities may structural priority existing notes • reducing expenses capital expenditures may impair ability increase revenue • selling assets • requesting waivers amendments respect credit facilities availability terms would subject market conditions strategies successful could forced restructure obligations seek protection bankruptcy laws addition find necessary engage recapitalization similar transaction noteholders might receive principal interest payments contractually entitled issuance charter operating notes exchange charter holdings notes march 2005 subsidiary charter operating consummated exchange transactions small number institutional holders charter holdings 825 senior notes due 2007 pursuant charter operating issue private placement approximately 271 million principal amount new notes terms identical charter operating’s 8375 senior second lien notes due 2014 exchange approximately 284 million charter holdings 825 senior notes due 2007 sale assets march 2004 closed sale certain cable systems florida pennsylvania maryland delaware west virginia atlantic broadband finance llc closed sale additional cable system new york atlantic broadband finance llc april 2004 subject postclosing contractual adjustments total net proceeds sale systems approximately 733 million proceeds used repay portion credit facilities summary outstanding contractual obligations following table summarizes payment obligations december 31 2004 longterm debt certain contractual obligations commitments dollars millions 1 table presents maturities longterm debt outstanding december 31 2004 reflect effects march 2005 redemption cc v holdings llc notes refer notes 9 20 consolidated financial statements contained “item 8 financial statements supplementary data” description longterm debt contractual obligations commitments 2 interest payments variable debt estimated using amounts outstanding december 31 2004 average implied forward london interbank offering rate libor rates applicable quarter interest rate reset based yield curve effect december 31 2004 actual interest payments differ based actual libor rates actual amounts outstanding applicable periods 3 represents amounts required pay interest rate hedge agreements estimated using average implied forward libor applicable rates quarter interest rate reset based yield curve effect december 31 2004 4 pay programming fees multiyear contracts ranging three six years typically based flat fee per customer may fixed term may cases escalate term programming costs included accompanying statements operations 13 billion 12 billion 12 billion years ended december 31 2004 2003 2002 respectively certain programming agreements based flat fee per month guaranteed minimum payments table sets forth aggregate guaranteed minimum commitments programming contracts 5 “other” represents guaranteed minimum commitments consist primarily commitments billing services vendors following items included contractual obligations table obligations fixed andor determinable due various factors discussed however incur costs part operations historical operating financing investing activities held 546 million cash equivalents december 31 2004 compared 85 million december 31 2003 increase cash equivalents reflects proceeds sale cco holdings notes december 2004 cash hand used repay outstanding borrowings charter operating revolving credit facility series transactions executed february 2005 operating activities net cash provided operating activities decreased 149 million 11 13 billion year ended december 31 2003 12 billion year ended december 31 2004 year ended december 31 2004 net cash provided operating activities decreased primarily result changes operating assets liabilities used 70 million cash year ended december 31 2004 corresponding period 2003 increase cash interest expense 73 million corresponding prior period change operating assets liabilities primarily result benefit year ended december 31 2003 collection receivables programmers related network launches accounts receivable remained essentially flat year ended december 31 2004 investing activities net cash used investing activities years ended december 31 2004 2003 191 million 757 million respectively investing activities used 566 million less cash year ended december 31 2004 corresponding period 2003 primarily result cash provided proceeds sale certain cable systems atlantic broadband finance llc offset increased cash used capital expenditures financing activities net cash used financing activities year ended december 31 2004 2003 515 million 784 million respectively decrease cash used year ended december 31 2004 compared corresponding period 2003 primarily result increase borrowings longterm debt proceeds issuance debt reduced repayments longterm debt capital expenditures significant ongoing capital expenditure requirements however experienced significant decline requirements starting 2003 decline primarily result substantial reduction rebuild costs network largely upgraded rebuilt prior years capital expenditures excluding acquisitions cable systems 893 million 804 million years ended december 31 2004 2003 respectively majority capital expenditures 2004 2003 related customer premise equipment costs see table details upgrading cable systems enabled us offer digital television highspeed data services vod interactive services additional channels tiers expanded payperview options larger customer base capital expenditures funded primarily cash flows operating activities issuance debt borrowings credit facilities addition years ended december 31 2004 2003 liabilities related capital expenditures decreased 33 million 41 million respectively 2005 expect capital expenditures increase approximately 1 billion increase capital expenditures 2005 compared 2004 result expected increases telephony services deployment advanced digital boxes expect nature expenditures continue composed primarily purchases customer premise equipment scalable infrastructure costs expect fund capital expenditures 2005 primarily cash flows operating activities borrowings credit facilities adopted capital expenditure disclosure guidance developed eleven publicly traded cable system operators including charter support national cable telecommunications association “ncta” disclosure intended provide consistency reporting operating statistics capital expenditures customers among peer companies cable industry disclosure guidelines required disclosure gaap impact accounting capital expenditures gaap following table presents major capital expenditures categories accordance ncta disclosure guidelines years ended december 31 2004 2003 dollars millions customer premise equipment includes costs incurred customer residence secure new customers revenue units additional bandwidth revenues also includes customer installation costs accordance sfas 51 customer premise equipment eg settop terminals cable modems etc b scalable infrastructure includes costs related customer premise equipment network secure growth new customers revenue units additional bandwidth revenues provide service enhancements eg headend equipment c line extensions include network costs associated entering new service areas eg fibercoaxial cable amplifiers electronic equipment makeready design engineering upgraderebuild includes costs modify replace existing fibercoaxial cable networks including betterments e support capital includes costs associated replacement enhancement nonnetwork assets due technological physical obsolescence eg nonnetwork equipment land buildings vehicles f represents capital expenditures made 2004 2003 respectively description outstanding debt december 31 2004 actual total debt approximately 83 billion summarized dollars millions accreted value presented represents face value notes less original issue discount time sale plus accretion balance sheet date b general obligors right redeem notes set forth table whole part option beginning various times prior stated maturity dates subject certain conditions upon payment outstanding principal amount plus specified redemption premium accrued unpaid interest additional information see note 9 consolidated financial statements contained “item 8 financial statements supplementary data” c charter operating credit facilities required us redeem cc v holdings notes within 45 days first date charter holdings leverage ratio less 875 10 march 2005 cc v holdings llc redeemed outstanding notes 103958 principal amount plus accrued unpaid interest date redemption required redeem notes listed prior stated maturity dates december 31 2004 2003 longterm debt totaled approximately 83 billion 80 billion respectively debt comprised approximately 55 billion 72 billion credit facility debt 28 billion 727 million principal amount highyield notes december 31 2004 2003 respectively december 31 2004 2003 weighted average interest rate credit facility debt approximately 68 54 respectively weighted average interest rate highyield notes approximately 82 94 respectively resulting blended weighted average interest rate 73 58 respectively interest rate approximately 59 52 total principal amount debt effectively fixed including effects interest rate hedge agreements december 31 2004 2003 respectively fair value highyield notes 29 billion 748 million december 31 2004 2003 respectively fair value credit facilities 55 billion 69 billion december 31 2004 2003 respectively fair value highyield notes based quoted market prices fair value credit facilities based dealer quotations following description summary certain material provisions amended restated charter operating credit facilities public notes collectively “debt agreements” summary restate terms debt agreements entirety describe terms debt agreements instruments governing debt agreements complicated consult agreements instruments detailed information regarding debt agreements charter operating credit facilities general charter operating credit facilities amended restated concurrently sale 15 billion senior secondlien notes april 2004 among things defer maturities increase availability facilities enable charter operating acquire interests lenders cc vi operating cc viii operating falcon credit facilities thereby consolidating credit facilities one amended restated charter operating credit agreement charter operating credit facilities • provide borrowing availability 65 billion • provide two term facilities amounts outstanding charter operating credit facilities bear interest charter operating’s election base rate eurodollar rate defined plus margin eurodollar loans 300 term facility revolving credit facility 325 term b facility base rate loans 200 term facility revolving credit facility 225 term b facility quarterly commitment fee 75 payable average daily unborrowed balance revolving credit facilities obligations subsidiaries charter operating credit facilities “obligations” guaranteed charter operating’s immediate parent company cco holdings subsidiaries charter operating except immaterial subsidiaries precluded guaranteeing reason provisions indebtedness subject “nonguarantor subsidiaries” primarily renaissance subsidiaries obligations also secured lien assets charter operating subsidiaries assets nonguarantor subsidiaries extent lien perfected uniform commercial code filing financing statement ii pledge cco holdings equity interests owned charter operating charter operating’s subsidiaries well intercompany obligations owing entities upon charter holdings leverage ratio defined indenture governing charter holdings senior notes senior discount notes 875 10 charter operating credit facilities require 11875 notes due 2008 issued cc v holdings llc redeemed leverage ratio determined 875 10 march 2005 cc v holdings llc redeemed notes following redemption cc v holdings llc subsidiaries nonguarantor subsidiaries guaranteed obligations granted lien assets lien perfected uniform commercial code filing financing statement charter operating credit facilities restrictive covenants charter operating credit facilities contain representations warranties affirmative negative covenants customary financings type financial covenants measure performance standards set leverage debt service coverage interest coverage tested end quarter maximum allowable leverage ratio 425 10 maturity tested end quarter beginning september 30 2004 additionally charter operating credit facilities contain provisions requiring mandatory loan prepayments specific circumstances including significant amounts assets sold proceeds reinvested assets useful business borrower within specified period upon incurrence certain indebtedness ratio senior first lien debt operating cash flow greater 20 10 charter operating credit facilities permit charter operating subsidiaries make distributions pay interest charter operating senior secondlien notes cch ii senior notes cco holdings senior notes charter convertible senior notes charter holdings senior notes provided among things default occurred continuing charter operating credit facilities conditions future borrowings include absence default event default charter operating credit facilities continued accuracy material respects representations warranties including absence since december 31 2003 event development circumstance could reasonably expected material adverse effect business events default charter operating credit facilities include among things failure make payments due within applicable grace period ii failure comply specified covenants including limited covenant deliver audited financial statements unqualified opinion independent auditors iii failure pay occurrence events cause permit acceleration indebtedness owing cco holdings charter operating charter operating’s subsidiaries amounts excess 50 million aggregate principal amount iv failure pay occurrence events result acceleration indebtedness owing certain cco holdings’ direct indirect parent companies amounts excess 200 million aggregate principal amount v paul allen andor certain family members andor exclusively owned entities collectively “paul allen group” ceasing power directly indirectly vote least 35 ordinary voting power charter operating vi consummation transaction resulting person group paul allen group power directly indirectly vote 35 ordinary voting power charter operating unless paul allen group holds greater share ordinary voting power charter operating vii certain charter operating’s indirect direct parent companies indebtedness excess 500 million aggregate principal amount remains undefeased three months prior final maturity indebtedness viii charter operating ceasing whollyowned direct subsidiary cco holdings except certain limited circumstances outstanding notes cco holdings llc notes 8 34 senior notes due 2013 november 2003 cco holdings cco holdings capital corp jointly issued 500 million total principal amount 834 senior notes due 2013 cco holdings notes general unsecured obligations cco holdings cco holdings capital corp rank equally current future unsubordinated obligations cco holdings cco holdings capital corp cco holdings notes structurally subordinated obligations cco holdings’ subsidiaries including renaissance notes cc v holdings notes charter operating credit facilities charter operating notes interest cco holdings senior notes accrues 834 per year payable semiannually arrears may 15 november 15 time prior november 15 2006 issuers cco holdings senior notes may redeem 35 total principal amount cco holdings senior notes extent public equity proceeds received pro rata basis redemption price equal 10875 principal amount cco holdings senior notes redeemed plus accrued unpaid interest november 15 2008 issuers cco holdings senior notes may redeem part notes redemption price declines ratably initial redemption price 104375 redemption price november 15 2011 1000 principal amount cco holdings senior notes redeemed plus case accrued unpaid interest senior floating rate notes due 2010 december 2004 cco holdings cco holdings capital corp jointly issued 550 million total principal amount senior floating rate notes due 2010 interest cco holdings senior floating rate notes accrues libor rate plus 4125 annually december 15 2004 interest already paid date recently paid interest reset payable quarterly arrears march 15 june 15 september 15 december 15 commencing march 15 2005 time prior december 15 2006 issuers senior floating rate notes may redeem 35 notes amount exceed amount proceeds one public equity offerings redemption price equal 100 principal amount plus premium equal interest rate per annum applicable notes date notice redemption given plus accrued unpaid interest redemption date provided least 65 original aggregate principal amount notes issued remains outstanding redemption issuers senior floating rate notes may redeem notes whole part issuers’ option december 15 2006 december 14 2007 102 principal amount december 15 2007 december 14 2008 101 principal amount december 15 2008 par case plus accrued unpaid interest additional terms cco holdings senior notes senior floating rate notes cco holdings notes general unsecured obligations cco holdings cco holdings capital corp rank equally current future unsubordinated obligations cco holdings cco holdings capital corp cco holdings notes structurally subordinated obligations subsidiaries cco holdings including renaissance notes cc v holdings notes charter operating notes charter operating credit facilities event specified change control events cco holdings must offer purchase outstanding cco holdings senior notes holders purchase price equal 101 total principal amount notes plus accrued unpaid interest indenture governing cco holdings senior notes contains restrictive covenants limit certain transactions activities cco holdings restricted subsidiaries including covenants summarized substantially cco holdings’ direct indirect subsidiaries currently restricted subsidiaries covenant indenture governing cco holdings senior notes restricts incurrence debt issuance preferred stock permits cco holdings subsidiaries incur issue specified amounts debt preferred stock giving pro forma effect incurrence issuance cco holdings could meet leverage ratio consolidated debt four times ebitda defined recent fiscal quarter internal financial reports available 45 10 addition regardless whether leverage ratio could met long default exists would result incurrence issuance cco holdings restricted subsidiaries permitted incur issue • 975 billion debt credit facilities including debt credit facilities outstanding issue date cco holdings senior notes • 75 million debt incurred finance purchase capital lease new assets • 300 million additional debt purpose • items indebtedness specific purposes intercompany debt refinancing existing debt interest rate swaps provide protection fluctuation interest rates restricted subsidiaries cco holdings generally permitted issue debt securities contractually subordinated debt issuing subsidiary preferred stock either case public rule 144a offering cco holdings indenture permits cco holdings restricted subsidiaries incur debt one category later reclassify debt another category charter operating credit facilities generally impose restrictive limitations incurring new debt cco holdings’ indenture subsidiaries subject credit facilities permitted utilize full debt incurrence would otherwise available cco holdings indenture covenants generally cco holdings’ indenture • cco holdings restricted subsidiaries permitted pay dividends equity interests repurchase interests make specified restricted payments cco holdings incur 100 new debt leverage ratio test requires cco holdings meet 45 10 leverage ratio giving effect transaction default exists would exist consequence incurrence conditions met restricted payments total amount 100 cco holdings’ consolidated ebitda defined minus 13 times consolidated interest expense plus 100 new cash appraised noncash equity proceeds received cco holdings allocated debt incurrence covenant cumulatively fiscal quarter commenced october 1 2003 plus 100 million addition cco holdings may make distributions restricted payments long default exists would caused transaction • repurchase management equity interests amounts exceed 10 million per fiscal year • pay regardless existence default passthrough tax liabilities respect ownership equity interests charter holdings restricted subsidiaries • pay regardless existence default interest due charter holdings notes cch ii notes • pay long default interest charter convertible notes • purchase redeem refinance charter holdings notes cch ii notes charter notes direct indirect parent company notes long cco holdings could incur 100 indebtedness 45 10 leverage ratio test referred default • make specified restricted payments including merger fees 125 transaction value repurchases using concurrent new issuances certain dividends existing subsidiary preferred equity interests indenture governing cco holdings senior notes restricts cco holdings restricted subsidiaries making investments except specified permitted investments creating new unrestricted subsidiaries default indenture cco holdings could incur 100 new debt 45 10 leverage ratio test described giving effect transaction permitted investments include • investments cco holdings restricted subsidiaries cco holdings restricted subsidiaries entities become restricted subsidiaries result investment • investments aggregating 100 new cash equity proceeds received cco holdings since november 10 2003 extent proceeds allocated restricted payments covenant described • investments 750 million outstanding time • certain specified additional investments customers suppliers ordinary course business investments received connection permitted asset sales cco holdings permitted grant liens assets specified permitted liens permitted liens include liens securing debt obligations incurred subsidiaries’ credit facilities liens securing purchase price new assets liens securing indebtedness 50 million specified liens incurred ordinary course business lien covenant restrict liens assets subsidiaries cco holdings cco holdings cco holdings capital coissuer generally permitted sell substantially assets merge companies unless leverage ratio transaction would greater leverage ratio immediately prior transaction unless cco holdings subsidiaries could incur 100 new debt 450 10 leverage ratio test described giving effect transaction default exists surviving entity us entity assumes cco holdings senior notes cco holdings restricted subsidiaries may generally otherwise sell assets case restricted subsidiaries issue equity interests unless receive consideration least equal fair market value assets equity interests consisting least 75 cash assumption liabilities securities converted cash within 60 days productive assets cco holdings restricted subsidiaries required within 365 days asset sale either commit use net cash proceeds specified threshold acquire assets including current assets used useful businesses use net cash proceeds repay debt offer repurchase cco holdings senior notes remaining proceeds cco holdings restricted subsidiaries may generally engage sale leaseback transactions unless time transaction cco holdings could incurred secured indebtedness amount equal present value net rental payments made lease sale assets application proceeds permitted covenant restricting asset sales cco holdings’ restricted subsidiaries may generally enter restrictions ability make dividends distributions transfer assets cco holdings terms materially restrictive governing debt lien asset sale lease similar agreements existing entered indentures unless restrictions customary terms materially impair cco holdings’ ability repay notes restricted subsidiaries cco holdings generally permitted guarantee pledge assets secure debt cco holdings unless guaranteeing subsidiary issues guarantee notes comparable priority tenor waives rights reimbursement indemnity subrogation arising guarantee transaction least one year indentures also restrict ability cco holdings restricted subsidiaries enter certain transactions affiliates involving consideration excess 15 million without determination board directors transaction terms less favorable arms length transactions affiliates involving 50 million without receiving independent opinion fairness transaction holders cco holdings notes charter communications operating llc notes april 27 2004 charter operating charter communications operating capital corp jointly issued 11 billion 8 senior secondlien notes due 2012 400 million 8 38 senior secondlien notes due 2014 total gross proceeds 15 billion charter operating notes sold private transaction subject registration requirements securities act 1933 charter operating notes expected benefit exchange registration rights except specified limited circumstances first quarter 2005 result occurrence guarantee pledge date generally upon charter holdings leverage ratio 875 10 cco holdings subsidiaries charter operating currently guarantors otherwise obligors respect indebtedness charter operating credit facilities related obligations provided guarantees charter operating notes note guarantee existing guarantor note guarantee additional future subsidiary guarantor • senior obligation guarantor • structurally senior outstanding senior notes cco holdings cco holdings capital corp except case cco holdings’ note guarantee structurally pari passu senior notes outstanding senior notes cch ii cch ii capital corp outstanding senior notes senior discount notes charter holdings outstanding convertible senior notes charter future indebtedness parent companies cco holdings subject provisions charter operating indenture permit interest subject meeting 425 10 leverage ratio test principal payments made thereon • senior right payment future subordinated indebtedness guarantor subsidiaries charter operating except cco nr sub llc certain subsidiaries deemed material designated nonrecourse subsidiaries charter operating credit facilities restricted subsidiaries charter operating charter operating notes unrestricted subsidiaries generally subject restrictive covenants charter operating indenture event specified change control events charter operating must offer purchase charter operating notes purchase price equal 101 total principal amount charter operating notes repurchased plus accrued unpaid interest thereon limitations incurrence debt contained indenture governing charter operating notes permit charter operating restricted subsidiaries guarantors charter operating notes incur additional debt issue shares preferred stock giving pro forma effect incurrence charter operating could meet leverage ratio test ratio consolidated debt four times ebitda defined recent fiscal quarter internal financial reports available 425 10 addition regardless whether leverage ratio test could met long default exists would result incurrence issuance charter operating restricted subsidiaries permitted incur issue • 65 billion debt credit facilities incurrence permitted charter operating restricted subsidiaries guarantors charter operating notes long guarantors including debt credit facilities outstanding issue date charter operating notes • 75 million debt incurred finance purchase capital lease assets • 300 million additional debt purpose • items indebtedness specific purposes refinancing existing debt interest rate swaps provide protection fluctuation interest rates subject meeting leverage ratio test debt existing time acquisition restricted subsidiary indenture governing charter operating notes permits charter operating incur debt one categories later reclassify debt different category charter operating credit facilities generally impose restrictive limitations incurring new debt charter operating indenture subsidiaries subject charter operating credit facilities permitted utilize full debt incurrence would otherwise available charter operating indenture covenants generally charter operating’s indenture charter operating restricted subsidiaries permitted pay dividends equity interests repurchase interests make specified restricted payments charter operating could incur 100 new debt leverage ratio test requires charter operating meet 425 10 leverage ratio giving effect transaction default exists would exist consequence incurrence conditions met restricted payments permitted total amount 100 charter operating’s consolidated ebitda defined minus 13 times consolidated interest expense plus 100 new cash appraised noncash equity proceeds received charter operating allocated debt incurrence covenant cumulatively fiscal quarter commenced april 1 2004 plus 100 million addition charter operating may make distributions restricted payments long default exists would caused transaction • repurchase management equity interests amounts exceed 10 million per fiscal year • regardless existence default pay passthrough tax liabilities respect ownership equity interests charter operating restricted subsidiaries • pay regardless existence default interest due charter holdings notes cch ii notes cco holdings notes • pay long default interest charter convertible notes • purchase redeem refinance charter holdings notes cch ii notes cco holdings notes charter notes direct indirect parent company notes long charter operating could incur 100 indebtedness 425 10 leverage ratio test referred default • make specified restricted payments including merger fees 125 transaction value repurchases using concurrent new issuances certain dividends existing subsidiary preferred equity interests indenture governing charter operating notes restricts charter operating restricted subsidiaries making investments except specified permitted investments creating new unrestricted subsidiaries default indenture charter operating could incur 100 new debt 425 10 leverage ratio test described giving effect transaction permitted investments include • investments charter operating restricted subsidiaries charter operating restricted subsidiaries entities become restricted subsidiaries result investment • investments aggregating 100 new cash equity proceeds received charter operating since april 27 2004 extent proceeds allocated restricted payments covenant described • investments 750 million outstanding time • certain specified additional investments customers suppliers ordinary course business investments received connection permitted asset sales charter operating restricted subsidiaries permitted grant liens senior liens securing charter operating notes permitted liens assets secure indebtedness obligations giving effect incurrence senior secured leverage ratio generally ratio obligations secured first priority liens four times ebitda defined recent fiscal quarter internal financial reports available would exceed 375 10 permitted liens include liens securing indebtedness obligations permitted credit facilities liens securing purchase price new assets liens securing indebtedness 50 million specified liens incurred ordinary course business charter operating charter communications operating capital corp coissuer generally permitted sell substantially assets merge companies unless leverage ratio transaction would greater leverage ratio immediately prior transaction unless charter operating subsidiaries could incur 100 new debt 425 10 leverage ratio test described giving effect transaction default exists surviving entity us entity assumes charter operating notes charter operating restricted subsidiaries generally may otherwise sell assets case restricted subsidiaries issue equity interests unless receive consideration least equal fair market value assets equity interests consisting least 75 cash assumption liabilities securities converted cash within 60 days productive assets charter operating restricted subsidiaries required within 365 days asset sale either commit use net cash proceeds specified threshold acquire assets including current assets used useful businesses use net cash proceeds repay debt offer repurchase charter operating notes remaining proceeds charter operating restricted subsidiaries may generally engage sale leaseback transactions unless time transaction charter operating could incurred secured indebtedness amount equal present value net rental payments made lease sale assets application proceeds permitted covenant restricting asset sales charter operating’s restricted subsidiaries may generally enter restrictions ability make dividends distributions transfer assets charter operating terms materially restrictive governing debt lien asset sale lease similar agreements existing charter operating entered indenture governing charter operating senior secondlien notes unless restrictions customary terms materially impair charter operating’s ability repay charter operating notes restricted subsidiaries charter operating generally permitted guarantee pledge assets secure debt charter operating unless guaranteeing subsidiary issues guarantee notes comparable priority tenor waives rights reimbursement indemnity subrogation arising guarantee transaction least one year indenture also restricts ability charter operating restricted subsidiaries enter certain transactions affiliates involving consideration excess 15 million without determination board directors transaction terms less favorable arms length transactions affiliates involving 50 million without receiving independent opinion fairness transaction holders charter operating notes charter operating restricted subsidiaries generally permitted transfer equity interests restricted subsidiaries unless transfer equity interests restricted subsidiary restricted subsidiary remains restricted subsidiary net proceeds equity sale applied accordance asset sales covenant since occurrence guarantee pledge date collateral charter operating notes consists charter operating’s subsidiaries’ assets secure obligations charter operating subsidiary charter operating respect charter operating credit facilities related obligations collateral currently consists capital stock charter operating held cco holdings intercompany obligations owing cco holdings charter operating subsidiary charter operating substantially charter operating’s guarantors’ assets cco holdings security interests may perfected uniform commercial code filing financing statement including capital stock intercompany obligations including limited • certain exceptions capital stock limited case capital stock foreign subsidiaries 66 capital stock first tier foreign subsidiaries held charter operating guarantor • certain exceptions intercompany obligations owing charter operating guarantor march 2005 cc v holdings llc redeemed full notes outstanding cc v indenture see “ cc v holdings llc notes” following redemption cc v holdings llc subsidiaries guaranteed charter operating credit facilities related obligations secured guarantees firstpriority liens guaranteed notes secured charter operating senior secondlien notes secondpriority liens substantially assets security interests may perfected uniform commercial code filing financing statement including capital stock intercompany obligations addition charter operating subsidiaries exercise option redeem full notes outstanding renaissance indenture provided leverage condition remains satisfied renaissance entities required provide corresponding guarantees charter operating credit facilities related obligations note guarantees secure charter operating notes charter operating credit facilities related obligations corresponding liens event additional liens granted charter operating subsidiaries secure obligations charter operating credit facilities related obligations secondpriority liens assets granted secure charter operating notes liens subject provisions intercreditor agreement none charter operating affiliates parties notwithstanding foregoing sentence secondpriority liens need provided time lien would otherwise granted guarantee pledge availability period leverage condition satisfied secondpriority liens required provided accordance foregoing sentence prior fifth business day commencement next succeeding guarantee pledge availability period cc v holdings llc notes redeemed march 14 2005 therefore longer outstanding see “business recent events” renaissance media notes 10 senior discount notes due 2008 issued renaissance media louisiana llc renaissance media tennessee llc renaissance media holdings capital corporation renaissance media group llc guarantor united states trust company new york trustee renaissance media group llc direct indirect parent company issuers subsidiary charter operating renaissance 10 notes renaissance guarantee unsecured unsubordinated debt issuers guarantor respectively october 1998 issuers renaissance notes exchanged 163 million original issued outstanding renaissance notes equivalent value new renaissance notes form terms new renaissance notes material respects form terms original renaissance notes except issuance new renaissance notes registered securities act payment interest respect renaissance notes prior october 15 2003 since october 15 2003 interest renaissance notes payable semiannually arrears cash rate 10 per year april 15 2003 renaissance notes became redeemable option issuers thereof whole part initially 105 principal amount maturity plus accrued interest declining 100 principal amount maturity plus accrued interest april 15 2006 acquisition renaissance triggered change control provisions renaissance notes required us offer purchase renaissance notes purchase price equal 101 accreted value date purchase plus accrued interest may 1999 made offer repurchase renaissance notes holders renaissance notes representing 30 total principal amount outstanding maturity tendered renaissance notes repurchase limitations incurrence debt contained indenture governing renaissance notes permit renaissance media group restricted subsidiaries incur additional debt long default indenture • giving effect incurrence renaissance media group could meet leverage ratio consolidated debt four times consolidated ebitda defined recent quarter 675 10 regardless whether leverage ratio could met • greater 200 million 45 times renaissance media group’s consolidated annualized ebitda defined • amount equal 5 renaissance media group’s consolidated total assets finance purchase new assets • two times sum net cash proceeds new equity issuances capital contributions b 80 fair market value property received renaissance media group issuer capital contribution case received issue date renaissance notes allocated make restricted payments • items indebtedness specific purposes intercompany debt refinancing existing debt interest rate swaps provide protection fluctuation interest rates indenture governing renaissance notes permits us incur debt one categories reclassify debt different category indenture governing renaissance notes renaissance media group restricted subsidiaries permitted pay dividends equity interests repurchase interests make restricted investments make specified restricted payments renaissance media group could incur 100 additional debt incurrence test requires renaissance media group meet 675 10 leverage ratio giving effect transaction indebtedness covenant default exists would occur consequence thereof conditions met renaissance media group restricted subsidiaries permitted make restricted payments total amount exceed result 100 renaissance media group’s consolidated ebitda defined minus 130 consolidated interest expense plus 100 new cash equity proceeds received renaissance media group allocated indebtedness covenant plus returns certain investments cumulatively june 1998 renaissance media group restricted subsidiaries may make permitted investments 2 million related businesses specified permitted investments restricted payments 10 million dividends 6 year net cash proceeds public equity offerings specified restricted payments without meeting foregoing test renaissance media group restricted subsidiaries permitted grant liens assets specified permitted liens unless corresponding liens granted secure renaissance notes permitted liens include liens securing debt permitted incurred credit facilities liens securing debt incurred incurrence indebtedness test amounts greater 200 million 45 times renaissance media group’s consolidated ebitda defined liens deposits acquisitions 10 estimated purchase price liens securing permitted financings new assets liens securing debt permitted incurred restricted subsidiaries specified liens incurred ordinary course business renaissance media group issuers renaissance notes generally permitted sell otherwise dispose substantially assets merge companies unless consolidated net worth transaction would greater consolidated net worth immediately prior transaction unless renaissance media group could incur 100 additional debt incurrence test would require meet leverage ratio 675 100 giving effect transaction renaissance media group subsidiaries may generally otherwise sell assets case subsidiaries equity interests unless receive consideration least equal fair market value assets consisting least 75 cash temporary cash investments assumption debt charter holdings restricted subsidiaries required within 12 months asset sale either commit use net cash proceeds specified threshold either acquire assets used related businesses use net cash proceeds repay debt offer repurchase renaissance notes remaining proceeds renaissance media group restricted subsidiaries may generally engage sale leaseback transactions unless lease term exceed three years proceeds applied accordance covenant limiting asset sales renaissance media group’s restricted subsidiaries may generally enter restrictions abilities make dividends distributions transfer assets renaissance media group except restrictive customary comparable financings restricted subsidiaries renaissance media group permitted guarantee pledge assets secure debt renaissance media group restricted subsidiaries unless guaranteeing subsidiary issues guarantee renaissance notes comparable priority tenor waives rights reimbursement indemnity subrogation arising guarantee transaction renaissance media group restricted subsidiaries generally permitted issue sell equity interests restricted subsidiaries except sales common stock restricted subsidiaries long proceeds sale applied accordance asset sale covenant issuances result restricted subsidiary longer restricted subsidiary remaining investment subsidiary permitted covenant limiting restricted payments indenture governing renaissance notes also restricts ability renaissance media group restricted subsidiaries enter certain transactions affiliates involving consideration excess 2 million without determination disinterested members board directors transaction terms less favorable arms length transactions affiliates involving 4 million affiliates without receiving independent opinion fairness transaction renaissance media group covenants subject additional specified exceptions general covenants subsidiaries’ credit agreements restrictive indentures crossdefaults indentures certain subsidiaries include various events default including crossdefault provisions failure issuers restricted subsidiaries pay final maturity thereof principal amount indebtedness principal amount 100 million default indebtedness resulting acceleration would result event default indenture governing applicable notes renaissance indenture contains similar crossdefault provision 10 million threshold applies issuers renaissance notes restricted subsidiaries result event default related failure repay principal maturity acceleration indebtedness charter holdings’ notes cch ii notes cco holding notes charter operating notes charter operating credit facilities renaissance notes could cause crossdefaults subsidiaries’ indentures certain trends uncertainties following discussion highlights number trends uncertainties addition discussed elsewhere annual report documents file sec could materially impact business results operations financial condition restrictive covenants credit facilities subsidiaries indentures governing subsidiaries’ debt contain number significant covenants could adversely affect ability operate business therefore could adversely affect results operations covenants restrict subsidiaries’ ability furthermore credit facilities require us among things maintain specified financial ratios meet specified financial tests provide audited financial statements unqualified opinion independent auditors see “description outstanding debt” details debt covenants ability comply provisions may affected events beyond control breach covenants obligations foregoing indentures credit facilities otherwise waived amended could result default applicable debt agreement instrument could trigger acceleration related debt turn could trigger defaults agreements governing longterm indebtedness addition secured lenders charter operating credit facilities charter operating senior secondlien notes could foreclose collateral includes equity interests subsidiaries exercise rights secured creditors default credit facilities indentures governing subsidiaries’ debt could adversely affect growth financial condition results operations ability make payments notes credit facilities debt subsidiaries information see section entitled “ liquidity capital resources” parent company liquidity concerns parent companies significant amount debt may incur additional debt future december 31 2004 charter approximately 156 million 863 million aggregate principal amount convertible senior notes outstanding mature 2006 2009 respectively charter holdings approximately 89 billion aggregate principal amount senior notes senior discount notes mature 2007 remainder mature 2009 2012 december 31 2004 cch ii outstanding approximately 16 billion senior notes mature 2010 charter holdings cch ii need raise additional capital receive distributions payments us order satisfy debt obligations charter’s ability make interest payments convertible senior notes 2006 2009 repay outstanding principal convertible senior notes depend ability raise additional capital andor receipt payments distributions charter holdco subsidiaries including cch ii cco holdings charter operating indentures governing cch ii notes cco holdings notes charter operating notes however restrict entities subsidiaries making distributions parent companies including charter holdco charter holdings payment principal charter’s convertible senior notes case unless default applicable indenture specified leverage ratio test met time event addition cch ii cco holdings charter operating must independently assess whether payments distributions advisable cch ii cco holdings charter operating meet applicable leverage ratio test respective indentures result prohibited making distributions respective direct parent indentures governing charter holdings notes permit charter holdings make distributions charter holdco payment interest principal convertible senior notes giving effect distribution charter holdings incur additional debt leverage ratio 875 10 default charter holdings’ indentures specified tests met quarter ended december 31 2004 default charter holdings’ indentures specified tests met addition charter holdings met leverage ratio 875 10 based december 31 2004 financial results result distributions charter holdings charter holdco currently restricted distributions restricted however charter holdings fails meet leverage ratio test time event past charter holdings time failed meet leverage ratio test assurance charter holdings satisfy test future charter chose make first quarter 2005 dividend payments preferred stock unable conclude certainty adequate surplus available issuance dividends required delaware law believe nonpayment preferred stock dividend adversely impact charter’s current liquidity charter may need raise additional capital future cannot predict impact nonpayment dividends charter’s ability charter manager financial liquidity problems charter could cause serious disruption business material adverse effect business results operations event could adversely impact credit rating relations customers suppliers could turn impair ability obtain financing operate business extent event results change control charter whether bankruptcy receivership reorganization charter andor charter holdco otherwise could result event default credit facilities would require change control repurchase offer outstanding notes acceleration indebtedness subsidiaries event default credit facilities notes creditors could elect declare amounts borrowed together accrued unpaid interest fees due payable event credit facilities indentures would permit cco holdings’ subsidiaries distribute funds cco holdings pay interest principal notes amounts outstanding credit facilities notes accelerated debt liabilities cco holdings’ subsidiaries would payable subsidiaries’ assets prior distribution subsidiaries’ assets pay interest principal amounts cco holdings’ notes addition lenders credit facilities could foreclose collateral includes equity interests cco holdings’ subsidiaries could exercise rights secured creditors case might able repay make payments notes additionally acceleration payment default credit facilities would cause crossdefault indentures governing cco holdings notes charter operating notes would trigger crossdefault provision charter operating credit agreement default credit facilities notes might adversely affect holders notes growth financial condition results operations could force us examine options including seeking protection bankruptcy laws cco holdings’ notes structurally subordinated liabilities subsidiaries borrowers guarantors charter operating credit facilities senior secondlien notes cco holdings’ indirect subsidiaries cco holdings’ subsidiaries also obligors debt instruments including charter operating coissuer senior secondlien notes andor senior discount notes december 31 2004 total debt approximately 83 billion 72 billion structurally senior cco holdings’ notes liquidation lenders credit facilities holders debt instruments creditors cco holdings’ subsidiaries would right paid holders cco holdings subsidiaries’ assets charter operating credit facilities indentures governing senior notes senior discount notes senior secondlien notes issued subsidiaries cco holdings contain restrictive covenants limit ability subsidiaries make distributions payments cco holdings enable cco holdings make payments notes addition cco holdings caused subsidiary make distribution enable make payments notes transfer deemed fraudulent transfer unlawful distribution holders cco holdings’ notes could required return payment benefit creditors subsidiaries event bankruptcy liquidation dissolution subsidiary following payment subsidiary liabilities subsidiary may sufficient assets remaining make payments us equity holder otherwise may restricted bankruptcy insolvency laws making payments foregoing contractual legal restrictions could limit cco holdings’ ability make payments principal andor interest holders notes securities litigation government investigations number putative federal class action lawsuits filed us district court eastern district missouri charter certain former present officers directors alleging violations securities laws consolidated pretrial purposes addition number shareholder derivative lawsuits filed charter jurisdictions shareholders derivative suit filed us district court eastern district missouri charter current directors also three shareholders derivative suits filed missouri state court charter current directors former independent auditor state court actions consolidated federal shareholders derivative suit consolidated derivative suit alleged defendants breached fiduciary duties charter recently entered stipulations settlement setting forth proposed terms settlement described class actions derivative suits settlement lawsuits remains conditioned upon among things final judicial approval settlements following notice class dismissal prejudice consolidated derivative actions pending missouri state court related federal derivative action additionally portion settlement paid shares charter’s class common stock value 45 million includes shares issuable insurance carriers warrants purchase charter’s class common stock valued 40 million values case determined formulas set forth stipulations settlement price charter’s common stock declines additional shares required order fulfill commitment charter right obligation terminate settlements value common stock abovedescribed formula less 225 see “part ii item 1 legal proceedings” august 2002 charter became aware grand jury investigation conducted us attorney’s office eastern district missouri certain accounting reporting practices focusing reported customer numbers reporting amounts received digital settop terminal suppliers advertising us attorney’s office publicly stated charter target investigation charter also advised us attorney’s office current officer member board directors target investigation july 24 2003 federal grand jury charged four former officers charter conspiracy mail wire fraud alleging improper accounting reporting practices focusing revenue digital settop terminal suppliers inflated customer account numbers indicted former officers pled guilty single conspiracy counts related original mail wire fraud charges awaiting sentencing charter informed us fully cooperating investigation november 4 2002 charter received informal nonpublic inquiry staff sec issued formal order investigation dated january 23 2003 subsequently served document testimony subpoenas charter number former employees investigation subpoenas generally concerned charter’s prior reports respect determination number customers various accounting policies practices including capitalization certain expenses dealings certain vendors including programmers digital settop terminal suppliers july 27 2004 sec charter reached final agreement settle investigation settlement agreement cease desist order charter agreed entry administrative order prohibiting future violations united states securities laws requiring certain remedial internal practices public disclosures charter neither admitted denied wrongdoing sec assessed fine charter moreover due inherent uncertainties litigation investigations due remaining conditions finalization anticipated settlements charter cannot predict certainty ultimate outcome proceedings unfavorable outcome lawsuits government investigation described could result substantial potential liabilities material adverse effect consolidated financial condition results operations liquidity proceedings actions response proceedings could result substantial additional defense costs diversion management’s attention could adversely affect ability execute business financial strategies competition industry operate highly competitive become recent years instances compete companies fewer regulatory burdens easier access financing greater personnel resources greater brand name recognition longestablished relationships regulatory authorities customers increasing consolidation cable industry repeal certain ownership rules may provide additional benefits certain competitors either access financing resources efficiencies scale principal competitor video services throughout territory direct broadcast satellite television services also known dbs competition dbs including intensive marketing efforts aggressive pricing ability dbs provide certain services process developing adverse impact ability retain customers dbs grown rapidly last several years continues cable industry including charter lost significant number subscribers dbs competition face serious challenges area future believe competition dbs service providers may present greater challenges areas lower population density systems may service higher concentration areas major cable service providers local telephone companies electric utilities offer video services competition us increasingly may future certain telephone companies begun extensive deployment fiber networks enable begin providing video services well telephony highbandwidth internet access services residential business customers telephone companies obtained seeking franchises less burdensome existing charter franchises subscription television industry also faces competition free broadcast television communications entertainment media loss customers dbs alternative video data services could material negative impact value business performance respect internet access services face competition including intensive marketing efforts aggressive pricing telephone companies providers “dialup” digital subscriber line technology also known dsl service competitive highspeed data service cable systems telephone companies already telephone lines household existing customer base operational functions place companies offer dsl service addition dbs providers entered joint marketing arrangements internet access providers offer bundled video internet service competes ability provide bundled services customers order attract new customers time make promotional offers including offers temporarily reducedprice free service promotional programs result significant advertising programming operating expenses also require us make capital expenditures acquire additional digital settop terminals customers subscribe services result offerings may remain customers significant period time following end promotional period failure retain existing customers added promotional offerings collect amounts owe us could adverse effect business financial results mergers joint ventures alliances among franchised wireless private cable operators satellite television providers local exchange carriers others repeal certain ownership rules may provide additional benefits competitors either access financing resources efficiencies scale ability provide multiple services direct competition us longterm indebtedness change control payments parent companies may ability raise funds necessary fulfill obligations parent companies’ senior discount notes credit facilities following change control indentures governing parent companies’ notes upon occurrence specified change control events including certain specified dispositions charter’s stock mr allen issuer required offer repurchase outstanding notes however parent companies may sufficient funds time change control event make required repurchase applicable notes issuers limited ability make distributions payments respective parent companies fund required repurchase addition change control credit facilities indentures governing notes would require repayment borrowings credit facilities indentures credit facilities notes obligations cco holdings’ subsidiaries credit facilities notes would repaid cco holdings’ subsidiaries assets could available cco holdings parent companies repurchase cco holdings parents’ notes failure make complete change control offer would place applicable issuer borrower default notes failure cco holdings’ subsidiaries make change control offer repay amounts outstanding credit facilities would place default agreements could result default indentures governing cco holdings’ parent companies’ notes see “ certain trends uncertainties liquidity” variable interest rates december 31 2004 excluding effects hedging approximately 73 debt bears interest variable rates linked shortterm interest rates addition significant portion existing debt assumed debt might arrange future bear interest variable rates interest rates rise costs relative obligations also rise december 31 2004 2003 weighted average interest rate credit facility debt approximately 68 54 weighted average interest rate highyield notes approximately 82 94 resulting blended weighted average interest rate 73 58 respectively approximately 59 debt effectively fixed including effects interest rate hedge agreements december 31 2004 compared approximately 52 december 31 2003 services expect substantial portion nearterm growth achieved revenues highspeed data services digital video bundled service packages lesser extent various commercial services take advantage cable’s broadband capacity may able offer advanced services successfully customers provide adequate customer service advanced services may generate adequate revenues also vendors use services financially viable time may experience disruption service incur costs find alternative vendors addition technology involved product service offerings generally requires permission use intellectual property infringe rights claimed others determined product service utilized infringes rights others may sued precluded using technology increasing programming costs programming expected continue largest operating expense item recent years cable industry experienced rapid escalation cost programming particularly sports programming expect programming costs continue increase variety factors including inflationary negotiated annual increases additional programming provided customers increased costs purchase produce programming inability fully pass programming cost increases customers would adverse impact cash flow operating margins measured programming costs excluding premium services substantially renegotiated renewed 2003 december 31 2004 approximately 10 current programming contracts expired approximately another 34 scheduled expire end 2005 assurance agreements renewed favorable comparable terms programming costs increased approximately 6 2004 expect programming costs 2005 increase higher rate 2004 extent unable reach agreement certain programmers terms believe reasonable may forced remove programming channels lineup could result loss customers addition inability fully pass programming cost increases customers would adverse impact cash flow operating margins notes price volatility market price publicly traded notes likely continue highly volatile expect price securities may fluctuate response various factors including factors described section various factors may beyond control factors beyond control could include financial forecasts securities analysts new conditions trends cable telecommunications industry general economic market conditions specifically conditions related cable telecommunications industry change debt ratings development improved competitive technologies use new products promotions us competitors changes accounting rules interpretations new regulatory legislation adopted united states addition securities market general market cable industry securities particular experienced significant price fluctuations volatility market price companies may often unrelated disproportionate operating performance companies broad market industry factors may seriously harm market price notes regardless operating performance past securities litigation often commenced following periods volatility market price company’s securities several purported class action lawsuits filed charter 2001 2002 following decline stock price economic slowdown global conflict difficult assess impact general economic slowdown global conflict future operations however economic slowdown resulted could continue result reduced spending customers advertisers could reduce revenues also could affect ability collect accounts receivable maintain customers reductions operating revenues would likely negatively affect ability make expected capital expenditures could also result inability meet obligations financing agreements developments could also negative impact financing variable interest rate agreements disruptions market negative market conditions regulation legislation cable system operations extensively regulated federal state local level including rate regulation basic service equipment municipal approval franchise agreements terms franchise requirements upgrade cable plant meet specified customer service standards additional legislation regulation always possible recent calls impose indecency restrictions cable networks cable operators also face significant regulation channel carriage currently required devote substantial capacity carriage programming would carry voluntarily including certain local broadcast signals local public educational government access programming unaffiliated commercial leased access programming carriage burden could increase future particularly cable systems required carry analog digital versions local broadcast signals dual carriage carry multiple program streams included single digital broadcast transmission multicast carriage additional government mandated broadcast carriage obligations could disrupt existing programming commitments interfere preferred use limited channel capacity limit ability offer services would maximize customer appeal revenue potential although fcc issued decision february 10 2005 confirming earlier ruling mandating either dual carriage multicast carriage decision could appealed congress could legislate additional carriage obligations also uncertainty whether local franchising authorities state regulators fcc us congress impose obligations cable operators provide unaffiliated internet service providers regulated access cable plant obligations found lawful could complicate operations general internet operations particular technical marketing standpoint open access obligations could adversely impact profitability discourage system upgrades introduction new products services united states court appeals ninth circuit recently vacated part fcc ruling defining cable modem service “information service” remanded proceedings ninth circuit held cable modem service “cable service” part “telecommunications service” part “information service” decision appealed united states supreme court however reversed decision may lead contribute federal government’s universal service fund comply open access requirements subject highspeed data operations generally common carrier regulations offer advanced services cable system likely face additional calls regulation capacity operation regulations adopted could adversely affect operations interest rate risk use interest rate risk management derivative instruments interest rate swap agreements interest rate collar agreements collectively referred herein interest rate agreements required terms credit facilities subsidiaries policy manage interest costs using mix fixed variable rate debt using interest rate swap agreements agree exchange specified intervals 2007 difference fixed variable interest amounts calculated reference agreedupon notional principal amount interest rate collar agreements used limit exposure derive benefits interest rate fluctuations variable rate debt within certain range rates interest rate risk management agreements held issued speculative trading purposes december 31 2004 2003 outstanding 27 billion 30 billion 20 million 520 million respectively notional amounts interest rate swaps collars respectively notional amounts interest rate instruments represent amounts exchanged parties thus measure exposure credit loss see “item 7a item 7 management’s discussion analysis financial condition results operations reference made “part item 1 business recent developments” describes proposed restructuring “part item 1a risk factors” especially risk factors “risks relating bankruptcy” “cautionary statement regarding forwardlooking statements” describe important factors could cause actual results differ expectations nonhistorical information contained herein addition following discussion read conjunction audited consolidated financial statements cco holdings subsidiaries years ended december 31 2008 2007 2006 overview cco holdings broadband communications company operating united states approximately 55 million customers december 31 2008 cco holdings capital corp whollyowned subsidiary cco holdings formed exists solely coissuer public debt issued cco holdings cco holdings direct subsidiary cch ii indirect subsidiary charter holdings charter holdings indirect subsidiary charter offer customers traditional cable video programming basic digital refer video service highspeed internet access telephone services well advanced broadband services ondemand high definition television service dvr approximately 86 revenues years ended december 31 2008 2007 attributable monthly subscription fees charged customers video highspeed internet telephone commercial services provided cable systems generally customer subscriptions may discontinued customer time remaining 14 revenue fiscal years 2008 2007 derived primarily advertising revenues franchise fee revenues collected us paid local franchising authorities payperview ondemand programming users charged fee individual programs viewed installation reconnection fees charged customers commence reinstate service commissions related sale merchandise home shopping services cable industrys significant competitive challenges stem dbs providers dsl service providers telephone companies either offer making upgrades networks allow offer services provide features functions similar video highspeed internet telephone services also offer bundles similar believe competition dbs telephone companies resulted net video customer losses addition face increasingly limited opportunities upgrade video customer base approximately 62 video customers subscribe digital video service factors contributed decreased growth rates digital video customers similarly competition highspeed internet providers along increasing penetration highspeed internet service homes computers resulted decreased growth rates highspeed internet customers recent past grown revenues offsetting video customer losses price increases sales incremental services highspeed internet ondemand dvr high definition television telephone expect continue grow revenues price increases highspeed internet upgrades increases number customers purchase bundled services including highspeed internet telephone sales incremental services including wireless networking high definition television ondemand dvr services addition expect increase revenues expanding sales services commercial customers however cannot assure able grow revenues historical rates dramatic declines housing market past year including falling home prices increasing foreclosures together significant increases unemployment severely affected consumer confidence may cause increased delinquencies cancellations customers lead unfavorable changes mix products purchased general economic downturn also may affect advertising sales companies seek reduce expenditures conserve cash events may adversely affect cash flow results operations financial condition expenses primarily consist operating costs selling general administrative expenses depreciation amortization expense impairment franchise intangibles interest expense operating costs primarily include programming costs cost workforce cable service related expenses advertising sales costs franchise fees selling general administrative expenses primarily include salaries benefits rent expense billing costs call center costs internal network costs bad debt expense property taxes control costs operations maintaining strict controls expenses specifically focused managing cost structure improving workforce productivity leveraging scale increasing effectiveness purchasing activities year ended december 31 2008 operating loss continuing operations 614 million years ended december 31 2007 2006 income continuing operations 548 million 367 million respectively negative operating margin defined operating loss continuing operations divided revenues 9 year ended december 31 2008 positive operating margins defined operating income continuing operations divided revenues 9 7 years ended december 31 2007 2006 respectively year ended december 31 2008 operating loss continuing operations negative operating margin principally due impairment franchises incurred fourth quarter improvement operating income continuing operations 2007 compared 2006 positive operating margin years ended december 31 2007 2006 principally due increased sales bundled services improved cost efficiencies history net losses net losses principally attributable insufficient revenue cover combination operating expenses interest expenses incur debt depreciation expenses resulting capital investments made continue make cable properties impairment franchise intangibles beginning 2004 continuing 2008 sold several cable systems divest geographically nonstrategic assets allow efficient operations also reducing debt increasing liquidity 2006 2007 2008 closed sale certain cable systems representing total approximately 390300 85100 14100 video customers respectively result sales improved geographic footprint reducing number headends increasing number customers per headend reducing number states majority customers reside also made certain geographically strategic acquisitions 2006 2007 adding 17600 25500 video customers respectively 2006 determined west virginia cable systems part system sales disclosed comprised operations cash flows financial reporting purposes met criteria discontinued operations accordingly results operations west virginia cable systems including gain sale approximately 200 million recorded third quarter 2006 presented discontinued operations net tax year ended december 31 2006 results operations following table sets forth percentages revenues items accompanying consolidated statements operations constituted periods presented dollars millions revenues average monthly revenue per basic video customer measured annual basis increased 93 2007 105 2008 average monthly revenue per video customer represents total annual revenue divided twelve divided average number basic video customers respective period revenue growth primarily reflects increases number telephone highspeed internet digital video customers price increases incremental video revenues ondemand dvr highdefinition television services offset decrease basic video customers cable system sales net acquisitions 2007 2008 reduced increase revenues 2008 compared 2007 approximately 31 million see “part item 1a risk factors risks relating bankruptcy operations subject risks uncertainties bankruptcy” revenues service offering follows dollars millions video revenues consist primarily revenues basic digital video services provided noncommercial customers basic video customers decreased 174200 customers 2008 16700 related asset sales net acquisitions digital video customers increased 213000 customers 2008 increase reduced sale net acquisitions 7600 digital customers increase video revenues attributable following dollars millions highspeed internet customers grew 192700 customers 2008 increase 2008 reduced asset sales net acquisitions 5600 highspeed internet customers increase highspeed internet revenues residential customers attributable following dollars millions revenues telephone services increased 220 million 2008 result increase 389500 telephone customers 2008 offset decrease 10 million related lower average rates commercial revenues consist primarily revenues services provided commercial customers commercial revenues increased primarily result increased sales charter business bundle® primarily small mediumsized businesses increase reduced approximately 2 million result asset sales advertising sales revenues consist primarily revenues commercial advertising customers programmers vendors 2008 advertising sales revenues increased primarily result increases political advertising sales advertising sales vendors offset significant decreases revenues automotive furniture sectors decrease 2 million related asset sales years ended december 31 2008 2007 received 39 million 15 million respectively advertising sales revenues vendors revenues consist franchise fees regulatory fees customer installations home shopping late payment fees wire maintenance fees miscellaneous revenues years ended december 31 2008 2007 franchise fees represented approximately 46 total revenues increase revenues 2008 primarily result increases franchise regulatory fees wire maintenance fees increase reduced approximately 3 million result asset sales operating expenses increase operating expenses attributable following dollars millions programming costs approximately 16 billion 16 billion representing 59 60 total operating expenses years ended december 31 2008 2007 respectively programming costs consist primarily costs paid programmers basic premium digital ondemand payperview programming increase programming costs primarily result annual contractual rate adjustments offset part asset sales customer losses programming costs also offset amortization payments received programmers 33 million 25 million 2008 2007 respectively expect programming expenses continue increase higher rate 2008 due variety factors including amounts paid retransmission consent annual increases imposed programmers additional programming including highdefinition ondemand payperview programming provided customers labor costs increased primarily due increase employee base salary benefits selling general administrative expenses increase selling general administrative expenses attributable following dollars millions depreciation amortization depreciation amortization expense decreased 18 million 2008 decrease depreciation primarily result asset sales certain assets becoming fully depreciated 81 million decrease due impact changes useful lives certain assets 2007 offset depreciation capital expenditures impairment franchises recorded impairment 15 billion 178 million years ended december 31 2008 2007 respectively impairment recorded 2008 largely driven lower expected revenue growth resulting current economic downturn increased competition impairment recorded 2007 largely driven increased competition asset impairment charges asset impairment charges year ended december 31 2007 represents writedown assets related cable asset sales fair value less costs sell see note 4 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” operating income expenses net change operating income expenses net attributable following dollars millions information see note 15 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” interest expense net interest expense increased 42 million 2008 2007 increase net interest expense 2007 2008 result average debt outstanding increasing 94 billion 2007 103 billion 2008 offset decrease average borrowing rate 76 2007 69 2008 change value derivatives interest rate swaps held manage interest costs reduce exposure increases floating interest rates expense change fair value derivatives qualify hedge accounting cash flow hedge ineffectiveness interest rate swap agreements loss change value interest rate swaps increased 46 million 2007 62 million 2008 loss extinguishment debt loss extinguishment debt consists following years ended december 31 2008 2007 information see notes 9 16 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” expense net change expense net attributable following dollars millions information see note 17 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” income tax benefit expense income tax benefit year ended december 31 2008 realized result decreases certain deferred tax liabilities certain indirect subsidiaries attributable writedown franchise assets financial statement purposes tax purposes income tax benefit year ended december 31 2008 included 32 million deferred tax benefit related impairment franchises income tax expense 2007 recognized increases deferred tax liabilities current federal state income tax expenses certain indirect subsidiaries income tax expense year ended december 31 2007 includes 18 million income tax expense previously recorded indirect parent company net loss impact net loss 2008 2007 result asset impairment charges impairment franchises extinguishment debt increase net loss approximately 15 billion 264 million respectively liquidity capital resources introduction section contains discussion liquidity capital resources including discussion cash position sources uses cash access credit facilities financing sources historical financing activities cash needs capital expenditures outstanding debt recent developments restructuring february 12 2009 charter reached agreements principle noteholders holding approximately 41 billion aggregate principal amount notes issued parent companies cch ii pursuant restructuring agreements march 27 2009 parent companies filed voluntary petitions relief chapter 11 united states bankruptcy code implement proposed restructuring pursuant plan aimed improving parent companies’ capital structure proposed restructuring expected funded cash operations notes exchange new debt commitment rights offering charter received backstop commitment certain noteholders addition restructuring agreements noteholders entered commitment letters pursuant agreed exchange andor purchase applicable certain securities charter described detail notes exchange existing holders cch ii notes entitled exchange cch ii notes new cch ii notes cch ii notes exchanged notes exchange paid cash amount equal outstanding principal amount cch ii notes plus accrued unpaid interest bankruptcy petition date plus postpetition interest excluding call premiums prepayment penalties avoidance doubt unmatured interest aggregate principal amount new cch ii notes issued pursuant plan expected approximately 15 billion plus accrued unpaid interest bankruptcy petition date plus postpetition interest excluding call premiums prepayment penalties collectively “target amount” plus additional 85 million commitment letters certain holders cch ii notes committed exchange pursuant notes exchange aggregate approximately 12 billion aggregate principal amount cch ii notes plus accrued unpaid interest bankruptcy petition date plus postpetition interest excluding call premiums prepayment penalties event aggregate principal amount new cch ii notes issued pursuant notes exchange would exceed target amount noteholder participating notes exchange receive pro rata portion target amount new cch ii notes based upon ratio aggregate principal amount cch ii notes tendered notes exchange ii total aggregate principal amount cch ii notes tendered notes exchange participants notes exchange receive commitment fee equal 15 principal amount plus interest cch ii notes exchanged participant notes exchange new debt commitment certain holders cch ii notes committed purchase additional amount new cch ii notes aggregate principal amount 267 million participants new debt commitment receive commitment fee equal greater 30 respective portion new debt commitment ii 083 respective portion new debt commitment month beginning april 1 2009 new debt commitment remains outstanding rights offering charter offer existing holders cch notes accredited investors defined regulation promulgated securities act qualified institutional buyers defined rule 144a securities act rights purchase shares new class common stock charter issued upon parent companies’ emergence bankruptcy exchange cash payment discount equity value charter upon emergence upon emergence bankruptcy charter’s new class common stock expected listed public overthecounter exchange quotation system subject transfer restrictions expected however charter thereafter apply listing charter’s new class common stock nasdaq stock market provided term sheet rights offering expected generate proceeds approximately 16 billion used pay holders cch ii notes participate notes exchange repayment certain amounts relating satisfaction certain swap agreement claims charter operating general corporate purposes commitment letters backstop parties agreed subscribe respective pro rata portions rights offering certain backstop parties addition agreed subscribe pro rata portion rights purchased holders cch notes rights offering “excess backstop” noteholders committed participate excess backstop offered option purchase pro rata portion additional shares charter’s new class common stock price shares new class common stock offered rights offering amount equal 400 million less aggregate dollar amount shares purchased pursuant excess backstop parties receive commitment fee equal 3 respective equity backstop restructuring agreements contemplate upon consummation plan cco holdings’ charter operating’s notes bank debt remain outstanding ii holders notes issued cch ii receive new cch ii notes pursuant notes exchange andor cash iii holders notes issued cch receive shares charter’s new class common stock iv holders notes issued cih receive warrants purchase shares common stock charter v holders notes charter holdings receive warrants purchase shares charter’s new class common stock vi holders convertible notes issued charter receive cash preferred stock issued charter vii holders common stock receive amounts account common stock cancelled viii trade creditors paid full addition part proposed restructuring expected consideration paid holders cch notes entities participating financial restructuring recoveries summarized fully described term sheet pursuant allen agreement settlement rights claims remedies charter subsidiaries addition amounts received virtue holding claims type set forth upon consummation plan mr allen affiliates issued number shares new class b common stock charter aggregate voting power shares new class b common stock shall equal 35 total voting power new capital stock charter share new class b common stock convertible option holder one share new class common stock subject significant restrictions transfer certain holders new class common stock new class b common stock receive certain customary registration rights respect shares upon consummation plan mr allen affiliates also receive warrants purchase shares new class common stock charter aggregate amount equal 4 equity value reorganized charter giving effect rights offering prior issuance warrants equitybased awards provided plan ii 85 million principal amount new cch ii notes iii 25 million cash amounts owing cii management agreement iv 20 million cash reimbursement fees expenses connection proposed restructuring v additional 150 million cash warrants described shall exercise price per share based total equity value equal sum equity value reorganized charter plus gross proceeds rights offering shall expire seven years date issuance addition effective date plan cii retain 1 equity interest reorganized charter holdco right exchange interest new class common stock charter restructuring agreements also contemplate upon emergence bankruptcy holder 10 voting power charter right nominate one member initial board 10 voting power least charter’s current chief executive officer chief operating officer continue positions restructuring agreements require noteholders cast votes favor plan generally support plan contain certain customary restrictions transfer claims noteholders addition restructuring agreements contain agreement parties prior commencement chapter 11 cases performance us parent companies term restructuring agreements would trigger default debt instruments cco holdings charter operating debt remain outstanding performance would deemed unenforceable solely extent necessary avoid default restructuring agreements commitment letters subject certain termination events including among others · commitments set forth respective noteholder’s commitment letter shall expired terminated · charter’s board directors shall advised writing outside counsel continued pursuit plan inconsistent fiduciary duties board directors determines good faith proposal offer third party reasonably likely favorable company proposed term sheet taking account among factors identity third party likelihood proposal offer negotiated finality within reasonable time potential loss company proposal offer accepted consummated b plan longer confirmable feasible · plan subsequent plan filed us bankruptcy court plan supported endorsed us reasonably consistent material respects terms restructuring agreements · disclosure statement order reasonably acceptable charter holders majority cch notes held requisite holders mr allen entered bankruptcy court 50th day following bankruptcy petition date · confirmation order reasonably acceptable charter requisite holders mr allen entered bankruptcy court 130th day following bankruptcy petition date · chapter 11 cases charter converted cases chapter 7 bankruptcy code result conversion plan confirmable · chapter 11 cases charter dismissed result dismissal plan confirmable · order confirming plan reversed appeal vacated · restructuring agreement allen agreement terminated breached material respect subject notice cure provisions allen agreement contains similar provisions restructuring agreements assurance treatment creditors outlined change significantly example proposed restructuring contingent reinstatement credit facilities certain notes charter operating cco holdings failure reinstate debt would require charter revise proposed restructuring moreover reinstatement occur current capital market conditions persist parent companies may able secure adequate new financing cost new financing would likely materially higher proposed restructuring would result reduction charter’s debt approximately 8 billion summary restructuring agreements commitment letters term sheet allen agreement qualified entirety full text restructuring agreements commitment letters term sheet allen agreement copies filed exhibits 101 102 103 104 respectively annual report form 10k incorporated herein reference see “part item 1a risk factors risks relating bankruptcy” recent developments interest payments two parent companies cih charter holdings make january interest payment overdue payment notes indentures overdue payment notes permits 30day grace period interest payments including february 15 2009 february 11 2009 connection commitment letters restructuring agreements charter certain subsidiaries also entered escrow agreement required indentures charter set special record date payment interest payments february 28 2009 escrow agreement adhoc holders agreed deposit escrow account escrow amount escrow agent hold amounts subject terms escrow agreement escrow agreement transactions contemplated restructuring agreements consummated december 15 2009 transactions consummated december 15 2009 due material breach restructuring agreements charter direct indirect subsidiaries adhoc holders entitled receive prorata share escrow amount transactions contemplated restructuring agreements consummated prior december 15 2009 reason material breach restructuring agreements charter direct indirect subsidiaries charter holdings cih designee shall entitled receive escrow amount one charter’s subsidiaries cch ii make scheduled payment interest march 16 2009 certain outstanding senior notes governing indenture notes permits 30day grace period interest payments charter subsidiaries including cch ii filed voluntary chapter 11 bankruptcy prior expiration grace period recent developments charter operating credit facility february 3 2009 charter operating made request administrative agent credit agreement borrow additional revolving loans credit agreement borrowing request complied provisions credit agreement including section 22 “procedure borrowing” thereof february 5 2009 received notice administrative agent asserting one events default defined credit agreement occurred continuing credit agreement response sent letter administrative agent february 9 2009 among things stating event default credit agreement occurred continuing requesting administrative agent rescind notice default fund charter operating’s borrowing request administrative agent sent letter us february 11 2009 stating continues believe one events default occurred continuing result exception one lender funded approximately 04 million lenders credit agreement failed fund charter operating’s borrowing request march 27 2009 jpmorgan chase bank n administrative agent credit agreement filed adversary proceeding bankruptcy court charter operating cco holdings seeking declaration events default credit agreement judgment would prevent charter operating cco holdings reinstating terms provisions credit agreement bankruptcy proceeding although yet answered complaint charter denies allegations made jp morgan intends vigorously contest matter overview debt liquidity significant amounts debt december 31 2008 accreted value total debt approximately 118 billion summarized dollars millions accreted values presented generally represent principal amount notes less original issue discount time sale plus accretion balance sheet date however current accreted value legal purposes notes indenture purposes amount currently payable debt becomes immediately due equal principal amount notes b general obligors right redeem notes set forth table whole part option beginning various times prior stated maturity dates subject certain conditions upon payment outstanding principal amount plus specified redemption premium accrued unpaid interest additional information see note 9 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” 2009 2010 2011 70 million debt matures 2012 beyond significant additional amounts become due remaining longterm debt obligations following table summarizes payment obligations december 31 2008 longterm debt certain contractual obligations commitments dollars millions 1 table presents maturities longterm debt outstanding december 31 2008 refer notes 9 21 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” description longterm debt contractual obligations commitments table include 240 million loans payable related party see note 10 accompanying consolidated financial statements contained “item 8 financial statements supplementary data” 2 interest payments variable debt estimated using amounts outstanding december 31 2008 average implied forward london interbank offering rate libor rates applicable quarter interest rate reset based yield curve effect december 31 2008 actual interest payments differ based actual libor rates actual amounts outstanding applicable periods 3 represents amounts required pay interest rate swap agreements estimated using average implied forward libor applicable rates quarter interest rate reset based yield curve effect december 31 2008 result filing chapter 11 bankruptcy counterparties interest rate swap agreements option terminate underlying contract upon emergence charter bankruptcy receive payment market value interest rate swap agreement measured date contract terminated 4 lease certain facilities equipment noncancelable operating leases rental costs charged expense years ended december 31 2008 2007 24 million 23 million respectively 5 pay programming fees multiyear contracts ranging three ten years typically based flat fee per customer may fixed term may cases escalate term programming costs included accompanying statement operations approximately 16 billion years ended december 31 2008 2007 certain programming agreements based flat fee per month guaranteed minimum payments table sets forth aggregate guaranteed minimum commitments programming contracts 6 “other” represents guaranteed minimum commitments consist primarily commitments billing services vendors following items included contractual obligations table obligations fixed andor determinable due various factors discussed however incur costs part operations · rent utility poles used operations generally pole rentals cancelable short notice anticipate rentals recur rent expense incurred pole rental attachments years ended december 31 2008 2007 47 million · pay franchise fees multiyear franchise agreements based percentage revenues generated video service per year also pay franchise related costs public education grants multiyear agreements franchise fees franchiserelated costs included accompanying statement operations 179 million 172 million years ended december 31 2008 2007 respectively · also 158 million letters credit primarily various worker’s compensation property casualty general liability carriers collateral reimbursement claims letters credit reduce amount may borrow credit facilities business requires significant cash fund debt service costs capital expenditures ongoing operations historically funded requirements cash flows operating activities borrowings credit facilities equity contributions parent companies proceeds sales assets issuances debt securities cash hand however mix funding sources changes period year ended december 31 2008 generated 15 billion net cash flows operating activities paying cash interest 774 million addition used 12 billion purchases property plant equipment finally generated net cash flows financing activities 689 million result financing transactions credit facility borrowings completed year ended december 31 2008 december 31 2008 cash hand 948 million expect mix sources funds continue change future based overall needs relative cash flow availability funds charter operating credit facilities parent companies’ access debt markets charter’s access equity markets timing possible asset sales based ability generate cash flows operating activities consolidated basis parent companies significant level debt totaled approximately 217 billion december 31 2008 fourth quarter 2008 charter operating drew except 27 million amounts available revolving credit facility first quarter 2009 charter operating presented qualifying draw notice banks revolving credit facility refused funds see “part item 1 business recent developments charter operating credit facility” additionally upon filing bankruptcy charter operating longer access revolving credit facility rely cash hand cash flows operating activities fund projected cash needs expect cash hand cash flows operating activities adequate fund projected cash needs pendency expected chapter 11 bankruptcy proceedings projected cash needs projected sources liquidity depend upon among things actual results timing amount expenditures outcome various matters chapter 11 bankruptcy proceedings financial restructuring outcome proposed restructuring subject substantial risks see “part item 1a risk factors risks relating bankruptcy” parent company debt obligations long charter’s convertible senior notes remain outstanding otherwise converted shares common stock charter must pay interest convertible senior notes repay principal amount charter’s ability make interest payments convertible senior notes repay outstanding principal convertible senior notes depend ability raise additional capital andor receipt payments distributions charter holdco subsidiaries december 31 2008 charter holdco owed 13 million intercompany loans charter operating 1 million cash amounts available pay interest principal charter’s convertible senior notes extent otherwise used example satisfy maturities charter holdings addition long charter holdco continues hold 137 million charter holdings’ notes due 2009 2010 discussed charter holdco receive interest principal payments charter holdings extent charter holdings able make payments amounts may available pay interest principal charter’s convertible senior notes although charter holdco may use amounts purposes distributions charter’s subsidiaries parent company payment principal parent company notes restricted indentures governing parent companies’ notes credit facility unless default applicable indenture credit facilities unless applicable subsidiary’s leverage ratio test met time distribution quarter ended december 31 2008 default indentures credit facilities however certain charter’s subsidiaries meet applicable leverage ratio tests based december 31 2008 financial results result distributions certain charter’s subsidiaries parent companies would restricted time continue restricted unless tests met distributions charter operating payment principal parent company notes restricted covenants credit facilities distributions cih cch ii cco holdings charter operating parent company payment parent company interest permitted default aforementioned indentures cco holdings credit facility indentures governing charter holdings notes permit charter holdings make distributions charter holdco payment interest principal charter’s convertible senior notes giving effect distribution charter holdings incur additional debt leverage ratio 875 10 default charter holdings’ indentures specified tests met quarter ended december 31 2008 default charter holdings’ indentures specified tests met charter holdings met leverage ratio test based december 31 2008 financial results distributions would restricted however charter holdings fails meet tests time contemplated distribution past charter holdings time failed meet leverage ratio test assurance charter holdings satisfy tests time contemplated distribution periods distributions restricted indentures governing charter holdings notes permit charter holdings subsidiaries make specified investments restricted payments charter holdco charter amount determined formula long default indentures addition limitation distributions various indentures discussed distributions charter’s subsidiaries including us may limited applicable law including delaware limited liability company act charter’s subsidiaries may make distributions “surplus” defined act uncertain whether sufficient surplus relevant subsidiaries make distributions including payment interest principal debts parents entities see “part item 1a risk factors holding company structure outstanding notes structurally subordinated right payment liabilities subsidiaries restrictions subsidiary’s debt instruments applicable law limit ability provide funds us various debt issuers” historical operating investing financing activities cash equivalents held 948 million cash equivalents december 31 2008 compared 2 million december 31 2007 increase cash result drawdown revolving credit facility operating activities net cash provided operating activities increased 94 million 14 billion year ended december 31 2007 15 billion year ended december 31 2008 primarily result revenue growth highspeed internet telephone driven bundled services well improved cost efficiencies offset increase 37 million interest cash pay obligations changes operating assets liabilities provided 37 million less cash period investing activities net cash used investing activities years ended december 31 2008 2007 12 billion financing activities net cash provided financing activities 689 million year ended december 31 2008 net cash used financing activities 226 million year ended december 31 2007 increase cash provided year ended december 31 2008 compared corresponding period 2007 primarily result increase amount borrowings exceeded repayments longterm debt decrease distributions capital expenditures significant ongoing capital expenditure requirements capital expenditures 12 billion years ended december 31 2008 2007 see table details capital expenditures funded primarily cash flows operating activities issuance debt addition liabilities related capital expenditures decreased 39 million 2 million years ended december 31 2008 2007 respectively 2009 expect capital expenditures approximately 12 billion expect nature expenditures continue composed primarily purchases customer premise equipment related telephone advanced services support capital scalable infrastructure actual amount capital expenditures depends deployment advanced broadband services offerings may need additional capital accelerated growth highspeed internet telephone digital customers increased need respond competitive pressures expanding delivery advanced services adopted capital expenditure disclosure guidance developed eleven publicly traded cable system operators including charter support ncta disclosure intended provide consistency reporting capital expenditures among peer companies cable industry disclosure guidelines required disclosures gaap impact accounting capital expenditures gaap following table presents major capital expenditures categories accordance ncta disclosure guidelines years ended december 31 2008 2007 dollars millions customer premise equipment includes costs incurred customer residence secure new customers revenue units additional bandwidth revenues also includes customer installation costs accordance sfas 51 financial reporting cable television companies customer premise equipment eg settop boxes cable modems etc b scalable infrastructure includes costs related customer premise equipment network secure growth new customers revenue units additional bandwidth revenues provide service enhancements eg headend equipment c line extensions include network costs associated entering new service areas eg fibercoaxial cable amplifiers electronic equipment makeready design engineering upgraderebuild includes costs modify replace existing fibercoaxial cable networks including betterments e support capital includes costs associated replacement enhancement nonnetwork assets due technological physical obsolescence eg nonnetwork equipment land buildings vehicles description outstanding debt overview december 31 2008 2007 total debt approximately 118 billion 99 billion respectively debt comprised approximately 86 billion 72 billion credit facility debt 32 billion 27 billion accreted amount highyield notes december 31 2008 2007 respectively see organizational chart page 5 first table “ liquidity capital resources overview debt liquidity” debt outstanding issuer december 31 2008 2007 blended weighted average interest rate debt 64 73 respectively interest rate approximately 64 68 total principal amount debt effectively fixed including effects interest rate hedge agreements december 31 2008 2007 respectively fair value highyield notes 24 billion 26 billion december 31 2008 2007 respectively fair value credit facilities 62 billion 67 billion december 31 2008 2007 respectively fair value highyield notes based quoted market prices fair value credit facilities based dealer quotations following description summary certain provisions credit facilities notes “debt agreements” summary restate terms debt agreements entirety describe terms debt agreements instruments governing debt agreements complicated consult agreements instruments detailed information regarding debt agreements credit facilities general charter operating credit facilities terms proposed restructuring charter operating credit facilities remain outstanding although revolving line credit would longer available new borrowings charter operating credit facilities provide borrowing availability 80 billion follows • term loan initial total principal amount 65 billion repayable equal quarterly installments commencing march 31 2008 aggregating loan year 1 original amount term loan remaining balance due final maturity march 6 2014 • revolving line credit 15 billion maturity date march 6 2013 charter operating credit facilities also allow us enter incremental term loans future aggregate amount 10 billion amortization set forth notices establishing term loans amortization greater 1 prior final maturity existing term loan march 2008 charter operating borrowed 500 million principal amount incremental term loans “incremental term loans” charter operating credit facilities incremental term loans final maturity march 6 2014 prior date amortize quarterly principal installments totaling 1 annually beginning june 30 2008 incremental term loans bear interest libor plus 50 libor floor 35 otherwise governed subject existing terms charter operating credit facilities net proceeds incremental term loans used general corporate purposes although charter operating credit facilities allow incurrence additional 500 million incremental term loans assurance given could obtain additional incremental term loans future charter operating sought especially filing chapter 11 bankruptcy proceeding march 27 2009 amounts outstanding charter operating credit facilities bear interest charter operating’s election base rate eurodollar rate defined plus margin eurodollar loans 200 revolving credit facility 200 term loan quarterly commitment fees 05 per annum payable average daily unborrowed balance revolving credit facility event default occur bankruptcy filing charter operating would able elect eurodollar rate would pay interest base rate plus applicable margin obligations charter operating charter operating credit facilities “obligations” guaranteed charter operating’s immediate parent company cco holdings subsidiaries charter operating except certain subsidiaries including immaterial subsidiaries precluded guaranteeing reason provisions indebtedness subject “nonguarantor subsidiaries” obligations also secured lien substantially assets charter operating subsidiaries assets nonguarantor subsidiaries extent lien perfected uniform commercial code filing financing statement ii pledge cco holdings equity interests owned charter operating charter operating’s subsidiaries well intercompany obligations owing entities cco holdings credit facility march 2007 cco holdings entered credit agreement “cco holdings credit facility” consists 350 million term loan facility terms proposed restructuring cco holdings credit facility remain outstanding facility matures september 2014 cco holdings credit facility also allows us enter incremental term loans future maturing dates set forth notices establishing term loans earlier maturity date existing term loans however assurance given incremental term loans could obtained cco holdings sought borrowings cco holdings credit facility bear interest variable interest rate based either libor base rate plus either case applicable margin applicable margin libor term loans incremental loans 250 libor event default occur bankruptcy filing cco holdings would able elect eurodollar rate would pay interest base rate plus applicable margin applicable margin respect incremental loans agreed upon cco holdings lenders incremental loans established cco holdings credit facility secured equity interests charter operating proceeds thereof credit facilities restrictive covenants charter operating credit facilities charter operating credit facilities contain representations warranties affirmative negative covenants customary financings type financial covenants measure performance standards set leverage tested end quarter additionally charter operating credit facilities contain provisions requiring mandatory loan prepayments specific circumstances including connection certain sales assets long proceeds reinvested business charter operating credit facilities permit charter operating subsidiaries make distributions pay interest charter convertible notes cchc notes charter holdings notes cih notes cch notes cch ii notes cco holdings notes cco holdings credit facility charter operating secondlien notes provided among things default occurred continuing credit facilities conditions future borrowings include absence default event default credit facilities continued accuracy material respects representations warranties including absence since december 31 2005 event development circumstance could reasonably expected material adverse effect business events default charter operating credit facilities include among things • failure make payments due within applicable grace period • failure comply specified covenants including limited covenant deliver audited financial statements charter operating unqualified opinion independent accountants without “going concern” like qualification exception • failure pay occurrence events cause permit acceleration indebtedness owing cco holdings charter operating charter operating’s subsidiaries amounts excess 100 million aggregate principal amount • failure pay occurrence events result acceleration indebtedness owing certain cco holdings’ direct indirect parent companies amounts excess 200 million aggregate principal amount • paul allen andor certain family members andor exclusively owned entities collectively “paul allen group” ceasing power directly indirectly vote least 35 ordinary voting power charter operating • consummation transaction resulting person group paul allen group power directly indirectly vote 35 ordinary voting power charter operating unless paul allen group holds greater share ordinary voting power charter operating • charter operating ceasing whollyowned direct subsidiary cco holdings except certain limited circumstances cco holdings credit facility cco holdings credit facility contains covenants substantially similar restrictive covenants cco holdings notes except leverage ratio 550 10 see “summary restricted covenants high yield notes” cco holdings credit facility contains provisions requiring mandatory loan prepayments specific circumstances including connection certain sales assets long proceeds reinvested business cco holdings credit facility permits cco holdings subsidiaries make distributions pay interest charter convertible senior notes cchc notes charter holdings notes cih notes cch notes cch ii notes cco holdings notes charter operating secondlien notes provided among things default occurred continuing cco holdings credit facility outstanding notes cco holdings llc notes november 2003 august 2005 cco holdings cco holdings capital corp jointly issued 500 million 300 million respectively total principal amount 8¾ senior notes due 2013 “ccoh 2013 notes” ccoh 2013 notes senior debt obligations cco holdings cco holdings capital corp rank equally current future unsecured unsubordinated obligations cco holdings cco holdings capital corp including cco holdings credit facility ccoh 2013 notes structurally subordinated obligations subsidiaries cco holdings including charter operating notes charter operating credit facilities terms proposed restructuring cco holdings notes remain outstanding charter communications operating llc notes april 2004 charter operating charter communications operating capital corp jointly issued 11 billion 8 senior secondlien notes due 2012 400 million 8 38 senior secondlien notes due 2014 march june 2005 charter operating consummated exchange transactions small number institutional holders charter holdings 825 senior notes due 2007 pursuant charter operating issued private placement transactions approximately 333 million principal amount 8 38 senior secondlien notes due 2014 exchange approximately 346 million charter holdings 825 senior notes due 2007 march 2006 charter operating exchanged 37 million renaissance media group llc 10 senior discount notes due 2008 37 million principal amount charter operating 8 38 senior secondlien notes due 2014 march 2008 charter operating issued 546 million principal amount 10875 senior secondlien notes due 2014 guaranteed cco holdings certain subsidiaries charter operating private transaction net proceeds senior secondlien notes used reduce borrowings commitments revolving portion charter operating credit facilities subject specified limitations cco holdings subsidiaries charter operating guarantors otherwise obligors respect indebtedness charter operating credit facilities related obligations required guarantee charter operating notes note guarantee guarantor · senior obligation guarantor · structurally senior outstanding cco holdings notes except case cco holdings’ note guarantee structurally pari passu senior notes outstanding cch ii notes outstanding cch notes outstanding cih notes outstanding charter holdings notes outstanding charter convertible senior notes · senior right payment future subordinated indebtedness guarantor · effectively senior relevant subsidiary’s unsecured indebtedness extent value collateral subject prior lien credit facilities charter operating notes related note guarantees secured secondpriority lien charter operating’s subsidiaries’ assets secure obligations charter operating subsidiary charter operating respect charter operating credit facilities related obligations collateral currently consists capital stock charter operating held cco holdings intercompany obligations owing cco holdings charter operating subsidiary charter operating substantially charter operating’s guarantors’ assets cco holdings security interests may perfected uniform commercial code filing financing statement including capital stock intercompany obligations including limited · certain exceptions capital stock limited case capital stock foreign subsidiaries 66 capital stock first tier foreign subsidiaries held charter operating guarantor · certain exceptions intercompany obligations owing charter operating guarantor event additional liens granted charter operating subsidiaries secure obligations charter operating credit facilities related obligations second priority liens assets granted secure charter operating notes liens subject provisions intercreditor agreement none charter operating affiliates parties notwithstanding foregoing sentence second priority liens need provided time lien would otherwise granted guarantee pledge availability period leverage condition satisfied second priority liens required provided accordance foregoing sentence prior fifth business day commencement next succeeding guarantee pledge availability period charter operating notes senior debt obligations charter operating charter communications operating capital corp extent value collateral subject prior lien credit facilities rank effectively senior charter operating’s future unsecured senior indebtedness terms proposed restructuring charter operating notes remain outstanding redemption provisions high yield notes various notes issued us subsidiaries included table may redeemed accordance following table redeemable maturity indicated charter operating may time option redeem outstanding 8 second lien notes due 2012 whole part redemption price equal 100 principal amount thereof plus accrued unpaid interest redemption date plus makewhole premium makewhole premium amount equal excess present value remaining interest principal payments due 8 senior secondlien notes due 2012 final maturity date computed using discount rate equal treasury rate date plus 050 b outstanding principal amount note charter operating may redeem outstanding 10875 second lien notes due 2014 option varying dates case premium plus makewhole premium makewhole premium amount equal excess present value remaining interest principal payments due 10875 senior secondlien note due 2014 final maturity date computed using discount rate equal treasury rate date plus 050 b outstanding principal amount note charter operating 10875 senior secondlien notes may redeemed time march 15 2012 specified prices event specified change control event occurs respective issuers notes must offer repurchase outstanding notes 101 principal amount accrued value applicable plus accrued unpaid interest summary restrictive covenants high yield notes following description summary certain restrictions debt agreements summary restate terms debt agreements entirety describe restrictions debt agreements instruments governing debt agreements complicated consult agreements instruments detailed information regarding debt agreements notes issued cco holdings charter operating together “note issuers” issued pursuant indentures contain covenants restrict ability note issuers subsidiaries among things · incur indebtedness · pay dividends make distributions respect capital stock restricted payments · issue equity · make investments · create liens · sell assets · consolidate merge sell substantially assets · enter sale leaseback transactions · create restrictions ability restricted subsidiaries make certain payments · enter transactions affiliates however covenants subject number important qualifications exceptions set forth brief summary certain restrictive covenants restrictions additional debt limitations incurrence debt issuance preferred stock contained various indentures permit respective notes issuers restricted subsidiaries incur additional debt issue preferred stock long giving pro forma effect incurrence leverage ratio would specified level note issuers follows addition regardless whether leverage ratio could met long default exists would result incurrence issuance issuer restricted subsidiaries permitted issue among permitted indebtedness · amount debt credit facilities otherwise allocated indicated · cco holdings 975 billion · charter operating 68 billion · 75 million debt incurred finance purchase capital lease new assets · 300 million additional debt purpose · items indebtedness specific purposes intercompany debt refinancing existing debt interest rate swaps provide protection fluctuation interest rates indebtedness single facility agreement may incurred part one categories listed part another generally may also later reclassified another category including debt incurred leverage ratio accordingly indebtedness credit facilities incurred combination categories permitted indebtedness listed restricted subsidiaries note issuers generally permitted issue subordinated debt securities restrictions distributions generally various indentures note issuers respective restricted subsidiaries permitted pay dividends repurchase equity interests make specified restricted payments applicable issuer incur 100 new debt applicable leverage ratio test giving effect transaction default exists would exist consequence incurrence conditions met restricted payments may made total amount following amounts applicable issuer indicated · cco holdings sum 100 cco holdings’ consolidated ebitda defined minus 13 times consolidated interest expense defined plus 100 new cash appraised noncash equity proceeds received cco holdings allocated certain investments cumulatively october 1 2003 plus 100 million · charter operating sum 100 charter operating’s consolidated ebitda defined minus 13 times consolidated interest expense defined plus 100 new cash appraised noncash equity proceeds received charter operating allocated certain investments cumulatively april 1 2004 plus 100 million addition note issuers may make distributions restricted payments long default exists would caused transactions among distributions restricted payments · repurchase management equity interests amounts exceed 10 million per fiscal year · regardless existence default pay passthrough tax liabilities respect ownership equity interests applicable issuer restricted subsidiaries · make specified restricted payments including merger fees 125 transaction value repurchases using concurrent new issuances certain dividends existing subsidiary preferred equity interests cco holdings charter operating respective restricted subsidiaries may make distributions restricted payments long certain defaults exist even applicable leverage test referred met enable certain parents pay interest certain indebtedness ii long applicable issuer could incur 100 indebtedness applicable leverage ratio test referred enable certain parents purchase redeem refinance certain indebtedness restrictions investments note issuers respective restricted subsidiaries may make investments except permitted investments ii giving effect transaction leverage would applicable leverage ratio permitted investments include among others · investments generally among restricted subsidiaries restricted subsidiaries applicable issuer · cco holdings · investments aggregating 750 million time outstanding · investments aggregating 100 new cash equity proceeds received cco holdings since november 10 2003 extent proceeds allocated restricted payments covenant · charter operating · investments aggregating 750 million time outstanding · investments aggregating 100 new cash equity proceeds received cco holdings since april 27 2004 extent proceeds allocated restricted payments covenant restrictions liens charter operating restricted subsidiaries permitted grant liens senior liens securing charter operating notes permitted liens assets secure indebtedness obligations giving effect incurrence senior secured leverage ratio generally ratio obligations secured first priority liens four times ebitda defined recent fiscal quarter internal financial reports available would exceed 375 10 restrictions liens note issuers applies liens assets issuers restrict liens assets subsidiaries respect note issuers permitted liens include liens securing indebtedness obligations credit facilities subject specified limitations case charter operating liens securing purchase price financed new assets liens securing indebtedness 50 million specified liens restrictions sale assets mergers note issuers generally permitted sell substantially assets merge companies unless leverage ratio transaction would greater leverage ratio immediately prior transaction unless giving effect transaction leverage would applicable leverage ratio applicable issuer default exists surviving entity us entity assumes applicable notes note issuers restricted subsidiaries may generally otherwise sell assets case restricted subsidiaries issue equity interests excess 100 million unless receive consideration least equal fair market value assets equity interests consisting least 75 cash assumption liabilities securities converted cash within 60 days productive assets note issuers restricted subsidiaries required within 365 days asset sale either use commit use net cash proceeds specified threshold acquire assets used useful businesses use net cash proceeds repay specified debt offer repurchase issuer’s notes remaining proceeds restrictions sale leaseback transactions note issuers restricted subsidiaries may generally engage sale leaseback transactions unless time transaction applicable issuer could incurred secured indebtedness leverage ratio test amount equal present value net rental payments made lease sale assets application proceeds permitted covenant restricting asset sales prohibitions restricting dividends note issuers’ restricted subsidiaries may generally enter arrangements involving restrictions ability make dividends distributions transfer assets applicable note issuer unless restrictions respect financing arrangements terms restrictive governing credit facilities existing entered applicable indentures materially restrictive customary terms comparable financings materially impair applicable note issuers’ ability make payments notes affiliate transactions indentures also restrict ability note issuers restricted subsidiaries enter certain transactions affiliates involving consideration excess 15 million without determination board directors applicable note issuer transaction complies covenant transactions affiliates involving 50 million without receiving opinion fairness holders transaction financial point view issued accounting appraisal investment banking firm national standing cross acceleration indentures certain parent companies subsidiaries include various events default including cross acceleration provisions failure issuers restricted subsidiaries pay final maturity thereof principal amount indebtedness principal amount 100 million default indebtedness resulting acceleration would result event default indenture governing applicable notes result event default related failure repay principal maturity acceleration indebtedness charter holdings notes cih notes cch notes cch ii notes cco holdings notes charter operating notes charter operating credit facilities could cause crossdefaults parent companies’ indentures recently issued accounting standards december 2007 fasb issued sfas 141r business combinations applying acquisition method provides guidance accounting reporting business combinations sfas 141r effective fiscal years beginning december 15 2008 adopt sfas 141r effective january 1 2009 expect adoption sfas 141r material impact financial statements december 2007 fasb issued sfas 160 consolidations provides guidance accounting reporting minority interests consolidated financial statements sfas 160 requires losses allocated noncontrolling minority interests even amounts deficits future losses allocated charter holdco noncontrolling interest sfas 160 effective fiscal years beginning december 15 2008 adopt sfas 160 effective january 1 2009 expect adoption sfas 160 material impact financial statements february 2008 fasb issued fasb staff position fsp 1572 effective date fasb statement 157 deferred effective date sfas 157 fiscal years beginning november 15 2008 nonfinancial assets nonfinancial liabilities apply sfas 157 nonfinancial assets nonfinancial liabilities beginning january 1 2009 process assessing impact sfas 157 financial statements march 2008 fasb issued sfas 161 disclosures derivative instruments hedging activities amendment fasb statement 133 requires companies disclose objectives strategies using derivative instruments whether designated hedging instruments sfas 133 sfas 161 effective interim periods fiscal years beginning november 15 2008 adopt sfas 161 effective january 1 2009 expect adoption sfas 161 material impact financial statements april 2008 fasb issued fsp fas 1423 determination useful life intangible assets amends factors considered renewal extension assumptions used determine useful life recognized intangible asset fsp fas 1423 effective interim periods fiscal years beginning december 15 2008 adopt fsp fas 1423 effective january 1 2009 expect adoption fsp fas 1423 material impact financial statements may 2008 fasb issued fsp apb 141 accounting convertible debt instruments may settled cash upon conversion including partial cash settlement specifies issuers convertible debt instruments may settled cash upon conversion separately account liability equity components manner reflecting nonconvertible debt borrowing rate interest costs recognized subsequent periods fsp apb 141 effective interim periods fiscal years beginning december 15 2008 adopt fsp apb 141 effective january 1 2009 expect adoption fsp apb 141 material impact financial statements believe recently issued yet effective accounting pronouncements adopted would material effect accompanying financial statements item 7a item 7 management’s discussion analysis financial condition results operations reference made “part item 1a risk factors” “cautionary statement regarding forwardlooking statements” describe important factors could cause actual results differ expectations nonhistorical information contained herein addition following discussion read conjunction audited consolidated financial statements accompanying notes thereto cco holdings included “part ii item 8 financial statements supplementary data” overview leading broadband connectivity company cable operator serving 31 million customers 41 states spectrum brand advanced highcapacity twoway telecommunications network offer full range stateoftheart residential business services including spectrum internet tv mobile voice small mediumsized companies spectrum business delivers suite broadband products services coupled special features applications enhance productivity larger businesses government entities spectrum enterprise provides highly customized fiberbased solutions spectrum reach delivers tailored advertising production modern media landscape also distribute awardwinning news coverage sports highquality original programming customers spectrum networks spectrum originals see “part item 1 business products services” description services including customer statistics different services covid19 pandemic measures taken prevent spread impacted business presented significant challenges throughout 2020 reduce transmission covid19 federal state local governments implemented wide range restrictions business individual activities including closures limitations operations businesses along restrictions large gatherings travel actions promote enforce physical distancing despite restrictions continued deliver services uninterrupted across footprint pandemic significantly impacted customers use products services interact us employees work provide services customers impacts covid19 significantly impacted results operations year ended december 31 2020 expect continue impacts 2021 •beginning march 2020 offered customers set programs including remote education offer “reo” pursuant new customers students educators household eligible receive internet service free 60 days keep americans connected “kac” pledge paused collection efforts related disconnects residential small medium business “smb” customers covid19 related payment challenges june 30 2020 programs resulted higher customer net additions 2020 prior year retention rates customers similar average customer base effort assist covid19 impacted customers overdue balances end kac certain statemandated programs waived approximately 102 million receivables recorded reduction revenue •the interruption professional sports seasons resulted 163 million lower programming expenses result estimated sports rebates sports programming networks result canceled sporting events 217 million reduction regulatory connectivity produced content costs result shortened 2020 baseball season delay start 20202021 basketball season push expense otherwise would recognized 2020 2021 beyond third quarter 2020 recognized 218 million estimated credits intend provide customers invoices related rebates received sports programming networks difference estimated credits estimated rebates due expected reduction sports rights content costs amortized life contract •economic conditions temporary closures reductions operations businesses resulted reduced advertising spend lower revenues seasonal plans offered smb enterprise hospitality customers requested reduced level service due temporary business closure customers reduced service offering customers seasonal plan despite economic conditions saw improved collections residential customer receivables believe enhanced government stimulus benefits expect bad debt expense churn 2021 return prepandemic levels •we increased wages hourly field operations customer service call center employees gave employees additional paid sick time covid19related illnesses flex time program address covid19 issues also committed raise minimum starting wage hourly employees 20 hour next 2 years •through accelerated network capacity increases able respond significant increase data demands network enable social distancing telecommuting elearning usage internetonly customers averaging 600 gigabytes per month nearly 20 end 2019 •wifi access points opened across footprint public use •requests government healthcare educational institutions new fiber connections bandwidth upgrades new services prioritized •we invested significantly selfservice infrastructure customers accelerated adoption digital selfservice capabilities selfinstallation program nearly 80 installations using program •a significant portion workforce temporarily moved remote work arrangements •we enhanced safety protocols field employees working outside home •we offered public access spectrum news websites ensure people access highquality local news information donated significant airtime run public service announcements entire footprint ability successfully operate business deliver services covid19 pandemic result investments made network employees systems operating investment strategy allowed us sustain accelerate customer financial growth pandemic cannot predict ultimate impact covid19 business including depth duration economic impact household formation growth residential business customers’ ability pay products services including impact extended unemployment benefits stimulus packages longterm impact business including consumer behavior pandemic covid19 programs discussed may result incremental churn bad debt 2021 may accelerated demand 2020 addition uncertainty regarding impact government emergency declarations ability suppliers vendors provide products services us pace new housing construction changes business spend local national ad sales business effects employees’ health safety resulting reorientation work activities risk limitations deployment maintenance services including limiting customer support onsite service repairs installations although ultimate impact covid19 pandemic cannot predicted remain focused driving customer relationship growth deploying superior products services packaged attractive pricing expect continue drive customer relationship growth sales bundled services improving customer retention despite expectation continued losses video wireline voice customers spectrum mobile service offered customers subscribing internet service runs verizons mobile network combined spectrum wifi 2020 launched 5g service offerings refreshed device offerings new 5g models expect contribute continued growth mobile business spectrum mobile byod program lowers cost consumers switching mobile carriers reduces shortterm working capital impact selling new mobile devices installment plans also continue explore ways drive even mobile traffic network october 2020 purchased approximately 464 million cbrs pals intend use licenses along unlicensed cbrs spectrum build 5g mobile network plan use combination mvno wifi network enhance customer’s experience improve cost structure believe spectrumbranded mobile services drive higher sales core products create longer customer lives increase profitability cash flow time result growth costs associated new mobile product line cannot certain able grow revenues maintain margins recent historical rates years ended december 31 2020 2019 mobile product line increased revenues 14 billion 726 million respectively reduced adjusted ebitda approximately 401 million 520 million respectively reduced free cash flow approximately 11 billion 12 billion respectively continue grow mobile services expect mobile adjusted ebitda continue negative throughout 2021 primarily result growthrelated sales marketing customer acquisition costs also expect continue see negative free cash flow timing devicerelated cash flows sell handset tablet customers pursuant equipment installment plans capital expenditures related retail store buildouts realized revenue adjusted ebitda income operations periods presented follows millions percentages calculated using whole numbers minor differences may exist due rounding adjusted ebitda defined net income attributable cco holdings member plus net income attributable noncontrolling interest net interest expense income taxes depreciation amortization stock compensation expense loss extinguishment debt gain loss financial instruments net pension benefits costs net income expense net operating income expenses net merger restructuring costs special charges gain loss sale retirement assets see “use adjusted ebitda free cash flow” information adjusted ebitda free cash flow growth total revenue primarily due growth residential internet mobile customers adjusted ebitda income operations growth impacted growth revenue increases operating costs expenses primarily mobile costs service customers programming offset lower sports rights content costs result shortened 2020 baseball season delayed start 20202021 basketball season income operations also affected decrease depreciation amortization expense approximately 91 revenues years ended december 31 2020 2019 attributable monthly subscription fees charged customers internet video voice mobile commercial services well regional sports news channels generally customer subscriptions may discontinued customer time subject fee certain commercial customers remaining 9 revenue derived primarily advertising revenues franchise regulatory fee revenues collected us paid local authorities sales mobile video devices processing fees reconnection fees charged customers commence reinstate service installation vod payperview programming commissions related sale merchandise home shopping services critical accounting policies estimates certain accounting policies require management make difficult subjective andor complex judgments management discussed policies audit committee charter’s board directors audit committee reviewed following disclosure consider following policies critical understanding estimates assumptions judgments involved preparing financial statements uncertainties could affect results operations financial condition cash flows •capitalization labor overhead costs •valuation impairment franchises goodwill •income taxes •defined benefit pension plans capitalization labor overhead costs associated network construction upgrades placement customer drop dwelling placement outlets within dwelling along costs associated deployment new customer premise equipment necessary provide internet video voice services capitalized costs capitalized include materials direct labor certain indirect costs indirect costs associated activities personnel assist installation activities consist compensation overhead costs associated support functions capitalization based specific activities capitalized track costs composite basis fixed asset category cable system level specific asset basis assets sold retired remove estimated applicable cost accumulated depreciation costs disconnecting service removing customer premise equipment dwelling costs reconnect customer drop redeploy previously installed customer premise equipment charged operating expense incurred costs repairs maintenance charged operating expense incurred plant equipment replacement including replacement certain components betterments replacement cable drops outlets capitalized make judgments regarding installation construction activities capitalized direct labor overhead 16 billion years ended december 31 2020 2019 capitalize direct labor overhead using standards developed actual costs applicable operational data calculate standards annually frequently circumstances dictate items labor rates overhead rates actual amount time required perform capitalizable activity example standard amounts time required perform capitalizable activities based studies time required perform activities overhead rates established based analysis nature costs incurred support capitalizable activities determination portion costs directly attributable capitalizable activities impact changes resulted studies material periods presented labor costs directly associated capital projects capitalized capitalizable activities performed connection installations include activities •dispatching “truck roll” customer’s dwelling business service connection placement new equipment •costs package ship new equipment customers home selfinstallation •verification serviceability customer’s dwelling business ie determining whether customer’s dwelling capable receiving service cable network •customer premise activities performed inhouse field technicians thirdparty contractors connection installation replacement betterment equipment materials enable internet video voice services •verifying integrity customer’s network connection initiating test signals downstream headend customer premise equipment well testing signal levels utility pole pedestal judgment required determine extent overhead costs incurred result specific capital activities therefore capitalized primary costs included determination overhead rate employee benefits payroll taxes associated capitalized direct labor ii direct variable costs associated capitalizable activities iii cost support personnel care personnel dispatchers assist capitalizable installation activities iv indirect costs directly attributable capitalizable activities believe existing capitalization policies appropriate significant change nature extent operating practices could affect management’s judgment extent capitalize direct labor overhead future monitor appropriateness capitalization policies perform updates internal studies ongoing basis determine whether facts circumstances warrant change capitalization policies valuation impairment franchises net carrying value franchises december 31 2020 2019 approximately 673 billion representing 47 46 total assets respectively franchise assets aggregated essentially inseparable units accounting conduct valuations units accounting generally represent geographical clustering cable systems groups information complete discussion value test franchise assets impairment see note 5 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” perform impairment assessment franchise assets annually frequently warranted events changes circumstances performed qualitative assessment 2020 assessment included consideration multitude factors affect fair value franchise assets examples factors include environmental competitive changes within operating footprint actual projected operating performance consistency operating margins equity debt market trends including changes market capitalization changes regulatory political landscape among factors based assessment concluded likely estimated fair values franchise assets equals exceeds carrying values quantitative impairment test required valuation impairment goodwill net carrying value goodwill december 31 2020 2019 approximately 296 billion representing 21 20 total assets respectively determined one reporting unit purposes assessment goodwill impairment information complete discussion test goodwill impairment see note 5 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” perform impairment assessment goodwill annually november 30 franchise impairment testing elected perform qualitative assessment goodwill 2020 given completion assessment absence significant adverse changes factors impacting fair value estimates concluded likely goodwill impaired defined benefit pension plans sponsor qualified unqualified defined benefit pension plans provide pension benefits majority employees employed twc merger twc december 31 2020 accumulated benefit obligation fair value plan assets 37 billion 35 billion respectively net underfunded liability recorded 1 million noncurrent asset 5 million current liability 222 million longterm liability december 31 2019 accumulated benefit obligation fair value plan assets 34 billion 32 billion respectively net underfunded liability recorded 1 million noncurrent asset 4 million current liability 160 million longterm liability pension benefits based formulas reflect employees’ years service compensation employment period actuarial gains losses changes amount either benefit obligation fair value plan assets resulting experience different assumed changes assumptions elected follow marktomarket pension accounting policy recording actuarial gains losses annually fourth quarter earlier remeasurement event occurs interim period use december 31 measurement date pension plans recognized net periodic pension costs 66 million 69 million 2020 2019 respectively net periodic pension benefit expense determined using certain assumptions including expected longterm rate return plan assets discount rate mortality assumptions determined discount rate used compute pension expense based yield large population highquality corporate bonds cash flows sufficient timing amount settle projected future defined benefit payments developing expected longterm rate return assets considered current pension portfolio’s composition past average rate earnings asset allocation targets used discount rate 270 determine december 31 2020 pension plan benefit obligation decrease discount rate 25 basis points would result 153 million increase pension plan benefit obligation december 31 2020 net periodic pension expense recognized 2020 marktomarket accounting policy expected longterm rate return plan assets used determine net periodic pension benefit year ended december 31 2021 expected 500 decrease expected longterm rate return 25 basis points 475 holding assumptions constant would result increase 2021 net periodic pension expense approximately 8 million see note 20 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” additional discussion assumptions results operations discussion changes results operations year ended december 31 2019 compared year ended december 31 2018 omitted annual report form 10k may found “item 7 management’s discussion analysis financial condition results operations” annual report form 10k year ended december 31 2019 filed sec february 7 2020 available free charge secs website wwwsecgov charters investor relations website irchartercom following table sets forth consolidated statements operations periods presented dollars millions revenues total revenues grew 23 billion 51 year ended december 31 2020 compared 2019 primarily due increases number residential internet mobile customers price adjustments higher political advertising sales offset lower local advertising revenues result covid19 218 million estimated customer credits issued video customers due canceled sporting events 102 million waived receivables related kac certain statemandated programs revenues service offering follows dollars millions percentages calculated using whole numbers minor differences may exist due rounding increase internet revenues residential customers attributable following dollars millions residential internet customers grew 2115000 2020 compared 2019 increase related rate product mix allocation changes primarily due price adjustments including promotional rolloff offset 34 million reduction related kac certain statemandated program credits video revenues consist primarily revenues basic digital video services provided residential customers well franchise fees equipment service fees video installation revenue decrease video revenues attributable following dollars millions recorded 218 million estimated customer credits related canceled sporting events year ended december 31 2020 59 million customer credits related kac certain statemandated programs increase related rate product mix allocation changes primarily due price adjustments including annual increases promotional rolloff partly offset higher mix lower cost video packages within video customer base residential video customers increased 19000 2020 compared 2019 decrease voice revenues residential customers attributable following dollars millions residential wireline voice customers decreased 228000 2020 compared 2019 decrease related rate product mix allocation changes primarily due valuebased pricing 4 million reduction related kac certain statemandated program credits increase smb commercial revenues attributable following dollars millions smb customers increased 93000 2020 compared 2019 decrease related rate product mix changes year ended december 31 2020 compared 2019 included reductions 36 million related covid19 programs enterprise revenues decreased 88 million year ended december 31 2020 compared corresponding period 2019 primarily due sale nonstrategic assets third quarter 2019 reduction 18 million related covid19 enterprise hospitality seasonal program enterprise psus increased 7000 2020 compared 2019 advertising sales revenues consist primarily revenues commercial advertising customers programmers vendors well local cable advertising regional sports news channels advertising sales revenues increased 131 million year ended december 31 2020 compared corresponding period 2019 primarily due increase political revenue partially offset decrease local advertising revenues due covid19 years ended december 31 2020 2019 mobile revenues included approximately 658 million 488 million device revenues respectively approximately 706 million 238 million service revenues respectively increases revenues result increases number lines 1082000 december 31 2019 2375000 december 31 2020 revenues consist revenue regional sports news channels excluding intercompany charges advertising sales channels home shopping late payment fees video device sales wire maintenance fees miscellaneous revenues decrease year ended december 31 2020 compared corresponding period 2019 primarily due decrease late payment fees home security revenue offset increase sale video devices regional sports news revenue operating costs expenses increase operating costs expenses exclusive items shown separately consolidated statements operations attributable following dollars millions programming costs approximately 114 billion 113 billion representing 38 39 operating costs expenses years ended december 31 2020 2019 respectively programming costs consist primarily costs paid programmers basic digital premium video demand payperview programming costs increased 2020 result contractual rate adjustments including renewals increases amounts paid retransmission consent well increase video customers increase offset 163 million estimated rebates sports programming networks result canceled sporting events due covid19 benefited higher mix lower cost video packages within video customer base expect programming rates per customer continue increase due variety factors including annual increases imposed programmers additional selling power result media broadcast station groups consolidation increased demands owners broadcast stations payment retransmission consent linking carriage services retransmission consent additional programming particularly new services unable fully pass increases customers expect able future without potential loss customers regulatory connectivity produced content decreased 183 million year ended december 31 2020 compared corresponding period 2019 primarily due deferred sports rights costs associated shortened 2020 baseball season delayed start 20202021 basketball season result covid19 costs service customers increased 195 million year ended december 31 2020 compared corresponding period 2019 primarily due higher labor costs resulting covid19 related wage increases flex time benefits along 65 customer growth offset decrease bad debt expense given revenue writeoff associated kac program better collections enhanced government stimulus benefits mobile costs 18 billion 12 billion years ended december 31 2020 2019 respectively comprised mobile device costs mobile service customer acquisition operating costs increase expense attributable following dollars millions corporate costs increased primarily due higher personnel costs enterprise costs decreased primarily due sale nonstrategic assets third quarter 2019 depreciation amortization depreciation amortization expense decreased 226 million year ended december 31 2020 compared corresponding period 2019 primarily due decrease depreciation amortization certain assets acquired acquisitions become fully depreciated offset increase depreciation result recent capital expenditures operating expenses net decrease operating expenses net attributable following dollars millions gain sale assets net year ended december 31 2020 compared loss sale assets 2019 primarily due 42 million impairment nonstrategic assets incurred 2019 information see note 14 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” interest expense net interest expense increased 27 million 2020 2019 primarily due increase weighted average debt outstanding approximately 53 billion primarily result issuance notes 2020 2019 general corporate purposes including distributions parent companies stock buybacks debt repayments offset decrease weighted average interest rates loss extinguishment debt loss extinguishment debt 143 million year ended december 31 2020 primarily represents losses recognized result redemption cco holdings notes information see note 9 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” loss financial instruments net gains losses financial instruments recognized due changes fair value interest rate cross currency derivative instruments foreign currency remeasurement fixedrate british pound sterling denominated notes “sterling notes” us dollars information see note 11 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” pension costs net pension costs net consistent year ended december 31 2020 compared corresponding period 2019 information see note 20 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” expense net expense net primarily represents equity losses equity investments expense net also includes impairment equity investments approximately 121 million year ended december 31 2019 information see note 6 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” income tax expense recognized income tax expense 29 million 89 million years ended december 31 2020 2019 respectively income tax expense decreased year ended december 31 2020 compared corresponding period 2019 primarily result internal entity simplification increased expense 2019 information see note 16 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” net income attributable noncontrolling interest net income attributable noncontrolling interest relates thirdparty interest cv viera llp consolidated joint venture small cable system florida net income attributable cco holdings member net income attributable cco holdings member 42 billion 23 billion years ended december 31 2020 2019 respectively primarily result factors described use adjusted ebitda free cash flow use certain measures defined us generally accepted accounting principles “gaap” evaluate various aspects business adjusted ebitda free cash flow nongaap financial measures considered addition substitute net income attributable cco holdings member net cash flows operating activities reported accordance gaap terms defined us may comparable similarly titled measures used companies adjusted ebitda free cash flow reconciled net income attributable cco holdings member net cash flows operating activities respectively adjusted ebitda eliminates significant noncash depreciation amortization expense results capitalintensive nature businesses well noncash special items unaffected capital structure investment activities however measure limited reflect periodic costs certain capitalized tangible intangible assets used generating revenues cash cost financing costs evaluated financial measures free cash flow defined net cash flows operating activities less capital expenditures changes accrued expenses related capital expenditures management charter’s board directors use adjusted ebitda free cash flow assess performance ability service debt fund operations make additional investments internally generated funds addition adjusted ebitda generally correlates leverage ratio calculation credit facilities outstanding notes determine compliance covenants contained facilities notes documents previously filed sec purpose calculating compliance leverage covenants use adjusted ebitda presented excluding certain expenses paid operating subsidiaries charter entities debt covenants refer expenses management fees amount 13 billion 12 billion years ended december 31 2020 2019 respectively reconciliation adjusted ebitda free cash flow net income attributable cco holdings member net cash flows operating activities respectively follows dollars millions liquidity capital resources overview significant amounts debt principal amount debt december 31 2020 821 billion consisting 102 billion credit facility debt 477 billion investment grade senior secured notes 243 billion highyield senior unsecured notes business requires significant cash fund principal interest payments debt projected cash needs projected sources liquidity depend upon among things actual results timing amount expenditures continue grow mobile services expect continue see negative mobile adjusted ebitda 2021 well negative working capital impacts timing devicerelated cash flows sell handset tablet customers pursuant equipment installment plans free cash flow 70 billion 46 billion years ended december 31 2020 2019 respectively see table factors impacting free cash flow year ended december 31 2020 compared 2019 december 31 2020 amount available credit facilities approximately 47 billion cash hand approximately 710 million expect utilize free cash flow cash hand availability credit facilities well future refinancing transactions extend maturities obligations timing terms refinancing transactions subject market conditions among considerations additionally may time depending market conditions factors use cash hand proceeds securities offerings borrowings retire debt open market purchases privately negotiated purchases tender offers redemption provisions believe sufficient liquidity cash hand free cash flow charter operating’s revolving credit facility well access capital markets fund projected cash needs continue evaluate deployment cash hand anticipated future free cash flow including invest business growth strategic opportunities including mergers acquisitions well distributions parent companies stock repurchases dividends charters target leverage net debt last twelve months adjusted ebitda remains 4 45 times adjusted ebitda 35 times adjusted ebitda consolidated first lien level leverage ratio 44 times adjusted ebitda december 31 2020 adjusted ebitda grows expect increase total amount indebtedness maintain leverage within charters target leverage range used proceeds borrowings general corporate purposes buyback shares charter class common stock charter holdings common units years ended december 31 2020 2019 charter purchased approximately 184 million 167 million shares respectively charter class common stock approximately 106 billion 67 billion respectively since beginning buyback program september 2016 year ended december 31 2020 charter purchased approximately 877 million shares class common stock approximately 346 billion december 2017 charter entered amendment letter agreement letter agreement requires sell charter holdings monthly basis number shares charter class common stock charter holdings common units represents pro rata participation affiliates repurchases shares charter class common stock persons effected charter immediately preceding calendar month purchase price equal average price paid charter shares repurchased persons immediately preceding calendar month charter right terminate suspend pro rata repurchase arrangement prospective basis years ended december 31 2020 2019 charter holdings purchased 26 million 23 million charter holdings common units respectively approximately 15 billion 885 million respectively december 31 2020 charter remaining board authority purchase additional 15 billion charter’s class common stock andor charter holdings common units although charter expects continue buy back common stock consistent leverage target range charter obligated acquire particular amount common stock timing purchases may occur cannot predicted largely depend market conditions potential uses capital purchases may include open market purchases tender offers negotiated transactions extent purchases occur cco holdings subsidiaries primary source funding purchases distributions parent companies possible acquisitions swaps dispositions arise actively review objectives including among considerations improving operational efficiency geographic clustering assets product development technology capabilities business achieving appropriate return targets may participate extent believe possibilities present attractive opportunities however assurance actually complete acquisitions dispositions system swaps transactions material operations results recent events december 2020 charter operating charter communications operating capital corp jointly issued 10 billion aggregate principal amount 2300 senior secured notes due 2032 price 99786 aggregate principal amount additional 650 million aggregate principal amount 3700 senior secured notes due 2051 price 100791 aggregate principal amount 135 billion aggregate principal amount 3850 senior secured notes due 2061 price 99882 aggregate principal amount net proceeds used pay related fees expenses general corporate purposes including distributions parent companies fund buybacks charter class common stock charter holdings common units well repaying certain indebtedness including 700 million time warner cable llc 4125 notes due february 2021 addition debt issued december 2020 described cco holdings cco holdings capital corp jointly issued 865 billion aggregate principal amount senior unsecured notes varying rates prices maturity dates 2020 charter operating charter communications operating capital corp jointly issued 30 billion aggregate principal amount senior secured notes varying rates prices maturity dates 2020 net proceeds used pay related fees expenses general corporate purposes including distributions parent companies fund buybacks charter class common stock charter holdings common units well repaying certain indebtedness free cash flow free cash flow increased 24 billion year ended december 31 2020 compared corresponding prior period due following dollars millions free cash flow reduced 11 billion 12 billion years ended december 31 2020 2019 respectively due mobile impacts negatively affecting working capital expenditures adjusted ebitda increase free cash flow resulting changes working capital favorably impacted onetime unfavorable impacts 2019 bill cycle standardization efforts well onetime net favorable impacts 2020 related covid19 including deferral payroll tax payments financial information guarantors issuers guaranteed securities affiliates whose securities collateralize registrant’s securities consolidated subsidiaries cco holdings charter operating time warner cable llc time warner cable enterprises llc collectively “issuers” substantially charter operating’s direct indirect subsidiaries “obligor subsidiaries” together issuers collectively “obligor group” “obligor” jointly severally fully unconditionally guarantee outstanding debt securities respective issuers cco holdings unsecured notes charter operating’s credit facilities senior basis collectively “guaranteed secured debt” guarantees pari passu right payment senior indebtedness guarantors senior right payment subordinated obligations guarantors guarantee limited maximum amount guaranteed relevant guarantor without rendering relevant guarantee relates guarantor voidable otherwise ineffective limited applicable law enforcement guarantee would subject certain generally available defenses guaranteed secured debt structurally subordinated creditors including trade creditors preference shareholders charter operating’s nonguarantor subsidiaries guaranteed secured debt subsidiary guarantees thereof also secured lien substantially assets charter operating obligor subsidiaries extent lien perfected uniform commercial code filing financing statement ii pledge substantially equity interests subsidiaries owned charter operating obligor subsidiaries “pledged equity interests” well intercompany obligations owing entities ii collectively “collateral” addition payments mortgage note currently outstanding approximately 339 million incurred singleasset special purpose entity finance construction first building new charter headquarters stamford connecticut guaranteed obligor group rank equally liens collateral securing guaranteed secured debt assets charter operating’s nonguarantor subsidiaries including capital stock owned subsidiary constitute collateral subsidiary guarantees effectively senior unsecured debt secured junior liens subsidiary guarantors case extent value collateral securing guarantee obligations subsidiary guarantors upon occurrence continuance event default guaranteed secured debt subject terms intercreditor agreement security documents governing guaranteed secured debt provide among available remedies foreclosure upon sale collateral agents respective guaranteed secured debt distribution net proceeds sale holders andor lenders guaranteed secured debt pro rata basis subject prior liens collateral believe separate trading market pledged equity interests certain charter operating subsidiaries regulated entities designated guarantor subsidiaries certain related assets including capital stock regulated entities required pledged collateral upon approval regulators guaranteed obligations collateral obligor subsidiary including pledged equity interests may released certain circumstances permitted documentation governing guaranteed secured debt including obligor subsidiary longer qualifies “subsidiary” charter operating transactions prohibited charter operating credit agreement see note 9 accompanying financials statements contained “part ii item 8 financial statements supplementary data” details terms conditions factors may affect payments holders collateral arrangements guaranteed secured debt assets liabilities results operations combined obligor group materially different corresponding amounts presented consolidated financial statements cco holdings summarized financial information obligor group omitted pursuant sec regulation sx rule 1301 financial statements guarantors issuers guaranteed securities registered sx rule 1302 affiliates whose securities collateralize securities registered information presented comply terms charter operating credit agreement information intended present financial position results operations cash flow individual companies groups companies accordance generally accepted accounting principles contractual obligations following table summarizes payment obligations december 31 2020 longterm debt certain contractual obligations commitments inclusive parent company obligations commitments expense pushed us dollars millions athe table presents maturities longterm debt outstanding december 31 2020 refer notes 9 19 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” description longterm debt contractual obligations commitments binterest payments variable debt estimated using amounts outstanding december 31 2020 average implied forward libor rates applicable quarter interest rate reset based yield curve effect december 31 2020 actual interest payments differ based actual libor rates actual amounts outstanding applicable periods cwe lease certain facilities equipment noncancelable finance operating leases finance lease obligations represented 94 million total finance operating lease obligations december 31 2020 lease rental costs charged expense years ended december 31 2020 2019 452 million 445 million respectively dwe pay programming fees multiyear contracts typically based flat fee per customer may fixed term may cases escalate term programming costs included accompanying statement operations approximately 114 billion 113 billion years ended december 31 2020 2019 respectively certain programming agreements based flat fee per month guaranteed minimum payments table sets forth aggregate guaranteed minimum commitments programming contracts e“other” represents guaranteed minimum commitments including rights negotiated directly content owners distribution companyowned channels networks commitments related role advertising distribution sales agent third partyowned channels networks commitments customer premise equipment device vendors contractual obligations related thirdparty network augmentation following items included contractual obligations table obligations fixed andor determinable due various factors discussed however incur costs part operations •we rent utility poles used operations generally pole rentals cancelable short notice anticipate rentals recur rent expense incurred pole rental attachments years ended december 31 2020 2019 192 million 180 million respectively •we pay franchise fees multiyear franchise agreements based percentage revenues generated video service per year also pay franchise related costs public education grants multiyear agreements franchise fees franchiserelated costs included accompanying statement operations 741 million 750 million years ended december 31 2020 2019 respectively •we 367 million letters credit 41 million secured charter operating credit facility primarily various casualty carriers collateral reimbursement workers compensation auto liability general liability claims •minimum pension funding requirements presented table amounts determined beyond 2020 made cash contributions qualified pension plans 2020 however permitted make discretionary cash contributions qualified pension plans 2021 nonqualified pension plan contributed 3 million 2020 continue make contributions 2021 extent benefits paid •in december 2020 bidding process 12 billion phase rdof auction extend broadband services states currently operate expect fund multibillion dollar fiberbased buildout six eightyear period see part item 1 business commitments related 2016 merger twc acquisition bright house listing commitments result merger twc acquisition bright house 2016 historical operating investing financing activities cash equivalents held 710 million 32 billion cash equivalents december 31 2020 2019 respectively operating activities net cash provided operating activities increased 28 billion year ended december 31 2020 compared year ended december 31 2019 primarily due increase adjusted ebitda 16 billion changes working capital excluding change accrued interest accrued expenses related capital expenditures used 11 billion less cash investing activities net cash used investing activities years ended december 31 2020 2019 80 billion 71 billion respectively increase cash used primarily due purchase spectrum wireless licenses increase capital expenditures financing activities net cash used financing activities increased 74 billion year ended december 31 2020 compared year ended december 31 2019 primarily due increase distributions parent companies decrease amount borrowings longterm debt exceeded repayments capital expenditures significant ongoing capital expenditure requirements capital expenditures 74 billion 72 billion years ended december 31 2020 2019 respectively increase primarily due higher line extensions driven continued network expansion including rural areas higher support capital result facility improvements investments back office systems mobile store buildouts offset lower customer premise equipment see table details currently expect 2021 cable capital expenditures relatively consistent lower percentage cable revenue versus 2020 actual amount capital expenditures 2021 depend number factors including spend related product development growth rates residential commercial businesses capital expenditures funded primarily cash flows operating activities borrowings credit facility addition accrued liabilities related capital expenditures decreased 77 million increased 55 million years ended december 31 2020 2019 respectively following tables present major capital expenditures categories accordance national cable telecommunications association “ncta” disclosure guidelines years ended december 31 2020 2019 disclosure guidelines required disclosures gaap impact accounting capital expenditures gaap dollars millions acustomer premise equipment includes costs incurred customer residence secure new customers revenue generating units including customer installation costs customer premise equipment eg digital receivers cable modems bscalable infrastructure includes costs related customer premise equipment secure growth new customers revenue generating units provide service enhancements eg headend equipment cline extensions include network costs associated entering new service areas eg fibercoaxial cable amplifiers electronic equipment makeready design engineering dupgraderebuild includes costs modify replace existing fibercoaxial cable networks including betterments esupport capital includes costs associated replacement enhancement nonnetwork assets due technological physical obsolescence eg nonnetwork equipment land buildings vehicles debt december 31 2020 accreted value total debt approximately 828 billion summarized dollars millions athe accreted values presented table represent principal amount debt adjusted original issue discount premium time sale deferred financing costs regards debt assumed acquisitions fair value premium adjustments result applying acquisition accounting plus accretion amounts balance sheet date however amount currently payable debt becomes immediately due equal principal amount debt regards sterling notes principal amount debt premium discount remeasured us dollars balance sheet date availability credit facilities approximately 47 billion december 31 2020 bin general obligors right redeem notes set forth table whole part option beginning various times prior stated maturity dates subject certain conditions upon payment outstanding principal amount plus specified redemption premium accrued unpaid interest cprincipal amount includes £625 million valued 854 million december 31 2020 using exchange rate december 31 2020 dprincipal amount includes £650 million valued 889 million december 31 2020 using exchange rate december 31 2020 see note 9 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” details regarding outstanding debt financing arrangements including certain information maturities covenants restrictions related debt financing arrangements agreements instruments governing debt financing arrangements complicated consult agreements instruments filed sec detailed information december 31 2020 charter operating consolidated leverage ratio approximately 28 10 consolidated first lien leverage ratio 27 10 ratios compliance ratios required charter operating credit facilities 50 10 consolidated leverage ratio 40 10 consolidated first lien leverage ratio failure charter operating maintain financial covenants would result event default charter operating credit facilities debt cco holdings see “part item 1a risk factors agreements instruments governing debt contain restrictions limitations could significantly affect ability operate business well significantly affect liquidity” recently issued accounting standards see note 21 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” discussion recently issued accounting standards item 7a item 7 management’s discussion analysis financial condition results operations reference made “part item 1a risk factors” “cautionary statement regarding forwardlooking statements” describe important factors could cause actual results differ expectations nonhistorical information contained herein addition following discussion read conjunction audited consolidated financial statements accompanying notes thereto cco holdings llc subsidiaries included “part ii item 8 financial statements supplementary data” overview second largest cable operator united states leading broadband communications services company providing video internet voice services approximately 262 million residential business customers december 31 2016 addition sell video online advertising inventory local regional national advertising customers fiberdelivered communications managed solutions larger enterprise customers also operate regional sports networks local sports news community channels sell security home management services residential marketplace see “part item 1 business products services” description services including customer statistics different services since 2012 legacy charter actively invested network operations improved quality value products packages legacy charter offered rollout spectrum pricing packaging simplified offers improved packaging products delivering value new existing customers transition legacy charter markets alldigital platform increased offerings 200 hd channels legacy charter markets offered internet speeds least 60 100 mbps among benefits believe product set combined improved customer service insource workforce call centers field operations led lower customer churn longer customer lifetimes result transactions 2016 revenues increased 186 billion year also saw increase expenses related increased scale september 2016 began launching spp legacy twc markets expect mid 2017 offer spp legacy twc legacy bright house markets 2017 intend begin converting remaining legacy twc legacy bright house analog markets alldigital platform corporate organization well marketing sales product development departments centralized field operations managed eleven regional areas designed represent combination designated marketing areas managed largely set field employees three legacy companies prior completion transactions multiyear period legacy twc legacy bright house customer care centers migrate legacy charters model using segmented virtualized usbased inhouse call centers focus deploying superior products service minimal service disruptions integrate information technology network operations expect customer financial results trend similar legacy charter following implementation legacy charter operating strategies across legacy twc legacy bright house markets result implementing operating strategy legacy twc legacy bright house cannot certain able grow revenues maintain margins recent historical rates company realized revenue adjusted ebitda income operations periods presented follows millions percentages calculated using whole numbers minor differences may exist due rounding adjusted ebitda defined consolidated net income plus net interest expense income taxes depreciation amortization stock compensation expense loss extinguishment debt gain loss financial instruments net income expense net operating income expenses merger restructuring costs pension benefits special charges gain loss sale retirement assets see “use adjusted ebitda free cash flow” information adjusted ebitda free cash flow growth total revenue adjusted ebitda income operations primarily due transactions pro forma basis assuming transactions occurred january 1 2015 total revenue growth primarily due growth internet commercial businesses pro forma basis adjusted ebitda growth primarily due increase residential commercial revenues offset increases programming costs operating costs addition factors discussed income operations pro forma basis affected increases depreciation amortization merger restructuring costs stock compensation expense approximately 90 91 90 revenues years ended december 31 2016 2015 2014 respectively attributable monthly subscription fees charged customers video internet voice commercial services provided cable systems generally customer subscriptions may discontinued customer time subject fee certain commercial customers remaining 10 9 10 revenue fiscal years 2016 2015 2014 respectively derived primarily advertising revenues franchise regulatory fee revenues collected us paid local authorities payperview vod programming installation processing fees reconnection fees charged customers commence reinstate service commissions related sale merchandise home shopping services incurred following transition costs connection transactions millions amounts included transition operating expenses transition capital expenditures represent incremental costs incurred integrate legacy twc legacy bright house operations bring three companies’ systems processes uniform operating structure costs incremental would incurred absent integration operating expenses associated transactions represent merger restructuring costs include advisory legal accounting fees employee retention costs employee termination costs exit costs critical accounting policies estimates certain accounting policies require management make difficult subjective andor complex judgments management discussed policies audit committee charter’s board directors audit committee reviewed following disclosure consider following policies critical understanding estimates assumptions judgments involved preparing financial statements uncertainties could affect results operations financial condition cash flows • property plant equipment • capitalization labor overhead costs • valuation impairment property plant equipment • useful lives property plant equipment • intangible assets • valuation impairment franchises • valuation impairment goodwill • valuation impairment amortization customer relationships • income taxes • litigation • programming agreements • pension plans addition items within financial statements require estimates judgment deemed critical allowance doubtful accounts valuations financial instruments changes estimates judgment items could also material impact financial statements property plant equipment cable industry capital intensive large portion resources spent capital activities associated extending rebuilding upgrading cable network december 31 2016 2015 net carrying amount property plant equipment consisting primarily cable distribution systems approximately 327 billion representing 22 total assets 83 billion representing 48 total assets respectively total capital expenditures years ended december 31 2016 2015 2014 approximately 53 billion 18 billion 22 billion respectively capitalization labor overhead costs associated network construction initial placement customer drop dwelling initial placement outlets within dwelling along costs associated initial deployment customer premise equipment necessary provide video internet voices services capitalized costs capitalized include materials direct labor certain indirect costs indirect costs associated activities personnel assist installation activities consist compensation overhead costs associated support functions capitalization based specific activities capitalized track costs composite basis fixed asset category cable system level specific asset basis assets sold retired remove estimated applicable cost accumulated depreciation costs disconnecting service removing customer premise equipment dwelling costs reconnect customer drop redeploy previously installed customer premise equipment charged operating expensed incurred costs repairs maintenance charged operating expense incurred plant equipment replacement including replacement certain components betterments replacement cable drops outlets capitalized make judgments regarding installation construction activities capitalized capitalize direct labor overhead using standards developed actual costs applicable operational data calculate standards annually frequently circumstances dictate items labor rates overhead rates actual amount time required perform capitalizable activity example standard amounts time required perform capitalizable activities based studies time required perform activities overhead rates established based analysis nature costs incurred support capitalizable activities determination portion costs directly attributable capitalizable activities impact changes resulted studies material periods presented labor costs directly associated capital projects capitalized capitalizable activities performed connection installations include activities • dispatching “truck roll” customer’s dwelling business service connection placement new equipment • verification serviceability customer’s dwelling business ie determining whether customer’s dwelling capable receiving service cable network andor receiving advanced internet services • customer premise activities performed inhouse field technicians thirdparty contractors connection customer installations installation equipment connection installation video internet voice services equipment replacement betterment • verifying integrity customer’s network connection initiating test signals downstream headend customer’s digital settop box well testing signal levels pole pedestal judgment required determine extent overhead costs incurred result specific capital activities therefore capitalized primary costs included determination overhead rate employee benefits payroll taxes associated capitalized direct labor ii direct variable costs associated capitalizable activities iii cost support personnel care personnel dispatchers assist capitalizable installation activities iv indirect costs directly attributable capitalizable activities believe existing capitalization policies appropriate significant change nature extent system activities could affect management’s judgment extent capitalize direct labor overhead future monitor appropriateness capitalization policies perform updates internal studies ongoing basis determine whether facts circumstances warrant change capitalization policies capitalized direct labor overhead 991 million 420 million 427 million respectively years ended december 31 2016 2015 2014 valuation impairment property plant equipment evaluate recoverability property plant equipment upon occurrence events changes circumstances indicating carrying amount asset may recoverable events changes circumstances could include factors impairment indefinite life franchises changes technological advances fluctuations fair value assets adverse changes relationships local franchise authorities adverse changes market conditions deterioration current expected future operating results longlived asset deemed impaired carrying amount asset exceeds projected undiscounted future cash flows associated asset impairments longlived assets held used recorded years ended december 31 2016 2015 2014 utilize cost approach primary method used establish fair value property plant equipment connection business combinations cost approach considers amount required replace asset constructing purchasing new asset similar utility adjusts value consideration physical depreciation functional economic obsolescence appraisal date cost approach relies management’s assumptions regarding current material labor costs required rebuild repurchase significant components property plant equipment along assumptions regarding age estimated useful lives property plant equipment useful lives property plant equipment evaluate appropriateness estimated useful lives assigned property plant equipment based annual analysis useful lives revise lives extent warranted changing facts circumstances changes estimated useful lives result analysis reflected prospectively beginning period study completed analysis useful lives 2016 indicate change useful lives effect oneyear decrease weighted average remaining useful life property plant equipment december 31 2016 would increase annual depreciation expense approximately 17 billion effect oneyear increase weighted average remaining useful life property plant equipment december 31 2016 would decrease annual depreciation expense approximately 863 million depreciation expense related property plant equipment totaled 50 billion 19 billion 18 billion years ended december 31 2016 2015 2014 respectively representing approximately 20 21 22 costs expenses respectively depreciation recorded using straightline composite method management’s estimate useful lives related assets listed intangible assets valuation impairment franchises net carrying value franchises december 31 2016 2015 approximately 673 billion representing 45 total assets 60 billion representing 34 total assets excluding restricted cash equivalents respectively information complete discussion value test franchise assets impairment see note 6 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” perform impairment assessment franchise assets annually frequently warranted events changes circumstances performed qualitative assessment 2016 assessment included consideration fair value appraisals legacy charter newlyacquired operations performed date acquisition tax acquisition accounting purposes respectively along multitude factors affect fair value franchise assets examples factors include environmental competitive changes within operating footprint actual projected operating performance consistency operating margins equity debt market trends including changes market capitalization changes regulatory political landscape among factors based assessment concluded likely estimated fair values franchise assets equals exceeds carrying values quantitative impairment test required appraisals indicated fair value franchise assets exceeded carrying value approximately 25 aggregate excess entirely attributable franchise assets legacy charter acquisition accounting applied unit accounting level franchise asset impairment testing amount fair value exceeds carrying value varies based extent unit accounting comprised newlyacquired operations units accounting comprised entirely substantially newlyacquired operations believe carrying value approximates fair value given significant adverse changes factors impacting fair value estimates since transaction date units accounting comprised least 25 legacy charter operations fair value exceeded carrying value range 36 260 valuation impairment goodwill net carrying value goodwill december 31 2016 2015 approximately 295 billion representing 20 total assets 12 billion representing 7 total assets respectively information complete discussion test goodwill impairment see note 6 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” perform impairment assessment goodwill annually november 30th franchise impairment testing elected perform qualitative assessment goodwill 2016 included fair value appraisals factors described based appraisals determined fair value goodwill exceeded carrying value approximately 28 closing transactions given limited amount time closing transactions completion assessment absence significant adverse changes factors impacting fair value estimates concluded likely goodwill impaired valuation impairment amortization customer relationships net carrying value customer relationships december 31 2016 2015 approximately 146 billion representing 10 total assets 856 million representing 5 total assets excluding restricted cash equivalents respectively amortization expense related customer relationships years ended december 31 2016 2015 2014 approximately 19 billion 249 million 282 million respectively impairment customer relationships recorded years ended december 31 2016 2015 2014 information complete discussion valuation methodology amortization method see note 6 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” income taxes determining tax provision financial reporting purposes establish reserve uncertain tax positions unless positions determined “more likely not” sustained upon examination based technical merits evaluating whether tax position met morelikelythannot recognition threshold presume position examined appropriate taxing authority full knowledge relevant information tax position meets morelikelythannot recognition threshold measured determine amount benefit recognized financial statements tax position measured largest amount benefit greater 50 likelihood realized position ultimately resolved considerable judgment involved determining whether positions taken tax return “more likely not” sustained adjust uncertain tax reserve estimates periodically ongoing examinations settlements various taxing authorities well changes tax laws regulations interpretations tax years charter holdings charter holdco indirect parent companies income tax purposes currently examination irs charter holdings 2016 tax year remains open assessment legacy charter’s tax years ending 2013 short period return dated may 17 2016 remain subject examination assessment years prior 2013 remain open solely purposes examination legacy charter’s loss credit carryforwards irs currently examining legacy twc’s income tax returns 2011 2012 legacy twc’s tax years ending 2013 2015 remain subject examination assessment prior legacy twc’s separation time warner inc “time warner” march 2009 “separation” legacy twc included consolidated us federal certain state income tax returns time warner irs currently examining time warner’s 2008 2010 income tax returns time warner’s income tax returns 2005 2007 periods prior separation settled exception immaterial item referred irs appeals division unrecognized tax benefits exclusive interest penalties totaling approximately 159 million december 31 2016 litigation legal contingencies high degree uncertainty loss contingency becomes estimable probable reserve established reserve reflects management’s best estimate probable cost ultimate resolution matter revised facts circumstances change reserve released matter ultimately brought closure statute limitations lapses established reserves certain matters although matters expected individually material adverse effect consolidated financial condition results operations liquidity matters could aggregate material adverse effect consolidated financial condition results operations liquidity programming agreements exercise significant judgment estimating programming expense associated certain video programming contracts policy record video programming costs based contractual agreements programming vendors generally multiyear agreements provide us make payments programming vendors agreed upon market rates based number customers provide programming service programming contract expires prior parties’ entry new agreement continue distribute service estimate programming costs period contract place consider previous contractual rates inflation status negotiations determining estimates programming contract terms finalized adjustment programming expense recorded necessary reflect terms new contract also make estimates recognition programming expense related items accounting free periods timing rate increases credits service interruptions well allocation consideration exchanged parties multipleelement transactions significant judgment also involved enter agreements result us receiving cash consideration programming vendor usually form advertising sales channel positioning fees launch support marketing support situations must determine based upon facts circumstances cash consideration recorded revenue reduction programming expense reduction another expense category eg marketing pension plans upon completion twc transaction assumed legacy twc’s pension plans sponsor two qualified defined benefit pension plans twc pension plan twc union pension plan collectively “twc pension plans” provide pension benefits majority legacy twc employees also provide nonqualified defined benefit pension plan certain employees twc excess pension plan december 31 2016 accumulated benefit obligation fair value plan assets twc pension plans 33 billion 29 billion respectively net underfunded liability twc pension plans recorded 1 million noncurrent asset 6 million current liability 309 million longterm liability pension benefits based formulas reflect employees’ years service compensation employment period actuarial gains losses changes amount either benefit obligation fair value plan assets resulting experience different assumed changes assumptions elected follow marktomarket pension accounting policy recording actuarial gains losses annually fourth quarter earlier remeasurement event occurs interim period use december 31 measurement date pension plans recognized net periodic pension benefit 813 million 2016 net periodic pension benefit expense determined using certain assumptions including expected longterm rate return plan assets discount rate expected rate compensation increases determined discount rate used compute pension expense based yield large population highquality corporate bonds cash flows sufficient timing amount settle projected future defined benefit payments developing expected longterm rate return assets considered current pension portfolio’s composition past average rate earnings asset allocation targets used discount rate 399 date transaction june 30 2016 372 july 1 2016 december 31 2016 compute 2016 pension expense decrease discount rate 25 basis points would result 154 million increase pension plan benefit obligation december 31 2016 net periodic pension expense recognized 2016 marktomarket accounting policy expected longterm rate return plan assets used compute 2016 pension expense 650 decrease expected longterm rate return 25 basis points 650 625 holding assumptions constant would result increase 2017 net periodic pension expense approximately 7 million see note 19 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” additional discussion assumptions results operations following table sets forth consolidated statements operations periods presented dollars millions except per share data revenues total revenues grew 192 billion 197 year ended december 31 2016 compared 2015 grew 646 million 71 year ended december 31 2015 compared 2014 revenue growth primarily reflects transactions increases number residential internet triple play customers commercial business customers growth rates driven higher equipment revenue rate increases offset decrease basic video customers transactions increased revenues year ended december 31 2016 compared 2015 approximately 186 billion pro forma basis assuming transactions occurred january 1 2015 total revenue growth 7 year ended december 31 2016 compared 2015 revenues service offering follows dollars millions percentages calculated using whole numbers minor differences may exist due rounding video revenues consist primarily revenues basic digital video services provided residential customers well franchise fees equipment rental video installation revenue excluding impacts transactions residential video customers increased 42000 2016 decreased 2000 2015 increases video revenues attributable following dollars millions pro forma basis assuming transactions occurred january 1 2015 residential video customers decreased 226000 2016 increase video revenues attributable following dollars millions excluding impacts transactions residential internet customers grew 461000 442000 customers 2016 2015 respectively increases internet revenues residential customers attributable following dollars millions pro forma basis assuming transactions occurred january 1 2015 residential internet customers increased 1463000 2016 increase internet revenues attributable following dollars millions excluding impacts transactions residential voice customers grew 95000 159000 customers 2016 2015 respectively change voice revenues residential customers attributable following dollars millions pro forma basis assuming transactions occurred january 1 2015 residential voice customers increased 368000 2016 increase voice revenues attributable following dollars millions excluding impacts transactions small medium business psus increased 128000 109000 2016 2015 respectively increases small medium business commercial revenues attributable following dollars millions pro forma basis assuming transactions occurred january 1 2015 small medium business psus increased 291000 2016 increase small medium business commercial revenues attributable following dollars millions excluding impacts transactions enterprise psus increased 6000 5000 2016 2015 respectively pro forma basis assuming transactions occurred january 1 2015 enterprise psus increased 16000 2016 transactions increased enterprise commercial revenues year ended december 31 2016 compared 2015 approximately 10 billion pro forma basis assuming transactions occurred january 1 2015 enterprise commercial revenues increased 207 million year ended december 31 2016 compared 2015 primarily due growth customers advertising sales revenues consist primarily revenues commercial advertising customers programmers vendors well local cable advertising regional sports news channels advertising sales revenues increased 2016 primarily due transactions decreased 2015 primarily result decrease political advertising transactions increased advertising sales revenues year ended december 31 2016 compared 2015 898 million pro forma basis assuming transactions occurred january 1 2015 advertising sales revenues increased 172 million year ended december 31 2016 compared 2015 primarily due increase political advertising revenues consist revenue regional sports news channels excluding intercompany charges advertising sales channels home shopping late payment fees wire maintenance fees miscellaneous revenues increase 2016 primarily due transactions increased revenues year ended december 31 2016 compared 2015 429 million pro forma basis assuming transactions occurred january 1 2015 revenues increased 33 million year ended december 31 2016 compared 2015 primarily due settlement related early contract termination operating costs expenses increases operating costs expenses attributable following dollars millions programming costs approximately 70 billion 27 billion 25 billion representing 38 42 41 operating costs expenses years ended december 31 2016 2015 2014 respectively increase operating costs expenses year ended december 31 2016 compared 2015 primarily due transactions increase expense attributable following dollars millions increases expense year ended december 31 2016 compared corresponding prior periods primarily due transactions pro forma basis assuming transactions occurred january 1 2015 increases operating costs expenses exclusive items shown separately consolidated statements operations attributable following dollars millions pro forma basis assuming transactions occurred january 1 2015 programming costs approximately 96 billion 90 billion representing 37 36 total operating costs expenses years ended december 31 2016 2015 respectively programming costs consist primarily costs paid programmers basic digital premium vod payperview programming increase pro forma programming costs primarily result annual contractual rate adjustments including increases amounts paid retransmission consents introduction new networks offset synergies result transactions lower payperview programming expenses expect pro forma programming expenses continue increase due variety factors including annual increases imposed programmers additional selling power result media consolidation increased demands owners broadcast stations payment retransmission consent linking carriage services retransmission consent additional programming particularly new services unable fully pass increases customers expect able future without potential loss customers pro forma basis assuming transactions occurred january 1 2015 increase expense attributable following dollars millions increase advertising sales expense relates primarily higher advertising sales revenue increase corporate costs relates primarily increases number employees including increases engineering stock compensation expense increased primarily due increases headcount value equity issued depreciation amortization depreciation amortization expense increased 48 billion 2016 compared 2015 primarily result additional depreciation amortization related transactions inclusive incremental amounts result higher fair values recorded acquisition accounting depreciation amortization expense increased 23 million 2015 compared 2014 primarily represents depreciation recent capital expenditures offset certain assets becoming fully depreciated operating expenses net changes operating expenses net attributable following dollars millions increase merger restructuring costs primarily due approximately 642 million employee retention employee termination costs incurred 2016 pension benefits includes pension curtailment gain 675 million remeasurement gain 195 million expected return plan assets 116 million offset interest costs 87 million information see note 13 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” interest expense net interest expense increased 13 billion 2016 2015 decreased 49 million 2015 2014 increase 2016 compared 2015 primarily due 594 million interest expense associated debt incurred fund transactions 2016 well 604 million associated debt assumed legacy twc net interest expense decreased 2015 compared corresponding prior year period primarily result decrease interest rates loss extinguishment debt loss extinguishment debt 111 million 126 million years ended december 31 2016 2015 primarily represents losses recognized result repurchase cco holdings notes information see note 9 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” gain loss financial instruments net interest rate derivative instruments used manage interest costs reduce exposure increases floating interest rates crosscurrency derivative instruments used manage foreign exchange risk related foreign currency denominated debt assumed twc transaction recorded gains 89 million losses 4 million 7 million years ended december 31 2016 2015 2014 respectively gains losses financial instruments recognized due changes fair value interest rate 2016 cross currency derivative instruments remeasurement fixedrate british pound sterling denominated notes “sterling notes” us dollars year ended december 31 2016 also includes 11 million loss realized upon termination legacy twc interest rate swap derivative instruments information see note 11 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” expense net expense net primarily represents equity losses equitymethod investments information see note 7 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” income tax benefit expense recognized income tax expense 3 million 13 million years ended december 31 2016 2014 income tax benefit 210 million year ended december 31 2015 income tax benefit 2015 primarily due deemed liquidation charter holdco solely federal state income tax purposes offset income tax expense recognized primarily increases deferred tax liabilities income tax expense recognized 2016 2014 primarily increases deferred tax liabilities well current federal state income tax expense tax provision future periods vary based current future temporary differences well future operating results information see note 16 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” net income attributable noncontrolling interest net income attributable noncontrolling interest 2016 relates thirdparty interest cv viera llp consolidated joint venture small cable system florida assumed transactions net income attributable noncontrolling interest 2015 2014 included 2 accretion preferred membership interests cc viii llc “cc viii” plus approximately 186 cc viii’s income net accretion december 31 2015 cc viii preferred interest held cch llc contributed cc viii subsequently canceled information see note 7 accompanying consolidated financial statements contained “item 1 financial statements” net income attributable cco holdings member net income attributable cco holdings member 15 billion 308 million 18 million years ended december 31 2016 2015 2014 respectively primarily result factors described pro forma basis assuming transactions occurred january 1 2015 net income attributable cco holdings member 19 billion 608 million years ended december 31 2016 2015 respectively use adjusted ebitda free cash flow use certain measures defined us generally accepted accounting principles “gaap” evaluate various aspects business adjusted ebitda free cash flow nongaap financial measures considered addition substitute consolidated net income net cash flows operating activities reported accordance gaap terms defined us may comparable similarly titled measures used companies adjusted ebitda free cash flow reconciled consolidated net income net cash flows operating activities respectively adjusted ebitda defined consolidated net income plus net interest expense income taxes depreciation amortization stock compensation expense loss extinguishment debt gain loss financial instruments income expense net operating income expenses merger restructuring costs pension benefits special charges gain loss sale retirement assets eliminates significant noncash depreciation amortization expense results capitalintensive nature businesses well noncash special items unaffected capital structure investment activities however measure limited reflect periodic costs certain capitalized tangible intangible assets used generating revenues cash cost financing costs evaluated financial measures free cash flow defined net cash flows operating activities less capital expenditures changes accrued expenses related capital expenditures believe adjusted ebitda free cash flow provide information useful investors assessing performance ability service debt fund operations make additional investments internally generated funds addition adjusted ebitda generally correlates leverage ratio calculation credit facilities outstanding notes determine compliance covenants contained facilities notes documents previously filed sec purpose calculating compliance leverage covenants use adjusted ebitda presented excluding certain expenses paid operating subsidiaries charter entities debt covenants refer expenses management fees amount 930 million 322 million 253 million years ended december 31 2016 2015 2014 respectively liquidity capital resources overview significant amounts debt principal amount debt december 31 2016 600 billion consisting 89 billion credit facility debt 377 billion investment grade senior secured notes 134 billion highyield senior unsecured notes business requires significant cash fund principal interest payments debt projected cash needs projected sources liquidity depend upon among things actual results timing amount expenditures free cash flow 40 billion 745 million 196 million years ended december 31 2016 2015 2014 respectively december 31 2016 amount available credit facilities approximately 28 billion cash hand approximately 13 billion expect utilize free cash flow cash hand availability credit facilities well future refinancing transactions extend maturities reduce principal obligations timing terms refinancing transactions subject market conditions additionally may time depending market conditions factors use cash hand proceeds securities offerings borrowings retire debt open market purchases privately negotiated purchases tender offers redemption provisions believe sufficient liquidity cash hand free cash flow charter operating’s revolving credit facility well access capital markets fund projected cash needs continue evaluate deployment cash hand anticipated future free cash flow including invest business growth strategic opportunities including mergers acquisitions well distributions parent company stock repurchases dividends charters target leverage remains 4 45 times 35 times charter operating level 2016 charter purchased approximately 51 million shares class common stock approximately 13 billion pursuant authorizations charter’s board directors 3 billion accordingly december 31 2016 provided charter’s charter operatings leverage ratios remain target management authority cause charter purchase additional 17 billion charter’s class common stock without taking account shares units may purchased effective november 1 2016 charters board directors granted authority new 750 million class common stock buybacks rolling sixmonth authority without taking account class common stock purchased prior november 1 result portion 17 billion authority management approve 750 million class common stock buybacks sixmonth period charter obligated acquire particular amount common stock timing purchases may occur cannot predicted largely depend market conditions potential uses capital purchases may include open market purchases negotiated transactions extent purchases occur cco holdings would likely required fund purchases distributions parent company possible acquisitions swaps dispositions arise actively review objectives including among considerations improving operational efficiency clustering product development technology capabilities business achieving appropriate return targets may participate extent believe possibilities present attractive opportunities however assurance actually complete acquisitions dispositions system swaps transactions material operations results december 2016 charter exchanged 19 million charter holdings common units held shares charter class common stock pursuant letter agreement aggregate purchase price 537 million letter agreement also requires sell charter holdings monthly basis number shares charter class common stock charter holdings common units represents pro rata participation affiliates repurchases shares charter class common stock persons effected charter immediately preceding calendar month purchase price equal average price paid charter shares repurchased persons immediately preceding calendar month pursuant letter agreement charter holdings purchased 752767 charter holdings common units price per unit 28983 218 million recent events january 2017 charter operating entered amendment credit agreement decreasing applicable libor margin term loan e term loan f 200 eliminating libor floor february 2017 cco holdings cco holdings capital corp closed transactions issued 10 billion aggregate principal amount 5125 senior notes due 2027 net proceeds used redeem cco holdings’ 6625 senior notes due 2022 pay related fees expenses general corporate purposes free cash flow free cash flow increased 33 billion 549 million years ended december 31 2016 2015 compared corresponding prior periods respectively due following contractual obligations following table summarizes payment obligations december 31 2016 longterm debt certain contractual obligations commitments inclusive parent company obligations commitments expense pushed us dollars millions table presents maturities longterm debt outstanding december 31 2016 refer notes 9 18 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” description longterm debt contractual obligations commitments b interest payments variable debt estimated using amounts outstanding december 31 2016 average implied forward london interbank offering rate “libor” rates applicable quarter interest rate reset based yield curve effect december 31 2016 actual interest payments differ based actual libor rates actual amounts outstanding applicable periods c lease certain facilities equipment noncancelable capital operating leases rental costs charged expense years ended december 31 2016 2015 2014 215 million 49 million 43 million respectively pay programming fees multiyear contracts typically based flat fee per customer may fixed term may cases escalate term programming costs included accompanying statement operations approximately 70 billion 27 billion 25 billion years ended december 31 2016 2015 2014 respectively certain programming agreements based flat fee per month guaranteed minimum payments table sets forth aggregate guaranteed minimum commitments programming contracts e “other” represents guaranteed minimum commitments including rights negotiated directly content owners distribution companyowned channels networks commitments related role advertising distribution sales agent third partyowned channels networks well commitments customer premise equipment vendors following items included contractual obligations table obligations fixed andor determinable due various factors discussed however incur costs part operations • rent utility poles used operations generally pole rentals cancelable short notice anticipate rentals recur rent expense incurred pole rental attachments years ended december 31 2016 2015 2014 115 million 53 million 49 million respectively • pay franchise fees multiyear franchise agreements based percentage revenues generated video service per year also pay franchise related costs public education grants multiyear agreements franchise fees franchiserelated costs included accompanying statement operations 534 million 212 million 208 million years ended december 31 2016 2015 2014 respectively • also 278 million letters credit 220 million secured charter operating credit facility primarily various casualty carriers collateral reimbursement workers compensation auto liability general liability claims • minimum pension funding requirements presented table amounts determined beyond 2016 made cash contributions qualified pension plans 2016 however permitted make discretionary cash contributions qualified pension plans 2017 nonqualified pension plan contributed 5 million 2016 continue make contributions 2017 extent benefits paid see part item 1 business transactionrelated commitments listing commitments result transactions historical operating investing financing activities cash equivalents held 13 billion 5 million cash equivalents december 31 2016 2015 respectively operating activities net cash provided operating activities increased 62 billion year ended december 31 2016 compared year ended december 31 2015 primarily due increase adjusted ebitda 72 billion offset increase cash paid interest net 14 billion net cash provided operating activities increased 173 million 24 billion year ended december 31 2014 26 billion year ended december 31 2015 primarily due increase adjusted ebitda 216 million offset 32 million increase merger acquisition costs investing activities net cash used investing activities year ended december 31 2016 48 billion net cash provided investing activities year ended december 31 2015 17 billion increase cash used primarily due repayment 2015 35 billion net proceeds held escrow upon termination proposed transactions comcast well increase capital expenditures 35 billion net cash provided investing activities year ended december 31 2015 17 billion net cash used investing activities year ended december 31 2014 57 billion increase cash provided 2015 compared 2014 primarily due decrease longterm restricted cash equivalents upon repayment term g loans escrow related proposed transactions comcast decrease capital expenditures financing activities net cash used financing activities 27 billion 42 billion years ended december 31 2016 2015 respectively net cash provided financing activities 33 billion year ended december 31 2014 decrease cash used 2016 compared 2015 primarily due repayment 2015 35 billion net proceeds held escrow upon termination proposed transactions comcast increase cash used year ended december 31 2015 compared corresponding period 2014 primarily result repayment 35 billion net proceeds held escrow related term g loans upon termination comcast transactions capital expenditures significant ongoing capital expenditure requirements capital expenditures 53 billion 18 billion 22 billion years ended december 31 2016 2015 2014 respectively increase driven transactions pro forma basis assuming transactions occurred january 1 2015 increase year ended december 31 2016 compared corresponding prior period driven higher product development investments transition capital expenditures incurred connection transactions support capital investments see table details actual amount capital expenditures 2017 depend number factors including pace transition planning service larger customer base result transactions alldigital transition legacy twc legacy bright house markets growth rates residential commercial businesses capital expenditures funded primarily cash flows operating activities borrowings credit facility addition liabilities related capital expenditures increased 603 million 28 million 33 million years ended december 31 2016 2015 2014 respectively following tables present major capital expenditures categories actual pro forma basis assuming transactions occurred january 1 2015 accordance national cable telecommunications association “ncta” disclosure guidelines years ended december 31 2016 2015 2014 disclosure intended provide consistency reporting capital expenditures among peer companies cable industry disclosure guidelines required disclosures gaap impact accounting capital expenditures gaap dollars millions customer premise equipment includes costs incurred customer residence secure new customers revenue generating units also includes customer installation costs customer premise equipment eg settop boxes cable modems b scalable infrastructure includes costs related customer premise equipment secure growth new customers revenue generating units provide service enhancements eg headend equipment c line extensions include network costs associated entering new service areas eg fibercoaxial cable amplifiers electronic equipment makeready design engineering upgraderebuild includes costs modify replace existing fibercoaxial cable networks including betterments e support capital includes costs associated replacement enhancement nonnetwork assets due technological physical obsolescence eg nonnetwork equipment land buildings vehicles f transition represents incremental costs incurred integrate legacy twc legacy bright house operations bring three companies’ systems processes uniform operating structure debt december 31 2016 accreted value total debt approximately 617 billion summarized dollars millions accreted values presented table represent principal amount debt less original issue discount time sale deferred financing costs regards legacy twc debt assumed fair value premium adjustment result applying acquisition accounting plusminus accretion amounts balance sheet date ii regards fixedrate british pound sterling denominated notes “sterling notes” remeasurement principal amount debt premium discount us dollars balance sheet date however amount currently payable debt becomes immediately due equal principal amount debt availability credit facilities approximately 28 billion december 31 2016 b general obligors right redeem notes set forth table whole part option beginning various times prior stated maturity dates subject certain conditions upon payment outstanding principal amount plus specified redemption premium accrued unpaid interest additional information see “description outstanding debt” c principal amount includes £625 million valued 770 million december 31 2016 using exchange rate december 31 2016 principal amount includes £650 million valued 800 million december 31 2016 using exchange rate aas december 31 2016 see note 9 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” details regarding outstanding debt financing arrangements including certain information maturities covenants restrictions related debt financing arrangements agreements instruments governing debt financing arrangements complicated consult agreements instruments filed sec detailed information december 31 2016 charter operating consolidated leverage ratio approximately 28 10 consolidated first lien leverage ratio 27 10 ratios compliance ratios required charter operating credit facilities 50 10 consolidated leverage ratio 40 10 consolidated first lien leverage ratio failure charter operating maintain financial covenants would result event default charter operating credit facilities debt cco holdings see “part item 1a risk factors agreements instruments governing debt contain restrictions limitations could significantly affect ability operate business well significantly affect liquidity” recently issued accounting standards see note 20 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” discussion recently issued accounting standards item 7a item 7 management’s discussion analysis financial condition results operations reference made “part item 1a risk factors” “cautionary statement regarding forwardlooking statements” describe important factors could cause actual results differ expectations nonhistorical information contained herein addition following discussion read conjunction audited consolidated financial statements accompanying notes thereto cco holdings included “part ii item 8 financial statements supplementary data” overview second largest cable operator united states leading broadband communications services company providing video internet voice services approximately 292 million residential small medium business customers december 31 2019 also offer mobile service residential customers recently launched mobile service small medium business customers addition sell video online advertising inventory local regional national advertising customers tailored communications managed solutions larger enterprise customers also operate regional sports networks local sports news community channels see “part item 1 business products services” description services including customer statistics different services 2019 integration twc bright house substantially behind us realizing benefits operating one company unified product marketing service infrastructure remain focused driving customer relationship growth deploying superior products services packaged attractive pricing expect insourced high quality workforce continue drive improved customer experience result lower customer churn longer customer lifetimes combined continued ramping selfinstallation program improved productivity fewer customer calls truck rolls per customer relationship approximately 85 residential customer base spp packages expect additional benefits lower legacy package migration activity combined spp customers rolling introductory pricing price increases expect continue drive customer relationship growth sales bundled services improving customer retention despite expectation continued losses video wireline voice customers completion alldigital conversion rollout docsis 31 technology across footprint integration twc bright house substantially complete experienced meaningful reduction cable capital expenditures percent revenue 2019 expect continued lower cable capital intensity 2020 launched mobile product spectrum mobile second half 2018 mvno reseller agreement verizon spectrum mobile service offered customers subscribing internet service runs verizons mobile network combined spectrum wifi second quarter 2019 expanded spectrum mobile bringyourowndevice program across sales channels include broader set devices believe lowers cost consumers switching mobile carriers reduces shortterm working capital impact selling new mobile devices installment plans expect developments along launch 5g service offerings 2020 contribute growth mobile business also continue explore ways drive even mobile traffic network plan use wifi network conjunction additional unlicensed potentially licensed spectrum improve network performance expand capacity offer consumers superior mobile service lower total cost us experimental wireless licenses fcc utilizing test next generation mobile services several service areas around country believe spectrumbranded mobile services drive higher sales core products create longer customer lives increase profitability cash flow time result growth costs associated new mobile product line cannot certain able grow revenues maintain margins recent historical rates years ended december 31 2019 2018 mobile product line increased revenues 726 million 106 million respectively reduced adjusted ebitda approximately 520 million 240 million respectively reduced free cash flow approximately 12 billion 594 million respectively continue grow mobile service scale business expect continued negative impacts adjusted ebitda well negative working capital impacts timing devicerelated cash flows sell handset tablet customers pursuant equipment installment plans realized revenue adjusted ebitda income operations periods presented follows millions percentages calculated using whole numbers minor differences may exist due rounding adjusted ebitda defined net income attributable cco holdings member plus net income attributable noncontrolling interest net interest expense income taxes depreciation amortization stock compensation expense loss extinguishment debt gain loss financial instruments net pension benefits costs net income expense net operating income expenses net merger restructuring costs special charges gain loss sale retirement assets see “use adjusted ebitda free cash flow” information adjusted ebitda free cash flow growth total revenue primarily due growth residential internet mobile commercial business customers adjusted ebitda income operations growth impacted growth revenue increases operating costs expenses primarily mobile programming regulatory connectivity produced content income operations also affected decrease depreciation amortization expense approximately 91 revenues years ended december 31 2019 2018 attributable monthly subscription fees charged customers video internet voice mobile commercial services generally customer subscriptions may discontinued customer time subject fee certain commercial customers remaining 9 revenue derived primarily advertising revenues franchise regulatory fee revenues collected us paid local authorities vod payperview programming installation processing fees reconnection fees charged customers commence reinstate service revenue regional sports news channels commissions related sale merchandise home shopping services critical accounting policies estimates certain accounting policies require management make difficult subjective andor complex judgments management discussed policies audit committee charter’s board directors audit committee reviewed following disclosure consider following policies critical understanding estimates assumptions judgments involved preparing financial statements uncertainties could affect results operations financial condition cash flows • capitalization labor overhead costs • valuation impairment franchises goodwill • income taxes • defined benefit pension plans capitalization labor overhead costs associated network construction upgrades placement customer drop dwelling placement outlets within dwelling along costs associated deployment new customer premise equipment necessary provide video internet voice services capitalized costs capitalized include materials direct labor certain indirect costs indirect costs associated activities personnel assist installation activities consist compensation overhead costs associated support functions capitalization based specific activities capitalized track costs composite basis fixed asset category cable system level specific asset basis assets sold retired remove estimated applicable cost accumulated depreciation costs disconnecting service removing customer premise equipment dwelling costs reconnect customer drop redeploy previously installed customer premise equipment charged operating expense incurred costs repairs maintenance charged operating expense incurred plant equipment replacement including replacement certain components betterments replacement cable drops outlets capitalized make judgments regarding installation construction activities capitalized direct labor overhead 16 billion 18 billion respectively years ended december 31 2019 2018 capitalize direct labor overhead using standards developed actual costs applicable operational data calculate standards annually frequently circumstances dictate items labor rates overhead rates actual amount time required perform capitalizable activity example standard amounts time required perform capitalizable activities based studies time required perform activities overhead rates established based analysis nature costs incurred support capitalizable activities determination portion costs directly attributable capitalizable activities impact changes resulted studies material periods presented labor costs directly associated capital projects capitalized capitalizable activities performed connection installations include activities • dispatching “truck roll” customer’s dwelling business service connection placement new equipment • verification serviceability customer’s dwelling business ie determining whether customer’s dwelling capable receiving service cable network • customer premise activities performed inhouse field technicians thirdparty contractors connection installation replacement betterment equipment materials enable video internet voice services • verifying integrity customer’s network connection initiating test signals downstream headend customer premise equipment well testing signal levels utility pole pedestal judgment required determine extent overhead costs incurred result specific capital activities therefore capitalized primary costs included determination overhead rate employee benefits payroll taxes associated capitalized direct labor ii direct variable costs associated capitalizable activities iii cost support personnel care personnel dispatchers assist capitalizable installation activities iv indirect costs directly attributable capitalizable activities believe existing capitalization policies appropriate significant change nature extent operating practices could affect management’s judgment extent capitalize direct labor overhead future monitor appropriateness capitalization policies perform updates internal studies ongoing basis determine whether facts circumstances warrant change capitalization policies valuation impairment franchises net carrying value franchises december 31 2019 2018 approximately 673 billion representing 46 total assets information complete discussion value test franchise assets impairment see note 5 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” perform impairment assessment franchise assets annually frequently warranted events changes circumstances performed qualitative assessment 2019 assessment included consideration fair value appraisal performed tax purposes beginning 2019 december 31 2018 valuation date appraisal along multitude factors affect fair value franchise assets examples factors include environmental competitive changes within operating footprint actual projected operating performance consistency operating margins equity debt market trends including changes market capitalization changes regulatory political landscape among factors based assessment concluded likely estimated fair values franchise assets equals exceeds carrying values quantitative impairment test required valuation impairment goodwill net carrying value goodwill december 31 2019 2018 approximately 296 billion representing 20 total assets determined one reporting unit purposes assessment goodwill impairment information complete discussion test goodwill impairment see note 5 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” perform impairment assessment goodwill annually november 30 franchise impairment testing elected perform qualitative assessment goodwill 2019 included appraisal factors described based appraisal determined fair value reporting unit significantly exceeded net asset carrying value reporting unit given completion assessment absence significant adverse changes factors impacting fair value estimates concluded likely goodwill impaired income taxes determining tax provision financial reporting purposes establish reserve uncertain tax positions unless positions determined “more likely not” sustained upon examination based technical merits evaluating whether tax position met morelikelythannot recognition threshold presume position examined appropriate taxing authority full knowledge relevant information tax position meets morelikelythannot recognition threshold measured determine amount benefit recognized financial statements tax position measured largest amount benefit greater 50 likelihood realized position ultimately resolved considerable judgment involved determining whether positions taken tax return “more likely not” sustained adjust uncertain tax reserve estimates periodically ongoing examinations settlements various taxing authorities well changes tax laws regulations interpretations tax years charter currently examination irs income tax purposes charters 2016 2019 tax years remain open examination assessment charter’s short period return dated may 17 2016 prior merger twc acquisition bright house remain subject examination assessment years prior 2016 remain open solely purposes examination charter’s loss credit carryforwards irs currently examining charter holdings income tax return 2016 charter holdings’ 2017 2019 tax years remain open examination assessment irs currently examining twc’s income tax returns 2011 2014 twc’s tax year 2015 remains subject examination assessment prior twc’s separation time warner inc “time warner” march 2009 twc included consolidated us federal certain state income tax returns time warner irs examined time warner’s 2008 2010 income tax returns results appeal anticipate examinations material impact consolidated financial position results operations addition also subject ongoing examinations tax returns state local tax authorities various periods activity related state local examinations material impact consolidated financial position results operations year ended december 31 2019 anticipate material impact future defined benefit pension plans sponsor three qualified defined benefit pension plans one nonqualified defined benefit pension plan provide pension benefits majority employees employed twc merger twc december 31 2019 accumulated benefit obligation fair value plan assets 34 billion 32 billion respectively net underfunded liability recorded 1 million noncurrent asset 4 million current liability 160 million longterm liability december 31 2018 accumulated benefit obligation fair value plan assets 30 billion 29 billion respectively net underfunded liability recorded 1 million noncurrent asset 4 million current liability 95 million longterm liability pension benefits based formulas reflect employees’ years service compensation employment period actuarial gains losses changes amount either benefit obligation fair value plan assets resulting experience different assumed changes assumptions elected follow marktomarket pension accounting policy recording actuarial gains losses annually fourth quarter earlier remeasurement event occurs interim period use december 31 measurement date pension plans recognized net periodic pension costs 69 million net periodic pension benefits 192 million 2019 2018 respectively net periodic pension benefit expense determined using certain assumptions including expected longterm rate return plan assets discount rate mortality assumptions determined discount rate used compute pension expense based yield large population highquality corporate bonds cash flows sufficient timing amount settle projected future defined benefit payments developing expected longterm rate return assets considered current pension portfolio’s composition past average rate earnings asset allocation targets used discount rate 348 determine december 31 2019 pension plan benefit obligation decrease discount rate 25 basis points would result 157 million increase pension plan benefit obligation december 31 2019 net periodic pension expense recognized 2019 marktomarket accounting policy expected longterm rate return plan assets used determine net periodic pension benefit year ended december 31 2020 expected 500 decrease expected longterm rate return 25 basis points 475 holding assumptions constant would result increase 2020 net periodic pension expense approximately 7 million see note 20 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” additional discussion assumptions results operations discussion changes results operations year ended december 31 2018 compared year ended december 31 2017 omitted annual report form 10k may found “item 7 management’s discussion analysis financial condition results operations” annual report form 10k year ended december 31 2018 filed sec february 8 2019 available free charge secs website wwwsecgov charters investor relations website irchartercom following table sets forth consolidated statements operations periods presented dollars millions except per share data revenues total revenues grew 21 billion 49 year ended december 31 2019 compared 2018 primarily due increases number residential internet commercial business customers price adjustments well launch mobile service second half 2018 offset decrease video customers revenues service offering follows dollars millions percentages calculated using whole numbers minor differences may exist due rounding video revenues consist primarily revenues basic digital video services provided residential customers well franchise fees equipment service fees video installation revenue increase video revenues attributable following dollars millions increase related rate changes primarily due price adjustments including annual increases promotional rolloff residential video customers decreased 484000 2019 compared 2018 increase internet revenues residential customers attributable following dollars millions residential internet customers grew 1283000 2019 compared 2018 increase related rate changes primarily due price adjustments including promotional rolloff decrease voice revenues residential customers attributable following dollars millions decrease related rate changes primarily due valuebased pricing residential wireline voice customers decreased 692000 2019 compared 2018 increase small medium business commercial revenues attributable following dollars millions small medium business psus increased 237000 2019 compared 2018 decrease related rate changes primarily due valuebased pricing related spp net promotional rolloff price adjustments enterprise revenues increased 28 million year ended december 31 2019 compared corresponding period 2018 primarily due growth customers offset sale nonstrategic assets enterprise psus increased 19000 2019 compared 2018 advertising sales revenues consist primarily revenues commercial advertising customers programmers vendors well local cable advertising regional sports news channels advertising sales revenues decreased 217 million year ended december 31 2019 compared corresponding period 2018 primarily due decrease political revenue year ended december 31 2019 mobile revenues included approximately 488 million device revenues approximately 238 million service revenues year ended december 31 2018 mobile revenues included approximately 97 million device revenues approximately 9 million service revenues december 31 2019 1082000 mobile lines compared 134000 mobile december 31 2108 revenues consist revenue regional sports news channels excluding intercompany charges advertising sales channels home shopping late payment fees wire maintenance fees miscellaneous revenues decrease year ended december 31 2019 compared corresponding period 2018 primarily due decrease late payment fees home shopping revenue offset sale video devices operating costs expenses increase operating costs expenses exclusive items shown separately consolidated statements operations attributable following dollars millions programming costs approximately 113 billion 111 billion representing 39 40 operating costs expenses years ended december 31 2019 2018 respectively programming costs consist primarily costs paid programmers basic digital premium vod payperview programming increase programming costs primarily result contractual rate adjustments including renewals increases amounts paid retransmission consents partly offset lower video customers payperview expect programming rates continue increase due variety factors including annual increases imposed programmers additional selling power result media consolidation increased demands owners broadcast stations payment retransmission consent linking carriage services retransmission consent additional programming particularly new services unable fully pass increases customers expect able future without potential loss customers regulatory connectivity produced content increased 156 million year ended december 31 2019 compared corresponding period 2018 primarily due higher costs video devices sold customers regulatory passthrough fees original programming costs service customers decreased 50 million year ended december 31 2019 compared corresponding period 2018 primarily due lower maintenance labor costs driven fewer customer calls truck rolls improved productivity higher number selfinstallations mobile costs 12 billion 346 million years ended december 31 2019 2018 respectively comprised mobile device costs mobile service operating costs increase expense attributable following dollars millions depreciation amortization depreciation amortization expense decreased 396 million year ended december 31 2019 compared corresponding period 2018 primarily due certain assets acquired twc bright house becoming fully depreciated offset increase depreciation result recent capital expenditures operating expenses net decrease operating expenses net attributable following dollars millions decrease merger restructuring costs primarily due lower employee retention employee termination costs incurred 2019 compared 2018 decrease loss sale assets net year ended december 31 2019 compared year ended december 31 2018 primarily due 42 million impairment nonstrategic assets incurred 2019 compared 75 million impairment nonstrategic assets incurred 2018 information see note 14 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” interest expense net interest expense increased 260 million 2019 2018 primarily due increase weighted average debt outstanding approximately 30 billion primarily result issuance notes 2019 2018 general corporate purposes including distributions parent companies stock buybacks debt repayments offset decrease weighted average interest rates loss extinguishment debt loss extinguishment debt 25 million year ended december 31 2019 primarily represents losses recognized result repurchase cco holdings notes amendments charter operatings credit facilities information see note 9 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” loss financial instruments net gains losses financial instruments recognized due changes fair value interest rate cross currency derivative instruments foreign currency remeasurement fixedrate british pound sterling denominated notes “sterling notes” us dollars information see note 11 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” pension benefits costs net pension benefits costs net increased 261 million year ended december 31 2019 compared corresponding period 2018 primarily due remeasurement loss recorded 2019 versus remeasurement gain 2018 information see note 20 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” expense net expense net includes impairments equity investments approximately 121 million 38 million years ended december 31 2019 2018 respectively information see note 6 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” income tax expense recognized income tax expense 89 million 16 million years ended december 31 2019 2018 respectively income tax expense increased year ended december 31 2019 compared corresponding period 2018 primarily result internal entity simplification higher pretax income 2019 information see note 16 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” net income attributable noncontrolling interest net income attributable noncontrolling interest relates thirdparty interest cv viera llp consolidated joint venture small cable system florida net income attributable cco holdings member net income attributable cco holdings member 23 billion 16 billion years ended december 31 2019 2018 respectively primarily result factors described use adjusted ebitda free cash flow use certain measures defined us generally accepted accounting principles “gaap” evaluate various aspects business adjusted ebitda free cash flow nongaap financial measures considered addition substitute net income attributable cco holdings member net cash flows operating activities reported accordance gaap terms defined us may comparable similarly titled measures used companies adjusted ebitda free cash flow reconciled net income attributable cco holdings member net cash flows operating activities respectively adjusted ebitda eliminates significant noncash depreciation amortization expense results capitalintensive nature businesses well noncash special items unaffected capital structure investment activities however measure limited reflect periodic costs certain capitalized tangible intangible assets used generating revenues cash cost financing costs evaluated financial measures free cash flow defined net cash flows operating activities less capital expenditures changes accrued expenses related capital expenditures management charter’s board directors use adjusted ebitda free cash flow assess performance ability service debt fund operations make additional investments internally generated funds addition adjusted ebitda generally correlates leverage ratio calculation credit facilities outstanding notes determine compliance covenants contained facilities notes documents previously filed sec purpose calculating compliance leverage covenants use adjusted ebitda presented excluding certain expenses paid operating subsidiaries charter entities debt covenants refer expenses management fees amount 12 billion 11 billion years ended december 31 2019 2018 respectively liquidity capital resources overview significant amounts debt principal amount debt december 31 2019 784 billion consisting 104 billion credit facility debt 459 billion investment grade senior secured notes 221 billion highyield senior unsecured notes business requires significant cash fund principal interest payments debt projected cash needs projected sources liquidity depend upon among things actual results timing amount expenditures continue grow new mobile services expect initial funding period grow new product well negative working capital impacts timing devicerelated cash flows provide handset tablet customers pursuant equipment installment plans free cash flow 46 billion 21 billion years ended december 31 2019 2018 respectively see table factors impacting free cash flow year ended december 31 2019 compared 2018 december 31 2019 amount available credit facilities approximately 47 billion cash hand approximately 32 billion expect utilize free cash flow cash hand availability credit facilities well future refinancing transactions extend maturities obligations timing terms refinancing transactions subject market conditions among considerations additionally may time depending market conditions factors use cash hand proceeds securities offerings borrowings retire debt open market purchases privately negotiated purchases tender offers redemption provisions believe sufficient liquidity cash hand free cash flow charter operating’s revolving credit facility well access capital markets fund projected cash needs continue evaluate deployment cash hand anticipated future free cash flow including invest business growth strategic opportunities including mergers acquisitions well distributions parent companies stock repurchases dividends charters target leverage net debt last twelve months adjusted ebitda remains 4 45 times adjusted ebitda 35 times adjusted ebitda charter operating level charters leverage ratio 45 times adjusted ebitda december 31 2019 adjusted ebitda grows expect increase total amount indebtedness maintain leverage within charters target leverage range years ended december 31 2019 2018 charter purchased approximately 167 million 141 million shares respectively charter class common stock approximately 67 billion 43 billion respectively december 2017 charter entered amendment letter agreement letter agreement requires sell charter holdings monthly basis number shares charter class common stock charter holdings common units represents pro rata participation affiliates repurchases shares charter class common stock persons effected charter immediately preceding calendar month purchase price equal average price paid charter shares repurchased persons immediately preceding calendar month charter right terminate suspend pro rata repurchase arrangement prospective basis charter holdings purchased 23 million 21 million charter holdings common units average price per unit 38872 30890 885 million 656 million years ended december 31 2019 2018 respectively december 31 2019 charter remaining board authority purchase additional 14 billion charter’s class common stock andor charter holdings common units although charter expects continue buy back common stock consistent leverage target range charter obligated acquire particular amount common stock timing purchases may occur cannot predicted largely depend market conditions potential uses capital purchases may include open market purchases tender offers negotiated transactions extent purchases occur cco holdings subsidiaries primary source funding purchases distributions parent companies possible acquisitions swaps dispositions arise actively review objectives including among considerations improving operational efficiency geographic clustering assets product development technology capabilities business achieving appropriate return targets may participate extent believe possibilities present attractive opportunities however assurance actually complete acquisitions dispositions system swaps transactions material operations results recent events december 2019 cco holdings cco holdings capital corp jointly issued additional 12 billion aggregate principal amount 4750 senior unsecured notes due 2030 price 101125 aggregate principal amount net proceeds used pay related fees expenses general corporate purposes including distributions parent companies fund buybacks charter class common stock charter holdings common units well repaying certain indebtedness december 2019 charter operating charter communications operating capital corp jointly issued additional 13 billion aggregate principal amount 4800 senior secured notes due 2050 price 101964 aggregate principal amount net proceeds used pay related fees expenses general corporate purposes including distributions parent companies fund buybacks charter class common stock charter holdings common units well repaying certain indebtedness addition debt issued december 2019 described cco holdings cco holdings capital corp jointly issued 335 billion aggregate principal amount senior unsecured notes varying rates prices maturity dates 2019 charter operating charter communications operating capital corp jointly issued 475 billion aggregate principal amount senior secured notes varying rates prices maturity dates 2019 net proceeds used pay related fees expenses general corporate purposes including distributions parent companies fund buybacks charter class common stock charter holdings common units well repaying certain indebtedness 2019 charter operating also entered amendment credit agreement repricing 45 billion revolving loan 40 billion term loan libor plus 125 existing term loan b libor plus 175 addition 45 billion revolving loan 40 billion term loan maturities extended 2025 38 billion term loan b maturities extended 2027 february 2020 cco holdings cco holding capital corp announced offering 165 billion aggregate principal amount 4500 senior notes due 2030 company expects close offering february 2020 net proceeds used pay related fees expenses general corporate purposes including repaying certain indebtedness including repayment cco holdings 5125 senior notes due 2023 5750 senior notes due 2023 5750 senior notes due 2024 well fund potential buybacks charter class common stock charter holdings common units free cash flow free cash flow increased 25 billion year ended december 31 2019 compared corresponding prior period due following free cash flow reduced 567 million year ended december 31 2019 compared corresponding prior period due mobile impacts negatively affecting working capital expenditures adjusted ebitda contractual obligations following table summarizes payment obligations december 31 2019 longterm debt certain contractual obligations commitments inclusive parent company obligations commitments expense pushed us dollars millions table presents maturities longterm debt outstanding december 31 2019 refer notes 9 19 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” description longterm debt contractual obligations commitments b interest payments variable debt estimated using amounts outstanding december 31 2019 average implied forward libor rates applicable quarter interest rate reset based yield curve effect december 31 2019 actual interest payments differ based actual libor rates actual amounts outstanding applicable periods c lease certain facilities equipment noncancelable finance operating leases finance lease obligations represented 95 million total finance operating lease obligations december 31 2019 lease rental costs charged expense years ended december 31 2019 2018 445 million 382 million respectively pay programming fees multiyear contracts typically based flat fee per customer may fixed term may cases escalate term programming costs included accompanying statement operations approximately 113 billion 111 billion years ended december 31 2019 2018 respectively certain programming agreements based flat fee per month guaranteed minimum payments table sets forth aggregate guaranteed minimum commitments programming contracts e “other” represents guaranteed minimum commitments including rights negotiated directly content owners distribution companyowned channels networks commitments related role advertising distribution sales agent third partyowned channels networks commitments customer premise equipment device vendors contractual obligations related thirdparty network augmentation following items included contractual obligations table obligations fixed andor determinable due various factors discussed however incur costs part operations • rent utility poles used operations generally pole rentals cancelable short notice anticipate rentals recur rent expense incurred pole rental attachments years ended december 31 2019 2018 180 million 171 million respectively • pay franchise fees multiyear franchise agreements based percentage revenues generated video service per year also pay franchise related costs public education grants multiyear agreements franchise fees franchiserelated costs included accompanying statement operations 750 million 747 million years ended december 31 2019 2018 respectively • 363 million letters credit 36 million secured charter operating credit facility primarily various casualty carriers collateral reimbursement workers compensation auto liability general liability claims • minimum pension funding requirements presented table amounts determined beyond 2019 made cash contributions qualified pension plans 2019 however permitted make discretionary cash contributions qualified pension plans 2020 nonqualified pension plan contributed 4 million 2019 continue make contributions 2020 extent benefits paid see part item 1 business commitments related 2016 merger twc acquisition bright house listing commitments result merger twc acquisition bright house 2016 historical operating investing financing activities cash equivalents held 32 billion 300 million cash equivalents december 31 2019 2018 respectively operating activities net cash provided operating activities increased 51 million year ended december 31 2019 compared year ended december 31 2018 primarily due increase adjusted ebitda 782 million offset changes working capital excluding change accrued interest accrued expenses related capital expenditures used 708 million cash investing activities net cash used investing activities years ended december 31 2019 2018 71 billion 97 billion respectively decrease cash used primarily due decrease capital expenditures increase accrued expenses related capital expenditures financing activities net cash used financing activities decreased 335 million year ended december 31 2019 compared year ended december 31 2018 primarily due increase amount borrowings longterm debt exceeded repayments offset increase distributions parent companies capital expenditures significant ongoing capital expenditure requirements capital expenditures 72 billion 91 billion years ended december 31 2019 2018 respectively decrease primarily due lower customer premise equipment expenditures result completion alldigital conversion fewer spp migrations lower scalable infrastructure result completion rollout docsis 31 technology across footprint lower support spending substantial completion integration twc bright house see table details currently expect 2020 cable capital expenditures decline percentage cable revenue versus 2019 actual amount capital expenditures 2020 depend number factors including spend related product development growth rates residential commercial businesses capital expenditures funded primarily cash flows operating activities borrowings credit facility addition accrued liabilities related capital expenditures increased 55 million decreased 470 million years ended december 31 2019 2018 respectively following tables present major capital expenditures categories accordance national cable telecommunications association “ncta” disclosure guidelines years ended december 31 2019 2018 disclosure guidelines required disclosures gaap impact accounting capital expenditures gaap dollars millions customer premise equipment includes costs incurred customer residence secure new customers revenue generating units including customer installation costs customer premise equipment eg settop boxes cable modems b scalable infrastructure includes costs related customer premise equipment secure growth new customers revenue generating units provide service enhancements eg headend equipment c line extensions include network costs associated entering new service areas eg fibercoaxial cable amplifiers electronic equipment makeready design engineering upgraderebuild includes costs modify replace existing fibercoaxial cable networks including betterments e support capital includes costs associated replacement enhancement nonnetwork assets due technological physical obsolescence eg nonnetwork equipment land buildings vehicles debt december 31 2019 accreted value total debt approximately 791 billion summarized dollars millions accreted values presented table represent principal amount debt adjusted original issue discount premium time sale deferred financing costs regards twc debt assumed fair value premium adjustments result applying acquisition accounting plus accretion amounts balance sheet date however amount currently payable debt becomes immediately due equal principal amount debt regards sterling notes principal amount debt premium discount remeasured us dollars balance sheet date availability credit facilities approximately 47 billion december 31 2019 b general obligors right redeem notes set forth table whole part option beginning various times prior stated maturity dates subject certain conditions upon payment outstanding principal amount plus specified redemption premium accrued unpaid interest c principal amount includes £625 million valued 828 million december 31 2019 using exchange rate december 31 2019 principal amount includes £650 million valued 861 million december 31 2019 using exchange rate december 31 2019 see note 9 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” details regarding outstanding debt financing arrangements including certain information maturities covenants restrictions related debt financing arrangements agreements instruments governing debt financing arrangements complicated consult agreements instruments filed sec detailed information december 31 2019 charter operating consolidated leverage ratio approximately 29 10 consolidated first lien leverage ratio 28 10 ratios compliance ratios required charter operating credit facilities 50 10 consolidated leverage ratio 40 10 consolidated first lien leverage ratio failure charter operating maintain financial covenants would result event default charter operating credit facilities debt cco holdings see “part item 1a risk factors agreements instruments governing debt contain restrictions limitations could significantly affect ability operate business well significantly affect liquidity” recently issued accounting standards see note 21 accompanying consolidated financial statements contained “part ii item 8 financial statements supplementary data” discussion recently issued accounting standards item 7a item 7a quantitative qualitative disclosures market risk use derivative instruments manage interest rate risk variable debt foreign exchange risk sterling notes hold issue derivative instruments speculative trading purposes crosscurrency derivative instruments used effectively convert £1275 billion aggregate principal amount fixedrate british pound sterling denominated debt including annual interest payments payment principal maturity fixedrate us dollar denominated debt crosscurrency derivative instruments maturities june 2031 july 2042 required post collateral crosscurrency derivative instruments liability position may 2016 entered collateral holiday agreement 80 2031 2042 crosscurrency swaps eliminates requirement post collateral three years fair value crosscurrency derivatives included longterm liabilities consolidated balance sheets 25 million 251 million december 31 2017 2016 respectively information see note 11 accompanying consolidated financial statements contained “part ii item 8 item 7a quantitative qualitative disclosures market risk interest rate risk exposed various market risks including fluctuations interest rates use interest rate risk management derivative instruments interest rate swap agreements interest rate collar agreements collectively referred herein interest rate agreements required terms credit facilities subsidiaries policy manage interest costs using mix fixed variable rate debt using interest rate swap agreements agree exchange specified intervals 2007 difference fixed variable interest amounts calculated reference agreedupon notional principal amount interest rate collar agreements used limit exposure derive benefits interest rate fluctuations variable rate debt within certain range rates interest rate risk management agreements held issued speculative trading purposes december 31 2005 2004 longterm debt totaled approximately 90 billion 83 billion respectively debt comprised approximately 57 billion 55 billion credit facilities debt 33 billion 28 billion accreted amount highyield notes respectively december 31 2005 2004 weighted average interest rate credit facility debt approximately 78 68 weighted average interest rate highyield notes approximately 83 82 respectively resulting blended weighted average interest rate 80 73 respectively interest rate approximately 51 59 total principal amount debt effectively fixed including effects interest rate hedge agreements december 31 2005 2004 respectively fair value highyield notes 32 billion 29 billion december 31 2005 2004 respectively fair value credit facilities 57 billion 55 billion december 31 2005 2004 respectively fair value highyield notes based quoted market prices fair value credit facilities based dealer quotations hold issue derivative instruments trading purposes however certain interest rate derivative instruments designated cash flow hedging instruments effectively convert variable interest payments certain debt instruments fixed payments qualifying hedges sfas 133 allows derivative gains losses offset related results hedged items consolidated statement operations formally documented designated assessed effectiveness transactions receive hedge accounting years ended december 31 2005 2004 2003 net gain loss derivative instruments hedging activities includes gains 3 million 4 million 8 million respectively represent cash flow hedge ineffectiveness interest rate hedge agreements arising differences critical terms agreements related hedged obligations changes fair value interest rate agreements designated hedging instruments variability cash flows associated floatingrate debt obligations meet effectiveness criteria sfas 133 reported accumulated comprehensive loss years ended december 31 2005 2004 2003 gain 16 million 42 million 48 million respectively related derivative instruments designated cash flow hedges recorded accumulated comprehensive loss amounts subsequently reclassified interest expense yield adjustment period related interest floatingrate debt obligations affects earnings losses certain interest rate derivative instruments designated hedges meet effectiveness criteria specified sfas 133 however management believes instruments closely correlated respective debt thus managing associated risk interest rate derivative instruments designated hedges marked fair value impact recorded gain loss derivative instruments hedging activities statements operations years ended december 31 2005 2004 2003 net gain loss derivative instruments hedging activities includes gains 47 million 65 million 57 million respectively interest rate derivative instruments designated hedges table set forth summarizes fair values contract terms financial instruments subject interest rate risk maintained us december 31 2005 dollars millions notional amounts interest rate instruments represent amounts exchanged parties thus measure exposure credit loss amounts exchanged determined reference notional amount terms contracts estimated fair value approximates costs proceeds settle outstanding contracts interest rates variable debt estimated using average implied forward london interbank offering rate libor rates year maturity based yield curve effect december 31 2005 december 31 2005 2004 outstanding 18 billion 27 billion 20 million 20 million respectively notional amounts interest rate swaps collars respectively notional amounts interest rate instruments represent amounts exchanged parties thus measure exposure credit loss amounts exchanged determined reference notional amount terms contracts item 8 item 7a quantitative qualitative disclosures market risk interest rate risk exposed various market risks including fluctuations interest rates use interest rate risk management derivative instruments interest rate swap agreements interest rate collar agreements collectively referred herein interest rate agreements required terms credit facilities subsidiaries policy manage interest costs using mix fixed variable rate debt using interest rate swap agreements agree exchange specified intervals difference fixed variable interest amounts calculated reference agreedupon notional principal amount interest rate collar agreements used limit exposure derive benefits interest rate fluctuations variable rate debt within certain range rates interest rate risk management agreements held issued speculative trading purposes december 31 2006 2005 longterm debt totaled approximately 86 billion 90 billion respectively december 31 2006 2005 weighted average interest rate credit facility debt approximately 79 78 weighted average interest rate highyield notes approximately 85 83 respectively resulting blended weighted average interest rate 82 80 respectively interest rate approximately 49 51 total principal amount debt effectively fixed including effects interest rate hedge agreements december 31 2006 2005 respectively hold issue derivative instruments trading purposes however certain interest rate derivative instruments designated cash flow hedging instruments effectively convert variable interest payments certain debt instruments fixed payments qualifying hedges sfas 133 allows derivative gains losses offset related results hedged items consolidated statement operations formally documented designated assessed effectiveness transactions receive hedge accounting years ended december 31 2006 2005 2004 income net includes gains 2 million 3 million 4 million respectively represent cash flow hedge ineffectiveness interest rate hedge agreements arising differences critical terms agreements related hedged obligations changes fair value interest rate agreements designated hedging instruments variability cash flows associated floatingrate debt obligations meet effectiveness criteria sfas 133 reported accumulated comprehensive loss years ended december 31 2006 2005 2004 loss 1 million gains 16 million 42 million respectively related derivative instruments designated cash flow hedges recorded accumulated comprehensive loss amounts subsequently reclassified interest expense yield adjustment period related interest floatingrate debt obligations affects earnings losses certain interest rate derivative instruments designated hedges meet effectiveness criteria specified sfas 133 however management believes instruments closely correlated respective debt thus managing associated risk interest rate derivative instruments designated hedges marked fair value impact recorded income net statements operations years ended december 31 2006 2005 2004 income net includes gains 4 million 47 million 65 million respectively interest rate derivative instruments designated hedges table set forth summarizes fair values contract terms financial instruments subject interest rate risk maintained us december 31 2006 dollars millions notional amounts interest rate instruments represent amounts exchanged parties thus measure exposure credit loss amounts exchanged determined reference notional amount terms contracts estimated fair value approximates costs proceeds settle outstanding contracts interest rates variable debt estimated using average implied forward london interbank offering rate libor rates year maturity based yield curve effect december 31 2006 december 31 2006 2005 outstanding 17 billion 18 billion 0 20 million respectively notional amounts interest rate swaps collars respectively notional amounts interest rate instruments represent amounts exchanged parties thus measure exposure credit loss amounts exchanged determined reference notional amount terms contracts item 8 item 7a quantitative qualitative disclosures market risk interest rate risk exposed various market risks including fluctuations interest rates use interest rate risk management derivative instruments including limited interest rate swap agreements interest rate collar agreements collectively referred herein interest rate agreements manage interest costs reduce exposure increases floating interest rates policy manage exposure fluctuations interest rates maintaining mix fixed variable rate debt within targeted range using interest rate swap agreements agree exchange specified intervals 2013 difference fixed variable interest amounts calculated reference agreedupon notional principal amounts december 31 2007 2006 charter holdings’ cch ii’s cco holdings’ accreted value consolidated longterm debt weighted average interest rates percentage debt effectively fixed including effects interest rate hedge agreements follows dollars millions hold issue derivative instruments trading purposes however certain interest rate derivative instruments designated cash flow hedging instruments effectively convert variable interest payments certain debt instruments fixed payments qualifying hedges sfas 133 allows derivative gains losses offset related results hedged items consolidated statement operations formally documented designated assessed effectiveness transactions receive hedge accounting years ended december 31 2007 2006 income expense net includes gains 0 2 million respectively represent cash flow hedge ineffectiveness interest rate hedge agreements ineffectiveness arises differences critical terms agreements related hedged obligations changes fair value interest rate agreements designated hedging instruments variability cash flows associated floatingrate debt obligations meet effectiveness criteria sfas 133 reported accumulated comprehensive income loss years ended december 31 2007 2006 losses 123 million 1 million respectively related derivative instruments designated cash flow hedges recorded accumulated comprehensive income loss amounts subsequently reclassified increase decrease interest expense periods related interest floatingrate debt obligations affects earnings losses certain interest rate derivative instruments designated hedges meet effectiveness criteria specified sfas 133 however management believes instruments closely correlated respective debt thus managing associated risk interest rate derivative instruments designated hedges marked fair value impact recorded income expense net statements operations years ended december 31 2007 2006 income expense net includes losses 46 million gains 4 million respectively resulting interest rate derivative instruments designated hedges table set forth summarizes fair values contract terms financial instruments subject interest rate risk maintained charter holdings cch ii cco holdings december 31 2007 dollars millions notional amounts interest rate instruments represent amounts exchanged parties thus measure exposure credit loss amounts exchanged determined reference notional amount terms contracts estimated fair value approximates costs proceeds settle outstanding contracts interest rates variable debt estimated using average implied forward libor year maturity based yield curve effect december 31 2007 including applicable bank spread december 31 2007 2006 outstanding 43 billion 17 billion respectively notional amounts interest rate swaps notional amounts interest rate instruments represent amounts exchanged parties thus measure exposure credit loss amounts exchanged determined reference notional amount terms contracts item 8 item 7a quantitative qualitative disclosures market risk use derivative instruments manage foreign exchange risk sterling notes hold issue derivative instruments speculative trading purposes crosscurrency derivative instruments used effectively convert £1275 billion aggregate principal amount fixedrate british pound sterling denominated debt including annual interest payments payment principal maturity fixedrate us dollar denominated debt crosscurrency derivative instruments maturities june 2031 july 2042 required post collateral crosscurrency derivative instruments liability position may 2016 entered collateral holiday agreement 80 2031 2042 crosscurrency swaps eliminates requirement post collateral three years fair value crosscurrency derivatives included longterm liabilities consolidated balance sheets 237 million 25 million december 31 2018 2017 respectively information see note 10 accompanying consolidated financial statements contained “part ii item 8 item 7a quantitative qualitative disclosures market risk interest rate risk exposed various market risks including fluctuations interest rates used interest rate swap agreements manage interest costs reduce exposure increases floating interest rates policy manage exposure fluctuations interest rates maintaining mix fixed variable rate debt within targeted range upon filing chapter 11 bankruptcy counterparties interest rate swap agreements terminated underlying contracts upon emergence bankruptcy received payment 495 million market value interest rate swap agreements measured date counterparties terminated plus accrued interest hold derivative financial instruments december 31 2009 december 31 2009 2008 total debt approximately 112 billion 118 billion respectively december 31 2009 2008 weighted average interest rate credit facility debt approximately 26 55 respectively weighted average interest rate highyield notes approximately 88 respectively resulting blended weighted average interest rate 43 64 respectively interest rate approximately 27 64 total principal amount debt effectively fixed including effects interest rate hedge agreements december 31 2009 2008 respectively table set forth summarizes fair values contract terms financial instruments subject interest rate risk maintained us december 31 2009 dollars millions interest rates variable debt estimated using average implied forward libor year maturity based yield curve effect december 31 2009 including applicable bank spread december 31 2008 outstanding 43 billion notional amounts interest rate swap agreements outstanding notional amounts interest rate instruments represent amounts exchanged parties thus measure exposure credit loss amounts exchanged determined reference notional amount terms contracts item 8 item 7a quantitative qualitative disclosures market risk interest rate risk exposed various market risks including fluctuations interest rates use interest rate risk management derivative instruments interest rate swap agreements interest rate collar agreements collectively referred herein interest rate agreements required terms credit facilities subsidiaries policy manage interest costs using mix fixed variable rate debt using interest rate swap agreements agree exchange specified intervals 2007 difference fixed variable interest amounts calculated reference agreedupon notional principal amount interest rate collar agreements used limit exposure derive benefits interest rate fluctuations variable rate debt within certain range rates interest rate risk management agreements held issued speculative trading purposes december 31 2004 2003 longterm debt totaled approximately 83 billion 80 billion respectively debt comprised approximately 55 billion 72 billion credit facilities debt 28 billion 727 million principal amount highyield notes respectively december 31 2004 2003 weighted average interest rate credit facility debt approximately 68 54 weighted average interest rate highyield notes approximately 82 94 resulting blended weighted average interest rate 73 58 respectively interest rate approximately 59 52 total principal amount debt effectively fixed including effects interest rate hedge agreements december 31 2004 2003 respectively fair value highyield notes 29 billion 748 million december 31 2004 2003 respectively fair value credit facilities 55 billion 69 billion december 31 2004 2003 respectively fair value highyield notes based quoted market prices fair value credit facilities based dealer quotations hold issue derivative instruments trading purposes however certain interest rate derivative instruments designated cash flow hedging instruments effectively convert variable interest payments certain debt instruments fixed payments qualifying hedges sfas 133 allows derivative gains losses offset related results hedged items consolidated statement operations formally documented designated assessed effectiveness transactions receive hedge accounting years ended december 31 2004 2003 2002 net gain loss derivative instruments hedging activities includes gains 4 million 8 million losses 14 million respectively represent cash flow hedge ineffectiveness interest rate hedge agreements arising differences critical terms agreements related hedged obligations changes fair value interest rate agreements designated hedging instruments variability cash flows associated floatingrate debt obligations meet effectiveness criteria sfas 133 reported accumulated comprehensive loss years ended december 31 2004 2003 2002 gain 42 million 48 million losses 65 million respectively related derivative instruments designated cash flow hedges recorded accumulated comprehensive loss amounts subsequently reclassified interest expense yield adjustment period related interest floatingrate debt obligations affects earnings losses certain interest rate derivative instruments designated hedges meet effectiveness criteria specified sfas 133 however management believes instruments closely correlated respective debt thus managing associated risk interest rate derivative instruments designated hedges marked fair value impact recorded gain loss derivative instruments hedging activities statements operations years ended december 31 2004 2003 2002 net gain loss derivative instruments hedging activities includes gains 65 million 57 million losses 101 million respectively interest rate derivative instruments designated hedges table set forth summarizes fair values contract terms financial instruments subject interest rate risk maintained us december 31 2004 dollars millions notional amounts interest rate instruments represent amounts exchanged parties thus measure exposure credit loss amounts exchanged determined reference notional amount terms contracts estimated fair value approximates costs proceeds settle outstanding contracts interest rates variable debt estimated using average implied forward london interbank offering rate libor rates year maturity based yield curve effect december 31 2004 december 31 2004 2003 outstanding 27 billion 30 billion 20 million 520 million respectively notional amounts interest rate swaps collars respectively notional amounts interest rate instruments represent amounts exchanged parties thus measure exposure credit loss amounts exchanged determined reference notional amount terms contracts item 8 item 7a quantitative qualitative disclosures market risk interest rate risk exposed various market risks including fluctuations interest rates use interest rate swap agreements manage interest costs reduce exposure increases floating interest rates policy manage exposure fluctuations interest rates maintaining mix fixed variable rate debt within targeted range using interest rate swap agreements agree exchange specified intervals 2013 difference fixed variable interest amounts calculated reference agreedupon notional principal amounts banks’ option certain interest rate swap agreements may extended 2014 december 31 2008 2007 total debt approximately 118 billion 99 billion respectively december 31 2008 2007 weighted average interest rate credit facility debt approximately 55 68 respectively weighted average interest rate highyield notes approximately 88 82 respectively resulting blended weighted average interest rate 64 73 respectively interest rate approximately 64 68 total principal amount debt effectively fixed including effects interest rate hedge agreements december 31 2008 2007 respectively hold issue derivative instruments trading purposes however certain interest rate derivative instruments designated cash flow hedging instruments effectively convert variable interest payments certain debt instruments fixed payments qualifying hedges sfas 133 allows derivative gains losses offset related results hedged items consolidated statement operations formally documented designated assessed effectiveness transactions receive hedge accounting years ended december 31 2008 2007 cash flow hedge ineffectiveness interest rate hedge agreements ineffectiveness arises differences critical terms agreements related hedged obligations changes fair value interest rate agreements designated hedging instruments variability cash flows associated floatingrate debt obligations meet effectiveness criteria sfas 133 reported accumulated comprehensive loss years ended december 31 2008 2007 losses 180 million 123 million respectively related derivative instruments designated cash flow hedges recorded accumulated comprehensive loss amounts subsequently reclassified increase decrease interest expense periods related interest floatingrate debt obligations affects earnings losses certain interest rate derivative instruments designated hedges meet effectiveness criteria specified sfas 133 however management believes instruments closely correlated respective debt thus managing associated risk interest rate derivative instruments designated hedges marked fair value impact recorded change value derivatives statements operations years ended december 31 2008 2007 change value derivatives includes losses 62 million 46 million respectively resulting interest rate derivative instruments designated hedges table set forth summarizes fair values contract terms financial instruments subject interest rate risk maintained us december 31 2008 dollars millions notional amounts interest rate instruments represent amounts exchanged parties thus measure exposure credit loss amounts exchanged determined reference notional amount terms contracts estimated fair value approximates costs proceeds settle outstanding contracts adjusted charter operating’s credit risk interest rates variable debt estimated using average implied forward libor year maturity based yield curve effect december 31 2008 including applicable bank spread december 31 2008 2007 outstanding 43 billion 43 billion respectively notional amounts interest rate swaps notional amounts interest rate instruments represent amounts exchanged parties thus measure exposure credit loss amounts exchanged determined reference notional amount terms contracts item 8 item 7a quantitative qualitative disclosures market risk use derivative instruments manage foreign exchange risk sterling notes hold issue derivative instruments speculative trading purposes crosscurrency derivative instruments used effectively convert £1275 billion aggregate principal amount fixedrate british pound sterling denominated debt including annual interest payments payment principal maturity fixedrate us dollar denominated debt crosscurrency derivative instruments maturities june 2031 july 2042 required post collateral crosscurrency derivative instruments liability position april 2019 entered collateral holiday agreement 60 2031 2042 crosscurrency swaps eliminates requirement post collateral three years well ten year collateral cap remaining 40 crosscurrency swaps limits required collateral posting 40 crosscurrency swaps 150 million fair value crosscurrency derivatives included longterm liabilities consolidated balance sheets 184 million 224 million december 31 2020 2019 respectively information see note 11 accompanying consolidated financial statements contained “part ii item 8 item 7a quantitative qualitative disclosures market risk use derivative instruments manage interest rate risk variable debt foreign exchange risk sterling notes hold issue derivative instruments speculative trading purposes interest rate derivative instruments used manage interest costs reduce exposure increases floating interest rates manage exposure fluctuations interest rates maintaining mix fixed variablerate debt using interest rate derivative instruments agree exchange specified intervals 2017 difference fixed variable interest amounts calculated reference agreedupon notional principal amounts upon closing twc transaction assumed crosscurrency derivative instruments crosscurrency derivative instruments used effectively convert £1275 billion aggregate principal amount fixedrate british pound sterling denominated debt including annual interest payments payment principal maturity fixedrate us dollar denominated debt crosscurrency derivative instruments maturities june 2031 july 2042 required post collateral crosscurrency derivative instruments liability position may 2016 entered collateral holiday agreement 80 2031 2042 crosscurrency swaps eliminates requirement post collateral three years information see note 11 accompanying consolidated financial statements contained “part ii item 8 item 7a quantitative qualitative disclosures market risk use derivative instruments manage foreign exchange risk sterling notes hold issue derivative instruments speculative trading purposes crosscurrency derivative instruments used effectively convert £1275 billion aggregate principal amount fixedrate british pound sterling denominated debt including annual interest payments payment principal maturity fixedrate us dollar denominated debt crosscurrency derivative instruments maturities june 2031 july 2042 required post collateral crosscurrency derivative instruments liability position april 2019 entered collateral holiday agreement 60 2031 2042 crosscurrency swaps eliminates requirement post collateral three years well ten year collateral cap remaining 40 crosscurrency swaps limits required collateral posting 40 crosscurrency swaps 150 million fair value crosscurrency derivatives included longterm liabilities consolidated balance sheets 224 million 237 million december 31 2019 2018 respectively information see note 11 accompanying consolidated financial statements contained “part ii item 8 item 8 financial statements supplementary data consolidated financial statements related notes thereto reports independent accountants included annual report beginning page item 9 item 8 financial statements supplementary data consolidated financial statements related notes thereto reports independent auditors included annual report beginning page item 9 item 8 financial statements supplementary data consolidated financial statements related notes thereto reports independent auditors included annual report beginning page item 9 item 8 financial statements supplementary data consolidated financial statements related notes thereto reports independent accountants included annual report beginning page item 9 item 8 financial statements supplementary data consolidated financial statements related notes thereto reports independent accountants included annual report beginning page item 9 item 8 financial statements supplementary data consolidated financial statements related notes thereto reports independent accountants included annual report beginning page item 9 item 8 financial statements supplementary data consolidated financial statements related notes thereto reports independent auditors included annual report beginning page item 9 item 8 financial statements supplementary data consolidated financial statements related notes thereto reports independent accountants included annual report beginning page item 9 item 8 financial statements supplementary data consolidated financial statements related notes thereto reports independent accountants included annual report beginning page item 9 item 8 financial statements supplementary data consolidated financial statements related notes thereto reports independent accountants included annual report beginning page item 9 item 8 financial statements supplementary data consolidated financial statements related notes thereto reports independent accountants included annual report beginning page item 9 item 15 exhibits financial statement schedules following documents filed part annual report 1 financial statements listing financial statements notes reports independent public accountants required part ii item 8 financial statements supplementary data begins page annual report 2 financial statement schedules financial statement schedules required filed items 8 15c required applicable required information set forth applicable financial statements notes thereto 3 index exhibits begins page e1 annual report signatures pursuant requirements section 13 15d securities exchange act 1934 cco holdings llc cco holdings capital corp duly caused annual report signed behalf undersigned thereunto duly authorized cco holdings llc registrant kevin howard kevin howard senior vice president finance controller date february 13 2018 chief accounting officer cco holdings capital corp registrant kevin howard kevin howard senior vice president finance controller date february 13 2018 chief accounting officer pursuant requirements securities exchange act 1934 report signed following persons behalf cco holdings llc cco holdings capital corp capacities dates indicated signature title date thomas rutledge thomas rutledge chairman chief executive officer director principal executive officer february 13 2018 christopher l winfrey christopher l winfrey chief financial officer principal financial officer february 13 2018 kevin howard kevin howard senior vice president finance controller chief accounting officer principal accounting officer february 13 2018 charter communications inc sole capacity manager cco holdings llc kevin howard kevin howard senior vice president finance controller date february 13 2018 chief accounting officer 1 exhibit index exhibits listed numbers corresponding exhibit table item 601 regulation sk e 1 e 2 e 3 e 4 e 5 e 6 e 7 e 8 filed herewith management compensatory plan arrangement e 9 f 1 report independent registered public accounting firm manager member cco holdings llc cco holdings capital corp opinion consolidated financial statements audited accompanying consolidated balance sheets cco holdings llc cco holdings capital corp subsidiaries company december 31 2017 2016 related consolidated statements operations comprehensive income member’s equity cash flows years threeyear period ended december 31 2017 related notes collectively consolidated financial statements opinion consolidated financial statements present fairly material respects financial position company december 31 2017 2016 results operations cash flows years threeyear period ended december 31 2017 conformity us generally accepted accounting principles basis opinion consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion signed kpmg llp served company’s auditor since 2003 st louis missouri february 13 2018 f 2 cco holdings llc subsidiaries consolidated balance sheets dollars millions accompanying notes integral part consolidated financial statements f 3 cco holdings llc subsidiaries consolidated statements operations dollars millions accompanying notes integral part consolidated financial statements f 4 cco holdings llc subsidiaries consolidated statements comprehensive income dollars millions accompanying notes integral part consolidated financial statements f 5 cco holdings llc subsidiaries consolidated statements changes members equity dollars millions accompanying notes integral part consolidated financial statements f 6 cco holdings llc subsidiaries consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements f 7 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated 1 organization basis presentation organization cco holdings llc together subsidiaries “cco holdings” “company” second largest cable operator united states leading broadband communications company providing video internet voice services residential business customers addition company sells video online advertising inventory local regional national advertising customers fiberdelivered communications managed information technology solutions larger enterprise customers company also owns operates regional sports networks local sports news lifestyle channels sells security home management services residential marketplace cco holdings holding company whose principal assets equity interests operating subsidiaries cco holdings direct subsidiary cch holdings llc “cch i” indirect subsidiary charter communications inc “charter” charter communications holdings llc “charter holdings” spectrum management holding company llc “spectrum management” consolidated financial statements include accounts cco holdings subsidiaries underlying operations reside significant intercompany accounts transactions among consolidated entities eliminated charter holdings spectrum management performed financing cash management treasury services cco holdings centralized basis changes member’s equity consolidated balance sheets related activities considered cash receipts contributions payments distributions purposes consolidated statements cash flows reflected financing activities basis presentation accompanying consolidated financial statements prepared accordance us generally accepted accounting principles “gaap” rules regulations securities exchange commission “sec” preparation financial statements conformity gaap requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period areas involving significant judgments estimates include capitalization labor overhead costs depreciation amortization costs purchase accounting valuations assets liabilities including limited property plant equipment intangibles goodwill pension benefits income taxes contingencies programming expense actual results could differ estimates certain prior period amounts reclassified conform 2017 presentation 2 summary significant accounting policies consolidation accompanying consolidated financial statements include accounts cco holdings entities cco holdings controlling interest noncontrolling interest company’s balance sheet represents thirdparty interest cv viera llp companys consolidated joint venture small cable system florida see note 7 significant intercompany accounts transactions among consolidated entities eliminated consolidation cash equivalents company considers highly liquid investments original maturities three months less cash equivalents investments carried cost approximates market value cash equivalents consist primarily money market funds property plant equipment additions property plant equipment recorded cost including material labor certain indirect costs associated construction cable transmission distribution facilities company’s capitalization based specific f 8 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated activities capitalized costs tracked composite basis fixed asset category cable system level specific asset basis assets sold retired estimated historical cost related accumulated depreciation removed costs associated initial placement customer drop dwelling initial placement outlets within dwelling along costs associated initial deployment customer premise equipment necessary provide video internet voice services capitalized costs capitalized include materials direct labor certain indirect costs indirect costs associated activities company’s personnel assist installation activities consist compensation costs associated support functions indirect costs primarily include employee benefits payroll taxes vehicle occupancy costs sales dispatch personnel associated capitalizable activities costs disconnecting service removing customer premise equipment dwelling costs reconnect customer drop redeploy previously installed customer premise equipment charged operating expense incurred costs repairs maintenance charged operating expense incurred plant equipment replacement including replacement certain components betterments including replacement cable drops outlets capitalized depreciation recorded using straightline composite method management’s estimate useful lives related assets follows asset retirement obligations certain company’s franchise agreements leases contain provisions requiring company restore facilities remove equipment event franchise lease agreement renewed company expects continually renew franchise agreements therefore cannot reasonably estimate liabilities associated agreements remote possibility exists franchise agreements could terminated unexpectedly could result company incurring significant expense complying restoration removal provisions company significant liabilities related asset retirements recorded consolidated financial statements valuation longlived assets company evaluates recoverability longlived assets eg property plant equipment finitelived intangible assets held used events changes circumstances indicate carrying amount asset may recoverable events changes circumstances could include factors impairment company’s indefinite life assets changes technological advances fluctuations fair value assets adverse changes relationships local franchise authorities adverse changes market conditions deterioration current expected future operating results review indicates carrying value asset recoverable estimated undiscounted cash flows carrying value asset reduced estimated fair value company believes estimates future cash flows reasonable different assumptions regarding cash flows could materially affect evaluations asset recoverability impairments longlived assets held used recorded 2017 2016 2015 noncurrent assets noncurrent assets primarily include investments rightofentry costs intangible assets company accounts investments less majority owned investees either equity cost method company applies equity method investments ability exercise significant influence operating financial policies investee company’s share investee’s earnings losses included expense net consolidated statements operations company monitors investments indicators decrease investment value occurred temporary determined investment sustained temporary decline value investment written fair value charge earnings investments acquired measured fair value utilizing acquisition method accounting difference fair value amount underlying equity net assets equity method investments due previously unrecognized intangible assets investee amounts amortized component f 9 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated equity earnings losses recorded within expense net estimated useful life asset rightofentry costs represent upfront costs incurred related agreements entered multiple dwelling units “mdus” including landlords real estate companies owners gain access building order market service customers reside building rightofentry costs deferred amortized amortization expense term agreement revenue recognition revenues residential commercial video internet voice services recognized related services provided advertising sales recognized estimated realizable values period advertisements broadcast cases company coordinates advertising sales efforts cable operators certain market remits amounts received customers less agreedupon percentage cable operator arrangements company acts principal company records revenues earned advertising customer gross basis amount remitted cable operator operating expense fees imposed company various governmental authorities passed monthly basis company’s customers periodically remitted authorities fees 961 million 711 million 255 million years ended december 31 2017 2016 2015 respectively reported video voice commercial revenues gross basis corresponding operating expense company acting principal taxes sales taxes imposed company’s customers collected remitted state local authorities recorded net basis company acting agent situation company’s revenues product line follows programming costs company various contracts obtain video programming vendors whose compensation typically based flat fee per customer cost right exhibit network programming arrangements recorded operating expenses month programming available exhibition programming costs paid month based calculations performed company subject periodic audits performed programmers certain programming contracts contain cash noncash consideration programmers consideration received relate separate product service company recognizes consideration straightline basis life programming agreement reduction programming expense programming costs included statements operations 106 billion 70 billion 27 billion years ended december 31 2017 2016 2015 respectively f 10 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated advertising costs advertising costs associated marketing company’s products services generally expensed costs incurred multipleelement transactions normal course business company enters multipleelement transactions simultaneously customer vendor counterparty purchases multiple products andor services settles outstanding items contemporaneous purchase product service single counterparty transactions although negotiated contemporaneously may documented one contracts company’s policy accounting transaction negotiated contemporaneously record element transaction based respective estimated fair values products services purchased products services sold determining fair value respective elements company refers quoted market prices available historical transactions comparable cash transactions cash consideration received vendor recorded reduction price vendor’s product unless consideration reimbursement specific incremental identifiable cost incurred case cash consideration received would recorded reduction cost eg marketing costs ii identifiable benefit exchange consideration provided case revenue would recognized element stockbased compensation restricted stock restricted stock units stock options well equity awards market conditions measured grant date fair value amortized stock compensation expense requisite service period fair value options estimated date grant using blackscholes optionpricing model fair value equity awards market conditions estimated date grant using monte carlo simulations grant date weighted average assumptions used years ended december 31 2017 2016 2015 respectively riskfree interest rate 18 17 15 expected volatility 250 254 347 expected lives 46 years 13 years 65 years weighted average assumptions 2016 include assumptions used converted twc awards see note 15 company’s volatility assumptions represent management’s best estimate based historical volatility legacy charter legacy twc see note 3 expected lives estimated using historical exercise data valuations assume dividends paid pension plans company sponsors twc pension plan twc union pension plan twc excess pension plan defined note 19 pension benefits based formulas reflect employees’ years service compensation employment period actuarial gains losses changes amount either benefit obligation fair value plan assets resulting experience different assumed changes assumptions company elected follow marktomarket pension accounting policy recording actuarial gains losses annually fourth quarter earlier remeasurement event occurs interim period income taxes cco holdings single member limited liability company subject income tax cco holdings holds operations indirect subsidiaries majority indirect subsidiaries limited liability companies subject income tax certain indirect subsidiaries required file separate returns subject federal state tax cco holdings’ tax provision reflects tax provision entities required file separate returns company recognizes deferred tax assets liabilities temporary differences financial reporting basis tax basis indirect subsidiaries assets liabilities expected benefits utilizing loss carryforwards impact deferred taxes changes tax rates tax law applied years temporary differences expected settled reflected consolidated financial statements period enactment see note 16 charter company’s indirect parent company subject income taxes accordingly addition company’s deferred tax liabilities charter recorded net deferred tax liabilities approximately 173 billion 267 billion december 31 2017 2016 respectively related investment charter holdings net loss carryforwards reflected company f 11 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated segments company’s operations managed reported chief executive officer “ceo” company’s chief operating decision maker consolidated basis ceo assesses performance allocates resources based consolidated results operations organizational reporting structure company one reportable segment cable services 3 mergers acquisitions transactions may 18 2016 transactions contemplated agreement plan mergers dated may 23 2015 “merger agreement” among time warner cable inc “legacy twc” charter communications inc prior closing merger agreement “legacy charter” cch llc previously wholly owned subsidiary legacy charter certain subsidiaries cch llc completed “twc transaction” together bright house transaction described “transactions” result twc transaction cch llc became new public parent company holds operations combined companies renamed charter communications inc date completion transactions total value twc transaction approximately 85 billion including cash equity legacy twc assumed debt also may 18 2016 legacy charter advancenewhouse partnership “an” former parent bright house networks llc “legacy bright house” completed previously announced transaction pursuant definitive contribution agreement “contribution agreement” charter acquired legacy bright house “bright house transaction” approximately 122 billion consisting cash convertible preferred units charter holdings common units charter holdings pursuant bright house transaction charter became owner membership interests legacy bright house assets primarily related legacy bright house certain excluded assets liabilities nonoperating cash connection twc transaction liberty broadband purchased shares charter class common stock partially finance cash portion twc transaction consideration connection bright house transaction liberty broadband purchased shares charter class common stock “liberty transaction” acquisition accounting charter applied acquisition accounting transactions total purchase price allocated identifiable tangible intangible assets acquired liabilities assumed based estimated fair values fair values primarily based thirdparty valuations using assumptions developed management information compiled management including limited future expected cash flows excess purchase price fair values recorded goodwill f 12 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated tables present final allocation purchase price assets acquired liabilities assumed transactions twc allocation purchase price subsequent december 31 2016 end measurement period charter made adjustments fair value certain assets acquired liabilities assumed twc transaction including decrease working capital 73 million decrease 28 million deferred income tax liabilities resulting net increase 45 million goodwill bright house allocation purchase price connection transactions subsidiaries charter contributed company net assets liabilities legacy twc legacy bright house except deferred tax liabilities charter noted net assets approximately 10 billion primarily comprised cash equivalents used source cash portion twc purchase price f 13 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated selected pro forma financial information following unaudited pro forma financial information company based historical consolidated financial statements legacy charter legacy twc legacy bright house intended provide information transactions related financing may affected company’s historical consolidated financial statements closed january 1 2015 pro forma financial information based available information assumptions company believes reasonable pro forma financial information illustrative informational purposes intended represent indicative company’s financial condition results operations would transactions described occurred date indicated pro forma financial information also considered representative company’s future financial condition results operations 4 allowance doubtful accounts activity allowance doubtful accounts summarized follows years presented 5 property plant equipment property plant equipment consists following december 31 2017 2016 company periodically evaluates estimated useful lives used depreciate assets estimated amount assets abandoned minimal use future significant change assumptions extent timing future asset retirements company’s use new technology upgrade programs could materially affect future depreciation expense depreciation expense years ended december 31 2017 2016 2015 78 billion 50 billion 19 billion respectively f 14 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated 6 franchises goodwill intangible assets franchise rights represent value attributed agreements authorizations local state authorities allow access homes cable service areas valuation purposes defined future economic benefits right solicit service potential customers customer marketing rights right deploy market new services potential customers service marketing rights management estimates fair value franchise rights date acquisition determines franchise finite life indefinite life company concluded franchises qualify indefinite life treatment given legal regulatory contractual competitive economic factors limit period rights contribute companys cash flows company reassesses determination periodically whenever events substantive changes circumstances occur franchises tested impairment annually frequently warranted events changes circumstances franchise assets aggregated essentially inseparable units accounting conduct valuations units accounting generally represent geographical clustering companys cable systems groups company assesses qualitative factors determine whether existence events circumstances leads determination likely indefinite lived intangible asset impaired optional qualitative assessment company determines likely indefinite lived intangible asset impaired quantitative testing necessary completing qualitative impairment testing company evaluates multitude factors affect fair value franchise assets examples factors include environmental competitive changes within operating footprint actual projected operating performance consistency operating margins equity debt market trends including changes market capitalization changes regulatory political landscape among factors company performed qualitative assessment 2017 also included consideration fair value appraisal performed tax purposes beginning 2017 december 31 2016 valuation date appraisal consideration qualitative factors 2017 including results appraisal company concluded likely fair value franchise assets unit accounting exceeds carrying value assets therefore perform quantitative analysis assessment date periodically company elect perform quantitative analysis impairment testing company elects required perform quantitative analysis test franchise assets impairment methodology described utilized quantitative analysis performed estimated fair value franchises determined utilizing income approach model based present value estimated discrete future cash flows attributable intangible assets identified assuming discount rate fair value franchises determined based estimated discrete discounted future cash flows using assumptions consistent internal forecasts franchise aftertax cash flow calculated aftertax cash flow generated potential customers obtained sum present value franchises’ aftertax cash flow years 1 10 continuing value aftertax cash flow beyond year 10 yields fair value franchises approach makes use unobservable factors projected revenues expenses capital expenditures customer trends discount rate applied estimated cash flows determination franchise discount rate derived company’s weighted average cost capital uses market participant’s cost equity aftertax cost debt reflects risks inherent cash flows company estimates discounted future cash flows using reasonable appropriate assumptions including among others penetration rates video internet voice revenue growth rates operating margins capital expenditures assumptions based company’s peers’ historical operating performance adjusted current expected competitive economic factors surrounding cable industry estimates assumptions made company’s valuations inherently subject significant uncertainties many beyond control assurance results achieved primary assumptions reasonable possibility occurrence variation would significantly affect measurement value include assumptions regarding revenue growth programming expense growth rates amount timing capital expenditures actual customer trends discount rate utilized fair value goodwill determined using income approach market approach company’s income approach model used goodwill valuation consistent used franchise valuation noted except cash flows entire business enterprise used goodwill valuation company’s market approach model estimates fair value reporting unit based market prices actual precedent transactions similar businesses market valuations f 15 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated guideline public companies goodwill tested impairment november 30 year frequently warranted events changes circumstances accounting guidance also permits optional qualitative assessment goodwill determine whether likely carrying value reporting unit exceeds fair value qualitative assessment company determines likely fair value reporting unit less carrying amount quantitative testing would necessary company elects required perform twostep test accounting guidance first step involves comparison estimated fair value reporting unit carrying amount estimated fair value reporting unit exceeds carrying amount goodwill reporting unit considered impaired second step goodwill impairment necessary carrying amount reporting unit exceeds estimated fair value second step goodwill impairment test must performed comparison implied fair value reporting unit’s goodwill compared carrying amount determine amount impairment company’s franchise impairment testing 2017 company elected perform qualitative goodwill impairment assessment incorporated results appraisal consideration qualitative factors relevant companys franchise impairment testing result assessment company concluded goodwill impaired customer relationships recorded fair value date acquired less accumulated amortization customer relationships valuation purposes represent value business relationship existing customers calculated projecting discrete future aftertax cash flows customers including right deploy market additional services customers present value aftertax cash flows yields fair value customer relationships use different valuation assumptions definitions franchises customer relationships inclusion value selling additional services current customers within customer relationships versus franchises could significantly impact valuations resulting impairment customer relationships amortized accelerated sum years’ digits method useful lives 815 years based period current customers expected generate cash flows company periodically evaluates remaining useful lives customer relationships determine whether events circumstances warrant revision remaining periods amortization customer relationships evaluated impairment upon occurrence events changes circumstances indicating carrying amount asset may recoverable customer relationships deemed impaired carrying value exceeds projected undiscounted future cash flows associated customer relationships impairment customer relationships recorded years ended december 31 2017 2016 2015 december 31 2017 2016 indefinitelived finitelived intangible assets presented following table intangible assets consist primarily rightofentry costs amortization expense related customer relationships intangible assets years ended december 31 2017 2016 2015 27 billion 19 billion 271 million respectively f 16 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated company expects amortization expense finitelived intangible assets follows actual amortization expense future periods could differ estimates result new intangible asset acquisitions divestitures changes useful lives impairments adoption new accounting standards relevant factors 7 investments consisted following december 31 2017 2016 companys investments include sterling entertainment enterprises llc “sterling” dba sportsnet new york 268 owned mlb network llc “mlb network” 64 owned demand llc “in demand” 395 owned national cable communications llc “ncc” 200 owned among less significant equitymethod costmethod investments sterling mlb network primarily engaged development sports programming services demand provides programming video demand payperview subscription basis ncc represents multivideo program distributors advertisers companys equitymethod investments balances reflected table includes differences acquisition date fair value certain investments acquired underlying equity net assets investee referred basis difference basis difference amortized component equity earnings remaining unamortized basis difference 407 million 436 million december 31 2017 2016 respectively company applies equity method accounting less significant equitymethod investments recorded noncurrent assets consolidated balance sheets december 31 2017 2016 years ended december 31 2017 2016 net losses equitymethod investments 4 million 3 million respectively recorded expense net consolidated statements operations year ended december 31 2015 gains losses equitymethod investments insignificant noncontrolling interests assumed transactions recorded fair value acquisition date primarily relate thirdparty interest cv viera llp company’s consolidated joint venture small cable system florida years ended december 31 2017 2016 net income attributable noncontrolling interest 1 million f 17 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated 8 accounts payable accrued liabilities accounts payable accrued liabilities consist following december 31 2017 2016 9 longterm debt longterm debt consists following december 31 2017 2016 f 18 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated principal amount includes £625 million valued 845 million 770 million december 31 2017 december 31 2016 respectively using exchange rate date b principal amount includes £650 million valued 879 million 800 million december 31 2017 december 31 2016 respectively using exchange rate date accreted values presented table represent principal amount debt less original issue discount time sale deferred financing costs regards legacy twc debt assumed fair value premium adjustments result applying acquisition accounting plus accretion amounts balance sheet date however amount currently payable debt becomes immediately due equal principal amount debt regards fixedrate british pound sterling denominated notes “sterling notes” principal amount debt premium discount remeasured us dollars balance sheet date see note 11 company availability charter operating credit facilities approximately 36 billion december 31 2017 2015 cco holdings cco holdings capital closed transactions issued 27 billion aggregate principal amount senior unsecured notes varying maturities interest rates net proceeds used repurchase 25 billion various series senior unsecured notes well general corporate purposes debt repurchases resulted loss extinguishment debt 123 million year ended december 31 2015 company also recorded loss extinguishment debt approximately 3 million year ended december 31 2015 result repayment debt upon termination proposed transactions comcast corporation f 19 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated 2016 cco holdings cco holdings capital closed transactions issued 32 billion aggregate principal amount senior unsecured notes varying maturities interest rates net proceeds used repurchase 29 billion various series senior unsecured notes well general corporate purposes debt repurchases resulted loss extinguishment debt 110 million year ended december 31 2016 charter operating entered amendment amended restated credit agreement dated may 18 2016 “credit agreement” decreasing applicable libor margin eliminating libor floor extending maturities certain term loans company recorded loss extinguishment debt 1 million year ended december 31 2016 related transactions 2017 cco holdings cco holdings capital closed transactions issued 625 billion aggregate principal amount senior unsecured notes varying maturities interest rates net proceeds distributed companys parent companies fund buybacks charter class common stock charter holdings common units repurchase 275 billion various series senior secured unsecured notes well general corporate purposes debt repurchases resulted loss extinguishment debt 34 million year ended december 31 2017 charter operating charter communications operating capital corp closed transactions issued 475 billion aggregate principal amount senior secured notes varying maturities interest rates net proceeds distributed companys parent companies fund buybacks charter class common stock charter holdings common units well general corporate purposes 2017 charter operating also entered amendments credit agreement decreasing applicable libor margins eliminating libor floor increasing capacity revolving loan extending maturities repaying e f h term loans issuance new term b loan company recorded loss extinguishment debt 6 million year ended december 31 2017 related transactions see charter operating credit facilities details companys term loans december 31 2017 cco holdings notes cco holdings notes senior debt obligations cco holdings cco holdings capital rank equally current future unsecured unsubordinated obligations cco holdings cco holdings capital structurally subordinated obligations subsidiaries cco holdings cco holdings may redeem cco holdings notes time premium optional redemption price declines 100 respective series’ principal amount plus accrued unpaid interest varying dates 2019 2025 addition time prior varying dates 2018 2020 cco holdings may redeem 40 aggregate principal amount certain notes premium plus accrued unpaid interest redemption date net cash proceeds one equity offerings defined indenture provided certain conditions met event specified change control events cco holdings must offer purchase outstanding cco holdings notes holders purchase price equal 101 total principal amount notes plus accrued unpaid interest highyield restrictive covenants limitation indebtedness indentures governing cco holdings notes contain certain covenants restrict ability cco holdings cco holdings capital restricted subsidiaries • incur additional debt • pay dividends equity repurchase equity • make investments • sell substantially assets merge companies • sell assets • case restricted subsidiaries create permit exist dividend payment restrictions respect cco holdings guarantee parent companies debt issue specified equity interests f 20 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated • engage certain transactions affiliates • grant liens limitations certain circumstances regarding incurrence debt payment dividends making investments contained indentures cco holdings permit cco holdings restricted subsidiaries perform long giving pro forma effect leverage ratio would specified level issuer leverage ratio indentures 60 10 charter operating notes charter operating notes guaranteed cco holdings substantially operating subsidiaries charter operating addition charter operating notes secured perfected first priority security interest substantially assets charter operating extent liens perfected uniform commercial code filing financing statement liens rank equally liens collateral securing obligations charter operating credit facilities charter operating may redeem charter operating notes time premium charter operating notes subject terms conditions indenture governing charter operating notes charter operating notes contain customary representations warranties affirmative covenants limited negative covenants charter operating indenture also contains customary events default charter operating credit facilities charter operating credit facilities outstanding principal amount 95 billion december 31 2017 follows • term loan a2 remaining principal amount 29 billion repayable quarterly installments aggregating 144 million loan year remaining balance due final maturity march 31 2023 pricing term loan a2 libor plus 150 • term loan b remaining principal amount approximately 64 billion repayable equal quarterly installments aggregating 64 million loan year remaining balance due final maturity april 30 2025 pricing term loan b libor plus 200 • revolving loan outstanding balance 254 million december 31 2017 allowing borrowings 40 billion maturing march 31 2023 pricing revolving loan libor plus 150 commitment fee 030 december 31 2017 137 million revolving loan utilized collateralize like principal amount letters credit 291 million letters credit issued company’s behalf amounts outstanding charter operating credit facilities bear interest charter operating’s election base rate libor 156 077 december 31 2017 december 31 2016 respectively defined plus applicable margin charter operating credit facilities also allow us enter incremental term loans future amortization set forth notices establishing term loans although charter operating credit facilities allow incurrence certain amount incremental term loans subject pro forma compliance financial maintenance covenants assurance given company could obtain additional incremental term loans future charter operating sought amount incremental term loans would allowable given time terms charter operating credit facilities obligations charter operating charter operating credit facilities guaranteed cco holdings substantially operating subsidiaries charter operating obligations also secured lien substantially assets charter operating subsidiaries extent lien perfected uniform commercial code filing financing statement ii pledge cco holdings equity interests owned charter operating’s subsidiaries well intercompany obligations owing entities restrictive covenants charter operating credit facilities contain representations warranties affirmative negative covenants customary financings type financial covenants measure performance standards set leverage tested f 21 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated end quarter charter operating credit facilities contain provisions requiring mandatory loan prepayments specific circumstances including connection certain sales assets long proceeds reinvested business additionally charter operating credit facilities provisions contain allowance restricted payments certain limitations charter operating credit facilities permit charter operating subsidiaries make distributions pay interest currently outstanding subordinated parent company indebtedness provided among things default occurred continuing charter operating credit facilities charter operating credit facilities also contain customary events default twc llc senior notes debentures twc llc senior notes debentures guaranteed cco holdings substantially operating subsidiaries charter operating rank equally liens collateral securing obligations charter operating notes credit facilities interest series twc llc senior notes debentures payable semiannually exception sterling notes payable annually arrears twc llc indenture contains customary covenants relating restrictions ability twc llc material subsidiary create liens ability twc llc time warner cable enterprises llc twce consolidate merge convey transfer substantially assets twc llc indenture also contains customary events default twc llc senior notes debentures may redeemed whole part time twc llc’s option redemption price equal greater applicable principal amount redeemed ii sum present values remaining scheduled payments applicable twc llc senior notes debentures discounted redemption date semiannual basis exception sterling notes annual basis comparable government bond rate plus designated number basis points described indenture applicable note debenture plus case accrued unpaid interest including redemption date company may offer redeem less sterling notes event certain changes tax laws us taxing authority us redemption would redemption price equal 100 principal amount together accrued unpaid interest sterling notes including redemption date twce senior debentures twce senior debentures guaranteed cco holdings substantially operating subsidiaries charter operating twc llc rank equally liens collateral securing obligations charter operating notes credit facilities interest series twce senior debentures payable semiannually arrears twce senior debentures redeemable maturity twce indenture contains customary covenants relating restrictions ability twce material subsidiary create liens ability twc llc twce consolidate merge convey transfer substantially assets twce indenture also contains customary events default limitations distributions company subsidiaries parent company payment principal parent company notes restricted indentures credit facilities discussed unless default applicable indenture credit facilities unless applicable subsidiary’s leverage ratio test met time distribution december 31 2017 default indentures credit facilities subsidiary met applicable leverage ratio tests based december 31 2017 financial results assurance satisfy tests time contemplated distribution distributions charter operating payment principal parent company notes restricted covenants credit facilities however without regard leverage calendar year portion thereof borrower flowthrough entity tax purposes long event default exists borrower may make distributions equity interests borrower amount sufficient make permitted tax payments f 22 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated addition limitation distributions various indentures distributions company’s subsidiaries may limited applicable law including delaware limited liability company act company’s subsidiaries may make distributions “surplus” defined act liquidity future principal payments company continues significant amounts debt business requires significant cash fund principal interest payments debt capital expenditures ongoing operations set forth company significant future principal payments company continues monitor capital markets expects undertake refinancing transactions utilize free cash flow cash hand extend reduce maturities principal obligations timing terms refinancing transactions subject market conditions based upon outstanding indebtedness december 31 2017 amortization term loans maturity dates senior subordinated notes total future principal payments total borrowings debt agreements follows 10 loans payable related party loans payable related party december 31 2017 2016 consists loans charter communications holdings company llc “charter holdco” company 655 million 640 million respectively loans payable related party december 31 2017 also includes loan charter company 233 million interest accrues loans payable related party libor plus 175 11 accounting derivative instruments hedging activities company uses derivative instruments manage interest rate risk variable debt foreign exchange risk sterling notes hold issue derivative instruments speculative trading purposes crosscurrency derivative instruments used effectively convert £1275 billion aggregate principal amount fixedrate british pound sterling denominated debt including annual interest payments payment principal maturity fixedrate us dollar denominated debt crosscurrency swaps maturities june 2031 july 2042 company required post collateral crosscurrency derivative instruments derivative contracts liability position may 2016 company entered collateral holiday agreement 80 2031 2042 crosscurrency swaps eliminates requirement post collateral three years fair value companys crosscurrency derivatives included longterm liabilities companys consolidated balance sheets 25 million 251 million december 31 2017 2016 respectively company’s derivative instruments designated hedges marked fair value period impact recorded gain loss financial instruments net consolidated statements operations derivative instruments designated cash flow hedges accounting purposes management continues believe instruments correlated respective debt thus managing associated risk f 23 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated effect financial instruments consolidated statements operations presented table upon closing twc transaction company acquired interest rate derivative instrument assets terminated settled respective counterparties second quarter 2016 88 million cash payment company termination resulted 11 million loss year ended december 31 2016 recorded gain loss financial instruments net consolidated statements operations companys interest rate derivatives expired december 31 2017 12 fair value measurements accounting guidance establishes threelevel hierarchy disclosure fair value measurements based upon transparency inputs valuation asset liability measurement date follows • level 1 inputs valuation methodology quoted prices unadjusted identical assets liabilities active markets • level 2 inputs valuation methodology include quoted prices similar assets liabilities active markets inputs observable asset liability either directly indirectly substantially full term financial instrument • level 3 inputs valuation methodology unobservable significant fair value measurement financial assets liabilities company estimated fair value financial instruments december 31 2017 2016 using available market information appropriate valuation methodologies considerable judgment however required interpreting market data develop estimates fair value accordingly estimates presented accompanying consolidated financial statements necessarily indicative amounts company would realize current market exchange carrying amounts cash equivalents receivables payables current assets liabilities approximate fair value short maturity instruments portion company’s cash equivalents december 31 2016 invested money market funds money market funds valued closing price reported fund sponsor actively traded exchange approximates fair value money market funds potentially subject company concentration credit risk amount invested within one financial instrument exceed 250 million december 31 2016 december 31 2016 significant concentrations financial instruments single investee industry geographic location f 24 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated company’s financial instruments accounted fair value recurring basis december 31 2017 2016 presented table summary carrying value fair value company’s debt december 31 2017 2016 follows estimated fair value company’s senior notes debentures december 31 2017 2016 based quoted market prices active markets classified within level 1 valuation hierarchy estimated fair value company’s credit facilities based quoted market prices inactive markets classified within level 2 nonfinancial assets liabilities company’s nonfinancial assets equitymethod investments franchises property plant equipment intangible assets measured fair value recurring basis however subject fair value adjustments certain circumstances upon business combination evidence impairment may exist impairments recorded 2017 2016 2015 13 operating costs expenses operating costs expenses exclusive items shown separately consolidated statements operations consist following periods presented programming costs consist primarily costs paid programmers basic premium digital video demand payperview programming regulatory connectivity produced content costs represent payments franchise regulatory authorities f 25 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated costs directly related providing video internet voice services well payments sports local news content produced company included regulatory connectivity produced content costs content acquisition costs los angeles lakers’ basketball games los angeles dodgers’ baseball games recorded games exhibited applicable season costs service customers include costs related field operations network operations customer care company’s residential small medium business customers including internal thirdparty labor installations service repairs maintenance bad debt expense billing collection occupancy vehicle costs marketing costs represent costs marketing current potential commercial residential customers including labor costs transition costs represent incremental costs incurred integrate twc bright house operations increase scale company’s business result transactions see note 3 includes corporate overhead advertising sales expenses indirect costs associated company’s enterprise business customers regional sports news networks property tax insurance expense stock compensation expense among others 14 operating expenses net operating expenses net consist following years presented merger restructuring costs merger restructuring costs represent costs incurred connection merger acquisition transactions related restructuring advisory legal accounting fees employee retention costs employee termination costs related transactions exit costs company expects incur additional merger restructuring costs connection transactions changes accruals merger restructuring costs january 1 2016 december 31 2017 presented addition costs indicated company recorded 49 million 248 million expense related accelerated vesting equity awards terminated employees years ended december 31 2017 2016 respectively f 26 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated special charges net special charges net primarily includes employee termination costs related transactions net amounts litigation settlements 2017 special charges net also includes 83 million charge related companys withdrawal liability multiemployer pension plan gain loss sale assets net gain loss sale assets net represents net gain loss recognized sales disposals fixed assets cable systems 15 stock compensation plans charter’s 2009 stock incentive plan provides grants nonqualified stock options incentive stock options stock appreciation rights dividend equivalent rights performance units performance shares share awards phantom stock restricted stock units restricted stock directors officers employees company subsidiaries well others performing consulting services company eligible grants 2009 stock incentive plan 2009 stock incentive plan allows issuance 21 million shares charter class common stock units convertible charter class common stock closing twc transaction legacy twc employee equity awards converted charter class common stock equity awards terms conditions applicable legacy twc equity awards except number shares covered award option exercise prices adjusted stock award exchange ratio defined merger agreement intrinsic value converted twc awards approximately equal original awards closing transactions converted twc awards continue subject terms legacy twc equity plans parent merger exchange ratio also applied outstanding legacy charter equity awards option exercise prices however terms equity awards change result transactions charter stock options restricted stock units cliff vest upon three year anniversary grant certain stock options restricted stock units vest based achievement stock price hurdles stock options generally expire ten years grant date restricted stock units voting rights restricted stock generally vests one year date grant legacy twc restricted stock units converted charter restricted stock units generally vest 50 third fourth anniversary grant date december 31 2017 total unrecognized compensation remaining recognized future periods totaled 211 million stock options 1 million restricted stock 173 million restricted stock units weighted average period expected recognized 3 years stock options 4 months restricted stock 2 years restricted stock units company recorded 261 million 244 million 78 million stock compensation expense years ended december 31 2017 2016 2015 respectively included operating costs expenses company also recorded 49 million 248 million expense years ended december 31 2017 2016 respectively related accelerated vesting equity awards terminated employees recorded merger restructuring costs f 27 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated summary activity charter’s stock options applying parent merger exchange ratio years ended december 31 2017 2016 2015 follows shares thousands except per share data summary activity charter’s restricted stock applying parent merger exchange ratio years ended december 31 2017 2016 2015 follows shares thousands except per share data f 28 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated summary activity charter’s restricted stock units applying parent merger exchange ratio years ended december 31 2017 2016 2015 follows shares thousands except per share data 16 income taxes cco holdings single member limited liability company subject income tax cco holdings holds operations indirect subsidiaries majority indirect subsidiaries limited liability companies subject income tax certain indirect subsidiaries required file separate returns subject federal state tax cco holdings’ tax provision reflects tax provision entities required file separate returns generally taxable income gains losses deductions credits cco holdings passed indirect members charter responsible share taxable income loss cco holdings allocated accordance charter holdings limited liability company agreement “llc agreement” partnership tax rules regulations charter also records financial statement deferred tax assets liabilities related investment underlying net assets cco holdings income tax benefit expense years ended december 31 2017 2016 2015 company recorded deferred income tax benefit expense shown tax provision future periods vary based current future temporary differences well future operating results income tax recognized primarily decreases increases deferred tax liabilities well current federal state income tax expense income tax benefit year ended december 31 2015 primarily result deemed liquidation charter holdco july 2015 deemed liquidation charter holdco taxable income gains losses f 29 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated deductions credits charter holdco indirect subsidiaries treated income charter tax provision future periods vary based future operating results well future book versus tax differences december 2017 tax cuts jobs act “tax reform” enacted charter received income tax benefit result tax reform company materially impacted new provisions disregarded entity federal tax purposes among things primary provisions tax reform impacting charter reductions us corporate income tax rate 35 21 temporary 100 bonus depreciation certain assets applicable change tax law required charter remeasure existing net deferred tax liabilities using lower rate period enactment overall changes due tax reform favorably affect income tax expense future us earnings company’s effective tax rate differs derived applying applicable federal income tax rate 35 years ended december 31 2017 2016 2015 respectively follows deferred tax assets liabilities tax effects temporary differences give rise significant portions deferred tax assets deferred tax liabilities december 31 2017 2016 presented uncertain tax positions connection twc transaction company assumed 181 million gross unrecognized tax benefits exclusive interest penalties recorded within longterm liabilities net amount unrecognized tax benefits recorded december 31 2017 could impact effective tax rate 144 million company determined reasonably possible existing reserve uncertain tax positions december 31 2017 could decrease approximately 58 million year ended december 31 2018 related various ongoing audits settlement discussions expiration statute limitations various state local agencies however various events could cause company’s current expectations f 30 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated change future uncertain tax positions ever recognized financial statements would recorded consolidated statements operations part income tax provision reconciliation beginning ending amount unrecognized tax benefits exclusive interest penalties included longterm liabilities accompanying consolidated balance sheets company follows company recognizes interest penalties accrued uncertain income tax positions part income tax provision interest penalties included longterm liabilities accompanying consolidated balance sheets company 38 million 33 million december 31 2017 2016 respectively tax years charter holdings charter holdco companys indirect parent companies income tax purposes currently examination internal revenue service irs charter holdings 2016 2017 tax years remain open examination assessment legacy charter’s tax years ending 2014 short period return dated may 17 2016 remain subject examination assessment years prior 2014 remain open solely purposes examination legacy charter’s loss credit carryforwards irs currently examining legacy twc’s income tax returns 2011 2014 legacy twc’s tax year 2015 remains subject examination assessment prior legacy twc’s separation time warner inc “time warner” march 2009 “separation” legacy twc included consolidated us federal certain state income tax returns time warner irs currently examining time warner’s 2008 2010 income tax returns time warner’s income tax returns 2005 2007 periods prior separation settled exception immaterial item referred irs appeals division company anticipate examinations material impact company’s consolidated financial position results operations addition company also subject ongoing examinations company’s tax returns state local tax authorities various periods activity related state local examinations material impact company’s consolidated financial position results operations year ended december 31 2017 company anticipate material impact future 17 related party transactions following sets forth certain transactions company directors executive officers affiliates company involved case management arrangements subsidiaries debt issuers pay certain parent companies services charter party management arrangements spectrum management certain subsidiaries agreements charter spectrum management charter holdco provide management services cable systems owned operated subsidiaries costs associated providing services charged directly company’s operating subsidiaries costs incurred behalf charter’s operating subsidiaries considered part management fee costs recorded component operating costs expenses accompanying consolidated financial statements management fee charged company’s operating subsidiaries approximated expenses incurred spectrum management charter holdco charter behalf company’s operating subsidiaries 2017 2016 2015 liberty broadband may 23 2015 connection execution merger agreement amendment contribution agreement charter entered amended restated stockholders agreement liberty broadband legacy charter “stockholders agreement” llc agreement liberty broadband closing merger agreement contribution agreement may 18 2016 stockholders agreement replaced legacy charter’s existing stockholders f 31 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated agreement liberty broadband dated september 29 2014 superseded amended restated stockholders agreement among legacy charter liberty broadband dated march 31 2015 terms stockholders agreement number charter’s directors fixed 13 includes ceo upon closing bright house transaction two designees selected became members board directors charter three designees selected liberty broadband continued members board directors charter remaining eight directors affiliated either liberty broadband liberty broadband entitled nominate least one director committees charter’s board directors subject applicable stock exchange listing rules certain specified voting equity ownership thresholds liberty broadband provided nominating corporate governance committee compensation benefit committee least majority directors independent liberty broadband company referred “unaffiliated directors” nominating corporate governance committee compensation benefits committee currently comprised three unaffiliated directors one designee liberty broadband liberty broadband also certain committee designation governance rights upon closing bright house transaction mr thomas rutledge company’s ceo became chairman board charter december 2016 charter entered letter agreement letter agreement requires sell charter holdings monthly basis number shares charter class common stock charter holdings common units represents pro rata participation affiliates repurchases shares charter class common stock persons effected charter immediately preceding calendar month purchase price equal average price paid charter shares repurchased persons immediately preceding calendar month charter right terminate suspend pro rata repurchase arrangement prospective basis charter holdings repurchased shares class common stock charter holdings common units affiliates aggregate purchase price 537 million threshold met december 21 2017 charter entered amendment letter agreement resetting aggregate purchase price 400 million pursuant tra charter must pay 50 tax benefit realized charter stepup tax basis resulting future exchange sale preferred common units company aware dr john malone may deemed 392 voting interest liberty interactive chairman board directors executive officer position liberty interactive liberty interactive wholly owns hsn inc “hsn” qvc inc “qvc” company programming relationships hsn qvc predate transaction liberty media corporation years ended december 31 2017 2016 2015 company recorded revenue aggregate approximately 77 million 53 million 17 million respectively hsn qvc part channel carriage fees revenue sharing arrangements home shopping sales made customers company’s footprint dr malone mr steven miron member charter’s board directors also serve board directors discovery communications inc “discovery” company aware dr malone owns 936 series b common stock discovery 6 series c common stock discovery 281 voting interest discovery election directors company aware advancenewhouse programming partnership “an pp” affiliate mr miron ceo owns 100 series preferred stock discovery 100 series c preferred stock discovery 311 voting interest election directors pp right appoint three directors total eleven directors discovery’s board elected holders discovery’s series preferred stock addition dr malone member board directors lions gate entertainment corp lions gate parent company starz inc owns approximately 55 aggregate common stock lions gate 79 voting power pursuant ownership lions gate class voting shares company purchases programming discovery lions gate pursuant agreements entered prior dr malone mr miron joining charter’s board directors based publicly available information company believe either discovery lions gate would currently considered related parties amounts paid aggregate discovery lions gate represent less 3 total operating costs expenses years ended december 31 2017 2016 2015 equity investments company parent companies agreements certain equitymethod investees see note 7 pursuant company made received related party transaction payments company parent companies recorded payments equitymethod investees totaling 317 million 171 million 28 million years ended december 31 2017 2016 f 32 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated 2015 respectively company recorded advertising revenues transactions equitymethod investees totaling 9 million 7 million years ended december 31 2017 2016 respectively advertising revenues received 2015 18 commitments contingencies commitments following table summarizes company’s parent companies payment obligations december 31 2017 contractual obligations company leases certain facilities equipment noncancelable capital operating leases capital lease obligations represented 123 million total capital operating lease obligations december 31 2017 leases rental costs charged expense years ended december 31 2017 2016 2015 321 million 215 million 49 million respectively b company pays programming fees multiyear contracts ranging three ten years typically based flat fee per customer may fixed term may cases escalate term programming costs included statement operations 106 billion 70 billion 27 billion years ended december 31 2017 2016 2015 respectively certain company’s programming agreements based flat fee per month guaranteed minimum payments table sets forth aggregate guaranteed minimum commitments company’s programming contracts c “other” represents guaranteed minimum commitments including rights negotiated directly content owners distribution companyowned channels networks commitments related role advertising distribution sales agent third partyowned channels networks commitments customer premise equipment vendors contractual obligations related thirdparty network augmentation following items included contractual obligation table due various factors discussed however company incurs costs part operations • company rents utility poles used operations generally pole rentals cancelable short notice company anticipates rentals recur rent expense incurred pole rental attachments years ended december 31 2017 2016 2015 167 million 115 million 53 million respectively • company pays franchise fees multiyear franchise agreements based percentage revenues generated video service per year company also pays franchise related costs public education grants multiyear agreements franchise fees franchiserelated costs included accompanying statement operations 705 million 534 million 212 million years ended december 31 2017 2016 2015 respectively • company 291 million letters credit 137 million secured charter operating credit facility primarily various casualty carriers collateral reimbursement workers compensation auto liability general liability claims • minimum pension funding requirements presented table amounts determined beyond 2017 company made cash contributions qualified pension plans 2017 however company permitted make discretionary cash contributions qualified pension plans 2018 nonqualified pension plan company contributed 18 million 2017 continue make contributions 2018 extent benefits paid f 33 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated legal proceedings august 2015 purported stockholder charter matthew sciabacucchi filed lawsuit delaware court chancery behalf putative class charter stockholders challenging transactions charter twc liberty broadband announced charter may 26 2015 lawsuit names defendants liberty broadband legacy charter board directors charter plaintiff alleges liberty transactions improperly benefit liberty broadband expense charter shareholders charter filed motion dismiss litigation court chancery yet made final ruling motion dismiss charter denies liability believes substantial defenses intends vigorously defend suit although charter unable predict outcome lawsuit expect outcome material effect operations financial condition cash flows california attorney general alameda county california district attorney investigating whether certain legacy charter’s waste disposal policies procedures practices violation california business professions code california health safety code investigation commenced january 2014 similar investigation involving legacy twc initiated february 2012 charter cooperating investigations company unable predict outcome investigations expect outcome material effect operations financial condition cash flows december 19 2011 sprint communications company lp “sprint” filed complaint us district court district kansas alleging legacy twc infringed certain us patents purportedly relating voice internet protocol “voip” services trial began february 13 2017 march 3 2017 jury returned verdict 140 million legacy twc concluded legacy twc willfully infringed sprint’s patents court subsequently declined enhance damage award result purported willful infringement awarded sprint additional 6 million representing prejudgment interest damages award company appealed case united states court appeals federal circuit addition appeal company continues pursue indemnity one vendors impact verdict reflected measurement period adjustments net current liabilities described note 3 company expect outcome litigation material adverse effect operations financial condition ultimate outcome litigation pursuit indemnity company’s vendor cannot predicted subsequently december 2 2017 sprint filed suit charter united states district court district delaware new suit alleges infringement 15 patents related companys provision voice services ten already asserted legacy twc matter described charter investigating allegations vigorously defend case company unable predict outcome investigations expect litigation material effect operations financial condition cash flows october 23 2015 new york office attorney general “ny ag” began investigation legacy twcs advertised internet speeds internet product advertising february 1 2017 ny ag filed suit supreme court state new york alleging legacy twcs advertising internet speeds false misleading suit seeks restitution injunctive relief company moved dismiss ny ag’s complaint company intends defend vigorously although assurances made defenses would ultimately successful company expect outcome litigation material adverse effect operations financial condition cash flows company parent companies defendants codefendants several additional lawsuits involving alleged infringement various patents relating various aspects businesses industry participants also defendants certain cases event court ultimately determines company infringes intellectual property rights company may subject substantial damages andor injunction could require company vendors modify certain products services company offers subscribers well negotiate royalty license agreements respect patents issue company believes lawsuits without merit intends defend actions vigorously assurance given adverse outcome would material company’s consolidated financial condition results operations liquidity company cannot predict outcome claims reasonably estimate range possible loss company parent companies party lawsuits claims regulatory inquiries arise ordinary course conducting business ultimate outcome legal matters pending company cannot predicted f 34 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated although lawsuits claims expected individually material adverse effect company’s consolidated financial condition results operations liquidity lawsuits could aggregate material adverse effect company’s consolidated financial condition results operations liquidity whether company ultimately prevails particular lawsuit claim litigation time consuming costly injure company’s reputation 19 employee benefit plans pension plans company sponsors two qualified defined benefit pension plans twc pension plan twc union pension plan provide pension benefits majority legacy twc employees company also provides nonqualified defined benefit pension plan certain employees twc excess pension plan changes projected benefit obligation fair value plan assets funded status pension plans january 1 december 31 presented projected benefit obligation accumulated benefit obligation fair value plan assets qualified pension plans nonqualified pension plan december 31 2017 2016 consisted following f 35 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated pretax amounts recognized consolidated balance sheet december 31 2017 2016 consisted following components net periodic benefit costs years ended december 31 2017 2016 consisted following year ended december 31 2017 lumpsum distributions qualified nonqualified pension plan participants exceeded estimated annual interest cost plans resulting settlement accounting purposes result pension liability pension asset values reassessed september 30 2017 utilizing remeasurement date assumptions accordance companys marktomarket pension accounting policy record gains losses period remeasurement event occurs 55 million remeasurement loss recorded year ended december 31 2017 primarily driven adoption revised lump sum conversion mortality tables published irs effective january 1 2018 effects decrease discount rate 420 december 31 2016 368 december 31 2017 partially offset actuarial gain pension asset actual returns approximately 30 million remeasurement loss recorded interim remeasurement event september 30 2017 25 million recorded annual remeasurement december 31 2017 195 million remeasurement gain recorded year ended december 31 2016 primarily driven effects increase discount rate 399 closing date twc transaction 420 december 31 2016 gain record pension assets december 31 2016 fair values discount rates used determine benefit obligations december 31 2017 2016 368 420 respectively company utilized rp 2015mp2015 mortality tables published society actuaries measure benefit obligations december 31 2017 2016 weighted average assumptions used determine net periodic benefit costs years ended december 31 2017 2016 consisted following f 36 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated discount rate used determine net periodic pension benefit 420 january 1 2017 remeasurement date september 30 2017 388 remeasurement date december 31 2017 discount rate used determine net periodic pension benefit 399 closing date twc transaction remeasurement date june 30 2016 372 remeasurement date december 31 2016 b rate compensation increase used determine net periodic pension benefit 425 closing date twc transaction remeasurement date june 30 2016 0 thereafter see “pension plan curtailment amendment” discussion developing expected longterm rate return plan assets company considered pension portfolio’s composition past average rate earnings company’s future asset allocation targets weighted average expected longterm rate return plan assets discount rate used determine net periodic pension benefit year ended december 31 2018 expected 650 368 respectively company determined discount rates used determine benefit obligations net periodic pension benefit based yield large population high quality corporate bonds cash flows sufficient timing amount settle projected future defined benefit payments pension plan curtailment amendment following closing twc transaction charter amended pension plans freeze future benefit accruals current active plan participants august 31 2016 effective september 1 2016 future compensation increases future service credited participants pension plans new hires eligible participate plans upon announcement approval plan amendment assumptions underlying pension liability pension asset values reassessed utilizing remeasurement date assumptions accordance charter’s marktomarket pension accounting policy record gains losses period remeasurement event occurs 675 million curtailment gain recorded year ended december 31 2016 primarily driven reduction compensation rate assumption 0 accordance terms plan amendment reflecting pension liability accumulated benefit obligation instead projected benefit obligation remeasurement date pension plan assets qualified pension plans held master trust qualified pension plans participating plans “master trust” investment policy qualified pension plans manage assets master trust objective provide pension liabilities met maintaining retirement income security participants plans beneficiaries investment portfolio mix pooled funds invested fixed income equity securities objective matching plan liability performance diversifying risk achieving target investment return pension plan’s investment committee establishes risk mitigation policies regularly monitors investment performance investment allocation policies execution strategies investment committee engages thirdparty investment firm responsibility executing directives investment committee monitoring performance individual investment managers master trust making adjustments changes within defined parameters necessary periodic basis investment committee conducts broad strategic review portfolio construction investment allocation policies neither company investment committee thirdparty investment firm manages assets internally directly utilizes derivative instruments hedging however investment mandate investment managers allows use derivatives components standard portfolio management strategies pension assets managed balanced portfolio comprised two major components returnseeking portion liabilitymatching portion expected role returnseeking investments achieve reasonable longterm growth pension assets prudent level risk using asset diversity order balance return volatility role liabilitymatching investments provide partial economic hedge liability performance associated changes interest rates f 37 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated company adopted investment strategy referred derisking glide path increase fixed income allocation funded status qualified pension plans improves qualified pension plans reach set funded status milestones assets rebalanced shift assets equity fixed income based progress strategy target investment allocation pension fund assets permitted vary within specified ranges subject investment committee approval returnseeking securities liabilitymatching securities target actual investment allocation qualified pension plans asset category december 31 2017 2016 consisted following table sets forth investment assets qualified pension plans exclude accrued investment income investments fair value measured net asset value per share practical expedient level within fair value hierarchy december 31 2017 commingled funds primarily include global equity index corporate bond us treasury securities funds valued using net asset value provided administrator fund fair value fund based fair value securities portfolio represents amount fund might reasonably expect receive securities upon sale less liabilities divided number units outstanding funds valued using observable inputs either daily weekly basis resulting value serves basis current transactions b corporate debt securities valued based observable prices new issue market benchmark quotes secondary trading dealer quotes option adjusted spread model incorporated adjust spreads issues early redemption features final spreads added us treasury curve c collective trust funds primarily consist shortterm investment strategies comprised instruments issued fully guaranteed us government andor agencies valued using net asset value provided administrator fund net asset value based readily determinable value underlying assets owned fund less liabilities divided number units outstanding accrued investment income includes dividends interest receivable e certain investments measured fair value using net asset value per share equivalent practical expedient classified fair value hierarchy investments primarily consist hedge funds includes hard value illiquid securities fair value fund based fair value assets portfolio represents amount fund might reasonably expect receive assets upon sale less liabilities divided number units outstanding certain hedge funds report net asset value per share quarter lag shares funds redeemable underlying assets anticipated liquidated distributed investors near term f 38 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated material unfunded commitments respect investments fair value amounts presented table intended permit reconciliation fair value hierarchy total fair value plan assets discussed throughout footnote following table sets forth investment assets qualified pension plans exclude accrued investment income receivables accrued liabilities investments fair value measured net asset value per share practical expedient level within fair value hierarchy december 31 2016 common stocks mutual funds us treasury debt securities valued closing price reported active market individual securities traded single industry comprised significant portion common stock held qualified pension plan december 31 2016 b commingled equity funds commingled bond funds valued using net asset value provided administrator fund fair value fund based fair value securities portfolio represents amount fund might reasonably expect receive securities upon sale less liabilities divided number units outstanding funds valued using observable inputs either daily weekly basis resulting value serves basis current transactions c equity securities consist preferred stocks valued closing price reported active market individual securities traded corporate debt securities valued based observable prices new issue market benchmark quotes secondary trading dealer quotes option adjusted spread model incorporated adjust spreads issues early redemption features final spreads added us treasury curve e collective trust funds primarily consist shortterm investment strategies comprised instruments issued fully guaranteed us government andor agencies valued using net asset value provided administrator fund net asset value based readily determinable value underlying assets owned fund less liabilities divided number units outstanding f us government agency assetbacked debt securities consist passthrough mortgagebacked securities issued federal home loan mortgage corporation federal national mortgage association valued using available trade information dealer quotes market indices research reports spreads bids offers f 39 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated g corporate assetbacked debt securities primarily consist passthrough mortgagebacked securities issued us foreign corporations valued using available trade information dealer quotes market indices research reports spreads bids offers h fixedincome securities consist foreign government debt securities municipal bonds us government agency debt securities valued based observable prices new issue market benchmark quotes secondary trading dealer quotes option adjusted spread model incorporated adjust spreads issues early redemption features final spreads added us treasury curve accrued investment income receivables includes amounts receivable foreign exchange contracts 70 million december 31 2016 accrued liabilities includes amounts accrued foreign exchange contracts 71 million december 31 2016 fair value assets liabilities associated foreign exchange contracts presented gross basis valued using exchange rates effect applicable currencies valuation date level 1 fair value measurement j certain investments measured fair value using net asset value per share equivalent practical expedient classified fair value hierarchy investments primarily consist hedge funds valued utilizing net asset value provided administrator fund based value underlying assets owned fund less liabilities divided number units outstanding shares fund redeemable underlying assets anticipated liquidated distributed investors near term material unfunded commitments respect investments fair value amounts presented table intended permit reconciliation fair value hierarchy total fair value plan assets discussed throughout footnote pension plan contributions company made cash contributions qualified pension plans years ended december 31 2017 2016 however company may make discretionary cash contributions qualified pension plans future contributions dependent variety factors including current expected interest rates asset performance funded status qualified pension plans management’s judgment nonqualified unfunded pension plan company continue make contributions 2018 extent benefits paid benefit payments pension plans expected 186 million 2018 188 million 2019 191 million 2020 192 million 2021 193 million 2022 944 million 2023 2027 multiemployer plans company contributes number multiemployer plans terms collectivebargaining agreements cover unionrepresented employees multiemployer plans provide medical pension retirement savings benefits active employees retirees company made contributions multiemployer plans 18 million 31 million years ended december 31 2017 2016 respectively risks participating multiemployer pension plans different singleemployer pension plans following aspects assets contributed multiemployer pension plan one employer may used provide benefits employees participating employers b participating employer stops contributing multiemployer pension plan unfunded obligations plan may borne remaining participating employers c company chooses stop participating multiemployer pension plans may required pay plans amount based underfunded status plan referred withdrawal liability company records withdrawal liabilities longterm liabilities consolidated balance sheets december 31 2017 longterm liabilities includes approximately 83 million related companys withdrawal multiemployer pension plan multiemployer pension plans company contributed received pension protection act “green” zone status 2016 zone status based recent information company received plan certified plan’s actuary among factors plans green zone least 80 funded defined contribution benefit plans company’s employees may participate charter communications inc 401k plan “401k plan” employees qualify participation contribute 50 salary pretax basis subject maximum contribution limit f 40 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated determined internal revenue service company’s matching contribution discretionary equal 100 amount salary reduction participant elects defer 6 participant’s eligible compensation excluding catchup contributions paid company per pay period basis company made contributions 401k plan totaling 274 million 147 million 23 million years ended december 31 2017 2016 2015 respectively employees eligible participate company’s longterm incentive plan covered collective bargaining agreement company offers contribution new retirement accumulation plan rap equal 3 eligible pay company made contributions rap totaling 139 million 48 million years ended december 31 2017 2016 respectively 20 recently issued accounting standards accounting standards adopted january 1 2017 march 2016 financial accounting standards board “fasb” issued asu 201609 improvements employee sharebased payment accounting includes multiple provisions intended simplify various aspects accounting sharebased payments new standard 1 requires excess tax benefits deficiencies recognized income tax expense benefit income statement period occur regardless whether benefit reduces taxes payable current period 2 requires classification excess tax benefits operating activity statements cash flows 3 allows entity make entitywide accounting policy election either estimate number awards expected vest account forfeitures occur 4 causes threshold employee sharebased awards partially settled cash qualify equity classification increase maximum statutory tax rates applicable jurisdiction new standard generally requires modified retrospective transition cumulativeeffect adjustment beginning period adoption certain provisions requiring either prospective retrospective transition company adopted asu 201609 january 1 2017 upon adoption asu 201609 company recognized excess tax benefits deferred tax assets previously recognized cumulativeeffect adjustment retained earnings company prospectively record deferred tax benefit expense associated difference book tax stock compensation expense january 1 2017 company also established accounting policy election assume zero forfeitures stock award grants account forfeitures occur prospectively impacts stock compensation expense march 2017 fasb issued asu 201707 improving presentation net periodic pension cost net periodic postretirement benefit cost asu 201707 requires employers report service cost component net periodic pension cost line item compensation costs arising services rendered period standard also requires components net periodic cost presented income statement separately service cost component outside subtotal income operations asu 201707 effective annual periods beginning december 15 2017 early adoption permitted new standard requires retrospective application allows practical expedient permits employer use amounts disclosed pension plan footnote prior comparative periods estimation basis applying retrospective presentation company early adopted asu 201707 january 1 2017 utilized practical expedient estimate impact prior comparative period information presented interim annual financial statements company previously recorded service cost compensation costs operating costs expenses consolidated statements operations recorded pension costs benefits operating expenses net adoption standard results reclassification pension costs benefits expenses net nonoperating adopting standard reduced 2016 income operations presented comparative purposes 2017 annual financial statements 899 million corresponding decrease expenses 899 million impact net income asu 201707 impact consolidated balance sheets statements cash flows accounting standards adopted january 1 2018 may 2014 fasb issued asu 201409 revenue contracts customers “asu 201409” comprehensive revenue recognition standard supersede nearly existing revenue recognition guidance us gaap new standard provides single principlesbased fivestep model applied contracts customers steps 1 identify contracts customer 2 identify performance obligations contract 3 determine transaction price 4 allocate transaction price performance obligations contract 5 recognize revenue performance obligation satisfied charter adopted asu 201409 january 1 2018 using modified retrospective transition method cumulativeeffect adjustment equity fully presented company’s quarterly report f 41 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated form 10q three months ended march 31 2018 adoption new standard material impact company’s financial position results operation previously reported results restated transition method company implemented new processes internal controls enable preparation financial information adoption results deferral residential installation revenues enterprise commission expenses period time instead recognized immediately reclassification operating costs expenses amortization upfront fees paid market serve customers reside residential mdus instead amortized intangible depreciation amortization expense adoption asu 201409 also result additional disclosures around nature timing company’s performance obligations deferred revenue contract liabilities deferred contract cost assets well significant judgments practical expedients used company applying fivestep revenue model august 2016 fasb issued asu 201615 statement cash flows topic 230 classification certain cash receipts cash payments “asu 201615” clarifies entities classify cash receipts cash payments related eight specific cash flow matters statement cash flows objective reducing existing diversity practice company adopted asu 201615 january 1 2018 adoption asu 201615 material impact company’s consolidated financial statements november 2016 fasb issued asu 201618 statement cash flows topic 230 restricted cash “asu 201618” requires amounts generally described restricted cash included cash equivalents reconciling beginningofperiod endofperiod total amounts shown statement cash flows asu 201618 provide definition restricted cash restricted cash equivalents company adopted asu 201618 january 1 2018 new guidance applicable amounts described company restricted cash adoption asu 201618 material impact company’s consolidated financial statements may 2017 fasb issued asu 201709 scope modification accounting asu 201709 amends scope modification accounting sharebased payment arrangements asu provides guidance types changes terms conditions sharebased payment awards entity would required apply modification accounting asu 201709 applied prospectively awards modified effective date company adopted asu 201709 january 1 2018 adoption asu 201709 material impact company’s consolidated financial statements accounting standards yet adopted february 2016 fasb issued asu 201602 leases “asu 201602” requires lessees recognize almost leases balance sheet rightofuse asset lease liability lessees allowed account shortterm leases ie leases term 12 months less offbalance sheet consistent current operating lease accounting income statement purposes fasb retained dual model requiring leases classified either operating finance classification based criteria largely similar applied current lease accounting without explicit bright lines asu 201602 effective interim annual periods beginning december 15 2018 january 1 2019 company new standard currently requires modified retrospective transition cumulativeeffect adjustment beginning earliest period presented financial statements although option transition relief restate make required disclosures new standard comparative periods period adoption recently exposed fasb public comment company currently process evaluating impact adoption asu 201602 consolidated financial statements including identifying population leases evaluating technology solutions collecting lease data company expects leases designated operating leases note 20 reported consolidated balance sheets upon adoption company currently evaluating impact consolidated financial statements relates embedded lease arrangements business january 2017 fasb issued asu 201704 simplifying test goodwill impairment “asu 201704” eliminates step two goodwill impairment test new standard extent carrying amount reporting unit exceeds fair value company record impairment charge equal difference impairment charge recognized exceed total amount goodwill allocated reporting unit asu 201704 effective interim annual periods beginning december 15 2019 january 1 2020 company early adoption permitted interim annual goodwill impairment tests performed january 1 2017 company currently process evaluating impact adoption asu 201704 consolidated financial statements f 42 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated 21 consolidating schedules charter operating twc llc twce cco holdings certain subsidiaries jointly severally fully unconditionally guarantee outstanding debt securities others cco holdings notes unsecured senior basis condensed consolidating financial information prepared presented pursuant sec regulation sx rule 310 financial statements guarantors issuers guaranteed securities registered certain charter operating subsidiaries regulated telephone entities become guarantor subsidiaries upon approval regulators information intended present financial position results operations cash flows individual companies groups companies accordance generally accepted accounting principles “charter operating restricted subsidiaries” column presented comply terms credit agreement “unrestricted subsidiary” column included condensed consolidating financial statements year ended december 31 2015 consists cco safari nonrecourse subsidiary credit agreement held cco safari term g loans repaid april 2015 condensed consolidating financial statements december 31 2017 2016 years ended december 31 2017 2016 2015 follow f 43 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated f 44 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated f 45 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated f 46 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated f 47 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated f 48 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated f 49 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated f 50 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated f 51 cco holdings llc subsidiaries notes consolidated financial statements december 31 2017 2016 2015 dollars millions except indicated f 52 item 15 exhibits financial statement schedules following documents filed part annual report 1 financial statements listing financial statements notes reports independent public accountants required item 8 begins page annual report 2 financial statement schedules financial statement schedules required filed items 8 15d required applicable required information set forth applicable financial statements notes thereto 3 index exhibits begins page 47 annual report agree furnish sec upon request copies longterm debt instruments authorize amount securities constituting 10 less total assets charter holdings subsidiaries consolidated basis signatures pursuant requirements section 13 15d securities exchange act 1934 cco holdings llc cco holdings capital corp duly caused annual report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf charter communications inc capacities dates indicated exhibit index exhibits listed numbers corresponding exhibit table item 601 regulation sk exhibit description 21 asset purchase agreement dated september 3 2003 charter communications vi llc helicon group lp hornell television service inc interlink communications partners llc charter communications holdings llc atlantic broadband finance llc incorporated reference exhibit 21 charter communications incs current report form 8ka filed september 3 2003 file 00027927 22 purchase agreement dated january 26 2006 cch ii llc cch ii capital corp jp morgan securities inc representative several purchasers 450000000 1025 senior notes due 2010 incorporated reference exhibit 103 current report form 8k charter communications inc filed january 27 2006 file 00027927 31 certificate formation cco holdings llc incorporated reference exhibit 31 registration statement form s4 cco holdings llc cco holdings capital corporation filed february 6 2004 file 333112593 32 certificate correction certificate formation cco holdings llc incorporated reference exhibit 32 registration statement form s4 cco holdings llc cco holdings capital corporation filed february 6 2004 file 333112593 33 amended restated limited liability company agreement cco holdings llc dated june 19 2003 incorporated reference exhibit 33 registration statement form s4 cco holdings llc cco holdings capital corporation filed february 6 2004 file 333112593 34 certificate incorporation cco holdings llc capital corp originally named cc holdco capital corp incorporated reference exhibit 34 registration statement form s4 cco holdings llc cco holdings capital corporation filed february 6 2004 file 333112593 35 certificate amendment certificate incorporation cco holdings capital corp incorporated reference exhibit 35 registration statement form s4 cco holdings llc cco holdings capital corporation filed february 6 2004 file 333112593 36 bylaws cco holdings capital corp incorporated reference exhibit 36 registration statement form s4 cco holdings llc cco holdings capital corporation filed february 6 2004 file 333112593 41 indenture relating 8 34 senior notes due 2013 dated november 10 2003 among cco holdings llc cco holdings capital corp wells fargo bank na trustee incorporated reference exhibit 41 charter communications incs current report form 8k filed november 12 2003 file 00027927 42 indenture dated december 15 2004 among cco holdings llc cco holdings capital corp wells fargo bank na trustee incorporated reference exhibit 101 current report form 8k cco holdings llc filed december 21 2004 file 333112593 43a senior bridge loan agreement dated october 17 2005 among cco holdings llc cco holdings capital corp certain lenders jpmorgan chase bank na administrative agent jp morgan securities inc credit suisse cayman islands branch joint lead arrangers joint bookrunners deutsche bank securities inc documentation agent incorporated reference exhibit 991 current report form 8k charter communications inc filed october 19 2005 file 00027927 43b waiver amendment agreement senior bridge loan agreement dated january 26 2006 among cco holdings llc cco holdings capital corp certain lenders jpmorgan chase bank na administrative agent jp morgan securities inc credit suisse cayman islands branch joint lead arrangers joint bookrunners deutsche bank securities inc documentation agent incorporated reference exhibit 102 current report form 8k charter communications inc filed january 27 2006 file 00027927 101 indenture dated april 9 1998 among renaissance media louisiana llc renaissance media tennessee llc renaissance media capital corporation renaissance media group llc united states trust company new york trustee incorporated reference exhibit 41 registration statement forms s4 renaissance media group llc renaissance media tennessee llc renaissance media louisiana llc renaissance media capital corporation filed june 12 1998 file 33356679 102 indenture relating 8 senior second lien notes due 2012 8 38 senior second lien notes due 2014 dated april 27 2004 among charter communications operating llc charter communications operating capital corp wells fargo bank na trustee incorporated reference exhibit 1032 amendment 2 registration statement form s4 cch ii llc filed may 5 2004 file 333111423 103 settlement agreement mutual releases dated october 31 2005 among charter communications inc special committee board directors charter communications inc charter communications holding company llc cchc llc cc viii llc cc v llc charter investment inc vulcan cable iii llc paul g allen incorporated reference exhibit 1017 quarterly report form 10q charter communications inc filed november 2 2005 file 00027927 104 exchange agreement dated october 31 2005 among charter communications holding company llc charter investment inc paul g allen incorporated reference exhibit 1018 quarterly report form 10q charter communications inc filed november 2 2005 file 00027927 105 cchc llc subordinated accreting note dated october 31 2005 revised incorporated reference exhibit 103 current report form 8k charter communications inc filed november 4 2005 file 00027927 106a first amended restated mutual services agreement dated december 21 2000 charter communications inc charter investment inc charter communications holding company llc incorporated reference exhibit 102b registration statement form s4 charter communications holdings llc charter communications holdings capital corporation filed february 2 2001 file 33354902 106b letter agreement dated june 19 2003 among charter communications inc charter communications holding company llc charter investment inc regarding mutual services agreement incorporated reference exhibit 105b quarterly report form 10q filed charter communications inc august 5 2003 file 00027927 106c second amended restated mutual services agreement dated june 19 2003 charter communications inc charter communications holding company llc incorporated reference exhibit 105a quarterly report form 10q filed charter communications inc august 5 2003 file 00027927 107a amended restated limited liability company agreement cc viii llc dated march 31 2003 incorporated reference exhibit 1027 annual report form 10k charter communications inc filed april 15 2003 file 00027927 107b third amended restated limited liability company agreement cc viii llc dated october 31 2005 incorporated reference exhibit 1020 quarterly report form 10q filed charter communications inc november 2 2005 file 00027927 108a amended restated limited liability company agreement charter communications operating llc dated june 19 2003 incorporated reference exhibit 102 quarterly report form 10q filed charter communications inc august 5 2003 file 00027927 108b first amendment amended restated limited liability company agreement charter communications operating llc adopted june 22 incorporated reference exhibit 1016b annual report form 10k filed charter communications inc february 28 2006 file no00027927 109 amended restated management agreement dated june 19 2003 charter communications operating llc charter communications inc incorporated reference exhibit 104 quarterly report form 10q filed charter communications inc august 5 2003 file 33383887 1010 amended restated credit agreement among charter communications operating llc cco holdings llc certain lenders agents named therein dated april 27 2004 incorporated reference exhibit 1025 amendment 2 registration statement form s4 cch ii llc filed may 5 2004 file 333111423 1011a stipulation settlement dated january 24 2005 regarding settlement consolidated federal class action entitled charter communications inc securities litigation incorporated reference exhibit 1048 annual report form 10k filed charter communications inc march 3 2005 file 00027927 1011b amendment stipulation settlement dated may 23 2005 regarding settlement consolidated federal class action entitled charter communications inc securities litigation incorporated reference exhibit 1035b amendment 3 registration statement form s1 filed charter communications inc june 8 2005 file 333121186 1012 settlement agreement mutual release dated february 1 2005 among charter communications inc certain insureds hand certain underwriters lloyds london certain subscribers hand incorporated reference exhibit 1049 annual report form 10k filed charter communications inc march 3 2005 file 00027927 1013 stipulation settlement dated january 24 2005 regarding settlement federal derivative action arthur j cohn v ronald l nelson et al charter communications inc incorporated reference exhibit 1050 annual report form 10k filed charter communications inc march 3 2005 file 00027927 1014a charter communications holdings llc 1999 option plan incorporated reference exhibit 104 amendment 4 registration statement form s4 charter communications holdings llc charter communications holdings capital corporation filed july 22 1999 file 33377499 1014b assumption agreement regarding option plan dated may 25 1999 charter communications holdings llc charter communications holding company llc incorporated reference exhibit 1013 amendment 6 registration statement form s4 charter communications holdings llc charter communications holdings capital corporation filed august 27 1999 file 33377499 1014c form amendment 1 charter communications holdings llc 1999 option plan incorporated reference exhibit 1010c amendment 4 registration statement form s1 charter communications inc filed november 1 1999 file 33383887 1014d amendment 2 charter communications holdings llc 1999 option plan incorporated reference exhibit 104c annual report form 10k filed charter communications inc march 30 2000 file 00027927 1014e amendment 3 charter communications 1999 option plan incorporated reference exhibit 1014e annual report form 10k charter communications inc filed march 29 2002 file 00027927 1014f amendment 4 charter communications 1999 option plan incorporated reference exhibit 1010f annual report form 10k charter communications inc filed april 15 2003 file 00027927 1015a charter communications inc 2001 stock incentive plan incorporated reference exhibit 1025 quarterly report form 10q filed charter communications inc may 15 2001 file 00027927 1015b amendment 1 charter communications inc 2001 stock incentive plan incorporated reference exhibit 1011b annual report form 10k charter communications inc filed april 15 2003 file 00027927 1015c amendment 2 charter communications inc 2001 stock incentive plan incorporated reference exhibit 1010 quarterly report form 10q filed charter communications inc november 14 2001 file 00027927 1015d amendment 3 charter communications inc 2001 stock incentive plan effective january 2 2002 incorporated reference exhibit 1015c annual report form 10k charter communications inc filed march 29 2002 file 00027927 1015e amendment 4 charter communications inc 2001 stock incentive plan incorporated reference exhibit 1011e annual report form 10k charter communications inc filed april 15 2003 file 00027927 1015f amendment 5 charter communications inc 2001 stock incentive plan incorporated reference exhibit 1011f annual report form 10k charter communications inc filed april 15 2003 file 00027927 1015g amendment 6 charter communications inc 2001 stock incentive plan effective december 23 2004 incorporated reference exhibit 1043g registration statement form s1 charter communications inc filed october 5 2005 file 333128838 1015h amendment 7 charter communications inc 2001 stock incentive plan effective august 23 2005 incorporated reference exhibit 1043h registration statement form s1 charter communications inc filed october 5 2005 file 333128838 1015i description longterm incentive program charter communications inc stock incentive plan incorporated reference exhibit 1011g annual report form 10k filed charter communications inc march 15 2004 file 00027927 1016 description charter communications inc 2005 executive bonus plan incorporated reference exhibit 1051 annual report form 10k filed charter communications inc march 3 2005 file 00027927 1017 executive cash award plan dated june 9 2005 incorporated reference exhibit 991 current report form 8k charter communications inc filed june 15 2005 file 00027927 1018 executive services agreement dated january 17 2005 charter communications inc robert p may incorporated reference exhibit 991 current report form 8k charter communications inc filed january 21 2005 file 00027927 1019 employment agreement dated october 8 2001 carl e vogel charter communications inc incorporated reference exhibit 104 quarterly report form 10q filed charter communications inc november 14 2001 file 00027927 1020 separation agreement release carl e vogel dated february 17 2005 incorporated reference exhibit 991 current report form 8k filed charter communications inc february 22 2005 file 00027927 1021 letter agreement dated april 15 2005 charter communications inc paul e martin incorporated reference exhibit 991 current report form 8k charter communications inc filed april 19 2005 file 00027927 1022 restricted stock agreement dated july 13 2005 robert p may charter communications inc incorporated reference exhibit 991 current report form 8k charter communications inc filed july 13 2005 file 00027927 1023 restricted stock agreement dated july 13 2005 michael j lovett charter communications inc incorporated reference exhibit 992 current report form 8k charter communications inc filed july 13 2005 file 00027927 1024 employment agreement dated august 9 2005 neil smit charter communications inc incorporated reference exhibit 991 current report form 8k charter communications inc filed august 15 2005 file 00027927 1025 employment agreement dated september 2 2005 paul e martin charter communications inc incorporated reference exhibit 991 current report form 8k charter communications inc filed september 9 2005 file 00027927 1026 employment agreement dated september 2 2005 wayne h davis charter communications inc incorporated reference exhibit 992 current report form 8k charter communications inc filed september 9 2005 file 00027927 1027 employment agreement dated october 31 2005 sue ann hamilton charter communications inc incorporated reference exhibit 1021 quarterly report form 10q charter communications inc filed november 2 2005 file 00027927 1028 employment agreement effective october 10 2005 grier c raclin charter communications inc incorporated reference exhibit 991 current report form 8k charter communications inc filed november 14 2005 file 00027927 1029 employment offer letter dated november 22 2005 charter communications inc robert quigley incorporated reference 1068 amendment 1 registration statement form s1 charter communications inc filed february 2 2006 file 333130898 1030 employment agreement dated december 9 2005 robert quigley charter communications inc incorporated reference exhibit 991 current report form 8k charter communications inc filed december 13 2005 file 00027927 1031 retention agreement dated january 9 2006 paul e martin charter communications inc incorporated reference exhibit 991 current report form 8k charter communications inc filed january 10 2006 file 00027927 1032 employment agreement dated january 20 2006 jeffrey fisher charter communications inc incorporated reference exhibit 101 current report form 8k charter communications inc filed january 27 2006 file 00027927 1033 employment agreement dated february 28 2006 michael j lovett charter communications inc incorporated reference exhibit 992 current report form 8k charter communications inc filed march 3 2006 file 00027927 311 certificate chief executive officer pursuant rule 13a14arule 15d14a securities exchange act 1934 312 certificate chief financial officer pursuant rule 13a14arule 15d14a securities exchange act 1934 321 certification pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 chief executive officer 322 certification pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 chief financial officer document attached management compensatory plan arrangement report independent registered public accounting firm board directors cco holdings llc audited accompanying consolidated balance sheets cco holdings llc subsidiaries company december 31 2005 2004 related consolidated statements operations changes member’s equity cash flows years threeyear period ended december 31 2005 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position cco holdings llc subsidiaries december 31 2005 2004 results operations cash flows years threeyear period ended december 31 2005 conformity us generally accepted accounting principles discussed note 7 consolidated financial statements effective september 30 2004 company adopted eitf topic d108 use residual method value acquired assets goodwill discussed note 17 consolidated financial statements effective january 1 2003 company adopted statement financial accounting standards 123 accounting stockbased compensation amended statement financial accounting standards 148 accounting stockbased compensationtransition disclosurean amendment fasb statement 123 kpmg llp st louis missouri february 27 2006 cco holdings llc subsidiaries consolidated balance sheets dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries consolidated statements operations dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries consolidated statements changes member’s equity dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated 1 organization basis presentation cco holdings llc cco holdings holding company whose principal assets december 31 2005 equity interests operating subsidiaries cco holdings direct subsidiary cch ii llc cch ii indirect subsidiary charter communications holdings llc charter holdings charter holdings indirect subsidiary charter communications inc charter consolidated financial statements include accounts cco holdings wholly owned subsidiaries underlying operations reside collectively referred herein company significant intercompany accounts transactions among consolidated entities eliminated company broadband communications company operating united states company offers customers traditional cable video programming analog digital video well highspeed internet services areas advanced broadband services highdefinition television video demand telephone company sells cable video programming highspeed internet advanced broadband services subscription basis company also sells local advertising satellitedelivered networks preparation financial statements conformity accounting principles generally accepted united states requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period areas involving significant judgments estimates include capitalization labor overhead costs depreciation amortization costs impairments property plant equipment franchises goodwill income taxes contingencies actual results could differ estimates reclassifications certain prior year amounts reclassified conform 2005 presentation 2 liquidity capital resources company incurred net loss 258 million 33 billion 2005 2004 respectively company net income 30 million 2003 company’s net cash flows operating activities 10 billion 12 billion 13 billion years ending december 31 2005 2004 2003 respectively companys longterm financing december 31 2005 consists 57 billion credit facility debt 33 billion accreted value highyield notes 2006 30 million company’s debt matures 2007 additional 280 million matures 2008 beyond significant additional amounts become due company’s remaining longterm debt obligations recent financing transactions october 2005 company entered senior bridge loan agreement bridge loan jpmorgan chase bank na credit suisse cayman islands branch deutsche bank ag cayman islands branch lenders whereby lenders committed make loans company aggregate amount 600 million upon issuance 450 million cch ii notes discussed commitment bridge loan reduced 435 million company may draw upon facility january 2 2006 september 29 2006 loans mature sixth anniversary first borrowing bridge loan company requires significant cash fund debt service costs capital expenditures ongoing operations company historically funded requirements cash flows operating activities borrowings credit facilities equity contributions parent companies sales assets issuances debt securities cash hand however mix funding sources changes period year ended december 31 2005 company generated 10 billion net cash flows operating activities paying cash interest 650 million addition company used 11 billion purchases property plant equipment finally company used 574 million net cash flows financing activities company expects cash hand cash flows operating activities amounts available credit facilities bridge loan adequate meet parent companies’ cash needs 2006 cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated company believes cash flows operating activities amounts available company’s credit facilities bridge loan sufficient fund company’s operations satisfy parent companies’ interest debt repayment obligations 2007 beyond company advised charter working financial advisors address funding requirement however assurance funding available company parent companies addition paul g allen charter’s chairman controlling shareholder affiliates obligated purchase equity contribute loan funds company parent companies debt covenants company’s ability operate depends upon among things continued access capital including credit charter operating credit facilities bridge loan charter operating credit facilities along company’s indentures bridge loan contain certain restrictive covenants require company maintain specified financial ratios meet financial tests provide audited financial statements unqualified opinion company’s independent auditors december 31 2005 company compliance covenants indentures bridge loan credit facilities company expects remain compliance covenants next twelve months december 31 2005 company’s potential availability credit facilities totaled approximately 553 million none limited covenants addition january 2 2006 company additional borrowing availability 600 million bridge loan reduced 435 million result issuance cch ii notes continued access company’s credit facilities bridge loan subject company remaining compliance covenants including covenants tied company’s operating performance events noncompliance occur funding credit facilities bridge loan may available defaults potentially company’s debt obligations could occur event default company’s debt instruments could result acceleration payment obligations debt certain circumstances crossdefaults debt obligations could material adverse effect company’s consolidated financial condition results operations parent company debt obligations financial liquidity problems company’s parent companies could cause serious disruption companys business material adverse effect company’s business results operations failure charter holdings cch holdings llc cih cch llc cch ii satisfy debt payment obligations bankruptcy filing respect charter holdings cih cch ii would give lenders company’s credit facilities right accelerate payment obligations facilities acceleration would default indenture governing company’s notes charter’s ability make interest payments convertible senior notes 2009 repay outstanding principal convertible senior notes 20 million 863 million respectively depend ability raise additional capital andor receipt payments distributions charter communications holding company llc charter holdco subsidiaries including company 2005 company distributed 925 million cash cch ii 60 million subsequently distributed charter holdco december 31 2005 charter holdco owed 22 million intercompany loans subsidiaries available pay interest principal charters convertible senior notes addition charter 98 million governmental securities pledged security next four scheduled semiannual interest payments charter’s 5875 convertible senior notes december 31 2005 charter holdings cih cch ii approximately 94 billion principal amount highyield notes outstanding approximately 105 million 0 684 million 86 billion maturing 2007 2008 2009 thereafter respectively charter holdings cih cch ii need raise additional capital receive distributions payments company order satisfy debt obligations however significant indebtedness company’s ability parent companies raise additional capital reasonable rates uncertain cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated distributions charter’s subsidiaries parent company including charter cchc llc cchc charter holdco charter holdings cih cch ii payment principal parent company notes restricted indentures governing cih notes cch notes cch ii notes cco holdings notes charter operating notes unless default applicable subsidiary’s leverage ratio test met time distribution case charter’s convertible senior notes specified tests met quarter ended december 31 2005 default indentures subsidiary met applicable leverage ratio tests based december 31 2005 financial results distributions would restricted however subsidiary fails meet tests past certain subsidiaries time failed meet leverage ratio test assurance satisfy tests time distribution distributions charter operating cco holdings payment principal parent company notes restricted covenants credit facilities bridge loan respectively distributions cih cch ii cco holdings charter operating parent company payment parent company interest permitted default aforementioned indentures however distributions payment interest charter’s convertible senior notes limited applicable subsidiary’s leverage ratio test met specified tests met assurance satisfy tests time distribution january 2006 company’s parent companies cch ii cch ii capital corp issued 450 million debt securities proceeds provided directly indirectly company used funds reduce borrowings commitments revolving portion credit facilities september 2005 charter holdings wholly owned subsidiaries cch cih completed exchange approximately 68 billion total principal amount outstanding debt securities charter holdings private placement new debt securities holders charter holdings notes due 2009 2010 exchanged 34 billion principal amount notes 29 billion principal amount new 11 cch notes due 2015 holders charter holdings notes due 2011 2012 exchanged 845 million principal amount notes 662 million principal amount 11 cch notes due 2015 addition holders charter holdings notes due 2011 2012 exchanged 25 billion principal amount notes 25 billion principal amount various series new cih notes series new cih notes interest rate provisions payment cash interest series old charter holdings notes cih notes exchanged addition maturities series extended three years specific limitations charter holdings indentures governing charter holdings notes permit charter holdings make distributions charter holdco payment interest principal convertible senior notes giving effect distribution charter holdings incur additional debt leverage ratio 875 10 default charter holdings’ indentures specified tests met quarter ended december 31 2005 default charter holdings’ indentures charter holdings met leverage ratio test based december 31 2005 financial results distributions would restricted however charter holdings fails meet tests past charter holdings time failed meet leverage ratio test assurance charter holdings satisfy tests time distribution periods distributions restricted indentures governing charter holdings notes permit charter holdings subsidiaries make specified investments restricted payments charter holdco charter amount determined formula long default indentures 3 summary significant accounting policies cash equivalents company considers highly liquid investments original maturities three months less cash equivalents investments carried cost approximates market value cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated property plant equipment property plant equipment recorded cost including material labor certain indirect costs associated construction cable transmission distribution facilities company’s capitalization based specific activities capitalized costs tracked fixed asset category cable system level specific asset basis costs associated initial customer installations additions network equipment necessary enable advanced services capitalized costs capitalized part initial customer installations include materials labor certain indirect costs indirect costs associated activities company’s personnel assist connecting activating new service consist compensation indirect costs associated support functions indirect costs primarily include employee benefits payroll taxes direct variable costs associated capitalizable activities consisting primarily installation construction vehicle costs cost dispatch personnel indirect costs directly attributable capitalizable activities costs disconnecting service customer’s dwelling reconnecting service previously installed dwelling charged operating expense period incurred costs repairs maintenance charged operating expense incurred plant equipment replacement betterments including replacement cable drops pole dwelling capitalized depreciation recorded using straightline composite method management’s estimate useful lives related assets follows asset retirement obligations certain company’s franchise agreements leases contain provisions requiring company restore facilities remove equipment event franchise lease agreement renewed company expects continually renew franchise agreements concluded substantially related franchise rights indefinite lived intangible assets accordingly possibility remote company would required incur significant restoration removal costs related franchise agreements foreseeable future statement financial accounting standards sfas 143 accounting asset retirement obligations interpreted financial accounting standards board fasb interpretation fin 47 accounting conditional asset retirement obligations interpretation fasb statement 143 requires liability recognized asset retirement obligation period incurred reasonable estimate fair value made company recorded estimate potential franchise related obligations would record estimated liability unlikely event franchise agreement containing provision longer expected renewed company also expects renew many lease agreements related continued operation cable business franchise areas company’s lease agreements liabilities related removal provisions applicable recorded significant financial statements franchises franchise rights represent value attributed agreements local authorities allow access homes cable service areas acquired purchase cable systems management estimates fair value franchise rights date acquisition determines franchise finite life indefinitelife defined sfas 142 goodwill intangible assets franchises qualify indefinitelife treatment sfas 142 longer amortized earnings instead tested impairment annually october 1 frequently warranted events changes circumstances see note 7 company concluded 99 franchises qualify indefinitelife treatment however certain franchises qualify indefinitelife treatment due technological operational factors limit lives cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated franchise costs amortized straightline basis 10 years costs incurred renewing cable franchises deferred amortized 10 years noncurrent assets noncurrent assets primarily include deferred financing costs governmental securities investments equity securities goodwill costs related borrowings deferred amortized interest expense terms related borrowings investments equity securities accounted cost equity method accounting accordance sfas 115 accounting certain investments debt equity securities charter recognizes losses decline value considered temporary certain marketable equity securities classified availableforsale reported market value unrealized gains losses recorded accumulated comprehensive income loss following summarizes investment information years ended december 31 2005 2004 gain equity investments equity method year ended december 31 2005 primarily represents gain realized exchange company’s interest equity investee investment larger enterprise amounts included net statements operations valuation property plant equipment company evaluates recoverability longlived assets held used impairment events changes circumstances indicate carrying amount asset may recoverable using asset groupings consistent used evaluate franchises events changes circumstances could include factors impairment company’s indefinite life franchise sfas 142 changes technological advances fluctuations fair value assets adverse changes relationships local franchise authorities adverse changes market conditions deterioration operating results review indicates carrying value asset recoverable estimated undiscounted cash flows carrying value asset reduced estimated fair value company believes estimates future cash flows reasonable different assumptions regarding cash flows could materially affect evaluations asset recoverability impairments longlived assets held used recorded 2005 2004 2003 however approximately 39 million impairment assets held sale recorded year ended december 31 2005 see note 4 derivative financial instruments company accounts derivative financial instruments accordance sfas 133 accounting derivative instruments hedging activities amended instruments qualify hedging activities related gains losses recorded accumulated comprehensive income derivative instruments related gains losses recorded income statement company uses interest rate risk management derivative instruments interest rate swap agreements interest rate cap agreements interest cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated rate collar agreements collectively referred herein interest rate agreements required terms credit facilities company’s subsidiaries company’s policy manage interest costs using mix fixed variable rate debt using interest rate swap agreements company agrees exchange specified intervals difference fixed variable interest amounts calculated reference agreedupon notional principal amount interest rate cap agreements used lock maximum interest rate variable rates rise enable company otherwise pay lower market rates interest rate collar agreements used limit exposure benefits interest rate fluctuations variable rate debt within certain range rates company hold issue derivative financial instruments trading purposes revenue recognition revenues residential commercial video highspeed internet telephone services recognized related services provided advertising sales recognized estimated realizable values period advertisements broadcast local governmental authorities impose franchise fees company ranging federally mandated maximum 5 gross revenues defined franchise agreement fees collected monthly basis company’s customers periodically remitted local franchise authorities franchise fees reported revenues gross basis corresponding operating expense programming costs company various contracts obtain analog digital premium video programming program suppliers whose compensation typically based flat fee per customer cost right exhibit network programming arrangements recorded operating expenses month programming available exhibition programming costs paid month based calculations performed company subject periodic audits performed programmers certain programming contracts contain launch incentives paid programmers company receives payments related activation programmer’s cable television channel recognizes launch incentives straightline basis life programming agreement reduction programming expense offset programming expense 42 million 62 million 64 million years ended december 31 2005 2004 2003 respectively programming costs included accompanying statement operations 14 billion 13 billion 12 billion years ended december 31 2005 2004 2003 respectively december 31 2005 2004 deferred amount launch incentives included longterm liabilities 83 million 105 million respectively advertising costs advertising costs associated marketing company’s products services generally expensed costs incurred advertising expense 97 million 72 million 62 million years ended december 31 2005 2004 2003 respectively stockbased compensation company historically accounted stockbased compensation accordance accounting principles board apb opinion 25 accounting stock issued employees related interpretations permitted sfas 123 accounting stockbased compensation january 1 2003 company adopted fair value measurement provisions sfas 123 using prospective method company recognize compensation expense stockbased award employee vesting period based fair value award grant date consistent method described fin 28 accounting stock appreciation rights variable stock option award plans adoption provisions resulted utilizing preferable accounting method consolidated financial statements present estimated fair value stockbased compensation expense consistently forms compensation expense associated goods services received equity instruments accordance sfas 148 accounting stockbased compensation transition disclosure fair value method applied awards cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated granted modified january 1 2003 whereas awards granted prior date accounted apb 25 unless modified settled cash sfas 123 requires pro forma disclosure impact earnings compensation expense plans determined using fair value method following table presents company’s net income loss reported pro forma amounts would reported using fair value method sfas 123 years presented fair value option granted estimated date grant using blackscholes optionpricing model following weighted average assumptions used grants years ended december 31 2005 2004 2003 respectively riskfree interest rates 40 33 30 expected volatility 709 924 936 expected lives 45 years 46 years 45 years respectively valuations assume dividends paid unfavorable contracts settlements company recognized 5 million benefit year ended december 31 related changes estimated legal reserves established part previous business combinations based evaluation current facts circumstances longer required company recognized 72 million benefit year ended december 31 result settlement estimated liabilities recorded connection prior business combinations majority benefit approximately 52 million due renegotiation major programming contract liability recorded market portion agreement conjunction falcon acquisition 1999 bresnan acquisition 2000 remaining benefit relates reversal previously recorded liabilities longer required income taxes cco holdings single member limited liability company subject income tax cco holdings holds operations indirect subsidiaries majority indirect subsidiaries limited liability companies also subject income tax however certain cco holdings’ indirect subsidiaries corporations subject income tax company recognizes deferred tax assets liabilities temporary differences financial reporting basis tax basis indirect corporate subsidiaries’ assets liabilities expected benefits utilizing net operating loss carryforwards impact deferred taxes changes tax rates tax law applied years temporary differences expected settled reflected consolidated financial statements period enactment see note 20 segments sfas 131 disclosure segments enterprise related information established standards reporting information operating segments annual financial statements interim financial reports issued shareholders operating segments defined components enterprise separate financial cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated information available evaluated regular basis chief operating decision maker decision making group deciding allocate resources individual segment assessing performance segment company’s operations managed basis geographic divisional operating segments company evaluated criteria aggregation geographic operating segments paragraph 17 sfas 131 believes meets respective criteria set forth company delivers similar products services within geographic divisional operations geographic divisional service area utilizes similar means delivering programming company’s services similarity type class customer receiving products services distributes company’s services unified network operates within consistent regulatory environment addition geographic divisional operating segments similar economic characteristics light company’s similar services means delivery similarity type customers use unified network considerations across geographic divisional operating structure management determined company one reportable segment broadband services 4 sale assets 2005 company closed sale certain cable systems texas west virginia nebraska representing total approximately 33000 analog video customers year ended december 31 2005 cable systems met criteria assets held sale sfas 144 accounting impairment disposal longlived assets written fair value less estimated costs sell resulting asset impairment charges year ended december 31 2005 approximately 39 million 2004 company closed sale certain cable systems florida pennsylvania maryland delaware new york west virginia atlantic broadband finance llc transactions resulted 106 million gain recorded gain sale assets company’s consolidated statements operations total net proceeds sale systems approximately 735 million proceeds used repay portion amounts outstanding company’s revolving credit facility 5 allowance doubtful accounts activity allowance doubtful accounts summarized follows years presented cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated 6 property plant equipment property plant equipment consists following december 31 2005 2004 company periodically evaluates estimated useful lives used depreciate assets estimated amount assets abandoned minimal use future significant change assumptions extent timing future asset retirements company’s use new technology upgrade programs could materially affect future depreciation expense depreciation expense years ended december 31 2005 2004 2003 15 billion 7 franchises goodwill franchise rights represent value attributed agreements local authorities allow access homes cable service areas acquired purchase cable systems management estimates fair value franchise rights date acquisition determines franchise finite life indefinitelife defined sfas 142 goodwill intangible assets franchises qualify indefinitelife treatment sfas 142 tested impairment annually october 1 based valuations frequently warranted events changes circumstances test resulted total franchise impairment approximately 33 billion third quarter 2004 2003 2005 annual impairment tests resulted impairment franchises aggregated essentially inseparable asset groups conduct valuations asset groups generally represent geographic clustering company’s cable systems groups systems managed management believes grouping represents highest best use assets company’s valuations based present value projected tax cash flows result value property plant equipment franchises customer relationships total entity value goodwill difference total entity value amounts assigned assets franchises valuation purposes defined future economic benefits right solicit service potential customers customer marketing rights right deploy market new services interactivity telephone potential customers service marketing rights fair value determined based estimated discounted future cash flows using assumptions consistent internal forecasts franchise aftertax cash flow calculated aftertax cash flow generated potential customers obtained new services added customers future periods sum present value franchises aftertax cash flow years 1 10 continuing value aftertax cash flow beyond year 10 yields fair value franchise company follows guidance emerging issues task force eitf issue 0217 recognition customer relationship intangible assets acquired business combination valuing customer relationships customer relationships valuation purposes represent value business relationship existing customers calculated projecting future aftertax cash flows customers including right deploy market cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated additional services interactivity telephone customers present value aftertax cash flows yields fair value customer relationships substantially acquisitions occurred prior january 1 2002 company record value associated customer relationship intangibles related acquisitions subsequent january 1 2002 company assign value customer relationship intangible amortized estimated useful life september 2004 sec staff issued eitf topic d108 requires direct method separately valuing intangible assets permit goodwill included franchise assets company adopted topic d108 impairment assessment september 30 2004 resulted total franchise impairment approximately 33 billion company recorded cumulative effect accounting change 840 million approximately 875 million tax effects 16 million minority interest effects 19 million year ended december 31 2004 representing portion companys total franchise impairment attributable longer including goodwill franchise assets remaining 24 billion total franchise impairment attributable use lower projected growth rates resulting revised estimates future cash flows companys valuation recorded impairment franchises companys accompanying consolidated statements operations year ended december 31 2004 sustained analog video customer losses company third quarter 2004 primarily result increased competition direct broadcast satellite providers decreased growth rates companys highspeed internet customers third quarter 2004 part result increased competition digital subscriber line service providers led lower projected growth rates revised estimates future cash flows used october 1 2003 december 31 2005 2004 indefinitelived finitelived intangible assets presented following table years ended december 31 2005 2004 net carrying amount indefinitelived franchises reduced 52 million 490 million respectively related sale cable systems see note 4 additionally 2005 2004 approximately 13 million 37 million respectively franchises previously classified finitelived reclassified indefinitelived based company’s renewal franchise assets 2005 2004 franchise amortization expense years ended december 31 2005 2004 2003 4 million 4 million 9 million respectively represents amortization relating franchises qualify indefinitelife treatment sfas 142 including costs associated franchise renewals company expects amortization expense franchise assets approximately 2 million annually next five years actual amortization expense future periods could differ estimates result new intangible asset acquisitions divestitures changes useful lives relevant factors cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated 8 accounts payable accrued expenses accounts payable accrued expenses consist following december 31 2004 9 longterm debt longterm debt consists following december 31 2005 2004 accreted values presented generally represent principal amount notes less original issue discount time sale plus accretion balance sheet date october 2005 company entered bridge loan lenders whereby lenders committed make loans company aggregate amount 600 million upon issuance 450 million cch ii notes commitment bridge loan agreement reduced 435 million company may draw upon facility january 2 2006 september 29 2006 loans mature sixth anniversary first borrowing bridge loan accrue interest rate equal adjusted libor rate plus spread initially 450 basis points increase additional 25 basis points end sixmonth period following date first borrowing b additional 25 basis points end next two subsequent three month periods c 625 basis points end cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated next two subsequent threemonth periods company required prepay loans net proceeds issuance equity incurrence debt charter subsidiaries certain exceptions ii certain asset sales extent used purposes permitted bridge loan august 2005 company issued 300 million debt securities proceeds used general corporate purposes including payment distributions parent companies including charter holdings pay interest expense march june 2005 charter operating consummated exchange transactions small number institutional holders charter holdings 825 senior notes due pursuant charter operating issued private placements approximately 333 million principal amount new notes terms identical charter operatings 8375 senior second lien notes due 2014 exchange approximately 346 million charter holdings 825 senior notes due 2007 charter holdings notes received exchange thereafter distributed charter holdings cancelled loss extinguishment debt march 2005 cco holdings’ subsidiary cc v holdings llc redeemed 11875 notes due 2008 103958 principal amount plus accrued unpaid interest date redemption total cost redemption approximately 122 million funded borrowings charter operating credit facilities redemption resulted loss extinguishment debt year ended december 31 2005 approximately 5 million following redemption cc v holdings llc subsidiaries nonguarantor subsidiaries guaranteed charter operating credit facilities granted lien assets lien perfected uniform commercial code filing financing statement april 2004 cco holdings’ indirect subsidiaries charter operating charter communications operating capital corp sold 15 billion senior secondlien notes private transaction additionally charter operating amended restated 51 billion credit facilities among things defer maturities increase availability facilities approximately 65 billion consisting 15 billion sixyear revolving credit facility 20 billion sixyear term loan facility 30 billion sevenyear term loan facility charter operating used additional borrowings amended restated credit facilities together proceeds sale charter operating senior secondlien notes refinance credit facilities subsidiaries cc vi operating company llc cc vi operating falcon cable communications llc falcon cable cc viii operating llc cc viii operating concurrent transactions addition charter operating substituted lender place banks subsidiaries’ credit facilities transactions resulted net loss extinguishment debt 21 million year ended december 31 2004 cco holdings notes ¾ senior notes due 2013 november 2003 august 2005 cco holdings cco holdings capital corp jointly issued 500 million 300 million respectively total principal amount 8¾ senior notes due 2013 cco holdings notes general unsecured obligations cco holdings cco holdings capital corp rank equally current future unsubordinated obligations cco holdings cco holdings capital corp cco holdings notes structurally subordinated obligations cco holdings’ subsidiaries including renaissance notes charter operating notes charter operating credit facilities december 31 2005 800 million total principal amount outstanding 794 million accreted value outstanding interest cco holdings senior notes accrues 8¾ per year payable semiannually arrears may 15 november 15 time prior november 15 2006 issuers cco holdings senior notes may redeem 35 total principal amount cco holdings senior notes extent public equity proceeds received cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated pro rata basis redemption price equal 10875 principal amount cco holdings senior notes redeemed plus accrued unpaid interest november 15 2008 issuers cco holdings senior notes may redeem part notes redemption price declines ratably initial redemption price 104375 redemption price november 15 2011 1000 principal amount cco holdings senior notes redeemed plus case accrued unpaid interest event specified change control events cco holdings must offer purchase outstanding cco holdings senior notes holders purchase price equal 101 total principal amount notes plus accrued unpaid interest senior floating rate notes due 2010 december 2004 cco holdings cco holdings capital corp jointly issued 550 million total principal amount senior floating rate notes due 2010 cco holdings notes general unsecured obligations cco holdings cco holdings capital corp rank equally current future unsubordinated obligations cco holdings cco holdings capital corp cco holdings notes structurally subordinated obligations cco holdings’ subsidiaries including renaissance notes charter operating notes charter operating credit facilities interest cco holdings senior floating rate notes accrues libor rate 453 256 december 31 2005 2004 respectively plus 4125 annually date interest recently paid interest reset payable quarterly arrears march 15 june 15 september 15 december 15 time prior december 15 2006 issuers senior floating rate notes may redeem 35 notes amount exceed amount proceeds one public equity offerings redemption price equal 100 principal amount plus premium equal interest rate per annum applicable notes date notice redemption given plus accrued unpaid interest redemption date provided least 65 original aggregate principal amount notes issued remains outstanding redemption issuers senior floating rate notes may redeem notes whole part issuers’ option december 15 2006 december 14 2007 102 principal amount december 15 2007 december 14 2008 101 principal amount december 15 2008 par case plus accrued unpaid interest indentures governing cco holdings senior notes contain restrictive covenants limit certain transactions activities cco holdings restricted subsidiaries substantially cco holdings’ direct indirect subsidiaries currently restricted subsidiaries event specified change control events cco holdings must offer purchase outstanding cco holdings senior notes holders purchase price equal 101 total principal amount notes plus accrued unpaid interest charter operating notes april 27 2004 charter operating charter communications operating capital corp jointly issued 11 billion 8 senior secondlien notes due 2012 400 million 8 38 senior secondlien notes due 2014 total gross proceeds 15 billion march june 2005 charter operating consummated exchange transactions small number institutional holders charter holdings 825 senior notes due pursuant charter operating issued private placement transactions approximately 333 million principal amount 8 38 senior secondlien notes due 2014 exchange approximately 346 million charter holdings 825 senior notes due 2007 interest charter operating notes payable semiannually arrears april 30 october 30 cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated charter operating notes sold private transaction subject registration requirements securities act 1933 charter operating notes expected benefit exchange registration rights except specified limited circumstances issue date charter operating notes restrictions contained charter holdings indentures charter operating note guarantees even though charter operatings immediate parent cco holdings certain company’s subsidiaries obligors andor guarantors charter operating credit facilities upon occurrence guarantee pledge date generally fifth business day charter holdings leverage ratio certified 875 10 cco holdings subsidiaries charter operating guarantors otherwise obligors respect indebtedness charter operating credit facilities related obligations required guarantee charter operating notes note guarantee guarantor · senior obligation guarantor · structurally senior outstanding cco holdings notes except case cco holdings note guarantee structurally pari passu senior notes outstanding cch ii notes outstanding cch notes outstanding cih notes outstanding charter holdings notes outstanding charter convertible senior notes subject provisions charter operating indenture permit interest subject meeting 425 10 leverage ratio test principal payments made thereon · senior right payment future subordinated indebtedness guarantor result leverage ratio test met cco holdings certain subsidiaries provided additional guarantees described first quarter 2005 subsidiaries charter operating except cco nr sub llc certain subsidiaries deemed material designated nonrecourse subsidiaries charter operating credit facilities restricted subsidiaries charter operating charter operating notes unrestricted subsidiaries generally subject restrictive covenants charter operating indenture event specified change control events charter operating must offer purchase charter operating notes purchase price equal 101 total principal amount charter operating notes repurchased plus accrued unpaid interest thereon indenture governing charter operating senior notes contains restrictive covenants limit certain transactions activities charter operating restricted subsidiaries substantially charter operating’s direct indirect subsidiaries currently restricted subsidiaries renaissance notes connection acquisition renaissance april 1999 company assumed 163 million principal amount maturity 10000 senior discount notes due 2008 49 million repurchased may 1999 renaissance notes bear interest payable semiannually april 15 october 15 renaissance notes due april 15 2008 december 31 2005 114 million total principal amount outstanding 115 million accreted value outstanding cc v holdings notes redeemed march 14 2005 therefore longer outstanding highyield restrictive covenants limitation indebtedness indentures governing notes company’s subsidiaries contain certain covenants restrict ability cco holdings cco holdings capital corp charter operating charter communications operating capital corp renaissance media group restricted subsidiaries cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated · incur additional debt · pay dividends equity repurchase equity · make investments · sell substantially assets merge companies · sell assets · enter saleleasebacks · case restricted subsidiaries create permit exist dividend payment restrictions respect bond issuers guarantee parent companies debt issue specified equity interests · engage certain transactions affiliates · grant liens charter operating credit facilities charter operating credit facilities amended restated concurrently sale 15 billion senior secondlien notes april 2004 among things defer maturities increase availability facilities enable charter operating acquire interests lenders cc vi operating cc viii operating falcon credit facilities thereby consolidating credit facilities one amended restated charter operating credit agreement charter operating credit facilities provide borrowing availability 65 billion follows · two term facilities term facility total principal amount 20 billion 125 matures 2007 30 matures 2008 375 matures 2009 20 matures 2010 ii term b facility total principal amount 30 billion shall repayable 27 equal quarterly installments aggregating loan year 1 original amount term b facility remaining balance due final maturity 2011 · revolving credit facility total amount 15 billion maturity date 2010 amounts outstanding charter operating credit facilities bear interest charter operating’s election base rate eurodollar rate 406 450 december 31 2005 207 228 december 31 2004 defined plus margin eurodollar loans 300 term facility revolving credit facility 325 term b facility base rate loans 200 term facility revolving credit facility 225 term b facility quarterly commitment fee 75 payable average daily unborrowed balance revolving credit facilities obligations subsidiaries charter operating credit facilities obligations guaranteed charter operating’s immediate parent company cco holdings subsidiaries charter operating except immaterial subsidiaries precluded guaranteeing reason provisions indebtedness subject nonguarantor subsidiaries primarily renaissance subsidiaries obligations also secured lien assets charter operating subsidiaries assets nonguarantor subsidiaries extent lien perfected uniform commercial code filing financing statement ii pledge cco holdings equity interests owned charter operating charter operating’s subsidiaries well intercompany obligations owing entities upon charter holdings leverage ratio defined indenture governing charter holdings senior notes senior discount notes 875 10 charter operating credit facilities required 11875 notes due 2008 issued cc v holdings llc redeemed leverage ratio determined 875 10 cc v holdings llc redeemed notes march 2005 cc v holdings llc cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated subsidiaries nonguarantor subsidiaries became guarantors obligations granted lien assets lien perfected uniform commercial code filing financing statement december 31 2005 outstanding borrowings charter operating credit facilities approximately 57 billion unused total potential availability approximately 553 million none limited covenant restrictions charter operating credit facilities restrictive covenants charter operating credit facilities contain representations warranties affirmative negative covenants customary financings type financial covenants measure performance standards set leverage debt service coverage interest coverage tested end quarter maximum allowable leverage ratio 425 10 maturity tested end quarter beginning september 30 2004 additionally charter operating credit facilities contain provisions requiring mandatory loan prepayments specific circumstances including significant amounts assets sold proceeds reinvested assets useful business borrower within specified period upon incurrence certain indebtedness ratio senior first lien debt operating cash flow greater 20 10 charter operating credit facilities permit charter operating subsidiaries make distributions pay interest charter operating senior secondlien notes cih notes cch notes cch ii senior notes cco holdings senior notes charter convertible senior notes cchc notes charter holdings senior notes provided among things default occurred continuing charter operating credit facilities conditions future borrowings include absence default event default charter operating credit facilities continued accuracy material respects representations warranties including absence since december 31 2003 event development circumstance could reasonably expected material adverse effect business events default charter operating credit facilities include among things · failure make payments due within applicable grace period · failure comply specified covenants including limited covenant deliver audited financial statements unqualified opinion independent auditors · failure pay occurrence events cause permit acceleration indebtedness owing cco holdings charter operating charter operating’s subsidiaries amounts excess 50 million aggregate principal amount · failure pay occurrence events result acceleration indebtedness owing certain cco holdings’ direct indirect parent companies amounts excess 200 million aggregate principal amount · paul allen andor certain family members andor exclusively owned entities collectively paul allen group ceasing power directly indirectly vote least 35 ordinary voting power charter operating · consummation transaction resulting person group paul allen group power directly indirectly vote 35 ordinary voting power charter operating unless paul allen group holds greater share ordinary voting power charter operating · certain charter operating’s indirect direct parent companies indebtedness excess 500 million aggregate principal amount remains undefeased three months prior final maturity indebtedness · charter operating ceasing whollyowned direct subsidiary cco holdings except certain limited circumstances cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated cco holdings bridge loan october 2005 cco holdings cco holdings capital corp guarantor thereunder entered bridge loan jpmorgan chase bank na credit suisse cayman islands branch deutsche bank ag cayman islands branch lenders whereby lenders committed make loans cco holdings aggregate amount 600 million january 2006 upon issuance 450 million cch ii notes discussed commitment bridge loan agreement reduced 435 million cco holdings may draw upon facility january 2 2006 september 29 2006 loans mature sixth anniversary first borrowing bridge loan beginning first anniversary first date cco holdings borrows bridge loan time thereafter lender option receive exchange notes terms described exchange notes exchange loan repaid date upon earlier x date least majority loans outstanding exchanged exchange notes date 18 months first date cco holdings borrows bridge loan remainder loans automatically exchanged exchange notes conditions draw shall default bridge loan ii representations warranties bridge loan shall true correct material respects iii conditions borrowing charter operating credit facilities certain exceptions shall satisfied aggregate unused commitment reduced 100 net proceeds certain asset sales extent net proceeds used prepay loans exchange notes however asset sales generate net proceeds less 75 million subject commitment reduction obligation unless aggregate net proceeds asset sales exceed 200 million case aggregate unused commitment reduced amount excess cco holdings required prepay loans redeem offer repurchase exchange notes issued net proceeds issuance equity incurrence debt charter subsidiaries certain exceptions ii certain asset sales extent used purposes permitted bridge loan covenants events default applicable cco holdings bridge loan similar covenants events default indenture senior secured notes cch exchange notes mature sixth anniversary first borrowing bridge loan exchange notes bear interest rate equal rate would borne loans mandatory redemption provisions apply exchange notes applied loans except cco holdings required make offer redeem upon occurrence change control 101 principal amount plus accrued unpaid interest exchange notes held person initial lender affiliate thereof noncallable first three years first borrowing date b thereafter callable par plus accrued interest plus premium equal 50 coupon effect first anniversary first borrowing date premium shall decline 25 coupon fourth year zero thereafter otherwise exchange notes callable time 100 amount thereof plus accrued unpaid interest cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated based upon outstanding indebtedness december 31 2005 amortization term loans scheduled reductions available borrowings revolving credit facilities maturity dates senior subordinated notes debentures total future principal payments total borrowings debt agreements december 31 2005 follows amounts debt scheduled mature 2006 management’s intent fund repayments borrowings company’s revolving credit facility accompanying consolidated balance sheet reflects intent presenting debt balances longterm table reflects actual debt maturities stated date 10 minority interest minority interest company’s consolidated balance sheets december 31 2005 2004 primarily represents preferred membership interests cc viii llc cc viii indirect subsidiary cco holdings 622 million 656 million respectively fully described note 21 preferred interest arises approximately 630 million preferred membership units issued cc viii connection acquisition february 2000 subject dispute charter mr allen charter’s chairman controlling shareholder settled october 31 2005 conjunction settlement dispute related change ownership interest approximately 186 cc viii’s income losses allocated minority interest company’s consolidated statements operations including amounts estimated prior years 2 accretion preferred membership interests 11 comprehensive income loss certain marketable equity securities classified availableforsale reported market value unrealized gains losses recorded accumulated comprehensive loss accompanying consolidated balance sheets additionally company reports changes fair value interest rate agreements designated hedging variability cash flows associated floatingrate debt obligations meet effectiveness criteria sfas 133 accounting derivative instruments hedging activities accumulated comprehensive loss comprehensive loss years ended december 31 2005 2004 241 million 33 billion respectively comprehensive income year ended december 31 2003 78 million 12 accounting derivative instruments hedging activities company uses interest rate risk management derivative instruments interest rate swap agreements interest rate collar agreements collectively referred herein interest rate agreements manage interest costs company’s policy manage interest costs using mix fixed variable rate debt using interest rate swap agreements company agreed exchange specified intervals 2007 difference fixed variable interest amounts calculated reference agreedupon notional principal amount interest rate collar agreements used limit company’s exposure benefits interest rate fluctuations variable rate debt within certain range rates cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated company hold issue derivative instruments trading purposes company however certain interest rate derivative instruments designated cash flow hedging instruments effectively convert variable interest payments certain debt instruments fixed payments qualifying hedges sfas 133 allows derivative gains losses offset related results hedged items consolidated statement operations company formally documented designated assessed effectiveness transactions receive hedge accounting years ended december 31 2005 2004 2003 net gain derivative instruments hedging activities includes gains 3 million 4 million 8 million respectively represent cash flow hedge ineffectiveness interest rate hedge agreements arising differences critical terms agreements related hedged obligations changes fair value interest rate agreements designated hedging instruments variability cash flows associated floatingrate debt obligations meet effectiveness criteria sfas 133 reported accumulated comprehensive loss years ended december 31 2005 2004 2003 gain 16 million 42 million 48 million respectively related derivative instruments designated cash flow hedges recorded accumulated comprehensive loss amounts subsequently reclassified interest expense yield adjustment period related interest floatingrate debt obligations affects earnings losses certain interest rate derivative instruments designated hedges meet effectiveness criteria specified sfas 133 however management believes instruments closely correlated respective debt thus managing associated risk interest rate derivative instruments designated hedges marked fair value impact recorded gain loss derivative instruments hedging activities company’s consolidated statement operations years ended december 31 2005 2004 2003 net gain derivative instruments hedging activities includes gains 47 million 65 million 57 million respectively interest rate derivative instruments designated hedges december 31 2005 2004 2003 company outstanding 18 billion 27 billion 30 billion 20 million 20 million 520 million respectively notional amounts interest rate swaps collars respectively notional amounts interest rate instruments represent amounts exchanged parties thus measure exposure credit loss amounts exchanged determined reference notional amount terms contracts 13 fair value financial instruments company estimated fair value financial instruments december 31 2005 2004 using available market information appropriate valuation methodologies considerable judgment however required interpreting market data develop estimates fair value accordingly estimates presented accompanying consolidated financial statements necessarily indicative amounts company would realize current market exchange carrying amounts cash receivables payables current assets liabilities approximate fair value short maturity instruments company exposed market price risk volatility respect investments publicly traded privately held entities fair value interest rate agreements represents estimated amount company would receive pay upon termination agreements management believes sellers interest rate agreements able meet obligations agreements addition interest rate agreements certain participating banks company’s credit facilities thereby reducing exposure credit loss company policies regarding financial stability credit standing major counterparties nonperformance counterparties anticipated would material adverse effect company’s consolidated financial condition results operations estimated fair value company’s notes interest rate agreements december 31 2005 2004 based quoted market prices fair value credit facilities based dealer quotations cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated summary carrying value fair value company’s debt related interest rate agreements december 31 2005 2004 follows weighted average interest pay rate company’s interest rate swap agreements 951 807 december 31 2005 2004 respectively 14 revenues consist following years presented 15 operating expenses operating expenses consist following years presented cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated 16 selling general administrative expenses selling general administrative expenses consist following years presented components selling expense included general administrative marketing expense 17 stock compensation plans charter grants stock options restricted stock incentive compensation pursuant 2001 stock incentive plan charter 2001 plan prior 2001 options granted 1999 option plan charter holdco 1999 plan provided grant options purchase membership units charter holdco current prospective employees consultants charter holdco affiliates current prospective nonemployee directors charter options granted generally vest five years grant date 25 vesting 15 months anniversary grant date ratably thereafter options exercised accumulate exercisable whole part subsequent period later 10 years date grant membership units received upon exercise options automatically exchanged class common stock charter oneforone basis plan provides grant nonqualified stock options stock appreciation rights dividend equivalent rights performance units performance shares share awards phantom stock andor shares restricted stock exceed 20000000 term defined 2001 plan employees officers consultants directors company subsidiaries affiliates eligible receive grants 2001 plan options granted generally vest four years grant date 25 vesting anniversary grant date ratably thereafter generally options expire 10 years grant date plan allows issuance total 90000000 shares charter class common stock units convertible charter class common stock total shares available reflect july 2003 amendment 2001 plan approved board directors shareholders charter increase available shares 30000000 shares 2001 shares covered options terminated 1999 plan transferred 2001 plan new options granted 1999 plan years ended december 31 2005 2004 2003 certain directors awarded total 492225 182932 80603 shares respectively restricted charter class common stock 44121 shares cancelled december 31 2005 shares vest one year date grant 2005 2004 2003 connection new employment agreements certain officers awarded 2987500 50000 shares respectively restricted charter class common stock 68750 shares cancelled december 31 2005 shares vest annually one threeyear period beginning date grant december 31 2005 deferred compensation remaining recognized future period totaled 2 million cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated summary activity charter’s stock options excluding granted shares restricted charter class common stock years ended december 31 2005 2004 2003 follows amounts thousands except per share data following table summarizes information stock options outstanding exercisable december 31 2005 january 1 2003 company adopted fair value measurement provisions sfas 123 company recognizes compensation expense stockbased award employee vesting period based fair value award grant date adoption provisions resulted utilizing preferable accounting method consolidated financial statements present estimated fair value stockbased compensation expense consistently forms compensation expense associated goods services received equity instruments accordance sfas 123 fair value method applied awards granted modified january 1 2003 whereas awards granted prior date continue accounted apb 25 unless modified settled cash ongoing effect consolidated results operations financial condition dependent upon future stock based compensation awards granted company recorded 14 million 31 million 4 million option compensation expense years ended december 31 2005 2004 2003 respectively cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated january 2004 charter began option exchange program company offered employees right exchange stock options vested unvested 1999 charter communications option plan 2001 stock incentive plan exercise price 10 per share shares restricted charter class common stock instances cash based sliding exchange ratio varied depending exercise price employees outstanding options employee would received shares restricted stock exchange tendered options charter issued employee shares restricted stock exchange based exchange ratios employee would received 400 fewer shares restricted stock exchange tendered options charter instead paid employee cash amount equal number shares employee would received multiplied 500 offer applied options vested unvested purchase total 22929573 shares charter class common stock approximately 48 charter’s 47882365 total options issued outstanding december 31 2003 participation employees voluntary members charters board directors also employees company subsidiaries eligible participate exchange offer closing exchange offer february 20 2004 charter accepted cancellation eligible options purchase approximately 18137664 shares class common stock exchange charter granted 1966686 shares restricted stock including 460777 performance shares eligible employees rank senior vice president paid total cash amount approximately 4 million amount includes applicable withholding taxes employees received cash rather shares restricted stock restricted stock granted february 25 2004 employees tendered approximately 79 options eligible exchanged program cost company stock option exchange program approximately 10 million 2004 cash compensation expense approximately 4 million noncash compensation expense approximately 6 million expensed ratably threeyear vesting period restricted stock exchange january 2004 compensation committee board directors charter approved charters longterm incentive program ltip program administered 2001 stock incentive plan ltip employees charter subsidiaries whose pay classifications exceed certain level eligible receive stock options senior level employees eligible receive stock options performance shares stock options vest 25 first four anniversaries date grant performance shares vest third anniversary grant date shares charter class common stock issued conditional upon charters performance financial performance measures established charter’s management approved board directors time award charter granted 32 million 69 million shares 2005 2004 respectively program recognized expense 1 million 8 million first three quarters 2005 2004 respectively however fourth quarter 2004 company reversed entire 1 million 8 million respectively expense based company’s assessment probability achieving financial performance measures established charter required met performance shares vest february 2006 charter’s compensation committee approved modification financial performance measures required met 2005 performance shares vest management believes approximately 25 million performance shares likely vest expense approximately 3 million amortized remaining two year service period 18 hurricane asset retirement loss certain company’s cable systems louisiana suffered significant plant damage result hurricanes katrina rita september 2005 result company wrote 19 million plants’ net book value third quarter 2005 cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated 19 special charges fourth quarter 2002 company began workforce reduction program consolidation operations three divisions ten regions five operating divisions eliminating redundant practices streamlining management structure company recorded special charges result reducing workforce executive severance consolidating administrative offices 2003 2004 2005 activity associated initiative summarized table year ended december 31 2003 severance lease costs offset 5 million settlement internet service provider excitehome related conversion highspeed internet customers charter pipeline service 2001 year ended december 31 2004 special charges include approximately 85 million part settlement consolidated federal class action federal derivative action lawsuits approximately 10 million litigation costs related settlement 2004 national class action suit see note 22 year ended december 31 2004 special charges offset 3 million received third party settlement legal dispute year ended december 31 2005 special charges also include approximately 1 million related various legal settlements 20 income taxes cco holdings single member limited liability company subject income tax cco holdings holds operations indirect subsidiaries majority indirect subsidiaries limited liability companies also subject income tax however certain cco holdings’ indirect subsidiaries corporations subject income tax years ended december 31 2005 2003 company recorded income tax expense related increases deferred tax liabilities current federal state income taxes primarily related differences accounting franchises indirect corporate subsidiaries year ended december 31 2004 company recorded income tax benefit indirect corporate subsidiaries primarily related differences book tax accounting franchises primarily resulting impairment recorded 2004 cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated current deferred income tax expense benefit follows company recorded portion income tax benefit associated adoption eitf topic d108 16 million reduction cumulative effect accounting change accompanying statement operations year ended december 31 2004 company’s effective tax rate differs derived applying applicable federal income tax rate 35 average state income tax rate 5 years ended december 31 2005 2004 2003 follows cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated tax effects temporary differences give rise significant portions deferred tax assets deferred tax liabilities december 31 2005 2004 indirect corporate subsidiaries company included longterm liabilities presented december 31 2005 2004 company deferred tax assets 86 million 103 million respectively primarily relate net operating loss carryforwards certain indirect corporate subsidiaries net operating loss carryforwards generally expiring years 2006 2025 subject certain return limitations valuation allowances 51 million 71 million exist respect carryforwards december 31 2005 2004 respectively assessing realizability deferred tax assets management considers whether likely portion deferred tax assets realized management considers scheduled reversal deferred tax liabilities projected future taxable income tax planning strategies making assessment management believes deferred tax assets realized prior expiration tax net operating loss carryforwards 2006 2025 except tax net operating loss carryforwards may subject certain limitations uncertainty associated realizing deferred tax assets associated potentially limited tax net operating loss carryforwards valuation allowances established except deferred tax assets available offset deferred tax liabilities charter holdco currently examination internal revenue service tax years ending december 31 2002 2003 results company excluding company’s indirect corporate subsidiaries years subject examination management expect results examination material adverse effect company’s consolidated financial condition results operations 21 related party transactions following sets forth certain transactions company directors executive officers affiliates company involved unless otherwise disclosed management believes transactions described terms less favorable company could obtained independent third parties charter party management arrangements charter holdco certain subsidiaries agreements charter provides management services cable systems owned operated subsidiaries cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated management services include services centralized customer billing services data processing related support benefits administration coordination insurance coverage selfinsurance programs medical dental workers’ compensation claims costs associated providing services billed charged directly company’s operating subsidiaries included within operating costs accompanying consolidated statements operations costs totaled 212 million 202 million 210 million years ended december 31 2005 2004 2003 respectively costs incurred behalf charter’s operating subsidiaries considered part management fee recorded component selling general administrative expense accompanying consolidated financial statements years ended december 31 2005 2004 2003 management fee charged company’s operating subsidiaries approximated expenses incurred charter holdco charter behalf company’s operating subsidiaries company’s credit facilities prohibit payments management fees excess 35 revenues repayment outstanding indebtedness event portion management fee due payable paid deferred charter accrued liability subsidiaries deferred amount management fee bear interest rate 10 per year compounded annually date due payable date paid mr allen controlling shareholder charter number affiliates interests various entities provide services programming charter’s subsidiaries given diverse nature mr allen’s investment activities interests avoid possibility future disputes potential business charter holdco terms respective organizational documents may allow subsidiaries engage business transaction outside cable transmission business except certain existing approved investments charter holdco subsidiaries may pursue allow subsidiaries pursue business transaction outside scope unless mr allen consents charter subsidiaries engaging business transaction cable transmission business means business transmitting video audio including telephone data cable systems owned operated managed charter holdco subsidiaries time mr allen affiliates owned equity interests warrants purchase equity interests various entities company business provides products services programming among entities techtv llc techtv oxygen media corporation oxygen media digeo inc click2learn inc trail blazer inc action sports cable network action sports microsoft corporation may 2004 techtv sold unrelated third party mr allen owns 100 equity vulcan ventures incorporated vulcan ventures vulcan inc president vulcan ventures ms jo allen patton director president chief executive officer vulcan inc director vice president vulcan ventures mr lance conn executive vice president vulcan inc vulcan ventures mr savoy vice president director vulcan ventures resignation september 2003 resigned director charter april 2004 various cable media internet telephone companies mr allen invested may mutually benefit one another company give assurance expect business relationships successful company realize benefits relationships company enter business relationships future mr allen’s affiliated companies mr allen affiliates made future likely make numerous investments outside company business company cannot assure event company subsidiaries enter transactions future affiliate mr allen transactions terms favorable company terms might obtained unrelated third party also conflicts could arise respect allocation corporate opportunities company mr allen affiliates company instituted formal plan arrangement address potential conflicts interest company received receives programming broadcast via cable systems techtv g4 oxygen media trail blazers inc company pays fee programming service generally based number customers receiving service fees years ended december 31 2005 2004 2003 less 1 total operating expenses cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated tech tv company received techtv programming distribution via cable system pursuant affiliation agreement affiliation agreement provided among things techtv must offer charter certain terms conditions less favorable affiliation agreement given distributor serves number fewer techtv viewing customers additionally pursuant affiliation agreement company entitled incentive payments channel launches december 31 2003 march 2004 charter holdco entered agreements vulcan programming techtv provide charter holdco techtv amend affiliation agreement among things revises description techtv network content provides charter holdco waive certain claims techtv relating alleged breaches affiliation agreement provides techtv make payment outstanding launch receivables due charter holdco affiliation agreement ii vulcan programming pay approximately 10 million purchase 24month period fair market rates 2 million advertising time across various cable networks charter cable systems consideration agreements obligations releases waivers agreements settlement aforementioned claims iii techtv provider content relating technology video gaming charters interactive television platforms december 31 2006 exclusive first year years ended december 31 2005 2004 company recognized approximately 1 million 5 million respectively vulcan programming payment offset programming expense oxygen media llc oxygen provides programming content aimed female audience distribution cable systems satellite july 22 2002 charter holdco entered carriage agreement oxygen whereby company agreed carry programming content oxygen carriage agreement company currently makes oxygen programming available approximately 5 million video customers august 2004 charter holdco oxygen entered agreements amended renewed carriage agreement amendment carriage agreement revised number companys customers oxygen programming must carried company must pay b released charter holdco claims related failure achieve distribution benchmarks carriage agreement c required oxygen make payment outstanding receivables launch incentives due company carriage agreement requires oxygen provide programming content company economic terms less favorable oxygen provides cable satellite operator fewer subscribers company renewal carriage agreement extends period company carry oxygen programming customers january 31 2008 b requires license fees paid based customers receiving oxygen programming rather specific customer benchmarks years ended december 31 2005 2004 2003 company paid oxygen approximately 9 million 13 million 9 million respectively addition oxygen pays company launch incentives customers launched first year term carriage agreement total 4 million company recorded approximately 01 million related launch incentives reduction programming expense year ended december 31 2005 1 million years ended december 31 2004 2003 respectively august 2004 charter holdco oxygen also amended equity issuance agreement provide issuance 1 million shares oxygen preferred stock liquidation preference 3310 per share plus accrued dividends charter holdco february 1 2005 place 34 million unregistered shares oxygen media common stock required original equity issuance agreement oxygen media delivered shares march 2005 preferred stock convertible common stock december 31 2007 conversion ratio numerator liquidation preference denominator fair market value per share oxygen media common stock conversion date company recognized guaranteed value investment life carriage agreement reduction programming expense years ended december 31 2005 2004 2003 company recorded approximately 2 million 13 million 9 million respectively reduction programming expense carrying value company’s investment oxygen approximately 33 million 32 million december 31 2005 2004 respectively cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated digeo inc march 2001 charter communications ventures llc charter ventures vulcan ventures formed dbroadband holdings llc sole purpose purchasing equity interests digeo connection execution broadband carriage agreement dbroadband holdings llc purchased equity interest digeo funded contributions vulcan ventures equity interest subject priority return capital vulcan ventures amount contributed vulcan ventures charter ventures’ behalf vulcan ventures recovers amount contributed cumulative loss allocations charter ventures 100 profit interest dbroadband holdings llc charter ventures required make capital contributions including capital calls digeo dbroadband holdings llc therefore included company’s consolidated financial statements pursuant amended version arrangement 2003 vulcan ventures contributed total 29 million digeo 7 million contributed charter ventures’ behalf subject vulcan ventures’ aforementioned priority return since formation dbroadband holdings llc vulcan ventures contributed approximately 56 million charter ventures’ behalf september 27 2001 charter digeo interactive amended broadband carriage agreement according amendment digeo interactive would provide charter content enhanced wink interactive television services known charter interactive channels ichannels order provide ichannels digeo interactive sublicensed certain wink technologies charter entitled share revenues generated ichannels currently company’s digital video customers receive ichannels receive service additional charge september 28 2002 charter entered second amendment broadband carriage agreement digeo interactive amendment superseded amendment september 27 2001 provided development digeo interactive future features included basic itv service provided digeo’s development interactive toolkit enable charter develop interactive local content furthermore charter could request digeo interactive manage local content fee amendment provided charter pay development basic itv service well license fees customers would receive service charter digeo split certain revenues earned service company paid digeo interactive approximately 3 million 3 million 4 million years ended december 31 2005 2004 2003 respectively customized development ichannels local content tool kit amendment expired pursuant terms december 31 2003 digeo interactive continuing provide basic itv service monthtomonth basis june 30 2003 charter holdco entered agreement motorola inc purchase 100000 digital video recorder dvr units software dvr units supplied digeo interactive llc license agreement entered april 2004 license agreement digeo interactive granted charter holdco right use digeos proprietary software number dvr units charter deployed maximum 10 headends yearend 2004 maximum number headends restriction expanded eventually eliminated successive agreement amendments date entering license agreements units deployed extended license granted unit deployed agreement valid five years addition charter pay certain fees including perheadend license fee maintenance fees maximum license maintenance fees term agreement expected approximately 7 million agreement provides charter entitled receive contract terms considered whole license fees considered apart contract terms less favorable accorded digeo customer company paid approximately 1 million license maintenance fees 2005 april 2004 company launched dvr service using units containing digeo software rochester minnesota market using broadband media center integrated settop terminal cable converter dvr hard drive connectivity consumer electronics devices stereos mp3 players digital cameras may 2004 charter holdco entered binding term sheet digeo interactive development testing purchase 70000 digeo powerkey dvr units term sheet provided parties would proceed good faith negotiate prior yearend 2004 definitive agreements development testing purchase dvr units parties would enter license agreement digeos proprietary software terms cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated substantially similar terms license agreement described november 2004 charter holdco digeo interactive executed license agreement december 2004 parties executed purchase agreement terms substantially similar binding term sheet product development testing completed total purchase price license maintenance fees term definitive agreements expected approximately 41 million definitive agreements terminable penalty charter certain circumstances company paid approximately 10 million 1 million years ended december 31 2005 2004 respectively capital purchases agreement cc viii part acquisition cable systems owned bresnan communications company limited partnership february 2000 cc viii llc cco holdings’ indirect limited liability company subsidiary issued adjustments 24273943 class preferred membership units collectively cc viii interest value initial capital account approximately 630 million certain sellers affiliated att broadband subsequently owned comcast corporation comcast sellers mr allen granted comcast sellers right sell cc viii interest approximately 630 million plus 45 interest annually february 2000 comcast put right april 2002 comcast sellers exercised comcast put right full transaction consummated june 6 2003 accordingly mr allen became holder cc viii interest indirectly affiliate event liquidation cc viii mr allen would entitled priority distribution respect 2 priority return continue accrete remaining distributions liquidation would distributed cc v holdings llc mr allen proportion cc v holdings llcs capital account mr allens capital account equal initial capital account comcast sellers approximately 630 million increased decreased mr allens pro rata share cc viii’s profits losses computed capital account purposes june 6 2003 issue arose whether documentation bresnan transaction correct complete regard ultimate ownership cc viii interest following consummation comcast put right thereafter board directors charter formed special committee independent directors investigate matter take appropriate action behalf charter respect matter conducting investigation relevant facts circumstances special committee determined scrivener’s error occurred february 2000 connection preparation lastminute revisions bresnan transaction documents result charter seek reformation charter holdco limited liability company agreement alternative relief order restore ensure obligation cc viii interest automatically exchanged charter holdco units special committee determined part contract reformation alternative relief mr allen required contribute cc viii interest charter holdco exchange 24273943 charter holdco membership units special committee also recommended board directors charter extent contract reformation achieved board directors consider whether cc viii interest ultimately held charter holdco charter holdings another entity owned directly indirectly mr allen disagreed special committee’s determinations described notified special committee mr allen contended transaction accurately reflected transaction documentation contemporaneous subsequent company public disclosures special committee mr allen determined utilize delaware court chancerys program mediation complex business disputes effort resolve cc viii interest dispute october 31 2005 mr allen special committee charter holdco certain affiliates agreed settle dispute execute certain permanent irrevocable releases pursuant settlement agreement mutual release agreement dated october 31 2005 settlement pursuant settlement charter investment inc cii retained 30 cc viii interest remaining interests remaining interests subject certain drag along tag along transfer restrictions detailed revised cc viii limited liability company agreement cii transferred 70 cc viii interest directly indirectly charter holdco newly formed entity cchc direct subsidiary charter holdco direct parent charter holdings 70 cc viii preferred interests 74 transferred cii cchc subordinated exchangeable note initial accreted value 48 million accreting 14 compounded quarterly 15year maturity note remaining 626 transferred cii cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated charter holdco accordance terms settlement additional monetary consideration charter holdco contributed 626 interest cchc part settlement cc viii issued approximately 49 million additional class b units cc v consideration prior capital contributions cc viii cc v respect transactions unrelated dispute connection cii’s membership units cc viii result mr allen’s pro rata share profits losses cc viii attributable remaining interests approximately 56 note exchangeable cii’s option time charter holdco class common units rate equal accreted value divided 200 exchange rate customary antidilution protections provided could cause future changes exchange rate additionally charter holdco class common units received exchangeable holder charter common stock accordance existing agreements cii charter certain parties signatory thereto beginning february 28 2009 closing price charter common stock exchange rate certain period time specified exchange agreement charter holdco may require exchange note charter holdco class common units exchange rate cchc right redeem note certain circumstances cash amount equal accreted value amount redeemed prior february 28 2009 would also include make whole accreted value february 28 2009 cchc must redeem note maturity cash amount equal initial stated value plus accreted return maturity charter’s board directors determined transferred cc viii interests remain cchc helicon 1999 company purchased helicon cable systems part purchase mr allen entered put agreement certain seller helicon cable systems received portion purchase price form preferred membership interest charter helicon llc redemption price 25 million plus accrued interest helicon put agreement holder right sell interest mr allen prior mandatory redemption cash july 30 2009 august 31 2005 40 preferred membership interest put mr allen remaining 60 preferred interest charter helicon llc remained subject put mr allen preferred interest recorded longterm liabilities october 6 2005 charter helicon llc redeemed preferred membership interest redemption price 25 million plus accrued interest 22 commitments contingencies commitments following table summarizes company’s payment obligations december 31 2005 contractual obligations 1 company leases certain facilities equipment noncancelable operating leases rental costs charged expense years ended december 31 2005 2004 2003 23 million 23 million 30 million respectively cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated 2 company pays programming fees multiyear contracts ranging three ten years typically based flat fee per customer may fixed term may cases escalate term programming costs included accompanying statement operations 14 billion 13 billion 12 billion years ended december 31 2005 2004 2003 respectively certain company’s programming agreements based flat fee per month guaranteed minimum payments table sets forth aggregate guaranteed minimum commitments company’s programming contracts 3 represents guaranteed minimum commitments consist primarily commitments company’s billing services vendors following items included contractual obligation table due various factors discussed however company incurs costs part operations · company also rents utility poles used operations generally pole rentals cancelable short notice company anticipates rentals recur rent expense incurred pole rental attachments years ended december 31 2005 2004 2003 46 million 43 million 40 million respectively · company pays franchise fees multiyear franchise agreements based percentage revenues earned video service per year company also pays franchise related costs public education grants multiyear agreements franchise fees franchiserelated costs included accompanying statement operations 170 million 164 million 162 million years ended december 31 2005 2003 2002 respectively · company also 165 million letters credit primarily various worker’s compensation property casualty general liability carriers collateral reimbursement claims letters credit reduce amount company may borrow credit facilities litigation securities class actions derivative suits 2003 charter series lawsuits filed charter certain former present officers directors collectively actions general lawsuits alleged charter utilized misleading accounting practices failed disclose accounting practices andor issued false misleading financial statements press releases concerning charter’s operations prospects charter individual defendants entered memorandum understanding august 5 2004 setting forth agreements principle regarding settlement actions charter various defendants actions subsequently entered stipulations settlement dated january 24 2005 setting forth settlement actions manner consistent terms memorandum understanding june 30 2005 court issued final approval settlements end september 2005 period appeals settlements expired stipulations dismissal filed eighth circuit court appeals resulting dismissal two appeals prejudice procedurally therefore settlements final amended stipulations settlement provided exchange release claims plaintiffs charter former present officers directors named actions charter would pay plaintiffs combination cash equity collectively valued 144 million include fees expenses plaintiffs’ counsel amount 64 million paid cash charter’s insurance carriers 80 million balance paid shares charter class common stock aggregate value 40 million tenyear warrants purchase shares charter class common stock aggregate warrant value 40 million values case determined pursuant formulas set forth stipulations settlement however charter right sole discretion substitute cash aforementioned securities dollar basis pursuant right charter elected fund cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated 80 million obligation 134 million shares charter class common stock aggregate value approximately 15 million pursuant formula set forth stipulations settlement remaining balance less agreed upon 2 million discount respect portion allocable plaintiffs’ attorneys’ fees paid cash addition charter agreed issue additional shares class common stock insurance carrier aggregate value 5 million however agreement carrier charter paid 45 million cash lieu issuing shares result 2004 company recorded 85 million special charge consolidated statement operations charter delivered settlement consideration claims administrator july 8 2005 held escrow pending resolution appeals resolved october 2001 2002 two class action lawsuits filed charter alleging charter holdco improperly charged wire maintenance fee without request permission also claimed charter holdco improperly required rent analog andor digital settop terminals even though television sets cable ready april 2004 parties participated mediation resulted settlement lawsuits result settlement recorded special charge 9 million consolidated statement operations 2004 december 2004 court entered written order formally approving settlement furthermore company also party lawsuits claims arose ordinary course conducting business opinion management taking account recorded liabilities outcome lawsuits claims expected material adverse effect company’s consolidated financial condition results operations liquidity regulation cable industry operation cable system extensively regulated federal communications commission fcc state governments local governments fcc authority enforce regulations imposition substantial fines issuance cease desist orders andor imposition administrative sanctions revocation fcc licenses needed operate certain transmission facilities used connection cable operations 1996 telecom act altered regulatory structure governing nation’s communications providers removed barriers competition cable television market local telephone market among things reduced scope cable rate regulation encouraged additional competition video programming industry allowing local telephone companies provide video programming telephone service areas future legislative regulatory changes could adversely affect company’s operations including without limitation additional regulatory requirements company may required comply offers new services telephone 23 employee benefit plan company’s employees may participate charter communications inc 401k plan employees qualify participation contribute 50 salary pretax basis subject maximum contribution limit determined internal revenue service company matches 50 first 5 participant contributions company made contributions 401k plan totaling 6 million 7 million 7 million years ended december 31 2005 2004 2003 respectively 24 recently issued accounting standards november 2004 fasb issued sfas 153 exchanges nonmonetary assets amendment apb 29 statement eliminates exception fair value exchanges similar productive assets replaces general exception exchange transactions commercial substance transactions expected result significant changes cash flows reporting entity company adopted pronouncement effective april 1 2005 exchange transaction discussed note 3 accounted standard cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated december 2004 fasb issued revised sfas 123 share based payment addresses accounting sharebased payment transactions company receives employee services exchange equity instruments company b liabilities based fair value company’s equity instruments may settled issuance equity instruments statement effective company beginning january 1 2006 company adopted fair value recognition provisions sfas 123 january 1 2003 company expect revised standard material impact financial statements march 2005 fasb issued fin 47 accounting conditional asset retirement obligations interpretation clarifies term conditional asset retirement obligation used fasb statement 143 accounting asset retirement obligations refers legal obligation perform asset retirement activity timing andor method settlement conditional future event may within control entity pronouncement effective fiscal years ending december 15 2005 adoption interpretation material impact company’s financial statements charter believe recently issued yet effective accounting pronouncements adopted would material effect company’s accompanying financial statements 25 parent company financial statements result limitations prohibitions distributions substantially net assets consolidated subsidiaries restricted distribution cco holdings parent company following condensed parentonly financial statements cco holdings account investment subsidiaries equity method accounting financial statements read conjunction consolidated financial statements company notes thereto cco holdings llc parent company condensed balance sheet cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated condensed statement operations condensed statements cash flows 26 subsequent events february 2006 company signed two separate definitive agreements sell certain cable television systems serving total approximately 316000 analog video customers west virginia illinois kentucky total approximately 896 million closings transactions expected occur third quarter 2006 terms bridge loan bridge availability reduced proceeds asset sales company expects use net proceeds asset sales repay reduce permanently amounts outstanding company’s revolving credit facility asset sale proceeds along cco holdings llc subsidiaries notes consolidated financial statements december 31 2005 2004 2003 dollars millions except indicated existing sources funds provide additional liquidity supplementing company’s cash availability 2006 beyond item 15 exhibits financial statement schedules following documents filed part annual report 1 financial statements listing financial statements notes reports independent public accountants required item 8 begins page annual report 2 financial statement schedules financial statement schedules required filed items 8 15d required applicable required information set forth applicable financial statements notes thereto 3 index exhibits begins page e1 annual report agree furnish sec upon request copies longterm debt instruments authorize amount securities constituting 10 less total assets charter holdings subsidiaries consolidated basis signatures pursuant requirements section 13 15d securities exchange act 1934 cco holdings llc cco holdings capital corp duly caused annual report signed behalf undersigned thereunto duly authorized cco holdings llc registrant charter communications inc sole manager pursuant requirements securities exchange act 1934 report signed following persons behalf charter communications inc sole manager registrant capacities dates indicated s1 jo allen patton john h tory director charter communications inc march 27 2007 john h tory larry w wangberg director charter communications inc march 24 2007 larry w wangberg s2 exhibit index exhibits listed numbers corresponding exhibit table item 601 regulation sk exhibit description 31a certificate formation cco holdings llc incorporated reference exhibit 31 registration statement form s4 cco holdings llc cco holdings capital corporation filed february 6 2004 file 333112593 31b certificate correction certificate formation cco holdings llc incorporated reference exhibit 32 registration statement form s4 cco holdings llc cco holdings capital corporation filed february 6 2004 file 333112593 32 amended restated limited liability company agreement cco holdings llc dated june 19 2003 incorporated reference exhibit 33 registration statement form s4 cco holdings llc cco holdings capital corporation filed february 6 2004 file 333112593 33a certificate incorporation cco holdings llc capital corp originally named cc holdco capital corp incorporated reference exhibit 34 registration statement form s4 cco holdings llc cco holdings capital corporation filed february 6 2004 file 333112593 33b certificate amendment certificate incorporation cco holdings capital corp incorporated reference exhibit 35 registration statement form s4 cco holdings llc cco holdings capital corporation filed february 6 2004 file 333112593 34 certificate formation cco holdings llc incorporated reference exhibit 31 registration statement form s4 cco holdings llc cco holdings capital corporation filed february 6 2004 file 333112593 certain longterm debt instruments none relates authorized indebtedness exceeds 10 consolidated assets registrants filed exhibits form 10k registrants agree furnish commission upon request copy instrument defining rights holders long term debt company consolidated subsidiaries 41 indenture relating 8 34 senior notes due 2013 dated november 10 2003 among cco holdings llc cco holdings capital corp wells fargo bank na trustee incorporated reference exhibit 41 charter communications incs current report form 8k filed november 12 2003 file 00027927 42a indenture dated december 15 2004 among cco holdings llc cco holdings capital corp wells fargo bank na trustee incorporated reference exhibit 101 current report form 8k cco holdings llc filed december 21 2004 file 333112593 42b first supplemental indenture dated august 17 2005 among cco holdings llc cco holdings capital corp wells fargo bank na trustee incorporated reference exhibit 101 current report form 8k cco holdings llc cco holdings capital corp filed august 23 2005 file 333112593 101 indenture relating 8 senior second lien notes due 2012 8 38 senior second lien notes due 2014 dated april 27 2004 among charter communications operating llc charter communications operating capital corp wells fargo bank na trustee incorporated reference exhibit 1032 amendment 2 registration statement form s4 cch ii llc filed may 5 2004 file 333111423 102 second amended restated mutual services agreement dated june 19 2003 charter communications inc charter communications holding company llc incorporated reference exhibit 105a quarterly report form 10q filed charter communications inc august 5 2003 file 00027927 103 third amended restated limited liability company agreement cc viii llc dated october 31 2005 incorporated reference exhibit 1020 quarterly report form 10q filed charter communications inc november 2 2005 file 00027927 104a amended restated limited liability company agreement charter communications operating llc dated june 19 2003 incorporated reference exhibit 102 quarterly report form 10q filed charter communications inc august 5 2003 file 00027927 e1 104b first amendment amended restated limited liability company agreement charter communications operating llc adopted june 22 incorporated reference exhibit 1016b annual report form 10k filed charter communications inc february 28 2006 file 00027927 105 amended restated management agreement dated june 19 2003 charter communications operating llc charter communications inc incorporated reference exhibit 104 quarterly report form 10q filed charter communications inc august 5 2003 file 33383887 106a stipulation settlement dated january 24 2005 regarding settlement consolidated federal class action entitled charter communications inc securities litigation incorporated reference exhibit 1048 annual report form 10k filed charter communications inc march 3 2005 file 00027927 106b amendment stipulation settlement dated may 23 2005 regarding settlement consolidated federal class action entitled charter communications inc securities litigation incorporated reference exhibit 1035b amendment 3 registration statement form s1 filed charter communications inc june 8 2005 file 333121186 107 settlement agreement mutual release dated february 1 2005 among charter communications inc certain insureds hand certain underwriters lloyds london certain subscribers hand incorporated reference exhibit 1049 annual report form 10k filed charter communications inc march 3 2005 file 00027927 108 stipulation settlement dated january 24 2005 regarding settlement federal derivative action arthur j cohn v ronald l nelson et al charter communications inc incorporated reference exhibit 1050 annual report form 10k filed charter communications inc march 3 2005 file 00027927 109 settlement agreement mutual releases dated october 31 2005 among charter communications inc special committee board directors charter communications inc charter communications holding company llc cchc llc cc viii llc cc v llc charter investment inc vulcan cable iii llc paul g allen incorporated reference exhibit 1017 quarterly report form 10q charter communications inc filed november 2 2005 file 00027927 1010 exchange agreement dated october 31 2005 among charter communications holding company llc charter investment inc paul g allen incorporated reference exhibit 1018 quarterly report form 10q charter communications inc filed november 2 2005 file 00027927 1011 cchc llc subordinated accreting note dated october 31 2005 revised incorporated reference exhibit 103 current report form 8k charter communications inc filed november 4 2005 file 00027927 1012 amended restated credit agreement dated march 6 2007 among charter communications operating llc cco holdings llc lenders time parties thereto jpmorgan chase bank na administrative agent incorporated reference exhibit 101 current report form 8k charter communications inc filed march 9 2007 file 00027927 1013 amended restated guarantee collateral agreement made cco holdings llc charter communications operating llc certain subsidiaries favor jpmorgan chase bank na administrative agent dated march 18 1999 amended restated march 6 2007 incorporated reference exhibit 102 current report form 8k charter communications inc filed march 9 2007 file 00027927 1014 credit agreement dated march 6 2007 among cco holdings llc lenders time parties thereto bank america na administrative agent incorporated reference exhibit 103 current report form 8k charter communications inc filed march 9 2007 file 00027927 1015 pledge agreement made cco holdings llc favor bank america na collateral agent dated march 6 2007 incorporated reference exhibit 104 current report form 8k charter communications inc filed march 9 2007 file 00027927 1016a charter communications holdings llc 1999 option plan incorporated reference exhibit 104 amendment 4 registration statement form s4 charter communications holdings llc charter communications holdings capital corporation filed july 22 1999 file 33377499 e2 1016b assumption agreement regarding option plan dated may 25 1999 charter communications holdings llc charter communications holding company llc incorporated reference exhibit 1013 amendment 6 registration statement form s4 charter communications holdings llc charter communications holdings capital corporation filed august 27 1999 file 33377499 1016c form amendment 1 charter communications holdings llc 1999 option plan incorporated reference exhibit 1010c amendment 4 registration statement form s1 charter communications inc filed november 1 1999 file 33383887 1016d amendment 2 charter communications holdings llc 1999 option plan incorporated reference exhibit 104c annual report form 10k filed charter communications inc march 30 2000 file 00027927 1016e amendment 3 charter communications 1999 option plan incorporated reference exhibit 1014e annual report form 10k charter communications inc filed march 29 2002 file 00027927 1016f amendment 4 charter communications 1999 option plan incorporated reference exhibit 1010f annual report form 10k charter communications inc filed april 15 2003 file 00027927 1017a charter communications inc 2001 stock incentive plan incorporated reference exhibit 1025 quarterly report form 10q filed charter communications inc may 15 2001 file 00027927 1017b amendment 1 charter communications inc 2001 stock incentive plan incorporated reference exhibit 1011b annual report form 10k charter communications inc filed april 15 2003 file 00027927 1017c amendment 2 charter communications inc 2001 stock incentive plan incorporated reference exhibit 1010 quarterly report form 10q filed charter communications inc november 14 2001 file 00027927 1017d amendment 3 charter communications inc 2001 stock incentive plan effective january 2 2002 incorporated reference exhibit 1015c annual report form 10k charter communications inc filed march 29 2002 file 00027927 1017e amendment 4 charter communications inc 2001 stock incentive plan incorporated reference exhibit 1011e annual report form 10k charter communications inc filed april 15 2003 file 00027927 1017f amendment 5 charter communications inc 2001 stock incentive plan incorporated reference exhibit 1011f annual report form 10k charter communications inc filed april 15 2003 file 00027927 1017g amendment 6 charter communications inc 2001 stock incentive plan effective december 23 2004 incorporated reference exhibit 1043g registration statement form s1 charter communications inc filed october 5 2005 file 333128838 1017h amendment 7 charter communications inc 2001 stock incentive plan effective august 23 2005 incorporated reference exhibit 1043h registration statement form s1 charter communications inc filed october 5 2005 file 333128838 1017i description longterm incentive program charter communications inc stock incentive plan incorporated reference exhibit 1018g annual report form 10k filed charter communications inc march 31 2005 file 33377499 1018 description charter communications inc 2006 executive bonus plan incorporated reference exhibit 102 quarterly report form 10q filed charter communications inc may 2 2006 file 00027927 1019 charter communications inc 2005 executive cash award plan amended incorporated reference exhibit 101 current report form 8k charter communications inc filed april 17 2006 file 00027927 1020 employment agreement dated august 9 2005 neil smit charter communications inc incorporated reference exhibit 991 current report form 8k charter communications inc filed august 15 2005 file 00027927 1021 employment agreement dated september 2 2005 paul e martin charter communications inc incorporated reference exhibit 991 current report form 8k charter communications inc filed september 9 2005 file 00027927 e3 1022 employment agreement effective october 10 2005 grier c raclin charter communications inc incorporated reference exhibit 991 current report form 8k charter communications inc filed november 14 2005 file 00027927 1023 employment offer letter dated november 22 2005 charter communications inc robert quigley incorporated reference 1068 amendment 1 registration statement form s1 charter communications inc filed february 2 2006 file 333130898 1024 employment agreement dated december 9 2005 robert quigley charter communications inc incorporated reference exhibit 991 current report form 8k charter communications inc filed december 13 2005 file 00027927 1025 retention agreement dated january 9 2006 paul e martin charter communications inc incorporated reference exhibit 991 current report form 8k charter communications inc filed january 10 2006 file 00027927 1026 employment agreement dated january 20 2006 jeffrey fisher charter communications incincorporated reference exhibit 101 current report form 8k charter communications inc filed january 27 2006 file 00027927 1027 employment agreement dated february 28 2006 michael j lovett charter communications inc incorporated reference exhibit 992 current report form 8k charter communications inc filed march 3 2006 file 00027927 1028 employment agreement dated august 1 2006 marwan fawaz charter communications inc incorporated reference exhibit 991 current report form 8k charter communications inc filed august 1 2006 file 00027927 121 computation ratio earnings fixed charges 311 certificate chief executive officer pursuant rule 13a14arule 15d14a securities exchange act 1934 312 certificate chief financial officer pursuant rule 13a14arule 15d14a securities exchange act 1934 321 certification pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 chief executive officer 322 certification pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 chief financial officer document attached management compensatory plan arrangement e4 report independent registered public accounting firm manager member cco holdings llc audited accompanying consolidated balance sheets cco holdings llc subsidiaries company december 31 2006 2005 related consolidated statements operations changes member’s equity cash flows years threeyear period ended december 31 2006 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position cco holdings llc subsidiaries december 31 2006 2005 results operations cash flows years threeyear period ended december 31 2006 conformity us generally accepted accounting principles discussed note 7 consolidated financial statements effective september 30 2004 company adopted eitf topic d108 use residual method value acquired assets goodwill kpmg llp st louis missouri march 27 cco holdings llc subsidiaries consolidated balance sheets dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries consolidated statements operations dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries consolidated statements changes member’s equity dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated 1 organization basis presentation cco holdings llc “cco holdings” holding company whose principal assets december 31 2006 equity interests operating subsidiaries cco holdings direct subsidiary cch ii llc “cch ii” indirect subsidiary charter communications holdings llc “charter holdings” charter holdings indirect subsidiary charter communications inc “charter” consolidated financial statements include accounts cco holdings subsidiaries underlying operations reside collectively referred herein company significant intercompany accounts transactions among consolidated entities eliminated company broadband communications company operating united states company offers customers traditional cable video programming analog digital video highspeed internet services advanced broadband services high definition television ondemand digital video recorder service many markets telephone service company sells cable video programming highspeed internet telephone advanced broadband services subscription basis company also sells local advertising cable networks preparation financial statements conformity accounting principles generally accepted united states requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period areas involving significant judgments estimates include capitalization labor overhead costs depreciation amortization costs impairments property plant equipment franchises goodwill income taxes contingencies actual results could differ estimates reclassifications certain prior year amounts reclassified conform 2006 presentation including discontinued operations discussed note 4 2 liquidity capital resources company incurred net loss 193 million 258 million 33 billion 2006 2005 2004 respectively company’s net cash flows operating activities 12 billion 10 billion 12 billion years ending december 31 2006 2005 2004 respectively companys longterm debt december 31 2006 consisted 54 billion credit facility debt 32 billion accreted value highyield notes 2007 25 million company’s debt matures 2008 additional 50 million matures 2009 beyond significant additional amounts become due company’s remaining longterm debt obligations company requires significant cash fund debt service costs capital expenditures ongoing operations company historically funded requirements cash flows operating activities borrowings credit facilities equity contributions parent companies sales assets issuances debt securities cash hand however mix funding sources changes period year ended december 31 2006 company generated 12 billion net cash flows operating activities paying cash interest 718 million addition company received proceeds sale assets approximately 10 billion used 11 billion purchases property plant equipment finally company net cash flows used financing activities 11 billion result credit facility refinancing discussed company expects cash hand cash flows operating activities amounts available credit facilities adequate meet parent companies’ cash needs 2008 company believes cash flows operating activities amounts available company’s credit facilities may sufficient fund company’s operations satisfy parent companies’ interest principal repayment obligations 2009 sufficient fund needs 2010 beyond company advised charter continues work financial advisors concerning approach addressing liquidity debt maturities overall balance sheet leverage cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated credit facility availability company’s ability operate depends upon among things continued access capital including credit charter communications operating llc “charter operating” credit facilities charter operating credit facilities along company’s indentures contain certain restrictive covenants require company maintain specified financial ratios meet financial tests provide annual audited financial statements unqualified opinion company’s independent auditors december 31 2006 company compliance covenants credit facilities well indentures company expects remain compliance covenants next twelve months december 31 2006 company’s potential availability credit facilities totaled approximately 13 billion although actual availability time 11 billion limits imposed covenant restrictions continued access company’s credit facilities subject company remaining compliance covenants including covenants tied company’s operating performance events noncompliance occur funding credit facilities may available defaults potentially company’s debt obligations could occur event default company’s debt instruments could result acceleration payment obligations debt certain circumstances crossdefaults debt obligations could material adverse effect company’s consolidated financial condition results operations parent company debt obligations financial liquidity problems company’s parent companies could cause serious disruption company’s business material adverse effect company’s business results operations failure charter holdings cch holdings llc “cih” cch ii satisfy debt payment obligations bankruptcy filing respect charter holdings cih cch ii would give lenders company’s credit facilities right accelerate payment obligations facilities acceleration would default indenture governing company’s notes consolidated basis company’s parent companies significant level debt including company’s debt totaled approximately 191 billion december 31 2006 discussed limitations distributions charter’s ability make interest payments convertible senior notes 2009 repay outstanding principal convertible senior notes 413 million depend ability raise additional capital andor receipt payments distributions charter communications holding company llc “charter holdco” subsidiaries including company december 31 2006 charter holdco owed 3 million intercompany loans subsidiaries 8 million cash available pay interest principal charters convertible senior notes addition charter 50 million us government securities pledged security semiannual interest payments charter’s convertible senior notes scheduled 2007 cchc llc “cchc” also holds additional 450 million charter’s convertible senior notes result cchc continues hold notes cchc receive interest payments convertible senior notes pledged government securities cumulative amount interest payments expected received cchc may available distributed pay interest outstanding 413 million principal amount convertible senior notes due 2008 may 2009 although cchc may use amounts purposes december 31 2006 charter holdings cih cch ii approximately 99 billion principal amount highyield notes outstanding approximately 105 million 0 415 million 94 billion maturing 2007 2008 2009 thereafter respectively charter holdings cih cch ii need raise additional capital receive distributions payments company order satisfy debt obligations however significant indebtedness company’s ability parent companies raise additional capital reasonable rates uncertain year ended december 31 2006 company distributed 12 billion cash parent company cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated distributions charter’s subsidiaries parent company including charter holdco cchc charter holdings cih cch ii payment principal parent company notes restricted indentures governing cih notes cch notes cch ii notes cco holdings notes charter operating notes unless default applicable indenture applicable subsidiary’s leverage ratio test met time distribution case distributions charter operating payment principal portion outstanding cco holdings notes specified tests met quarter ended december 31 2006 default indentures subsidiary met applicable leverage ratio tests based december 31 2006 financial results distributions would restricted however subsidiary fails meet tests time contemplated distribution past certain subsidiaries time failed meet leverage ratio test assurance satisfy tests time contemplated distribution distributions charter operating payment principal parent company notes restricted covenants credit facilities distributions cih cch ii cco holdings charter operating parent company payment parent company interest permitted default aforementioned indentures case distributions charter operating payment interest portion outstanding cco holdings notes charter operating’s leverage ratio specified tests met indentures governing charter holdings notes permit charter holdings make distributions charter holdco payment interest principal charter’s convertible senior notes giving effect distribution charter holdings incur additional debt leverage ratio 875 10 default charter holdings’ indentures specified tests met quarter ended december 31 2006 default charter holdings’ indentures specified tests met distributions would restricted however charter holdings fails meet tests time contemplated distribution past charter holdings time failed meet leverage ratio test assurance charter holdings satisfy tests time contemplated distribution periods distributions restricted indentures governing charter holdings notes permit charter holdings subsidiaries make specified investments restricted payments charter holdco charter amount determined formula long default indentures recent financing transactions january 2006 company’s direct parent companies cch ii cch ii capital corp issued 450 million debt securities proceeds provided charter operating used funds reduce borrowings commitments revolving portion credit facilities april 2006 charter operating completed 685 billion refinancing credit facilities including new 350 million revolvingterm facility converts term loan later april 2007 50 billion term loan due 2013 certain amendments existing 15 billion revolving credit facility addition refinancing reduced margins eurodollar rate term loans 2625 weighted average 315 previously margins base rate term loans 1625 weighted average 215 previously concurrent refinancing cco holdings bridge loan terminated refinancing resulted loss extinguishment debt approximately 27 million september 2006 charter holdings wholly owned subsidiaries cch ii completed exchange approximately 797 million total principal amount outstanding debt securities charter holdings holders charter holdings notes due 20092010 tendered 308 million principal amount notes 250 million principal amount new 1025 cch ii notes due 2013 37 million principal amount 11 cch notes due 2015 holders charter holdings notes due 20112012 tendered 490 million principal amount notes 425 million principal amount 11 cch notes due 2015 charter holdings notes received exchanges thereafter distributed charter holdings retired also september 2006 cchc cch ii completed exchange 450 million principal amount charter’s outstanding 5875 senior convertible notes due 2009 188 million cash 45 million shares charter’s class common stock 146 million principal amount 1025 cch ii notes due 2010 convertible notes received exchange held cchc cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated march 2007 charter operating entered amended restated credit agreement “charter operating credit agreement” charter operating credit agreement consists 15 billion senior secured revolving line credit continuation existing 5 billion term loan facility “existing term loan” 15 billion new term loan facility “new term loan” expected funded one drawings prior april 30 2007 borrowings charter operating credit agreement bear interest variable interest rate based either libor base rate plus either case applicable margin applicable margin libor loans new term loan revolving loans 200 libor revolving line credit commitments terminate march 6 2013 existing term loan new term loan subject amortization 1 initial principal amount per annum remaining principal amount new term loan due march 6 2014 terms existing term loan amended effective march 6 2007 refinancing 5 billion existing term loan new term loans permitted charter operating credit agreement expected close april 30 2007 pricing libor plus 200 amortization profile term loan match new term loan described time existing term loan remains priced 2625 libor charter operating credit agreement also modified quarterly consolidated leverage ratio financial covenant less restrictive march 2007 cco holdings entered credit agreement “cco holdings credit agreement” consists 350 million term loan facility “term facility” term loan matures september 6 2014 “maturity date” cco holdings credit agreement also provides additional incremental term loans “incremental loans” maturing dates set forth notices establishing term loans earlier maturity date borrowings cco holdings credit agreement bear interest variable interest rate based either libor base rate plus either case applicable margin applicable margin libor term loans incremental loans 250 libor applicable margin respect incremental loans agreed upon cco holdings lenders incremental loans established cco holdings credit agreement secured equity interests charter operating proceeds thereof company use portion additional proceeds charter operating credit agreement cco holdings credit agreement collectively “credit facility refinancing” redeem 550 million cco holdings’ outstanding floating rate notes due 2010 approximately 187 million charter holdings’ outstanding 8625 senior notes due 2009 fund purchase notes tender offer total consideration including premiums accrued interest 100 million certain notes outstanding charter holdings general corporate purposes 3 summary significant accounting policies cash equivalents company considers highly liquid investments original maturities three months less cash equivalents investments carried cost approximates market value property plant equipment property plant equipment recorded cost including material labor certain indirect costs associated construction cable transmission distribution facilities company’s capitalization based specific activities capitalized costs tracked fixed asset category cable system level specific asset basis costs associated initial customer installations additions network equipment necessary enable advanced services capitalized costs capitalized part initial customer installations include materials labor certain indirect costs indirect costs associated activities company’s personnel assist connecting activating new service consist compensation indirect costs associated support functions indirect costs primarily include employee benefits payroll taxes direct variable costs associated capitalizable activities consisting primarily installation construction vehicle cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated costs cost dispatch personnel indirect costs directly attributable capitalizable activities costs disconnecting service customer’s dwelling reconnecting service previously installed dwelling charged operating expense period incurred costs repairs maintenance charged operating expense incurred plant equipment replacement betterments including replacement cable drops pole dwelling capitalized depreciation recorded using straightline composite method management’s estimate useful lives related assets follows asset retirement obligations certain company’s franchise agreements leases contain provisions requiring company restore facilities remove equipment event franchise lease agreement renewed company expects continually renew franchise agreements concluded substantially related franchise rights indefinite lived intangible assets accordingly possibility remote company would required incur significant restoration removal costs related franchise agreements foreseeable future statement financial accounting standards “sfas” 143 accounting asset retirement obligations interpreted financial accounting standards board “fasb” interpretation “fin” 47 accounting conditional asset retirement obligations interpretation fasb statement 143 requires liability recognized asset retirement obligation period incurred reasonable estimate fair value made company recorded estimate potential franchise related obligations would record estimated liability unlikely event franchise agreement containing provision longer expected renewed company also expects renew many lease agreements related continued operation cable business franchise areas company’s lease agreements estimated liabilities related removal provisions applicable recorded significant financial statements franchises franchise rights represent value attributed agreements local authorities allow access homes cable service areas acquired purchase cable systems management estimates fair value franchise rights date acquisition determines franchise finite life indefinitelife defined sfas 142 goodwill intangible assets franchises qualify indefinitelife treatment sfas 142 longer amortized earnings instead tested impairment annually october 1 frequently warranted events changes circumstances see note 7 company concluded 99 franchises qualify indefinitelife treatment however certain franchises qualify indefinitelife treatment due technological operational factors limit lives franchise costs amortized straightline basis 10 years costs incurred renewing cable franchises deferred amortized 10 years noncurrent assets noncurrent assets primarily include deferred financing costs investments equity securities goodwill costs related borrowings deferred amortized interest expense terms related borrowings investments equity securities accounted cost equity method accounting accordance sfas 115 accounting certain investments debt equity securities charter recognizes losses decline value considered temporary certain marketable equity securities classified cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated availableforsale reported market value unrealized gains losses recorded accumulated comprehensive income loss following summarizes investment information december 31 2006 2005 years ended december 31 2006 2005 2004 gain equity investments cost method year ended december 31 2006 primarily represents gains realized sale two investments amounts included income net statements operations gain equity investments equity method year ended december 31 2005 primarily represents gain realized exchange company’s interest equity investee investment larger enterprise amounts included income net statements operations valuation property plant equipment company evaluates recoverability longlived assets held used impairment events changes circumstances indicate carrying amount asset may recoverable events changes circumstances could include factors impairment company’s indefinite life franchise sfas 142 changes technological advances fluctuations fair value assets adverse changes relationships local franchise authorities adverse changes market conditions deterioration operating results review indicates carrying value asset recoverable estimated undiscounted cash flows carrying value asset reduced estimated fair value company believes estimates future cash flows reasonable different assumptions regarding cash flows could materially affect evaluations asset recoverability impairments longlived assets held used recorded 2006 2005 2004 however approximately 159 million 39 million impairment assets held sale recorded years ended december 31 2006 2005 respectively see note 4 derivative financial instruments company accounts derivative financial instruments accordance sfas 133 accounting derivative instruments hedging activities amended instruments qualify hedging activities related gains losses recorded accumulated comprehensive income derivative instruments related gains losses recorded income statement company uses interest rate risk management derivative instruments interest rate swap agreements interest rate cap agreements interest rate collar agreements collectively referred herein interest rate agreements required terms credit facilities company’s subsidiaries company’s policy manage interest costs using mix fixed variable rate debt using interest rate swap agreements company agrees exchange specified intervals difference fixed variable interest amounts calculated reference agreedupon notional principal amount interest rate cap agreements used lock maximum interest rate variable rates rise enable company otherwise pay lower market rates interest rate collar agreements used limit exposure benefits interest rate fluctuations variable rate debt within certain range rates company hold issue derivative financial instruments trading purposes cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated revenue recognition revenues residential commercial video highspeed internet telephone services recognized related services provided advertising sales recognized estimated realizable values period advertisements broadcast franchise fees imposed local governmental authorities collected monthly basis company’s customers periodically remitted local franchise authorities franchise fees 179 million 174 million 160 million years ended december 31 2006 2005 2004 respectively reported revenues gross basis corresponding operating expense sales taxes collected remitted state local authorities recorded net basis company’s revenues product line follows programming costs company various contracts obtain analog digital premium video programming program suppliers whose compensation typically based flat fee per customer cost right exhibit network programming arrangements recorded operating expenses month programming available exhibition programming costs paid month based calculations performed company subject periodic audits performed programmers certain programming contracts contain launch incentives paid programmers company receives payments related activation programmer’s cable television channel recognizes launch incentives straightline basis life programming agreement reduction programming expense offset programming expense 32 million 41 million 59 million years ended december 31 2006 2005 2004 respectively programming costs included accompanying statement operations 15 billion 14 billion 13 billion years ended december 31 2006 2005 2004 respectively december 31 2006 2005 deferred amounts launch incentives included longterm liabilities 67 million 83 million respectively advertising costs advertising costs associated marketing company’s products services generally expensed costs incurred advertising expense 131 million 94 million 70 million years ended december 31 2006 2005 2004 respectively stockbased compensation company historically accounted stockbased compensation accordance accounting principles board “apb” opinion 25 accounting stock issued employees related interpretations permitted sfas 123 accounting stockbased compensation january 1 2003 company adopted fair value measurement provisions sfas 123 using prospective method company recognize compensation expense stockbased award employee vesting period based fair cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated value award grant date consistent method described fin 28 accounting stock appreciation rights variable stock option award plans adoption provisions resulted utilizing preferable accounting method consolidated financial statements present estimated fair value stockbased compensation expense consistently forms compensation expense associated goods services received equity instruments accordance sfas 148 accounting stockbased compensation transition disclosure fair value method applied awards granted modified january 1 2003 whereas awards granted prior date accounted apb 25 unless modified settled cash january 1 2006 company adopted revised sfas 123 share based payment addresses accounting sharebased payment transactions company receives employee services exchange equity instruments company b liabilities based fair value company’s equity instruments may settled issuance equity instruments company adopted fair value recognition provisions sfas 123 january 1 2003 revised standard material impact financial statements company recorded 13 million 14 million 31 million option compensation expense included general administrative expenses years ended december 31 2006 2005 2004 respectively sfas 123r requires pro forma disclosure impact earnings compensation expense plans determined using fair value method following table presents company’s net loss reported pro forma amounts would reported using fair value method sfas 123r years presented fair value option granted estimated date grant using blackscholes optionpricing model following weighted average assumptions used grants years ended december 31 2006 2005 2004 respectively riskfree interest rates 46 40 33 expected volatility 873 709 924 based historical volatility expected lives 63 years 45 years 46 years respectively valuations assume dividends paid income taxes cco holdings single member limited liability company subject income tax cco holdings holds operations indirect subsidiaries majority indirect subsidiaries limited liability companies also subject income tax however certain cco holdings’ indirect subsidiaries corporations subject income tax company recognizes deferred tax assets liabilities temporary differences financial reporting basis tax basis indirect corporate subsidiaries’’ assets liabilities expected benefits utilizing net operating loss carryforwards impact deferred taxes changes tax rates tax law applied years temporary differences expected settled reflected consolidated financial statements period enactment see note 19 cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated segments sfas 131 disclosure segments enterprise related information established standards reporting information operating segments annual financial statements interim financial reports issued shareholders operating segments defined components enterprise separate financial information available evaluated regular basis chief operating decision maker decision making group deciding allocate resources individual segment assessing performance segment company’s operations managed basis geographic divisional operating segments company evaluated criteria aggregation geographic operating segments paragraph 17 sfas 131 believes meets respective criteria set forth company delivers similar products services within geographic divisional operations geographic divisional service area utilizes similar means delivering programming company’s services similarity type class customer receiving products services distributes company’s services unified network operates within consistent regulatory environment addition geographic divisional operating segments similar economic characteristics light company’s similar services means delivery similarity type customers use unified network considerations across geographic divisional operating structure management determined company one reportable segment broadband services 4 sale assets 2006 company sold certain cable television systems serving total approximately 356000 analog video customers 1 west virginia cebridge connections inc “cebridge transaction” 2 illinois kentucky telecommunications management llc business new wave communications “new wave transaction” 3 nevada colorado new mexico utah orange broadband holding company llc “orange transaction” total sales price approximately 971 million company used net proceeds asset sales reduce borrowings commitments revolving portion company’s credit facilities cable systems met criteria assets held sale assets written fair value less estimated costs sell resulting asset impairment charges year ended december 31 2006 approximately 99 million related new wave transaction orange transaction also 2006 company recorded asset impairment charges 60 million related cable systems meeting criteria assets held sale second quarter 2006 company determined based changes company’s organizational cost structure asset groupings long lived asset accounting purposes level individual market areas level company’s geographic clustering result company determined west virginia cable systems comprise operations cash flows financial reporting purposes meet criteria discontinued operations accordingly results operations west virginia cable systems including gain sale approximately 200 million recorded third quarter 2006 presented discontinued operations net tax year ended december 31 2006 prior periods presented herein reclassified conform current presentation summarized consolidated financial information years ended december 31 2006 2005 2004 west virginia cable systems follows 2005 company closed sale certain cable systems texas west virginia nebraska representing total approximately 33000 analog video customers year ended december 31 2005 certain cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated cable systems met criteria assets held sale assets written fair value less estimated costs sell resulting asset impairment charges year ended december 31 2005 approximately 39 million 2004 company closed sale certain cable systems florida pennsylvania maryland delaware new york west virginia atlantic broadband finance llc transactions resulted 106 million gain recorded income net company’s consolidated statements operations total net proceeds sale systems approximately 735 million proceeds used repay portion amounts outstanding company’s revolving credit facility 5 allowance doubtful accounts activity allowance doubtful accounts summarized follows years presented 6 property plant equipment property plant equipment consists following december 31 2006 2005 company periodically evaluates estimated useful lives used depreciate assets estimated amount assets abandoned minimal use future significant change assumptions extent timing future asset retirements company’s use new technology upgrade programs could materially affect future depreciation expense depreciation expense years ended december 31 2006 2005 2004 13 billion 14 billion 14 billion respectively 7 franchises goodwill franchise rights represent value attributed agreements local authorities allow access homes cable service areas acquired purchase cable systems management estimates fair value franchise rights date acquisition determines franchise finite life indefinitelife defined sfas 142 goodwill intangible assets franchises qualify indefinitelife cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated treatment sfas 142 tested impairment annually october 1 based valuations frequently warranted events changes circumstances test resulted total franchise impairment approximately 33 billion third quarter 2004 2005 2006 annual impairment tests resulted impairment franchises aggregated essentially inseparable asset groups conduct valuations asset groups generally represent geographic clustering company’s cable systems groups systems managed management believes grouping represents highest best use assets company’s valuations based present value projected tax cash flows result value property plant equipment franchises customer relationships total entity value goodwill difference total entity value amounts assigned assets franchises valuation purposes defined future economic benefits right solicit service potential customers customer marketing rights right deploy market new services interactivity telephone potential customers service marketing rights fair value determined based estimated discounted future cash flows using assumptions consistent internal forecasts franchise aftertax cash flow calculated aftertax cash flow generated potential customers obtained less anticipated customer churn new services added customers future periods sum present value franchises aftertax cash flow years 1 10 continuing value aftertax cash flow beyond year 10 yields fair value franchise company follows guidance emerging issues task force “eitf” issue 0217 recognition customer relationship intangible assets acquired business combination valuing customer relationships customer relationships valuation purposes represent value business relationship existing customers less anticipated customer churn calculated projecting future aftertax cash flows customers including right deploy market additional services interactivity telephone customers present value aftertax cash flows yields fair value customer relationships substantially acquisitions occurred prior january 1 2002 company record value associated customer relationship intangibles related acquisitions subsequent january 1 2002 company assign value customer relationship intangible amortized estimated useful life september 2004 sec staff issued eitf topic d108 requires direct method separately valuing intangible assets permit goodwill included franchise assets company adopted topic d108 impairment assessment september 30 2004 impairment assessment resulted total franchise impairment approximately 33 billion company recorded cumulative effect accounting change 840 million approximately 875 million tax effects 16 million minority interest effects 19 million year ended december 31 2004 representing portion companys total franchise impairment attributable longer including goodwill franchise assets remaining 24 billion total franchise impairment attributable use lower projected growth rates resulting revised estimates future cash flows companys valuation recorded impairment franchises companys accompanying consolidated statements operations year ended december 31 2004 sustained analog video customer losses company third quarter 2004 primarily result increased competition direct broadcast satellite providers decreased growth rates companys highspeed internet customers third quarter 2004 part result increased competition digital subscriber line service providers led lower projected growth rates revised estimates future cash flows used october 1 2003 cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated december 31 2006 2005 indefinitelived finitelived intangible assets presented following table year ended december 31 2006 net carrying amount indefinitelived finitelived franchises reduced 452 million 2 million respectively related cable asset sales completed 2006 indefinitelived franchises reduced 147 million result asset impairment charges recorded related cable asset sales year ended december 31 2005 net carrying amount indefinitelived franchises reduced 52 million related cable asset sales completed 2005 see note 4 additionally 2005 approximately 13 million franchises previously classified finitelived reclassified indefinitelived based company’s renewal franchise assets 2005 franchise amortization expense represents amortization relating franchises qualify indefinitelife treatment sfas 142 including costs associated franchise renewals franchise amortization expense years ended december 31 2006 2005 2004 2 million 4 million 3 million respectively company expects amortization expense franchise assets approximately 1 million annually next five years actual amortization expense future periods could differ estimates result new intangible asset acquisitions divestitures changes useful lives relevant factors year ended december 31 2006 net carrying amount goodwill increased 9 million result company’s purchase certain cable systems minnesota seren innovations inc january 2006 8 accounts payable accrued expenses accounts payable accrued expenses consist following december 31 2006 2005 cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated 9 longterm debt longterm debt consists following december 31 2006 2005 accreted values presented generally represent principal amount notes less original issue discount time sale plus accretion balance sheet date cco holdings notes cco holdings notes senior debt obligations cco holdings cco holdings capital corp rank equally current future unsecured unsubordinated obligations cco holdings cco holdings capital corp cco holdings notes structurally subordinated obligations subsidiaries cco holdings including charter operating notes charter operating credit facilities november 15 2008 issuers cco holdings 8 ¾ senior notes may redeem part notes redemption price declines ratably initial redemption price 104375 redemption price november 15 2011 1000 principal amount cco holdings 8 ¾ senior notes redeemed plus case accrued unpaid interest cco holdings senior floating rate notes accrues libor rate 536 453 december 31 2006 2005 respectively plus 4125 annually date interest recently paid issuers senior floating rate notes may redeem notes whole part issuers’ option december 15 2006 december 14 2007 102 principal amount december 15 2007 december 14 2008 101 principal amount december 15 2008 par case plus accrued unpaid interest event specified change control events cco holdings must offer purchase outstanding cco holdings senior notes holders purchase price equal 101 total principal amount notes plus accrued unpaid interest charter operating notes charter operating notes senior debt obligations charter operating charter communications operating capital corp extent value collateral subject prior lien credit cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated facilities rank effectively senior charter operating’s future unsecured senior indebtedness collateral currently consists capital stock charter operating held cco holdings intercompany obligations owing cco holdings charter operating subsidiary charter operating substantially charter operating’s guarantors’ assets cco holdings cco holdings subsidiaries charter operating guarantors otherwise obligors respect indebtedness charter operating credit facilities related obligations guarantee charter operating notes charter operating may prior april 30 2007 event qualified equity offering providing sufficient proceeds redeem 35 aggregate principal amount charter operating notes redemption price 108375 respect 8 38 senior secondlien notes due 2014 redemption price 108 respect 8 senior secondlien notes due 2012 charter operating may time option redeem outstanding 8 second lien notes due 2012 whole part redemption price equal 100 principal amount thereof plus accrued unpaid interest redemption date plus makewhole premium makewhole premium amount equal excess present value remaining interest principal payments due 8 senior secondlien notes due 2012 final maturity date computed using discount rate equal treasury rate date plus 050 b outstanding principal amount note april 30 2009 charter operating may redeem part 8 38 senior second lien notes redemption price declines ratably initial redemption price 104188 redemption price april 30 2012 100 principal amount 8 38 senior second lien notes redeemed plus case accrued unpaid interest event specified change control events charter operating must offer purchase charter operating notes purchase price equal 101 total principal amount charter operating notes repurchased plus accrued unpaid interest thereon renaissance notes march 2006 company exchanged 37 million renaissance media group llc 10 senior discount notes due 2008 37 million principal amount new charter operating 8 38 senior secondlien notes due 2014 issued private transaction terms conditions new charter operating 8 38 senior secondlien notes due 2014 identical charter operating’s currently outstanding 8 38 senior secondlien notes due 2014 june 2006 company retired remaining 77 million principal amount renaissance media group llc’s 10 senior discount notes due 2008 highyield restrictive covenants limitation indebtedness indentures governing cco holdings charter operating notes contain certain covenants restrict ability cco holdings cco holdings capital corp charter operating charter communications operating capital corp restricted subsidiaries · incur additional debt · pay dividends equity repurchase equity · make investments · sell substantially assets merge companies · sell assets · enter saleleasebacks · case restricted subsidiaries create permit exist dividend payment restrictions respect bond issuers guarantee parent companies debt issue specified equity interests · engage certain transactions affiliates · grant liens cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated charter operating credit facilities general charter operating credit facilities provide borrowing availability 685 billion follows · term facility total principal amount 50 billion repayable 23 equal quarterly installments commencing september 30 2007 aggregating loan year 1 original amount term facility remaining balance due final maturity 2013 · revolving credit facility 15 billion maturity date 2010 · revolving credit facility “rt facility” 3500 million converts term loans later april 2007 repayable terms term facility described amounts outstanding charter operating credit facilities bear interest charter operating’s election base rate eurodollar rate 536 538 december 31 2006 406 450 december 31 2005 defined plus margin prior amendment facility april 2006 eurodollar loans 300 term facility revolving credit facility 325 term b facility base rate loans 200 term facility revolving credit facility 225 term b facility margin eurodollar rate term loans amendment credit facilities april 2006 2625 base rate term loans 1625 margin revolving credit facility eurodollar rate loans 300 200 base rate loans quarterly commitment fee 75 payable average daily unborrowed balance revolving credit facility converted term loans rt facility obligations charter operating charter operating credit facilities “obligations” guaranteed charter operating’s immediate parent company cco holdings subsidiaries charter operating except certain subsidiaries “nonguarantor subsidiaries” obligations also secured lien assets charter operating subsidiaries assets nonguarantor subsidiaries ii pledge cco holdings equity interests owned charter operating well intercompany obligations owing charter operating december 31 2006 outstanding borrowings charter operating credit facilities approximately 54 billion unused total potential availability approximately 13 billion although actual availability time 11 billion limits imposed covenant restrictions charter operating credit facilities restrictive covenants charter operating credit facilities contain representations warranties affirmative negative covenants customary financings type financial covenants measure performance standards set leverage interest coverage tested end quarter additionally charter operating credit facilities contain provisions requiring mandatory loan prepayments specific circumstances including connection certain sales assets long proceeds reinvested business charter operating credit facilities permit charter operating subsidiaries make distributions pay interest charter convertible notes cchc note charter holdings notes cih notes cch notes cch ii notes cco holdings notes cchc note charter operating senior secondlien notes provided among things default occurred continuing charter operating credit facilities conditions future borrowings include absence default event default charter operating credit facilities continued accuracy material respects representations warranties events default charter operating credit facilities include among things · failure make payments due within applicable grace period · failure comply specified covenants including limited covenant deliver audited financial statements unqualified opinion independent auditors cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated · failure pay occurrence events result acceleration indebtedness owing certain cco holdings’ direct indirect parent companies amounts excess 200 million aggregate principal amount · certain charter operating’s indirect direct parent companies charter operating subsidiaries indebtedness excess 500 million aggregate principal amount remains undefeased three months prior final maturity indebtedness · certain changes control based upon outstanding indebtedness december 31 2006 amortization term loans scheduled reductions available borrowings revolving credit facilities maturity dates senior subordinated notes debentures total future principal payments total borrowings debt agreements december 31 2006 follows amounts debt scheduled mature 2007 management’s intent fund repayments borrowings company’s revolving credit facility accompanying consolidated balance sheets reflect intent presenting debt balances longterm table reflects actual debt maturities stated date 10 loans payablerelated party loans payablerelated party december 31 2006 consists loans charter holdco charter holdings cch ii company 3 million 105 million 195 million respectively loans payablerelated party december 31 2005 consists loans charter holdco company 22 million loans bear interest rate libor plus 30 reset quarterly loans subject certain limitations may repaid borrowings company’s revolving credit facility 11 minority interest minority interest company’s consolidated balance sheets december 31 2006 2005 primarily represents preferred membership interests cc viii llc “cc viii” indirect subsidiary cch ii 641 million 622 million respectively fully described note 20 preferred interest held mr allen charter’s chairman controlling shareholder cch minority interest accompanying consolidated statements operations includes 2 accretion preferred membership interests plus approximately 186 cc viii’s income net accretion 12 comprehensive loss certain marketable equity securities classified availableforsale reported market value unrealized gains losses recorded accumulated comprehensive loss accompanying consolidated balance sheets additionally company reports changes fair value interest rate agreements designated hedging variability cash flows associated floatingrate debt obligations meet effectiveness criteria sfas 133 accounting derivative instruments hedging activities accumulated cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated comprehensive loss comprehensive loss years ended december 31 2006 2005 2004 194 million 241 million 33 billion respectively 13 accounting derivative instruments hedging activities company uses interest rate risk management derivative instruments interest rate swap agreements interest rate collar agreements collectively referred herein interest rate agreements manage interest costs company’s policy manage interest costs using mix fixed variable rate debt using interest rate swap agreements company agreed exchange specified intervals 2007 difference fixed variable interest amounts calculated reference agreedupon notional principal amount interest rate collar agreements used limit company’s exposure benefits interest rate fluctuations variable rate debt within certain range rates company hold issue derivative instruments trading purposes company however certain interest rate derivative instruments designated cash flow hedging instruments effectively convert variable interest payments certain debt instruments fixed payments qualifying hedges sfas 133 allows derivative gains losses offset related results hedged items consolidated statement operations company formally documented designated assessed effectiveness transactions receive hedge accounting years ended december 31 2006 2005 2004 income net includes gains 2 million 3 million 4 million respectively represent cash flow hedge ineffectiveness interest rate hedge agreements arising differences critical terms agreements related hedged obligations changes fair value interest rate agreements designated hedging instruments variability cash flows associated floatingrate debt obligations meet effectiveness criteria specified sfas 133 reported accumulated comprehensive loss years ended december 31 2006 2005 2004 loss 1 million gains 16 million 42 million respectively related derivative instruments designated cash flow hedges recorded accumulated comprehensive loss amounts subsequently reclassified interest expense yield adjustment period related interest floatingrate debt obligations affects earnings losses certain interest rate derivative instruments designated hedges meet effectiveness criteria specified sfas 133 however management believes instruments closely correlated respective debt thus managing associated risk interest rate derivative instruments designated hedges marked fair value impact recorded income net company’s consolidated statement operations years ended december 31 2006 2005 2004 income net includes gains 4 million 47 million 65 million respectively interest rate derivative instruments designated hedges december 31 2006 2005 2004 company outstanding 17 billion 18 billion 27 billion 0 20 million 20 million respectively notional amounts interest rate swaps collars respectively notional amounts interest rate instruments represent amounts exchanged parties thus measure exposure credit loss amounts exchanged determined reference notional amount terms contracts 14 fair value financial instruments company estimated fair value financial instruments december 31 2006 2005 using available market information appropriate valuation methodologies considerable judgment however required interpreting market data develop estimates fair value accordingly estimates presented accompanying consolidated financial statements necessarily indicative amounts company would realize current market exchange carrying amounts cash receivables payables current assets liabilities approximate fair value short maturity instruments company exposed market price risk volatility respect investments publicly traded privately held entities cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated fair value interest rate agreements represents estimated amount company would receive pay upon termination agreements management believes sellers interest rate agreements able meet obligations agreements addition interest rate agreements certain participating banks company’s credit facilities thereby reducing exposure credit loss company policies regarding financial stability credit standing major counterparties nonperformance counterparties anticipated would material adverse effect company’s consolidated financial condition results operations estimated fair value company’s notes interest rate agreements december 31 2006 2005 based quoted market prices fair value credit facilities based dealer quotations summary carrying value fair value company’s debt related interest rate agreements december 31 2006 2005 follows weighted average interest pay rate company’s interest rate swap agreements 1023 951 december 31 2006 2005 respectively 15 operating expenses net operating expenses net consist following years presented gain loss sale assets net gain loss sale assets represents gain loss recognized sale fixed assets cable systems year ended december 31 2004 gain sale assets includes gain recognized sale certain cable systems florida pennsylvania maryland delaware new york west virginia atlantic broadband finance llc cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated hurricane asset retirement loss year ended december 31 2005 hurricane asset retirement loss represents write 19 million company’s plants’ net book value result significant plant damage suffered certain company’s cable systems louisiana result hurricanes katrina rita special charges net special charges net year ended december 31 2006 primarily represent severance associated closing call centers divisional restructuring special charges net year ended december 31 2005 primarily represent severance costs result reducing workforce consolidating administrative offices executive severance year ended december 31 2005 special charges net offset approximately 2 million related agreed upon discount respect portion settlement consideration payable settlement terms class action lawsuits special charges net year ended december 31 2004 primarily represent settlement consolidated federal class action federal derivative action lawsuits litigation costs related settlement 2004 national class action suit coupled severance costs result reducing workforce consolidating administrative offices executive severance unfavorable contracts settlements company recognized 5 million benefit year ended december 31 2004 related changes estimated legal reserves established part previous business combinations based evaluation current facts circumstances longer required 16 loss extinguishment debt 17 income net income net consists following years presented 18 stock compensation plans charter stock option plans “plans” provide grant nonqualified stock options stock appreciation rights dividend equivalent rights performance units performance shares share awards phantom cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated stock andor shares restricted stock exceed 20000000 shares charter class common stock term defined plans employees officers consultants directors charter subsidiaries affiliates eligible receive grants plans options granted generally vest four five years grant date 25 generally vesting anniversary grant date ratably thereafter generally options expire 10 years grant date plans allow issuance total 90000000 shares charter class common stock units convertible charter class common stock years ended december 31 2006 2005 2004 certain directors awarded total 574543 492225 182932 shares respectively restricted charter class common stock 34239 shares cancelled december 31 2006 shares vest one year date grant 2006 2005 2004 connection new employment agreements certain officers awarded 100000 2987500 50000 shares respectively restricted charter class common stock 50000 shares cancelled december 31 2006 shares vest annually one threeyear period beginning date grant december 31 2006 deferred compensation remaining recognized future periods totaled 12 million summary activity charter’s stock options excluding granted shares restricted charter class common stock years ended december 31 2006 2005 2004 follows amounts thousands except per share data cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated following table summarizes information stock options outstanding exercisable december 31 2006 2004 charter completed option exchange program charter offered employees right exchange stock options vested unvested 1999 charter communications option plan 2001 stock incentive plan exercise price 10 per share shares restricted charter class common stock instances cash offer applied options vested unvested purchase total 22929573 shares charter class common stock approximately 48 charter’s 47882365 total options issued outstanding december 31 2003 participation employees voluntary members charters board directors also employees charter subsidiaries eligible participate exchange offer charter accepted cancellation eligible options purchase approximately 18137664 shares charter class common stock exchange charter granted 1966686 shares restricted stock including 460777 performance shares eligible employees rank senior vice president paid total cash amount approximately 4 million amount includes applicable withholding taxes employees received cash rather shares restricted stock cost company stock option exchange program approximately 10 million 2004 cash compensation expense approximately 4 million noncash compensation expense approximately 6 million expensed ratably threeyear vesting period restricted stock exchange january 2004 compensation committee board directors charter approved charters longterm incentive program “ltip” program administered 2001 stock incentive plan ltip employees charter subsidiaries whose pay classifications exceed certain level eligible receive stock options senior level employees eligible receive stock options performance shares stock options vest 25 first four anniversaries date grant performance shares vest third anniversary grant date shares charter class common stock issued conditional upon charters performance financial performance measures established charter’s management approved board directors time award charter granted 100 million shares year ended december 31 2006 program respectively recognized expense 4 million 2005 2004 charter granted 32 million 69 million shares program recognized expense 2005 2004 based charter’s assessment probability achieving financial performance measures established charter required met performance shares vest february 2006 compensation benefits committee charter’s board directors approved modification financial performance measures charters ltip required met 2005 performance shares vest expense recognized remaining two year service period cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated 19 income taxes cco holdings single member limited liability company subject income tax cco holdings holds operations indirect subsidiaries majority indirect subsidiaries limited liability companies also subject income tax however certain cco holdings’ indirect subsidiaries corporations subject income tax years ended december 31 2006 2005 company recorded income tax expense related increases deferred tax liabilities current federal state income taxes primarily related differences accounting franchises indirect corporate subsidiaries year ended december 31 2004 company recorded income tax benefit indirect corporate subsidiaries primarily related differences book tax accounting franchises primarily resulting impairment recorded 2004 current deferred income tax benefit expense follows company recorded portion income tax benefit associated adoption eitf topic d108 16 million reduction cumulative effect accounting change accompanying statement operations year ended december 31 2004 also portion income tax expense recorded reduction income loss discontinued operations years ended december 31 2006 2005 2004 see note 4 company’s effective tax rate differs derived applying applicable federal income tax rate 35 average state income tax rate 5 years ended december 31 2006 2005 2004 follows cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated tax effects temporary differences give rise significant portions deferred tax assets deferred tax liabilities december 31 2006 2005 indirect corporate subsidiaries company included longterm liabilities presented december 31 2006 company deferred tax assets 90 million primarily relate net operating loss carryforwards certain indirect corporate subsidiaries net operating loss carryforwards generally expiring years 2007 2026 subject certain return limitations valuation allowance 63 million exists respect carryforwards december 31 2006 assessing realizability deferred tax assets management considers whether likely portion deferred tax assets realized uncertainties projecting future taxable income charter holdco valuation allowances established except deferred benefits available offset certain deferred tax liabilities charter holdco currently examination internal revenue service tax years ending december 31 2003 2002 addition one company’s indirect corporate subsidiaries examination internal revenue service tax year ended december 31 2004 results company excluding company’s indirect corporate subsidiaries exception indirect corporate subsidiary examination years subject examination management expect results examination material adverse effect company’s consolidated financial condition results operations 20 related party transactions following sets forth certain transactions company directors executive officers affiliates company involved unless otherwise disclosed management believes transactions described terms less favorable company could obtained independent third parties charter party management arrangements charter holdco certain subsidiaries agreements charter holdco provide management services cable systems owned operated subsidiaries management services include services centralized customer billing services data processing related support benefits administration coordination insurance coverage selfinsurance programs medical dental workers’ compensation claims costs associated providing services cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated charged directly company’s operating subsidiaries included within operating costs accompanying consolidated statements operations costs totaled 231 million 205 million 195 million years ended december 31 2006 2005 2004 respectively costs incurred behalf charter’s operating subsidiaries considered part management fee recorded component selling general administrative expense accompanying consolidated financial statements years ended december 31 2006 2005 2004 management fee charged company’s operating subsidiaries approximated expenses incurred charter holdco charter behalf company’s operating subsidiaries company’s credit facilities prohibit payments management fees excess 35 revenues repayment outstanding indebtedness event portion management fee due payable paid deferred charter accrued liability subsidiaries deferred amount management fee bear interest rate 10 per year compounded annually date due payable date paid mr allen controlling shareholder charter number affiliates interests various entities provide services programming charter’s subsidiaries given diverse nature mr allen’s investment activities interests avoid possibility future disputes potential business charter holdco terms respective organizational documents may allow subsidiaries engage business transaction outside cable transmission business except certain existing approved investments charter holdco subsidiaries may pursue allow subsidiaries pursue business transaction outside scope unless mr allen consents charter subsidiaries engaging business transaction cable transmission business means business transmitting video audio including telephone data cable systems owned operated managed charter holdco subsidiaries time mr allen affiliates owned equity interests warrants purchase equity interests various entities company business provides products services programming among entities techtv llc “techtv” oxygen media corporation “oxygen media” digeo inc “digeo” click2learn inc trail blazer inc action sports cable network “action sports” microsoft corporation may 2004 techtv sold unrelated third party mr allen owns 100 equity vulcan ventures incorporated “vulcan ventures” vulcan inc president vulcan ventures ms jo allen patton director president chief executive officer vulcan inc director vice president vulcan ventures mr lance conn executive vice president vulcan inc vulcan ventures mr savoy vice president director vulcan ventures resignation september 2003 resigned director charter april 2004 various cable media internet telephone companies mr allen invested may mutually benefit one another company give assurance expect business relationships successful company realize benefits relationships company enter business relationships future mr allen’s affiliated companies mr allen affiliates made future likely make numerous investments outside company business company cannot assure event company subsidiaries enter transactions future affiliate mr allen transactions terms favorable company terms might obtained unrelated third party also conflicts could arise respect allocation corporate opportunities company mr allen affiliates company instituted formal plan arrangement address potential conflicts interest company received receives programming broadcast via cable systems techtv g4 oxygen media trail blazers inc company pays fee programming service generally based number customers receiving service fees years ended december 31 2006 2005 2004 less 1 total operating expenses techtv company received techtv programming distribution via cable system pursuant affiliation agreement march 2004 charter holdco entered agreements vulcan programming techtv provided among things vulcan programming pay approximately 10 million purchase 24month period fair market rates 2 million advertising time across various cable networks cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated charter cable systems consideration agreements obligations releases waivers agreements settlement certain claims years ended december 31 2006 2005 2004 company recognized approximately 1 million 1 million 5 million respectively vulcan programming payment offset programming expense oxygen media llc oxygen provides programming content company pursuant carriage agreement carriage agreement company paid oxygen approximately 8 million 9 million 13 million years ended december 31 2006 2005 2004 respectively addition oxygen paid company launch incentives customers launched first year term carriage agreement total 4 million company recorded approximately 0 01 million 1 million related launch incentives reduction programming expense years ended december 31 2006 2005 2004 respectively 2005 pursuant amended equity issuance agreement oxygen media delivered 1 million shares oxygen preferred stock liquidation preference 3310 per share plus accrued dividends charter holdco preferred stock convertible common stock december 31 2007 conversion ratio numerator liquidation preference denominator fair market value per share oxygen media common stock conversion date company recognized guaranteed value investment life initial carriage agreement expired february 1 2005 reduction programming expense years ended december 31 2006 2005 2004 company recorded approximately 0 2 million 13 million respectively reduction programming expense carrying value company’s investment oxygen approximately 33 million december 31 2006 2005 digeo inc march 2001 charter ventures vulcan ventures incorporated formed dbroadband holdings llc sole purpose purchasing equity interests digeo connection execution broadband carriage agreement dbroadband holdings llc purchased equity interest digeo funded contributions vulcan ventures incorporated time equity interest subject priority return capital vulcan ventures amount contributed vulcan ventures charter ventures’ behalf vulcan ventures recovered amount contributed “priority return” charter ventures 100 profit interest dbroadband holdings llc charter ventures required make capital contributions including capital calls dbroadband holdings llc dbroadband holdings llc therefore included company’s consolidated financial statements pursuant amended version arrangement 2003 vulcan ventures contributed total 29 million digeo 7 million contributed charter ventures’ behalf subject vulcan ventures’ aforementioned priority return since formation dbroadband holdings llc vulcan ventures contributed approximately 56 million charter ventures’ behalf october 3 2006 vulcan ventures digeo recapitalized digeo connection recapitalization dbroadband holdings llc consented conversion preferred stock holdings digeo common stock vulcan ventures surrendered priority return charter ventures result dbroadband holdings llc included company’s consolidated financial statements amounts immaterial recapitalization dbroadband holdings llc owns 18 digeo inc’s common stock digeo inc therefore included company’s consolidated financial statements company paid digeo interactive approximately 2 million 3 million 3 million years ended december 31 2006 2005 2004 respectively customized development ichannels local content tool kit june 30 2003 charter holdco entered agreement motorola inc purchase 100000 digital video recorder “dvr” units software dvr units supplied digeo interactive llc license agreement entered april 2004 pursuant software license agreement digeo interactive right use digeos proprietary software dvr units company paid approximately 3 million 1 million license maintenance fees 2006 2005 respectively cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated company paid approximately 11 million 10 million 1 million years ended december 31 2006 2005 2004 respectively capital purchases agreement digeo interactive development testing purchase 70000 digeo powerkey dvr units total purchase price license maintenance fees term definitive agreements expected approximately 41 million definitive agreements terminable penalty charter certain circumstances cc viii part acquisition cable systems owned bresnan communications company limited partnership february 2000 cc viii cco holdings’ indirect limited liability company subsidiary issued adjustments cc viii interest initial value initial capital account approximately 630 million certain sellers affiliated att broadband subsequently owned comcast corporation comcast sellers mr allen granted comcast sellers right sell cc viii interest approximately 630 million plus 45 interest annually february 2000 comcast put right april 2002 comcast sellers exercised comcast put right full transaction consummated june 6 2003 accordingly mr allen became holder cc viii interest indirectly affiliate time 2005 interest held cc viii subject dispute mr allen company ultimate ownership cc viii interest 2005 mr allen special committee independent directors charter holdco certain affiliates agreed settle dispute related cc viii interest pursuant settlement cii retained 30 cc viii interest remaining interests remaining interests subject certain transfer restrictions including requirements remaining interests participate sale holders allow holders participate sale remaining interests detailed revised cc viii limited liability company agreement cii transferred 70 cc viii interest directly indirectly charter holdco newly formed entity cchc direct subsidiary charter holdco direct parent charter holdings 70 cc viii interest 74 transferred cii cchc note see note 11 remaining 626 transferred cii charter holdco accordance terms settlement additional monetary consideration charter holdco contributed 626 interest cchc part settlement cc viii issued approximately 49 million additional class b units cc v consideration prior capital contributions cc viii cc v respect transactions unrelated dispute connection cii’s membership units cc viii result mr allen’s pro rata share profits losses cc viii attributable remaining interests approximately 56 part debt exchange september 2006 described note 2 cchc contributed cc viii interest class preferred equity interests cc viii cch cc viii interest pledged security cch notes cc viii preferred interests entitled 2 accreting priority return priority capital helicon 1999 company purchased helicon cable systems part purchase mr allen entered put agreement certain seller helicon cable systems received portion purchase price form preferred membership interest charter helicon llc redemption price 25 million plus accrued interest helicon put agreement holder right sell interest mr allen prior mandatory redemption cash july 30 2009 august 31 2005 40 preferred membership interest put mr allen remaining 60 preferred interest charter helicon llc remained subject put mr allen preferred interest recorded longterm liabilities october 6 2005 charter helicon llc redeemed preferred membership interest redemption price 25 million plus accrued interest cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated 21 commitments contingencies commitments following table summarizes company’s payment obligations december 31 2006 contractual obligations 1 company leases certain facilities equipment noncancelable operating leases rental costs charged expense years ended december 31 2006 2005 2004 23 million 22 million 22 million respectively 2 company pays programming fees multiyear contracts ranging three ten years typically based flat fee per customer may fixed term may cases escalate term programming costs included accompanying statement operations 15 billion 14 billion 13 billion years ended december 31 2006 2005 2004 respectively certain company’s programming agreements based flat fee per month guaranteed minimum payments table sets forth aggregate guaranteed minimum commitments company’s programming contracts 3 “other” represents guaranteed minimum commitments consist primarily commitments company’s billing services vendors following items included contractual obligation table due various factors discussed however company incurs costs part operations · company also rents utility poles used operations generally pole rentals cancelable short notice company anticipates rentals recur rent expense incurred pole rental attachments years ended december 31 2006 2005 2004 44 million 44 million 42 million respectively · company pays franchise fees multiyear franchise agreements based percentage revenues generated video service per year company also pays franchise related costs public education grants multiyear agreements franchise fees franchiserelated costs included accompanying statement operations 175 million 165 million 159 million years ended december 31 2006 2005 2004 respectively · company also 147 million letters credit primarily various worker’s compensation property casualty general liability carriers collateral reimbursement claims letters credit reduce amount company may borrow credit facilities litigation 2004 charter settled series lawsuits filed charter certain former present officers directors “settlement” general lawsuits alleged charter utilized misleading accounting practices failed disclose accounting practices andor issued false misleading financial statements press releases concerning charter’s operations prospects cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated settlement provided charter would pay plaintiffs combination cash equity collectively valued 144 million include fees expenses plaintiffs’ counsel charter elected fund 80 million obligation 134 million shares charter class common stock aggregate value approximately 15 million pursuant formula set forth stipulations settlement remaining balance less agreed upon 2 million discount respect portion allocable plaintiffs’ attorneys’ fees paid cash addition charter paid approximately 5 million cash insurance carrier result 2004 company recorded 85 million special charge consolidated statement operations charter delivered settlement consideration claims administrator july 8 2005 held escrow pending resolution appeals resolved company parent companies defendants codefendants several unrelated lawsuits claiming infringement various patents relating various aspects businesses industry participants also defendants certain cases many cases company expects potential liability would responsibility equipment vendors pursuant applicable contractual indemnification provisions event court ultimately determines company infringes intellectual property rights may subject substantial damages andor injunction could require company vendors modify certain products services company offers subscribers company believes lawsuits without merit intends defend actions vigorously lawsuits could material company’s consolidated results operations one period assurance given adverse outcome would material company’s consolidated financial condition results operations liquidity company parent companies party lawsuits claims arise ordinary course conducting business ultimate outcome legal matters pending company subsidiaries cannot predicted although lawsuits claims expected individually material adverse effect company’s consolidated financial condition results operations liquidity lawsuits could aggregate material adverse effect company’s consolidated financial condition results operations liquidity regulation cable industry operation cable system extensively regulated federal communications commission “fcc” state governments local governments fcc authority enforce regulations imposition substantial fines issuance cease desist orders andor imposition administrative sanctions revocation fcc licenses needed operate certain transmission facilities used connection cable operations 1996 telecom act altered regulatory structure governing nation’s communications providers removed barriers competition cable television market local telephone market among things reduced scope cable rate regulation encouraged additional competition video programming industry allowing local telephone companies provide video programming telephone service areas future legislative regulatory changes could adversely affect company’s operations including without limitation additional regulatory requirements company may required comply offers new services telephone 22 employee benefit plan company’s employees may participate charter communications inc 401k plan employees qualify participation contribute 50 salary pretax basis subject maximum contribution limit determined internal revenue service company matches 50 first 5 participant contributions company made contributions 401k plan totaling 8 million 6 million 7 million years ended december 31 2006 2005 2004 respectively cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated 23 recently issued accounting standards september 2006 sec issued sab 108 considering effects prior year misstatements quantifying misstatements current year financial statements addresses effects prior year uncorrected misstatements quantifying misstatements current year financial statements misstatements required quantified using balancesheet “ironcurtain” incomestatement approach “rollover” evaluated whether either approach results material error light quantitative qualitative factors sab 108 effective fiscal years ending november 15 2006 company adopted sab 108 effective fiscal year ended december 31 2006 adoption sab 108 material impact company’s financial statements june 2006 fasb issued fin 48 accounting uncertainty income taxesan interpretation fasb statement 109 provides criteria recognition measurement presentation disclosure uncertain tax positions tax benefit uncertain position may recognized “more likely not” position sustainable based technical merits fin 48 effective fiscal years beginning december 15 2006 company adopt fin 48 effective january 1 2007 company currently assessing impact fin 48 financial statements september 2006 fasb issued sfas 157 fair value measurements establishes framework measuring fair value expands disclosures fair value measurements sfas 157 effective fiscal years beginning november 15 2007 interim periods within fiscal years company adopt sfas 157 effective january 1 2008 company expect adoption sfas 157 material impact financial statements february 2007 fasb issued sfas 159 fair value option financial assets financial liabilities including amendment fasb statement 115 allows measurement fair value eligible financial assets liabilities otherwise measured fair value fair value option eligible item elected unrealized gains losses item shall reported current earnings subsequent reporting date sfas 159 also establishes presentation disclosure requirements designed draw comparison different measurement attributes company elects similar types assets liabilities sfas 159 effective fiscal years beginning november 15 2007 early adoption permitted company currently assessing impact sfas 159 financial statements company believe recently issued yet effective accounting pronouncements adopted would material effect company’s accompanying financial statements 24 parent company financial statements result limitations prohibitions distributions substantially net assets consolidated subsidiaries restricted distribution cco holdings parent company following condensed parentonly financial statements cco holdings account investment subsidiaries equity method accounting financial statements read conjunction consolidated financial statements company notes thereto cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated cco holdings llc parent company condensed balance sheets condensed statements operations cco holdings llc subsidiaries notes consolidated financial statements december 31 2006 2005 2004 dollars millions except indicated condensed statements cash flows item 15 exhibits financial statement schedules following documents filed part annual report 1 financial statements listing financial statements notes reports independent registered public accounting firm required item 8 begins page annual report 2 financial statement schedules financial statement schedules required filed items 8 15d required applicable required information set forth applicable financial statements notes thereto 3 index exhibits begins page e1 annual report agree furnish sec upon request copies longterm debt instruments authorize amount securities constituting 10 less total assets charter holdings cch ii cco holdings subsidiaries consolidated basis signatures pursuant requirements section 13 15d securities exchange act 1934 charter communications holdings llc charter communications holdings capital corporation duly caused annual report signed behalf undersigned thereunto duly authorized date march 21 2008 neil smit neil smit president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf charter communications inc sole manager registrant capacities dates indicated s1 jo allen patton director charter communications inc march 18 2008 jo allen patton john h tory director charter communications inc march 21 2008 john h tory larry w wangberg director charter communications inc march 21 2008 larry w wangberg s2 signatures pursuant requirements section 13 15d securities exchange act 1934 cch ii llc cch ii capital corp duly caused annual report signed behalf undersigned thereunto duly authorized date march 21 2008 neil smit neil smit president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf charter communications inc capacities dates indicated s3 jo allen patton director charter communications inc march 18 2008 jo allen patton john h tory director charter communications inc march 21 2008 john h tory larry w wangberg director charter communications inc march 21 2008 larry w wangberg s4 signatures pursuant requirements section 13 15d securities exchange act 1934 cco holdings llc cco holdings capital corp duly caused annual report signed behalf undersigned thereunto duly authorized date march 21 2008 neil smit neil smit president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf charter communications inc capacities dates indicated s5 jo allen patton director charter communications inc march 18 2008 jo allen patton john h tory director charter communications inc march 21 2008 john h tory larry w wangberg director charter communications inc march 21 2008 larry w wangberg s6 exhibit index exhibits listed numbers corresponding exhibit table item 601 regulation sk e1 e2 e3 e4 e5 e6 e7 management compensatory plan arrangement e8 report independent registered public accounting firm manager member charter communications holdings llc audited accompanying consolidated balance sheets charter communications holdings llc subsidiaries company december 31 2007 2006 related consolidated statements operations changes member’s deficit cash flows years threeyear period ended december 31 2007 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position charter communications holdings llc subsidiaries december 31 2007 2006 results operations cash flows years threeyear period ended december 31 2007 conformity us generally accepted accounting principles kpmg llp st louis missouri march 20 report independent registered public accounting firm manager member cch ii llc audited accompanying consolidated balance sheets cch ii llc subsidiaries company december 31 2007 2006 related consolidated statements operations changes member’s equity deficit cash flows years threeyear period ended december 31 2007 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position cch ii llc subsidiaries december 31 2007 2006 results operations cash flows years threeyear period ended december 31 2007 conformity us generally accepted accounting principles kpmg llp st louis missouri march 20 report independent registered public accounting firm manager member cco holdings llc audited accompanying consolidated balance sheets cco holdings llc subsidiaries company december 31 2007 2006 related consolidated statements operations changes member’s equity cash flows years threeyear period ended december 31 2007 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position cco holdings llc subsidiaries december 31 2007 2006 results operations cash flows years threeyear period ended december 31 2007 conformity us generally accepted accounting principles kpmg llp st louis missouri march 20 charter communications holdings llc subsidiaries consolidated balance sheets dollars millions accompanying notes integral part consolidated financial statements charter communications holdings llc subsidiaries consolidated statements operations dollars millions accompanying notes integral part consolidated financial statements charter communications holdings llc subsidiaries consolidated statements changes member’s deficit dollars millions accompanying notes integral part consolidated financial statements charter communications holdings llc subsidiaries consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements cch ii llc subsidiaries consolidated balance sheets dollars millions accompanying notes integral part consolidated financial statements cch ii llc subsidiaries consolidated statements operations dollars millions accompanying notes integral part consolidated financial statements cch ii llc subsidiaries consolidated statements changes member’s equity deficit dollars millions accompanying notes integral part consolidated financial statements cch ii llc subsidiaries consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries consolidated balance sheets dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries consolidated statements operations dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries consolidated statements changes member’s equity dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated 1 organization basis presentation charter communications holdings llc “charter holdings” holding company whose principal assets december 31 2007 equity interests subsidiaries include cch ii llc “cch ii” cco holdings llc “cco holdings” charter holdings cch ii cco holdings indirect subsidiaries charter communications holding company llc “charter holdco” subsidiary charter communications inc “charter” set consolidated financial statements include accounts charter holdings cch ii cco holdings respective subsidiaries underlying operations reside collectively referred herein companies significant intercompany accounts transactions among consolidated entities eliminated companies operating subsidiary charter communications operating llc “charter operating” operate broadband communications businesses united states offering residential commercial customers traditional cable video programming analog digital video highspeed internet services telephone services well advanced broadband services high definition television charter ondemand™ digital video recorder service cable video programming highspeed internet telephone advanced broadband services sold subscription basis companies also sell local advertising cable networks preparation financial statements conformity accounting principles generally accepted united states “gaap” requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period areas involving significant judgments estimates include capitalization labor overhead costs depreciation amortization costs impairments property plant equipment franchises goodwill income taxes contingencies actual results could differ estimates reclassifications certain prior year amounts reclassified conform 2007 presentation 2 liquidity capital resources charter holdings cch ii cco holdings incurred net losses 2007 2006 2005 expect continue incur net losses foreseeable future 2007 2006 2005 charter holdings cch ii cco holdings generated cash flows operating activities companies significant amounts debt charter holdings’ cch ii’s cco holdings’ longterm debt december 31 2007 totaled 195 billion 123 billion 99 billion respectively consisting 72 billion credit facility debt 123 billion 51 billion 27 billion accreted value highyield notes respectively 2008 65 million charter operating’s credit facility debt matures 2009 additional 188 million charter holdings’ notes 65 million charter operating’s credit facility debt matures 2010 beyond significant additional amounts become due companies’ remaining longterm debt obligations companies require significant cash fund debt service costs capital expenditures ongoing operations companies historically funded requirements cash flows operating activities borrowings credit facilities equity contributions respective parent companies sales assets issuances debt securities cash hand however mix funding sources changes period year ended december 31 2007 charter holdings cch ii cco holdings generated 323 million 11 billion 14 billion net cash flows operating activities respectively paying cash interest 18 billion 980 million 728 million respectively addition companies used 12 billion purchases property plant equipment finally charter holdings cch ii net cash flows provided financing activities 825 million 26 million respectively cco holdings net cash flows used financing activities charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated 226 million consolidated basis companies’ parent companies significant level debt totaled approximately 199 billion december 31 2007 companies expect cash hand cash flows operating activities amounts available charter operating credit facilities adequate meet parent companies’ projected cash needs second third quarter 2009 thereafter sufficient fund needs companies’ projected cash needs projected sources liquidity depend upon among things companies’ actual results timing amount capital expenditures ongoing compliance charter operating credit facilities including obtaining unqualified audit opinion independent accountants companies therefore need obtain additional sources liquidity early 2009 although companies parent companies able raise funds issuances debt past may able access additional sources liquidity similar terms pricing currently place continuation recent turmoil credit markets general economic downturn could adversely impact terms andor pricing companies need raise additional liquidity assurances given companies experience liquidity problems obtain sufficient additional financing timely basis companies’ debt becomes due adverse market conditions increased competition unfavorable events time additional capital borrowing capacity required beyond amounts internally generated available credit facilities companies would consider issuing equity charter holdco level issuing debt securities reducing expenses capital expenditures selling assets requesting waivers amendments respect companies’ credit facilities strategies successful companies could forced restructure obligations seek protection bankruptcy laws addition companies find necessary engage recapitalization similar transaction companies’ noteholders might receive principal interest payments contractually entitled credit facility availability companies’ ability operate depends upon among things continued access capital including credit charter operating credit facilities charter operating credit facilities along companies’ indentures cco holdings credit facility contain certain restrictive covenants require charter operating maintain specified leverage ratios meet financial tests provide annual audited financial statements unqualified opinion companies’ independent accountants december 31 2007 companies compliance covenants indentures credit facilities companies expect remain compliance covenants next twelve months december 31 2007 companies’ potential availability charter operating’s revolving credit facility totaled approximately 10 billion none limited covenant restrictions continued access charter operating’s revolving credit facility subject companies remaining compliance covenants including covenants tied charter operating’s leverage ratio first lien leverage ratio event noncompliance occur funding revolving credit facility may available defaults potentially companies’ debt obligations could occur event default companies’ debt instruments could result acceleration payment obligations debt certain circumstances crossdefaults debt obligations could material adverse effect companies’ consolidated financial condition results operations parent company debt obligations financial liquidity problems companies’ parent companies could cause serious disruption companies’ business material adverse effect companies’ business results operations charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated failure charter holdings cch holdings llc “cih” cch llc “cch i” cch ii cco holdings satisfy debt payment obligations could bankruptcy respect charter holdings cih cch ii cco holdings would give lenders companies’ credit facilities right accelerate payment obligations facilities acceleration would default indenture governing companies’ notes limitations distributions long charter’s convertible senior notes remain outstanding otherwise converted shares common stock charter must pay interest convertible senior notes repay principal amount october 2007 charter holdco completed exchange offer 364 million charter’s 5875 convertible senior notes due november 2009 exchanged 479 million charter’s 650 convertible senior notes approximately 49 million charter’s 5875 convertible senior notes remain outstanding charter’s ability make interest payments convertible senior notes repay outstanding principal convertible senior notes depend ability raise additional capital andor receipt payments distributions charter holdco subsidiaries december 31 2007 charter holdco owed 123 million intercompany loans charter operating 62 million cash amounts available pay interest principal charters convertible senior notes distributions charter’s subsidiaries parent company payment principal parent company notes restricted indentures governing cih notes cch notes cch ii notes cco holdings notes charter operating notes cco holdings credit facility unless default applicable indenture credit facilities unless applicable subsidiary’s leverage ratio test met time distribution quarter ended december 31 2007 default indentures credit facilities subsidiary met applicable leverage ratio tests based december 31 2007 financial results distributions would restricted however subsidiary fails meet tests time contemplated distribution past certain subsidiaries time failed meet leverage ratio test assurance satisfy tests time contemplated distribution distributions charter operating payment principal parent company notes restricted covenants charter operating credit facilities distributions cih cch ii cco holdings charter operating parent company payment parent company interest permitted default aforementioned indentures cco holdings credit facility indentures governing charter holdings notes permit charter holdings make distributions charter holdco payment interest principal charter’s convertible senior notes giving effect distribution charter holdings incur additional debt leverage ratio 875 10 default charter holdings’ indentures specified tests met quarter ended december 31 2007 default charter holdings’ indentures specified tests met charter holdings met leverage ratio test based december 31 2007 financial results distributions would restricted however charter holdings fails meet tests time contemplated distribution past charter holdings time failed meet leverage ratio test assurance charter holdings satisfy tests time contemplated distribution periods distributions restricted indentures governing charter holdings notes permit charter holdings subsidiaries make specified investments restricted payments charter holdco charter amount determined formula long default indentures charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated 3 summary significant accounting policies cash equivalents companies consider highly liquid investments original maturities three months less cash equivalents investments carried cost approximates market value property plant equipment property plant equipment recorded cost including material labor certain indirect costs associated construction cable transmission distribution facilities companies’ capitalization based specific activities capitalized costs tracked fixed asset category cable system level specific asset basis assets sold retired estimated historical cost related accumulated depreciation removed costs associated initial customer installations additions network equipment necessary enable advanced services capitalized costs capitalized part initial customer installations include materials labor certain indirect costs indirect costs associated activities companies’ personnel assist connecting activating new service consist compensation indirect costs associated support functions indirect costs primarily include employee benefits payroll taxes direct variable costs associated capitalizable activities consisting primarily installation construction vehicle costs cost dispatch personnel indirect costs directly attributable capitalizable activities costs disconnecting service customer’s dwelling reconnecting service previously installed dwelling charged operating expense period incurred costs repairs maintenance charged operating expense incurred plant equipment replacement betterments including replacement cable drops pole dwelling capitalized depreciation recorded using straightline composite method management’s estimate useful lives related assets follows asset retirement obligations certain companies’ franchise agreements leases contain provisions requiring companies restore facilities remove equipment event franchise lease agreement renewed companies expect continually renew franchise agreements concluded substantially related franchise rights indefinite lived intangible assets accordingly possibility remote companies would required incur significant restoration removal costs related franchise agreements foreseeable future statement financial accounting standards “sfas” 143 accounting asset retirement obligations interpreted fin 47 accounting conditional asset retirement obligations interpretation fasb statement 143 requires liability recognized asset retirement obligation period incurred reasonable estimate fair value made companies recorded estimate potential franchise related obligations would record estimated liability unlikely event franchise agreement containing provision longer expected renewed companies also expect renew many lease agreements related continued operation cable business franchise areas companies’ lease agreements estimated liabilities related removal provisions applicable recorded significant financial statements charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated franchises franchise rights represent value attributed agreements local authorities allow access homes cable service areas acquired purchase cable systems management estimates fair value franchise rights date acquisition determines franchise finite life indefinitelife defined sfas 142 goodwill intangible assets franchises qualify indefinitelife treatment sfas 142 longer amortized earnings instead tested impairment annually october 1 frequently warranted events changes circumstances see note 7 companies concluded substantially franchises qualify indefinitelife treatment costs incurred renewing cable franchises deferred amortized 10 years noncurrent assets noncurrent assets primarily include deferred financing costs investments equity securities goodwill costs related borrowings deferred amortized interest expense terms related borrowings investments equity securities accounted cost equity method accounting accordance sfas 115 accounting certain investments debt equity securities companies recognize losses decline value considered temporary following summarizes investment information december 31 2007 2006 years ended december 31 2007 2006 2005 gain equity investments cost method year ended december 31 2006 primarily represents gains realized sale two investments gain equity investments equity method year ended december 31 2005 primarily represents gain realized exchange interest equity investee investment larger enterprise amounts included income expense net statements operations valuation property plant equipment companies evaluate recoverability longlived assets held used impairment events changes circumstances indicate carrying amount asset may recoverable events changes circumstances could include factors impairment companies’ indefinite life franchise sfas 142 changes technological advances fluctuations fair value assets adverse changes relationships local franchise authorities adverse changes market conditions deterioration operating results review indicates carrying value asset recoverable estimated undiscounted cash flows carrying value asset reduced estimated fair value companies believe estimates future cash flows reasonable different assumptions regarding cash flows could materially affect evaluations asset recoverability impairments longlived assets held used recorded 2007 2006 2005 however approximately 56 million 159 million 39 million charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated impairment assets held sale recorded years ended december 31 2007 2006 2005 respectively see note 4 derivative financial instruments companies account derivative financial instruments accordance sfas 133 accounting derivative instruments hedging activities amended instruments qualify hedging activities related gains losses recorded accumulated comprehensive income loss derivative instruments related gains losses recorded income statement companies use interest rate derivative instruments interest rate swap agreements interest rate collar agreements collectively referred herein interest rate agreements manage interest costs reduce companies’ exposure increases floating interest rates companies’ policy manage exposure fluctuations interest rates maintaining mix fixed variable rate debt within targeted range using interest rate swap agreements companies agree exchange specified intervals 2013 difference fixed variable interest amounts calculated reference agreedupon notional principal amounts interest rate collar agreements used limit exposure benefits interest rate fluctuations variable rate debt within certain range rates companies hold issue derivative financial instruments trading purposes revenue recognition revenues residential commercial video highspeed internet telephone services recognized related services provided advertising sales recognized estimated realizable values period advertisements broadcast franchise fees imposed local governmental authorities collected monthly basis customers periodically remitted local franchise authorities franchise fees 177 million 179 million 174 million years ended december 31 2007 2006 2005 respectively reported revenues gross basis corresponding operating expense sales taxes collected remitted state local authorities recorded net basis revenues product line follows programming costs companies various contracts obtain analog digital premium video programming program suppliers whose compensation typically based flat fee per customer cost right exhibit network programming arrangements recorded operating expenses month programming available exhibition programming costs paid month based calculations performed companies subject periodic audits performed programmers certain programming contracts contain launch incentives paid programmers companies receive payments related activation programmer’s cable television channel recognize launch incentives straightline basis life programming agreement reduction programming expense offset programming expense 22 charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated million 32 million 41 million years ended december 31 2007 2006 2005 respectively programming costs included accompanying statement operations 16 billion 15 billion 14 billion years ended december 31 2007 2006 2005 respectively december 31 2007 2006 deferred amounts launch incentives included longterm liabilities 65 million 67 million respectively advertising costs advertising costs associated marketing companies’ products services generally expensed costs incurred advertising expense 187 million 131 million 94 million years ended december 31 2007 2006 2005 respectively multipleelement transactions normal course business companies enter multipleelement transactions simultaneously customer vendor counterparty purchase multiple products andor services settle outstanding items contemporaneous purchase product service single counterparty transactions although negotiated contemporaneously may documented one contracts companies’ policy accounting transaction negotiated contemporaneously record element transaction based respective estimated fair values products services purchased products services sold determining fair value respective elements companies refer quoted market prices available historical transactions comparable cash transactions stockbased compensation january 1 2006 companies adopted sfas 123r share based payment addresses accounting sharebased payment transactions company receives employee services exchange equity instruments company b liabilities based fair value company’s equity instruments may settled issuance equity instruments companies adopted fair value recognition provisions sfas 123 january 1 2003 revised standard material impact financial statements companies recorded 18 million 13 million 14 million option compensation expense included general administrative expenses years ended december 31 2007 2006 2005 respectively fair value option granted estimated date grant using blackscholes optionpricing model following weighted average assumptions used grants years ended december 31 2007 2006 2005 respectively riskfree interest rates 46 40 expected volatility 703 873 709 based historical volatility expected lives 63 years 63 years 45 years respectively valuations assume dividends paid income taxes charter holdings cch ii cco holdings single member limited liability companies subject income tax hold operations indirect subsidiaries majority indirect subsidiaries limited liability companies also subject income tax however certain limited liability companies subject state income tax addition certain charter holdings’ cch ii’s cco holdings’ indirect subsidiaries corporations subject income tax companies recognize deferred tax assets liabilities temporary differences financial reporting basis tax basis indirect corporate subsidiaries’ assets liabilities expected benefits utilizing net operating loss carryforwards impact deferred taxes changes tax rates tax law applied years temporary differences expected settled reflected consolidated financial statements period enactment see note 19 charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated charter indirect parent company subject income taxes accordingly addition companies’ deferred tax liabilities charter recorded net deferred tax liabilities approximately 439 million related approximate 52 investment charter holdco reflected companies segments sfas 131 disclosure segments enterprise related information established standards reporting information operating segments annual financial statements interim financial reports issued shareholders operating segments defined components enterprise separate financial information available evaluated regular basis chief operating decision maker decision making group deciding allocate resources individual segment assessing performance segment companies’ operations managed basis geographic divisional operating segments companies evaluated criteria aggregation geographic operating segments paragraph 17 sfas 131 believe meet respective criteria set forth companies deliver similar products services within geographic divisional operations geographic divisional service area utilizes similar means delivering programming companies’ services similarity type class customer receiving products services distributes companies’ services unified network operates within consistent regulatory environment addition geographic divisional operating segments similar economic characteristics light companies’ similar services means delivery similarity type customers use unified network considerations across geographic divisional operating structure management determined companies one reportable segment broadband services 4 sale assets 2006 companies sold certain cable television systems serving approximately 356000 video customers 1 west virginia cebridge connections inc “cebridge transaction” 2 illinois kentucky telecommunications management llc business new wave communications “new wave transaction” 3 nevada colorado new mexico utah orange broadband holding company llc “orange transaction” total sales price approximately 971 million companies used net proceeds asset sales reduce borrowings commitments revolving portion charter operating credit facilities cable systems met criteria assets held sale assets written fair value less estimated costs sell resulting asset impairment charges year ended december 31 2006 approximately 99 million related new wave transaction orange transaction companies determined west virginia cable systems comprise operations cash flows financial reporting purposes meet criteria discontinued operations accordingly results operations west virginia cable systems presented discontinued operations net tax year ended december 31 2006 including gain 200 million sale cable systems summarized consolidated financial information years ended december 31 2006 2005 west virginia cable systems follows 2007 2006 2005 companies recorded asset impairment charges 56 million 60 million 39 million respectively related cable systems meeting criteria assets held sale charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated 5 allowance doubtful accounts activity allowance doubtful accounts summarized follows years presented 6 property plant equipment property plant equipment consists following december 31 2007 2006 companies adjusted historical cost basis related accumulated depreciation december 31 2007 2006 reflect estimated asset retirements december 31 2007 2006 respectively gain loss recorded retirements companies periodically evaluate estimated useful lives used depreciate assets estimated amount assets abandoned minimal use future significant change assumptions extent timing future asset retirements companies’ use new technology upgrade programs could materially affect future depreciation expense 2007 companies changed useful lives certain property plant equipment based technological changes change useful lives reduced depreciation expense approximately 8 million 2007 depreciation expense years ended december 31 2007 2006 2005 13 billion 13 billion 14 billion respectively 7 franchises goodwill franchise rights represent value attributed agreements local authorities allow access homes cable service areas acquired purchase cable systems management estimates fair value franchise rights date acquisition determines franchise finite life indefinitelife defined sfas 142 goodwill intangible assets franchises qualify indefinitelife treatment sfas 142 tested impairment annually october 1 based valuations frequently warranted events changes circumstances companies’ impairment assessment charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated october 1 2007 indicate impairment however upon completion 2008 budgeting process december 2007 companies determined triggering event requiring reassessment franchise values occurred largely driven increased competition experienced companies peers companies lowered projected revenue expense growth rates increased projected capital expenditures accordingly revised estimates future cash flows compared used prior valuations result companies recorded 178 million impairment year ended december 31 2007 valuations completed october 1 2006 2005 showed franchise values excess book value thus resulted impairments franchises aggregated essentially inseparable asset groups conduct valuations asset groups generally represent geographical clustering companies’ cable systems groups systems managed management believes grouping represents highest best use assets companies’ valuations based present value projected tax cash flows result value property plant equipment franchises customer relationships total entity value goodwill difference total entity value amounts assigned assets franchises valuation purposes defined future economic benefits right solicit service potential customers customer marketing rights right deploy market new services interactivity telephone potential customers service marketing rights fair value determined based estimated discounted future cash flows using assumptions consistent internal forecasts franchise aftertax cash flow calculated aftertax cash flow generated potential customers obtained less anticipated customer churn new services added customers future periods sum present value franchises aftertax cash flow years 1 10 continuing value aftertax cash flow beyond year 10 yields fair value franchise customer relationships valuation purposes represent value business relationship existing customers less anticipated customer churn calculated projecting future aftertax cash flows customers including right deploy market additional services customers present value aftertax cash flows yields fair value customer relationships substantially acquisitions occurred prior january 1 2002 companies record value associated customer relationship intangibles related acquisitions subsequent january 1 2002 companies assign value customer relationship intangible amortized estimated useful life december 31 2007 2006 indefinitelived finitelived intangible assets presented following table year ended december 31 2007 net carrying amount indefinitelived franchises reduced 178 million result impairment franchises discussed 77 million related cable asset sales completed 2007 56 million result asset impairment charges recorded related cable asset sales decreases offset 33 million franchises added result acquisitions cable assets charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated year ended december 31 2006 net carrying amount indefinitelived finitelived franchises reduced 452 million 2 million respectively related cable asset sales completed 2006 indefinitelived franchises reduced 147 million result asset impairment charges recorded related cable asset sales franchise amortization expense represents amortization relating franchises qualify indefinitelife treatment sfas 142 including costs associated franchise renewals franchise amortization expense years ended december 31 2007 2006 2005 3 million 2 million 4 million respectively companies expect amortization expense franchise assets approximately 2 million annually next five years actual amortization expense future periods could differ estimates result new intangible asset acquisitions divestitures changes useful lives relevant factors year ended december 31 2007 2006 net carrying amount goodwill increased 6 million 9 million respectively result companies’ purchase certain cable systems 2007 2006 8 accounts payable accrued expenses accounts payable accrued expenses consist following december 31 2007 2006 charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated 9 longterm debt longterm debt consists following december 31 2007 2006 charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated accreted values presented generally represent principal amount notes less original issue discount time sale plus accretion balance sheet date however certain notes recorded financial reporting purposes values different current accreted value legal purposes notes indenture purposes amount currently payable debt becomes immediately due december 31 2007 accreted value charter holdings’ cch ii’s cco holdings’ debt legal purposes notes indenture purposes 194 billion 123 billion 99 billion respectively charter operating notes charter operating notes senior debt obligations charter operating charter communications operating capital corp extent value collateral subject prior lien credit facilities rank effectively senior charter operating’s future unsecured senior indebtedness collateral currently consists capital stock charter operating held cco holdings intercompany obligations owing cco holdings charter operating subsidiary charter operating substantially charter operating’s guarantors’ assets cco holdings cco holdings subsidiaries charter operating guarantors otherwise obligors respect indebtedness charter operating credit facilities related obligations guarantee charter operating notes charter operating may time option redeem outstanding 8 second lien notes due 2012 whole part redemption price equal 100 principal amount thereof plus accrued unpaid interest redemption date plus makewhole premium makewhole premium amount equal excess present value remaining interest principal payments due 8 senior secondlien note due 2012 final maturity date computed using discount rate equal treasury rate date plus 050 b outstanding principal amount note april 30 2009 charter operating may redeem part 8 38 senior second lien notes redemption price declines ratably initial redemption price 104188 redemption price april 30 2012 100 principal amount 8 38 senior second lien notes redeemed plus case accrued unpaid interest event specified change control events charter operating must offer purchase charter operating notes purchase price equal 101 total principal amount charter operating notes repurchased plus accrued unpaid interest thereon cco holdings notes cco holdings notes senior debt obligations cco holdings cco holdings capital corp rank equally current future unsecured unsubordinated obligations cco holdings cco holdings capital corp cco holdings notes structurally subordinated obligations subsidiaries cco holdings including charter operating notes charter operating credit facilities charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated november 15 2008 issuers cco holdings 8 ¾ senior notes may redeem part notes redemption price declines ratably initial redemption price 104375 redemption price november 15 2011 1000 principal amount cco holdings 8 ¾ senior notes redeemed plus case accrued unpaid interest prior redemption april 2007 interest cco holdings senior floating rate notes accrued libor rate 536 december 31 2006 plus 4125 annually date interest recently paid event specified change control events cco holdings must offer purchase outstanding cco holdings senior notes holders purchase price equal 101 total principal amount notes plus accrued unpaid interest cch ii llc notes september 2006 cchc cch ii completed exchange 450 million principal amount charter’s outstanding 5875 senior convertible notes due 2009 188 million cash 45 million shares charter’s class common stock valued 68 million 146 million principal amount 1025 cch ii notes due 2010 addition september 2006 cch ii issued 250 million principal amount new 1025 cch ii notes due 2013 270 million charter holdings notes cch ii notes senior debt obligations cch ii cch ii capital corp cch ii notes rank equally current future unsecured unsubordinated obligations cch ii cch ii capital corp cch ii 2013 notes guaranteed senior unsecured basis charter holdings cch ii notes structurally subordinated obligations subsidiaries cch ii including cco holdings notes charter operating notes charter operating credit facilities september 15 2008 issuers cch ii 2010 notes may redeem part notes redemption price declines ratably initial redemption price 105125 redemption price september 15 2009 1000 principal amount cch ii 2010 notes redeemed plus case accrued unpaid interest october 1 2010 issuers cch ii 2013 notes may redeem part notes redemption price declines ratably initial redemption price 105125 redemption price october 1 2012 1000 principal amount cch ii 2013 notes redeemed plus case accrued unpaid interest event specified change control events cch ii must offer purchase outstanding cch ii notes holders purchase price equal 101 total principal amount notes plus accrued unpaid interest cch llc notes cch notes guaranteed senior unsecured basis charter holdings secured pledge 100 equity interest cch i’s wholly owned direct subsidiary cch ii pledge cch i’s 70 interest 24273943 class preferred membership units cc viii collectively cc viii interest proceeds thereof pledges subject significant limitations described related pledge agreement cch notes senior debt obligations cch capital corp extent value collateral rank senior cch i’s future unsecured senior indebtedness cch notes structurally subordinated obligations subsidiaries cch including cch ii notes cco holdings notes charter operating notes charter operating credit facilities december 31 2007 40 billion accreted value legal purposes notes indentures purposes charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated cch capital corp may prior october 1 2008 event qualified equity offering providing sufficient proceeds redeem 35 aggregate principal amount cch notes redemption price 111 principal amount plus accrued unpaid interest aside provision cch capital corp may redeem option notes prior october 1 2010 october 1 2010 cch capital corp may redeem whole part cch notes anytime case premium optional redemption price declines 100 principal amount plus accrued unpaid interest october 1 2013 change control occurs holder cch notes right require repurchase part holder’s cch notes 101 principal amount plus accrued unpaid interest cch holdings llc notes cih notes senior debt obligations cih cch holdings capital corp rank equally current future unsecured unsubordinated obligations cih cch holdings capital corp cih notes structurally subordinated obligations subsidiaries cih including cch notes cch ii notes cco holdings notes charter operating notes charter operating credit facilities cih notes guaranteed senior unsecured basis charter holdings december 31 2007 25 billion accreted value legal purposes notes indentures purposes cih notes may redeemed time premium optional redemption price declines 100 respective series’ principal amount plus accrued unpaid interest varying dates generally 2009 2010 event specified change control event happens cih cch holdings capital corp must offer repurchase outstanding notes price equal sum accreted value notes plus accrued unpaid interest plus premium varies time charter holdings notes charter holdings notes senior debt obligations charter holdings charter communications capital corporation “charter capital” rank equally current future unsecured unsubordinated obligations charter holdings charter capital structurally subordinated obligations charter holdings’ subsidiaries including cih notes cch notes cch ii notes cco holdings notes charter operating notes charter operating credit facilities except 1000 notes due april 1 2009 1075 notes due october 1 2009 9625 notes due november 15 2009 notes may redeemed prior respective maturity dates charter holdings notes may redeemed option charter holdings varying dates case premium optional redemption price declines 100 respective series’ principal amount plus accrued unpaid interest varying dates 2008 2010 event specified change control event occurs charter holdings charter capital must offer repurchase outstanding notes 101 principal amount accreted value applicable plus accrued unpaid interest september 2006 charter holdings cch ii completed exchange approximately 797 million total principal amount outstanding debt securities charter holdings 250 million principal amount new 1025 cch ii notes due 2013 462 million principal amount 11 cch notes due 2015 charter holdings notes received exchange thereafter distributed charter holdings cancelled exchange resulted gain extinguishment debt approximately 108 million year ended december 31 2006 included gain loss extinguishment debt charter holdings’ consolidated statements operations charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated april 2007 charter holdings completed tender offer 97 million charter holdings’ notes accepted exchange 100 million total consideration including premiums accrued interest addition charter holdings redeemed 187 million 8625 senior notes due april 1 2009 cco holdings redeemed 550 million senior floating rate notes due december 15 2010 redemptions closed april 2007 charter holdings’ redemption tender resulted loss extinguishment debt approximately 3 million year ended december 31 2007 included gain loss extinguishment debt charter holdings’ consolidated statements operations cco holdings’ redemption resulted loss extinguishment debt approximately 19 million year ended december 31 2007 included gain loss extinguishment debt companies’ consolidated statements operations april 1 2007 105 million charter holdings 825 notes matured paid proceeds cco holdings credit facility highyield restrictive covenants limitation indebtedness indentures governing charter holdings cih cch ii cco holdings charter operating notes contain certain covenants restrict ability charter holdings charter capital cih capital corp cch capital corp cch ii cch ii capital corp cco holdings cco holdings capital corp charter operating charter communications operating capital corp restricted subsidiaries · incur additional debt · pay dividends equity repurchase equity · make investments · sell substantially assets merge companies · sell assets · enter saleleasebacks · case restricted subsidiaries create permit exist dividend payment restrictions respect bond issuers guarantee parent companies debt issue specified equity interests · engage certain transactions affiliates · grant liens charter operating credit facilities march 2007 charter operating entered charter operating credit facilities provide 15 billion senior secured revolving line credit continuation existing 50 billion term loan facility “existing term loan” 15 billion new term loan facility “new term loan” funded march april 2007 refinancing resulted loss extinguishment debt year ended december 31 2007 approximately 13 million included gain loss extinguishment debt companies’ consolidated statements operations borrowings charter operating credit facilities bear interest variable interest rate based either libor base rate plus either case applicable margin applicable margin libor loans new term loan revolving loans 200 libor revolving line credit commitments terminate march 2013 existing term loan new term loan subject amortization 1 initial principal amount per annum commencing march 31 2008 remaining principal amount new term loan due march 2014 charter operating credit facilities also modified quarterly consolidated leverage ratio less restrictive charter operating credit facilities provide borrowing availability 80 billion follows · term loan total principal amount 65 billion repayable equal quarterly installments commencing march 31 2008 aggregating loan year 1 original amount term loan remaining balance due final maturity march 6 2014 charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated · revolving line credit 15 billion maturity date march 6 2013 charter operating credit facilities also allow companies enter incremental term loans future aggregate amount 10 billion amortization set forth notices establishing term loans amortization greater 1 prior final maturity existing term loan however assurance given incremental term loans could obtained charter operating sought amounts outstanding charter operating credit facilities bear interest charter operating’s election base rate eurodollar rate 487 524 december 31 2007 536 538 december 31 2006 defined plus margin eurodollar loans 200 revolving credit facility 200 term loan quarterly commitment fee 05 per annum payable average daily unborrowed balance revolving credit facility obligations charter operating charter operating credit facilities “obligations” guaranteed charter operating’s immediate parent company cco holdings subsidiaries charter operating except certain subsidiaries including immaterial subsidiaries precluded guaranteeing reason provisions indebtedness subject “nonguarantor subsidiaries” obligations also secured lien substantially assets charter operating subsidiaries assets nonguarantor subsidiaries ii pledge cco holdings equity interests owned charter operating charter operating’s subsidiaries well intercompany obligations owing entities december 31 2007 outstanding borrowings charter operating credit facilities approximately 68 billion unused total potential availability approximately 10 billion none limited covenant restrictions charter operating refinancing april 2006 resulted loss extinguishment debt year ended december 31 2006 approximately 24 million included loss extinguishment debt companies’ consolidated statements operations cco holdings credit facility march 2007 cco holdings entered credit agreement among cco holdings several lenders time parties thereto bank america na administrative agent certain agents “cco holdings credit facility” cco holdings credit facility consists 350 million term loan fully drawn term loan matures september 6 2014 cco holdings credit facility also allows companies enter incremental term loans future maturing dates set forth notices establishing loans earlier maturity date existing term loans however assurance given incremental term loans could obtained cco holdings sought borrowings cco holdings credit facility bear interest variable interest rate based either libor base rate plus either case applicable margin applicable margin libor term loans incremental loans 250 libor applicable margin respect incremental loans agreed upon cco holdings lenders incremental loans established cco holdings credit facility secured equity interests charter operating proceeds thereof credit facilities restrictive covenants charter operating credit facilities charter operating credit facilities contain representations warranties affirmative negative covenants customary financings type financial covenants measure performance standards set leverage tested end quarter additionally charter operating credit facilities contain charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated provisions requiring mandatory loan prepayments specific circumstances including connection certain sales assets long proceeds reinvested business charter operating credit facilities permit charter operating subsidiaries make distributions pay interest charter convertible notes charter holdings notes cih notes cch notes cch ii notes cco holdings notes cco holdings credit facility charter operating senior secondlien notes provided among things default occurred continuing charter operating credit facilities conditions future borrowings include absence default event default charter operating credit facilities continued accuracy material respects representations warranties including absence since december 31 2005 event development circumstance could reasonably expected material adverse effect companies’ business events default charter operating credit facilities include among things · failure make payments due within applicable grace period · failure comply specified covenants including limited covenant deliver audited financial statements unqualified opinion companies’ independent accountants · failure pay occurrence events cause permit acceleration indebtedness owing cco holdings charter operating charter operating’s subsidiaries amounts excess 100 million aggregate principal amount · failure pay occurrence events result acceleration indebtedness owing certain cco holdings’ direct indirect parent companies amounts excess 200 million aggregate principal amount · paul allen andor certain family members andor exclusively owned entities collectively “paul allen group” ceasing power directly indirectly vote least 35 ordinary voting power charter operating · consummation transaction resulting person group paul allen group power directly indirectly vote 35 ordinary voting power charter operating unless paul allen group holds greater share ordinary voting power charter operating · charter operating ceasing whollyowned direct subsidiary cco holdings except certain limited circumstances cco holdings credit facility cco holdings credit facility contains covenants substantially similar restrictive covenants cco holdings notes cco holdings credit facility contains provisions requiring mandatory loan prepayments specific circumstances including connection certain sales assets long proceeds reinvested business cco holdings credit facility permits cco holdings subsidiaries make distributions pay interest cci convertible senior notes charter holdings notes cih notes cch notes cch ii notes cco holdings notes charter operating secondlien notes provided among things default occurred continuing cco holdings credit facility charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated based upon outstanding indebtedness december 31 2007 amortization term loans scheduled reductions available borrowings revolving credit facilities maturity dates senior subordinated notes debentures total future principal payments total borrowings debt agreements december 31 2007 follows amounts debt scheduled mature 2008 management’s intent fund repayments borrowings charter operating revolving credit facility accompanying consolidated balance sheets reflect intent presenting debt balances longterm tables reflect actual debt maturities stated date charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated 10 loans payablerelated party charter holdings august 1 2007 charter holdings distributed charter holdco intercompany note issued charter operating outstanding balance including accrued interest 119 million result loans payablerelated party increased 123 million december 31 2007 3 million december 31 2006 cch ii loans payablerelated party december 31 2007 consists intercompany note issued charter operating held charter holdco 123 million loans payablerelated party december 31 2006 consists loans charter holdco charter holdings charter operating 3 million 105 million respectively cco holdings loans payablerelated party december 31 2007 consists intercompany notes issued charter operating held charter holdco cch ii 123 million 209 million respectively loans payablerelated party december 31 2006 consists loans charter holdco charter holdings cch ii charter operating 3 million 105 million 195 million respectively loans subject certain limitations may repaid borrowings charter operating revolving credit facility 11 minority interest minority interest companies’ consolidated balance sheets 199 million 192 million charter holdings 663 million 641 million cch ii cco holdings december 31 2007 2006 respectively represents preferred membership interests cc viii indirect subsidiary companies charter investment inc “cii” owns 30 cc viii preferred membership interests cch indirect subsidiary charter holdings direct parent cch ii directly owns remaining 70 preferred interests common membership interests cc viii indirectly owned charter operating result minority interest charter holdings represents 30 preferred membership interests whereas minority interest cch ii cco holdings represents 70 preferred membership interests minority interest accompanying consolidated statements operations includes 2 accretion preferred membership interests plus approximately 56 cc viii’s income net accretion charter holdings 186 cc viii’s income net accretion cch ii cco holdings 12 comprehensive loss companies report changes fair value interest rate agreements designated hedging variability cash flows associated floatingrate debt obligations meet effectiveness criteria sfas 133 accounting derivative instruments hedging activities accumulated comprehensive income loss charter holdings comprehensive losses years ended december 31 2007 2006 2005 15 billion 11 billion 821 million respectively cch ii comprehensive losses years ended december 31 2007 2006 2005 712 million 403 million 408 million respectively cco holdings comprehensive losses years ended december 31 2007 2006 2005 474 million 194 million 241 million respectively 13 accounting derivative instruments hedging activities companies use interest rate derivative instruments including limited interest rate swap agreements interest rate collar agreements collectively referred herein interest rate agreements manage interest charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated costs reduce companies’ exposure increases floating interest rates companies’ policy manage exposure fluctuations interest rates maintaining mix fixed variable rate debt within targeted range using interest rate swap agreements companies agree exchange specified intervals 2013 difference fixed variable interest amounts calculated reference agreedupon notional principal amounts companies’ hedging policy permit hold issue derivative instruments speculative trading purposes companies however certain interest rate derivative instruments designated cash flow hedging instruments effectively convert variable interest payments certain debt instruments fixed payments qualifying hedges sfas 133 allows derivative gains losses offset related results hedged items consolidated statement operations companies formally documented designated assessed effectiveness transactions receive hedge accounting years ended december 31 2007 2006 2005 income expense net includes gains 0 2 million 3 million respectively represent cash flow hedge ineffectiveness interest rate hedge agreements ineffectiveness arises differences critical terms agreements related hedged obligations changes fair value interest rate agreements designated hedging instruments variability cash flows associated floatingrate debt obligations meet effectiveness criteria specified sfas 133 reported accumulated comprehensive income loss years ended december 31 2007 2006 2005 losses 123 million 1 million gain 16 million respectively related derivative instruments designated cash flow hedges recorded accumulated comprehensive income loss amounts subsequently reclassified increase decrease interest expense periods related interest floatingrate debt obligations affects earnings losses certain interest rate derivative instruments designated hedges meet effectiveness criteria specified sfas 133 however management believes instruments closely correlated respective debt thus managing associated risk interest rate derivative instruments designated hedges marked fair value impact recorded income expense net consolidated statements operations years ended december 31 2007 2006 2005 income expense net includes losses 46 million gains 4 million 47 million respectively resulting interest rate derivative instruments designated hedges december 31 2007 2006 2005 companies outstanding 43 billion 17 billion 18 billion 0 20 million respectively notional amounts interest rate swaps collars respectively notional amounts interest rate instruments represent amounts exchanged parties thus measure exposure credit loss amounts exchanged determined reference notional amount terms contracts 14 fair value financial instruments companies estimated fair value financial instruments december 31 2007 2006 using available market information appropriate valuation methodologies considerable judgment however required interpreting market data develop estimates fair value accordingly estimates presented accompanying consolidated financial statements necessarily indicative amounts companies would realize current market exchange carrying amounts cash receivables payables current assets liabilities approximate fair value short maturity instruments companies exposed market price risk volatility respect investments publicly traded privately held entities fair value interest rate agreements represents estimated amount companies would receive pay upon termination agreements management believes sellers interest rate agreements able meet obligations agreements addition interest rate agreements certain charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated participating banks companies’ credit facilities thereby reducing exposure credit loss companies policies regarding financial stability credit standing major counterparties nonperformance counterparties anticipated would material adverse effect companies’ consolidated financial condition results operations estimated fair value companies’ notes interest rate agreements december 31 2007 2006 based quoted market prices fair value credit facilities based dealer quotations summary carrying value fair value companies’ debt related interest rate agreements december 31 2007 2006 follows weighted average interest pay rate companies’ interest rate swap agreements 493 487 december 31 2007 2006 respectively 15 operating income expenses net operating income expenses net consist following years presented gain loss sale assets net gain loss sale assets represents gain loss recognized sale fixed assets cable systems hurricane asset retirement loss year ended december 31 2005 hurricane asset retirement loss represents write 19 million companies’ plants’ net book value result significant plant damage suffered certain companies’ cable systems louisiana result hurricanes katrina rita charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated special charges net special charges net year ended december 31 2007 primarily represents favorable legal settlements approximately 20 million offset severance associated closing call centers divisional restructuring special charges net year ended december 31 2006 primarily represent severance associated closing call centers divisional restructuring special charges net year ended december 31 2005 primarily represent severance costs result reducing workforce consolidating administrative offices executive severance year ended december 31 2005 special charges net offset approximately 2 million related agreed upon discount respect portion settlement consideration payable settlement terms class action lawsuits 16 gain loss extinguishment debt see note 9 discussion 2007 2006 debt transactions march june 2005 charter operating consummated exchange transactions small number institutional holders charter holdings 825 senior notes due 2007 pursuant charter operating issued approximately 333 million principal amount new notes terms identical charter operatings 8375 senior second lien notes due 2014 exchange approximately 346 million charter holdings 825 senior notes due 2007 charter holdings notes received exchange thereafter distributed charter holdings cancelled exchanges resulted gain extinguishment debt approximately 10 million recorded charter holdings’ consolidated statements operations march 2005 cc v holdings llc’s “cc v” outstanding 11875 senior discount notes due 2008 redeemed total cost 122 million resulting loss extinguishment debt approximately 5 million september 2005 charter holdings wholly owned subsidiaries cch cih completed exchange approximately 68 billion total principal amount outstanding debt securities charter holdings private placement cch cih new debt securities charter holdings notes received exchange thereafter distributed charter holdings cancelled exchanges resulted gain extinguishment debt approximately 490 million recorded charter holdings’ consolidated statements operations charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated 17 income expense net income expense net consists following years presented 18 stock compensation plans charter stock compensation plans “plans” provide grant nonqualified stock options stock appreciation rights dividend equivalent rights performance units performance shares share awards phantom stock andor shares restricted stock exceed 200 million shares charter class common stock term defined plans employees officers consultants directors charter subsidiaries affiliates eligible receive grants plans options granted generally vest four years grant date 25 generally vesting anniversary grant date ratably thereafter generally options expire 10 years grant date 2001 stock incentive plan allows issuance total 900 million shares charter class common stock units convertible charter class common stock years ended december 31 2007 2006 2005 certain directors awarded total 02 million 06 million 05 million shares respectively restricted charter class common stock shares cancelled december 31 2007 shares vest one year date grant 2007 2006 2005 connection new employment agreements certain officers awarded 23 million 01 million 30 million shares respectively restricted charter class common stock shares cancelled december 31 2007 shares vest annually one threeyear period beginning date grant december 31 2007 deferred compensation remaining recognized future periods totaled 8 million charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated summary activity charter’s stock options excluding granted shares restricted charter class common stock years ended december 31 2007 2006 2005 follows amounts thousands except per share data following table summarizes information stock options outstanding exercisable december 31 2007 amounts thousands except per share data january 2004 compensation benefits committee board directors charter approved charters longterm incentive program “ltip” program administered 2001 stock incentive plan ltip employees charter subsidiaries whose pay classifications exceed certain level eligible receive stock options senior level employees eligible receive stock options performance units stock options vest 25 first four anniversaries date grant performance units become performance shares first anniversary grant date conditional upon charters performance financial performance measures established charter’s management approved board directors time award performance shares become shares class common stock third anniversary grant date performance units charter granted 158 million 122 million performance units years ended december 31 2007 2006 respectively program charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated recognized expense 10 million 4 million respectively 2005 charter granted 32 million performance units program recognize expense based companies’ assessment probability achieving financial performance measures established charter required met performance units vest february 2006 compensation benefits committee charter’s board directors approved modification financial performance measures charters ltip required met 2005 performance units become performance shares vest march 2008 expense recognized remaining two year service period 19 income taxes charter holdings cch ii cco holdings single member limited liability companies subject income tax hold operations indirect subsidiaries majority indirect subsidiaries limited liability companies also subject income tax however certain limited liability companies subject state income tax addition certain companies’ indirect subsidiaries corporations subject income tax years ended december 31 2007 2006 2005 companies recorded income tax expense related increases deferred tax liabilities current federal state income taxes primarily related differences accounting franchises indirect corporate subsidiaries limited liability companies subject income tax current deferred income tax benefit expense follows income tax year ended december 31 2007 includes 18 million deferred income tax expense previously recorded companies’ indirect parent company adjustment recorded companies prior periods charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated companies’ effective tax rate differs derived applying applicable federal income tax rate 35 average state income tax rate 29 year ended december 31 2007 5 years ended december 31 2006 2005 follows charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated tax effects temporary differences give rise significant portions deferred tax assets deferred tax liabilities december 31 2007 2006 included longterm liabilities presented year ended december 31 2007 companies recorded additional 32 million deferred tax liabilities previously recorded companies’ indirect parent company 14 million recorded member’s equity december 31 2007 companies deferred tax assets 119 million primarily relate net operating loss carryforwards certain indirect corporate subsidiaries limited liability companies subject state income tax net operating loss carryforwards generally expiring years 2008 2027 subject certain return limitations valuation allowance 70 million exists respect carryforwards december 31 2007 assessing realizability deferred tax assets management considers whether likely portion deferred tax assets realized uncertainties projecting future taxable income charter holdco valuation allowances established except deferred benefits available offset certain deferred tax liabilities reverse time charter holdco indirect parent companies currently examination internal revenue service tax years ending december 31 2004 2005 management expect results examinations material adverse effect companies’ consolidated financial condition results operations january 2007 companies adopted fin 48 accounting uncertainty income taxesan interpretation fasb statement 109 provides criteria recognition measurement presentation disclosure uncertain tax positions tax benefit uncertain position may recognized “more likely not” position sustainable based technical merits companies taken significant positions believe would meet “more likely not” criteria require disclosure charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated 20 related party transactions following sets forth certain transactions companies directors executive officers affiliates companies involved unless otherwise disclosed management believes transactions described terms less favorable companies could obtained independent third parties charter party management arrangements charter holdco certain subsidiaries agreements charter holdco provide management services cable systems owned operated subsidiaries management services include services centralized customer billing services data processing related support benefits administration coordination insurance coverage selfinsurance programs medical dental workers’ compensation claims costs associated providing services charged directly companies’ operating subsidiaries included within operating costs accompanying consolidated statements operations costs totaled 213 million 231 million 205 million years ended december 31 2007 2006 2005 respectively costs incurred behalf charter’s operating subsidiaries considered part management fee recorded component selling general administrative expense accompanying consolidated financial statements years ended december 31 2007 2006 2005 management fee charged companies’ operating subsidiaries approximated expenses incurred charter holdco charter behalf companies’ operating subsidiaries companies’ credit facilities prohibit payments management fees excess 35 revenues repayment outstanding indebtedness event portion management fee due payable paid deferred charter accrued liability subsidiaries deferred amount management fee bear interest rate 10 per year compounded annually date due payable date paid mr allen controlling shareholder charter number affiliates interests various entities provide services programming charter’s subsidiaries given diverse nature mr allen’s investment activities interests avoid possibility future disputes potential business charter holdco terms respective organizational documents may allow subsidiaries engage business transaction outside cable transmission business except certain existing approved investments charter holdco subsidiaries may pursue allow subsidiaries pursue business transaction outside scope unless mr allen consents charter subsidiaries engaging business transaction cable transmission business means business transmitting video audio including telephone data cable systems owned operated managed charter holdco subsidiaries time mr allen affiliates owned equity interests warrants purchase equity interests various entities companies business provide products services programming among entities oxygen media corporation “oxygen media” digeo inc “digeo” click2learn inc trail blazer inc action sports cable network “action sports” microsoft corporation mr allen owns 100 equity vulcan ventures incorporated “vulcan ventures” vulcan inc president vulcan ventures ms jo allen patton director charter president chief executive officer vulcan inc director vice president vulcan ventures mr lance conn director charter executive vice president vulcan inc vulcan ventures various cable media internet telephone companies mr allen invested may mutually benefit one another companies give assurance expect business relationships successful companies realize benefits relationships companies enter business relationships future mr allen’s affiliated companies mr allen affiliates made future likely make numerous investments outside companies business companies cannot provide assurance event companies subsidiaries enter transactions future affiliate mr allen transactions terms favorable companies terms might obtained unrelated third party also charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated conflicts could arise respect allocation corporate opportunities companies mr allen affiliates companies instituted formal plan arrangement address potential conflicts interest companies received receive programming broadcast via cable systems oxygen media trail blazers inc companies pay fee programming service generally based number customers receiving service fees years ended december 31 2007 2006 2005 less 1 total operating expenses oxygen media llc oxygen provides programming content companies pursuant carriage agreement carriage agreement companies paid oxygen approximately 8 million 8 million 9 million years ended december 31 2007 2006 2005 respectively 2005 pursuant amended equity issuance agreement oxygen media delivered 1 million shares oxygen preferred stock liquidation preference 3310 per share plus accrued dividends charter holdco november 2007 oxygen sold unrelated third party charter holdco received approximately 35 million representing liquidation preference preferred stock mr allen affiliates also longer interest oxygen companies recognized guaranteed value investment life initial carriage agreement expired february 1 2005 reduction programming expense year ended december 31 2005 companies recorded approximately 2 million reduction programming expense digeo inc march 2001 charter ventures vulcan ventures incorporated formed dbroadband holdings llc sole purpose purchasing equity interests digeo connection execution broadband carriage agreement dbroadband holdings llc purchased equity interest digeo funded contributions vulcan ventures incorporated time equity interest subject priority return capital vulcan ventures amount contributed vulcan ventures charter ventures’ behalf vulcan ventures recovered amount contributed “priority return” charter ventures 100 profit interest dbroadband holdings llc charter ventures required make capital contributions including capital calls dbroadband holdings llc dbroadband holdings llc therefore included companies’ consolidated financial statements pursuant amended version arrangement 2003 vulcan ventures contributed total 29 million digeo 7 million contributed charter ventures’ behalf subject vulcan ventures’ aforementioned priority return since formation dbroadband holdings llc vulcan ventures contributed approximately 56 million charter ventures’ behalf october 3 2006 vulcan ventures digeo recapitalized digeo connection recapitalization dbroadband holdings llc consented conversion preferred stock holdings digeo common stock vulcan ventures surrendered priority return charter ventures result dbroadband holdings llc included companies’ consolidated financial statements amounts immaterial recapitalization dbroadband holdings llc owns 18 digeo inc’s common stock digeo inc therefore included companies’ consolidated financial statements december 2007 digeo inc common stock transferred charter operating dbroadband holdings llc dissolved companies paid digeo interactive approximately 0 2 million 3 million years ended december 31 2007 2006 2005 respectively customized development ichannels local content tool kit june 30 2003 charter holdco entered agreement motorola inc purchase 100000 digital video recorder “dvr” units software dvr units supplied digeo interactive llc license agreement entered april 2004 pursuant software license agreement digeo interactive right use digeos proprietary software dvr units companies paid approximately 2 million 3 million 1 million license maintenance fees 2007 2006 2005 respectively charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated companies paid approximately 10 million 11 million 10 million years ended december 31 2007 2006 2005 respectively capital purchases agreement digeo interactive development testing purchase 70000 digeo powerkey dvr units total purchase price license maintenance fees term definitive agreements expected approximately 41 million definitive agreements terminable penalty charter certain circumstances cc viii part acquisition cable systems owned bresnan communications company limited partnership february 2000 cc viii companies’ indirect limited liability company subsidiary issued adjustments cc viii interest initial value initial capital account approximately 630 million certain sellers affiliated att broadband subsequently owned comcast corporation comcast sellers mr allen granted comcast sellers right sell cc viii interest approximately 630 million plus 45 interest annually february 2000 comcast put right april 2002 comcast sellers exercised comcast put right full transaction consummated june 6 2003 accordingly mr allen became holder cc viii interest indirectly affiliate time 2005 interest held cc viii subject dispute mr allen companies ultimate ownership cc viii interest 2005 mr allen special committee independent directors charter holdco certain affiliates agreed settle dispute related cc viii interest pursuant settlement cii retained 30 cc viii interest remaining interests remaining interests subject certain transfer restrictions including requirements remaining interests participate sale holders allow holders participate sale remaining interests detailed revised cc viii limited liability company agreement cii transferred 70 cc viii interest directly indirectly charter holdco cchc 70 cc viii interest 74 transferred cii cchc note remaining 626 transferred cii charter holdco accordance terms settlement additional monetary consideration charter holdco contributed 626 interest cchc part settlement cc viii issued approximately 49 million additional class b units cc v consideration prior capital contributions cc viii cc v respect transactions unrelated dispute connection cii’s membership units cc viii result mr allen’s pro rata share profits losses cc viii attributable remaining interests approximately 56 part debt exchange september 2006 described note 9 cchc contributed cc viii interest class preferred equity interests cc viii cch cc viii interest pledged security cch notes cc viii preferred interests entitled 2 accreting priority return priority capital certain related parties including members board directors hold interests charter holdings’ subsidiaries’ senior notes discount notes approximately 203 million face value december 31 2007 charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated 21 commitments contingencies commitments following table summarizes companies’ payment obligations december 31 2007 contractual obligations 1 companies lease certain facilities equipment noncancelable operating leases rental costs charged expense years ended december 31 2007 2006 2005 23 million 23 million 22 million respectively 2 companies pay programming fees multiyear contracts ranging three ten years typically based flat fee per customer may fixed term may cases escalate term programming costs included accompanying statement operations 16 billion 15 billion 14 billion years ended december 31 2007 2006 2005 respectively certain companies’ programming agreements based flat fee per month guaranteed minimum payments table sets forth aggregate guaranteed minimum commitments companies’ programming contracts 3 “other” represents guaranteed minimum commitments consist primarily commitments companies’ billing services vendors following items included contractual obligation table due various factors discussed however companies incur costs part operations · companies also rent utility poles used operations generally pole rentals cancelable short notice companies anticipate rentals recur rent expense incurred pole rental attachments years ended december 31 2007 2006 2005 47 million 44 million 44 million respectively · companies pay franchise fees multiyear franchise agreements based percentage revenues generated video service per year companies also pay franchise related costs public education grants multiyear agreements franchise fees franchiserelated costs included accompanying statements operations 172 million 175 million 165 million years ended december 31 2007 2006 2005 respectively · companies also 136 million letters credit primarily various worker’s compensation property casualty general liability carriers collateral reimbursement claims letters credit reduce amount companies may borrow charter operating credit facilities charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated litigation companies parent companies defendants codefendants several unrelated lawsuits claiming infringement various patents relating various aspects businesses industry participants also defendants certain cases many cases companies expect potential liability would responsibility equipment vendors pursuant applicable contractual indemnification provisions event court ultimately determines companies infringe intellectual property rights may subject substantial damages andor injunction could require companies vendors modify certain products services companies offer subscribers companies believe lawsuits without merit intend defend actions vigorously lawsuits could material companies’ consolidated results operations one period assurance given adverse outcome would material companies’ consolidated financial condition results operations liquidity companies parent companies party lawsuits claims arise ordinary course conducting business ultimate outcome legal matters pending companies subsidiaries cannot predicted although lawsuits claims expected individually material adverse effect companies’ consolidated financial condition results operations liquidity lawsuits could aggregate material adverse effect companies’ consolidated financial condition results operations liquidity regulation cable industry operation cable system extensively regulated federal communications commission “fcc” state governments local governments fcc authority enforce regulations imposition substantial fines issuance cease desist orders andor imposition administrative sanctions revocation fcc licenses needed operate certain transmission facilities used connection cable operations 1996 telecom act altered regulatory structure governing nation’s communications providers removed barriers competition cable television market telephone market among things reduced scope cable rate regulation encouraged additional competition video programming industry allowing telephone companies provide video programming telephone service areas future legislative regulatory changes could adversely affect companies’ operations including without limitation additional regulatory requirements companies may required comply offer new services telephone 22 employee benefit plan companies’ employees may participate charter communications inc 401k plan employees qualify participation contribute 50 salary pretax basis subject maximum contribution limit determined internal revenue service companies match 50 first 5 participant contributions companies made contributions 401k plan totaling 7 million 8 million 6 million years ended december 31 2007 2006 2005 respectively 23 recently issued accounting standards september 2006 fasb issued sfas 157 fair value measurements establishes framework measuring fair value expands disclosures fair value measurements sfas 157 effective fiscal years beginning november 15 2007 interim periods within fiscal years companies adopt sfas 157 effective january 1 2008 february 2008 fasb issued fasb staff position fsp 1572 effective date fasb statement 157 deferred effective date sfas 157 fiscal years beginning november 15 2008 nonfinancial assets nonfinancial liabilities companies expect adoption sfas 157 material impact financial statements charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated february 2007 fasb issued sfas 159 fair value option financial assets financial liabilities including amendment fasb statement 115 allows measurement fair value eligible financial assets liabilities otherwise measured fair value fair value option eligible item elected unrealized gains losses item shall reported current earnings subsequent reporting date sfas 159 also establishes presentation disclosure requirements designed draw comparison different measurement attributes company elects similar types assets liabilities sfas 159 effective fiscal years beginning november 15 2007 companies expect adoption sfas 159 material impact financial statements december 2007 fasb issued sfas 141r business combinations applying acquisition method sfas 160 consolidations provide guidance accounting reporting business combinations minority interests consolidated financial statements sfas 141r sfas 160 effective fiscal years beginning december 15 2008 early adoption prohibited companies currently assessing impact sfas 141r sfas 160 financial statements companies believe recently issued yet effective accounting pronouncements adopted would material effect companies’ accompanying financial statements 24 parent company financial statements result limitations prohibitions distributions substantially net assets consolidated subsidiaries restricted distribution parent company following condensed parentonly financial statements charter holdings cch ii cco holdings account investment subsidiaries equity method accounting financial statements read conjunction consolidated financial statements companies notes thereto charter communications holdings llc parent company condensed balance sheets charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated charter communications holdings llc parent company condensed statements operations charter communications holdings llc parent company condensed statements cash flows charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated cch ii llc parent company condensed balance sheets cch ii llc parent company condensed statements operations charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated cch ii llc parent company condensed statements cash flows charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated cco holdings llc parent company condensed balance sheets cco holdings llc parent company condensed statements operations charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated cco holdings llc parent company condensed statements cash flows 25 consolidating schedules cch ii notes cch notes issued part september 2006 exchange offer cih notes cch notes issued part september 2005 exchange offer obligations cih cch ii however also jointly severally fully unconditionally guaranteed unsecured senior basis charter holdings accompanying condensed consolidating financial information prepared presented pursuant sec regulation sx rule 310 financial statements guarantors affiliates whose securities collateralize issue registered information intended present financial position results operations cash flows individual companies groups companies accordance generally accepted accounting principles part september 2006 exchange charter holdings notes cch notes cchc contributed 70 interest class preferred equity interests cc viii cch contribution cc viii interest charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated accounted transaction among entities common control accordingly financial statements charter holdings reflect contribution occurred date settlement paul allen condensed consolidating financial statements december 31 2007 2006 years ended december 31 2007 2006 2005 follow charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated 26 subsequent events march 2008 charter operating issued 546 million principal amount 10875 senior secondlien notes due 2014 notes guaranteed cco holdings certain subsidiaries charter operating private transaction borrowed 500 million principal amount incremental term loans incremental term loans charter operating credit facilities incremental term loans final maturity march 6 2014 prior date amortize quarterly principal installments totaling 1 annually beginning june 30 2008 incremental term loans bear interest libor plus 50 libor floor 35 otherwise governed subject existing terms charter operating credit facilities net proceeds two transactions used reduce borrowings commitments revolving portion charter operating credit facilities general corporate purposes charter communications holdings llc subsidiaries cch ii llc subsidiaries cco holdings llc subsidiaries combined notes consolidated financial statements december 31 2007 2006 2005 dollars millions except indicated receipt march 2008 net proceeds charter operating 10875 2nd lien notes due 2014 incremental term loans companies expect cash hand cash flows operating activities amounts available charter operating’s credit facilities adequate fund parent companies’ projected cash needs including scheduled maturities 2009 companies believe cash flows operating activities amounts available credit facilities sufficient fund parent companies’ projected cash needs 2010 primarily result cch ii 22 billion senior notes maturing september 2010 thereafter companies’ projected cash needs projected sources liquidity depend upon among things actual results timing amount capital expenditures ongoing compliance charter operating credit facilities including obtaining unqualified audit opinion independent accountants although companies parent companies able refinance otherwise fund repayment debt past companies parent companies may able access additional sources refinancing similar terms pricing currently place otherwise obtain sources funding continuation recent turmoil credit markets general economic downturn could adversely impact terms andor pricing companies need raise additional liquidity assurances given companies experience liquidity problems obtain sufficient additional financing timely basis companies’ debt becomes due adverse market conditions increased competition unfavorable events item 15 exhibits financial statement schedules following documents filed part annual report 1 financial statements listing financial statements notes reports independent public accountants required part ii item 8 financial statements supplementary data begins page annual report 2 financial statement schedules financial statement schedules required filed items 8 15c required applicable required information set forth applicable financial statements notes thereto 3 index exhibits begins page e1 annual report signatures pursuant requirements section 13 15d securities exchange act 1934 cco holdings llc cco holdings capital corp duly caused annual report signed behalf undersigned thereunto duly authorized cco holdings llc registrant kevin howard kevin howard senior vice president finance controller date february 8 2019 chief accounting officer cco holdings capital corp registrant kevin howard kevin howard senior vice president finance controller date february 8 2019 chief accounting officer pursuant requirements securities exchange act 1934 report signed following persons behalf cco holdings llc cco holdings capital corp capacities dates indicated signature title date thomas rutledge thomas rutledge chairman chief executive officer director principal executive officer february 8 2019 christopher l winfrey christopher l winfrey chief financial officer principal financial officer february 8 2019 kevin howard kevin howard senior vice president finance controller chief accounting officer principal accounting officer february 8 2019 charter communications inc sole capacity manager cco holdings llc kevin howard kevin howard senior vice president finance controller date february 8 2019 chief accounting officer 1 exhibit index exhibits listed numbers corresponding exhibit table item 601 regulation sk e 1 e 2 e 3 e 4 e 5 e 6 e 7 e 8 e 9 filed herewith management compensatory plan arrangement e 10 f 1 report independent registered public accounting firm manager member cco holdings llc cco holdings capital corp opinion consolidated financial statements audited accompanying consolidated balance sheets cco holdings llc cco holdings capital corp subsidiaries company december 31 2018 2017 related consolidated statements operations comprehensive income member’s equity cash flows years threeyear period ended december 31 2018 related notes collectively consolidated financial statements opinion consolidated financial statements present fairly material respects financial position company december 31 2018 2017 results operations cash flows years threeyear period ended december 31 2018 conformity us generally accepted accounting principles basis opinion consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud company required engaged perform audit internal control financial reporting part audits required obtain understanding internal control financial reporting purpose expressing opinion effectiveness company’s internal control financial reporting accordingly express opinion audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion signed kpmg llp served company’s auditor since 2003 st louis missouri february 8 2019 f 2 cco holdings llc subsidiaries consolidated balance sheets dollars millions accompanying notes integral part consolidated financial statements f 3 cco holdings llc subsidiaries consolidated statements operations dollars millions accompanying notes integral part consolidated financial statements f 4 cco holdings llc subsidiaries consolidated statements comprehensive income dollars millions accompanying notes integral part consolidated financial statements f 5 cco holdings llc subsidiaries consolidated statements changes member’s equity dollars millions accompanying notes integral part consolidated financial statements f 6 cco holdings llc subsidiaries consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements f 7 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated 1 organization basis presentation organization cco holdings llc together subsidiaries “cco holdings” “company” second largest cable operator united states leading broadband communications company providing video internet voice services residential small medium business customers company also recently launched mobile service residential customers addition company sells video online advertising inventory local regional national advertising customers fiberdelivered communications managed information technology solutions larger enterprise customers company also owns operates regional sports networks local sports news lifestyle channels cco holdings holding company whose principal assets equity interests operating subsidiaries cco holdings direct subsidiary cch holdings llc indirect subsidiary charter communications inc “charter” charter communications holdings llc “charter holdings” spectrum management holding company llc “spectrum management” consolidated financial statements include accounts cco holdings subsidiaries underlying operations reside significant intercompany accounts transactions among consolidated entities eliminated charter holdings spectrum management performed financing cash management treasury services cco holdings centralized basis changes member’s equity consolidated balance sheets related activities considered cash receipts contributions payments distributions purposes consolidated statements cash flows reflected financing activities transactions may 18 2016 transactions contemplated agreement plan mergers dated may 23 2015 “merger agreement” among time warner cable inc “legacy twc” charter communications inc prior closing merger agreement “legacy charter” cch llc previously wholly owned subsidiary legacy charter certain subsidiaries cch llc completed “twc transaction” together bright house transaction described “transactions” result twc transaction cch llc became new public parent company holds operations combined companies renamed charter communications inc also may 18 2016 legacy charter advancenewhouse partnership “an” former parent bright house networks llc “legacy bright house” completed previously announced transaction pursuant definitive contribution agreement “contribution agreement” charter acquired legacy bright house “bright house transaction” pursuant bright house transaction charter became owner membership interests legacy bright house assets primarily related legacy bright house certain excluded assets liabilities nonoperating cash partially finance transactions liberty broadband corporation liberty broadband purchased shares charter class common stock “liberty transaction” f 8 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated following unaudited pro forma financial information company based historical consolidated financial statements legacy charter legacy twc legacy bright house intended provide information transactions related financing may affected company’s historical consolidated financial statements closed january 1 2015 pro forma financial information based available information assumptions company believes reasonable pro forma financial information illustrative informational purposes intended represent indicative company’s financial condition results operations would transactions described occurred date indicated pro forma financial information also considered representative company’s future financial condition results operations basis presentation accompanying consolidated financial statements prepared accordance us generally accepted accounting principles “gaap” rules regulations securities exchange commission “sec” preparation financial statements conformity gaap requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period areas involving significant judgments estimates include capitalization labor overhead costs depreciation amortization costs impairments property plant equipment intangibles goodwill pension benefits income taxes contingencies programming expense actual results could differ estimates certain prior period amounts reclassified conform 2018 presentation 2 summary significant accounting policies consolidation accompanying consolidated financial statements include accounts cco holdings entities cco holdings controlling interest noncontrolling interest company’s balance sheet represents thirdparty interest cv viera llp companys consolidated joint venture small cable system florida significant intercompany accounts transactions among consolidated entities eliminated consolidation cash equivalents company considers highly liquid investments original maturities three months less cash equivalents investments carried cost approximates market value property plant equipment additions property plant equipment recorded cost including material labor certain indirect costs associated construction cable transmission distribution facilities company’s capitalization based specific activities capitalized costs tracked composite basis fixed asset category cable system level specific asset basis assets sold retired estimated historical cost related accumulated depreciation removed costs associated initial placement customer drop dwelling initial placement outlets within dwelling along costs associated initial deployment customer premise equipment necessary provide video internet voice services capitalized costs capitalized include materials direct labor certain indirect costs indirect costs associated activities company’s personnel assist installation activities consist compensation costs associated support functions indirect costs primarily include employee benefits payroll taxes vehicle f 9 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated occupancy costs sales dispatch personnel associated capitalizable activities costs disconnecting service removing customer premise equipment dwelling costs reconnect customer drop redeploy previously installed customer premise equipment charged operating expense incurred costs repairs maintenance charged operating expense incurred plant equipment replacement including replacement certain components betterments including replacement cable drops outlets capitalized depreciation recorded using straightline composite method management’s estimate useful lives related assets follows asset retirement obligations certain company’s franchise agreements leases contain provisions requiring company restore facilities remove equipment event franchise lease agreement renewed company expects continually renew franchise agreements therefore cannot reasonably estimate liabilities associated agreements remote possibility exists franchise agreements could terminated unexpectedly could result company incurring significant expense complying restoration removal provisions company significant liabilities related asset retirements recorded consolidated financial statements valuation longlived assets company evaluates recoverability longlived assets eg property plant equipment finitelived intangible assets held used events changes circumstances indicate carrying amount asset may recoverable events changes circumstances could include factors impairment company’s indefinite life assets changes technological advances fluctuations fair value assets adverse changes relationships local franchise authorities adverse changes market conditions deterioration current expected future operating results review indicates carrying value asset recoverable estimated undiscounted cash flows carrying value asset reduced estimated fair value company believes estimates future cash flows reasonable different assumptions regarding cash flows could materially affect evaluations asset recoverability impairments longlived assets held use recorded 2018 2017 2016 noncurrent assets noncurrent assets primarily include investments rightofentry costs intangible assets company accounts investments less majority owned investees either equity cost method company applies equity method investments ability exercise significant influence operating financial policies investee company’s share investee’s earnings losses included expense net consolidated statements operations company monitors investments indicators decrease investment value occurred temporary determined investment sustained temporary decline value investment written fair value charge earnings investments acquired measured fair value utilizing acquisition method accounting difference fair value amount underlying equity net assets equity method investments due previously unrecognized intangible assets investee amounts amortized component equity earnings losses recorded within expense net estimated useful life asset rightofentry costs represent upfront costs incurred related agreements entered multiple dwelling units “mdus” including landlords real estate companies owners gain access building order market service customers reside building rightofentry costs deferred amortized regulatory connectivity produced content within operating costs expenses term agreement see note 19 f 10 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated revenue recognition nature services residential services residential customers offered video internet voice services primarily subscription basis residential customers may generally cancel subscriptions time without penalty subscription service provided accounted distinct performance obligation revenue recognized ratably one month service period subscription services delivered optional service purchased generally accounted distinct performance obligation purchased revenue recognized service provided residential video customers option purchase additional tiers services well videoondemand “vod” programming payperview programming perevent basis video revenues consist primarily revenues selected programming service tier well vod fees payperview fees retransmission fees regulatory fees equipment service fees video installation fees residential internet customers receive data download upload services speeds dependent selected tier service customers also offered security suite inhome wifi product outofhome wifi service internet revenues consist primarily data services wifi service fees internet installation fees residential voice customers receive unlimited local long distance calling united states canada mexico puerto rico voicemail call waiting caller id call forward features customers may also purchase international calling either minute packages minutes per month voice revenues consist primarily voice services regulatory fees small medium business small medium business customers offered video internet voice services similar provided residential customers small medium business customers may generally cancel subscriptions time without penalty subscription service provided accounted distinct performance obligation revenue recognized ratably one month service period subscription services delivered enterprise solutions enterprise solutions include fiberdelivered communications managed information technology solutions larger businesses well highcapacity lastmile data connectivity services mobile wireline carriers internet service providers competitive carriers wholesale basis services primarily offered subscription basis contractually specified noncancelable service period subscription service provided accounted distinct performance obligation revenue recognized ratably contract period subscription services delivered enterprise subscription services billed monthly recurring charges customers related installation services applicable billed upon completion customer installation services accounted distinct performance obligations rather component connectivity services therefore upfront installation fees deferred recognized revenue related contract period advertising services company offers local regional national businesses opportunity advertise individual multiple service areas cable television networks digital outlets placement advertising accounted distinct performance obligation revenue recognized point time advertising distributed service areas company formed advertising interconnects entered representation agreements video distributors company sells advertising behalf distributors service areas company entered representation agreements another operator area sell advertising company’s behalf representation arrangements company controls sale advertising acts principal transaction company recognizes revenue earned advertising customer gross basis amount remitted distributor operating expense representation arrangements company control sale advertising acts agent transaction company recognizes revenue net fee remitted distributor f 11 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated mobile end second quarter 2018 company launched mobile product available residential customers subscribing internet service mobile services sold unlimited data plan bythegig data usage plan revenue recognized services provided customers purchase mobile devices accessory products option pay devices interestfree monthly installment plans sale devices separate performance obligation revenue recognized sale devices time shipment company’s revenues product line follows fees imposed company various governmental authorities passed monthly basis company’s customers periodically remitted authorities fees 10 billion 961 million 711 million years ended december 31 2018 2017 2016 respectively reported video voice mobile commercial revenues gross basis corresponding operating expense company acting principal certain taxes sales taxes imposed company’s customers collected remitted state local authorities recorded net basis company acting agent situation significant portion revenue derived customers may generally cancel subscriptions time without penalty amount revenue related unsatisfied performance obligations necessarily indicative future revenue recognized existing customer base revenue customers contractually specified term noncancelable service period recognized term contracts generally two seven years enterprise contracts weighted average term approximately three years significant judgments evaluating revenue recognition company often provides multiple services customer provision customer premise equipment installation services additional service tiers may significant level integration interdependency subscription video internet voice connectivity services provided judgment required determine whether provision customer premise equipment installation services additional service tiers considered distinct accounted separately distinct accounted together subscription services allocation transaction price distinct performance obligations bundled residential service subscriptions requires judgment transaction price bundle residential services frequently less sum standalone selling prices individual service company allocates residential services bundle discount among services f 12 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated discount relates based relative standalone selling prices services standalone selling prices company’s residential video internet services directly observable standalone selling price company’s residential voice service estimated using adjusted market assessment approach relies upon information peers competitors sell residential voice services individually company believes residential small medium business nonrefundable upfront installation fees charged customers result material right renew contract fees required paid upon subsequent renewals residential small medium business upfront fee deferred period fee remains material customer company estimated approximately six months estimation period fee remains material customer requires consideration quantitative qualitative factors including average installation fee average revenue per customer behavior among others deferred revenue contract liabilities timing revenue recognition may differ timing invoicing customers residential small medium business enterprise customers invoiced subscription services advance service period deferred revenue liabilities contract liabilities recorded company collects payments advance performing services deferred revenue liabilities contract liabilities also recorded company invoices customers upfront installation services recognized revenue time residential small medium business installation revenues deferred period fee remains material customer enterprise installation revenues deferred using portfolio approach average contract life enterprise service category december 31 2018 current deferred revenue liabilities consisting customer prepayments 410 million upfront installation fees 84 million included accounts payable accrued liabilities december 31 2018 longterm deferred revenue liabilities consisting enterprise upfront installation fees 34 million included longterm liabilities contract costs company recognizes asset incremental costs obtaining contract customer amortization period costs expected longer one year costs expected recovered enterprise sales commission costs meet requirements deferred result recognized using portfolio approach commission expense weightedaverage enterprise contract period deferred enterprise commission costs included noncurrent assets consolidated balance sheet totaled 142 million december 31 2018 amortization period residential small medium business commissions costs less one year company applies practical expedient allows costs expensed incurred company determined amortization period associated residential small medium business commission costs less one year based qualitative quantitative factors company recognizes asset costs incurred fulfill contract costs directly related services provided contract generate enhance resources entity used performing service obligations contract expected recovered upfront fees paid mdus apartment building owners order gain access market serve tenants reside within mdu meet requirements deferred result recognized term mdu contract deferred upfront mdu fees amortized straightline basis included noncurrent assets consolidated balance sheet totaled 273 million december 31 2018 amortization expense 62 million included regulatory connectivity produced content within operating costs expenses consolidated statements operations year ended december 31 2018 residential small medium business installation costs capitalized property plant equipment expensed incurred cable industryspecific guidance programming costs company various contracts obtain video programming vendors whose compensation typically based flat fee per customer cost right exhibit network programming arrangements recorded operating expenses month programming available exhibition programming costs paid month based calculations performed company subject periodic audits performed programmers certain programming contracts contain cash noncash consideration programmers consideration received relate separate product service company recognizes consideration straightline basis life programming agreement reduction f 13 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated programming expense programming costs included statements operations 111 billion 106 billion 70 billion years ended december 31 2018 2017 2016 respectively advertising costs advertising costs associated marketing company’s products services generally expensed costs incurred multipleelement transactions normal course business company enters multipleelement transactions simultaneously customer vendor counterparty purchases multiple products andor services settles outstanding items contemporaneous purchase product service single counterparty transactions although negotiated contemporaneously may documented one contracts company’s policy accounting transaction negotiated contemporaneously record element transaction based respective estimated fair values products services purchased products services sold determining fair value respective elements company refers quoted market prices available historical transactions comparable cash transactions cash consideration received vendor recorded reduction price vendor’s product unless consideration reimbursement specific incremental identifiable cost incurred case cash consideration received would recorded reduction cost eg marketing costs ii identifiable benefit exchange consideration provided case revenue would recognized element stockbased compensation restricted stock restricted stock units stock options well equity awards market conditions measured grant date fair value amortized stock compensation expense requisite service period fair value options estimated date grant using blackscholes optionpricing model fair value equity awards market conditions estimated date grant using monte carlo simulations grant date weighted average assumptions used years ended december 31 2018 2017 2016 respectively riskfree interest rate 24 18 17 expected volatility 250 254 expected lives 51 years 46 years 13 years weighted average assumptions 2016 include assumptions used converted twc awards see note 14 company’s volatility assumptions represent management’s best estimate based historical volatility charter expected lives estimated using historical exercise data valuations assume dividends paid pension plans company sponsors twc pension plan twc union pension plan twc excess pension plan defined note 18 pension benefits based formulas reflect employees’ years service compensation employment period actuarial gains losses changes amount either benefit obligation fair value plan assets resulting experience different assumed changes assumptions company elected follow marktomarket pension accounting policy recording actuarial gains losses annually fourth quarter earlier remeasurement event occurs interim period income taxes cco holdings single member limited liability company subject income tax cco holdings holds operations indirect subsidiaries majority indirect subsidiaries limited liability companies subject income tax certain indirect subsidiaries required file separate returns subject federal state tax cco holdings’ tax provision reflects tax provision entities required file separate returns company recognizes deferred tax assets liabilities temporary differences financial reporting basis tax basis indirect subsidiaries assets liabilities expected benefits utilizing loss carryforwards impact deferred taxes changes tax rates tax law applied years temporary differences expected settled reflected consolidated financial statements period enactment see note 15 f 14 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated charter subject income taxes accordingly addition company’s deferred tax liabilities charter recorded net deferred tax liabilities approximately 174 billion 173 billion december 31 2018 2017 respectively related investment charter holdings net loss carryforwards reflected company segments company’s operations managed reported chief executive officer “ceo” company’s chief operating decision maker consolidated basis ceo assesses performance allocates resources based consolidated results operations organizational reporting structure company one reportable segment cable services 3 allowance doubtful accounts activity allowance doubtful accounts summarized follows years presented 4 property plant equipment property plant equipment consists following december 31 2018 2017 company periodically evaluates estimated useful lives used depreciate assets estimated amount assets abandoned minimal use future significant change assumptions extent timing future asset retirements company’s use new technology upgrade programs could materially affect future depreciation expense depreciation expense years ended december 31 2018 2017 2016 79 billion 78 billion 50 billion respectively 5 franchises goodwill intangible assets franchise rights represent value attributed agreements authorizations local state authorities allow access homes cable service areas valuation purposes defined future economic benefits right solicit service potential customers customer marketing rights right deploy market new services potential customers service marketing rights f 15 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated management estimates fair value franchise rights date acquisition determines franchise finite life indefinite life company concluded franchises qualify indefinite life treatment given legal regulatory contractual competitive economic factors limit period rights contribute companys cash flows company reassesses determination periodically whenever events substantive changes circumstances occur franchises tested impairment annually frequently warranted events changes circumstances franchise assets aggregated essentially inseparable units accounting conduct valuations units accounting generally represent geographical clustering companys cable systems groups company assesses qualitative factors determine whether existence events circumstances leads determination likely indefinite lived intangible asset impaired optional qualitative assessment company determines likely indefinite lived intangible asset impaired quantitative testing necessary completing qualitative impairment testing company evaluates multitude factors affect fair value franchise assets examples factors include environmental competitive changes within operating footprint actual projected operating performance consistency operating margins equity debt market trends including changes market capitalization changes regulatory political landscape among factors company performed qualitative assessment 2018 also included consideration fair value appraisal performed tax purposes beginning 2018 december 31 2017 valuation date appraisal consideration qualitative factors 2018 including results appraisal company concluded likely fair value franchise assets unit accounting exceeds carrying value assets therefore perform quantitative analysis assessment date periodically company elect perform quantitative analysis impairment testing company elects required perform quantitative analysis test franchise assets impairment methodology described utilized quantitative analysis performed estimated fair value franchises determined utilizing income approach model based present value estimated discrete future cash flows attributable intangible assets identified assuming discount rate fair value franchises determined based estimated discrete discounted future cash flows using assumptions consistent internal forecasts franchise aftertax cash flow calculated aftertax cash flow generated potential customers obtained sum present value franchises’ aftertax cash flow years 1 10 continuing value aftertax cash flow beyond year 10 yields fair value franchises approach makes use unobservable factors projected revenues expenses capital expenditures customer trends discount rate applied estimated cash flows determination franchise discount rate derived company’s weighted average cost capital uses market participant’s cost equity aftertax cost debt reflects risks inherent cash flows company estimates discounted future cash flows using reasonable appropriate assumptions including among others penetration rates video internet voice revenue growth rates operating margins capital expenditures assumptions based company’s peers’ historical operating performance adjusted current expected competitive economic factors surrounding cable industry estimates assumptions made company’s valuations inherently subject significant uncertainties many beyond control assurance results achieved primary assumptions reasonable possibility occurrence variation would significantly affect measurement value include assumptions regarding revenue growth programming expense growth rates amount timing capital expenditures actual customer trends discount rate utilized fair value goodwill determined using income approach market approach company’s income approach model used goodwill valuation consistent used franchise valuation noted except cash flows entire business enterprise used goodwill valuation company’s market approach model estimates fair value reporting unit based market prices actual precedent transactions similar businesses market valuations guideline public companies goodwill tested impairment november 30 year frequently warranted events changes circumstances accounting guidance also permits optional qualitative assessment goodwill determine whether likely carrying value reporting unit exceeds fair value qualitative assessment company determines likely fair value reporting unit less carrying amount quantitative testing would necessary company elects required perform twostep test accounting guidance first step involves comparison estimated fair value reporting unit carrying amount estimated fair value reporting unit exceeds carrying amount goodwill reporting unit considered impaired second step goodwill impairment necessary carrying amount reporting unit exceeds f 16 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated estimated fair value second step goodwill impairment test must performed comparison implied fair value reporting unit’s goodwill compared carrying amount determine amount impairment company’s franchise impairment testing 2018 company elected perform qualitative goodwill impairment assessment incorporated results appraisal consideration qualitative factors relevant companys franchise impairment testing result assessment company concluded goodwill impaired customer relationships recorded fair value date acquired less accumulated amortization customer relationships valuation purposes represent value business relationship existing customers calculated projecting discrete future aftertax cash flows customers including right deploy market additional services customers present value aftertax cash flows yields fair value customer relationships use different valuation assumptions definitions franchises customer relationships inclusion value selling additional services current customers within customer relationships versus franchises could significantly impact valuations resulting impairment customer relationships amortized accelerated sum years’ digits method useful lives 815 years based period current customers expected generate cash flows company periodically evaluates remaining useful lives customer relationships determine whether events circumstances warrant revision remaining periods amortization customer relationships evaluated impairment upon occurrence events changes circumstances indicating carrying amount asset may recoverable customer relationships deemed impaired carrying value exceeds projected undiscounted future cash flows associated customer relationships impairment customer relationships recorded years ended december 31 2018 2017 2016 december 31 2018 2017 indefinitelived finitelived intangible assets presented following table amortization expense related customer relationships intangible assets years ended december 31 2018 2017 2016 24 billion 27 billion 19 billion respectively effective january 1 2018 adoption asu 201409 upfront fees paid market serve customers reside residential mdus longer recorded intangibles amortized depreciation amortization expense recorded noncurrent assets amortized regulatory connectivity produced content within operating costs expenses see notes 2 19 f 17 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated company expects amortization expense finitelived intangible assets follows actual amortization expense future periods could differ estimates result new intangible asset acquisitions divestitures changes useful lives impairments adoption new accounting standards relevant factors 6 investments consisted following december 31 2018 2017 companys investments include cc wireless operations llc cc 50 owned sterling entertainment enterprises llc “sterling” dba sportsnet new york 268 owned mlb network llc “mlb network” 64 owned demand llc “in demand” 394 owned national cable communications llc “ncc” 200 owned among less significant equitymethod costmethod investments cc company’s mobile operating partnership comcast corporation providing software development related services mobile back office platform sterling mlb network primarily engaged development sports programming services demand provides programming video demand payperview subscription basis ncc represents multivideo program distributors advertisers companys equitymethod investments balances reflected table includes differences acquisition date fair value certain investments acquired underlying equity net assets investee referred basis difference basis difference amortized component equity earnings remaining unamortized basis difference 387 million 407 million december 31 2018 2017 respectively company applies equity method accounting less significant equitymethod investments recorded noncurrent assets consolidated balance sheets december 31 2018 2017 years ended december 31 2018 2017 2016 net losses equitymethod investments 46 million 4 million 3 million respectively recorded expense net consolidated statements operations f 18 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated 7 accounts payable accrued liabilities accounts payable accrued liabilities consist following december 31 2018 2017 8 longterm debt longterm debt consists following december 31 2018 2017 f 19 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated principal amount includes £625 million valued 796 million 845 million december 31 2018 december 31 2017 respectively using exchange rate date b principal amount includes £650 million valued 827 million 879 million december 31 2018 december 31 2017 respectively using exchange rate date accreted values presented table represent principal amount debt adjusted original issue discount premium time sale deferred financing costs regards legacy twc debt assumed fair value premium adjustments result applying acquisition accounting plus accretion amounts balance sheet date however amount currently payable debt becomes immediately due equal principal amount debt regards fixedrate british pound sterling denominated notes “sterling notes” principal amount debt premium discount remeasured us dollars balance sheet date see note 10 company availability charter operating credit facilities approximately 28 billion december 31 2018 april 2018 charter operating charter communications operating capital corp jointly issued 800 million aggregate principal amount 5375 senior notes due april 1 2038 price 98846 aggregate principal amount 17 billion aggregate principal amount 5750 senior notes due april 1 2048 price 99706 aggregate principal amount f 20 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated net proceeds together cash hand used repay certain existing indebtedness including redemption outstanding 20 billion aggregate principal amount time warner cable llc’s 6750 notes due july 1 2018 pay related fees expenses general corporate purposes including distributions companys parent companies fund buybacks charter class common stock charter holdings common units july 2018 charter operating charter communications operating capital corp jointly issued 400 million aggregate principal amount senior floating rate notes due february 1 2024 par 11 billion aggregate principal amount 4500 senior notes due february 1 2024 price 99893 aggregate principal amount august 2018 charter operating charter communications operating capital corp jointly issued additional 500 million aggregate principal amount senior floating rate notes due february 1 2024 price 101479 aggregate principal amount interest floating rate notes accrues libor plus 1650 net proceeds used pay related fees expenses general corporate purposes including distributions companys parent companies fund buybacks charter class common stock charter holdings common units january 2019 charter operating charter communications operating capital corp jointly issued 125 billion aggregate principal amount 5050 senior notes due 2029 price 99935 aggregate principal amount additional 750 million aggregate principal amount 575 senior notes due 2048 price 94970 aggregate principal amount net proceeds used pay related fees expenses general corporate purposes including distributions companys parent companies fund buybacks charter class common stock charter holdings common units well repay certain indebtedness including repay maturity time warner cable llcs 875 senior notes due 2019 years ended december 31 2017 2016 company repurchased 28 billion 29 billion respectively various series senior secured notes loss extinguishment debt consisted following years ended december 31 2017 2016 cco holdings notes cco holdings notes senior debt obligations cco holdings cco holdings capital rank equally current future unsecured unsubordinated obligations cco holdings cco holdings capital structurally subordinated obligations subsidiaries cco holdings cco holdings may redeem cco holdings notes time premium optional redemption price declines 100 respective series’ principal amount plus accrued unpaid interest varying dates 2019 2025 addition time prior varying dates 2019 2020 cco holdings may redeem 40 aggregate principal amount certain notes premium plus accrued unpaid interest redemption date net cash proceeds one equity offerings defined indenture provided certain conditions met event specified change control events cco holdings must offer purchase outstanding cco holdings notes holders purchase price equal 101 total principal amount notes plus accrued unpaid interest highyield restrictive covenants limitation indebtedness indentures governing cco holdings notes contain certain covenants restrict ability cco holdings cco holdings capital restricted subsidiaries f 21 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated • incur additional debt • pay dividends equity repurchase equity • make investments • sell substantially assets merge companies • sell assets • case restricted subsidiaries create permit exist dividend payment restrictions respect cco holdings guarantee parent companies debt issue specified equity interests • engage certain transactions affiliates • grant liens limitations certain circumstances regarding incurrence debt payment dividends making investments contained indentures cco holdings permit cco holdings restricted subsidiaries perform long giving pro forma effect leverage ratio would specified level issuer leverage ratio indentures 60 10 leverage ratio 42 december 31 2018 charter operating notes charter operating notes guaranteed cco holdings substantially operating subsidiaries charter operating addition charter operating notes secured perfected first priority security interest substantially assets charter operating extent liens perfected uniform commercial code filing financing statement liens rank equally liens collateral securing obligations charter operating credit facilities charter operating may redeem charter operating notes time premium charter operating notes subject terms conditions indenture governing charter operating notes charter operating notes contain customary representations warranties affirmative covenants limited negative covenants charter operating indenture also contains customary events default charter operating credit facilities charter operating credit facilities outstanding principal amount 100 billion december 31 2018 follows • term loan a2 remaining principal amount 27 billion repayable quarterly installments aggregating 144 million loan year remaining balance due final maturity march 31 2023 pricing term loan a2 libor plus 150 • term loan b remaining principal amount approximately 63 billion repayable equal quarterly installments aggregating 64 million loan year remaining balance due final maturity april 30 2025 pricing term loan b libor plus 200 • revolving loan outstanding balance 10 billion december 31 2018 allowing borrowings 40 billion maturing march 31 2023 pricing revolving loan libor plus 150 commitment fee 030 december 31 2018 138 million revolving loan utilized collateralize like principal amount letters credit 358 million letters credit issued company’s behalf amounts outstanding charter operating credit facilities bear interest charter operating’s election base rate libor 250 156 december 31 2018 december 31 2017 respectively defined plus applicable margin january 2019 charter operating entered amendment credit agreement raising additional 17 billion term loan a3 increasing revolving loan capacity 475 billion well extending maturities portion term loan a2 portion revolving loan 2024 pricing new term loan a3 libor plus 150 charter operating credit facilities also allow us enter incremental term loans future amortization set forth notices establishing term loans although charter operating credit facilities allow incurrence certain amount incremental term loans subject pro forma compliance financial maintenance covenants assurance given company could obtain additional incremental term loans future charter operating sought amount incremental term loans would allowable given time terms charter operating credit facilities f 22 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated obligations charter operating charter operating credit facilities guaranteed cco holdings substantially operating subsidiaries charter operating obligations also secured lien substantially assets charter operating subsidiaries extent lien perfected uniform commercial code filing financing statement ii pledge cco holdings equity interests owned charter operating’s subsidiaries well intercompany obligations owing entities restrictive covenants charter operating credit facilities contain representations warranties affirmative negative covenants customary financings type financial covenants measure performance standards set leverage tested end quarter charter operating credit facilities contain provisions requiring mandatory loan prepayments specific circumstances including connection certain sales assets long proceeds reinvested business additionally charter operating credit facilities provisions contain allowance restricted payments certain limitations charter operating credit facilities permit charter operating subsidiaries make distributions pay interest currently outstanding subordinated parent company indebtedness provided among things default occurred continuing charter operating credit facilities charter operating credit facilities also contain customary events default time warner cable llc notes debentures time warner cable llc twc llc senior notes debentures guaranteed cco holdings substantially operating subsidiaries charter operating rank equally liens collateral securing obligations charter operating notes credit facilities interest series twc llc senior notes debentures payable semiannually exception sterling notes payable annually arrears twc llc indenture contains customary covenants relating restrictions ability twc llc material subsidiary create liens ability twc llc time warner cable enterprises llc twce consolidate merge convey transfer substantially assets twc llc indenture also contains customary events default twc llc senior notes debentures may redeemed whole part time twc llc’s option redemption price equal greater applicable principal amount redeemed ii sum present values remaining scheduled payments applicable twc llc senior notes debentures discounted redemption date semiannual basis exception sterling notes annual basis comparable government bond rate plus designated number basis points described indenture applicable note debenture plus case accrued unpaid interest including redemption date company may offer redeem less sterling notes event certain changes tax laws us taxing authority us redemption would redemption price equal 100 principal amount together accrued unpaid interest sterling notes including redemption date twce debentures twce senior debentures guaranteed cco holdings substantially operating subsidiaries charter operating twc llc rank equally liens collateral securing obligations charter operating notes credit facilities interest series twce senior debentures payable semiannually arrears twce senior debentures redeemable maturity twce indenture contains customary covenants relating restrictions ability twce material subsidiary create liens ability twc llc twce consolidate merge convey transfer substantially assets twce indenture also contains customary events default f 23 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated limitations distributions company’s subsidiaries parent company payment principal parent company notes restricted indentures credit facilities discussed unless default applicable indenture credit facilities unless applicable subsidiary’s leverage ratio test met time distribution december 31 2018 default indentures credit facilities subsidiary met applicable leverage ratio tests based december 31 2018 financial results assurance satisfy tests time contemplated distribution distributions charter operating payment principal parent company notes restricted covenants credit facilities however without regard leverage calendar year portion thereof borrower flowthrough entity tax purposes long event default exists borrower may make distributions equity interests borrower amount sufficient make permitted tax payments addition limitation distributions various indentures distributions company’s subsidiaries may limited applicable law including delaware limited liability company act company’s subsidiaries may make distributions “surplus” defined act liquidity future principal payments company continues significant amounts debt business requires significant cash fund principal interest payments debt capital expenditures ongoing operations set forth company significant future principal payments company continues monitor capital markets expects undertake refinancing transactions utilize free cash flow cash hand extend reduce maturities principal obligations timing terms refinancing transactions subject market conditions based upon outstanding indebtedness december 31 2018 amortization term loans maturity dates senior subordinated notes total future principal payments total borrowings debt agreements follows 9 loans payable related party loans payable related party december 31 2018 2017 consists loans charter communications holdings company llc “charter holdco” company 674 million 655 million respectively loans charter company 251 million 233 million respectively interest accrued loans payable related party libor plus 150 175 periods ending december 31 2018 2017 respectively 10 accounting derivative instruments hedging activities company uses derivative instruments manage foreign exchange risk sterling notes hold issue derivative instruments speculative trading purposes crosscurrency derivative instruments used effectively convert £1275 billion aggregate principal amount fixedrate british pound sterling denominated debt including annual interest payments payment principal maturity fixed f 24 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated rate us dollar denominated debt crosscurrency swaps maturities june 2031 july 2042 company required post collateral crosscurrency derivative instruments derivative contracts liability position may 2016 company entered collateral holiday agreement 80 2031 2042 crosscurrency swaps eliminates requirement post collateral three years fair value companys crosscurrency derivatives included longterm liabilities companys consolidated balance sheets 237 million 25 million december 31 2018 2017 respectively company’s derivative instruments designated hedges marked fair value period impact recorded gain loss financial instruments net consolidated statements operations derivative instruments designated hedges accounting purposes management continues believe instruments closely correlated respective debt thus managing associated risk effect financial instruments consolidated statements operations presented table upon closing twc transaction company acquired interest rate derivative instrument assets terminated settled respective counterparties second quarter 2016 88 million cash payment company termination resulted 11 million loss year ended december 31 2016 recorded gain loss financial instruments net consolidated statements operations companys interest rate derivatives expired december 31 2018 2017 11 fair value measurements accounting guidance establishes threelevel hierarchy disclosure fair value measurements based upon transparency inputs valuation asset liability measurement date follows • level 1 inputs valuation methodology quoted prices unadjusted identical assets liabilities active markets • level 2 inputs valuation methodology include quoted prices similar assets liabilities active markets inputs observable asset liability either directly indirectly substantially full term financial instrument • level 3 inputs valuation methodology unobservable significant fair value measurement financial assets liabilities company estimated fair value financial instruments december 31 2018 2017 using available market information appropriate valuation methodologies considerable judgment however required interpreting market data develop estimates fair value accordingly estimates presented accompanying consolidated financial statements necessarily indicative amounts company would realize current market exchange carrying amounts cash equivalents receivables payables current assets liabilities approximate fair value short maturity instruments december 31 2017 significant concentrations financial instruments single investee industry geographic location f 25 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated company’s financial instruments accounted fair value recurring basis december 31 2018 2017 presented table summary carrying value fair value company’s debt december 31 2018 2017 follows estimated fair value company’s senior notes debentures december 31 2018 2017 based quoted market prices active markets classified within level 1 valuation hierarchy estimated fair value company’s credit facilities based quoted market prices inactive markets classified within level 2 nonfinancial assets liabilities company’s nonfinancial assets equitymethod investments franchises property plant equipment intangible assets measured fair value recurring basis however subject fair value adjustments certain circumstances upon business combination evidence impairment may exist significant impairments recorded 2018 2017 2016 12 operating costs expenses operating costs expenses exclusive items shown separately consolidated statements operations consist following periods presented programming costs consist primarily costs paid programmers basic premium digital video demand payperview programming regulatory connectivity produced content costs represent payments franchise regulatory authorities costs directly related providing video internet voice services well payments sports local news content produced company included regulatory connectivity produced content costs content acquisition costs los angeles lakers’ basketball games los angeles dodgers’ baseball games recorded games exhibited applicable f 26 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated season costs service customers include costs related field operations network operations customer care company’s residential small medium business customers including internal thirdparty labor noncapitalizable portion installations service repairs maintenance bad debt expense billing collection occupancy vehicle costs marketing costs represent costs marketing current potential commercial residential customers including labor costs mobile costs represent costs associated companys mobile service device service costs marketing sales commissions retail stores personnel costs taxes among others includes corporate overhead advertising sales expenses indirect costs associated company’s enterprise business customers regional sports news networks property tax insurance expense stock compensation expense among others 13 operating expenses net operating expenses net consist following years presented merger restructuring costs merger restructuring costs represent costs incurred connection merger acquisition transactions related restructuring advisory legal accounting fees employee retention costs employee termination costs related transactions exit costs changes accruals merger restructuring costs january 1 2016 december 31 2018 presented addition costs indicated company recorded 5 million 49 million 248 million expense related accelerated vesting equity awards terminated employees years ended december 31 2018 2017 2016 respectively special charges net special charges net primarily includes employee termination costs related transactions net amounts litigation settlements 2018 2017 special charges net also includes 22 million 83 million charge related companys withdrawal liability multiemployer pension plan respectively f 27 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated gain loss sale assets net gain loss sale assets net represents net gain loss recognized sales disposals fixed assets including 75 million impairment nonstrategic assets year ended december 31 2018 14 stock compensation plans charter’s 2009 stock incentive plan provides grants nonqualified stock options incentive stock options stock appreciation rights dividend equivalent rights performance units performance shares share awards phantom stock restricted stock units restricted stock directors officers employees company subsidiaries well others performing consulting services company eligible grants 2009 stock incentive plan 2009 stock incentive plan allows issuance 21 million shares charter class common stock units convertible charter class common stock closing twc transaction legacy twc employee equity awards converted charter class common stock equity awards terms conditions applicable legacy twc equity awards except number shares covered award option exercise prices adjusted stock award exchange ratio defined merger agreement intrinsic value converted twc awards approximately equal original awards closing transactions converted twc awards continue subject terms legacy twc equity plans parent merger exchange ratio also applied outstanding legacy charter equity awards option exercise prices however terms equity awards change result transactions charter stock options restricted stock units generally cliff vest upon three year anniversary grant certain stock options restricted stock units vest based achievement stock price hurdles stock options generally expire ten years grant date restricted stock units voting rights restricted stock generally vests one year date grant legacy twc restricted stock units converted charter restricted stock units generally vest 50 third fourth anniversary grant date december 31 2018 total unrecognized compensation remaining recognized future periods totaled 199 million stock options 09 million restricted stock 187 million restricted stock units weighted average period expected recognized 2 years stock options 4 months restricted stock 2 years restricted stock units company recorded 285 million 261 million 244 million stock compensation expense years ended december 31 2018 2017 2016 respectively included operating costs expenses company also recorded 5 million 49 million 248 million expense years ended december 31 2018 2017 2016 respectively related accelerated vesting equity awards terminated employees recorded merger restructuring costs operating expenses net consolidated statements operations f 28 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated summary activity charter’s stock options applying parent merger exchange ratio years ended december 31 2018 2017 2016 follows shares thousands except per share data summary activity charter’s restricted stock applying parent merger exchange ratio years ended december 31 2018 2017 2016 follows shares thousands except per share data f 29 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated summary activity charter’s restricted stock units applying parent merger exchange ratio years ended december 31 2018 2017 2016 follows shares thousands except per share data 15 income taxes cco holdings single member limited liability company subject income tax cco holdings holds operations indirect subsidiaries majority indirect subsidiaries limited liability companies subject income tax certain indirect subsidiaries required file separate returns subject federal state tax cco holdings’ tax provision reflects tax provision entities required file separate returns generally taxable income gains losses deductions credits cco holdings passed indirect members charter responsible share taxable income loss cco holdings allocated accordance charter holdings limited liability company agreement “llc agreement” partnership tax rules regulations charter also records financial statement deferred tax assets liabilities related investment underlying net assets cco holdings income tax expense years ended december 31 2018 2017 2016 company recorded deferred income tax expense shown tax provision future periods vary based current future temporary differences well future operating results income tax recognized primarily decreases increases deferred tax liabilities well current state income tax expense tax provision future periods vary based future operating results well future book versus tax differences f 30 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated company’s effective tax rate differs derived applying applicable federal income tax rate 21 year ended december 31 2018 35 years ended december 31 2017 2016 respectively follows deferred tax assets liabilities tax effects temporary differences give rise significant portions deferred tax assets deferred tax liabilities december 31 2018 2017 presented change net deferred tax assets liabilities differs deferred income tax expense primarily result adoption asu 201616 resulting 38 million additional tax basis recorded total members equity see note 19 uncertain tax positions net amount unrecognized tax benefits recorded december 31 2018 could impact effective tax rate 134 million company determined reasonably possible existing reserve uncertain tax positions december 31 2018 could decrease approximately 27 million year ended december 31 2019 related various ongoing audits settlement discussions expiration statute limitations various state local agencies however various events could cause company’s current expectations change future uncertain tax positions ever recognized financial statements would recorded consolidated statements operations part income tax provision reconciliation beginning ending amount unrecognized tax benefits exclusive interest penalties included longterm liabilities accompanying consolidated balance sheets company follows f 31 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated company recognizes interest penalties accrued uncertain income tax positions part income tax provision interest penalties included longterm liabilities accompanying consolidated balance sheets company 43 million 38 million december 31 2018 2017 respectively tax years charter holdco companys indirect parent companies currently examination internal revenue service irs charters 2016 2018 tax years remain open examination assessment legacy charter’s tax years ending 2015 short period return dated may 17 2016 prior acquisition legacy twc legacy bright house remain subject examination assessment years prior 2015 remain open solely purposes examination legacy charter’s loss credit carryforwards irs currently examining charter holdings’ income tax return 2016 charter holdings’ 2017 2018 tax years remain open examination assessment irs currently examining legacy twc’s income tax returns 2011 2014 legacy twc’s tax year 2015 remains subject examination assessment prior legacy twc’s separation time warner inc “time warner” march 2009 “separation” legacy twc included consolidated us federal certain state income tax returns time warner irs currently examining time warner’s 2008 2010 income tax returns company anticipate examinations material impact company’s consolidated financial position results operations addition company also subject ongoing examinations company’s tax returns state local tax authorities various periods activity related state local examinations material impact company’s consolidated financial position results operations year ended december 31 2018 company anticipate material impact future 16 related party transactions following sets forth certain transactions company directors executive officers affiliates company involved case management arrangements subsidiaries debt issuers pay certain parent companies services charter party management arrangements spectrum management certain subsidiaries agreements charter spectrum management charter holdco provide management services cable systems owned operated subsidiaries costs associated providing services charged directly company’s operating subsidiaries costs incurred behalf charter’s operating subsidiaries considered part management fee costs recorded component operating costs expenses accompanying consolidated financial statements management fee charged company’s operating subsidiaries approximated expenses incurred spectrum management charter holdco charter behalf company’s operating subsidiaries 2018 2017 2016 liberty broadband terms amended restated stockholders agreement liberty broadband legacy charter dated may 23 2015 “stockholders agreement” number charter’s directors fixed 13 includes ceo two designees selected members board directors charter three designees selected liberty broadband members board directors charter remaining eight directors affiliated either liberty broadband liberty broadband entitled nominate least one director committees charters board directors subject applicable stock exchange listing rules certain specified voting equity ownership thresholds liberty broadband provided nominating corporate governance committee compensation benefit committee least majority directors independent liberty broadband charter referred “unaffiliated directors” nominating corporate governance committee compensation benefits committee currently comprised three unaffiliated directors one designee liberty broadband liberty broadband also certain committee designation governance rights mr thomas rutledge company’s ceo chairman board charter december 2017 charter entered amendment letter agreement letter agreement requires sell charter holdings monthly basis number shares charter class common stock charter holdings common units represents pro rata participation affiliates repurchases shares charter class common stock persons effected charter immediately preceding calendar month purchase price equal average price paid charter shares repurchased persons f 32 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated immediately preceding calendar month charter right terminate suspend pro rata repurchase arrangement prospective basis charter holdings repurchased shares class common stock charter holdings common units affiliates aggregate purchase price 400 million threshold reached pursuant tra charter must pay 50 tax benefit realized charter stepup tax basis resulting future exchange sale preferred common units company aware dr john malone director emeritus charter chairman board directors holder 471 voting interest liberty broadband may deemed 375 voting interest qurate retail inc qurate formerly known liberty interactive corporation board directors qurate wholly owns hsn inc “hsn” qvc inc “qvc” company programming relationships hsn qvc years ended december 31 2018 2017 2016 company recorded revenue aggregate approximately 73 million 77 million 53 million respectively hsn qvc part channel carriage fees revenue sharing arrangements home shopping sales made customers company’s footprint dr malone mr steven miron member charter’s board directors also serve board directors discovery communications inc “discovery” company aware dr malone owns 936 series b common stock discovery 6 series c common stock discovery 28 voting interest discovery election directors company aware advancenewhouse programming partnership “an pp” affiliate mr miron ceo owns 100 series a1 preferred stock discovery 100 series c1 preferred stock discovery 242 voting interest election directors pp right appoint three directors total eleven directors discovery’s board elected holders discovery’s series a1 preferred stock company purchases programming discovery pursuant agreements entered prior dr malone mr miron joining charter’s board directors based publicly available information company believe discovery would currently considered related party amount paid discovery represents less 3 total operating costs expenses years ended december 31 2018 2017 2016 equity investments company parent companies agreements certain equitymethod investees see note 6 pursuant company made received related party transaction payments company parent companies recorded payments equitymethod investees totaling 361 million 317 million 171 million years ended december 31 2018 2017 2016 respectively 17 commitments contingencies commitments following table summarizes company’s parent companies payment obligations december 31 2018 contractual obligations company leases certain facilities equipment noncancelable capital operating leases capital lease obligations represented 111 million total capital operating lease obligations december 31 2018 lease rental costs charged expense years ended december 31 2018 2017 2016 382 million 321 million 215 million respectively b company pays programming fees multiyear contracts ranging three ten years typically based flat fee per customer may fixed term may cases escalate term programming costs included statement operations 111 billion 106 billion 70 billion years ended december 31 2018 2017 2016 respectively certain company’s programming agreements based flat fee per month guaranteed f 33 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated minimum payments table sets forth aggregate guaranteed minimum commitments company’s programming contracts c “other” represents guaranteed minimum commitments including rights negotiated directly content owners distribution companyowned channels networks commitments related role advertising distribution sales agent third partyowned channels networks commitments customer premise equipment device vendors contractual obligations related thirdparty network augmentation following items included contractual obligation table due various factors discussed however company incurs costs part operations • company rents utility poles used operations generally pole rentals cancelable short notice company anticipates rentals recur rent expense incurred pole rental attachments years ended december 31 2018 2017 2016 171 million 167 million 115 million respectively • company pays franchise fees multiyear franchise agreements based percentage revenues generated video service per year company also pays franchise related costs public education grants multiyear agreements franchise fees franchiserelated costs included accompanying statement operations 747 million 705 million 534 million years ended december 31 2018 2017 2016 respectively • company 358 million letters credit 138 million secured charter operating credit facility primarily various casualty carriers collateral reimbursement workers compensation auto liability general liability claims • minimum pension funding requirements presented table amounts determined beyond 2018 company made cash contributions qualified pension plans 2018 however company permitted make discretionary cash contributions qualified pension plans 2019 nonqualified pension plan company contributed 6 million 2018 continue make contributions 2019 extent benefits paid legal proceedings august 2015 purported stockholder charter matthew sciabacucchi filed lawsuit delaware court chancery behalf putative class charter stockholders challenging transactions involving charter twc liberty broadband announced charter may 26 2015 lawsuit named defendants charter board directors alleged transactions resulted breaches fiduciary duty charter’s directors liberty broadband improperly benefited challenged transactions expense charter stockholders lawsuit proceeded discovery phase charter denies liability believes substantial defenses intends vigorously defend lawsuit although charter unable predict outcome lawsuit expect outcome material effect operations financial condition cash flows california attorney general alameda county california district attorney investigating whether certain charter’s waste disposal policies procedures practices violation california business professions code california health safety code investigation commenced january 2014 similar investigation involving twc initiated february 2012 charter cooperating investigations company unable predict outcome investigations expect outcome material effect operations financial condition cash flows december 19 2011 sprint communications company lp “sprint” filed complaint us district court district kansas alleging twc infringed certain us patents purportedly relating voice internet protocol “voip” services trial began february 13 2017 march 3 2017 jury returned verdict 140 million twc concluded twc willfully infringed sprint’s patents court subsequently declined enhance damage award result purported willful infringement awarded sprint additional 6 million representing prejudgment interest damages award company appealed case united states court appeals federal circuit company lost appeal company expects petition court appeals rehearing continue pursue appeal rights addition appeal company continues pursue indemnity one vendors brought patent suit sprint tc tech llc v sprint us district court district delaware implicating sprints lte technology impact sprint verdict reflected measurement period adjustments net current liabilities company expect outcome litigation material adverse effect operations financial f 34 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated condition ultimate outcomes appeal sprint kansas case pursuit indemnity company’s vendor tc tech litigation cannot predicted sprint filed second suit charter december 2 2017 united states district court district delaware suit alleges infringement 15 patents related companys provision voip services ten already asserted legacy twc matter described charter vigorously defend case company unable predict outcome sprint suit expect litigation material effect operations financial condition cash flows sprint filed third suit charter may 17 2018 united states district court eastern district virginia suit alleges infringement three patents related companys video demand services company vigorously defend case parties recently agreed transfer case united states district court district delaware company unable predict outcome litigation expect litigation material effect operations financial condition cash flows new york public service commission “psc” issued multiple orders charter including two orders july 27 2018 relating agreement psc approved charter’s merger twc one order determined charter failed satisfy one merger conditions extending high speed broadband network according psc’s recent interpretation homes businesses charter built count order directed initiation court action impose financial penalties charter second order purported rescind psc’s january 2016 approval charter’s acquisition twc’s new york operations directs charter submit plan effect orderly transition successor provider providers charter cease operations new york within six months order july 30 2018 psc filed petition penalties injunctive relief supreme court state new york seeking penalties 100000 per day june 18 2018 charter complies psc order also seeks injunctive relief court enjoin failure comply new york public service laws regulation order psc charter entered discussions possibility resolving matters extended deadline several times regarding submission exit plan deadline charter would file formal oppositions psc orders company believes actions psc without merit intends defend actions vigorously believe results proceedings material adverse effect charter assurance given adverse outcome result would material consolidated financial condition results operations liquidity company cannot predict outcome psc claims including negotiations reasonably estimate range possible loss event adverse result october 23 2015 new york office attorney general “ny ag” began investigation twcs advertised internet speeds internet product advertising february 1 2017 ny ag filed suit supreme court state new york alleging twcs advertising internet speeds false misleading case settled december 2018 addition sprint litigation described company parent companies defendants codefendants several additional lawsuits involving alleged infringement various patents relating various aspects businesses industry participants also defendants certain cases event court ultimately determines company infringes intellectual property rights company may subject substantial damages andor injunction could require company vendors modify certain products services company offers subscribers well negotiate royalty license agreements respect patents issue company believes lawsuits without merit intends defend actions vigorously assurance given adverse outcome would material company’s consolidated financial condition results operations liquidity company cannot predict outcome claims reasonably estimate range possible loss company parent companies party lawsuits claims regulatory inquiries arise ordinary course conducting business ultimate outcome legal matters pending company cannot predicted although lawsuits claims expected individually material adverse effect company’s consolidated financial condition results operations liquidity lawsuits could aggregate material adverse effect company’s consolidated financial condition results operations liquidity whether company ultimately prevails particular lawsuit claim litigation time consuming costly injure company’s reputation f 35 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated 18 employee benefit plans pension plans company sponsors two qualified defined benefit pension plans twc pension plan twc union pension plan provide pension benefits majority legacy twc employees employed twc transactions company also provides nonqualified defined benefit pension plan certain employees twc excess pension plan changes projected benefit obligation fair value plan assets funded status pension plans january 1 december 31 presented projected benefit obligation accumulated benefit obligation fair value plan assets qualified pension plans nonqualified pension plan december 31 2018 2017 consisted following f 36 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated pretax amounts recognized consolidated balance sheet december 31 2018 2017 consisted following components net periodic benefit years ended december 31 2018 2017 2016 consisted following years ended december 31 2018 2017 settlements lumpsum distributions qualified nonqualified pension plan participants exceeded estimated annual interest cost plans result pension liability pension asset values reassessed september 30 2018 2017 utilizing remeasurement date assumptions accordance companys marktomarket pension accounting policy record gains losses period remeasurement event occurs 122 million remeasurement gain recorded year ended december 31 2018 primarily driven effects increase discount rate 368 december 31 2017 437 december 31 2018 partially offset loss record pension assets fair value december 31 2018 approximately 187 million remeasurement gain recorded interim remeasurement event september 30 2018 offset 65 million loss recorded annual remeasurement december 31 2018 55 million remeasurement loss recorded year ended december 31 2017 primarily driven adoption revised lump sum conversion mortality tables published irs effective january 1 2018 effects decrease discount rate 420 december 31 2016 368 december 31 2017 partially offset gain record pension assets fair value approximately 30 million remeasurement loss recorded interim remeasurement event september 30 2017 25 million recorded annual remeasurement december 31 2017 195 million remeasurement gain recorded year ended december 31 2016 primarily driven effects increase discount rate 399 closing date twc transaction 420 december 31 2016 gain record pension assets december 31 2016 fair values discount rates used determine benefit obligations december 31 2018 2017 437 368 respectively company utilized rp 2015mp2015 mortality tables published society actuaries measure benefit obligations december 31 2018 2017 f 37 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated weighted average assumptions used determine net periodic benefit costs years ended december 31 2018 2017 2016 consisted following expected longterm rate return plan assets decreased 2018 consistent derisking shift increase fixed income liabilitymatching investment allocation b discount rate used determine net periodic pension benefit 368 january 1 2018 remeasurement date september 30 2018 424 remeasurement date december 31 2018 discount rate used determine net periodic pension benefit 420 january 1 2017 remeasurement date september 30 2017 388 remeasurement date december 31 2017 discount rate used determine net periodic pension benefit 399 closing date twc transaction remeasurement date june 30 2016 372 remeasurement date december 31 2016 c rate compensation increase used determine net periodic pension benefit 425 closing date twc transaction remeasurement date june 30 2016 0 thereafter see “pension plan curtailment amendment” discussion developing expected longterm rate return plan assets company considered pension portfolio’s composition past average rate earnings company’s future asset allocation targets weighted average expected longterm rate return plan assets discount rate used determine net periodic pension benefit year ended december 31 2019 expected 575 437 respectively company determined discount rates used determine benefit obligations net periodic pension benefit based yield large population high quality corporate bonds cash flows sufficient timing amount settle projected future defined benefit payments pension plan curtailment amendment following closing twc transaction charter amended pension plans freeze future benefit accruals current active plan participants august 31 2016 effective september 1 2016 future compensation increases future service credited participants pension plans new hires eligible participate plans upon announcement approval plan amendment assumptions underlying pension liability pension asset values reassessed utilizing remeasurement date assumptions accordance charter’s marktomarket pension accounting policy record gains losses period remeasurement event occurs 675 million curtailment gain recorded year ended december 31 2016 primarily driven reduction compensation rate assumption 0 accordance terms plan amendment reflecting pension liability accumulated benefit obligation instead projected benefit obligation remeasurement date pension plan assets qualified pension plans held master trust qualified pension plans participating plans “master trust” investment policy qualified pension plans manage assets master trust objective provide pension liabilities met maintaining retirement income security participants plans beneficiaries investment portfolio mix pooled funds invested fixed income securities equity securities certain alternative investments objective matching plan liability performance diversifying risk achieving target investment return pension plan’s investment committee establishes risk mitigation policies regularly monitors investment performance investment allocation policies execution strategies investment committee engages thirdparty investment firm responsibility executing directives investment committee monitoring performance individual investment managers master trust making adjustments changes within defined parameters necessary f 38 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated periodic basis investment committee conducts broad strategic review portfolio construction investment allocation policies neither company investment committee thirdparty investment firm manages assets internally pension assets managed balanced portfolio comprised two major components returnseeking portion liabilitymatching portion expected role returnseeking investments achieve reasonable longterm growth pension assets prudent level risk using asset diversity order balance return volatility role liabilitymatching investments provide partial economic hedge liability performance associated changes interest rates company uses investment strategy referred derisking glide path increase fixed income allocation funded status qualified pension plans improves qualified pension plans reach set funded status milestones assets rebalanced shift assets equity fixed income based progress strategy target investment allocation pension fund assets permitted vary within specified ranges subject investment committee approval returnseeking securities liabilitymatching securities target actual investment allocation qualified pension plans asset category consisted following tables set forth investment assets qualified pension plans level within fair value hierarchy december 31 2018 2017 f 39 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated commingled funds include bond funds corporate us treasury debt securities equity funds global equity index infrastructure real estate securities readily determinable fair value valued using net assets provided administrator fund value fund based fair value underlying securities portfolio represents amount fund might reasonably expect receive securities upon sale less liabilities divided number units outstanding equity securities within funds valued using observable inputs either daily weekly basis resulting per share value serves basis current redemption value debt securities within funds valued based observable prices new issue market benchmark quotes secondary trading dealer quotes b collective trust funds consist shortterm investment strategies comprised instruments issued fully guaranteed us government andor agencies multistrategy funds valued using net assets provided administrator fund value fund based readily determinable fair value underlying assets owned fund less liabilities divided number units outstanding c practical expedient certain investment classes hold securities readily available redemption measured fair value using net asset value nav per share equivalent classified fair value hierarchy investments measured net asset value per share practical expedient following table summarizes investment classes fair value measured using nav per share equivalent practical expedient december 31 2018 investment classes readily available redemption nav fund based fair value underlying assets portfolio certain investments report nav per share month quarter lag material unfunded commitments respect investment classes alternative fund investment class includes funds various securities selected provide complimentary sources return equity bond portfolios better manage risk company’s alternative fund investments include holdings public equities exchange traded derivatives corporate bonds among others portion alternative funds cannot redeemed one year anniversary purchase date b investment class includes funds invest residential commercial mortgages well global sovereign securities c investment class includes real estate funds publicly traded invest primarily unlisted direct core real estate including superregional malls shopping centers commercial real estate eg education healthcare storage f 40 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated pension plan contributions company made cash contributions qualified pension plans years ended december 31 2018 2017 2016 however company may make discretionary cash contributions qualified pension plans future contributions dependent variety factors including current expected interest rates asset performance funded status qualified pension plans management’s judgment nonqualified unfunded pension plan company continue make contributions 2019 extent benefits paid benefit payments pension plans expected 161 million 2019 166 million 2020 170 million 2021 172 million 2022 174 million 2023 866 million 2024 2028 multiemployer plans company contributes multiemployer plans terms collectivebargaining agreements cover unionrepresented employees multiemployer plans provide medical pension retirement savings benefits active employees retirees company made contributions multiemployer plans 9 million 18 million 31 million years ended december 31 2018 2017 2016 respectively risks participating multiemployer pension plans different singleemployer pension plans following aspects assets contributed multiemployer pension plan one employer may used provide benefits employees participating employers b participating employer stops contributing multiemployer pension plan unfunded obligations plan may borne remaining participating employers c company chooses stop participating multiemployer pension plans may required pay plans amount based underfunded status plan referred withdrawal liability company records withdrawal liabilities longterm liabilities consolidated balance sheets december 31 2018 2017 longterm liabilities includes approximately 104 million 83 million respectively related companys withdrawal multiemployer pension plan multiemployer pension plan company contributed received pension protection act “green” zone status 2017 zone status based recent information company received plan certified plan’s actuary among factors plans green zone least 80 funded defined contribution benefit plans company’s employees may participate charter communications inc 401k savings plan “401k plan” employees qualify participation contribute 50 salary pretax basis subject maximum contribution limit determined internal revenue service company’s matching contribution discretionary equal 100 amount salary reduction participant elects defer 6 participant’s eligible compensation excluding catchup contributions paid company per pay period basis company made contributions 401k plan totaling 290 million 274 million 147 million years ended december 31 2018 2017 2016 respectively employees eligible participate company’s longterm incentive plan covered collective bargaining agreement company offers contribution retirement accumulation plan rap equal 3 eligible pay company made contributions rap totaling 151 million 139 million 48 million years ended december 31 2018 2017 2016 respectively 19 recently issued accounting standards accounting standards adopted january 1 2018 asu 201409 revenue contracts customers “asu 201409” may 2014 financial accounting standards board fasb issued asu 201409 comprehensive revenue recognition standard superseded nearly revenue recognition guidance us gaap asu 201409 provides single principlesbased five step model applied contracts customers steps 1 identify contracts f 41 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated customer 2 identify performance obligations contract 3 determine transaction price 4 allocate transaction price performance obligations contract 5 recognize revenue performance obligation satisfied company adopted asu 201409 january 1 2018 using modified retrospective transition method cumulativeeffect adjustment equity adoption asu 201409 material impact company’s financial position results operation previously reported results restated transition method adoption results deferral residential small medium business installation revenues enterprise commission expenses period time instead recognized immediately adoption also results reclassification amortization upfront fees paid market serve customers reside residential mdus regulatory connectivity produced content within operating costs expenses instead amortized intangible depreciation amortization expense january 1 2018 adoption cumulativeeffect adjustment consisted increase noncurrent assets 120 million increase accounts payable accrued liabilities 71 million increase total member’s equity 49 million company applied cumulativeeffect adjustment contracts january 1 2018 operating results year ended december 31 2018 materially different results would reported guidance effect application asu 201409 asu 201615 statement cash flows topic 230 classification certain cash receipts cash payments “asu 201615” august 2016 fasb issued asu 201615 clarifies entities classify cash receipts cash payments related eight specific cash flow matters statement cash flows objective reducing existing diversity practice company adopted asu 201615 january 1 2018 adoption asu 201615 material impact company’s consolidated financial statements asu 201616 income taxes topic 740 intraentity transfers assets inventory asu 201616 october 2016 fasb issued asu 201616 requires selling entity buying entity intraentity asset transfer inventory immediately recognize current deferred income tax consequences transaction income tax effects intraentity transfers inventory continue deferred inventory sold third party company adopted standard january 1 2018 using modified retrospective approach cumulativeeffect adjustment recognized directly shareholders equity income tax effects intraentity asset transfers inventory happened adoption date company identified 38 million increase total members equity corresponding increase deferred tax assets related adoption recorded year ended december 31 2018 asu 201618 statement cash flows topic 230 restricted cash “asu 201618” november 2016 fasb issued asu 201618 requires amounts generally described restricted cash included cash equivalents reconciling beginningofperiod endofperiod total amounts shown statement cash flows asu 201618 provide definition restricted cash restricted cash equivalents company adopted asu 201618 january 1 2018 new guidance applicable amounts described company restricted cash adoption asu 201615 material impact company’s consolidated financial statements asu 201709 scope modification accounting “asu 201709” may 2017 fasb issued asu 201709 amends scope modification accounting sharebased payment arrangements asu provides guidance types changes terms conditions sharebased payment awards entity would required apply modification accounting asu 201709 applied prospectively awards modified effective date company adopted asu 201709 january 1 2018 adoption asu 201709 material impact company’s consolidated financial statements f 42 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated accounting standards adopted january 1 2019 asu 201602 leases “asu 201602” february 2016 fasb issued asu 201602 requires lessees recognize almost leases balance sheet lease asset lease liability lessees allowed account shortterm leases ie leases term 12 months less offbalance sheet consistent current operating lease accounting income statement purposes fasb retained dual model requiring leases classified either operating finance classification based criteria largely similar applied current lease accounting without explicit bright lines company adopted asu 201602 using modified retrospective approach cumulativeeffect adjustment recorded beginning period adoption january 1 2019 therefore company recognize measure operating leases consolidated balance sheet without revising comparative period information disclosure company elected package practical expedients permitted transition guidance within standard eliminates reassessment past leases classification initial direct costs company also elected land easements practical expedient allows company retrospectively treat land easements leases however must apply lease accounting prospectively land easements meet definition lease company elected available practical expedients implemented internal controls key system functionality enable preparation financial information adoption new standard anticipated result recording leased assets lease liabilities companys operating leases approximately 09 billion 11 billion january 1 2019 adoption standard impact companys members equity anticipated impact companys results operations cash flows adoption new standard result additional disclosures around amount timing uncertainty cash flows arising leases including quantitative qualitative information including significant judgments applying new standard asu 201813 changes disclosure requirements fair value measurement asu 201813 august 2018 fasb issued asu 201813 amends fair value measurement disclosure requirements eliminate add modify certain disclosures improve effectiveness disclosure notes financial statements asu 201813 effective interim annual periods beginning december 15 2019 early adoption permitted company early adopted asu 201813 january 1 2019 adoption asu 201813 material impact companys consolidated financial statements asu 201814 changes disclosure requirements defined benefit plans asu 201814 august 2018 fasb issued asu 201814 amends defined benefit plan disclosure requirements eliminate add modify certain disclosures improve effectiveness disclosure notes financial statements asu 201814 effective interim annual periods beginning december 15 2021 early adoption permitted company early adopted asu 201814 january 1 2019 adoption asu 201814 material impact companys consolidated financial statements accounting standards yet adopted asu 201613 measurement credit losses financial instruments “asu 201613” june 2016 fasb issued asu 201613 requires financial asset group financial assets measured amortized cost basis assessed impairment current expected credit loss model rather incurred loss model measurement expected credit losses based relevant information past events including historical experience current conditions reasonable supportable forecasts affect collectability reported amount asu 201613 effective interim annual periods beginning december 15 2019 january 1 2020 company early adoption permitted company currently evaluating impact adoption asu 201613 consolidated financial statements f 43 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated asu 201704 simplifying test goodwill impairment “asu 201704” january 2017 fasb issued asu 201704 eliminates step two goodwill impairment test new standard extent carrying amount reporting unit exceeds fair value company record impairment charge equal difference impairment charge recognized exceed total amount goodwill allocated reporting unit asu 201704 effective interim annual periods beginning december 15 2019 january 1 2020 company early adoption permitted company expect adoption asu 201704 material impact consolidated financial statements asu 201815 customer’s accounting implementation costs cloud computing arrangement service contract asu 201815 august 2018 fasb issued asu 201815 requires upfront implementation costs incurred cloud computing arrangement hosting arrangement service contract amortized hosting expense term arrangement beginning module component hosting arrangement ready intended use asu 201815 effective annual interim periods beginning december 15 2019 january 1 2020 company early adoption permitted company currently process evaluating impact adoption asu 201815 consolidated financial statements 20 consolidating schedules charter operating twc llc twce cco holdings certain subsidiaries jointly severally fully unconditionally guarantee outstanding debt securities others cco holdings notes unsecured senior basis condensed consolidating financial information prepared presented pursuant sec regulation sx rule 310 financial statements guarantors issuers guaranteed securities registered certain charter operating subsidiaries regulated telephone entities become guarantor subsidiaries upon approval regulators information intended present financial position results operations cash flows individual companies groups companies accordance generally accepted accounting principles “charter operating restricted subsidiaries” column presented comply terms credit agreement condensed consolidating financial statements december 31 2018 2017 years ended december 31 2018 2017 2016 follow f 44 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated f 45 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated f 46 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated f 47 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated f 48 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated f 49 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated f 50 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated f 51 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated f 52 cco holdings llc subsidiaries notes consolidated financial statements december 31 2018 2017 2016 dollars millions except indicated f 53 item 15 exhibits financial statement schedules following documents filed part annual report 1 financial statements listing financial statements notes reports independent public accountants required item 8 begins page annual report 2 financial statement schedules financial statement schedules required filed items 8 15d required applicable required information set forth applicable financial statements notes thereto 3 index exhibits begins page e1 annual report agree furnish sec upon request copies longterm debt instruments authorize amount securities constituting 10 less total assets charter subsidiaries consolidated basis signatures pursuant requirements section 13 15d securities exchange act 1934 cco holdings llc cco holdings capital corp duly caused annual report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf charter communications inc capacities dates indicated signature title date michael j lovett michael j lovett interim president chief executive officer principal executive officer march 30 2010 eloise e schmitz eloise e schmitz chief financial officer principal financial officer march 30 2010 kevin howard kevin howard chief accounting officer principal accounting officer march 30 2010 robert cohn robert cohn director march 25 2010 w lance conn w lance conn director march 30 2010 darren glatt darren glatt director march 29 2010 bruce karsh bruce karsh director march 30 2010 john markley jr john markley jr director march 26 2010 william l mcgrath william l mcgrath director march 24 2010 david c merritt david c merritt director march 30 2010 christopher temple christopher temple director march 30 2010 eric l zinterhofer eric l zinterhofer director march 30 2010 s1 exhibit index exhibits listed numbers corresponding exhibit table item 601 regulation sk exhibit description 21 debtors’ disclosure statement filed pursuant chapter 11 united states bankruptcy code filed may 1 2009 united states bankruptcy court southern district new york case 0911435 jointly administered incorporated reference exhibit 101 quarterly report form 10q charter communications inc filed august 6 2009 file 00133664 22 debtors’ joint plan reorganization filed pursuant chapter 11 united states bankruptcy code filed july 15 2009 united states bankruptcy court southern district new york case 0911435 jointly administered incorporated reference exhibit 102 quarterly report form 10q charter communications inc filed august 6 2009 file 00133664 31a certificate formation cco holdings llc incorporated reference exhibit 31 registration statement form s4 cco holdings llc cco holdings capital corporation filed february 6 2004 file 333112593 31b certificate correction certificate formation cco holdings llc incorporated reference exhibit 32 registration statement form s4 cco holdings llc cco holdings capital corporation filed february 6 2004 file 333112593 32 second amended restated limited liability company agreement cco holdings llc dated november 30 2009 33 amended restated certificate formation cco holdings capital corp 104 indenture relating 8 34 senior notes due 2013 dated november 10 2003 among cco holdings llc cco holdings capital corp wells fargo bank na trustee incorporated reference exhibit 41 charter communications incs current report form 8k filed november 12 2003 file 00027927 105 indenture relating 8 senior second lien notes due 2012 8 38 senior second lien notes due 2014 dated april 27 2004 among charter communications operating llc charter communications operating capital corp wells fargo bank na trustee incorporated reference exhibit 1032 amendment 2 registration statement form s4 cch ii llc filed may 5 2004 file 333111423 106a indenture relating 10875 senior second lien notes due 2014 dated march 19 2008 among charter communications operating llc charter communications operating capital corp wilmington trust company trustee incorporated reference exhibit 101 quarterly report filed form 10q charter communications inc filed may 12 2008 file 000027927 106b collateral agreement dated march 19 2008 among charter communications operating llc charter communications operating capital corp cco holdings llc certain subsidiaries favor wilmington trust company trustee incorporated reference exhibit 102 quarterly report filed form 10q charter communications inc filed may 12 2008 file 000027927 107 indenture relating 135 senior notes due 2016 dated november 30 2009 among cch ii llc cch ii capital corp bank new york mellon trust company na incorporated reference exhibit 101 current report form 8k charter communications inc filed december 4 2009 file 00133664 108 registration rights agreement dated november 30 2009 among charter communications inc certain investors listed therein incorporated reference exhibit 102 current report form 8k charter communications inc filed december 4 2009 file 00133664 109 exchange registration rights agreement dated november 30 2009 among cch ii llc cch ii capital corp certain investors listed therein incorporated reference exhibit 103 current report form 8k charter communications inc filed december 4 2009 file 00133664 1010 amended restated limited liability company agreement dated november 30 2009 among charter communications inc charter investment inc charter communications holding company llc incorporated reference exhibit 104 current report form 8 e1 k charter communications inc filed december 4 2009 file 00133664 1011 exchange agreement dated november 30 2009 among charter communications inc charter investment inc paul g allen charter communications holding company llc incorporated reference exhibit 105 current report form 8k charter communications inc filed december 4 2009 file 00133664 1012 amended restated management agreement dated june 19 2003 charter communications operating llc charter communications inc incorporated reference exhibit 104 quarterly report form 10q filed charter communications inc august 5 2003 file 33383887 1013 second amended restated mutual services agreement dated june 19 2003 charter communications inc charter communications holding company llc incorporated reference exhibit 105a quarterly report form 10q filed charter communications inc august 5 2003 file 00027927 1014 second amended restated limited liability company agreement charter communications operating llc dated november 30 2009 1015 amended restated credit agreement dated march 6 2007 among charter communications operating llc cco holdings llc lenders time parties thereto jpmorgan chase bank na administrative agent incorporated reference exhibit 101 current report form 8k charter communications inc filed march 12 2007 file 00027927 1016 amended restated guarantee collateral agreement made cco holdings llc charter communications operating llc certain subsidiaries favor jpmorgan chase bank na administrative agent dated march 18 1999 amended restated march 6 2007 incorporated reference exhibit 102 current report form 8k charter communications inc filed march 12 2007 file 00027927 1017 credit agreement dated march 6 2007 among cco holdings llc lenders time parties thereto bank america na administrative agent incorporated reference exhibit 103 current report form 8k charter communications inc filed march 12 2007 file 00027927 1018 pledge agreement made cco holdings llc favor bank america na collateral agent dated march 6 2007 incorporated reference exhibit 104 current report form 8k charter communications inc filed march 12 2007 file 00027927 1019 charter communications inc amended restated 2009 stock incentive plan incorporated reference exhibit 101 current report form 8k charter communications inc filed december 21 2009 file 00133664 1020 summary charter communications inc 2009 executive bonus plan incorporated reference exhibit 102 quarterly report form 10q charter communications inc filed may 7 2009 file 00133664 1021a amended restated employment agreement dated july 1 2008 neil smit charter communications inc incorporated reference exhibit 101 current report form 8k charter communications inc filed september 30 2008 file 00027927 1021b amendment employment agreement neil smit dated november 30 2009 incorporated reference exhibit 107 current report form 8k charter communications inc filed december 4 2009 file 00133664 1022a amended restated employment agreement eloise e schmitz charter communications inc dated july 1 2008 incorporated reference exhibit 104 quarterly report form 10q charter communications inc filed august 5 2008 file 00027927 1022b amendment amended restated employment agreement eloise schmitz dated november 30 2009 incorporated reference exhibit 108 current report form 8k charter communications inc filed december 4 2009 file 00133664 1023a amended restated employment agreement michael j lovett charter communications inc dated august 1 2007 incorporated reference exhibit 103 quarterly report form 10q charter communications inc filed august 2 2007 file 00027927 1023b amendment amended restated employment agreement michael j lovett charter communications inc dated march 5 2008 incorporated reference exhibit 105 quarterly report form 10q charter communications inc filed may 12 2008 file 00027927 1024 amended restated employment agreement marwan fawaz charter e2 communications inc dated february 23 2010 1025 charter communications inc value creation plan adopted march 12 2009 incorporated reference exhibit 101 quarterly report form 10q charter communications inc filed may 7 2009 file 00133664 1026 form indemnification agreement incorporated reference exhibit 101 current report form 8k charter communications inc filed february 12 2010 file 00133664 121 cco holdings llc’s computation ratio earnings fixed charges 311 certificate chief executive officer cco holdings llc pursuant rule 13a14arule 15d14a securities exchange act 1934 312 certificate chief financial officer cco holdings llc pursuant rule 13a14arule 15d14a securities exchange act 1934 321 certification cco holdings llc pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 chief executive officer 322 certification cco holdings llc pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 chief financial officer filed herewith management compensatory plan arrangement e3 report independent registered public accounting firm manager member cco holdings llc audited accompanying consolidated balance sheets cco holdings llc subsidiaries december 31 2009 successor company 2008 predecessor company collectively company related consolidated statements operations changes member’s equity deficit cash flows one month ended december 31 2009 successor company eleven months ended november 30 2009 predecessor company years twoyear period ended december 31 2008 predecessor company consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position cco holdings llc subsidiaries december 31 2009 successor company 2008 predecessor company results operations cash flows one month ended december 31 2009 successor company eleven months ended november 30 2009 predecessor company years twoyear period ended december 31 2008 predecessor company conformity us generally accepted accounting principles discussed note 2 consolidated financial statements cco holdings llc’s ultimate parent charter communications inc subsidiaries including cco holdings llc collectively charter filed petition reorganization chapter 11 united states bankruptcy code march 27 2009 charter’s plan reorganization became effective charter emerged bankruptcy protection november 30 2009 connection emergence bankruptcy charter adopted freshstart accounting conformity aicpa statement position 907 financial reporting entities reorganization bankruptcy code included fasb asc topic 852 reorganizations effective november 30 2009 accordingly company’s consolidated financial statements prior november 30 2009 comparable consolidated financial statements periods november 30 2009 discussed note 11 consolidated financial statements effective january 1 2009 company adopted statement financial accounting standards 160 noncontrolling interests consolidated financial statements amendment arb 51 included fasb asc topic 810 consolidations kpmg llp st louis missouri march 29 2010 cco holdings llc subsidiaries consolidated balance sheets dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries consolidated statements operations dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries consolidated statements changes member’s equity deficit dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated 1 organization basis presentation organization cco holdings llc “cco holdings” holding company whose principal assets december 31 2009 equity interests operating subsidiaries cco holdings direct subsidiary cch ii llc “cch ii” indirect subsidiary charter communications inc “charter” consolidated financial statements include accounts cco holdings subsidiaries underlying operations reside collectively referred herein “company” significant intercompany accounts transactions among consolidated entities eliminated company broadband communications company operating united states company offers residential commercial customers traditional cable video programming basic digital video highspeed internet services telephone services well advanced broadband services high definition television charter ondemand™ digital video recorder “dvr” service company sells cable video programming highspeed internet telephone advanced broadband services primarily subscription basis company also sells local advertising cable networks basis presentation consolidated financial statements prepared accordance accounting principles generally accepted united states “gaap” effective december 1 2009 company applied fresh start accounting requires assets liabilities reflected fair value financial information set forth report unless otherwise expressly set forth context otherwise indicates reflects consolidated results operations financial condition cco holdings subsidiaries period following november 30 2009 “successor” cco holdings subsidiaries periods november 30 2009 “predecessor” preparation financial statements conformity gaap requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period areas involving significant judgments estimates include capitalization labor overhead costs depreciation amortization costs impairments property plant equipment intangibles goodwill income taxes contingencies fresh start accounting actual results could differ estimates certain prior year amounts reclassified conform 2009 presentation 2 emergence reorganization proceedings related events march 27 2009 company parent companies certain affiliates collectively “debtors” filed voluntary petitions united states bankruptcy court southern district new york “bankruptcy court” reorganize chapter 11 united states code “bankruptcy code” chapter 11 cases jointly administered caption charter communications inc et al case 0911435 may 7 2009 company filed joint plan reorganization plan related disclosure statement “disclosure statement” bankruptcy court plan confirmed order bankruptcy court november 17 2009 “confirmation order” became effective november 30 2009 “effective date” date company parent companies emerged protection chapter 11 bankruptcy code provided plan confirmation order notes bank debt charter communications operating llc “charter operating” cco holdings remained outstanding ii holders approximately 15 billion notes issued cch ii received new cch ii notes “notes exchange” iii holders notes issued cch llc “cch llc” received 211 million shares new charter class common stock iv holders notes issued cch holdings llc “cih” received 64 million warrants purchase shares new charter class common stock exercise price 4686 per share expire five years date issuance cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated v holders notes issued charter communications holdings llc “charter holdings” received 13 million warrants purchase shares new charter class common stock exercise price 5128 per share expire five years date issuance vi holders convertible notes issued charter received 25 million 55 million shares preferred stock issued charter vii previously outstanding shares charter class b common stock cancelled addition part plan holders cch notes received transferred mr paul g allen charter’s principal stockholder 85 million new cch ii notes plan resulted reduction principal amount company’s parent companies’ debt approximately 8 billion reducing interest expense approximately 830 million annually consummation plan funded cash hand notes exchange net proceeds approximately 16 billion equity rights offering “rights offering” holders cch notes purchased new charter class common stock connection plan charter mr allen charter investment inc “cii” entered separate restructuring agreement amended “allen agreement” settlement compromise legal contractual equitable rights claims remedies charter subsidiaries addition amounts received virtue cii’s holding claims charter subsidiaries effective date cii issued 22 million shares new charter class b common stock equal 2 equity value charter giving effect rights offering prior issuance warrants equitybased awards provided plan 35 determined fully diluted basis total voting power new capital stock charter share new charter class b common stock convertible option holder one share new charter class common stock subject significant restrictions transfer conversion certain holders new charter class common stock securities convertible exercisable exchangeable therefore new charter class b common stock received certain customary registration rights respect shares effective date cii received 47 million warrants purchase shares new charter class common stock ii 85 million principal amount new cch ii notes transferred cch noteholders iii 25 million cash amounts previously owed cii management agreement iv 20 million cash reimbursement fees expenses connection plan v additional 150 million cash warrants described exercise price 1980 per share expire seven years date issuance addition effective date cii retained minority equity interest reorganized charter holdco 1 right exchange interest new charter class common stock december 28 2009 cii exchanged 81 interest charter holdco february 8 2010 remaining interest exchanged charter holdco became 100 owned charter “holdco exchange” ownership cii transferred charter warrants common stock previously issued cii transferred mr allen connection holdco exchange transfer cii’s ownership charter connection plan mr allen transferred preferred equity interest cc viii llc “cc viii” charter mr allen right elect four charters eleven board members fresh start accounting upon company’s emergence bankruptcy company adopted fresh start accounting resulted company becoming new entity december 1 2009 new capital structure new accounting basis identifiable assets liabilities assumed retained earnings accumulated losses accordingly consolidated financial statements december 1 2009 comparable consolidated financial statements prior date financial statements periods ended prior november 30 2009 include effect changes company’s capital structure changes fair value assets liabilities result fresh start accounting company selected december 1 2009 adoption fresh start accounting accordingly results operations company eleven months ended november 30 2009 include reorganization items 550 million preemergence loss 2 million addition company recorded pretax credit earnings 55 billion resulting aggregate changes net carrying value preemergence assets liabilities record fair values fresh start accounting fresh start accounting provides among things determination value assigned equity emerging company date selected financial reporting purposes disclosure statement related cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated plan reorganization value charter set forth approximately 141 billion 166 billion midpoint estimate 154 billion reorganization value represents amount resources available satisfaction postpetition liabilities allowed claims negotiated debtors creditors reorganization value along terms plan determined extensive armslength negotiations company’s parent companies’ creditors value based upon expected future cash flows business emergence chapter 11 discounted rates reflecting perceived business financial risks discounted cash flows valuation using market value multiples peer companies blended arrive reorganization value reorganization value intended approximate amount willing buyer would pay assets charter immediately reorganization valuation analysis relied predominantly discounted cash flows “dcf” analysis comparable company analysis precedent transaction analysis performed reliance methodology purposes determining reorganization value minimal precedent transaction analysis based enterprise values companies involved public merger acquisition transactions operating financial characteristics similar charter due factors including market environment identical transactions occurring different periods ii circumstances pertaining financial position company may impact resulting purchase price less reliance applied precedent transaction analysis detailed explanation dcf analysis comparable company analysis discussed basis dcf analysis projections published plan fiveyear projections based management’s assumptions including among others penetration rates basic digital video highspeed internet telephone revenue growth rates operating margins capital expenditures assumptions derived based charter’s peers’ historical operating performance adjusted current expected competitive economic factors surrounding cable industry dcf analysis completed using discount rates ranging 105 115 based charter’s cost equity aftertax cost debt perpetuity growth rates 25 35 reorganization value resulting equity value highly dependent achievement future financial results contemplated projections published plan estimates assumptions made valuation inherently subject significant uncertainties many beyond control assurance results achieved primary assumptions reasonable possibility occurrence variation would significantly affected reorganization value include assumptions regarding revenue growth programming expense growth rates amount timing capital expenditures discount rate utilized valuation also utilized comparable companies methodology identified group publicly traded companies whose financial operating characteristics similar charter whole examined trading prices equity securities companies public markets added aggregate amount outstanding net debt companies book value current market values noncontrolling interest less market value unconsolidated investments range valuation multiples applied projections derive range implied enterprise values charter whole multiples ranged 50 60 depending comparable company based conditions cable industry general economic conditions midpoint range valuations used determine reorganization value fresh start accounting reorganization value adjusted assets owned parent companies allocated company’s assets based respective fair values reorganization value adjustments working capital reduced fair value debt noncurrent liabilities remainder representing value member cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated significant assumptions related valuations company’s assets connection fresh start accounting include following property plant equipment property plant equipment valued fair value 68 billion november 30 2009 establishing fair value vast majority company’s property plant equipment cost approach utilized cost approach considers amount required replace asset constructing purchasing new asset similar utility adjusts value consideration forms depreciation appraisal date described · physical depreciation loss value usefulness attributable solely use asset physical causes wear tear exposure elements · functional obsolescence loss value due factors inherent asset due changes technology design process resulting inadequacy overcapacity lack functional utility excess operating costs · economic obsolescence loss value unfavorable external conditions economics industry geographic area change ordinances cost approach relies management’s assumptions regarding current material labor costs required rebuild repurchase significant components company’s property plant equipment along assumptions regarding age estimated useful lives company’s property plant equipment intangible assets company identified following intangible assets valued franchise marketing rights ii customer relationships franchise marketing rights customer relationships valued using income approach valued 53 billion 24 billion respectively november 30 2009 see note 6 consolidated financial statements description methods used value intangible assets longterm debt longterm debt valued fair value using quoted market prices adjustments presented company’s november 30 2009 balance sheet balance sheet reorganization adjustments presented summarize impact plan adoption fresh start accounting effective date cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated cco holdings llc subsidiaries reorganized condensed consolidated balance sheet cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated explanatory notes 1 represents amounts recorded effective date implementation plan including settlement liabilities subject compromise related payments distributions cash cancellation predecessor’s membership units 2 cash effects plan entry records contributions company’s parent company payment certain bankruptcy obligations november 30 2009 cash 26 million reclassified restricted cash represents amounts held escrow accounts pending final resolution bankruptcy court 3 represents payment charter operating interest rate swap termination liability accrued interest reinstated debt reclassification 9 million certain liabilities previously classified subject compromise 4 represents reclassification 117 billion debt current longterm part reinstatement debt 5 represents reclassification 36 million longterm liabilities previously classified subject compromise 6 represents payment 25 million deferred management feesrelated party reinstatement 45 million accrued expenses 7 represents transfer mr allen’s preferred equity interest cc viii noncontrolling interest fair value 8 reconciliation reorganization value determination equity cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated 9 result plan following adjustments recorded members’ equity 10 following table summarizes allocation reorganization value cco holdings’ assets date emergence shown reorganized consolidated balance sheet november 30 2009 liabilities also adjusted fair value application fresh start accounting resulting reduction longterm debt 502 million based market values cco holdings’ reinstated debt instruments november 30 2009 see note 8 consolidated financial statements addition deferred tax liabilities 211 million recorded accordance accounting guidance regarding reorganizations income taxes 11 adjustments required report assets liabilities fair value fresh start accounting resulted pretax gain 55 billion reported gain due fresh start accounting adjustments consolidated statement operations eleven months ended november 30 2009 following summary adjustments member’s equity result fresh start accounting adjustments 12 represents elimination accumulated comprehensive loss cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated 3 summary significant accounting policies cash equivalents company considers highly liquid investments maturities purchase three months less cash equivalents investments carried cost approximates market value cash equivalents consist primarily money market funds commercial paper property plant equipment additions property plant equipment recorded cost including material labor certain indirect costs associated construction cable transmission distribution facilities company’s capitalization based specific activities capitalized costs tracked fixed asset category cable system level specific asset basis assets sold retired estimated historical cost related accumulated depreciation removed costs associated initial customer installations additions network equipment necessary enable advanced services capitalized costs capitalized part initial customer installations include materials labor certain indirect costs indirect costs associated activities company’s personnel assist connecting activating new service consist compensation indirect costs associated support functions indirect costs primarily include employee benefits payroll taxes direct variable costs associated capitalizable activities consisting primarily installation construction vehicle costs cost dispatch personnel indirect costs directly attributable capitalizable activities costs disconnecting service customer’s dwelling reconnecting service previously installed dwelling charged operating expense period incurred costs repairs maintenance charged operating expense incurred plant equipment replacement betterments including replacement cable drops pole dwelling capitalized depreciation recorded using straightline composite method management’s estimate useful lives related assets follows asset retirement obligations certain company’s franchise agreements leases contain provisions requiring company restore facilities remove equipment event franchise lease agreement renewed company expects continually renew franchise agreements concluded substantially related franchise rights indefinite lived intangible assets accordingly possibility remote company would required incur significant restoration removal costs related franchise agreements foreseeable future liability required recognized asset retirement obligation period incurred reasonable estimate fair value made company recorded estimate potential franchise related obligations would record estimated liability unlikely event franchise agreement containing provision longer expected renewed company also expects renew many lease agreements related continued operation cable business franchise areas company’s lease agreements estimated liabilities related removal provisions applicable recorded significant financial statements franchises franchise rights represent value attributed agreements local authorities allow access homes cable service areas acquired purchase cable systems management estimates fair value franchise rights date acquisition determines franchise finite life indefinitelife cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated franchises qualify indefinitelife treatment tested impairment annually frequently warranted events changes circumstances see note 6 company concluded substantially franchises qualify indefinitelife treatment customer relationships customer relationships represent value attributable company’s business relationships current customers including right deploy market additional services customers customer relationships amortized accelerated basis period relationships expected generate cash flows goodwill company assesses recoverability goodwill annually frequently whenever events changes circumstances indicate asset might impaired company performs assessment goodwill one level operating segment level represented geographical groupings cable systems managed noncurrent assets noncurrent assets primarily include intangible assets december 31 2009 deferred financing costs intangible assets december 31 2008 costs related borrowings deferred amortized interest expense terms related borrowings prior deferred financing costs eliminated part fresh start accounting valuation longlived assets company evaluates recoverability longlived assets held used impairment events changes circumstances indicate carrying amount asset may recoverable events changes circumstances could include factors impairment company’s indefinite life assets changes technological advances fluctuations fair value assets adverse changes relationships local franchise authorities adverse changes market conditions deterioration operating results review indicates carrying value asset recoverable estimated undiscounted cash flows carrying value asset reduced estimated fair value company believes estimates future cash flows reasonable different assumptions regarding cash flows could materially affect evaluations asset recoverability impairments longlived assets held used recorded 2009 2008 2007 however approximately 56 million impairment assets held sale related cable systems meeting criteria assets held sale recorded year ended december 31 2007 derivative financial instruments gains losses related derivative financial instruments qualify hedging activities recorded accumulated comprehensive income loss derivative instruments related gains losses recorded statements operations company used interest rate swap agreements manage interest costs reduce company’s exposure increases floating interest rates company’s policy manage exposure fluctuations interest rates maintaining mix fixed variable rate debt within targeted range using interest rate swap agreements company agreed exchange specified intervals 2013 difference fixed variable interest amounts calculated reference agreedupon notional principal amounts banks’ option certain interest rate swap agreements could extended 2014 company hold issue derivative financial instruments trading purposes upon filing chapter 11 bankruptcy counterparties interest rate swap agreements terminated underlying contracts upon emergence bankruptcy received payment market value interest rate swap measured date counterparties terminated company hold derivative financial instruments december 31 2009 cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated revenue recognition revenues residential commercial video highspeed internet telephone services recognized related services provided advertising sales recognized estimated realizable values period advertisements broadcast franchise fees imposed local governmental authorities collected monthly basis company’s customers periodically remitted local franchise authorities franchise fees 15 million 166 million 187 million 177 million one month ended december 31 2009 eleven months ended november 30 2009 years ended december 31 2008 2007 respectively reported revenues gross basis corresponding operating expense sales taxes collected remitted state local authorities recorded net basis company’s revenues product line follows programming costs company various contracts obtain basic digital premium video programming program suppliers whose compensation typically based flat fee per customer cost right exhibit network programming arrangements recorded operating expenses month programming available exhibition programming costs paid month based calculations performed company subject periodic audits performed programmers certain programming contracts contain incentives paid programmers company receives payments recognizes incentives straightline basis life programming agreement reduction programming expense offset programming expense 2 million 24 million 33 million 25 million one month ended december 31 2009 eleven months ended november 30 2009 years ended december 31 2008 2007 respectively december 31 2009 2008 deferred amounts economic consideration included longterm liabilities 36 million 61 million respectively programming costs included accompanying statements operations 146 million 16 billion 16 billion 16 billion one month ended december 31 2009 eleven months ended november 30 2009 years ended december 31 2008 2007 respectively advertising costs advertising costs associated marketing company’s products services generally expensed costs incurred advertising expense 20 million 230 million 229 million 187 million one month ended december 31 2009 eleven months ended november 30 2009 years ended december 31 2008 2007 respectively cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated multipleelement transactions normal course business company enters multipleelement transactions simultaneously customer vendor counterparty purchases multiple products andor services settles outstanding items contemporaneous purchase product service single counterparty transactions although negotiated contemporaneously may documented one contracts company’s policy accounting transaction negotiated contemporaneously record element transaction based respective estimated fair values products services purchased products services sold determining fair value respective elements company refers quoted market prices available historical transactions comparable cash transactions stockbased compensation company recorded 1 million 26 million 33 million 18 million option compensation expense included general administrative expenses one month ended december 31 2009 eleven months ended november 30 2009 years ended december 31 2008 2007 respectively fair value option granted estimated date grant using blackscholes optionpricing model following weighted average assumptions used grants years ended december 31 2008 2007 respectively riskfree interest rates 35 46 expected volatility 881 703 based historical volatility expected lives 63 years 63 years respectively valuations assume dividends paid company grant stock options 2009 income taxes cco holdings single member limited liability company subject income tax cco holdings holds operations indirect subsidiaries majority indirect subsidiaries limited liability companies also subject income tax however certain cco holdings’ indirect subsidiaries corporations subject income tax company recognizes deferred tax assets liabilities temporary differences financial reporting basis tax basis indirect subsidiaries’ assets liabilities expected benefits utilizing net operating loss carryforwards impact deferred taxes changes tax rates tax law applied years temporary differences expected settled reflected consolidated financial statements period enactment see note 19 charter company’s indirect parent company subject income taxes accordingly addition company’s deferred tax liabilities charter recorded net deferred tax liabilities approximately 93 million related investment charter holdco reflected company segments company’s operations managed basis geographic operating segments company evaluated criteria aggregation geographic operating segments believes meets respective criteria set forth company delivers similar products services within geographic operations geographic service area utilizes similar means delivering programming company’s services similarity type class customer receiving products services distributes company’s services unified network operates within consistent regulatory environment addition geographic operating segments similar economic characteristics light company’s similar services means delivery similarity type customers use unified network considerations across geographic operating structure management determined company one reportable segment broadband services cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated 4 allowance doubtful accounts activity allowance doubtful accounts summarized follows years presented effective date company applied fresh start accounting adjusted accounts receivable reflect fair value therefore allowance doubtful accounts eliminated november 30 2009 5 property plant equipment property plant equipment consists following december 31 2009 2008 company periodically evaluates estimated useful lives used depreciate assets estimated amount assets abandoned minimal use future significant change assumptions extent timing future asset retirements company’s use new technology upgrade programs could materially affect future depreciation expense 2007 company changed useful lives certain property plant equipment based technological changes change useful lives reduced depreciation expense approximately 81 million 8 million 2008 2007 respectively effective date company applied fresh start accounting adjusted property plant equipment reflect fair value adjusted remaining useful lives existing property plant equipment future purchases depreciation expense one month ended december 31 2009 eleven months ended november 30 2009 years ended december 31 2008 2007 94 million 12 billion 13 billion 13 billion respectively cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated 6 franchises goodwill intangible assets franchise rights represent value attributed agreements authorizations local state authorities allow access homes cable service areas franchises tested impairment annually frequently warranted events changes circumstances franchises aggregated essentially inseparable units accounting conduct valuations units accounting generally represent geographical clustering company’s cable systems groups systems managed management believes grouping represents highest best use assets result continued economic pressure company’s customers recent economic downturn along increased competition company determined projected future growth would lower previously anticipated annual impairment testing december 2008 accordingly company determined sufficient indicators existed require perform interim franchise impairment analysis september 30 2009 date filing quarterly report form 10q quarter ended september 30 2009 company determined impairment franchises probable could reasonably estimated accordingly quarter ended september 30 2009 company recorded preliminary noncash franchise impairment charge 29 billion represented company’s best estimate impairment franchise assets company finalized franchise impairment analysis two months ended november 30 2009 recorded reduction noncash franchise impairment charge 691 million company recorded noncash franchise impairment charges 15 billion 178 million years ended december 31 2008 2007 respectively impairment charge recorded 2008 primarily result impact economic downturn along increased competition impairment charge recorded 2007 primarily result increase competition effective date company applied fresh start accounting adjusted franchise goodwill intangible assets including customer relationships reflect fair value company’s valuations based present value projected tax cash flows resulted value property plant equipment franchises customer relationships unit accounting result applying fresh start accounting company recorded goodwill 951 million represents excess reorganization value amounts assigned assets see note 2 company determined estimated fair value unit accounting utilizing income approach model based present value estimated discrete future cash flows attributable intangible assets identified unit assuming discount rate approach makes use unobservable factors projected revenues expenses capital expenditures discount rate applied estimated cash flows determination discount rate based weighted average cost capital approach uses market participant’s cost equity aftertax cost debt reflects risks inherent cash flows company estimated discounted future cash flows using reasonable appropriate assumptions including among others penetration rates basic digital video highspeed internet telephone revenue growth rates operating margins capital expenditures assumptions derived based company’s peers’ historical operating performance adjusted current expected competitive economic factors surrounding cable industry estimates assumptions made company’s valuations inherently subject significant uncertainties many beyond control assurance results achieved primary assumptions reasonable possibility occurrence variation would significantly affect measurement value include assumptions regarding revenue growth programming expense growth rates amount timing capital expenditures discount rate utilized assumptions used consistent current internal forecasts differ assumptions used annual impairment testing december 2008 result economic competitive environment discussed previously change assumptions reflects lower anticipated growth revenues experienced 2009 expected reduction future cash flows compared used december 2008 valuations franchises valuation purposes defined future economic benefits right solicit service potential customers customer marketing rights right deploy market new services cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated interactivity telephone potential customers service marketing rights fair value determined based estimated discrete discounted future cash flows using assumptions consistent internal forecasts franchise aftertax cash flow calculated aftertax cash flow generated potential customers obtained less anticipated customer churn new services added customers future periods sum present value franchises aftertax cash flow years 1 10 continuing value aftertax cash flow beyond year 10 yields fair value franchises increased 62 million result application fresh start accounting subsequent finalization franchise impairment charge fresh start accounting franchises recorded fair value 53 billion franchises expected generate cash flows indefinitely continue tested impairment annually customer relationships valuation purposes represent value business relationship existing customers less anticipated customer churn calculated projecting discrete future aftertax cash flows customers including right deploy market additional services customers present value aftertax cash flows yields fair value customer relationships company recorded 24 billion customer relationships connection application fresh start accounting effective date customer relationships amortized accelerated method useful lives 1115 years based period current customers expected generate cash flows december 31 2009 2008 indefinitelived finitelived intangible assets presented following table franchise amortization expense predecessor represents amortization relating franchises qualify indefinitelife treatment including costs associated franchise renewals franchise amortization expense eleven months ended november 30 2009 years ended december 31 2008 2007 2 million 2 million 3 million respectively amortization expense related customer relationships intangible assets one month ended december 31 2009 eleven months ended november 30 2009 years ended december 31 2008 2007 28 million 5 million 5 million 4 million respectively eleven months ended november 30 2009 net carrying amount indefinitelived franchises reduced 9 million related cable asset sales completed 2009 cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated company expects amortization expense finitelived intangible assets follows actual amortization expense future periods could differ estimates result new intangible asset acquisitions divestitures changes useful lives relevant factors 7 accounts payable accrued expenses accounts payable accrued expenses consist following december 31 2009 2008 8 longterm debt longterm debt consists following december 31 2009 2008 cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated effective date company applied fresh start accounting adjusted debt reflect fair value therefore december 31 2009 accreted values presented represent fair value notes effective date plus accretion balance sheet date however amount currently payable debt becomes immediately due equal principal amount notes december 31 2008 accreted values presented generally represented principal amount notes less original issue discount time sale plus accretion balance sheet date cco holdings notes cco holdings notes senior debt obligations cco holdings cco holdings capital corp rank equally current future unsecured unsubordinated obligations cco holdings cco holdings capital corp cco holdings notes structurally subordinated obligations subsidiaries cco holdings including charter operating notes charter operating credit facilities issuers cco holdings 8 ¾ senior notes may redeem part notes redemption price declines ratably redemption price 102917 redemption price november 15 2011 1000 principal amount cco holdings 8 ¾ senior notes redeemed plus case accrued unpaid interest event specified change control events cco holdings must offer purchase outstanding cco holdings senior notes holders purchase price equal 101 total principal amount notes plus accrued unpaid interest charter operating notes charter operating notes senior debt obligations charter operating charter communications operating capital corp extent value collateral subject prior lien credit facilities rank effectively senior charter operating’s future unsecured senior indebtedness collateral currently consists capital stock charter operating held cco holdings intercompany obligations owing cco holdings charter operating subsidiary charter operating substantially charter operating’s guarantors’ assets cco holdings cco holdings subsidiaries charter operating guarantors otherwise obligors respect indebtedness charter operating credit facilities related obligations guarantee charter operating notes charter operating may time option redeem outstanding 8 second lien notes due 2012 whole part redemption price equal 100 principal amount thereof plus accrued unpaid interest redemption date plus makewhole premium makewhole premium amount equal excess present value remaining interest principal payments due 8 senior secondlien note due 2012 final maturity date computed using discount rate equal treasury rate date plus 050 b outstanding principal amount note april 30 2009 charter operating may redeem part 8 38 senior second lien notes redemption price declines ratably initial redemption price 104188 redemption price april 30 2012 100 principal amount 8 38 senior second lien notes redeemed plus case accrued unpaid interest march 2008 charter operating issued 546 million principal amount 10875 senior secondlien notes due 2014 guaranteed cco holdings certain subsidiaries charter operating private transaction net proceeds senior secondlien notes used reduce borrowings commitments revolving portion charter operating credit facilities charter operating 10875 senior secondlien notes may redeemed option charter operating varying dates case premium plus makewhole premium makewhole premium amount equal excess present value remaining interest principal payments due cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated 10875 senior secondlien note due 2014 final maturity date computed using discount rate equal treasury rate date plus 050 b outstanding principal amount note charter operating 10875 senior secondlien notes may redeemed time march 15 2012 specified prices event specified change control events charter operating must offer purchase charter operating 10875 senior secondlien notes purchase price equal 101 total principal amount charter operating notes repurchased plus accrued unpaid interest thereon highyield restrictive covenants limitation indebtedness indentures governing cco holdings charter operating notes contain certain covenants restrict ability cco holdings cco holdings capital corp charter operating charter communications operating capital corp restricted subsidiaries · incur additional debt · pay dividends equity repurchase equity · make investments · sell substantially assets merge companies · sell assets · enter saleleasebacks · case restricted subsidiaries create permit exist dividend payment restrictions respect bond issuers guarantee parent companies debt issue specified equity interests · engage certain transactions affiliates · grant liens cco holdings credit facility cco holdings credit facility consists 350 million term loan term loan matures september 6 2014 cco holdings credit facility also allows company enter incremental term loans future maturing dates set forth notices establishing term loans earlier maturity date existing term loans however assurance given company could obtain incremental term loans cco holdings sought borrowings cco holdings credit facility bear interest variable interest rate based either libor base rate plus either case applicable margin applicable margin libor term loans incremental loans 250 libor applicable margin respect incremental loans agreed upon cco holdings lenders incremental loans established cco holdings credit facility secured equity interests charter operating proceeds thereof charter operating credit facilities effective date charter operating credit facilities remain outstanding although revolving line credit longer available new borrowings remains substantially drawn maturity interest terms charter operating credit facilities outstanding principal amount 82 billion december 31 2009 follows · term loan remaining principal amount 64 billion repayable equal quarterly installments aggregating loan year 1 original amount term loan remaining balance due final maturity march 6 2014 · incremental term loan remaining principal amount 491 million payable march 6 2014 prior date amortize quarterly principal installments totaling 1 annually · revolving credit facility 13 billion maturity date march 6 2013 charter operating credit facilities also allow company enter incremental term loans future aggregate amount additional 500 million amortization set forth notices establishing term loans amortization greater 1 prior final maturity existing term cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated loan although charter operating credit facilities allow incurrence additional 500 million incremental term loans assurance given additional incremental term loans could obtained future charter operating sought amounts outstanding charter operating credit facilities bear interest charter operating’s election base rate libor 026 december 31 2009 146 350 december 31 2008 defined plus margin libor loans 200 revolving credit facility term loan current incremental term loan bears interest libor plus 50 libor floor 35 charter operating’s election base rate 325 december 31 2009 plus margin 400 charter operating currently elected base rate incremental term loan obligations charter operating charter operating credit facilities “obligations” guaranteed charter operating’s immediate parent company cco holdings subsidiaries charter operating except certain subsidiaries including immaterial subsidiaries precluded guaranteeing reason provisions indebtedness subject “nonguarantor subsidiaries” obligations also secured lien substantially assets charter operating subsidiaries assets nonguarantor subsidiaries ii pledge cco holdings equity interests owned charter operating charter operating’s subsidiaries well intercompany obligations owing entities credit facilities restrictive covenants charter operating credit facilities charter operating credit facilities contain representations warranties affirmative negative covenants customary financings type financial covenants measure performance standards set leverage tested end quarter additionally charter operating credit facilities contain provisions requiring mandatory loan prepayments specific circumstances including connection certain sales assets long proceeds reinvested business charter operating credit facilities permit charter operating subsidiaries make distributions pay interest subordinated parent company indebtedness provided among things default occurred continuing charter operating credit facilities events default charter operating credit facilities include among things · failure make payments due within applicable grace period · failure comply specified covenants including limited covenant deliver audited financial statements charter operating unqualified opinion company’s independent accountants without “going concern” like qualification exception · failure pay occurrence events cause permit acceleration indebtedness owing cco holdings charter operating charter operating’s subsidiaries amounts excess 100 million aggregate principal amount · failure pay occurrence events result acceleration indebtedness owing certain cco holdings’ direct indirect parent companies amounts excess 200 million aggregate principal amount · mr allen andor certain family members andor exclusively owned entities collectively “paul allen group” ceasing power directly indirectly vote least 35 ordinary voting power management charter operating fully diluted basis · consummation transaction resulting person group paul allen group power directly indirectly vote 35 ordinary voting power management charter operating fully diluted basis unless paul allen group holds greater share ordinary voting power management charter operating · charter operating ceasing whollyowned direct subsidiary cco holdings except certain limited circumstances cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated cco holdings credit facility cco holdings credit facility contains covenants substantially similar restrictive covenants cco holdings notes cco holdings credit facility contains provisions requiring mandatory loan prepayments specific circumstances including connection certain sales assets long proceeds reinvested business cco holdings credit facility permits cco holdings subsidiaries make distributions pay interest cch ii notes cco holdings notes charter operating secondlien notes provided among things default occurred continuing cco holdings credit facility limitations distributions charter’s subsidiaries parent company payment principal parent company notes restricted indentures credit facilities discussed unless default applicable indenture credit facilities unless applicable subsidiary’s leverage ratio test met time distribution december 31 2009 default indentures credit facilities however company meet applicable leverage ratio test based december 31 2009 financial results result distributions company parent company would restricted time continue restricted unless tests met distributions charter operating payment principal parent company notes restricted covenants credit facilities distributions cco holdings charter operating parent company payment parent company interest permitted default aforementioned indentures cco holdings charter operating credit facilities addition limitation distributions various indentures discussed distributions charter operating may limited applicable law including delaware limited liability company act charter operating may make distributions “surplus” defined act liquidity future principal payments company parent company significant amounts debt business requires significant cash fund principal interest payments parent company’s debt capital expenditures ongoing operations prior bankruptcy company parent companies funded cash requirements cash flows operating activities borrowings credit facilities proceeds sales assets issuances debt equity securities cash hand upon filing bankruptcy continuing plan consummated charter operating longer access revolving feature revolving credit facility rely cash hand cash flows operating activities fund projected operating cash needs set forth company significant future principal payments beginning 2012 beyond company continues monitor capital markets expects undertake refinancing transactions utilize cash flows operating activities cash hand extend reduce maturities principal obligations cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated based upon outstanding indebtedness december 31 2009 amortization term loans maturity dates senior subordinated notes total future principal payments total borrowings debt agreements december 31 2009 follows 9 loans payable related party loans payablerelated party december 31 2009 consists loans charter holdco cch ii company 13 million 239 million respectively loans payablerelated party december 31 2008 consists loans charter holdco cch ii company 13 million 227 million respectively 10 temporary equity temporary equity consolidated balance sheets represented mr allen’s 56 preferred membership interest cc viii indirect subsidiary cco holdings 203 million december 31 2008 mr allen’s cc viii interest classified temporary equity result mr allen’s ability put interest company upon change control effective date mr allen’s 56 preferred membership interest transferred charter classified noncontrolling interest see note 2 note 11 noncontrolling interest noncontrolling interest represents charter’s 56 membership interest cch i’s 13 membership interest cc viii 225 million december 31 2009 december 31 2008 noncontrolling interest 473 million represented cch i’s 13 membership interest cc viii discussed effective date mr allen transferred 56 membership interest charter noncontrolling interest accompanying condensed consolidated statements operations represents 2 accretion preferred membership interest cc viii plus approximately 186 cc viii’s income inclusive mr allen’s previous 56 membership interest accounted temporary equity december 31 2008 12 comprehensive income loss company reports changes fair value interest rate agreements designated hedging variability cash flows associated floatingrate debt obligations meet effectiveness criteria accumulated comprehensive loss comprehensive loss years ended december 31 2008 2007 17 billion 474 million respectively comprehensive income one month ended december 31 2009 eleven months ended november 30 2009 22 million 33 billion respectively 13 accounting derivative instruments hedging activities company used interest rate swap agreements manage interest costs reduce company’s exposure increases floating interest rates company’s policy manage exposure fluctuations interest rates maintaining mix fixed variable rate debt within targeted range using interest rate swap agreements company agreed exchange specified intervals 2013 difference fixed variable cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated interest amounts calculated reference agreedupon notional principal amounts banks’ option certain interest rate swap agreements could extended 2014 upon filing chapter 11 bankruptcy counterparties interest rate swap agreements terminated underlying contracts upon emergence bankruptcy received payment 495 million market value interest rate swap agreements measured date counterparties terminated plus accrued interest company hold derivative financial instruments december 31 2009 company’s hedging policy permit hold issue derivative instruments speculative trading purposes company however certain interest rate derivative instruments designated cash flow hedging instruments effectively converted variable interest payments certain debt instruments fixed payments qualifying hedges derivative gains losses offset related results hedged items consolidated statements operations company formally documented designated assessed effectiveness transactions received hedge accounting changes fair value interest rate agreements designated hedging instruments variability cash flows associated floatingrate debt obligations met effectiveness criteria reported accumulated comprehensive loss amounts subsequently reclassified increase decrease interest expense periods related interest floatingrate debt obligations affected earnings losses certain interest rate derivative instruments designated hedges meet effectiveness criteria however management believes instruments closely correlated respective debt thus managing associated risk interest rate derivative instruments designated hedges marked fair value impact recorded change value derivatives company’s consolidated statements operations december 31 2008 company outstanding 43 billion notional amounts interest rate swap agreements outstanding notional amounts interest rate instruments represent amounts exchanged parties thus measure exposure credit loss amounts exchanged determined reference notional amount terms contracts effect derivative instruments company’s consolidated statements operations presented table cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated 14 fair value measurements financial assets liabilities company estimated fair value financial instruments december 31 2009 2008 using available market information appropriate valuation methodologies considerable judgment however required interpreting market data develop estimates fair value accordingly estimates presented accompanying consolidated financial statements necessarily indicative amounts company would realize current market exchange carrying amounts cash receivables payables current assets liabilities approximate fair value short maturity instruments estimated fair value company’s debt december 31 2009 2008 based quoted market prices summary carrying value fair value company’s debt december 31 2009 2008 follows company adopted new accounting guidance fair value measurements disclosures financial assets liabilities effective january 1 2008 established process determining fair value fair value based upon quoted market prices available valuation methods available fair value based internally externally developed models using marketbased independentlysourced market parameters available fair value may subsequently adjusted ensure assets liabilities recorded fair value company’s methodology may produce fair value may indicative net realizable value reflective future fair values company believes methods appropriate consistent market peers use different methodologies assumptions determine fair value certain financial instruments could result different fair value estimate company’s reporting date accounting guidance establishes threelevel hierarchy disclosure fair value measurements based upon transparency inputs valuation asset liability measurement date follows · level 1 inputs valuation methodology quoted prices unadjusted identical assets liabilities active markets · level 2 inputs valuation methodology include quoted prices similar assets liabilities active markets inputs observable asset liability either directly indirectly substantially full term financial instrument · level 3 inputs valuation methodology unobservable significant fair value measurement interest rate derivatives valued december 31 2008 using present value calculation based implied forward libor curve adjusted charter operating’s credit risk classified within level 2 valuation hierarchy company’s interest rate derivatives accounted fair value recurring basis totaled 411 million weighted average interest pay rate 493 december 31 2008 cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated company’s longterm debt adjusted fair value effective date debt instruments fair value 98 billion classified level 1 within fair value hierarchy debt instruments fair value 14 billion classified level 2 fair value hierarchy nonfinancial assets liabilities company adopted new accounting guidance effective january 1 2009 respect nonfinancial assets liabilities including fair value measurements franchises property plant equipment intangible assets measured fair value recurring basis however subject fair value adjustments certain circumstances evidence impairment may exist 2009 company recorded impairment franchise assets 22 billion reflected franchises property plant equipment customer relationships goodwill fair value based applying fresh start accounting fair value assets determined utilizing income approach cost approach makes use significant unobservable inputs fair values classified level 3 fair value hierarchy see note 6 additional information 15 operating income expenses net operating income expenses net consist following years presented gain loss sale assets net gain loss sale assets represents gain loss recognized sale fixed assets cable systems special charges net special charges net one month ended december 31 2009 primarily includes severance charges special charges net eleven months ended november 30 2009 primarily includes gains related favorable litigation settlements special charges net year ended december 31 2008 includes severance charges settlement costs associated certain litigation offset favorable insurance settlements special charges net year ended december 31 2007 primarily represents favorable litigation settlements offset severance associated closing call centers divisional restructuring cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated 16 reorganization items net reorganization items net presented separately condensed consolidated statements operations represents items income expense gain loss realized incurred company reorganization chapter 11 us bankruptcy code reorganization items net consisted following items reorganization items net consist adjustments record liabilities allowed claim amounts expenses directly related company’s bankruptcy proceedings penalty interest primarily represents 2 per annum penalty interest paid company’s debt credit facilities bankruptcy incremental amounts owed credit facilities result requirement pay prime rate plus 1 per annum applicable margin instead election pay libor bankruptcy charter operating cco holdings able elect libor credit facilities paid interest prime rate plus 1 per annum applicable margin plus 2 per annum penalty interest postemergence professional fees relate claim settlements plan implementation transition costs related plan 17 income expense net income expense net consists following years presented april 2007 cco holdings redeemed 550 million senior floating rate notes due december 15 2010 resulting loss extinguishment debt approximately 19 million year ended december 31 2007 march 2007 charter operating refinanced facilities resulting loss extinguishment debt year ended december 31 2007 approximately 13 million cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated 18 stock compensation plans accordance plan charter’s board directors adopted charter communications inc 2009 stock incentive plan “2009 stock plan” 2009 stock plan provides grants nonqualified stock options incentive stock options stock appreciation rights dividend equivalent rights performance units performance shares share awards phantom stock restricted stock units restricted stock directors officers employees charter subsidiaries affiliates well others performing consulting services company parent companies eligible grants 2009 stock plan prior company’s emergence bankruptcy charter stock compensation plans “equity plans” provided grant nonqualified stock options stock appreciation rights dividend equivalent rights performance units performance shares share awards phantom stock andor shares restricted stock term defined equity plans employees officers consultants directors charter subsidiaries affiliates eligible receive grants equity plans equity plans options granted generally vested four years grant date 25 generally vesting first anniversary grant date ratably thereafter generally options expired 10 years grant date restricted stock vested annually one threeyear period beginning date grant performance units became performance shares first anniversary grant date conditional upon charters performance financial performance measures established charter’s management approved board directors time award performance shares became shares class common stock third anniversary grant date performance units 2009 majority restricted stock performance units shares voluntarily forfeited participants without termination service period remaining along stock options cancelled effective date plan included allocation less 3 new equity employee grants 50 allocation granted within thirty days companys emergence bankruptcy december 2009 charter’s board directors authorized 8 million shares 2009 stock plan awarded certain employees 2 million shares restricted stock onethird vest first three anniversaries effective date grant new awards deemed modification old awards accounted modification original awards result unamortized compensation cost 12 million added cost new award amortized vesting period december 31 2009 total unrecognized compensation remaining recognized future periods totaled 72 million cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated summary activity charter’s stock options eleven months ended november 30 2009 years ended december 31 2008 2007 follows amounts thousands except per share data stock options granted 2009 effective date remaining stock options cancelled summary activity charter’s restricted class common stock one month ended december 31 2009 eleven months ended november 30 2009 years ended december 31 2008 2007 follows amounts thousands except per share data cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated summary activity charter’s performance units shares eleven months ended november 30 2009 years ended december 31 2008 2007 follows amounts thousands except per share data performance units shares granted 2009 effective date remaining performance units shares cancelled 19 income taxes cco holdings single member limited liability company subject income tax cco holdings holds operations indirect subsidiaries majority indirect subsidiaries limited liability companies subject income tax however certain limited liability companies subject state income tax addition certain cco holdings’ indirect subsidiaries corporations subject income tax one month ended december 31 2009 eleven months ended november 30 2009 years ended december 31 2008 2007 company recorded deferred income tax expense benefits shown income tax expense recognized increases deferred tax liabilities current federal state income taxes primarily related fresh start accounting differences accounting franchises company’s indirect corporate subsidiaries limited liability companies subject income tax income tax benefits realized decreases deferred tax liabilities certain indirect subsidiaries attributable writedown franchise assets financial statement purposes tax purposes tax provision future periods vary based current future temporary differences well future operating results cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated current deferred income tax benefit expense follows income tax expense eleven months ended november 30 2009 included 71 million deferred tax benefit related impairment franchises income tax benefit year ended december 31 2008 included 32 million deferred tax benefit related impairment franchises income tax expense year ended december 31 2007 includes 18 million deferred income tax expense previously recorded company’s indirect parent company adjustment recorded company prior periods company’s effective tax rate differs derived applying applicable federal income tax rate 35 one month ended december 31 2009 eleven months ended november 30 2009 years ended december 31 2008 2007 respectively follows cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated tax effects temporary differences give rise significant portions deferred tax assets deferred tax liabilities december 31 2009 2008 indirect subsidiaries company included longterm liabilities presented assessing realizability deferred tax assets management considers whether likely portion deferred tax assets realized due company’s history losses valuation allowances established except deferred benefits available offset certain deferred tax liabilities reverse time december 31 2009 company deferred tax assets 121 million primarily relate net operating loss carryforwards certain indirect corporate subsidiaries limited liability companies subject state income tax net operating loss carryforwards generally expiring years 2010 2028 subject certain limitations valuation allowance 31 million exists respect carry forwards december 31 2009 tax years charter holdco company’s indirect parent companies currently examination internal revenue service tax years ending 2006 2009 remain subject examination years prior 2006 remain open solely purposes examination charter’s net operating loss credit carryforwards 20 related party transactions following sets forth certain transactions company directors executive officers affiliates company involved unless otherwise disclosed management believes transactions described terms less favorable company could obtained independent third parties connection plan charter mr allen entity controlled mr allen entered allen agreement pursuant among things mr allen entity agreed support plan including settlement rights claims remedies charter subsidiaries see note 2 charter party management arrangements charter holdco certain subsidiaries agreements charter holdco provide management services cable systems owned operated subsidiaries management services include services centralized customer billing services data cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated processing related support benefits administration coordination insurance coverage selfinsurance programs medical dental workers’ compensation claims costs associated providing services charged directly company’s operating subsidiaries included within operating costs accompanying consolidated statements operations costs totaled 21 million 220 million 213 million 213 million one month ended december 31 2009 eleven months ended november 30 2009 years ended december 31 2008 2007 respectively costs incurred behalf charter’s operating subsidiaries considered part management fee recorded component selling general administrative expense accompanying consolidated financial statements management fee charged company’s operating subsidiaries approximated expenses incurred charter holdco charter behalf company’s operating subsidiaries 2009 2008 2007 mr allen affiliates owned equity interests warrants purchase equity interests various entities company business provides products services programming among entities digeo inc “digeo” microsoft corporation mr allen owns 100 equity vulcan ventures incorporated “vulcan ventures” vulcan inc president vulcan ventures ms jo lynn allen director company effective date president chief executive officer vulcan inc director vice president vulcan ventures mr lance conn director company executive vice president vulcan inc vulcan ventures may 2009 various cable media internet telephone companies mr allen invested may mutually benefit one another company give assurance expect business relationships successful company realize benefits relationships company enter business relationships future mr allen’s affiliated companies 2009 charter reimbursed vulcan inc approximately 3 million legal expenses 9 om inc formerly known digeo inc mr allen 100 ownership vulcan ventures incorporated “vulcan ventures” owns majority interest 9 om inc formerly known digeo inc fullyconverted fullydiluted basis however october 2009 substantially 9 om incs assets sold arris group inc unrelated third party ms jo lynn allen director charter effective date director vice president vulcan ventures mr lance conn director charter executive vice president vulcan ventures resignation may 2009 charter operating owns small minority percentage 9 om incs stock expect receive proceeds sale assets arris group inc may 2008 charter operating entered agreement 9 om llc formerly known digeo interactive llc subsidiary 9 om inc minimum purchase highdefinition dvr units approximately 21 million minimum purchase commitment subject reduction result certain specified events failure deliver units timely catastrophic failure software units supplied software license agreement 9 om llc cost expected approximately 2 million initial licenses ongoing maintenance fees approximately 03 million annually subject reduction coincide reduction minimum purchase commitment company purchased approximately 19 million 1 million dvr units 9 om llc agreements 2009 2008 respectively june 30 2003 charter holdco entered agreement motorola inc purchase 100000 digital video recorder “dvr” units software dvr units supplied digeo interactive llc license agreement entered april 2004 pursuant software license agreement digeo interactive right use digeos proprietary software dvr units company paid approximately 2 million 1 million 2 million license maintenance fees 2009 2008 2007 respectively company paid approximately 1 million 10 million 2008 2007 respectively capital purchases agreement digeo interactive development testing purchase 70000 digeo powerkey dvr units total purchase price license maintenance fees term definitive agreements expected approximately 41 million definitive agreements terminable penalty charter certain circumstances cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated 21 commitments contingencies commitments following table summarizes company’s payment obligations december 31 2009 contractual obligations 1 company leases certain facilities equipment noncancelable operating leases rental costs charged expense one month ended december 31 2009 eleven months ended november 30 2009 years ended december 31 2008 2007 2 million 23 million 24 million 23 million respectively 2 company pays programming fees multiyear contracts ranging three ten years typically based flat fee per customer may fixed term may cases escalate term programming costs included accompanying statement operations 146 million 16 billion 16 billion 16 billion one month ended december 31 2009 eleven months ended november 30 2009 years ended december 31 2008 2007 respectively certain company’s programming agreements based flat fee per month guaranteed minimum payments table sets forth aggregate guaranteed minimum commitments company’s programming contracts 3 “other” represents guaranteed minimum commitments consist primarily commitments company’s billing services vendors following items included contractual obligation table due various factors discussed however company incurs costs part operations · company rents utility poles used operations generally pole rentals cancelable short notice company anticipates rentals recur rent expense incurred pole rental attachments one month ended december 31 2009 eleven months ended november 30 2009 years ended december 31 2008 2007 4 million 43 million 47 million 47 million respectively · company pays franchise fees multiyear franchise agreements based percentage revenues generated video service per year company also pays franchise related costs public education grants multiyear agreements franchise fees franchiserelated costs included accompanying statement operations 15 million 161 million 179 million 172 million one month ended december 31 2009 eleven months ended november 30 2009 years ended december 31 2008 2007 respectively · company also 124 million letters credit primarily various worker’s compensation property casualty general liability carriers collateral reimbursement claims cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated litigation august 28 2008 lawsuit filed charter communications llc “charter llc” united states district court western district wisconsin entitled marc goodell et al v charter communications llc charter communications inc plaintiffs seek represent class current former broadband system types technicians employed charter llc states michigan minnesota missouri california plaintiffs allege charter llc violated certain wage hour statutes four states failing pay technicians hours worked although charter llc continue deny liability believe substantial defenses march 16 2010 parties tentatively settled dispute subject court approval company subjected normal course business assertion wage hour claims could subjected additional claims future company cannot predict outcome claims march 27 2009 charter filed chapter 11 petition united states bankruptcy court southern district new york day jpmorgan chase bank na “jpmorgan” administrative agent charter operating credit agreement filed adversary proceeding “jpmorgan adversary proceeding” bankruptcy court charter operating cco holdings seeking declaration events default charter operating credit agreement jpmorgan well parties objected plan bankruptcy court jointly held 19 days trial jpmorgan adversary proceeding objections plan november 17 2009 bankruptcy court issued order opinion confirming plan objections jpmorgan various objectors court also entered order ruling favor charter jpmorgan adversary proceeding several objectors attempted stay consummation plan motions denied bankruptcy court us district court southern district new york charter consummated plan november 30 2009 reinstated charter operating credit agreement certain debt subsidiaries six appeals filed relating confirmation plan parties initially pursuing appeals jpmorgan ii wilmington trust company “wilmington trust” indenture trustee holders 8 senior second lien notes due 2012 8375 senior second lien notes due 2014 issued among charter operating charter communications operating capital corp 10875 senior second lien notes due 2014 issued among charter operating charter communications operating capital corp iii wells fargo bank na “wells fargo” capacities successor administrative agent successor collateral agent third lien prepetition secured lenders cco holdings cco holdings credit facility iv law debenture trust company new york “law debenture trust” trustee respect 479 million aggregate principal amount 650 convertible senior notes due 2027 issued charter longer outstanding following consummation plan v r2 investments ldc “r2 investments” equity interest holder charter vi certain plaintiffs representing putative class securities action three charter officers directors filed united states district court eastern district arkansas iron workers local 25 pension fund indiana laborers pension fund iron workers district council western new york vicinity pension fund action styled iron workers local 25 pension fund v allen et al case 409cv00405jlh ed ark charter operating process amending senior secured credit facilities expects close march 31 2010 upon closing amendments bank america na jpmorgan behalf lenders charter operating senior secured credit facilities agreed dismiss pending appeal company’s confirmation order pending district court southern district new york waive objections company’s confirmation order issued united states bankruptcy court southern district new york december 3 2009 wilmington trust withdrew notice appeal march 26 2010 company informed counsel wells fargo wells fargo intends dismiss appeal behalf lenders cco holdings credit facility law debenture trust r2 investments filed appeal briefs schedule securities plaintiffs file appeal briefs yet established company cannot predict ultimate outcome appeals cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated company parent companies party lawsuits claims arise ordinary course conducting business ultimate outcome legal matters pending company parent companies cannot predicted although lawsuits claims expected individually material adverse effect company’s consolidated financial condition results operations liquidity lawsuits could aggregate material adverse effect company’s consolidated financial condition results operations liquidity regulation cable industry operation cable system extensively regulated federal communications commission “fcc” state governments local governments fcc authority enforce regulations imposition substantial fines issuance cease desist orders andor imposition administrative sanctions revocation fcc licenses needed operate certain transmission facilities used connection cable operations 1996 telecom act altered regulatory structure governing nation’s communications providers removed barriers competition cable television market telephone market among things reduced scope cable rate regulation encouraged additional competition video programming industry allowing telephone companies provide video programming telephone service areas future legislative regulatory changes could adversely affect company’s operations including without limitation additional regulatory requirements company may required comply offers new services telephone 22 employee benefit plan company’s employees may participate charter communications inc 401k plan employees qualify participation contribute 50 salary pretax basis subject maximum contribution limit determined internal revenue service payroll period company contributed 401k plan total amount salary reduction employee elects defer 1 50 b matching contribution equal 50 amount salary reduction participant elects defer 5 participant’s payroll compensation excluding catchup contributions company made contributions 401k plan totaling 1 million 7 million 8 million 7 million one month ended december 31 2009 eleven months ended november 30 2009 years ended december 31 2008 2007 respectively effective january 1 2010 company’s matching contribution discretionary intent contribution based performance metrics used bonus incentive plans discretionary performance contribution made annual basis instead per pay period basis participant makes beforetax contributions employed last day fiscal year receive portion discretionary performance contribution pro rata basis company divide participant’s beforetax contributions year 5 eligible earnings excluding catchup contributions total employee contributions 5 eligible earnings excluding catchup contributions year determine participant’s share discretionary performance contribution 23 recently issued accounting standards december 2007 fasb issued guidance included asc 81010 consolidation overall “asc 81010” provides guidance accounting reporting minority interests consolidated financial statements asc 81010 requires losses allocated noncontrolling minority interests even amounts deficits guidance included asc 81010 effective fiscal years beginning december 15 2008 company adopted guidance included asc 81010 effective january 1 2009 applied effects retrospectively periods presented extent prescribed standard adoption resulted presentation mr allen’s previous 56 preferred membership interest cc viii temporary equity cch i’s 13 membership interest cc viii noncontrolling interest company’s consolidated balance sheets cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated previously classified minority interest effective date mr allen’s 56 preferred membership interest transferred charter june 2009 fasb issued guidance included asc 10510 generally accepted accounting principles overall “asc 10510” asc 10510 intended source gaap reporting standards issued fasb primary purpose improve clarity use existing standards grouping authoritative literature common topics asc 10510 effective financial statements issued interim annual periods ending september 15 2009 company adopted asc 10510 effective september 30 2009 codification change alter existing gaap impact company’s financial statements august 2009 fasb issued guidance included asc 8201065 states companies determining fair value liability may use perspective investor holds related obligation asset guidance included asc 8201065 addresses practice difficulties caused tension fairvalue measurements based price would paid transfer liability new obligor contractual legal requirements prevent transfers taking place guidance included asc 8201065 effective interim annual periods beginning august 27 2009 applies fairvalue measurements liabilities required gaap new fairvalue measurements required guidance company adopted guidance included asc 8201065 effective october 1 2009 adoption guidance included asc 8201065 material impact company’s financial statements 24 parent company financial statements result limitations prohibitions distributions substantially net assets consolidated subsidiaries restricted distribution cco holdings parent company following condensed parentonly financial statements cco holdings account investment subsidiaries equity method accounting financial statements read conjunction consolidated financial statements company notes thereto cco holdings llc parent company condensed balance sheet cco holdings llc subsidiaries notes consolidated financial statements december 31 2009 2008 2007 dollars millions except indicated condensed statement operations condensed statements cash flows item 15 exhibits financial statement schedules following documents filed part annual report 1 financial statements listing financial statements notes reports independent public accountants required item 8 begins page annual report 2 financial statement schedules financial statement schedules required filed items 8 15d required applicable required information set forth applicable financial statements notes thereto 3 index exhibits begins page 44 annual report agree furnish sec upon request copies longterm debt instruments authorize amount securities constituting 10 less total assets cco holdings subsidiaries consolidated basis signatures pursuant requirements section 13 15d securities exchange act 1934 cco holdings llc cco holdings capital corp duly caused annual report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf charter communications inc capacities dates indicated exhibit index exhibits listed numbers corresponding exhibit table item 601 regulation sk document attached management compensatory plan arrangement report independent registered public accounting firm board directors cco holdings llc audited accompanying consolidated balance sheets cco holdings llc subsidiaries company december 31 2004 2003 related consolidated statements operations changes member’s equity cash flows years threeyear period ended december 31 2004 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position cco holdings llc subsidiaries december 31 2004 2003 results operations cash flows years threeyear period ended december 31 2004 conformity us generally accepted accounting principles discussed note 3 consolidated financial statements effective january 1 2002 company adopted statement financial accounting standards 142 goodwill intangible assets discussed note 7 consolidated financial statements effective september 30 2004 company adopted eitf topic d108 use residual method value acquired assets goodwill discussed note 16 consolidated financial statements effective january 1 2003 company adopted statement financial accounting standards 123 accounting stockbased compensation amended statement financial accounting standards 148 accounting stockbased compensation transition disclosure amendment fasb statement 123 kpmg llp st louis missouri march 1 2005 cco holdings llc subsidiaries consolidated balance sheets dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries consolidated statements operations dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries consolidated statements changes member’s equity dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated 1 organization basis presentation cco holdings llc “cco holdings” holding company whose primary assets december 31 2004 equity interests operating subsidiaries cco holdings formed june 2003 wholly owned subsidiary cch ii llc “cch ii” cch ii wholly owned subsidiary cch llc “cch i” wholly owned subsidiary charter communications holdings llc “charter holdings” charter holdings wholly owned subsidiary charter communications holding company llc “charter holdco” subsidiary charter communications inc “charter” cco holdings sole owner charter communications operating llc “charter operating” charter operating formed february 1999 operate cable systems june july 2003 charter holdings entered series transactions contributions effect creating cch ii cco holdings ii combiningcontributing charter holdings’ interest cable operations previously owned charter operating charter operating “systems transfer” systems transfer accounted reorganization entities common control accordingly accompanying financial statements combine historical financial condition results operations charter operating operations subsidiaries contributed charter holdings year ended december 31 2002 cco holdings subsidiaries collectively referred herein “company” significant intercompany accounts transactions among consolidated entities eliminated company broadband communications company operating united states company offers customers traditional cable video programming analog digital video well highspeed data services areas advanced broadband services high definition television video demand telephony company sells cable video programming highspeed data advanced broadband services subscription basis company also sells local advertising satellitedelivered networks preparation financial statements conformity accounting principles generally accepted united states requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period areas involving significant judgments estimates include capitalization labor overhead costs depreciation amortization costs impairments property plant equipment franchises goodwill income taxes contingencies actual results could differ estimates reclassifications certain prior year amounts reclassified conform 2004 presentation 2 liquidity capital resources company incurred net loss 33 billion 53 billion 2004 2002 respectively company achieved net income 30 million 2003 company’s net cash flows operating activities 12 billion 13 billion 13 billion years ending december 31 2004 2003 2002 respectively company’s longterm financing december 31 2004 consists 55 billion credit facility debt 28 billion principal amount highyield notes 2005 2006 30 million company’s debt mature 2007 beyond significant additional amounts become due company’s remaining longterm debt obligations company historically required significant cash fund capital expenditures debt service costs historically company funded requirements cash flows operating activities borrowings credit facilities equity contributions parent companies borrowings parent companies sales assets issuances debt securities cash hand however mix funding sources changes period year ended december 31 2004 company generated 12 billion net cash flows operating activities paying cash interest 532 million addition company generated approximately 744 million sale assets substantially used fund operations including cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated capital expenditures finally company net cash used financing activities 515 million included among things 738 million distributions primarily fund parent company interest december 2004 cco holdings issued 550 million notes debt issuance net cash flows operating activities primary reasons cash hand increased 461 million 546 million december 31 2004 cash hand used repay outstanding borrowings company’s revolving credit facility series transactions executed february 2005 company expects cash hand cash flows operating activities amounts available credit facilities adequate meet parent companies cash needs 2005 cash flows operating activities amounts available company’s credit facilities may sufficient fund company’s operations satisfy parent companies’ principal repayment obligations come due 2006 company believes sufficient fund operations satisfy repayment obligations thereafter likely company parent companies require additional funding repay debt maturing 2006 company advised parent companies working financial advisors address funding requirements however assurance funding available although mr allen affiliates purchased equity parent companies past mr allen affiliates obligated purchase equity contribute loan funds company parent companies future credit facilities covenants company’s ability operate depends upon among things continued access capital including credit charter operating credit facilities credit facilities along company’s subsidiaries indentures subject certain restrictive covenants require company maintain specified financial ratios meet financial tests provide audited financial statements unqualified opinion company’s independent auditors december 31 2004 company compliance covenants indentures credit facilities indentures subsidiaries company expects remain compliance covenants next twelve months december 31 2004 company borrowing availability credit facilities 804 million none restricted due covenants continued access company’s credit facilities subject company remaining compliance applicable covenants credit facilities including covenants tied company’s operating performance company’s operating performance results noncompliance covenants certain events noncompliance credit facilities indentures governing company’s debt occurs funding credit facilities may available defaults potentially company’s debt obligations could occur event default covenants governing company’s debt instruments could result acceleration payment obligations debt certain circumstances crossdefaults debt obligations could material adverse effect company’s consolidated financial condition results operations charter operating credit facilities require company redeem cc v holdings notes within 45 days first date charter holdings leverage ratio less 875 10 satisfaction requirement cc v holdings llc called redemption outstanding notes 103958 principal amount plus accrued unpaid interest date redemption expected march 14 2005 total cost redemption including accrued unpaid interest expected approximately 122 million company intends fund redemption borrowings charter operating credit facilities parent company debt obligations financial liquidity problems cco holdings’ parent companies could cause serious disruption company’s business material adverse effect business results operations failure charter holdings satisfy debt payment obligations bankruptcy filing respect charter holdings would give lenders charter operating credit facilities right accelerate payment obligations facilities acceleration would default indenture governing company’s notes cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated december 31 2004 charter approximately 10 billion principal amount senior convertible notes outstanding approximately 156 million 863 million maturing 2006 2009 respectively december 31 2004 charter holdings approximately 89 billion principal amount highyield notes outstanding approximately 451 million 34 billion 50 billion maturing 2007 2009 thereafter respectively december 31 2004 cch ii approximately 16 billion principal amount highyield notes outstanding maturing 2010 charter holdings cch ii need raise additional capital receive distributions payments company order satisfy debt obligations however significant indebtedness ability parent companies raise additional capital reasonable rates uncertain indentures governing cch ii notes cco holdings notes charter operating notes however restrict entities subsidiaries making distributions parent companies including charter holdco charter holdings payment principal parent company debt obligations case unless default applicable indenture specified leverage ratio test met time event cch ii cco holdings charter operating meet applicable leverage ratio test respective indentures result prohibited making distributions respective direct parent time charter required register april 21 2005 recently issued 5875 convertible notes due 2009 convertible notes registered date charter incur liquidated damages defined related indenture conjunction issuing convertible notes charter also filed registration statement sell 150 million shares charter’s class common stock pursuant share lending agreement shares required registered april 1 2005 shares registered date charter incur liquidated damages defined related indenture specific limitations charter holdings indentures governing charter holdings notes permit charter holdings make distributions charter holdco payment interest principal convertible senior notes giving effect distribution charter holdings incur additional debt leverage ratio 875 10 default charter holdings’ indentures specified tests met quarter ended december 31 2004 default charter holdings’ indentures specified tests met addition charter holdings met leverage ratio 875 10 based december 31 2004 financial results result distributions charter holdings charter holdco currently restricted distributions restricted however charter holdings fails meet leverage ratio test past charter holdings time failed meet leverage ratio test assurance charter holdings satisfy test future periods distributions restricted indentures governing charter holdings notes permit charter holdings subsidiaries make specified investments charter holdco charter amount determined formula long default indentures december 31 2004 charter holdco 106 million cash hand owed 29 million intercompany loans subsidiaries available pay interest charter’s 475 convertible senior notes expected approximately 7 million 2005 addition charter 144 million us government securities pledged security six interest payments charter’s 5875 convertible senior notes sale assets march 2004 company closed sale certain cable systems florida pennsylvania maryland delaware west virginia atlantic broadband finance llc company closed sale additional cable system new york atlantic broadband finance llc april 2004 transactions resulted 104 million pretax gain recorded gain sale assets company’s consolidated statements operations subject postclosing contractual adjustments total net proceeds sale systems approximately 733 million proceeds used repay portion amounts outstanding company’s credit facilities cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated 3 summary significant accounting policies cash equivalents company considers highly liquid investments original maturities three months less cash equivalents investments carried cost approximates market value property plant equipment property plant equipment recorded cost including material labor certain indirect costs associated construction cable transmission distribution facilities costs associated initial customer installations additions network equipment necessary enable advanced services capitalized costs capitalized part initial customer installations include materials labor certain indirect costs indirect costs associated activities company’s personnel assist connecting activating new service consist compensation indirect costs associated support functions indirect costs primarily include employee benefits payroll taxes direct variable costs associated capitalizable activities consisting primarily installation construction vehicle costs cost dispatch personnel indirect costs directly attributable capitalizable activities costs disconnecting service customer’s dwelling reconnecting service previously installed dwelling charged operating expense period incurred costs repairs maintenance charged operating expense incurred plant equipment replacement betterments including replacement cable drops pole dwelling capitalized depreciation recorded using straightline composite method management’s estimate useful lives related assets follows cable distribution systems 720 years customer equipment installations 35 years vehicles equipment 15 years buildings leasehold improvements 515 years furniture fixtures 5 years franchises franchise rights represent value attributed agreements local authorities allow access homes cable service areas acquired purchase cable systems management estimates fair value franchise rights date acquisition determines franchise finite life indefinitelife defined statement financial accounting standards “sfas” 142 goodwill intangible assets effective january 1 2002 franchises qualify indefinitelife treatment sfas 142 longer amortized earnings instead tested impairment annually october 1 frequently warranted events changes circumstances see note 7 company concluded 99 franchises qualify indefinitelife treatment however certain franchises qualify indefinitelife treatment due technological operational factors limit lives franchise costs amortized straightline basis 10 years costs incurred renewing cable franchises deferred amortized 10 years noncurrent assets noncurrent assets primarily include goodwill deferred financing costs investments equity securities costs related borrowings deferred amortized interest expense terms related borrowings investments equity securities accounted cost equity method accounting accordance sfas 115 accounting certain investments debt equity securities charter recognizes losses decline value considered temporary certain marketable equity securities classified cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated availableforsale reported market value unrealized gains losses recorded accumulated comprehensive income loss following summarizes investment information years ended december 31 2004 2003 valuation property plant equipment company evaluates recoverability property plant equipment impairment events changes circumstances indicate carrying amount asset may recoverable events changes circumstances could include factors impairment company’s indefinite life franchise sfas 142 changes technological advances fluctuations fair value assets adverse changes relationships local franchise authorities adverse changes market conditions poor operating results review indicates carrying value asset recoverable estimated undiscounted cash flows carrying value asset reduced estimated fair value company believes estimates future cash flows reasonable different assumptions regarding cash flows could materially affect evaluations asset recoverability impairment property plant equipment occurred 2004 2003 2002 derivative financial instruments company accounts derivative financial instruments accordance sfas 133 accounting derivative instruments hedging activities amended instruments qualify hedging activities related gains losses recorded accumulated comprehensive income derivative instruments related gains losses recorded income statement company uses interest rate risk management derivative instruments interest rate swap agreements interest rate cap agreements interest rate collar agreements collectively referred herein interest rate agreements required terms credit facilities company’s subsidiaries company’s policy manage interest costs using mix fixed variable rate debt using interest rate swap agreements company agrees exchange specified intervals difference fixed variable interest amounts calculated reference agreedupon notional principal amount interest rate cap agreements used lock maximum interest rate variable rates rise enable company otherwise pay lower market rates interest rate collar agreements used limit exposure benefits interest rate fluctuations variable rate debt within certain range rates company hold issue derivative financial instruments trading purposes revenue recognition revenues residential commercial video highspeed data services recognized related services provided advertising sales recognized estimated realizable values period advertisements broadcast local governmental authorities impose franchise fees company ranging federally mandated maximum 5 gross revenues defined franchise agreement fees collected monthly basis company’s customers periodically remitted local franchise authorities franchise fees reported revenues gross basis corresponding operating expense cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated programming costs company various contracts obtain analog digital premium video programming program suppliers whose compensation typically based flat fee per customer cost right exhibit network programming arrangements recorded operating expenses month programming available exhibition programming costs paid month based calculations performed company subject adjustment based periodic audits performed programmers certain programming contracts contain launch incentives paid programmers company receives payments related activation programmer’s cable television channel recognizes launch incentives straightline basis life programming agreement reduction programming expense offset programming expense 59 million 62 million 57 million years ended december 31 2004 2003 2002 respectively programming costs included accompanying statement operations 13 billion 12 billion 12 billion years ended december 31 2004 2003 2002 respectively december 31 2004 2003 deferred amount launch incentives included longterm liabilities totaled 106 million 170 million respectively advertising costs advertising costs associated marketing company’s products services generally expensed costs incurred advertising expense 72 million 62 million 60 million years ended december 31 2004 2003 2002 respectively stockbased compensation company historically accounted stockbased compensation accordance accounting principles board “apb” opinion 25 accounting stock issued employees related interpretations permitted sfas 123 accounting stockbased compensation january 1 2003 company adopted fair value measurement provisions sfas 123 using prospective method company recognize compensation expense stockbased award employee vesting period based fair value award grant date consistent method described financial accounting standards board interpretation “fin” 28 accounting stock appreciation rights variable stock option award plans adoption provisions resulted utilizing preferable accounting method consolidated financial statements present estimated fair value stockbased compensation expense consistently forms compensation expense associated goods services received equity instruments accordance sfas 148 accounting stockbased compensation transition disclosure fair value method applied awards granted modified january 1 2003 whereas awards granted prior date accounted apb 25 unless modified settled cash sfas 123 requires pro forma disclosure impact earnings compensation expense plans determined using fair value method following table presents company’s net income loss reported pro forma amounts would reported using fair value method sfas 123 years presented cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated fair value option granted estimated date grant using blackscholes optionpricing model following weighted average assumptions used grants years ended december 31 2004 2003 2002 respectively riskfree interest rates 33 30 36 expected volatility 924 936 642 expected lives 46 years 45 years 43 years respectively valuations assume dividends paid unfavorable contracts settlements company recognized 5 million benefit year ended december 31 2004 related changes estimated legal reserves established part previous business combinations based evaluation current facts circumstances longer required company recognized 72 million benefit year ended december 31 2003 result settlement estimated liabilities recorded connection prior business combinations majority benefit approximately 52 million due renegotiation major programming contract liability recorded market portion agreement conjunction falcon acquisition 1999 bresnan acquisition 2000 remaining benefit relates reversal previously recorded liabilities longer required income taxes cco holdings single member limited liability company subject income tax cco holdings holds operations indirect subsidiaries majority indirect subsidiaries limited liability companies also subject income tax however certain cco holdings’ indirect subsidiaries corporations subject income tax company recognizes deferred tax assets liabilities temporary differences financial reporting basis tax basis indirect corporate subsidiaries’ assets liabilities expected benefits utilizing net operating loss carryforwards impact deferred taxes changes tax rates tax law applied years temporary differences expected settled reflected consolidated financial statements period enactment see note 18 minority interest minority interest company’s consolidated balance sheets represents 656 million 694 million preferred membership interests cc viii llc “cc viii” indirect subsidiary cch ii december 31 2004 2003 respectively preferred membership interests cc viii accrete 2 per annum since june 6 2003 share pro rata profits cc viii fully described note 19 preferred interest arises approximately 630 million preferred membership units issued cc viii connection bresnan acquisition february 2000 december 31 2003 minority interest also includes 25 million preferred interest charter helicon llc another indirect subsidiary cch ii issued connection helicon acquisition preferred interest charter helicon llc accrues interest 10 per annum december 31 2004 preferred interest reclassified longterm liabilities segments sfas 131 disclosure segments enterprise related information established standards reporting information operating segments annual financial statements interim financial reports issued shareholders operating segments defined components enterprise separate financial information available evaluated regular basis chief operating decision maker decision making group deciding allocate resources individual segment assessing performance segment company’s operations managed basis geographic divisional operating segments company evaluated criteria aggregation geographic operating segments paragraph 17 sfas 131 believes meets respective criteria set forth company delivers similar products cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated services within geographic divisional operations geographic divisional service area utilizes similar means delivering programming company’s services similarity type class customer receiving products services distributes company’s services unified network operates within consistent regulatory environment addition geographic divisional operating segments similar economic characteristics light company’s similar services means delivery similarity type customers use unified network considerations across geographic divisional operating structure management determined company one reportable segment broadband services 4 acquisitions february 28 2002 cc systems llc subsidiary company high speed access corp “hsa” closed company’s acquisition hsa contracts associated assets assumed related liabilities served certain company’s highspeed data customers closing company paid approximately 78 million cash delivered 37000 shares hsa’s series convertible preferred stock warrants buy hsa common stock owned company purchase price allocated assets acquired liabilities assumed based fair values including approximately 8 million assigned intangible assets amortized average useful life three years approximately 52 million assigned goodwill period 1997 2000 certain subsidiaries company entered internetaccess related service agreements hsa vulcan ventures certain company’s subsidiaries made equity investments hsa see note 19 additional information april 2002 interlink communications partners llc rifkin acquisition partners llc charter communications entertainment llc indirect whollyowned subsidiary charter holdings completed purchase certain assets enstar income program ii2 lp enstar income program iv3 lp enstar incomegrowth program sixa lp enstar cable macoupin county enstar ivpbd systems venture serving approximately 21600 unaudited customers total cash purchase price 48 million september 2002 charter communications entertainment llc purchased enstar income program ii1 lp’s illinois cable systems serving approximately 6400 unaudited customers cash purchase price 15 million enstar communications corporation direct subsidiary charter holdco general partner enstar limited partnerships exercise control purchase prices allocated assets acquired based fair values including 41 million assigned franchises 4 million assigned intangible assets amortized useful life three years 2002 acquisitions funded primarily borrowings credit facilities company’s subsidiaries 5 allowance doubtful accounts activity allowance doubtful accounts summarized follows years presented cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated 6 property plant equipment property plant equipment consists following december 31 2004 2003 company periodically evaluates estimated useful lives used depreciate assets estimated amount assets abandoned minimal use future significant change assumptions extent timing future asset retirements company’s use new technology upgrade programs could materially affect future depreciation expense depreciation expense years ended december 31 2004 2003 2002 15 billion 15 billion 14 billion respectively 7 franchises goodwill january 1 2002 company adopted sfas 142 eliminates amortization indefinitelived intangible assets accordingly beginning january 1 2002 franchises qualify indefinitelife treatment sfas 142 longer amortized earnings instead tested impairment annually based valuations frequently warranted events changes circumstances based guidance prescribed emerging issues task force “eitf’’ issue 027 unit accounting testing impairment indefinitelived intangible assets franchises aggregated essentially inseparable asset groups conduct valuations asset groups generally represent geographic clustering company’s cable systems groups systems managed management believes grouping represents highest best use assets company’s valuations based present value projected tax cash flows result value property plant equipment franchises customer relationships total entity value goodwill difference total entity value amounts assigned assets franchises valuation purposes defined future economic benefits right solicit service potential customers customer marketing rights right deploy market new services interactivity telephony potential customers service marketing rights fair value determined based estimated discounted future cash flows using assumptions consistent internal forecasts franchise aftertax cash flow calculated aftertax cash flow generated potential customers obtained new services added customers future periods sum present value franchises’ aftertax cash flow years 1 10 continuing value aftertax cash flow beyond year 10 yields fair value franchise prior adoption eitf topic d108 use residual method value acquired assets goodwill discussed company followed residual method valuing franchise assets effect including goodwill franchise assets cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated company follows guidance eitf issue 0217 recognition customer relationship intangible assets acquired business combination valuing customer relationships customer relationships valuation purposes represent value business relationship existing customers calculated projecting future aftertax cash flows customers including right deploy market additional services interactivity telephony customers present value aftertax cash flows yield fair value customer relationships substantially acquisitions occurred prior january 1 2002 company record value associated customer relationship intangibles related acquisitions subsequent january 1 2002 company assign value customer relationship intangible amortized estimated useful life september 2004 eitf topic d108 issued requires direct method separately valuing intangible assets permit goodwill included franchise assets company performed impairment assessment september 30 2004 adopted eitf topic d108 assessment resulting total franchise impairment approximately 33 billion company recorded cumulative effect accounting change 840 million approximately 875 million tax effects 16 million minority interest effects 19 million year ended december 31 2004 representing portion company’s total franchise impairment attributable longer including goodwill franchise assets effect adoption increase net loss 840 million year ended december 31 2004 remaining 24 billion total franchise impairment attributable use lower projected growth rates resulting revised estimates future cash flows company’s valuation recorded impairment franchises company’s accompanying consolidated statements operations year ended december 31 2004 sustained analog video customer losses company third quarter 2004 primarily result increased competition direct broadcast satellite providers decreased growth rates company’s highspeed data customers third quarter 2004 part result increased competition digital subscriber line service providers led lower projected growth rates revised estimates future cash flows used october 1 2003 valuation completed october 1 2003 showed franchise values excess book value thus resulted impairment company’s annual impairment assessment october 1 2002 based revised estimates january 1 2002 future cash flows projected longterm growth rates company’s valuation led recognition 46 billion impairment charge fourth quarter 2002 december 31 2004 2003 indefinitelived finitelived intangible assets presented following table year ended december 31 2004 net carrying amount indefinitelived intangible assets reduced 490 million result sale cable systems primarily sale atlantic broadband finance llc discussed note 2 additionally first fourth quarters 2004 approximately 29 million 8 million respectively franchises previously classified finitelived reclassified indefinitelived based company’s renewal franchise assets 2003 2004 franchise amortization expense years ended december 31 2004 2003 2002 4 million 9 million 9 million respectively cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated represents amortization relating franchises qualify indefinitelife treatment sfas 142 including costs associated franchise renewals company expects amortization expense franchise assets approximately 3 million annually next five years actual amortization expense future periods could differ estimates result new intangible asset acquisitions divestitures changes useful lives relevant factors 8 accounts payable accrued expenses accounts payable accrued expenses consist following december 31 2004 2003 9 longterm debt longterm debt consists following december 31 2004 2003 accreted values presented represents face value notes less original issue discount time sale plus accretion balance sheet date cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated april 2004 company’s indirect subsidiaries charter operating charter communications operating capital corp sold 15 billion senior secondlien notes private transaction additionally charter operating amended restated 51 billion credit facilities among things defer maturities increase availability facilities approximately 65 billion consisting 15 billion sixyear revolving credit facility 20 billion sixyear term loan facility 30 billion sevenyear term loan facility charter operating used additional borrowings amended restated credit facilities together proceeds sale charter operating senior secondlien notes refinance credit facilities subsidiaries cc vi operating company llc “cc vi operating” falcon cable communications llc “falcon cable” cc viii operating llc “cc viii operating” concurrent transactions addition charter operating substituted lender place banks subsidiaries’ credit facilities transactions resulted losses extinguishment debt 21 million cco holdings notes 8 34 senior notes due 2013 november 2003 cco holdings cco holdings capital corp jointly issued 500 million total principal amount 8 34 senior notes due 2013 cco holdings notes general unsecured obligations cco holdings cco holdings capital corp rank equally current future unsubordinated obligations cco holdings cco holdings capital corp cco holdings notes structurally subordinated obligations cco holdings’ subsidiaries including renaissance notes cc v holdings notes charter operating credit facilities charter operating notes interest cco holdings senior notes accrues 8 34 per year payable semiannually arrears may 15 november 15 time prior november 15 2006 issuers cco holdings senior notes may redeem 35 total principal amount cco holdings senior notes extent public equity proceeds received pro rata basis redemption price equal 10875 principal amount cco holdings senior notes redeemed plus accrued unpaid interest november 15 2008 issuers cco holdings senior notes may redeem part notes redemption price declines ratably initial redemption price 104375 redemption price november 15 2011 1000 principal amount cco holdings senior notes redeemed plus case accrued unpaid interest event specified change control events cco holdings must offer purchase outstanding cco holdings senior notes holders purchase price equal 101 total principal amount notes plus accrued unpaid interest senior floating rate notes due 2010 december 2004 cco holdings cco holdings capital corp jointly issued 550 million total principal amount senior floating rate notes due 2010 interest cco holdings senior floating rate notes accrues libor rate plus 4125 annually december 15 2004 interest already paid date recently paid interest reset payable quarterly arrears march 15 june 15 september 15 december 15 commencing march 15 2005 time prior december 15 2006 issuers senior floating rate notes may redeem 35 notes amount exceed amount proceeds one public equity offerings redemption price equal 100 principal amount plus premium equal interest rate per annum applicable notes date notice redemption given plus accrued unpaid interest redemption date cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated provided least 65 original aggregate principal amount notes issued remains outstanding redemption issuers senior floating rate notes may redeem notes whole part issuers’ option december 15 2006 december 14 2007 102 principal amount december 15 2007 december 14 2008 101 principal amount december 15 2008 par case plus accrued unpaid interest indentures governing cco holdings senior notes contain restrictive covenants limit certain transactions activities cco holdings restricted subsidiaries substantially cco holdings’ direct indirect subsidiaries currently restricted subsidiaries charter operating notes april 27 2004 charter operating charter communications operating capital corp jointly issued 11 billion 8 senior secondlien notes due 2012 400 million 8 38 senior secondlien notes due 2014 total gross proceeds 15 billion interest charter operating notes payable semiannually arrears april 30 october 30 commencing october 30 2004 charter operating notes sold private transaction subject registration requirements securities act 1933 charter operating notes expected benefit exchange registration rights except specified limited circumstances issue date charter operating notes restrictions contained charter holdings indentures charter operating note guarantees even though charter operating’s immediate parent cco holdings certain company’s subsidiaries obligors andor guarantors charter operating credit facilities upon occurrence guarantee pledge date generally fifth business day charter holdings leverage ratio certified 875 10 cco holdings subsidiaries charter operating guarantors otherwise obligors respect indebtedness charter operating credit facilities related obligations required guarantee charter operating notes note guarantee guarantor • senior obligation guarantor • structurally senior outstanding senior notes cco holdings cco holdings capital corp except case cco holdings’ note guarantee ranks equally senior notes outstanding senior notes cch ii cch ii capital corp outstanding senior notes senior discount notes charter holdings outstanding convertible senior notes charter future indebtedness parent companies cco holdings subject provisions charter operating indenture permit interest subject meeting 425 10 leverage ratio test principal payments made thereon • senior right payment future subordinated indebtedness guarantor result leverage ratio test met cco holdings certain subsidiaries provided additional guarantees described first quarter 2005 subsidiaries charter operating except cco nr sub llc certain subsidiaries deemed material designated nonrecourse subsidiaries charter operating credit facilities restricted subsidiaries charter operating charter operating notes unrestricted subsidiaries generally subject restrictive covenants charter operating indenture event specified change control events charter operating must offer purchase charter operating notes purchase price equal 101 total principal amount charter operating notes repurchased plus accrued unpaid interest thereon cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated indenture governing charter operating senior notes contains restrictive covenants limit certain transactions activities charter operating restricted subsidiaries substantially charter operating’s direct indirect subsidiaries currently restricted subsidiaries renaissance notes connection acquisition renaissance april 1999 company assumed 163 million principal amount maturity 10000 senior discount notes due 2008 49 million repurchased may 1999 renaissance notes require payment interest april 15 2003 april 15 2003 renaissance notes bear interest payable semiannually april 15 october 15 commencing october 15 2003 renaissance notes due april 15 2008 cc v holdings notes charter holdco acquired cc v holdings november 1999 assumed cc v holdings’ outstanding 11875 senior discount notes due 2008 accreted value 113 million december 31 2003 commencing december 1 2003 cash interest cc v holdings 11875 notes payable semiannually june 1 december 1 year february 2005 notes called anticipated redemption date march 14 2005 highyield restrictive covenants limitation indebtedness indentures governing notes company’s subsidiaries contain certain covenants restrict ability cco holdings cco holdings capital corp charter operating charter communications operating capital corp cc v holdings notes issuers renaissance media group restricted subsidiaries • incur additional debt • pay dividends equity repurchase equity • make investments • sell substantially assets merge companies • sell assets • enter saleleasebacks • case restricted subsidiaries create permit exist dividend payment restrictions respect bond issuers guarantee parent companies debt issue specified equity interests • engage certain transactions affiliates • grant liens charter operating credit facilities april 2004 charter operating amended restated 51 billion credit facilities among things defer maturities increase availability facilities approximately 65 billion consisting 15 billion revolving credit facility maturity date 2010 20 billion term loan facility 125 matures 2007 30 matures 2008 375 matures 2009 20 matures 2010 30 billion term b loan facility repayable 27 equal quarterly installments aggregating loan year 1 original amount term b facility remaining balance due final maturity 2011 charter operating used additional borrowings amended restated credit facilities together proceeds sale charter operating senior secondlien notes refinance credit facilities subsidiaries cc vi operating falcon cable cc viii operating concurrent transactions addition charter operating substituted lender place banks subsidiaries’ credit facilities amounts outstanding charter operating credit facilities bear interest charter operating’s election base rate eurodollar rate 207 228 december 31 2004 defined plus margin eurodollar loans 300 term facility revolving credit facility 325 term b facility base rate loans 200 term facility revolving credit facility 225 term b facility quarterly commitment fee 75 payable average daily unborrowed balance revolving credit facilities obligations charter operating credit facilities “obligations” guaranteed charter operating’s immediate parent company cco holdings subsidiaries charter operating except immaterial subsidiaries precluded guaranteeing reason provisions cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated indebtedness subject “nonguarantor subsidiaries” primarily renaissance cc v holdings subsidiaries obligations also secured lien assets charter operating subsidiaries assets nonguarantor subsidiaries extent lien perfected uniform commercial code filing financing statement ii pledge cco holdings equity interests owned charter operating charter operating’s subsidiaries well intercompany obligations owing entities upon charter holdings leverage ratio defined indenture governing charter holdings senior notes senior discount notes 875 10 charter operating credit facilities require 11875 notes due 2008 issued cc v holdings llc redeemed leverage ratio determined 875 10 february 2005 cc v holdings called redemption notes anticipated redemption date march 14 2005 following redemption provided leverage ratio charter holdings remains 875 10 cc v holdings subsidiaries nonguarantor subsidiaries guarantee obligations grant lien assets lien perfected uniform commercial code filing financing statement charter operating credit facilities amended restated previously june 19 2003 allow insertion intermediate holding companies charter holdings charter operating exchange lenders’ consent organizational restructuring charter operating’s pricing increased 50 basis points across levels pricing grid effect charter operating credit facilities amounts charter operating credit facilities amended 2003 bore interest eurodollar rate base rate defined plus margin 30 eurodollar loans 315 392 december 31 2003 20 base rate loans quarterly commitment fee 025 0375 per annum payable unborrowed balance revolving credit facilities december 31 2004 outstanding borrowings charter operating credit facilities approximately 55 billion unused total potential availability 804 million cc vi operating credit facilities discussed april 2004 charter operating substituted lender place banks cc vi operating credit facilities prior april 2004 amounts cc vi operating credit facilities bore interest eurodollar rate base rate defined plus margin 25 eurodollar loans 240 366 december 31 2003 15 base rate loans quarterly commitment fee 025 per year payable unborrowed balance term facility revolving facility falcon cable credit facilities discussed april 2004 charter operating substituted lender place banks falcon cable credit facilities prior april 2004 amounts falcon cable credit facilities bore interest eurodollar rate base rate defined plus margin 225 eurodollar loans 240 342 december 31 2003 125 base rate loans quarterly commitment fee 025 0375 per year payable unborrowed balance revolving facilities cc viii operating credit facilities discussed april 2004 charter operating substituted lender place banks cc viii operating credit facilities prior april 2004 amounts cc viii operating credit facilities bear interest eurodollar rate base rate defined plus margin 250 eurodollar loans 215 366 december 31 2003 150 base rate loans quarterly commitment fee 025 payable unborrowed balance revolving credit facilities charter operating credit facilities restrictive covenants charter operating credit facilities contain representations warranties affirmative negative covenants similar described respect cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated indentures governing company’s notes information requirements events default financial covenants financial covenants defined measure performance standards set leverage debt service coverage operating cash flow coverage cash interest expense quarterly basis applicable additionally credit facilities contain provisions requiring mandatory loan prepayments specific circumstances including significant amounts assets sold proceeds promptly reinvested assets useful business borrower within specified period charter operating credit facilities also provide event indebtedness cco holdings remains outstanding date six months prior scheduled final maturity term loans charter operating credit facilities mature revolving credit facilities terminate date events default charter operating credit facilities include among things • failure make payments due within applicable grace period • failure comply specified covenants including limited covenant deliver audited financial statements unqualified opinion company’s independent auditors • failure pay occurrence events cause permit acceleration indebtedness owing cco holdings charter operating charter operating’s subsidiaries amounts excess 50 million aggregate principal amount • failure pay occurrence events result acceleration indebtedness owing certain cco holdings’ direct indirect parent companies amounts excess 200 million aggregate principal amount • paul allen andor certain family members andor exclusively owned entities collectively “paul allen group’’ ceasing power directly indirectly vote least 35 ordinary voting power charter operating • consummation transaction resulting person group paul allen group power directly indirectly vote 35 ordinary voting power charter operating unless paul allen group holds greater share ordinary voting power charter operating • certain charter operating’s indirect direct parent companies indebtedness excess 500 million aggregate principal amount remains undefeased three months prior final maturity indebtedness • charter operating ceasing whollyowned direct subsidiary cco holdings except certain limited circumstances event default company’s subsidiaries’ credit facilities notes subsidiaries’ creditors could elect declare amounts borrowed together accrued unpaid interest fees due payable event subsidiaries’ credit facilities indentures would permit company’s subsidiaries distribute funds company pay interest principal company’s notes parent companies’ notes addition lenders company’s credit facilities could foreclose collateral includes equity interests company’s subsidiaries exercise rights secured creditors case company might able repay make payments notes parent companies’ notes additionally acceleration payment default charter operating’s credit facilities would cause crossdefault indentures governing charter holdings notes cch ii notes cco holdings notes charter operating notes charter’s convertible senior notes would trigger crossdefault provision charter operating credit agreement default subsidiaries’ credit facilities notes might adversely affect holders company’s notes company’s growth financial condition results operations could force company examine options including seeking protection bankruptcy laws cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated based upon outstanding indebtedness december 31 2004 amortization term loans scheduled reductions available borrowings revolving credit facilities maturity dates senior subordinated notes debentures total future principal payments total borrowings debt agreements december 31 2004 follows amounts debt scheduled mature 2005 management’s intent fund repayments borrowings company’s revolving credit facility accompanying consolidated balance sheet reflects intent presenting debt balances longterm table reflects actual debt maturities stated date 10 comprehensive income loss certain marketable equity securities classified availableforsale reported market value unrealized gains losses recorded accumulated comprehensive loss accompanying consolidated balance sheets additionally company reports changes fair value interest rate agreements designated hedging variability cash flows associated floatingrate debt obligations meet effectiveness criteria sfas 133 accounting derivative instruments hedging activities accumulated comprehensive loss comprehensive loss years ended december 31 2004 2002 33 billion 54 billion respectively comprehensive income year ended december 31 2003 78 million 11 accounting derivative instruments hedging activities company uses interest rate risk management derivative instruments interest rate swap agreements interest rate collar agreements collectively referred herein interest rate agreements manage interest costs company’s policy manage interest costs using mix fixed variable rate debt using interest rate swap agreements company agreed exchange specified intervals 2007 difference fixed variable interest amounts calculated reference agreedupon notional principal amount interest rate collar agreements used limit company’s exposure benefits interest rate fluctuations variable rate debt within certain range rates company hold issue derivative instruments trading purposes company however certain interest rate derivative instruments designated cash flow hedging instruments effectively convert variable interest payments certain debt instruments fixed payments qualifying hedges sfas 133 allows derivative gains losses offset related results hedged items consolidated statement operations company formally documented designated assessed effectiveness transactions receive hedge accounting years ended december 31 2004 2003 2002 net gain loss derivative instruments hedging activities includes gains 4 million 8 million losses 14 million respectively represent cash flow hedge ineffectiveness interest rate hedge agreements arising differences critical terms agreements related hedged obligations changes fair value interest rate agreements designated hedging instruments variability cash flows associated floatingrate debt obligations meet effectiveness criteria sfas 133 reported accumulated comprehensive loss years ended december 31 2004 2003 2002 gain 42 million 48 million losses 65 million respectively related derivative instruments designated cash cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated flow hedges recorded accumulated comprehensive loss amounts subsequently reclassified interest expense yield adjustment period related interest floatingrate debt obligations affects earnings losses certain interest rate derivative instruments designated hedges meet effectiveness criteria specified sfas 133 however management believes instruments closely correlated respective debt thus managing associated risk interest rate derivative instruments designated hedges marked fair value impact recorded gain loss derivative instruments hedging activities company’s consolidated statement operations years ended december 31 2004 2003 2002 net gain loss derivative instruments hedging activities includes gains 65 million 57 million losses 101 million respectively interest rate derivative instruments designated hedges december 31 2004 2003 2002 company outstanding 27 billion 30 billion 34 billion 20 million 520 million 520 million respectively notional amounts interest rate swaps collars respectively notional amounts interest rate instruments represent amounts exchanged parties thus measure exposure credit loss amounts exchanged determined reference notional amount terms contracts 12 fair value financial instruments company estimated fair value financial instruments december 31 2004 2003 using available market information appropriate valuation methodologies considerable judgment however required interpreting market data develop estimates fair value accordingly estimates presented accompanying consolidated financial statements necessarily indicative amounts company would realize current market exchange carrying amounts cash receivables payables current assets liabilities approximate fair value short maturity instruments company exposed market price risk volatility respect investments publicly traded privately held entities fair value interest rate agreements represents estimated amount company would receive pay upon termination agreements management believes sellers interest rate agreements able meet obligations agreements addition interest rate agreements certain participating banks company’s credit facilities thereby reducing exposure credit loss company policies regarding financial stability credit standing major counterparties nonperformance counterparties anticipated would material adverse effect company’s consolidated financial condition results operations estimated fair value company’s notes interest rate agreements december 31 2004 2003 based quoted market prices fair value credit facilities based dealer quotations cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated summary carrying value fair value company’s debt related interest rate agreements december 31 2004 2003 follows weighted average interest pay rate company’s interest rate swap agreements 807 725 december 31 2004 2003 respectively 13 revenues consist following years presented 14 operating expenses operating expenses consist following years presented cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated 15 selling general administrative expenses selling general administrative expenses consist following years presented components selling expense included general administrative marketing expense 16 stock compensation plans charter grants stock options restricted stock incentive compensation pursuant 2001 stock incentive plan charter “2001 plan” prior 2001 options granted 1999 option plan charter holdco “1999 plan” 1999 plan provided grant options purchase membership units charter holdco current prospective employees consultants charter holdco affiliates current prospective nonemployee directors charter options granted generally vest five years grant date 25 vesting 15 months anniversary grant date ratably thereafter options exercised accumulate exercisable whole part subsequent period later 10 years date grant membership units received upon exercise options automatically exchanged class common stock charter oneforone basis 2001 plan provides grant nonqualified stock options stock appreciation rights dividend equivalent rights performance units performance shares share awards phantom stock andor shares restricted stock exceed 3000000 term defined 2001 plan employees officers consultants directors company subsidiaries affiliates eligible receive grants 2001 plan options granted generally vest four years grant date 25 vesting anniversary grant date ratably thereafter generally options expire 10 years grant date 2001 plan allows issuance total 90000000 shares charter class common stock units convertible charter class common stock total shares available reflect july 2003 amendment 2001 plan approved board directors shareholders charter increase available shares 30000000 shares 2001 shares covered options terminated 1999 plan transferred 2001 plan new options granted 1999 plan years ended december 31 2004 2003 certain directors awarded total 182932 80603 shares respectively restricted charter class common stock 25705 shares cancelled december 31 2004 shares vest one year date grant december 2003 january 2004 connection new employment agreements certain officers awarded 50000 shares respectively restricted charter class common stock 50000 shares cancelled december 31 2004 shares vest annually fouryear period beginning date grant december 31 2004 deferred compensation remaining recognized future period totaled 04 million cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated summary activity company’s stock options excluding granted shares restricted charter class common stock years ended december 31 2004 2003 2002 follows amounts thousands except per share data following table summarizes information stock options outstanding exercisable december 31 2004 january 1 2003 company adopted fair value measurement provisions sfas 123 company recognizes compensation expense stockbased award employee vesting period based fair value award grant date adoption provisions resulted utilizing preferable accounting method consolidated financial statements present estimated fair value stockbased compensation expense consistently forms compensation expense associated goods services received equity instruments accordance sfas 123 fair value method applied awards granted modified january 1 2003 whereas awards granted prior date continue accounted apb 25 unless modified settled cash ongoing effect consolidated results operations financial condition dependent upon future stock based compensation awards granted company recorded 31 million option compensation expense year ended december 31 2004 cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated prior adoption sfas 123 company used intrinsic value method prescribed apb 25 accounting stock issued employees account option plans option compensation expense 5 million year ended december 31 2002 recorded consolidated statements operations since exercise prices certain options less estimated fair values underlying membership interests date grant january 2004 charter began option exchange program company offered employees right exchange stock options vested unvested 1999 charter communications option plan 2001 stock incentive plan exercise price 10 per share shares restricted charter class common stock instances cash based sliding exchange ratio varied depending exercise price employees outstanding options employee would received 400 shares restricted stock exchange tendered options charter issued employee shares restricted stock exchange based exchange ratios employee would received 400 fewer shares restricted stock exchange tendered options charter instead paid employee cash amount equal number shares employee would received multiplied 500 offer applied options vested unvested purchase total 22929573 shares charter class common stock approximately 48 charter’s 47882365 total options issued outstanding december 31 2003 participation employees voluntary members charter’s board directors also employees company subsidiaries eligible participate exchange offer closing exchange offer february 20 2004 charter accepted cancellation eligible options purchase approximately 18137664 shares class common stock exchange charter granted 1966686 shares restricted stock including 460777 performance shares eligible employees rank senior vice president paid total cash amount approximately 4 million amount includes applicable withholding taxes employees received cash rather shares restricted stock restricted stock granted february 25 2004 employees tendered approximately 79 options eligible exchanged program cost company stock option exchange program approximately 10 million 2004 cash compensation expense approximately 4 million noncash compensation expense approximately 6 million expensed ratably threeyear vesting period restricted stock exchange january 2004 compensation committee board directors charter approved charter’s longterm incentive program “ltip” program administered 2001 stock incentive plan ltip employees charter subsidiaries whose pay classifications exceed certain level eligible receive stock options senior level employees eligible receive stock options performance shares stock options vest 25 first four anniversaries date grant performance shares vest third anniversary grant date shares charter class common stock issued conditional upon charter’s performance financial performance measures established charter’s management approved board directors time award charter granted 69 million shares january 2004 program recognized expense 8 million first three quarters 2004 however fourth quarter 2004 company reversed entire 8 million expense based company’s assessment probability achieving financial performance measures established charter required met performance shares vest cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated 17 special charges fourth quarter 2002 company began workforce reduction program consolidation operations three divisions ten regions five operating divisions eliminating redundant practices streamlining management structure company recorded special charges result reducing workforce consolidating administrative offices 2003 2004 activity associated initiative summarized table year ended december 31 2002 special charges include 4 million related legal costs associated charter’s ongoing grand jury investigation shareholder lawsuits securities exchange commission “sec” investigation 1 million associated severance costs related 2001 restructuring plan year ended december 31 2003 severance lease costs offset 5 million settlement internet service provider excitehome related conversion highspeed data customers charter pipeline service 2001 year ended december 31 2004 special charges include approximately 85 million representing aggregate value charter class common stock warrants purchase charter class common stock contemplated issued part settlement consolidated federal state class actions federal derivative action lawsuits approximately 10 million litigation costs related tentative settlement national class action suit subject final documentation court approval see note 20 year ended december 31 2004 special charges offset 3 million received third party settlement dispute 18 income taxes cco holdings single member limited liability company subject income tax cco holdings holds operations indirect subsidiaries majority indirect subsidiaries limited liability companies also subject income tax however certain cco holdings’ indirect subsidiaries corporations subject income tax year ended december 31 2003 company recorded income tax expense realized increases deferred tax liabilities federal state income taxes related indirect corporate subsidiaries years ended december 31 2004 2002 company recorded income tax benefit indirect corporate subsidiaries related differences accounting franchises cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated current deferred income tax expense benefit follows company recorded portion income tax benefit associated adoption eitf topic d108 sfas no142 16 million 32 million reduction cumulative effect accounting change accompanying statement operations years ended december 31 2004 december 31 2002 respectively company’s effective tax rate differs derived applying applicable federal income tax rate 35 average state income tax rate 5 years ended december 31 2004 2003 2002 follows cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated tax effects temporary differences give rise significant portions deferred tax assets deferred tax liabilities december 31 2004 2003 indirect corporate subsidiaries company included longterm liabilities presented december 31 2004 2003 company deferred tax assets 103 million 86 million respectively primarily relate net operating loss carryforwards certain indirect corporate subsidiaries net operating loss carryforwards generally expiring years 2005 2024 95 million subject certain return limitations valuation allowances 71 million 51 million exist respect carryforwards december 31 2004 2003 respectively assessing realizability deferred tax assets management considers whether likely portion deferred tax assets realized management considers scheduled reversal deferred tax liabilities projected future taxable income tax planning strategies making assessment management believes deferred tax assets realized prior expiration tax net operating loss carryforwards 2005 2024 except tax net operating loss carryforwards may subject certain limitations uncertainty associated realizing deferred tax assets associated potentially limited tax net operating loss carryforwards valuation allowances established except deferred tax assets available offset deferred tax liabilities charter holdco currently examination internal revenue service tax years ending december 31 1999 2000 2002 2003 results company excluding indirect corporate subsidiaries years subject examination management expect results examination material adverse effect company’s financial condition results operations 19 related party transactions following sets forth certain transactions company directors executive officers affiliates company involved unless otherwise disclosed management believes transactions described terms less favorable company could obtained independent third parties charter party management arrangements charter holdco certain subsidiaries agreements charter provides management services cable systems owned operated subsidiaries management services include services centralized customer billing services data processing related cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated support benefits administration coordination insurance coverage selfinsurance programs medical dental workers’ compensation claims costs associated providing services billed charged directly company’s operating subsidiaries included within operating costs accompanying consolidated statements operations costs totaled 202 million 210 million 176 million years ended december 31 2004 2003 2002 respectively costs incurred behalf company’s operating subsidiaries considered part management fee recorded component selling general administrative expense accompanying consolidated financial statements years ended december 31 2004 2003 2002 management fee charged company’s operating subsidiaries approximated expenses incurred charter holdco charter behalf company’s operating subsidiaries credit facilities company’s operating subsidiaries prohibit payments management fees excess 35 revenues repayment outstanding indebtedness event portion management fee due payable paid deferred charter accrued liability subsidiaries deferred amount management fee bear interest rate 10 per year compounded annually date due payable date paid mr allen controlling shareholder charter number affiliates interests various entities provide services programming charter’s subsidiaries given diverse nature mr allen’s investment activities interests avoid possibility future disputes potential business charter holdco terms respective organizational documents may allow subsidiaries engage business transaction outside cable transmission business except certain existing approved investments charter holdco subsidiaries wish pursue allow subsidiaries pursue business transaction outside scope must first offer mr allen opportunity pursue particular business transaction decides pursue business transaction consents charter subsidiaries engaging business transaction able cable transmission business means business transmitting video audio including telephony data cable systems owned operated managed charter holdco subsidiaries time mr allen affiliates owned equity interests warrants purchase equity interests various entities company business provides products services programming among entities techtv llc “techtv” oxygen media corporation “oxygen media” digeo inc click2learn inc trail blazer inc action sports cable network “action sports” microsoft corporation addition mr allen william savoy former charter director directors usa networks inc “usa networks” operates usa network scifi channel trio world news international home shopping network owning approximately 5 less 1 respectively common stock usa networks 2002 mr allen mr savoy sold common stock longer directors usa network may 2004 techtv sold unrelated third party mr allen owns 100 equity vulcan ventures incorporated “vulcan ventures” vulcan inc president vulcan ventures ms jo allen patton director president chief executive officer vulcan inc director vice president vulcan ventures mr lance conn executive vice president vulcan inc vulcan ventures mr savoy vice president director vulcan ventures resignation september 2003 resigned director charter april 2004 various cable media internet telephony companies mr allen invested may mutually benefit one another company give assurance expect business relationships successful company realize benefits relationships company enter business relationships future mr allen’s affiliated companies mr allen affiliates made future likely make numerous investments outside company business company cannot assure event company subsidiaries enter transactions future affiliate mr allen transactions terms favorable company terms might obtained unrelated third party also conflicts could arise respect allocation corporate opportunities company mr allen affiliates company instituted formal plan arrangement address potential conflicts interest cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated high speed access corp “high speed access” provider highspeed internet access services cable modems period 1997 2000 certain charter entities entered internetaccess related service agreements vulcan ventures entity owned mr allen charter holdco made equity investments high speed access february 28 2002 charter’s subsidiary cc systems purchased high speed access contracts associated assets assumed related liabilities served company’s customers including customer contact center network operations center provisioning software immediately prior asset purchase vulcan ventures beneficially owned approximately 37 company beneficially owned approximately 13 common stock high speed access including shares common stock could acquired upon conversion series preferred stock upon exercise warrants owned charter holdco following consummation asset purchase neither company vulcan ventures beneficially owned securities otherwise affiliated high speed access company receives receive programming broadcast via cable systems techtv g4 usa networks oxygen media trail blazers inc action sports company pays fee programming service generally based number customers receiving service fees years ended december 31 2004 2003 2002 less 1 total operating expenses exception usa networks 2 total operating expenses years ended december 31 2004 2003 2002 respectively addition company receives commissions usa networks home shopping sales generated customers revenues years ended december 31 2004 2003 2002 less 1 total revenues november 5 2002 action sports announced discontinuing business company believes failure action sports materially affect company’s business results operations tech tv company receives techtv programming distribution via cable system pursuant affiliation agreement affiliation agreement provides among things techtv must offer charter certain terms conditions less favorable affiliation agreement given distributor serves number fewer techtv viewing customers additionally pursuant affiliation agreement company entitled incentive payments channel launches december 31 2003 march 2004 charter holdco entered agreements vulcan programming techtv provide charter holdco techtv amend affiliation agreement among things revises description techtv network content provides charter holdco waive certain claims techtv relating alleged breaches affiliation agreement provides techtv make payment outstanding launch receivables due charter holdco affiliation agreement ii vulcan programming pay approximately 10 million purchase 24month period fair market rates 2 million advertising time across various cable networks charter cable systems consideration agreements obligations releases waivers agreements settlement aforementioned claims iii techtv provider content relating technology video gaming charter’s interactive television platforms december 31 2006 exclusive first year ended december 31 2004 company recognized approximately 5 million vulcan programming payment offset programming expense paid approximately 2 million tech tv affiliation agreement oxygen concurrently execution carriage agreement charter holdco entered equity issuance agreement pursuant oxygen media llc’s “oxygen” parent company oxygen media corporation “oxygen media” granted subsidiary charter holdco warrant purchase 24 million shares common stock oxygen media exercise price 2200 per share february 2005 warrant expired unexercised charter holdco also receive unregistered shares oxygen media common stock guaranteed fair market value date issuance 34 million prior february 2 2005 exact date determined oxygen media commitment later revised discussed cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated company recognizes guaranteed value investment life carriage agreement reduction programming expense years ended december 31 2004 2003 2002 company recorded approximately 13 million 9 million 6 million respectively reduction programming expense carrying value company’s investment oxygen approximately 32 million 19 million december 31 2004 2003 respectively august 2004 charter holdco oxygen entered agreements amended renewed carriage agreement amendment carriage agreement revises number company’s customers oxygen programming must carried company must pay b releases charter holdco claims related failure achieve distribution benchmarks carriage agreement c requires oxygen make payment outstanding receivables marketing support fees due company affiliation agreement requires oxygen provide programming content company economic terms less favorable oxygen provides cable satellite operator fewer subscribers company renewal carriage agreement extends period company carry oxygen programming customers january 31 2008 b requires license fees paid based customers receiving oxygen programming rather specific customer benchmarks august 2004 charter holdco oxygen also amended equity issuance agreement provide issuance 1 million shares oxygen preferred stock liquidation preference 3310 per share plus accrued dividends charter holdco february 1 2005 place 34 million unregistered shares oxygen media common stock oxygen media deliver shares march 2005 preferred stock convertible common stock december 31 2007 conversion ratio numerator liquidation preference denominator fair market value per share oxygen media common stock conversion date digeo inc march 2001 charter ventures vulcan ventures incorporated formed dbroadband holdings llc sole purpose purchasing equity interests digeo connection execution broadband carriage agreement dbroadband holdings llc purchased equity interest digeo funded contributions vulcan ventures incorporated equity interest subject priority return capital vulcan ventures amount contributed vulcan ventures charter ventures’ behalf vulcan ventures recovers amount contributed cumulative loss allocations charter ventures 100 profit interest dbroadband holdings llc charter ventures required make capital contributions including capital calls may require vulcan ventures january 24 2004 make certain additional contributions dbroadband holdings llc acquire additional equity digeo necessary maintain charter ventures’ pro rata interest digeo event certain future digeo equity financings founders digeo additional equity interests also subject priority return capital vulcan ventures amounts contributed vulcan ventures charter ventures’ behalf dbroadband holdings llc therefore included company’s consolidated financial statements pursuant amended version arrangement 2003 vulcan ventures contributed total 29 million digeo 7 million contributed charter ventures’ behalf subject vulcan ventures’ aforementioned priority return since formation dbroadband holdings llc vulcan ventures contributed approximately 56 million charter ventures’ behalf june 30 2003 charter holdco entered agreement motorola inc purchase 100000 digital video recorder “dvr’’ units software dvr units supplied digeo interactive llc license agreement entered april 2004 license agreement digeo interactive granted charter holdco right use digeo’s proprietary software number dvr units charter deploys maximum 10 headends yearend 2004 maximum number headends increased 10 15 pursuant letter agreement executed june 11 2004 date entering license agreements units deployed extended june 30 2005 number headends increased 15 20 pursuant letter agreement dated august 4 2004 20 30 pursuant letter agreement dated september 28 2004 30 50 headends letter agreement february 2005 license granted unit deployed agreement valid five years addition charter pay certain fees including perheadend license fee maintenance fees maximum license maintenance fees term agreement expected approximately 7 million agreement provides charter entitled receive contract terms considered cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated whole license fees considered apart contract terms less favorable accorded digeo customer charter paid 474400 license maintenance fees 2004 april 2004 company launched dvr service using units containing digeo software rochester minnesota market using broadband media center integrated settop terminal cable converter dvr hard drive connectivity consumer electronics devices stereos mp3 players digital cameras may 2004 charter holdco entered binding term sheet digeo interactive development testing purchase 70000 digeo powerkey dvr units term sheet provided parties would proceed good faith negotiate prior yearend 2004 definitive agreements development testing purchase dvr units parties would enter license agreement digeo’s proprietary software terms substantially similar terms license agreement described november 2004 charter holdco digeo interactive executed license agreement december 2004 parties executed purchase agreement terms substantially similar binding term sheet product development testing continuing total purchase price license maintenance fees term definitive agreements expected approximately 41 million definitive agreements terminable penalty charter certain circumstances wholly owned subsidiary digeo interactive provides interactive channel ichannel service charter monthtomonth basis years ended december 31 2004 2003 2002 charter paid digeo interactive 3 million 4 million 3 million respectively customized development ichannels interactive “toolkit” enable charter develop interactive local content january 10 2003 company signed agreement carry two aroundtheclock highdefinition networks hdnet movies hdnet movies delivers commercialfree schedule fulllength feature films converted 35mm highdefinition including titles extensive library warner bros films hdnet movies feature mix theatrical releases madefortv movies independent films shorts hdnet channel features variety hdtv programming including live sports sitcoms dramas action series documentaries travel programs music concerts shows special events news features including hdnet world report hdnet also offers selection classic recent television series company paid hdnet movies approximately 06 million 2004 company believes entities controlled mr cuban owned approximately 81 hdnet december 31 2004 december 31 2004 company believes mark cuban cofounder president hdnet owned approximately 62 total common equity charter based schedule 13g filed sec may 21 2003 part acquisition cable systems owned bresnan communications company limited partnership february 2000 cc viii llc cch ii’s indirect limited liability company subsidiary issued adjustments 24273943 class preferred membership units collectively “cc viii interest” value initial capital account approximately 630 million certain sellers affiliated att broadband subsequently owned comcast corporation “comcast sellers” held comcast sellers cc viii interest entitled 2 priority return initial capital account priority return entitled preferential distributions available cash upon liquidation cc viii held comcast sellers cc viii interest generally share profits losses cc viii mr allen granted comcast sellers right sell cc viii interest approximately 630 million plus 45 interest annually february 2000 “comcast put right” april 2002 comcast sellers exercised comcast put right full transaction consummated june 6 2003 accordingly mr allen become holder cc viii interest indirectly affiliate consequently subject matters referenced next paragraph mr allen generally thereafter allocated pro rata share based number membership interests outstanding profits losses cc viii event liquidation cc viii mr allen would entitled priority distribution respect 2 priority return continue accrete remaining distributions liquidation would distributed cc v holdings llc mr allen proportion cc v holdings llc’s capital account mr allen’s capital account equal initial capital account comcast sellers approximately 630 million increased decreased mr allen’s pro rata share cc viii’s cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated profits losses computed capital account purposes june 6 2003 limited liability company agreement cc viii provide mandatory redemption cc viii interest issue arisen whether documentation bresnan transaction correct complete regard ultimate ownership cc viii interest following consummation comcast put right specifically terms bresnan transaction documents entered june 1999 comcast sellers originally would received adjustments 24273943 charter holdco membership units due fcc regulatory issue raised comcast sellers shortly closing bresnan transaction modified provide comcast sellers instead would receive preferred equity interests cc viii represented cc viii interest part lastminute changes bresnan transaction documents draft amended version charter holdco limited liability company agreement prepared contract provisions drafted agreement would required automatic exchange cc viii interest 24273943 charter holdco membership units comcast sellers exercised comcast put right sold cc viii interest mr allen affiliates however provisions would required automatic exchange appear final version charter holdco limited liability company agreement delivered executed closing bresnan transaction law firm prepared documents bresnan transaction brought matter attention charter representatives mr allen 2002 thereafter board directors charter formed special committee currently comprised messrs merritt tory wangberg investigate matter take appropriate action behalf charter respect matter conducting investigation relevant facts circumstances special committee determined “scrivener’s error” occurred february 2000 connection preparation lastminute revisions bresnan transaction documents result charter seek reformation charter holdco limited liability company agreement alternative relief order restore ensure obligation cc viii interest automatically exchanged charter holdco units special committee determined part contract reformation alternative relief mr allen required contribute cc viii interest charter holdco exchange 24273943 charter holdco membership units special committee also recommended board directors charter extent contract reformation achieved board directors consider whether cc viii interest ultimately held charter holdco charter holdings another entity owned directly indirectly mr allen disagrees special committee’s determinations described notified special committee mr allen contends transaction accurately reflected transaction documentation contemporaneous subsequent company public disclosures parties engaged process nonbinding mediation seek resolve matter without success special committee evaluating actions processes may undertake resolve dispute accommodate deliberation party agreed refrain initiating legal proceedings matter given least ten days’ prior notice addition special committee mr allen determined utilize delaware court chancery’s program mediation complex business disputes effort resolve cc viii interest dispute special committee mr allen unable reach resolution mediation process agree alternative dispute resolution process special committee intends seek resolution dispute judicial proceedings action would commenced appropriate notice delaware court chancery mr allen affiliates seeking contract reformation declaratory relief respective rights parties regarding dispute alternative forms legal equitable relief ultimate resolution financial impact dispute determinable time cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated 20 commitments contingencies commitments following table summarizes company’s payment obligations december 31 2004 contractual obligations 1 company leases certain facilities equipment noncancellable operating leases rental costs charged expense years ended december 31 2004 2003 2002 23 million 30 million 31 million respectively 2 company pays programming fees multiyear contracts ranging three six years typically based flat fee per customer may fixed term may cases escalate term programming costs included accompanying statement operations 13 billion 12 billion 12 billion years ended december 31 2004 2003 2002 respectively certain company’s programming agreements based flat fee per month guaranteed minimum payments table sets forth aggregate guaranteed minimum commitments company’s programming contracts 3 “other” represents guaranteed minimum commitments consist primarily commitments company’s billing services vendors following items included contractual obligation table due various factors discussed however company incurs costs part operations • company also rents utility poles used operations generally pole rentals cancelable short notice company anticipates rentals recur rent expense incurred pole rental attachments years ended december 31 2004 2003 2002 43 million 40 million 41 million respectively • company pays franchise fees multiyear franchise agreements based percentage revenues earned video service per year company also pays franchise related costs public education grants multiyear agreements franchise fees franchiserelated costs included accompanying statement operations 164 million 162 million 160 million years ended december 31 2004 2003 2002 respectively • company also 166 million letters credit primarily various worker’s compensation property casualty general liability carriers collateral reimbursement claims letters credit reduce amount company may borrow credit facilities litigation fourteen putative federal class action lawsuits “federal class actions” filed charter certain former present officers directors various jurisdictions allegedly behalf purchasers charter’s securities period either november 8 november 9 1999 july 17 july 18 2002 unspecified damages sought plaintiffs general lawsuits alleged charter utilized cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated misleading accounting practices failed disclose accounting practices andor issued false misleading financial statements press releases concerning charter’s operations prospects federal class actions specifically individually identified public filings made charter prior date annual report october 2002 charter filed motion judicial panel multidistrict litigation “panel” transfer federal class actions eastern district missouri march 12 2003 panel transferred six federal class actions filed eastern district missouri district coordinated consolidated pretrial proceedings eight federal class actions already pending panel’s transfer order assigned federal class actions judge charles shaw virtue prior court order stoneridge investment partners llc became lead plaintiff upon entry panel’s transfer order stoneridge subsequently filed consolidated amended complaint court subsequently consolidated federal class actions single action “consolidated federal class action” pretrial purposes june 19 2003 following status scheduling conference parties court issued case management order setting forth schedule pretrial phase consolidated class action motions dismiss consolidated amended complaint filed february 10 2004 response joint motion made stoneridge defendants charter vogel allen court entered order providing among things 1 parties filed motion engage mediation within ninety 90 days 2 proceedings consolidated federal class actions stayed may 10 2004 may 11 2004 court extended stay consolidated federal class action additional sixty 60 days july 12 2004 parties submitted joint motion extend stay time september 10 2004 court granted extension july 20 2004 august 5 2004 stoneridge charter individual defendants subject suit entered memorandum understanding setting forth agreements principle settle consolidated federal class action parties subsequently entered stipulations settlement dated january 24 2005 described fully incorporate terms august 5 2004 memorandum understanding september 12 2002 shareholders derivative suit “state derivative action” filed circuit court city st louis state missouri “missouri state court” charter current directors well former auditors substantively identical derivative action later filed consolidated state derivative action plaintiffs allege individual defendants breached fiduciary duties failing establish maintain adequate internal controls procedures unspecified damages allegedly charter’s behalf sought plaintiffs march 12 2004 action substantively identical state derivative action filed missouri state court charter certain current former directors well former auditors plaintiffs case alleged individual defendants breached fiduciary duties failing establish maintain adequate internal controls procedures unspecified damages allegedly charter’s behalf sought plaintiffs july 14 2004 court consolidated case state derivative action separately february 12 2003 shareholders derivative suit “federal derivative action” filed charter current directors united states district court eastern district missouri plaintiff suit alleged individual defendants breached fiduciary duties grossly mismanaged charter failing establish maintain adequate internal controls procedures noted charter entered memoranda understanding august 5 2004 setting forth agreements principle regarding settlement consolidated federal class action state derivative actions federal derivative action “actions” charter various defendants actions subsequently entered stipulations settlement dated january 24 2005 setting forth settlement actions manner consistent terms memorandum understanding stipulations settlement along various supporting documentation filed court february 2 2005 settlements provide exchange release claims plaintiffs charter former present officers directors named actions charter pay plaintiffs combination cash equity collectively valued 144 million include fees expenses plaintiffs’ counsel amount 64 million paid cash charter’s insurance carriers balance paid shares charter class common stock aggregate value 40 million tenyear warrants purchase shares charter class common stock cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated aggregate warrant value 40 million warrants would exercise price equal 150 fair market value defined charter class common stock date entry order final judgment approving settlement addition charter expects issue additional shares class common stock insurance carrier aggregate value 5 million result second quarter 2004 company recorded 149 million litigation liability within longterm liabilities 64 million insurance receivable part noncurrent assets consolidated balance sheet 85 million special charge consolidated statement operations additionally part settlements charter also commit variety corporate governance changes internal practices public disclosures already undertaken none inconsistent measures charter taking connection recent conclusion sec investigation described documents related settlement actions executed filed february 15 2005 united states district court eastern district missouri gave preliminary approval settlement actions settlement lawsuits remains conditioned upon among things final judicial approval settlements following notice class dismissal prejudice consolidated derivative actions pending missouri state court related federal derivative action addition federal class actions state derivative action new missouri state court derivative action federal derivative action six putative class action lawsuits filed charter certain current directors officers court chancery state delaware “delaware class actions” lawsuits filed filing schedule 13d amendment mr allen indicating exploring number possible alternatives respect restructuring expanding ownership interest charter believes plaintiffs speculated mr allen might contemplating unfair bid shares charter sort going private transaction unfair terms generally alleged defendants breached fiduciary duties participating acquiescing transaction lawsuits substantively identical brought behalf charter’s securities holders july 29 2002 sought unspecified damages possible injunctive relief however transaction mr allen presented april 30 2004 orders dismissal without prejudice entered delaware class actions august 2002 charter became aware grand jury investigation conducted us attorney’s office eastern district missouri certain accounting reporting practices focusing charter reported customer numbers reporting amounts received digital settop terminal suppliers advertising us attorney’s office publicly stated charter target investigation charter also advised us attorney’s office current officer member board directors target investigation july 24 2003 federal grand jury charged four former officers charter conspiracy mail wire fraud alleging improper accounting reporting practices focusing revenue digital settop terminal suppliers inflated customer account numbers indicted former officers pled guilty single conspiracy counts related original mail wire fraud charges awaiting sentencing charter advised company fully cooperating investigation november 4 2002 charter received informal nonpublic inquiry staff sec issued formal order investigation dated january 23 2003 subsequently served document testimony subpoenas charter number former employees investigation subpoenas generally concerned charter’s prior reports respect determination number customers various accounting policies practices including capitalization certain expenses dealings certain vendors including programmers digital settop terminal suppliers july 27 2004 sec charter reached final agreement settle investigation settlement agreement cease desist order charter agreed entry administrative order prohibiting future violation united states securities laws requiring certain remedial internal practices public disclosures charter neither admitted denied wrongdoing sec assessed fine charter generally required indemnify named individual defendants connection matters described pursuant terms bylaws applicable individual defendants’ employment agreements accordance documents connection pending grand jury investigation cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated settled sec investigation described lawsuits charter’s current former directors current former officers advanced certain costs expenses incurred connection defense february 22 2005 charter filed suit four former officers indicted course grand jury investigation suits seek recover legal fees related expenses advanced individuals charter grand jury investigation sec investigation class action related lawsuits october 2001 two customers nikki nicholls geraldine barber filed class action suit charter holdco south carolina court common pleas “south carolina class action” purportedly behalf class charter holdco’s customers alleging charter holdco improperly charged wire maintenance fee without request permission also claimed charter holdco improperly required rent analog andor digital settop terminals even though television sets “cable ready” substantively identical case filed superior court athens clarke county georgia emma tobar march 26 2002 “georgia class action” alleging nationwide class claims charter holdco removed south carolina class action united states district court district south carolina november 2001 moved dismiss suit december 2001 federal judge remanded case south carolina court common pleas august 2002 without ruling motion dismiss plaintiffs subsequently moved default judgment arguing upon return state court charter holdco file new motion dismiss state court judge granted plaintiff’s motion charter holdco’s objection september 2002 charter holdco immediately appealed decision south carolina court appeals south carolina supreme court courts ruled final judgment entered charter holdco lacked jurisdiction hear appeal january 2003 court common pleas granted plaintiffs’ motion class certification october november 2003 charter holdco filed motions asking court set aside default judgment b seeking dismissal plaintiffs’ suit failure state claim january 2004 court common pleas granted part denied part charter holdco’s motion dismiss failure state claim also took advisement charter holdco’s motion set aside default judgment april 2004 parties georgia south carolina class actions participated mediation mediator made proposal parties settle lawsuits may 2004 parties accepted mediator’s proposal reached tentative settlement subject final documentation court approval result tentative settlement company recorded special charge 9 million consolidated statement operations first quarter 2004 july 8 2004 superior court athens clarke county georgia granted motion amend tobar complaint add nicholls barber april jones plaintiffs georgia class action add potential class members south carolina court also granted preliminary approval proposed settlement date august 2 2004 parties submitted joint request south carolina court common pleas stay south carolina class action pending final approval settlement august 17 2004 court granted parties’ request november 10 2004 court granted final approval settlement rejecting positions advanced two objectors settlement december 13 2004 court entered written order formally approving settlement january 11 2005 certain class members appealed order entered georgia court objectors voluntarily dismissed appeal prejudice february 8 2005 february 9 2005 south carolina court common pleas entered court order dismissal south carolina class action additionally one objectors settlement recently filed similar identical lawsuit furthermore charter also party lawsuits claims arose ordinary course conducting business opinion management taking account recorded liabilities outcome lawsuits claims expected material adverse effect company’s consolidated financial condition results operations liquidity regulation cable industry operation cable system extensively regulated federal communications commission “fcc” state governments local governments fcc authority enforce regulations imposition substantial fines issuance cease desist orders andor imposition administrative sanctions revocation fcc licenses needed operate certain transmission facilities cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated used connection cable operations 1996 telecom act altered regulatory structure governing nation’s communications providers removed barriers competition cable television market local telephone market among things reduced scope cable rate regulation encouraged additional competition video programming industry allowing local telephone companies provide video programming telephone service areas 1996 telecom act required fcc undertake number implementing rulemakings moreover congress fcc frequently revisited subject cable regulation future legislative regulatory changes could adversely affect company’s operations 21 employee benefit plan company’s employees may participate charter communications inc 401k plan employees qualify participation contribute 50 salary pretax basis subject maximum contribution limit determined internal revenue service company matches 50 first 5 participant contributions company made contributions 401k plan totaling 7 million 7 million 8 million years ended december 31 2004 2003 2002 respectively 22 recently issued accounting standards december 2004 financial accounting standards board issued revised sfas 123 share based payment addresses accounting sharebased payment transactions company receives employee services exchange equity instruments company b liabilities based fair value company’s equity instruments may settled issuance equity instruments statement effective company beginning july 1 2005 company adopted fair value recognition provisions sfas 123 january 1 2003 company expect revised standard material impact financial statements company believe recently issued yet effective accounting pronouncements adopted would material effect company’s accompanying financial statements cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated 23 parent company financial statements result limitations prohibitions distributions substantially net assets consolidated subsidiaries restricted distribution cco holdings parent company see note 9 following condensed parentonly financial statements cco holdings account investment subsidiaries equity method accounting financial statements read conjunction consolidated financial statements company notes thereto cco holdings llc parent company condensed balance sheet condensed statement operations cco holdings llc subsidiaries notes consolidated financial statements december 31 2004 2003 2002 dollars millions except indicated condensed statements cash flows item 15 exhibits financial statement schedules following documents filed part annual report 1 financial statements listing financial statements notes reports independent public accountants required item 8 begins page annual report 2 financial statement schedules financial statement schedules required filed items 8 15d required applicable required information set forth applicable financial statements notes thereto 3 index exhibits begins page e1 annual report agree furnish sec upon request copies longterm debt instruments authorize amount securities constituting 10 less total assets charter holdings subsidiaries consolidated basis signatures pursuant requirements section 13 15d securities exchange act 1934 cco holdings llc cco holdings capital corp duly caused annual report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf charter communications inc sole manager registrant capacities dates indicated s1 exhibit index exhibits listed numbers corresponding exhibit table item 601 regulation sk exhibit description 31a certificate formation cco holdings llc incorporated reference exhibit 31 registration statement form s4 cco holdings llc cco holdings capital corporation filed february 6 2004 file 333112593 31b certificate correction certificate formation cco holdings llc incorporated reference exhibit 32 registration statement form s4 cco holdings llc cco holdings capital corporation filed february 6 2004 file 333112593 32 amended restated limited liability company agreement cco holdings llc dated june 19 2003 incorporated reference exhibit 33 registration statement form s4 cco holdings llc cco holdings capital corporation filed february 6 2004 file 333112593 33a certificate incorporation cco holdings capital corp originally named cc holdco capital corp incorporated reference exhibit 34 registration statement form s4 cco holdings llc cco holdings capital corporation filed february 6 2004 file 333112593 33b certificate amendment certificate incorporation cco holdings capital corp incorporated reference exhibit 35 registration statement form s4 cco holdings llc cco holdings capital corporation filed february 6 2004 file 333112593 34 certificate formation cco holdings llc incorporated reference exhibit 31 registration statement form s4 cco holdings llc cco holdings capital corporation filed february 6 2004 file 333112593 certain longterm debt instruments none relates authorized indebtedness exceeds 10 consolidated assets registrants filed exhibits form 10k registrants agree furnish commission upon request copy instrument defining rights holders long term debt company consolidated subsidiaries 41a indenture relating 9920 senior discount notes due 2011 dated march 17 1999 among charter communications holdings llc charter communications holdings capital corporation harris trust savings bank incorporated reference exhibit 43a amendment 2 registration statement form s4 charter communications holdings llc charter communications holdings capital corporation filed june 22 1999 file 33377499 41b first supplemental indenture relating 9920 senior discount notes due 2011 dated september 28 2005 among charter communications holdings llc charter communications holdings capital corporation bny midwest trust company trustee incorporated reference exhibit 104 current report form 8k charter communications inc filed october 4 2005 file 00027927 42a indenture relating 1000 senior notes due 2009 dated january 12 2000 charter communications holdings llc charter communications holdings capital corporation harris trust savings bank incorporated reference exhibit 41a registration statement form s4 charter communications holdings llc charter communications holdings capital corporation filed january 25 2000 file 33395351 42b first supplemental indenture relating 1000 senior notes due 2009 dated september 28 2005 charter communications holdings llc charter communications holdings capital corporation bny midwest trust company trustee incorporated reference exhibit 105 current report form 8k charter communications inc filed october 4 2005 file 00027927 e1 43a indenture relating 1025 senior notes due 2010 dated january 12 2000 among charter communications holdings llc charter communications holdings capital corporation harris trust savings bank incorporated reference exhibit 42a registration statement form s4 charter communications holdings llc charter communications holdings capital corporation filed january 25 2000 file 33395351 43b first supplemental indenture relating 1025 senior notes due 2010 dated september 28 2005 among charter communications holdings llc charter communications holdings capital corporation bny midwest trust company trustee incorporated reference exhibit 106 current report form 8k charter communications inc filed october 4 2005 file 00027927 44a indenture relating 1175 senior discount notes due 2010 dated january 12 2000 among charter communications holdings llc charter communications holdings capital corporation harris trust savings bank incorporated reference exhibit 43a registration statement form s4 charter communications holdings llc charter communications holdings capital corporation filed january 25 2000 file 33395351 44b first supplemental indenture relating 1175 senior discount notes due 2010 among charter communications holdings llc charter communications holdings capital corporation bny midwest trust company trustee dated september 28 2005 incorporated reference exhibit 107 current report form 8k charter communications inc filed october 4 2005 file 00027927 45a indenture dated january 10 2001 charter communications holdings llc charter communications holdings capital corporation bny midwest trust company trustee governing 10750 senior notes due 2009 incorporated reference exhibit 42a registration statement form s4 charter communications holdings llc charter communications holdings capital corporation filed february 2 2001 file 33354902 45b first supplemental indenture dated september 28 2005 charter communications holdings llc charter communications holdings capital corporation bny midwest trust company trustee governing 10750 senior notes due 2009 incorporated reference exhibit 108 current report form 8k charter communications inc filed october 4 2005 file 00027927 46a indenture dated january 10 2001 charter communications holdings llc charter communications holdings capital corporation bny midwest trust company trustee governing 11125 senior notes due 2011 incorporated reference exhibit 42b registration statement form s4 charter communications holdings llc charter communications holdings capital corporation filed february 2 2001 file 33354902 46b first supplemental indenture dated september 28 2005 charter communications holdings llc charter communications capital corporation bny midwest trust company governing 11125 senior notes due 2011 incorporated reference exhibit 109 current report form 8k charter communications inc filed october 4 2005 file 00027927 47a indenture dated january 10 2001 charter communications holdings llc charter communications holdings capital corporation bny midwest trust company trustee governing 13500 senior discount notes due 2011 incorporated reference exhibit 42c registration statement form s4 charter communications holdings llc charter communications holdings capital corporation filed february 2 2001 file 33354902 47b first supplemental indenture dated september 28 2005 charter communications holdings llc charter communications holdings capital corporation bny midwest trust company trustee governing 13500 senior discount notes due 2011 incorporated reference exhibit 1010 current report form 8k charter communications inc filed october 4 2005 file 00027927 48a indenture dated may 15 2001 charter communications holdings llc charter communications holdings capital corporation bny midwest trust company trustee governing 9625 senior notes due 2009 incorporated reference exhibit 102a current report form 8k filed charter communications inc june 1 2001 file 00027927 48b first supplemental indenture dated january 14 2002 charter communications holdings llc charter communications holdings capital corporation bny midwest trust company trustee governing 9625 senior notes due 2009 incorporated reference exhibit 102a current report form 8k filed charter communications inc january 15 2002 file 00027927 48c second supplemental indenture dated june 25 2002 charter communications holdings llc charter communications holdings capital corporation bny midwest trust company trustee governing 9625 senior notes due 2009 incorporated reference exhibit 41 quarterly report form 10q filed charter communications inc august 6 2002 file 00027927 e2 48d third supplemental indenture dated september 28 2005 charter communications holdings llc charter communications capital corporation bny midwest trust company trustee governing 9625 senior notes due 2009 incorporated reference exhibit 1011 current report form 8k charter communications inc filed october 4 2005 file 00027927 49a indenture dated may 15 2001 charter communications holdings llc charter communications holdings capital corporation bny midwest trust company trustee governing 10000 senior notes due 2011 incorporated reference exhibit 103a current report form 8k filed charter communications inc june 1 2001 file 00027927 49b first supplemental indenture dated january 14 2002 charter communications holdings llc charter communications holdings capital corporation bny midwest trust company trustee governing 10000 senior notes due 2011 incorporated reference exhibit 103a current report form 8k filed charter communications inc january 15 2002 file 00027927 49c second supplemental indenture dated june 25 2002 charter communications holdings llc charter communications holdings capital corporation bny midwest trust company trustee governing 10000 senior notes due 2011 incorporated reference exhibit 42 quarterly report form 10q filed charter communications inc august 6 2002 file 00027927 49d third supplemental indenture dated september 28 2005 charter communications holdings llc charter communications holdings capital corporation bny midwest trust company trustee governing 10000 senior notes due 2011 incorporated reference exhibit 1012 current report form 8k charter communications inc filed october 4 2005 file 00027927 410a indenture dated may 15 2001 charter communications holdings llc charter communications holdings capital corporation bny midwest trust company trustee governing 11750 senior discount notes due 2011 incorporated reference exhibit 104a current report form 8k filed charter communications inc june 1 2001 file 00027927 410b first supplemental indenture dated september 28 2005 charter communications holdings llc charter communications holdings capital corporation bny midwest trust company trustee governing 11750 senior discount notes due 2011 incorporated reference exhibit 1013 current report form 8k charter communications inc filed october 4 2005 file 00027927 411a indenture dated january 14 2002 charter communications holdings llc charter communications holdings capital corporation bny midwest trust company trustee governing 12125 senior discount notes due 2012 incorporated reference exhibit 104a current report form 8k filed charter communications inc january 15 2002 file 00027927 411b first supplemental indenture dated june 25 2002 charter communications holdings llc charter communications holdings capital corporation bny midwest trust company trustee governing 12125 senior discount notes due 2012 incorporated reference exhibit 43 quarterly report form 10q filed charter communications inc august 6 2002 file 00027927 411c second supplemental indenture dated september 28 2005 charter communications holdings llc charter communications holdings capital corporation bny midwest trust company trustee governing 12125 senior discount notes due 2012 incorporated reference exhibit 1014 current report form 8k charter communications inc filed october 4 2005 file 00027927 101 form restructuring agreement incorporated reference exhibit 101 current report form 8k charter communications inc filed february 13 2009 file 00027927 102 form commitment letter incorporated reference exhibit 102 current report form 8k charter communications inc filed february 13 2009 file 00027927 103 term sheet incorporated reference exhibit 103 current report form 8k charter communications inc filed february 13 2009 file 00027927 104 restructuring agreement dated february 11 2009 among paul g allen charter investment inc charter communications inc incorporated reference exhibit 104 current report form 8k charter communications inc filed february 13 2009 file 00027927 105 indenture dated september 28 2005 among cch holdings llc cch holdings capital corp issuers charter communications holdings llc parent guarantor bank new york trust company na trustee governing 11125 senior accreting notes due 2014 9920 senior accreting notes due 2014 10000 senior accreting notes due 2014 1175 senior accreting notes due 2014 1350 senior accreting notes due 2014 12125 senior accreting notes due 2015 incorporated reference exhibit 101 current report form 8k charter communications inc filed october 4 2005 file 00027927 e3 106a indenture dated september 28 2005 among cch llc cch capital corp issuers charter communications holdings llc parent guarantor bank new york trust company na trustee governing 1100 senior secured notes due 2015 incorporated reference exhibit 102 current report form 8k charter communications inc filed october 4 2005 file 00027927 106b first supplemental indenture relating 1100 senior secured notes due 2015 dated september 14 2006 cch llc cch capital corp issuers charter communications holdings llc parent guarantor bank new york trust company na trustee incorporated reference exhibit 104 current report form 8k charter communications inc september 19 2006 file 00027927 107 indenture relating 1025 senior notes due 2010 dated september 23 2003 among cch ii llc cch ii capital corporation wells fargo bank national association incorporated reference exhibit 101 current report form 8k charter communications inc filed september 26 2003 file 00027927 108 indenture relating 1025 senior notes due 2013 dated september 14 2006 cch ii llc cch ii capital corp issuers charter communications holdings llc parent guarantor bank new york trust company na trustee incorporated reference exhibit 102 current report form 8k charter communications inc september 19 2006 file 000027927 109 first supplemental indenture relating 1025 senior notes due 2013 dated july 2 2008 cch ii llc cch ii capital corporation issuers charter communications holdings llc parent guarantor bank new york mellon trust company na trustee incorporated reference exhibit 101 current report form 8k charter communications inc july 3 2008 file 000027927 1010 exchange registration rights agreement relating issuance 1025 senior notes due 2013 dated july 2 2008 cch ii llc cch ii capital corporation charter communications holdings llc banc america securities llc citigroup global markets inc incorporated reference exhibit 102 current report form 8k charter communications inc july 3 2008 file 000027927 1011 indenture relating 8 34 senior notes due 2013 dated november 10 2003 among cco holdings llc cco holdings capital corp wells fargo bank na trustee incorporated reference exhibit 41 charter communications incs current report form 8k filed november 12 2003 file 00027927 1012 indenture relating 8 senior second lien notes due 2012 8 38 senior second lien notes due 2014 dated april 27 2004 among charter communications operating llc charter communications operating capital corp wells fargo bank na trustee incorporated reference exhibit 1032 amendment 2 registration statement form s4 cch ii llc filed may 5 2004 file 333111423 1013 indenture relating 10875 senior second lien notes due 2014 dated march 19 2008 among charter communications operating llc charter communications operating capital corp wilmington trust company trustee incorporated reference exhibit 101 quarterly report filed form 10q charter communications inc filed may 12 2008 file 000027927 1014 collateral agreement dated march 19 2008 among charter communications operating llc charter communications operating capital corp cco holdings llc certain subsidiaries favor wilmington trust company trustee incorporated reference exhibit 102 quarterly report filed form 10q charter communications inc filed may 12 2008 file 000027927 1015a pledge agreement made cch llc favor bank new york trust company na collateral agent dated september 28 2005 incorporated reference exhibit 1015 current report form 8k charter communications inc filed october 4 2005 file 00027927 1015b amendment pledge agreement cch llc favor bank new york trust company na collateral agent dated september 14 2006 incorporated reference exhibit 103 current report form 8k charter communications inc september 19 2006 file 00027927 1016 consulting agreement dated march 10 1999 vulcan northwest inc charter communications inc called charter investment inc charter communications holdings llc incorporated reference exhibit 103 amendment 4 registration statement form s4 charter communications holdings llc charter communications holdings capital corporation filed july 22 1999 file 33377499 e4 1017 second amended restated mutual services agreement dated june 19 2003 charter communications inc charter communications holding company llc incorporated reference exhibit 105a quarterly report form 10q filed charter communications inc august 5 2003 file 00027927 1018 third amended restated limited liability company agreement cc viii llc dated october 31 2005 incorporated reference exhibit 1020 quarterly report form 10q filed charter communications inc november 2 2005 file 00027927 1019a amended restated limited liability company agreement charter communications operating llc dated june 19 2003 incorporated reference exhibit 102 quarterly report form 10q filed charter communications inc august 5 2003 file 00027927 1019b first amendment amended restated limited liability company agreement charter communications operating llc adopted june 22 2004 incorporated reference exhibit 1016b annual report form 10k filed charter communications inc february 28 2006 file 00027927 1020 amended restated management agreement dated june 19 2003 charter communications operating llc charter communications inc incorporated reference exhibit 104 quarterly report form 10q filed charter communications inc august 5 2003 file 33383887 1021a stipulation settlement dated january 24 2005 regarding settlement consolidated federal class action entitled charter communications inc securities litigation incorporated reference exhibit 1048 annual report form 10k filed charter communications inc march 3 2005 file 00027927 1021b amendment stipulation settlement dated may 23 2005 regarding settlement consolidated federal class action entitled charter communications inc securities litigation incorporated reference exhibit 1035b amendment 3 registration statement form s1 filed charter communications inc june 8 2005 file 333121186 1022 settlement agreement mutual release dated february 1 2005 among charter communications inc certain insureds hand certain underwriters lloyds london certain subscribers hand incorporated reference exhibit 1049 annual report form 10k filed charter communications inc march 3 2005 file 00027927 1023 stipulation settlement dated january 24 2005 regarding settlement federal derivative action arthur j cohn v ronald l nelson et al charter communications inc incorporated reference exhibit 1050 annual report form 10k filed charter communications inc march 3 2005 file 00027927 1024 settlement agreement mutual releases dated october 31 2005 among charter communications inc special committee board directors charter communications inc charter communications holding company llc cchc llc cc viii llc cc v llc charter investment inc vulcan cable iii llc paul g allen incorporated reference exhibit 1017 quarterly report form 10q charter communications inc filed november 2 2005 file 00027927 1025 exchange agreement dated october 31 2005 among charter communications holding company llc charter investment inc paul g allen incorporated reference exhibit 1018 quarterly report form 10q charter communications inc filed november 2 2005 file 00027927 1026 cchc llc subordinated accreting note dated october 31 2005 revised incorporated reference exhibit 103 current report form 8k charter communications inc filed november 4 2005 file 00027927 1027 amended restated credit agreement dated march 6 2007 among charter communications operating llc cco holdings llc lenders time parties thereto jpmorgan chase bank na administrative agent incorporated reference exhibit 101 current report form 8k charter communications inc filed march 9 2007 file 00027927 1028 amended restated guarantee collateral agreement made cco holdings llc charter communications operating llc certain subsidiaries favor jpmorgan chase bank na administrative agent dated march 18 1999 amended restated march 6 2007 incorporated reference exhibit 102 current report form 8k charter communications inc filed march 9 2007 file 00027927 e5 1029 credit agreement dated march 6 2007 among cco holdings llc lenders time parties thereto bank america na administrative agent incorporated reference exhibit 103 current report form 8k charter communications inc filed march 9 2007 file 00027927 1030 pledge agreement made cco holdings llc favor bank america na collateral agent dated march 6 2007 incorporated reference exhibit 104 current report form 8k charter communications inc filed march 9 2007 file 00027927 1031a charter communications holdings llc 1999 option plan incorporated reference exhibit 104 amendment 4 registration statement form s4 charter communications holdings llc charter communications holdings capital corporation filed july 22 1999 file 33377499 1031b assumption agreement regarding option plan dated may 25 1999 charter communications holdings llc charter communications holding company llc incorporated reference exhibit 1013 amendment 6 registration statement form s4 charter communications holdings llc charter communications holdings capital corporation filed august 27 1999 file 33377499 1031c form amendment 1 charter communications holdings llc 1999 option plan incorporated reference exhibit 1010c amendment 4 registration statement form s1 charter communications inc filed november 1 1999 file 33383887 1031d amendment 2 charter communications holdings llc 1999 option plan incorporated reference exhibit 104c annual report form 10k filed charter communications inc march 30 2000 file 00027927 1031e amendment 3 charter communications 1999 option plan incorporated reference exhibit 1014e annual report form 10k charter communications inc filed march 29 2002 file 00027927 1031f amendment 4 charter communications 1999 option plan incorporated reference exhibit 1010f annual report form 10k charter communications inc filed april 15 2003 file 00027927 1032a charter communications inc 2001 stock incentive plan incorporated reference exhibit 1025 quarterly report form 10q filed charter communications inc may 15 2001 file 00027927 1032b amendment 1 charter communications inc 2001 stock incentive plan incorporated reference exhibit 1011b annual report form 10k charter communications inc filed april 15 2003 file 00027927 1032c amendment 2 charter communications inc 2001 stock incentive plan incorporated reference exhibit 1010 quarterly report form 10q filed charter communications inc november 14 2001 file 00027927 1032d amendment 3 charter communications inc 2001 stock incentive plan effective january 2 2002 incorporated reference exhibit 1015c annual report form 10k charter communications inc filed march 29 2002 file 00027927 1032e amendment 4 charter communications inc 2001 stock incentive plan incorporated reference exhibit 1011e annual report form 10k charter communications inc filed april 15 2003 file 00027927 1032f amendment 5 charter communications inc 2001 stock incentive plan incorporated reference exhibit 1011f annual report form 10k charter communications inc filed april 15 2003 file 00027927 1032g amendment 6 charter communications inc 2001 stock incentive plan effective december 23 2004 incorporated reference exhibit 1043g registration statement form s1 charter communications inc filed october 5 2005 file 333128838 1032h amendment 7 charter communications inc 2001 stock incentive plan effective august 23 2005 incorporated reference exhibit 1043h registration statement form s1 charter communications inc filed october 5 2005 file 333128838 1032i description longterm incentive program charter communications inc 2001 stock incentive plan incorporated reference exhibit 1018g annual report form 10k filed charter communications holdings llc march 31 2005 file 33377499 e6 1033 description 2008 incentive program charter communications inc 2001 stock incentive plan incorporated reference exhibit 103 quarterly report form 10q filed charter communications inc august 5 2008 file 00027927 1034 description charter communications inc 2006 executive bonus plan incorporated reference exhibit 102 quarterly report form 10q filed charter communications inc may 2 2006 file 00027927 1035 amended restated executive cash award plan incorporated reference exhibit 101 current report form 8k charter communications inc filed december 6 2007 file 00027927 1036 amended restated employment agreement dated july 1 2008 neil smit charter communications inc incorporated reference exhibit 10101 current report form 8k charter communications inc filed september 30 2008 file 00027927 1037a amended restated employment agreement jeffrey fisher charter communications inc dated august 1 2007 incorporated reference exhibit 102 quarterly report form 10q charter communications inc filed august 2 2007 file 00027927 1037b separation agreement release jeffrey fisher charter communications inc dated april 4 2008 incorporated reference exhibit 103 quarterly report form 10q charter communications inc filed may 12 2008 file 00027927 amended restated employment agreement eloise e schmitz charter communications inc dated july 1 2008 incorporated reference exhibit 104 quarterly report form 10q charter communications inc filed august 5 2008 file 00027927 1038a amended restated employment agreement michael j lovett charter communications inc dated august 1 2007 incorporated reference exhibit 103 quarterly report form 10q charter communications inc filed august 2 2007 file 00027927 1038b amendment amended restated employment agreement michael j lovett charter communications inc dated march 5 2008 incorporated reference exhibit 105 quarterly report form 10q charter communications inc filed may 12 2008 file 00027927 1039a amended restated employment agreement grier c raclin charter communications inc dated august 1 2007 incorporated reference exhibit 105 quarterly report form 10q charter communications inc filed august 2 2007 file 00027927 1039b amendment amended restated employment agreement grier c raclin charter communications inc dated march 5 2008 incorporated reference exhibit 106 quarterly report form 10q charter communications inc filed may 12 2008 file 00027927 1040a amended restated employment agreement marwan fawaz charter communications inc dated august 1 2007 incorporated reference exhibit 1052a annual report form 10k charter communications inc filed march 16 2009 file 00027927 1040b amendment amended restated employment agreement marwan fawaz charter communications inc dated march 5 2008 incorporated reference exhibit 1052b annual report form 10k charter communications inc filed march 16 2009 file 00027927 121 cco holdings llc’s computation ratio earnings fixed charges 311 certificate chief executive officer cco holdings llc pursuant rule 13a14arule 15d14a securities exchange act 1934 312 certificate chief financial officer cco holdings llc pursuant rule 13a14arule 15d14a securities exchange act 1934 323 certification cco holdings llc pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 chief executive officer 324 certification cco holdings llc pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 chief financial officer document attached management compensatory plan arrangement e7 page audited financial statements report independent registered public accounting firm consolidated balance sheets december 31 2008 2007 consolidated statements operations years ended december 31 2008 2007 2006 consolidated statements changes member’s equity deficit years ended december 31 2008 2007 2006 consolidated statements cash flows years ended december 31 2008 2007 2006 notes consolidated financial statements report independent registered public accounting firm manager member cco holdings llc audited accompanying consolidated balance sheets cco holdings llc subsidiaries company december 31 2008 2007 related consolidated statements operations changes member’s equity deficit cash flows years threeyear period ended december 31 2008 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position cco holdings llc subsidiaries december 31 2008 2007 results operations cash flows years threeyear period ended december 31 2008 conformity us generally accepted accounting principles accompanying consolidated financial statements prepared assuming cco holdings llc continue going concern discussed note 2 consolidated financial statements cco holdings llc’s ultimate parent charter communications inc subsidiaries including cco holdings llc collectively charter filed voluntary petitions relief chapter 11 united states bankruptcy code primarily result following matters charter’s significant indebtedness ii charter’s ability raise additional capital given current leverage iii potential inability certain charter’s subsidiaries make distributions payments interest principal debts parents subsidiaries due 2009 based availability funds restrictions charter’s applicable debt instruments applicable law matters raise substantial doubt cco holdings llc’s ability continue going concern management’s plans regard matters described note 2 consolidated financial statements include adjustments might result outcome uncertainty st louis missouri march 30 cco holdings llc subsidiaries consolidated balance sheets dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries consolidated statements operations dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries consolidated statements changes member’s equity deficit dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements charter communications inc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated 1 organization basis presentation cco holdings llc “cco holdings” holding company whose principal assets december 31 2008 equity interests operating subsidiaries cco holdings direct subsidiary cch ii llc “cch ii” indirect subsidiary charter communications holdings llc “charter holdings” charter holdings indirect subsidiary charter communications inc “charter” consolidated financial statements include accounts cco holdings subsidiaries underlying operations reside collectively referred herein company significant intercompany accounts transactions among consolidated entities eliminated company broadband communications company operating united states company offers residential commercial customers traditional cable video programming basic digital video highspeed internet services telephone services well advanced broadband services high definition television charter ondemand™ digital video recorder “dvr” service company sells cable video programming highspeed internet telephone advanced broadband services primarily subscription basis company also sells local advertising cable networks preparation financial statements conformity accounting principles generally accepted united states “gaap” requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period areas involving significant judgments estimates include capitalization labor overhead costs depreciation amortization costs impairments property plant equipment franchises goodwill income taxes contingencies actual results could differ estimates reclassifications certain prior year amounts reclassified conform 2008 presentation 2 liquidity capital resources company’s consolidated financial statements prepared assuming continue going concern conditions noted raise substantial doubt company’s ability continue going concern consolidated financial statements include adjustments reflect possible future effects recoverability classification assets amounts classification liabilities may result outcome uncertainty february 12 2009 charter announced reached agreements principle holders certain subsidiaries’ senior notes “noteholders” holding approximately 41 billion aggregate principal amount notes issued charter’s subsidiaries cch llc “cch i” cch ii llc “cch ii” pursuant separate restructuring agreements dated february 11 2009 entered noteholder “restructuring agreements” march 27 2009 charter subsidiaries including cco holdings filed voluntary petitions relief chapter 11 united states bankruptcy code implement restructuring pursuant joint plan reorganization “plan” aimed improving capital structure “proposed restructuring” filing bankruptcy event default company’s indebtedness refer discussion subsequent events regarding proposed restructuring note 25 fourth quarter 2008 charter operating drew except 27 million amounts available revolving credit facility first quarter 2009 charter operating presented qualifying draw notice banks revolving credit facility refused funds additionally upon filing bankruptcy charter operating longer access revolving credit facility rely cash hand cash flows operating activities fund projected cash needs company’s parent companies’ projected cash needs projected sources liquidity depend upon among things actual results timing amount expenditures outcome various matters chapter 11 bankruptcy proceedings financial restructuring outcome proposed restructuring subject substantial risks see note 25 cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated company incurred net losses 15 billion 350 million 193 million 2008 2007 2006 respectively company’s net cash flows operating activities 15 billion 14 billion 12 billion years ending december 31 2008 2007 2006 respectively companys total debt december 31 2008 118 billion consisting 86 billion credit facility debt 32 billion accreted value highyield notes 2009 2010 2011 70 million company’s debt matures 2012 beyond significant additional amounts become due company’s remaining longterm debt obligations company requires significant cash fund debt service costs capital expenditures ongoing operations company historically funded requirements cash flows operating activities borrowings credit facilities equity contributions parent companies proceeds sales assets issuances debt securities cash hand however mix funding sources changes period year ended december 31 2008 company generated 15 billion net cash flows operating activities paying cash interest 774 million addition company used 12 billion purchases property plant equipment finally company generated net cash flows financing activities 689 million result financing transactions credit facility borrowings completed year ended december 31 2008 december 31 2008 company cash hand 948 million although company able refinance otherwise fund repayment debt past may able access additional sources refinancing similar terms pricing currently place otherwise obtain sources funding especially given recent volatility disruption capital credit markets deterioration general economic conditions recent months limitations distributions long charter’s convertible senior notes remain outstanding otherwise converted shares common stock charter must pay interest convertible senior notes repay principal amount charter’s ability make interest payments convertible senior notes repay outstanding principal convertible senior notes depend ability raise additional capital andor receipt payments distributions charter holdco subsidiaries december 31 2008 charter holdco owed 13 million intercompany loans charter communications operating llc “charter operating” 1 million cash amounts available pay interest principal charters convertible senior notes extent otherwise used example satisfy maturities charter holdings addition long charter holdco continues hold 137 million charter holdings’ notes due 2009 2010 discussed charter holdco receive interest principal payments charter holdings extent charter holdings able make payments amounts may available pay interest principal charter’s convertible senior notes although charter holdco may use amounts purposes distributions charter’s subsidiaries parent company payment principal parent company notes restricted indentures governing company’s parent companies’ notes cco holdings credit facility unless default applicable indenture credit facilities unless applicable subsidiary’s leverage ratio test met time distribution quarter ended december 31 2008 default indentures credit facilities however certain charter’s subsidiaries meet applicable leverage ratio tests based december 31 2008 financial results result distributions certain charter’s subsidiaries parent companies would restricted time continue restricted unless tests met distributions charter operating payment principal parent company notes restricted covenants credit facilities distributions cih cch ii cco holdings charter operating parent company payment parent company interest permitted default aforementioned indentures cco holdings credit facility indentures governing charter holdings notes permit charter holdings make distributions charter holdco payment interest principal charter’s convertible senior notes giving effect cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated distribution charter holdings incur additional debt leverage ratio 875 10 default charter holdings’ indentures specified tests met quarter ended december 31 2008 default charter holdings’ indentures specified tests met charter holdings met leverage ratio test based december 31 2008 financial results distributions would restricted however charter holdings fails meet tests time contemplated distribution past charter holdings time failed meet leverage ratio test assurance charter holdings satisfy tests time contemplated distribution periods distributions restricted indentures governing charter holdings notes permit charter holdings subsidiaries make specified investments restricted payments charter holdco charter amount determined formula long default indentures addition limitation distributions various indentures discussed distributions charter’s subsidiaries including company may limited applicable law delaware limited liability company act charter’s subsidiaries may make distributions “surplus” defined act fraudulent transfer laws charter’s subsidiaries may pay dividends insolvent rendered insolvent thereby measures insolvency purposes fraudulent transfer laws vary depending upon law applied proceeding determine whether fraudulent transfer occurred generally however entity would considered insolvent · sum debts including contingent liabilities greater fair saleable value assets · present fair saleable value assets less amount would required pay probable liability existing debts including contingent liabilities become absolute mature · could pay debts became due uncertain whether charter’s subsidiaries including company relevant times sufficient surplus relevant subsidiaries make distributions including payments interest principal debts parents entities otherwise assurance charter’s subsidiaries become insolvent permitted make distributions future compliance restrictions amounts needed service parent company indebtedness 3 summary significant accounting policies cash equivalents company considers highly liquid investments original maturities three months less cash equivalents investments carried cost approximates market value cash equivalents consist primarily money market funds commercial paper property plant equipment property plant equipment recorded cost including material labor certain indirect costs associated construction cable transmission distribution facilities company’s capitalization based specific activities capitalized costs tracked fixed asset category cable system level specific asset basis assets sold retired estimated historical cost related accumulated depreciation removed costs associated initial customer installations additions network equipment necessary enable advanced services capitalized costs capitalized part initial customer installations include materials labor certain indirect costs indirect costs associated activities company’s personnel assist connecting activating new service consist compensation indirect costs associated support functions indirect costs primarily include employee benefits payroll taxes direct variable costs associated capitalizable activities consisting primarily installation construction vehicle costs cost dispatch personnel indirect costs directly attributable capitalizable activities costs disconnecting service customer’s dwelling reconnecting service previously installed dwelling charged operating expense period incurred costs repairs maintenance charged operating expense cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated incurred plant equipment replacement betterments including replacement cable drops pole dwelling capitalized depreciation recorded using straightline composite method management’s estimate useful lives related assets follows asset retirement obligations certain company’s franchise agreements leases contain provisions requiring company restore facilities remove equipment event franchise lease agreement renewed company expects continually renew franchise agreements concluded substantially related franchise rights indefinite lived intangible assets accordingly possibility remote company would required incur significant restoration removal costs related franchise agreements foreseeable future statement financial accounting standards “sfas” 143 accounting asset retirement obligations interpreted financial accounting standards board “fasb” interpretation “fin” 47 accounting conditional asset retirement obligations interpretation fasb statement 143 requires liability recognized asset retirement obligation period incurred reasonable estimate fair value made company recorded estimate potential franchise related obligations would record estimated liability unlikely event franchise agreement containing provision longer expected renewed company also expects renew many lease agreements related continued operation cable business franchise areas company’s lease agreements estimated liabilities related removal provisions applicable recorded significant financial statements franchises franchise rights represent value attributed agreements local authorities allow access homes cable service areas acquired purchase cable systems management estimates fair value franchise rights date acquisition determines franchise finite life indefinitelife defined sfas 142 goodwill intangible assets franchises qualify indefinitelife treatment sfas 142 longer amortized earnings instead tested impairment annually frequently warranted events changes circumstances see note 7 company concluded substantially franchises qualify indefinitelife treatment costs incurred renewing cable franchises deferred amortized 10 years noncurrent assets noncurrent assets primarily include deferred financing costs investments equity securities goodwill costs related borrowings deferred amortized interest expense terms related borrowings investments equity securities accounted cost equity method accounting accordance sfas 115 accounting certain investments debt equity securities company recognizes losses decline value considered temporary valuation property plant equipment company evaluates recoverability longlived assets held used impairment events changes circumstances indicate carrying amount asset may recoverable events changes circumstances could include factors impairment company’s indefinite life franchise cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated sfas 142 changes technological advances fluctuations fair value assets adverse changes relationships local franchise authorities adverse changes market conditions deterioration operating results review indicates carrying value asset recoverable estimated undiscounted cash flows carrying value asset reduced estimated fair value company believes estimates future cash flows reasonable different assumptions regarding cash flows could materially affect evaluations asset recoverability impairments longlived assets held used recorded 2008 2007 2006 however approximately 56 million 159 million impairment assets held sale recorded years ended december 31 2007 2006 respectively see note 4 derivative financial instruments company accounts derivative financial instruments accordance sfas 133 accounting derivative instruments hedging activities amended instruments qualify hedging activities related gains losses recorded accumulated comprehensive income loss derivative instruments related gains losses recorded statements operations company uses interest rate swap agreements manage interest costs reduce company’s exposure increases floating interest rates company’s policy manage exposure fluctuations interest rates maintaining mix fixed variable rate debt within targeted range using interest rate swap agreements company agrees exchange specified intervals 2013 difference fixed variable interest amounts calculated reference agreedupon notional principal amounts banks’ option certain interest rate swap agreements may extended 2014 company hold issue derivative financial instruments trading purposes revenue recognition revenues residential commercial video highspeed internet telephone services recognized related services provided advertising sales recognized estimated realizable values period advertisements broadcast franchise fees imposed local governmental authorities collected monthly basis company’s customers periodically remitted local franchise authorities franchise fees 187 million 177 million 179 million years ended december 31 2008 2007 2006 respectively reported revenues gross basis corresponding operating expense sales taxes collected remitted state local authorities recorded net basis company’s revenues product line follows programming costs company various contracts obtain basic digital premium video programming program suppliers whose compensation typically based flat fee per customer cost right exhibit network programming arrangements recorded operating expenses month programming available exhibition programming costs paid month based calculations performed company subject periodic audits performed programmers certain programming contracts contain incentives cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated paid programmers company receives payments related activation programmer’s cable television channel recognizes incentives straightline basis life programming agreement reduction programming expense offset programming expense 33 million 25 million 32 million years ended december 31 2008 2007 2006 respectively december 31 2008 2007 deferred amounts economic consideration included longterm liabilities 61 million 90 million respectively programming costs included accompanying statement operations 16 billion 16 billion 15 billion years ended december 31 2008 2007 2006 respectively advertising costs advertising costs associated marketing company’s products services generally expensed costs incurred advertising expense 229 million 187 million 131 million years ended december 31 2008 2007 2006 respectively multipleelement transactions normal course business company enters multipleelement transactions simultaneously customer vendor counterparty purchases multiple products andor services settles outstanding items contemporaneous purchase product service single counterparty transactions although negotiated contemporaneously may documented one contracts company’s policy accounting transaction negotiated contemporaneously record element transaction based respective estimated fair values products services purchased products services sold determining fair value respective elements company refers quoted market prices available historical transactions comparable cash transactions stockbased compensation company accounts stockbased compensation accordance sfas 123r share based payment addresses accounting sharebased payment transactions company receives employee services exchange equity instruments company b liabilities based fair value company’s equity instruments may settled issuance equity instruments company recorded 33 million 18 million 13 million option compensation expense included general administrative expenses years ended december 31 2008 2007 2006 respectively fair value option granted estimated date grant using blackscholes optionpricing model following weighted average assumptions used grants years ended december 31 2008 2007 2006 respectively riskfree interest rates 35 46 expected volatility 881 703 873 based historical volatility expected lives 63 years 63 years 63 years respectively valuations assume dividends paid income taxes cco holdings single member limited liability company subject income tax cco holdings holds operations indirect subsidiaries majority indirect subsidiaries limited liability companies also subject income tax however certain limited liability companies subject state income tax addition certain cco holdings’ indirect subsidiaries corporations subject income tax company recognizes deferred tax assets liabilities temporary differences financial reporting basis tax basis indirect corporate subsidiaries’ assets liabilities expected benefits utilizing net operating loss carryforwards impact deferred taxes changes tax rates tax law applied years temporary differences expected settled reflected consolidated financial statements period enactment see note 19 cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated charter indirect parent company subject income taxes accordingly addition company’s deferred tax liabilities charter recorded net deferred tax liabilities approximately 379 million related approximate 53 investment charter holdco reflected company segments sfas 131 disclosure segments enterprise related information established standards reporting information operating segments annual financial statements interim financial reports issued shareholders operating segments defined components enterprise separate financial information available evaluated regular basis chief operating decision maker decision making group deciding allocate resources individual segment assessing performance segment company’s operations managed basis geographic operating segments company evaluated criteria aggregation geographic operating segments paragraph 17 sfas 131 believes meets respective criteria set forth company delivers similar products services within geographic operations geographic service area utilizes similar means delivering programming company’s services similarity type class customer receiving products services distributes company’s services unified network operates within consistent regulatory environment addition geographic operating segments similar economic characteristics light company’s similar services means delivery similarity type customers use unified network considerations across geographic operating structure management determined company one reportable segment broadband services 4 sale assets 2006 company sold certain cable television systems serving approximately 356000 video customers 1 west virginia cebridge connections inc “cebridge transaction” 2 illinois kentucky telecommunications management llc business new wave communications “new wave transaction” 3 nevada colorado new mexico utah orange broadband holding company llc “orange transaction” total sales price approximately 971 million company used net proceeds asset sales reduce borrowings commitments revolving portion company’s credit facilities cable systems met criteria assets held sale assets written fair value less estimated costs sell resulting asset impairment charges year ended december 31 2006 approximately 99 million related new wave transaction orange transaction company determined west virginia cable systems comprise operations cash flows financial reporting purposes meet criteria discontinued operations accordingly results operations west virginia cable systems presented discontinued operations net tax year ended december 31 2006 including gain 200 million sale cable systems summarized consolidated financial information years ended december 31 2006 west virginia cable systems follows 2007 2006 company recorded asset impairment charges 56 million 60 million respectively related cable systems meeting criteria assets held sale cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated 5 allowance doubtful accounts activity allowance doubtful accounts summarized follows years presented 6 property plant equipment property plant equipment consists following december 31 2008 2007 company periodically evaluates estimated useful lives used depreciate assets estimated amount assets abandoned minimal use future significant change assumptions extent timing future asset retirements company’s use new technology upgrade programs could materially affect future depreciation expense 2007 company changed useful lives certain property plant equipment based technological changes change useful lives reduced depreciation expense approximately 81 million 8 million 2008 2007 respectively depreciation expense years ended december 31 2008 2007 2006 13 billion 7 franchises goodwill intangible assets franchise rights represent value attributed agreements authorizations local state authorities allow access homes cable service areas management estimates fair value franchise rights date acquisition determines franchise finite life indefinitelife defined sfas 142 goodwill intangible assets franchises qualify indefinitelife treatment sfas 142 tested impairment annually frequently warranted events changes circumstances franchises aggregated essentially inseparable units accounting conduct valuations units accounting generally represent geographical clustering company’s cable systems groups systems managed management believes grouping represents highest best use assets company historically assessed divisional operations appropriate level company’s franchises evaluated based certain organizational changes 2008 company determined appropriate units accounting franchises individual market area level company’s geographic divisional groupings previously used organizational change 2008 consolidated company’s three divisions two operating groups put management focus individual market areas cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated company completed impairment assessment december 31 2008 upon completion 2009 budgeting process largely driven impact current economic downturn along increased competition company lowered projected revenue expense growth rates accordingly revised estimates future cash flows compared used prior valuations result company recorded 15 billion impairment year ended december 31 2008 company recorded 178 million impairment year ended december 31 2007 valuation completed 2006 showed franchise fair values excess book value thus resulted impairment company’s valuations based present value projected tax cash flows result value property plant equipment franchises customer relationships total entity value goodwill difference total entity value amounts assigned assets franchises valuation purposes defined future economic benefits right solicit service potential customers customer marketing rights right deploy market new services interactivity telephone potential customers service marketing rights fair value determined based estimated discounted future cash flows using assumptions consistent internal forecasts franchise aftertax cash flow calculated aftertax cash flow generated potential customers obtained less anticipated customer churn new services added customers future periods sum present value franchises aftertax cash flow years 1 10 continuing value aftertax cash flow beyond year 10 yields fair value franchise customer relationships valuation purposes represent value business relationship existing customers less anticipated customer churn calculated projecting future aftertax cash flows customers including right deploy market additional services customers present value aftertax cash flows yields fair value customer relationships substantially acquisitions occurred prior january 1 2002 company record value associated customer relationship intangibles related acquisitions subsequent january 1 2002 company assign value customer relationship intangible amortized estimated useful life december 31 2008 2007 indefinitelived finitelived intangible assets presented following table franchise amortization expense represents amortization relating franchises qualify indefinitelife treatment sfas 142 including costs associated franchise renewals year ended december 31 2008 net carrying amount indefinitelived franchises reduced 15 billion result impairment franchises discussed 32 million related cable asset sales completed 2008 4 million result finalization purchase accounting related cable asset acquisitions additionally year ended december 31 2008 approximately 5 million franchises previously classified finitelived reclassified indefinitelived based management’s assessment franchises migrated cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated statewide franchising year ended december 31 2007 net carrying amount indefinitelived franchises reduced 178 million result impairment franchises discussed 77 million related cable asset sales completed 2007 56 million result asset impairment charges recorded related cable asset sales decreases offset 33 million franchises added result acquisitions cable assets franchise amortization expense years ended december 31 2008 2007 2006 2 million 3 million 2 million respectively year ended december 31 2008 net carrying amount finitelived franchises increased 1 million result costs incurred associated franchise renewals intangible assets amortization expense years ended december 31 2008 2007 2006 5 million 4 million 4 million respectively company expects amortization expense franchise assets intangible assets approximately 7 million annually next five years actual amortization expense future periods could differ estimates result new intangible asset acquisitions divestitures changes useful lives relevant factors 8 accounts payable accrued expenses accounts payable accrued expenses consist following december 31 2008 2007 9 longterm debt longterm debt consists following december 31 2008 2007 accreted values presented generally represent principal amount notes less original issue discount time sale plus accretion balance sheet date however current accreted value cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated legal purposes notes indenture purposes amount currently payable debt becomes immediately due equal principal amount notes see note 25 related proposed restructuring cco holdings notes cco holdings notes senior debt obligations cco holdings cco holdings capital corp rank equally current future unsecured unsubordinated obligations cco holdings cco holdings capital corp cco holdings notes structurally subordinated obligations subsidiaries cco holdings including charter operating notes charter operating credit facilities november 15 2008 issuers cco holdings 8 ¾ senior notes may redeem part notes redemption price declines ratably initial redemption price 104375 redemption price november 15 2011 1000 principal amount cco holdings 8 ¾ senior notes redeemed plus case accrued unpaid interest event specified change control events cco holdings must offer purchase outstanding cco holdings senior notes holders purchase price equal 101 total principal amount notes plus accrued unpaid interest charter operating notes charter operating notes senior debt obligations charter operating charter communications operating capital corp extent value collateral subject prior lien credit facilities rank effectively senior charter operating’s future unsecured senior indebtedness collateral currently consists capital stock charter operating held cco holdings intercompany obligations owing cco holdings charter operating subsidiary charter operating substantially charter operating’s guarantors’ assets cco holdings cco holdings subsidiaries charter operating guarantors otherwise obligors respect indebtedness charter operating credit facilities related obligations guarantee charter operating notes charter operating may time option redeem outstanding 8 second lien notes due 2012 whole part redemption price equal 100 principal amount thereof plus accrued unpaid interest redemption date plus makewhole premium makewhole premium amount equal excess present value remaining interest principal payments due 8 senior secondlien note due 2012 final maturity date computed using discount rate equal treasury rate date plus 050 b outstanding principal amount note april 30 2009 charter operating may redeem part 8 38 senior second lien notes redemption price declines ratably initial redemption price 104188 redemption price april 30 2012 100 principal amount 8 38 senior second lien notes redeemed plus case accrued unpaid interest march 2008 charter operating issued 546 million principal amount 10875 senior secondlien notes due 2014 guaranteed cco holdings certain subsidiaries charter operating private transaction net proceeds senior secondlien notes used reduce borrowings commitments revolving portion charter operating credit facilities charter operating 10875 senior secondlien notes may redeemed option charter operating varying dates case premium plus makewhole premium makewhole premium amount equal excess present value remaining interest principal payments due 10875 senior secondlien note due 2014 final maturity date computed using discount rate equal treasury rate date plus 050 b outstanding principal amount note charter operating 10875 senior secondlien notes may redeemed time march 15 2012 specified prices event specified change control events charter operating must offer purchase charter cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated operating 10875 senior secondlien notes purchase price equal 101 total principal amount charter operating notes repurchased plus accrued unpaid interest thereon highyield restrictive covenants limitation indebtedness indentures governing cco holdings charter operating notes contain certain covenants restrict ability cco holdings cco holdings capital corp charter operating charter communications operating capital corp restricted subsidiaries · incur additional debt · pay dividends equity repurchase equity · make investments · sell substantially assets merge companies · sell assets · enter saleleasebacks · case restricted subsidiaries create permit exist dividend payment restrictions respect bond issuers guarantee parent companies debt issue specified equity interests · engage certain transactions affiliates · grant liens cco holdings credit facility cco holdings credit facility consists 350 million term loan term loan matures september 6 2014 cco holdings credit facility also allows company enter incremental term loans future maturing dates set forth notices establishing term loans earlier maturity date existing term loans however assurance given company could obtain incremental term loans cco holdings sought borrowings cco holdings credit facility bear interest variable interest rate based either libor base rate plus either case applicable margin applicable margin libor term loans incremental loans 250 libor applicable margin respect incremental loans agreed upon cco holdings lenders incremental loans established cco holdings credit facility secured equity interests charter operating proceeds thereof charter operating credit facilities charter operating credit facilities provide borrowing availability 80 billion follows · term loan initial total principal amount 65 billion repayable equal quarterly installments commencing march 31 2008 aggregating loan year 1 original amount term loan remaining balance due final maturity march 6 2014 · revolving line credit 15 billion maturity date march 6 2013 charter operating credit facilities also allow company enter incremental term loans future aggregate amount 10 billion amortization set forth notices establishing term loans amortization greater 1 prior final maturity existing term loan march 2008 charter operating borrowed 500 million principal amount incremental term loans “incremental term loans” charter operating credit facilities incremental term loans final maturity march 6 2014 prior date amortize quarterly principal installments totaling 1 annually beginning june 30 2008 incremental term loans bear interest libor plus 50 libor floor 35 otherwise governed subject existing terms charter operating credit facilities net proceeds incremental term loans used general corporate purposes although charter operating credit facilities allow incurrence additional 500 million incremental term loans assurance given additional incremental term loans could obtained future charter operating sought especially filing chapter 11 bankruptcy proceeding march 27 2009 see note 25 cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated amounts outstanding charter operating credit facilities bear interest charter operating’s election base rate eurodollar rate 146 350 december 31 2008 487 524 december 31 2007 defined plus margin eurodollar loans 200 revolving credit facility 200 term loan quarterly commitment fee 05 per annum payable average daily unborrowed balance revolving credit facility obligations charter operating charter operating credit facilities “obligations” guaranteed charter operating’s immediate parent company cco holdings subsidiaries charter operating except certain subsidiaries including immaterial subsidiaries precluded guaranteeing reason provisions indebtedness subject “nonguarantor subsidiaries” obligations also secured lien substantially assets charter operating subsidiaries assets nonguarantor subsidiaries ii pledge cco holdings equity interests owned charter operating charter operating’s subsidiaries well intercompany obligations owing entities december 31 2008 outstanding borrowings charter operating credit facilities approximately 82 billion unused total potential availability approximately 27 million credit facilities restrictive covenants charter operating credit facilities charter operating credit facilities contain representations warranties affirmative negative covenants customary financings type financial covenants measure performance standards set leverage tested end quarter additionally charter operating credit facilities contain provisions requiring mandatory loan prepayments specific circumstances including connection certain sales assets long proceeds reinvested business charter operating credit facilities permit charter operating subsidiaries make distributions pay interest charter convertible notes charter holdings notes cih notes cch notes cch ii notes cco holdings notes cco holdings credit facility charter operating senior secondlien notes provided among things default occurred continuing charter operating credit facilities conditions future borrowings include absence default event default charter operating credit facilities continued accuracy material respects representations warranties including absence since december 31 2005 event development circumstance could reasonably expected material adverse effect company’s business events default charter operating credit facilities include among things · failure make payments due within applicable grace period · failure comply specified covenants including limited covenant deliver audited financial statements charter operating unqualified opinion company’s independent accountants without “going concern” like qualification exception · failure pay occurrence events cause permit acceleration indebtedness owing cco holdings charter operating charter operating’s subsidiaries amounts excess 100 million aggregate principal amount · failure pay occurrence events result acceleration indebtedness owing certain cco holdings’ direct indirect parent companies amounts excess 200 million aggregate principal amount · paul allen andor certain family members andor exclusively owned entities collectively “paul allen group” ceasing power directly indirectly vote least 35 ordinary voting power charter operating cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated · consummation transaction resulting person group paul allen group power directly indirectly vote 35 ordinary voting power charter operating unless paul allen group holds greater share ordinary voting power charter operating · charter operating ceasing whollyowned direct subsidiary cco holdings except certain limited circumstances cco holdings credit facility cco holdings credit facility contains covenants substantially similar restrictive covenants cco holdings notes cco holdings credit facility contains provisions requiring mandatory loan prepayments specific circumstances including connection certain sales assets long proceeds reinvested business cco holdings credit facility permits cco holdings subsidiaries make distributions pay interest charter convertible senior notes charter holdings notes cih notes cch notes cch ii notes cco holdings notes charter operating secondlien notes provided among things default occurred continuing cco holdings credit facility based upon outstanding indebtedness december 31 2008 amortization term loans scheduled reductions available borrowings revolving credit facilities maturity dates senior subordinated notes debentures total future principal payments total borrowings debt agreements december 31 2008 follows 10 loans payable related party loans payablerelated party december 31 2008 consists loans charter holdco cch ii company 13 million 227 million respectively loans payablerelated party december 31 2007 consists loans charter holdco cch ii charter operating 123 million 209 million respectively 11 minority interest minority interest company’s consolidated balance sheets december 31 2008 2007 represents mr paul g allen’s charter’s chairman controlling shareholder 56 preferred membership interests cc viii llc “cc viii” indirect subsidiary company 676 million 663 million respectively cii owns 30 cc viii preferred membership interests cch company’s indirect parent directly owns remaining 70 preferred interests common membership interests cc viii indirectly owned charter operating result minority interest cco holdings represents 100 preferred membership interests minority interest accompanying consolidated statements operations includes 2 accretion preferred membership interests plus approximately 186 cc viii’s income net accretion cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated 12 comprehensive loss company reports changes fair value interest rate agreements designated hedging variability cash flows associated floatingrate debt obligations meet effectiveness criteria sfas 133 accounting derivative instruments hedging activities accumulated comprehensive loss comprehensive loss years ended december 31 2008 2007 2006 17 billion 474 million 194 million respectively 13 accounting derivative instruments hedging activities company uses interest rate swap agreements manage interest costs reduce company’s exposure increases floating interest rates company’s policy manage exposure fluctuations interest rates maintaining mix fixed variable rate debt within targeted range using interest rate swap agreements company agrees exchange specified intervals 2013 difference fixed variable interest amounts calculated reference agreedupon notional principal amounts banks’ option certain interest rate swap agreements may extended 2014 company’s hedging policy permit hold issue derivative instruments speculative trading purposes company however certain interest rate derivative instruments designated cash flow hedging instruments effectively convert variable interest payments certain debt instruments fixed payments qualifying hedges sfas 133 allows derivative gains losses offset related results hedged items consolidated statement operations company formally documented designated assessed effectiveness transactions receive hedge accounting years ended december 31 2008 2007 2006 change value derivatives includes gains 0 2 million respectively represent cash flow hedge ineffectiveness interest rate hedge agreements ineffectiveness arises differences critical terms agreements related hedged obligations changes fair value interest rate agreements designated hedging instruments variability cash flows associated floatingrate debt obligations meet effectiveness criteria specified sfas 133 reported accumulated comprehensive loss years ended december 31 2008 2007 2006 losses 180 million 123 million 1 million respectively related derivative instruments designated cash flow hedges recorded accumulated comprehensive loss amounts subsequently reclassified increase decrease interest expense periods related interest floatingrate debt obligations affects earnings losses certain interest rate derivative instruments designated hedges meet effectiveness criteria specified sfas 133 however management believes instruments closely correlated respective debt thus managing associated risk interest rate derivative instruments designated hedges marked fair value impact recorded change value derivatives company’s consolidated statements operations years ended december 31 2008 2007 2006 change value derivatives includes losses 62 million 46 million gains 4 million respectively resulting interest rate derivative instruments designated hedges december 31 2008 2007 2006 company outstanding 43 billion 43 billion 17 billion notional amounts interest rate swaps outstanding notional amounts interest rate instruments represent amounts exchanged parties thus measure exposure credit loss amounts exchanged determined reference notional amount terms contracts 14 fair value financial instruments company estimated fair value financial instruments december 31 2008 2007 using available market information appropriate valuation methodologies considerable judgment however required interpreting market data develop estimates fair value accordingly estimates presented accompanying consolidated financial statements necessarily indicative amounts company would realize current market exchange cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated carrying amounts cash receivables payables current assets liabilities approximate fair value short maturity instruments fair value interest rate agreements represents estimated amount company would receive pay upon termination agreements adjusted charter operating’s credit risk management believes sellers interest rate agreements able meet obligations agreements addition interest rate agreements certain participating banks company’s credit facilities thereby reducing exposure credit loss company policies regarding financial stability credit standing major counterparties nonperformance counterparties anticipated would material adverse effect company’s consolidated financial condition results operations estimated fair value company’s notes december 31 2008 2007 based quoted market prices fair value credit facilities based dealer quotations summary carrying value fair value company’s debt december 31 2008 2007 follows company adopted sfas 157 fair value measurements financial assets liabilities effective january 1 2008 established process determining fair value company deferred adoption sfas 157 nonfinancial assets liabilities including fair value measurements sfas 142 sfas 144 franchises goodwill property plant equipment longterm assets january 1 2009 permitted fasb staff position “fsp” 1572 fair value based upon quoted market prices available valuation methods available fair value based internally externally developed models using marketbased independentlysourced market parameters available fair value may subsequently adjusted ensure assets liabilities recorded fair value company’s methodology may produce fair value may indicative net realizable value reflective future fair values company believes methods appropriate consistent market peers use different methodologies assumptions determine fair value certain financial instruments could result different fair value estimate company’s reporting date sfas 157 establishes threelevel hierarchy disclosure fair value measurements based upon transparency inputs valuation asset liability measurement date follows · level 1 inputs valuation methodology quoted prices unadjusted identical assets liabilities active markets · level 2 inputs valuation methodology include quoted prices similar assets liabilities active markets inputs observable asset liability either directly indirectly substantially full term financial instrument · level 3 inputs valuation methodology unobservable significant fair value measurement interest rate derivatives valued using present value calculation based implied forward libor curve adjusted charter operating’s credit risk classified within level 2 valuation hierarchy company’s interest rate derivatives accounted fair value recurring basis totaled 411 million cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated 169 million december 31 2008 2007 respectively weighted average interest pay rate company’s interest rate swap agreements 493 december 31 2008 2007 respectively 15 operating income expenses net operating income expenses net consist following years presented gain loss sale assets net gain loss sale assets represents gain loss recognized sale fixed assets cable systems special charges net special charges net year ended december 31 2008 includes severance charges litigation related items including settlement costs associated sjoblom litigation see note 21 offset favorable insurance settlements related hurricane katrina claims special charges net year ended december 31 2007 primarily represents favorable legal settlements approximately 20 million offset severance associated closing call centers divisional restructuring special charges net year ended december 31 2006 primarily represent severance associated closing call centers divisional restructuring 16 loss extinguishment debt april 2007 cco holdings redeemed 550 million senior floating rate notes due december 15 2010 resulting loss extinguishment debt approximately 19 million year ended december 31 2007 included loss extinguishment debt company’s consolidated statements operations march 2007 charter operating refinanced facilities resulting loss extinguishment debt year ended december 31 2007 approximately 13 million included loss extinguishment debt company’s consolidated statements operations april 2006 charter operating completed 685 billion refinancing credit facilities including new 350 million revolvingterm facility converts term loan later april 2007 50 billion term loan due 2013 certain amendments existing 15 billion revolving credit facility addition refinancing reduced margins eurodollar rate term loans 2625 weighted average 315 previously margins base rate term loans 1625 weighted average 215 previously concurrent refinancing cco holdings bridge loan terminated refinancing resulted loss extinguishment debt year ended december 31 2006 approximately 27 million cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated 17 expense net expense net consists following years presented 18 stock compensation plans charter stock compensation plans “plans” provide grant nonqualified stock options stock appreciation rights dividend equivalent rights performance units performance shares share awards phantom stock andor shares restricted stock shares restricted stock exceed 200 million shares charter class common stock term defined plans employees officers consultants directors charter subsidiaries affiliates eligible receive grants plans 2001 stock incentive plan allows issuance total 900 million shares charter class common stock units convertible charter class common stock charters longterm incentive program “ltip” program administered 2001 stock incentive plan employees charter subsidiaries whose pay classifications exceeded certain level eligible 2006 2007 receive stock options senior level employees eligible receive stock options performance units stock options vest 25 first four anniversaries date grant generally options expire 10 years grant date performance units became performance shares first anniversary grant date conditional upon charters performance financial performance measures established charter’s management approved board directors time award performance shares become shares charter class common stock third anniversary grant date performance units march 2008 charter adopted 2008 incentive program allow issuance performance units restricted stock 2001 stock incentive plan issuance performance cash 2008 incentive program subject meeting performance criteria performance units performance cash deposited performance bank onethird balance paid year restricted stock granted program vests annually threeyear period beginning date grant year ended december 31 2008 charter granted 8 million performance cash charter’s 2008 incentive program recognized 2 million expense year ended december 31 2008 cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated summary activity charter’s stock options years ended december 31 2008 2007 2006 follows amounts thousands except per share data following table summarizes information charter’s stock options outstanding exercisable december 31 2008 amounts thousands except per share data cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated summary activity charter’s restricted class common stock years ended december 31 2008 2007 2006 follows amounts thousands except per share data summary activity charter’s performance units shares years ended december 31 2008 2007 2006 follows amounts thousands except per share data december 31 2008 deferred compensation remaining recognized future periods totaled 41 million first quarter 2009 majority restricted stock performance units shares forfeited remaining cancelled connection proposed restructuring see note 25 19 income taxes cco holdings single member limited liability company subject income tax cco holdings holds operations indirect subsidiaries majority indirect subsidiaries limited liability companies subject income tax however certain limited liability companies subject state income tax addition certain cco holdings’ indirect subsidiaries corporations subject income tax year ended december 31 2008 company recorded income tax benefit related decreases deferred tax liabilities certain indirect subsidiaries attributable writedown franchise assets financial statement purposes tax purposes years ended december 31 2007 2006 company recorded income tax expense related increases deferred tax liabilities current federal state income taxes primarily related differences accounting franchises indirect corporate subsidiaries limited liability companies subject income tax however actual tax provision calculations future periods result current future temporary differences well future operating results cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated current deferred income tax benefit expense follows income tax benefit year ended december 31 2008 included 32 million deferred tax benefit related impairment franchises income tax year ended december 31 2007 includes 18 million deferred income tax expense previously recorded company’s indirect parent company adjustment recorded company prior periods company’s effective tax rate differs derived applying applicable federal income tax rate 35 average state income tax rate 23 29 5 years ended december 31 2008 2007 2006 respectively follows cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated tax effects temporary differences give rise significant portions deferred tax assets deferred tax liabilities december 31 2008 2007 indirect subsidiaries company included longterm liabilities presented december 31 2008 company deferred tax assets 99 million primarily relate net operating loss carryforwards certain indirect corporate subsidiaries limited liability companies subject state income tax net operating loss carryforwards generally expiring years 2009 2028 subject certain return limitations valuation allowance 60 million exists respect carry forwards december 31 2008 tax years charter holdco indirect parent companies currently examination internal revenue service tax years ending 2006 2007 2008 remain subject examination january 2007 company adopted fin 48 accounting uncertainty income taxesan interpretation fasb statement 109 provides criteria recognition measurement presentation disclosure uncertain tax positions tax benefit uncertain position may recognized “more likely not” position sustainable based technical merits company believe taken significant positions would meet “more likely not” criteria require disclosure 20 related party transactions following sets forth certain transactions company directors executive officers affiliates company involved unless otherwise disclosed management believes transactions described terms less favorable company could obtained independent third parties charter party management arrangements charter holdco certain subsidiaries agreements charter holdco provide management services cable systems owned operated subsidiaries management services include services centralized customer billing services data processing related support benefits administration coordination insurance coverage selfinsurance programs medical dental workers’ compensation claims costs associated providing services charged directly company’s operating subsidiaries included within operating costs accompanying consolidated statements operations costs totaled 213 million 213 million 231 million years ended december 31 2008 2007 2006 respectively costs incurred behalf charter’s operating subsidiaries considered part management fee recorded component cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated selling general administrative expense accompanying consolidated financial statements years ended december 31 2008 2007 2006 management fee charged company’s operating subsidiaries approximated expenses incurred charter holdco charter behalf company’s operating subsidiaries company’s previous credit facilities prohibited payments management fees excess 35 revenues repayment outstanding indebtedness event portion management fee due payable paid would deferred charter accrued liability subsidiaries deferred amount management fee would bear interest rate 10 per year compounded annually date due payable date paid mr allen controlling shareholder charter number affiliates interests various entities provide services programming charter’s subsidiaries given diverse nature mr allen’s investment activities interests avoid possibility future disputes potential business charter holdco terms respective organizational documents may allow subsidiaries engage business transaction outside cable transmission business except certain existing approved investments charter holdco subsidiaries may pursue allow subsidiaries pursue business transaction outside scope unless mr allen consents charter subsidiaries engaging business transaction cable transmission business means business transmitting video audio including telephone data cable systems owned operated managed charter holdco subsidiaries time mr allen affiliates owned equity interests warrants purchase equity interests various entities company business provides products services programming among entities oxygen media corporation “oxygen media” digeo inc “digeo” microsoft corporation mr allen owns 100 equity vulcan ventures incorporated “vulcan ventures” vulcan inc president vulcan ventures ms jo allen patton director company president chief executive officer vulcan inc director vice president vulcan ventures mr lance conn director company executive vice president vulcan inc vulcan ventures various cable media internet telephone companies mr allen invested may mutually benefit one another company give assurance expect business relationships successful company realize benefits relationships company enter business relationships future mr allen’s affiliated companies mr allen affiliates made future likely make numerous investments outside company business company cannot provide assurance event company subsidiaries enter transactions future affiliate mr allen transactions terms favorable company terms might obtained unrelated third party also conflicts could arise respect allocation corporate opportunities company mr allen affiliates company instituted formal plan arrangement address potential conflicts interest 2009 pursuant indemnification provisions october 2005 settlement mr allen regarding cc viii interest company reimbursed vulcan inc approximately 3 million legal expenses oxygen media llc oxygen provides programming content company pursuant carriage agreement carriage agreement company paid oxygen approximately 6 million 8 million 8 million years ended december 31 2008 2007 2006 respectively 2005 pursuant amended equity issuance agreement oxygen media delivered 1 million shares oxygen preferred stock liquidation preference 3310 per share plus accrued dividends charter holdco november 2007 oxygen sold unrelated third party charter holdco received approximately 35 million representing liquidation preference preferred stock mr allen affiliates also longer interest oxygen digeo inc march 2001 charter ventures vulcan ventures incorporated formed dbroadband holdings llc sole purpose purchasing equity interests digeo connection execution broadband carriage agreement dbroadband holdings llc purchased equity interest digeo funded contributions cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated vulcan ventures incorporated time equity interest subject priority return capital vulcan ventures amount contributed vulcan ventures charter ventures’ behalf vulcan ventures recovered amount contributed “priority return” charter ventures 100 profit interest dbroadband holdings llc charter ventures required make capital contributions including capital calls dbroadband holdings llc dbroadband holdings llc therefore included company’s consolidated financial statements pursuant amended version arrangement 2003 vulcan ventures contributed total 29 million digeo 7 million contributed charter ventures’ behalf subject vulcan ventures’ aforementioned priority return since formation dbroadband holdings llc vulcan ventures contributed approximately 56 million charter ventures’ behalf october 3 2006 vulcan ventures digeo recapitalized digeo connection recapitalization dbroadband holdings llc consented conversion preferred stock holdings digeo common stock vulcan ventures surrendered priority return charter ventures result dbroadband holdings llc included company’s consolidated financial statements amounts immaterial recapitalization dbroadband holdings llc owns 18 digeo inc’s common stock digeo inc therefore included company’s consolidated financial statements december 2007 digeo inc common stock transferred charter operating dbroadband holdings llc dissolved company paid digeo interactive approximately 0 2 million years ended december 31 2008 2007 2006 respectively customized development ichannels local content tool kit june 30 2003 charter holdco entered agreement motorola inc purchase 100000 dvr units software dvr units supplied digeo interactive llc license agreement entered april 2004 pursuant software license agreement digeo interactive right use digeos proprietary software dvr units company paid approximately 1 million 2 million 3 million license maintenance fees 2008 2007 2006 respectively company paid approximately 1 million 10 million 11 million years ended december 31 2008 2007 2006 respectively capital purchases agreement digeo interactive development testing purchase 70000 digeo powerkey dvr units total purchase price license maintenance fees term definitive agreements expected approximately 41 million definitive agreements terminable penalty charter certain circumstances may 2008 charter operating entered agreement digeo interactive llc subsidiary digeo inc minimum purchase highdefinition dvr units approximately 21 million minimum purchase commitment subject reduction result certain specified events failure deliver units timely catastrophic failure software units supplied software license agreement digeo interactive llc cost expected approximately 2 million initial licenses ongoing maintenance fees approximately 03 million annually subject reduction coincide reduction minimum purchase commitment year ended december 31 2008 charter purchased approximately 1 million dvr units digeo interactive llc agreements cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated 21 commitments contingencies commitments following table summarizes company’s payment obligations december 31 2008 contractual obligations 1 company leases certain facilities equipment noncancelable operating leases rental costs charged expense years ended december 31 2008 2007 2006 24 million 23 million 23 million respectively 2 company pays programming fees multiyear contracts ranging three ten years typically based flat fee per customer may fixed term may cases escalate term programming costs included accompanying statement operations 16 billion 16 billion 15 billion years ended december 31 2008 2007 2006 respectively certain company’s programming agreements based flat fee per month guaranteed minimum payments table sets forth aggregate guaranteed minimum commitments company’s programming contracts 3 “other” represents guaranteed minimum commitments consist primarily commitments company’s billing services vendors following items included contractual obligation table due various factors discussed however company incurs costs part operations · company also rents utility poles used operations generally pole rentals cancelable short notice company anticipates rentals recur rent expense incurred pole rental attachments years ended december 31 2008 2007 2006 47 million 47 million 44 million respectively · company pays franchise fees multiyear franchise agreements based percentage revenues generated video service per year company also pays franchise related costs public education grants multiyear agreements franchise fees franchiserelated costs included accompanying statement operations 179 million 172 million 175 million years ended december 31 2008 2007 2006 respectively · company also 158 million letters credit primarily various worker’s compensation property casualty general liability carriers collateral reimbursement claims letters credit reduce amount company may borrow credit facilities cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated litigation company parent companies defendants codefendants several unrelated lawsuits claiming infringement various patents relating various aspects businesses industry participants also defendants certain cases many cases company expects potential liability would responsibility equipment vendors pursuant applicable contractual indemnification provisions event court ultimately determines company infringes intellectual property rights may subject substantial damages andor injunction could require company vendors modify certain products services company offers subscribers company believes lawsuits without merit intends defend actions vigorously lawsuits could material company’s consolidated results operations one period assurance given adverse outcome would material company’s consolidated financial condition results operations liquidity ordinary course business company parent companies may face employment law claims including claims fair labor standards act wage hour laws states operate august 15 2007 complaint filed behalf nationwide state wisconsin classes certain categories current former charter technicians charter united states district court western district wisconsin sjoblom v charter communications llc charter communications inc alleging charter violated fair labor standards act wisconsin wage hour laws failing pay technicians certain hours claimed worked company believes substantial factual legal defenses claims issue order avoid cost distraction continuing litigate case company reached settlement plaintiffs received final approval court january 26 2009 company accrued settlement costs associated sjoblom case company subjected normal course business assertion similar claims could subjected additional claims company predict ultimate outcome claims company parent companies party lawsuits claims arise ordinary course conducting business ultimate outcome legal matters pending company subsidiaries cannot predicted although lawsuits claims expected individually material adverse effect company’s consolidated financial condition results operations liquidity lawsuits could aggregate material adverse effect company’s consolidated financial condition results operations liquidity regulation cable industry operation cable system extensively regulated federal communications commission “fcc” state governments local governments fcc authority enforce regulations imposition substantial fines issuance cease desist orders andor imposition administrative sanctions revocation fcc licenses needed operate certain transmission facilities used connection cable operations 1996 telecom act altered regulatory structure governing nation’s communications providers removed barriers competition cable television market telephone market among things reduced scope cable rate regulation encouraged additional competition video programming industry allowing telephone companies provide video programming telephone service areas future legislative regulatory changes could adversely affect company’s operations including without limitation additional regulatory requirements company may required comply offers new services telephone 22 employee benefit plan company’s employees may participate charter communications inc 401k plan employees qualify participation contribute 50 salary pretax basis subject maximum contribution limit determined internal revenue service payroll period company contribute 401k plan total amount salary reduction employee elects defer 1 cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated 50 b matching contribution equal 50 amount salary reduction participant elects defer 5 participant’s payroll compensation excluding catchup contributions company made contributions 401k plan totaling 8 million 7 million 8 million years ended december 31 2008 2007 2006 respectively 23 recently issued accounting standards december 2007 fasb issued sfas 141r business combinations applying acquisition method provides guidance accounting reporting business combinations sfas 141r effective fiscal years beginning december 15 2008 company adopt sfas 141r effective january 1 2009 expect adoption sfas 141r material impact company’s financial statements december 2007 fasb issued sfas 160 consolidations provides guidance accounting reporting minority interests consolidated financial statements sfas 160 requires losses allocated noncontrolling minority interests even amounts deficits future losses allocated charter holdco noncontrolling interest sfas 160 effective fiscal years beginning december 15 2008 company adopt sfas 160 effective january 1 2009 company expect adoption sfas 160 material impact financial statements february 2008 fasb issued fasb staff position fsp 1572 effective date fasb statement 157 deferred effective date sfas 157 fiscal years beginning november 15 2008 nonfinancial assets nonfinancial liabilities company apply sfas 157 nonfinancial assets nonfinancial liabilities beginning january 1 2009 company process assessing impact sfas 157 financial statements march 2008 fasb issued sfas 161 disclosures derivative instruments hedging activities amendment fasb statement 133 requires companies disclose objectives strategies using derivative instruments whether designated hedging instruments sfas 133 sfas 161 effective interim periods fiscal years beginning november 15 2008 company adopt sfas 161 effective january 1 2009 company expect adoption sfas 161 material impact financial statements april 2008 fasb issued fsp fas 1423 determination useful life intangible assets amends factors considered renewal extension assumptions used determine useful life recognized intangible asset fsp fas 1423 effective interim periods fiscal years beginning december 15 2008 company adopt fsp fas 1423 effective january 1 2009 company expect adoption fsp fas 1423 material impact financial statements may 2008 fasb issued fsp apb 141 accounting convertible debt instruments may settled cash upon conversion including partial cash settlement specifies issuers convertible debt instruments may settled cash upon conversion separately account liability equity components manner reflecting nonconvertible debt borrowing rate interest costs recognized subsequent periods fsp apb 141 effective interim periods fiscal years beginning december 15 2008 company adopt fsp apb 141 effective january 1 2009 company expect adoption fsp apb 141 material impact financial statements company believe recently issued yet effective accounting pronouncements adopted would material effect accompanying financial statements cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated 24 parent company financial statements result limitations prohibitions distributions substantially net assets consolidated subsidiaries restricted distribution cco holdings parent company following condensed parentonly financial statements cco holdings account investment subsidiaries equity method accounting financial statements read conjunction consolidated financial statements company notes thereto cco holdings llc parent company condensed balance sheet condensed statement operations cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated condensed statements cash flows 25 subsequent events unaudited proposed restructuring proposed restructuring expected funded cash operations exchange debt cch ii debt cch ii issuance 267 million additional debt estimated proceeds 16 billion equity rights offering charter received backstop commitment certain noteholders addition restructuring agreements noteholders entered commitment letters charter pursuant agreed exchange andor purchase applicable certain securities charter restructuring agreements contemplate upon consummation plan notes bank debt charter’s subsidiaries charter operating cco holdings remain outstanding ii holders notes issued cch ii receive new cch ii notes andor cash iii holders notes issued cch receive shares charter’s new class common stock iv holders notes issued cih receive warrants purchase shares common stock charter v holders notes charter holdings receive warrants purchase shares charter’s new class common stock vi holders convertible notes issued charter receive cash preferred stock issued charter vii holders common stock receive amounts account common stock cancelled viii trade creditors paid full addition part proposed restructuring expected consideration paid holders cch notes entities participating financial restructuring cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated pursuant separate restructuring agreement among charter mr allen entity controlled mr allen “allen agreement” settlement rights claims remedies charter subsidiaries addition amounts received virtue holding claims type set forth upon consummation plan mr allen affiliates issued number shares new class b common stock charter aggregate voting power shares new class b common stock shall equal 35 total voting power new capital stock charter share new class b common stock convertible option holder one share new class common stock subject significant restrictions transfer certain holders new class common stock new class b common stock receive certain customary registration rights respect shares upon consummation plan mr allen affiliates also receive warrants purchase shares new class common stock charter aggregate amount equal 4 equity value reorganized charter giving effect rights offering prior issuance warrants equitybased awards provided plan ii 85 million principal amount new cch ii notes iii 25 million cash amounts owing cii management agreement iv 20 million cash reimbursement fees expenses connection proposed restructuring v additional 150 million cash warrants described shall exercise price per share based total equity value equal sum equity value reorganized charter plus gross proceeds rights offering shall expire seven years date issuance addition effective date plan cii retain 1 equity interest reorganized charter holdco right exchange interest new class common stock charter allen agreement contains similar provisions restructuring agreements assurance treatment creditors outlined change significantly example proposed restructuring contingent reinstatement company’s credit facilities notes failure reinstate debt would require charter revise proposed restructuring moreover reinstatement occur current capital market conditions persist company parent companies may able secure adequate new financing cost new financing would likely materially higher proposed restructuring would result reduction charter’s debt approximately 8 billion interest payments two company’s parent companies cih charter holdings make scheduled payments interest due january 15 2009 certain outstanding senior notes “overdue payment notes” respective governing indentures “indentures” overdue payment notes permits 30day grace period interest payments including february 15 2009 february 13 2009 charter paid full amount january interest payment paying agent members adhoc committee holders overdue payment notes constitutes payment indentures one company’s parent companies cch ii make scheduled payment interest march 16 2009 certain outstanding senior notes governing indenture notes permits 30day grace period interest payments charter subsidiaries including cch ii filed voluntary chapter 11 bankruptcy prior expiration grace period charter operating credit facility february 3 2009 charter operating made request administrative agent charter operating credit facilities credit agreement “credit agreement” borrow additional revolving loans credit agreement borrowing request complied provisions credit agreement including section 22 “procedure borrowing” thereof subsequently charter received notice administrative agent asserting one events default defined credit agreement occurred continuing credit agreement response charter sent letter administrative agent among things stating event default credit agreement occurred continuing requesting administrative agent rescind notice default fund charter operating’s borrowing request administrative agent subsequently sent letter stating continues believe one events default occurred continuing result exception one lender funded approximately 04 million lenders credit agreement failed fund charter operating’s borrowing request cco holdings llc subsidiaries notes consolidated financial statements december 31 2008 2007 2006 dollars millions except indicated march 27 2009 charter holdings charter entities filed petition relief chapter 11 united states bankruptcy code united states bankruptcy court southern district new york later march 27 2009 jpmorgan chase bank n administrative agent credit agreement filed adversary proceeding bankruptcy court charter operating cco holdings seeking declaration events default credit agreement judgment would prevent charter operating cco holdings reinstating terms provisions credit agreement bankruptcy proceeding although yet answered complaint charter denies allegations made jp morgan intends vigorously contest matter item 15 exhibits financial statement schedules following documents filed part annual report 1 financial statements listing financial statements notes reports independent public accountants required part ii item 8 financial statements supplementary data begins page annual report 2 financial statement schedules financial statement schedules required filed items 8 15c required applicable required information set forth applicable financial statements notes thereto 3 index exhibits begins page e1 annual report signatures pursuant requirements section 13 15d securities exchange act 1934 cco holdings llc cco holdings capital corp duly caused annual report signed behalf undersigned thereunto duly authorized cco holdings llc registrant bys kevin howard kevin howard date february 5 2021executive vice president chief accounting officer controller cco holdings capital corp registrant bys kevin howard kevin howard date february 5 2021executive vice president chief accounting officer controller pursuant requirements securities exchange act 1934 report signed following persons behalf cco holdings llc cco holdings capital corp capacities dates indicated signaturetitledate thomas rutledge thomas rutledge chairman chief executive officer director principal executive officerfebruary 5 2021 christopher l winfrey christopher l winfrey chief financial officer principal financial officerfebruary 5 2021 kevin howard kevin howard executive vice president chief accounting officer controller principal accounting officerfebruary 5 2021 charter communications inc sole capacity manager cco holdings llc bys kevin howard kevin howard date february 5 2021executive vice president chief accounting officer controller s1 exhibit index exhibits listed numbers corresponding exhibit table item 601 regulation sk e1 e2 e3 e4 e5 e6 e7 e8 e9 e10 e11 filed herewith management compensatory plan arrangement e12 report independent registered public accounting firm manager member cco holdings llc opinion consolidated financial statements audited accompanying consolidated balance sheets cco holdings llc subsidiaries company december 31 2020 2019 related consolidated statements operations changes member’s equity cash flows years threeyear period ended december 31 2020 related notes collectively consolidated financial statements opinion consolidated financial statements present fairly material respects financial position company december 31 2020 2019 results operations cash flows years threeyear period ended december 31 2020 conformity us generally accepted accounting principles change accounting principle discussed note 21 consolidated financial statements company changed method accounting leases january 1 2019 due adoption accounting standard codification topic 842 leases basis opinion consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud company required engaged perform audit internal control financial reporting part audits required obtain understanding internal control financial reporting purpose expressing opinion effectiveness company’s internal control financial reporting accordingly express opinion audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion critical audit matter critical audit matter communicated matter arising current period audit consolidated financial statements communicated required communicated audit committee 1 relates accounts disclosures material consolidated financial statements 2 involved especially challenging subjective complex judgments communication critical audit matter alter way opinion consolidated financial statements taken whole communicating critical audit matter providing separate opinion critical audit matter accounts disclosures relates capitalization installation direct labor overhead costs discussed note 2 consolidated financial statements company capitalizes direct labor overhead costs using standards developed actual costs applicable operational data associated certain activities company calculates standards annually frequently circumstances dictate items direct labor overhead estimate average amount time required perform capitalizable activity year ended december 31 2020 company capitalized 16 billion direct labor overhead costs portion related installation activities identified evaluation capitalization certain installation direct labor overhead costs critical audit matter evaluating company’s determination relevant installation activities extent costs incurred capitalized required complex subjective auditor judgment specifically evaluation methodology development accumulation data used company estimate installation direct labor overhead standards estimated average length time complete specific installation activities required complex subjective auditor judgment following primary procedures performed address critical audit matter evaluated design tested operating effectiveness certain internal controls related critical audit matter included controls related development accumulation data used estimate certain installation direct labor overhead costs estimation average amount time required perform capitalizable activity assessed methodology including development accumulation data inclusion certain costs installation direct labor overhead standards tested selection data used develop installation direct labor standard overhead standard test certain data attributes used estimates comparing data contracts third parties internal documentation wages costs tested average length time complete specific installation activities inquiring personnel supervise installation activities selecting certain data develop expectation average length time complete certain installation activities signed kpmg llp served company’s auditor since 2003 st louis missouri february 5 2021 cco holdings llc subsidiaries consolidated balance sheets dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries consolidated statements operations dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries consolidated statements changes member’s equity dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated 1 organization basis presentation organization cco holdings llc together subsidiaries “cco holdings” “company” leading broadband connectivity company cable operator advanced highcapacity twoway telecommunications network company offers full range stateoftheart residential business services including spectrum internet tv mobile voice small mediumsized companies spectrum business® delivers suite broadband products services coupled special features applications enhance productivity larger businesses government entities spectrum enterprise provides highly customized fiberbased solutions spectrum reach® delivers tailored advertising production modern media landscape company also distributes awardwinning news coverage sports highquality original programming customers spectrum networks spectrum originals cco holdings holding company whose principal assets equity interests operating subsidiaries cco holdings direct subsidiary cch holdings llc indirect subsidiary charter communications inc “charter” charter communications holdings llc “charter holdings” spectrum management holding company llc “spectrum management” outstanding capital stock cco holdings capital corp owned cco holdings consolidated financial statements include accounts cco holdings subsidiaries underlying operations reside significant intercompany accounts transactions among consolidated entities eliminated charter holdings spectrum management performed financing cash management treasury services cco holdings centralized basis changes member’s equity consolidated balance sheets related activities considered cash receipts contributions payments distributions purposes consolidated statements cash flows reflected financing activities basis presentation accompanying consolidated financial statements prepared accordance us generally accepted accounting principles “gaap” rules regulations securities exchange commission “sec” preparation financial statements conformity gaap requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period areas involving significant judgments estimates include capitalization labor overhead costs impairments franchises goodwill pension benefits income taxes actual results could differ estimates certain prior period amounts reclassified conform 2020 presentation 2 summary significant accounting policies consolidation accompanying consolidated financial statements include accounts cco holdings entities cco holdings controlling interest noncontrolling interest company’s balance sheet represents thirdparty interest cv viera llp companys consolidated joint venture small cable system florida significant intercompany accounts transactions among consolidated entities eliminated consolidation cash equivalents company considers highly liquid investments original maturities three months less cash equivalents investments carried cost approximates market value property plant equipment additions property plant equipment recorded cost including material labor certain indirect costs associated construction cable transmission distribution facilities company’s capitalization based cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated specific activities capitalized costs tracked composite basis fixed asset category cable system level specific asset basis assets sold retired estimated historical cost related accumulated depreciation removed costs associated placement customer drop dwelling placement outlets within dwelling along costs associated deployment new customer premise equipment necessary provide video internet voice services capitalized costs capitalized include materials direct labor overhead costs company capitalizes direct labor overhead using standards developed actual costs applicable operational data company calculates standards annually frequently circumstances dictate items labor rates overhead rates actual amount time required perform capitalizable activity overhead costs associated activities company’s personnel assist installation activities consist compensation indirect costs associated support functions indirect costs primarily include employee benefits payroll taxes vehicle occupancy costs disconnecting service removing customer premise equipment dwelling costs reconnect customer drop redeploy previously installed customer premise equipment charged operating expense incurred costs repairs maintenance charged operating expense incurred plant equipment replacement including replacement certain components betterments including replacement cable drops outlets capitalized depreciation recorded using straightline composite method management’s estimate useful lives related assets follows asset retirement obligations certain company’s franchise agreements leases contain provisions requiring company restore facilities remove equipment event franchise lease agreement renewed company expects continually renew franchise agreements therefore cannot reasonably estimate liabilities associated agreements remote possibility exists franchise agreements could terminated unexpectedly could result company incurring significant expense complying restoration removal provisions company significant liabilities related asset retirements recorded consolidated financial statements valuation longlived assets company evaluates recoverability longlived assets eg property plant equipment finitelived intangible assets held used events changes circumstances indicate carrying amount asset may recoverable events changes circumstances could include factors impairment company’s indefinite life assets changes technological advances fluctuations fair value assets adverse changes relationships local franchise authorities adverse changes market conditions deterioration current expected future operating results review indicates carrying value asset recoverable estimated undiscounted cash flows carrying value asset reduced estimated fair value company believes estimates future cash flows reasonable different assumptions regarding cash flows could materially affect evaluations asset recoverability impairments longlived assets held use recorded 2020 2019 2018 nonstrategic longlived assets held sale ultimately sold company recorded impairments approximately 42 million 75 million years ended december 31 2019 2018 respectively operating expenses net leases primary leased asset classes company include real estate dark fiber colocation facilities equipment lease agreements include lease nonlease components company accounts separately depending election made leased asset class real estate dark fiber leased asset classes company accounts lease nonlease components single lease component includes fixed payments measurement lease liabilities cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated lease assets colocation facilities leased asset class company accounts lease nonlease components separately including fixed lease payment component measurement lease liabilities lease assets addition fixed lease payments certain company’s lease agreements include variable lease payments tied index rate change consumer price index variable payments included measurement lease liabilities lease assets lease assets lease liabilities initially recognized based present value future lease payments expected lease term leases implicit rate readily determinable company uses discount rate determining present value future payments based yieldtomaturity company’s secured publicly traded united states dollars denominated debt instruments interpolating duration debt term executed lease company’s leases base rent periods optional renewal periods leases base rent periods less 12 months recorded balance sheet purposes measurement lease liabilities expected lease terms may include renewal options reasonably certain company exercise options based conditions companys existing leases overall business strategies majority companys renewal options reasonably certain determining expected lease term company periodically reassess expected lease terms purchase options applicable based significant triggering events compelling economic reasons exercise options company’s primary lease income represents sublease income certain real estate leases sublease income included revenue presented gross rent expense customer premise equipment cpe would qualify lease company applies practical expedient combine operating lease subscription service revenue single performance obligation accordance revenue recognition accounting guidance subscription service predominant component noncurrent assets noncurrent assets primarily include investments wireless spectrum licenses customer contract costs intangible assets company accounts investments less majority owned investees either equity method equity securities company applies equity method investments ability exercise significant influence operating financial policies investee company’s share investee’s earnings losses included expense net consolidated statements operations company monitors investments indicators decrease investment value occurred temporary determined investment sustained temporary decline value investment written fair value charge earnings investments acquired measured fair value utilizing acquisition method accounting difference fair value amount underlying equity net assets equity method investments due previously unrecognized intangible assets investee amounts amortized component equity earnings losses recorded within expense net estimated useful life asset wireless spectrum licenses determined indefinite life tested annually impairment customer contract costs deferred noncurrent assets upfront costs incurred obtain customer contract upfront costs fulfill customer contract discussed customer contract costs accounting policy revenue recognition nature services residential services residential customers offered internet video voice services primarily subscription basis residential customers may generally cancel subscriptions end monthly service period without penalty subscription service provided accounted distinct performance obligation revenue recognized ratably monthly service period subscription services delivered optional service purchased generally accounted distinct performance obligation purchased revenue recognized service provided cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated residential internet customers receive data download upload services speeds dependent selected tier service customers also offered security suite inhome wifi product outofhome wifi service internet revenues consist primarily data services wifi service fees internet installation fees residential video customers option purchase additional tiers services well videoondemand “vod” programming payperview programming perevent basis video revenues consist primarily revenues selected programming service tier well vod fees payperview fees retransmission fees regulatory fees equipment service fees video installation fees residential voice customers receive unlimited local long distance calling united states canada mexico puerto rico voicemail call waiting caller id call forward features customers may also purchase international calling either minute packages minutes per month voice revenues consist primarily voice services regulatory fees small medium business small medium business smb customers offered internet video voice services similar provided residential customers smb customers may generally cancel subscriptions end monthly service period without penalty subscription service provided accounted distinct performance obligation revenue recognized ratably monthly service period subscription services delivered enterprise services enterprise clients include tailored communications products managed service solutions larger businesses well highcapacity lastmile data connectivity services mobile wireline carriers wholesale basis services primarily offered subscription basis contractually specified noncancelable service period subscription service provided accounted distinct performance obligation revenue recognized ratably contract period subscription services delivered enterprise subscription services billed monthly recurring charges customers related installation services applicable billed upon completion customer installation services accounted distinct performance obligations rather component connectivity services therefore upfront installation fees deferred recognized revenue related contract period advertising services company offers local regional national businesses opportunity advertise individual multiple service areas cable television networks digital outlets placement advertising accounted distinct performance obligation revenue recognized point time advertising distributed service areas company formed advertising interconnects entered representation agreements video distributors company sells advertising behalf distributors service areas company entered representation agreements another operator area sell advertising company’s behalf representation arrangements company controls sale advertising acts principal transaction company recognizes revenue earned advertising customer gross basis amount remitted distributor operating expense representation arrangements company control sale advertising acts agent transaction company recognizes revenue net fee remitted distributor mobile company also offers mobile service residential smb customers mobile services sold unlimited data plans bythegig data usage plans revenue recognized ratably monthly service period services delivered customers purchase mobile equipment including devices accessory products option pay devices interestfree monthly installment plans sale equipment separate performance obligation revenue recognized sale equipment upon delivery acceptance customer control passes customer cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated company’s revenues product line follows fees imposed company various governmental authorities passed monthly basis company’s customers periodically remitted authorities fees 11 billion 11 billion 10 billion years ended december 31 2020 2019 2018 respectively reported video voice mobile commercial revenues gross basis corresponding operating expense company acting principal certain taxes sales taxes imposed company’s customers collected remitted state local authorities recorded net basis company acting agent situations significant portion revenue derived customers may generally cancel monthly subscriptions end monthly service period without penalty amount revenue related unsatisfied performance obligations necessarily indicative future revenue recognized existing customer base revenue customers contractually specified term noncancelable service period recognized term contracts generally two seven years enterprise contracts weighted average term approximately three years significant judgments evaluating revenue recognition company often provides multiple services customer provision customer premise equipment installation services additional service tiers may significant level integration interdependency subscription internet video voice connectivity services provided judgment required determine whether provision customer premise equipment installation services additional service tiers considered distinct accounted separately distinct accounted together subscription services allocation transaction price distinct performance obligations bundled residential service subscriptions requires judgment transaction price bundle residential services frequently less sum standalone selling prices individual service company allocates residential services bundle discount among services discount relates based relative standalone selling prices services standalone selling prices company’s residential internet video services directly observable standalone selling price company’s residential voice service estimated using adjusted market assessment approach relies upon information peers competitors sell residential voice services individually company believes residential smb nonrefundable upfront installation fees charged customers result material right renew contract fees required paid upon subsequent renewals residential smb upfront fee deferred period fee remains material customer company estimated approximately six months estimation period fee remains material customer requires consideration quantitative qualitative factors including average installation fee average revenue per customer behavior among others cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated deferred revenue contract liabilities timing revenue recognition may differ timing invoicing customers residential smb enterprise customers invoiced subscription services advance service period deferred revenue liabilities contract liabilities recorded company collects payments advance performing services deferred revenue liabilities contract liabilities also recorded company invoices customers upfront installation services recognized revenue time residential smb installation revenues deferred period fee remains material customer enterprise installation revenues deferred using portfolio approach average contract life enterprise service category december 31 2020 2019 current deferred revenue liabilities consisting customer prepayments 363 million 366 million respectively upfront installation fees 73 million 94 million respectively included accounts payable accrued liabilities december 31 2020 2019 longterm deferred revenue liabilities consisting enterprise upfront installation fees 35 million 34 million respectively included longterm liabilities customer contract costs company recognizes asset incremental costs obtaining contract customer amortization period costs expected longer one year costs expected recovered enterprise sales commission costs meet requirements deferred result recognized using portfolio approach weightedaverage contract period deferred enterprise commission costs included noncurrent assets consolidated balance sheet totaled 138 million 143 million december 31 2020 2019 respectively amortization period residential smb commissions costs less one year company applies practical expedient allows costs expensed incurred company determined amortization period associated residential smb commission costs less one year based qualitative quantitative factors company recognizes asset costs incurred fulfill contract costs directly related services provided contract generate enhance resources entity used performing service obligations contract expected recovered rightofentry costs represent upfront costs incurred related agreements entered multiple dwelling units “mdus” including landlords real estate companies owners gain access building order market service customers reside building rightofentry costs meet requirements deferred result recognized term contracts deferred rightofentry costs included noncurrent assets consolidated balance sheet totaled 320 million 284 million december 31 2020 2019 respectively amortization expense 71 million 67 million 62 million included regulatory connectivity produced content within operating costs expenses consolidated statements operations years ended december 31 2020 2019 2018 respectively residential smb installation costs capitalized property plant equipment expensed incurred cable industryspecific guidance programming costs company various contracts obtain video programming vendors whose compensation typically based flat fee per customer cost right exhibit network programming arrangements recorded operating expenses month programming available exhibition programming costs paid month based calculations performed company subject periodic audits performed programmers certain programming contracts contain cash noncash consideration programmers consideration received relate separate product service company recognizes consideration straightline basis life programming agreement reduction programming expense programming costs included statements operations 114 billion 113 billion 111 billion years ended december 31 2020 2019 2018 respectively advertising costs advertising costs associated marketing company’s products services generally expensed costs incurred cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated multipleelement transactions normal course business company enters multipleelement transactions simultaneously customer vendor counterparty purchases multiple products andor services settles outstanding items contemporaneous purchase product service single counterparty transactions although negotiated contemporaneously may documented one contracts company’s policy accounting transaction negotiated contemporaneously record element transaction based respective estimated fair values products services purchased products services sold determining fair value respective elements company refers quoted market prices available historical transactions comparable cash transactions cash consideration received vendor recorded reduction price vendor’s product unless consideration reimbursement specific incremental identifiable cost incurred case cash consideration received would recorded reduction cost eg marketing costs ii identifiable benefit exchange consideration provided case revenue would recognized element stockbased compensation restricted stock restricted stock units stock options well equity awards market conditions measured grant date fair value amortized stock compensation expense requisite service period fair value stock options estimated date grant using blackscholes optionpricing model fair value equity awards market conditions estimated date grant using monte carlo simulations grant date weighted average assumptions used years ended december 31 2020 2019 2018 respectively riskfree interest rate 14 25 24 expected volatility 27 25 expected lives 55 years 49 years 51 years company’s volatility assumptions represent management’s best estimate based historical volatility charter expected lives estimated using historical exercise data valuations assume dividends paid company elected accounting policy assume zero forfeitures stock awards grants account forfeitures occur defined benefit pension plans company sponsors qualified unqualified defined benefit pension plans provide pension benefits majority employees employed time warner cable inc twc merger twc pension benefits based formulas reflect employees’ years service compensation employment period actuarial gains losses changes amount either benefit obligation fair value plan assets resulting experience different assumed changes assumptions company elected follow marktomarket pension accounting policy recording actuarial gains losses annually fourth quarter earlier remeasurement event occurs interim period income taxes cco holdings single member limited liability company subject income tax cco holdings holds operations indirect subsidiaries majority indirect subsidiaries limited liability companies subject income tax charter elected accounting policy allocate income taxes subsidiaries subject income tax certain indirect subsidiaries required file separate returns subject federal state tax cco holdings’ tax provision reflects tax provision entities required file separate returns company recognizes deferred tax assets liabilities temporary differences financial reporting basis tax basis indirect subsidiaries assets liabilities expected benefits utilizing loss carryforwards impact deferred taxes changes tax rates tax law applied years temporary differences expected settled reflected consolidated financial statements period enactment see note 16 segments company’s operations managed reported chief executive officer “ceo” company’s chief operating decision maker consolidated basis ceo assesses performance allocates resources based consolidated results operations organizational reporting structure company one reportable segment cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated 3 allowance doubtful accounts activity allowance doubtful accounts summarized follows years presented 4 property plant equipment property plant equipment consists following december 31 2020 2019 company periodically evaluates estimated useful lives used depreciate assets estimated amount assets abandoned minimal use future significant change assumptions extent timing future asset retirements company’s use new technology upgrade programs could materially affect future depreciation expense depreciation expense years ended december 31 2020 2019 2018 78 billion 78 billion 79 billion respectively 5 franchises goodwill intangible assets franchise rights represent value attributed agreements authorizations local state authorities allow access homes cable service areas valuation purposes defined future economic benefits right solicit service potential customers customer marketing rights right deploy market new services potential customers service marketing rights management estimates fair value franchise rights date acquisition determines franchise finite life indefinite life company concluded franchises qualify indefinite life treatment given legal regulatory contractual competitive economic factors limit period rights contribute companys cash flows company reassesses determination periodically whenever events substantive changes circumstances occur franchises tested impairment annually frequently warranted events changes circumstances franchise assets aggregated essentially inseparable units accounting conduct valuations units accounting generally represent geographical clustering companys cable systems groups company assesses qualitative factors determine whether existence events circumstances leads determination likely cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated indefinite lived intangible asset impaired optional qualitative assessment company determines likely indefinite lived intangible asset impaired quantitative testing necessary completing qualitative impairment testing company evaluates multitude factors affect fair value franchise assets examples factors include environmental competitive changes within operating footprint actual projected operating performance consistency operating margins equity debt market trends including changes market capitalization changes regulatory political landscape among factors company performed qualitative assessment 2020 consideration qualitative factors 2020 company concluded likely fair value franchise assets unit accounting exceeds carrying value assets therefore perform quantitative analysis assessment date periodically company elect perform quantitative analysis impairment testing company elects required perform quantitative analysis test franchise assets impairment methodology described utilized quantitative analysis performed estimated fair value franchises determined utilizing income approach model based present value estimated discrete future cash flows attributable intangible assets identified assuming discount rate fair value franchises determined based estimated discrete discounted future cash flows using assumptions consistent internal forecasts franchise aftertax cash flow calculated aftertax cash flow generated potential customers obtained sum present value franchises’ aftertax cash flow years 1 10 continuing value aftertax cash flow beyond year 10 yields fair value franchises approach makes use unobservable factors projected revenues expenses capital expenditures customer trends discount rate applied estimated cash flows determination franchise discount rate derived company’s weighted average cost capital uses market participant’s cost equity aftertax cost debt reflects risks inherent cash flows company estimates discounted future cash flows using reasonable appropriate assumptions including among others penetration rates revenue growth rates operating margins capital expenditures assumptions based company’s peers’ historical operating performance adjusted current expected competitive economic factors surrounding cable industry estimates assumptions made company’s valuations inherently subject significant uncertainties many beyond control assurance results achieved primary assumptions reasonable possibility occurrence variation would significantly affect measurement value include assumptions regarding revenue growth programming expense growth rates amount timing capital expenditures actual customer trends discount rate utilized company determined one reporting unit purposes assessment goodwill impairment fair value reporting unit determined using income approach market approach company’s income approach model used reporting unit valuation consistent used franchise valuation noted except cash flows entire business enterprise used reporting unit valuation company’s market approach model estimates fair value reporting unit based market prices actual precedent transactions similar businesses market valuations guideline public companies goodwill tested impairment november 30 year frequently warranted events changes circumstances accounting guidance also permits optional qualitative assessment goodwill determine whether likely carrying value reporting unit exceeds fair value qualitative assessment company determines likely fair value reporting unit less carrying amount quantitative testing would necessary quantitative assessment performed qualitative assessment results likely determination qualitative assessment performed quantitative assessment considers whether carrying amount reporting unit exceeds fair value case impairment charge recorded extent reporting unit’s carrying value exceeds fair value company’s franchise impairment testing 2020 company elected perform qualitative goodwill impairment assessment incorporated consideration qualitative factors relevant companys franchise impairment testing result assessment company concluded goodwill impaired customer relationships recorded fair value date acquired less accumulated amortization customer relationships valuation purposes represent value business relationship existing customers calculated projecting discrete future aftertax cash flows customers including right deploy market additional services customers present value aftertax cash flows yields fair value customer relationships use different valuation assumptions definitions franchises customer relationships inclusion value selling additional services current customers within customer relationships versus franchises could significantly impact valuations resulting impairment customer relationships amortized accelerated sum years’ digits cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated method useful lives 815 years based period current customers expected generate cash flows company periodically evaluates remaining useful lives customer relationships determine whether events circumstances warrant revision remaining periods amortization customer relationships evaluated impairment upon occurrence events changes circumstances indicating carrying amount asset may recoverable customer relationships deemed impaired carrying value exceeds projected undiscounted future cash flows associated customer relationships impairment customer relationships recorded years ended december 31 2020 2019 2018 2020 company purchased approximately 464 million citizens broadband radio service cbrs priority access licenses federal communications commission effort support mobile network wireless spectrum licenses considered indefinite life intangible assets recorded noncurrent assets companys consolidated balance sheets payments including deposits presented investing cash outflow company’s statements cash flows december 31 2020 2019 indefinitelived finitelived intangible assets presented following table amortization expense related customer relationships intangible assets years ended december 31 2020 2019 2018 19 billion 22 billion 24 billion respectively company expects amortization expense finitelived intangible assets follows actual amortization expense future periods could differ estimates result new intangible asset acquisitions divestitures changes useful lives impairments adoption new accounting standards relevant factors cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated 6 investments consisted following december 31 2020 2019 company’s equitymethod investments consist investments companies develop sports programming services develop applications improve security control privacy connected devices homes businesses broadband network operators sell national advertisements behalf multivideo program distributors provide programming video demand payperview subscription basis company applies equity method accounting less significant equitymethod investments recorded noncurrent assets consolidated balance sheets december 31 2020 2019 years ended december 31 2020 2019 2018 net losses equitymethod investments 13 million 131 million 46 million respectively recorded expense net consolidated statements operations net losses equitymethod investments years ended december 31 2019 2018 included impairments equity investments approximately 121 million 38 million respectively companys equitymethod investments balances reflected table includes differences acquisition date fair value certain investments acquired underlying equity net assets investee referred basis difference basis difference amortized component equity earnings remaining unamortized basis difference 170 million 183 million december 31 2020 2019 respectively 7 accounts payable accrued liabilities accounts payable accrued liabilities consist following december 31 2020 2019 8 leases operating lease expenses 389 million 374 million years ended december 31 2020 2019 respectively inclusive 126 million 120 million years ended december 31 2020 2019 respectively shortterm lease costs variable lease costs included measurement operating lease liabilities cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated cash paid amounts included measurement operating lease liabilities recorded operating cash flows statements cash flows 255 million 242 million years ended december 31 2020 2019 respectively operating lease rightofuse assets obtained exchange operating lease obligations 363 million 218 million years ended december 31 2020 2019 respectively supplemental balance sheet information related leases follows maturities operating lease liabilities december 31 2020 follows company 63 million 62 million finance lease liabilities recognized consolidated balance sheets december 31 2020 2019 respectively included within accounts payable accrued liabilities longterm liabilities related finance lease rightofuse assets recorded property plant equipment net company’s finance leases considered material supplemental lease disclosures cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated 9 longterm debt longterm debt consists following december 31 2020 2019 cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated aprincipal amount includes £625 million valued 854 million 828 million december 31 2020 2019 respectively using exchange rate date bprincipal amount includes £650 million valued 889 million 861 million december 31 2020 2019 respectively using exchange rate date accreted values presented table represent principal amount debt adjusted original issue discount premium time sale deferred financing costs regards debt assumed acquisitions fair value premium adjustments result applying acquisition accounting plus accretion amounts balance sheet date however amount currently payable debt becomes immediately due equal principal amount debt regards fixedrate british pound sterling denominated notes “sterling notes” principal amount debt premium discount remeasured us dollars balance sheet date see note 11 company availability charter communications operating llc charter operating credit facilities approximately 47 billion december 31 2020 cco holdings cco holdings capital corp jointly issued 865 billion aggregate principal amount senior unsecured notes varying rates prices maturity dates charter operating charter communications operating capital corp jointly issued 60 billion aggregate principal amount senior secured notes varying rates prices maturity dates net proceeds used pay related fees expenses general corporate purposes including distributions companys parent companies fund buybacks charter class common stock charter holdings common units well repaying certain indebtedness cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated years ended december 31 2020 2019 company repurchased 107 billion 135 billion respectively various series senior notes loss extinguishment debt consisted following years ended december 31 2020 2019 cco holdings notes cco holdings notes senior debt obligations cco holdings cco holdings capital corp rank equally current future unsecured unsubordinated obligations cco holdings cco holdings capital corp structurally subordinated obligations subsidiaries cco holdings cco holdings may redeem cco holdings notes time premium optional redemption price declines 100 respective series’ principal amount plus accrued unpaid interest varying dates 2021 2029 addition time prior varying dates 2021 2023 cco holdings may redeem 40 aggregate principal amount certain notes premium plus accrued unpaid interest redemption date net cash proceeds one equity offerings defined indenture provided certain conditions met event specified change control events cco holdings must offer purchase outstanding cco holdings notes holders purchase price equal 101 total principal amount notes plus accrued unpaid interest highyield restrictive covenants limitation indebtedness indentures governing cco holdings notes contain certain covenants restrict ability cco holdings cco holdings capital corp restricted subsidiaries •incur additional debt •pay dividends equity repurchase equity •make investments •sell substantially assets merge companies •sell assets •in case restricted subsidiaries create permit exist dividend payment restrictions respect cco holdings guarantee parent companies debt issue specified equity interests •engage certain transactions affiliates •grant liens limitations certain circumstances regarding incurrence debt payment dividends making investments contained indentures cco holdings permit cco holdings restricted subsidiaries perform long giving pro forma effect leverage ratio would specified level issuer leverage ratio indentures 60 10 leverage ratio 39 december 31 2020 charter operating notes charter operating notes guaranteed cco holdings substantially subsidiaries charter operating addition charter operating notes secured perfected first priority security interest substantially assets charter operating substantially subsidiaries extent liens perfected uniform commercial code filing financing statement liens rank equally liens collateral securing cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated obligations charter operating credit facilities charter operating may redeem charter operating notes time premium charter operating notes subject terms conditions indenture governing charter operating notes charter operating notes contain customary representations warranties affirmative covenants limited negative covenants charter operating indenture also contains customary events default charter operating credit facilities charter operating credit facilities outstanding principal amount 102 billion december 31 2020 follows •term loan a2 remaining principal amount approximately 194 million repayable quarterly installments aggregating 11 million loan year remaining balance due final maturity march 31 2023 pricing term loan a2 libor plus 150 •term loan a4 remaining principal amount approximately 38 billion repayable quarterly installments aggregating 202 million loan year remaining balance due final maturity february 1 2025 pricing term loan a4 libor plus 125 •term loan b1 remaining principal amount approximately 24 billion repayable equal quarterly installments aggregating 25 million loan year remaining balance due final maturity april 30 2025 pricing term loan b1 libor plus 175 •term loan b2 remaining principal amount approximately 38 billion repayable equal quarterly installments aggregating 38 million loan year remaining balance due final maturity february 1 2027 pricing term loan b2 libor plus 175 •a revolving loan allowing borrowings 475 billion 249 million maturing march 31 2023 45 billion maturing february 1 2025 pricing revolving loan libor plus 150 commitment fee 030 portion maturing 2023 libor plus 125 commitment fee 020 portion maturing 2025 december 31 2020 41 million revolving loan utilized collateralize like principal amount letters credit 367 million letters credit issued company’s behalf amounts outstanding charter operating credit facilities bear interest charter operating’s election base rate libor 014 173 december 31 2020 2019 respectively defined plus applicable margin charter operating credit facilities also allow us enter incremental term loans future amortization set forth notices establishing term loans although charter operating credit facilities allow incurrence certain amount incremental term loans subject pro forma compliance financial maintenance covenants assurance given company could obtain additional incremental term loans future charter operating sought amount incremental term loans would allowable given time terms charter operating credit facilities obligations charter operating charter operating credit facilities guaranteed cco holdings substantially subsidiaries charter operating obligations also secured lien substantially assets charter operating substantially subsidiaries extent lien perfected uniform commercial code filing financing statement ii pledge equity interests directly indirectly owned charter operating substantially subsidiaries well intercompany obligations owing guarantor subsidiaries affiliates restrictive covenants charter operating credit facilities contain representations warranties affirmative negative covenants customary financings type financial covenants measure performance standards set leverage tested end quarter charter operating credit facilities contain provisions requiring mandatory loan prepayments specific circumstances including connection certain sales assets long proceeds reinvested business additionally charter operating credit facilities provisions contain allowance restricted payments certain limitations charter operating credit facilities permit charter operating subsidiaries make distributions pay interest currently outstanding subordinated parent company indebtedness provided cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated among things default occurred continuing charter operating credit facilities charter operating credit facilities also contain customary events default time warner cable llc notes debentures time warner cable llc twc llc senior notes debentures guaranteed cco holdings charter operating substantially subsidiaries charter operating twc llc rank equally liens collateral securing obligations charter operating notes credit facilities interest series twc llc senior notes debentures payable semiannually exception sterling notes payable annually arrears twc llc indenture contains customary covenants relating restrictions ability twc llc material subsidiary create liens ability twc llc time warner cable enterprises llc twce consolidate merge convey transfer substantially assets twc llc indenture also contains customary events default twc llc senior notes debentures may redeemed whole part time twc llc’s option redemption price equal greater applicable principal amount redeemed ii sum present values remaining scheduled payments applicable twc llc senior notes debentures discounted redemption date semiannual basis exception sterling notes annual basis comparable government bond rate plus designated number basis points described indenture applicable note debenture plus case accrued unpaid interest including redemption date company may offer redeem less sterling notes event certain changes tax laws us taxing authority us redemption would redemption price equal 100 principal amount together accrued unpaid interest sterling notes including redemption date twce debentures twce senior debentures guaranteed cco holdings charter operating substantially subsidiaries charter operating twce rank equally liens collateral securing obligations charter operating notes credit facilities interest series twce senior debentures payable semiannually arrears twce senior debentures redeemable maturity twce indenture contains customary covenants relating restrictions ability twce material subsidiary create liens ability twc llc twce consolidate merge convey transfer substantially assets twce indenture also contains customary events default limitations distributions company’s subsidiaries parent company payment principal parent company notes restricted cco holdings indentures charter operating credit facilities discussed unless default applicable indenture credit facilities unless applicable entity’s leverage ratio test met time distribution december 31 2020 default indentures credit facilities applicable entity met applicable leverage ratio tests based december 31 2020 financial results assurance satisfy tests time contemplated distribution distributions charter operating payment principal parent company cco holdings notes restricted covenants credit facilities however without regard leverage calendar year portion thereof borrower flowthrough entity tax purposes long event default exists borrower may make distributions equity interests borrower amount sufficient make permitted tax payments addition limitation distributions various indentures distributions company’s subsidiaries may limited applicable law including delaware limited liability company act company’s subsidiaries may make distributions “surplus” defined act cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated liquidity future principal payments company continues significant amounts debt business requires significant cash fund principal interest payments debt capital expenditures ongoing operations set forth company significant future principal payments company continues monitor capital markets expects undertake refinancing transactions utilize free cash flow cash hand extend reduce maturities principal obligations timing terms refinancing transactions subject market conditions based upon outstanding indebtedness december 31 2020 amortization term loans maturity dates senior subordinated notes total future principal payments total borrowings debt agreements follows 10 loans payable related party loans payable related party december 31 2020 2019 consists loans charter communications holding company llc “charter holdco” company 727 million 699 million respectively loans charter company 274 million 260 million respectively interest accrued libor plus 125 loans payable charter holdco period ending december 31 2020 libor plus 150 period ending december 31 2019 interest accrued libor plus 200 loans payable charter period ending december 31 2020 libor plus 150 period ending december 31 2019 11 accounting derivative instruments hedging activities company uses derivative instruments manage foreign exchange risk sterling notes hold issue derivative instruments speculative trading purposes crosscurrency derivative instruments used effectively convert £1275 billion aggregate principal amount fixedrate british pound sterling denominated debt including annual interest payments payment principal maturity fixedrate us dollar denominated debt crosscurrency swaps maturities june 2031 july 2042 company required post collateral crosscurrency derivative instruments derivative contracts liability position april 2019 company entered collateral holiday agreement 60 2031 2042 crosscurrency swaps eliminates requirement post collateral three years well ten year collateral cap remaining 40 crosscurrency swaps limits required collateral posting 40 crosscurrency swaps 150 million fair value companys crosscurrency derivatives 184 million 224 million included longterm liabilities consolidated balance sheets december 31 2020 2019 respectively company’s derivative instruments designated hedges marked fair value period impact recorded gain loss financial instruments net consolidated statements operations derivative instruments designated hedges accounting purposes management continues believe instruments closely correlated respective debt thus managing associated risk cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated effect financial instruments consolidated statements operations presented table 12 fair value measurements accounting guidance establishes threelevel hierarchy disclosure fair value measurements based transparency inputs valuation asset liability measurement date follows •level 1 inputs valuation methodology quoted prices unadjusted identical assets liabilities active markets •level 2 inputs valuation methodology include quoted prices similar assets liabilities active markets inputs observable asset liability either directly indirectly substantially full term financial instrument •level 3 inputs valuation methodology unobservable significant fair value measurement financial assets liabilities company estimated fair value financial instruments december 31 2020 2019 using available market information appropriate valuation methodologies considerable judgment however required interpreting market data develop estimates fair value accordingly estimates presented accompanying consolidated financial statements necessarily indicative amounts company would realize current market exchange carrying amounts cash equivalents receivables payables current assets liabilities approximate fair value short maturity instruments financial instruments accounted fair value recurring basis classified within level 2 valuation hierarchy include companys crosscurrency derivative instruments valued 184 million 224 million december 31 2020 2019 respectively estimated fair value company’s senior notes debentures december 31 2020 2019 based quoted market prices active markets classified within level 1 valuation hierarchy estimated fair value company’s credit facilities based quoted market prices inactive markets classified within level 2 summary carrying value fair value company’s debt december 31 2020 2019 follows cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated nonfinancial assets liabilities company’s nonfinancial assets equitymethod investments franchises property plant equipment intangible assets measured fair value recurring basis however subject fair value adjustments certain circumstances evidence impairment may exist impairments recorded fair values generally classified within level 3 valuation hierarchy 13 operating costs expenses operating costs expenses exclusive items shown separately consolidated statements operations consist following periods presented programming costs consist primarily costs paid programmers basic premium digital video demand payperview programming regulatory connectivity produced content costs represent payments franchise regulatory authorities costs directly related providing video internet voice services well payments sports local news content produced company included regulatory connectivity produced content costs content acquisition costs los angeles lakers’ basketball games los angeles dodgers’ baseball games recorded games exhibited contract period costs service customers include costs related field operations network operations customer care company’s residential smb customers including internal thirdparty labor noncapitalizable portion installations service repairs maintenance bad debt expense billing collection occupancy vehicle costs marketing costs represent costs marketing current potential commercial residential customers including labor costs mobile costs represent costs associated companys mobile service device service costs marketing sales commissions retail stores personnel costs taxes among others includes corporate overhead advertising sales expenses indirect costs associated company’s enterprise business customers regional sports news networks property tax insurance expense stock compensation expense among others 14 operating expenses net operating expenses net consist following years presented special charges net special charges net primarily includes employee termination costs net amounts litigation settlements 2018 special charges net also includes 97 million merger restructuring costs cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated gain loss sale assets net gain loss sale assets net represents net gain loss recognized sales disposals fixed assets including 42 million 75 million impairment nonstrategic assets years ended december 31 2019 2018 respectively 15 stock compensation plans charter’s stock incentive plan provides grants nonqualified stock options incentive stock options stock appreciation rights dividend equivalent rights performance units performance shares share awards phantom stock restricted stock units restricted stock directors officers employees company subsidiaries well others performing consulting services company eligible grants stock incentive plan stock incentive plan allows issuance 16 million shares charter class common stock units convertible charter class common stock options restricted stock units generally cliff vest three years date grant certain stock options restricted stock units vest based achievement stock price hurdles stock options generally expire ten years grant date restricted stock units voting rights restricted stock generally vests one year date grant december 31 2020 total unrecognized compensation remaining recognized future periods totaled 241 million stock options 10 million restricted stock 213 million restricted stock units weighted average period expected recognized 2 years stock options 4 months restricted stock 2 years restricted stock units company recorded 351 million 315 million 285 million stock compensation expense years ended december 31 2020 2019 2018 respectively included operating costs expenses summary activity charter’s stock options years ended december 31 2020 2019 2018 follows shares thousands except per share data cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated summary activity charter’s restricted stock years ended december 31 2020 2019 2018 follows shares thousands except per share data summary activity charter’s restricted stock units years ended december 31 2020 2019 2018 follows shares thousands except per share data 16 income taxes cco holdings single member limited liability company subject income tax cco holdings holds operations indirect subsidiaries majority indirect subsidiaries limited liability companies subject income tax charter elected accounting policy allocate income taxes subsidiaries subject income tax certain indirect subsidiaries required file separate returns subject federal state tax cco holdings’ tax provision reflects tax provision entities required file separate returns generally taxable income gains losses deductions credits cco holdings passed indirect members charter advancenewhouse partnership “an” charter responsible share taxable income loss cco holdings allocated accordance charter holdings limited liability company agreement partnership tax rules regulations charter also records financial statement deferred tax assets liabilities related investment underlying net assets cco holdings cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated income tax expense years ended december 31 2020 2019 2018 company recorded deferred income tax expense shown tax provision future periods vary based current future temporary differences well future operating results march 18 2020 families first coronavirus response act ffcr act march 27 2020 coronavirus aid relief economic security act cares act enacted response covid19 pandemic ffcr act cares act contain numerous tax provisions deferring payroll tax payments establishing credit retention certain employees relaxing limitations deductibility interest updating definition qualified improvement property legislation currently material impact income tax expense company’s financial statements company’s effective tax rate differs derived applying applicable federal income tax rate 21 years ended december 31 2020 2019 2018 follows cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated deferred tax assets liabilities tax effects temporary differences give rise significant portions deferred tax assets deferred tax liabilities december 31 2020 2019 presented uncertain tax positions net amount unrecognized tax benefits recorded december 31 2020 could impact effective tax rate 129 million company determined reasonably possible existing reserve uncertain tax positions december 31 2020 could decrease approximately 24 million year ended december 31 2021 related various ongoing audits settlement discussions expiration statute limitations various state local agencies however various events could cause company’s current expectations change future uncertain tax positions ever recognized financial statements would recorded consolidated statements operations part income tax provision reconciliation beginning ending amount unrecognized tax benefits exclusive interest penalties included longterm liabilities accompanying consolidated balance sheets company follows company recognizes interest penalties accrued uncertain income tax positions part income tax provision interest penalties included longterm liabilities accompanying consolidated balance sheets company 53 million 51 million december 31 2020 2019 respectively tax years charter currently examination internal revenue service irs income tax purposes charters 2016 2020 tax years remain open examination assessment charter’s short period return dated may 17 2016 prior merger twc acquisition bright house networks llc bright house prior years remain open solely purposes examination charter’s loss credit carryforwards irs currently examining charter holdings’ income tax return 2016 charter holdings’ 2017 2020 tax years remain open examination assessment irs currently examining twc’s income tax returns 2011 2014 twc’s tax year 2015 remains subject examination assessment prior twc’s separation time warner inc “time warner” march 2009 twc included consolidated us federal certain state income tax returns time warner irs examined time warner’s 2008 2010 income tax returns results appeal company anticipate examinations material impact company’s consolidated financial position results operations addition company also subject ongoing examinations company’s tax returns state local cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated tax authorities various periods activity related state local examinations material impact company’s consolidated financial position results operations year ended december 31 2020 company anticipate material impact future 17 comprehensive income following table sets forth consolidated statements comprehensive income years ended december 31 2020 2019 2018 18 related party transactions following sets forth certain transactions company directors executive officers affiliates company involved case management arrangements subsidiaries debt issuers pay certain parent companies services charter party management arrangements one subsidiaries spectrum management certain subsidiaries agreements charter spectrum management charter holdco provide management services cable systems owned operated subsidiaries costs associated providing services charged directly company’s operating subsidiaries costs incurred behalf charter’s operating subsidiaries considered part management fee costs recorded component operating costs expenses accompanying consolidated financial statements management fee charged company’s operating subsidiaries approximated expenses incurred spectrum management charter holdco charter behalf company’s operating subsidiaries 2020 2019 2018 liberty broadband terms amended restated stockholders agreement liberty broadband legacy charter dated may 23 2015 “stockholders agreement” number charter’s directors fixed 13 includes ceo two designees selected members board directors charter three designees selected liberty broadband members board directors charter remaining eight directors affiliated either liberty broadband liberty broadband entitled nominate least one director committees charter’s board directors subject applicable stock exchange listing rules certain specified voting equity ownership thresholds liberty broadband provided nominating corporate governance committee compensation benefit committee least majority directors independent liberty broadband charter referred “unaffiliated directors” nominating corporate governance committee compensation benefits committee currently comprised three unaffiliated directors one designee liberty broadband liberty broadband also certain committee designation governance rights mr thomas rutledge company’s ceo chairman board charter december 2017 charter entered amendment letter agreement “letter agreement” requires sell charter holdings monthly basis number shares charter class common stock charter holdings common units represents pro rata participation affiliates repurchases shares charter class common stock persons effected charter immediately preceding calendar month purchase price equal average price paid charter shares repurchased persons immediately preceding calendar month charter right terminate suspend pro rata cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated repurchase arrangement prospective basis pursuant tra charter must pay 50 tax benefit realized charter stepup tax basis resulting future exchange sale preferred common units dr john malone director emeritus charter chairman board directors holder 458 voting interest liberty broadband also serves board directors qurate retail inc qurate reported qurates sec filings dr malone owns approximately 12 million shares series common stock approximately 277 million shares series b common stock qurate 409 voting interest qurate election directors qurate wholly owns hsn inc “hsn” qvc inc “qvc” company programming relationships hsn qvc years ended december 31 2020 2019 2018 company recorded revenue aggregate approximately 50 million 50 million 73 million respectively hsn qvc part channel carriage fees revenue sharing arrangements home shopping sales made customers company’s footprint dr malone mr steven miron member charter’s board directors also serve board directors discovery inc “discovery” reported discoverys sec filings dr malone owns 12 series common stock 936 series b common stock 36 series c common stock discovery 279 voting interest discovery election directors reported discoverys sec filings advancenewhouse programming partnership “an pp” affiliate mr miron ceo owns 100 series a1 preferred stock discovery 100 series c1 preferred stock discovery 239 voting interest matters election directors pp also right appoint three directors total twelve directors discovery’s board company purchases programming discovery pursuant agreements entered prior dr malone mr miron joining charter’s board directors based publicly available information company believe discovery would currently considered related party amount paid discovery represents less 2 total operating costs expenses years ended december 31 2020 2019 2018 equity investments company parent companies agreements certain equity investees see note 6 pursuant company made received related party transaction payments company parent companies recorded payments equity investees totaling 225 million 314 million 361 million years ended december 31 2020 2019 2018 respectively 19 commitments contingencies commitments following table summarizes company’s parent companies payment obligations december 31 2020 contractual obligations athe company pays programming fees multiyear contracts ranging three ten years typically based flat fee per customer may fixed term may cases escalate term programming costs included statements operations 114 billion 113 billion 111 billion years ended december 31 2020 2019 2018 respectively certain company’s programming agreements based flat fee per month guaranteed minimum payments table sets forth aggregate guaranteed minimum commitments company’s programming contracts b“other” represents guaranteed minimum commitments including rights negotiated directly content owners distribution companyowned channels networks commitments related role advertising distribution sales agent third partyowned channels networks commitments customer premise equipment device vendors contractual obligations related thirdparty network augmentation cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated following items included contractual obligation table due various factors discussed however company incurs costs part operations •the company rents utility poles used operations generally pole rentals cancelable short notice company anticipates rentals recur rent expense incurred pole rental attachments years ended december 31 2020 2019 2018 192 million 180 million 171 million respectively •the company pays franchise fees multiyear franchise agreements based percentage revenues generated video service per year company also pays franchise related costs public education grants multiyear agreements franchise fees franchiserelated costs included accompanying statement operations 741 million 750 million 747 million years ended december 31 2020 2019 2018 respectively •the company 367 million letters credit 41 million secured charter operating credit facility primarily various casualty carriers collateral reimbursement workers compensation auto liability general liability claims •minimum pension funding requirements presented table amounts determined beyond 2020 company made cash contributions qualified pension plans 2020 however company permitted make discretionary cash contributions qualified pension plans 2021 nonqualified pension plan company contributed 3 million 2020 continue make contributions 2021 extent benefits paid •in december 2020 company bidding process 12 billion phase rural digital opportunity fund “rdof” auction extend broadband services states currently operate company expects fund multibillion dollar fiberbased buildout six eightyear period legal proceedings august 2015 purported stockholder charter matthew sciabacucchi filed lawsuit delaware court chancery behalf putative class charter stockholders challenging transactions involving charter twc liberty broadband announced charter may 26 2015 lawsuit named defendants charter board directors alleged transactions resulted breaches fiduciary duty charter’s directors liberty broadband improperly benefited challenged transactions expense charter stockholders lawsuit proceeded discovery phase charter denies liability believes substantial defenses vigorously defending lawsuit although charter unable predict outcome lawsuit expect outcome material effect operations financial condition cash flows california attorney general alameda county california district attorney investigating whether certain charter’s waste disposal policies procedures practices violation california business professions code california health safety code investigation commenced january 2014 similar investigation involving twc initiated february 2012 charter cooperating investigations company unable predict outcome investigations expect outcome material effect operations financial condition cash flows december 19 2011 sprint communications company lp “sprint” filed complaint united states district court district kansas alleging twc infringed certain us patents purportedly relating voice internet protocol “voip” services trial jury returned verdict 140 million twc concluded twc willfully infringed sprint’s patents court subsequently declined enhance damage award result purported willful infringement awarded sprint additional 10 million representing pre postjudgment interest damages award additional 1 million costs november 2019 company paid verdict interest costs full company continues pursue indemnity claims two vendors portion judgment company also brought patent suit sprint tc tech llc v sprint united states district court district delaware implicating sprints lte technology similar suit tmobile usa inc western district texas ultimate outcomes pursuit indemnity company’s vendor tc tech litigation cannot predicted company expect outcome indemnity claims outcome tc tech litigation material adverse effect operations financial condition cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated sprint filed second patent suit charter bright house december 2 2017 united states district court district delaware suit alleges infringement 9 patents related companys provision voip services eight asserted legacy twc matter described sprint filed third patent suit charter may 17 2018 united states district court eastern district virginia suit alleges infringement two patents related companys video demand services court transferred case united states district court district delaware december 20 2018 pursuant agreement parties february 18 2020 sprint filed lawsuit charter bright house twc sprint alleges charter misappropriated trade secrets sprint years ago employees hired bright house sprint asserts alleged trade secrets relate voip business charter twc bright house case pending united states district court district kansas company vigorously defending suits unable predict outcome sprint lawsuits company expect litigation material effect operations financial condition cash flows addition sprint litigation described company parent companies defendants codefendants several additional lawsuits involving alleged infringement various intellectual property relating various aspects businesses industry participants also defendants certain cases related cases event court ultimately determines company infringes intellectual property company may subject substantial damages andor injunction could require company vendors modify certain products services company offers subscribers well negotiate royalty license agreements respect intellectual property issue company believes lawsuits without merit intends defend actions vigorously assurance given adverse outcome would material company’s consolidated financial condition results operations liquidity company cannot predict outcome claims reasonably estimate range possible loss company parent companies party lawsuits claims regulatory inquiries arise ordinary course conducting business ultimate outcome legal matters pending company cannot predicted although lawsuits claims expected individually material adverse effect company’s consolidated financial condition results operations liquidity lawsuits could aggregate material adverse effect company’s consolidated financial condition results operations liquidity whether company ultimately prevails particular lawsuit claim litigation time consuming costly injure company’s reputation cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated 20 employee benefit plans pension plans company sponsors qualified nonqualified defined benefit pension plans provide pension benefits majority employees employed twc merger twc changes projected benefit obligation fair value plan assets funded status pension plans january 1 december 31 presented aas december 31 2020 2019 qualified pension plans represented 37 billion 33 billion respectively projected benefit obligation accumulated benefit obligation company’s nonqualified pension plan represented 36 million 35 million respectively bthe fair value plan assets consists entirely company’s qualified pension plans pretax amounts recognized consolidated balance sheet december 31 2020 2019 consisted following cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated components net periodic benefit cost years ended december 31 2020 2019 2018 consisted following remeasurement gains losses recorded years ended december 31 2020 2019 2018 primarily driven changes discount rate well gains losses record pension assets fair value discount rates used determine benefit obligations december 31 2020 2019 270 348 respectively company utilized pri2012mp 2020 rp 2015mp 2015 mortality tables published society actuaries measure benefit obligations december 31 2020 2019 respectively weighted average assumptions used determine net periodic benefit costs consisted following developing expected longterm rate return plan assets company considered pension portfolio’s composition past average rate earnings company’s future asset allocation targets weighted average expected longterm rate return plan assets discount rate used determine net periodic pension benefit year ended 2021 expected 500 270 respectively company determined discount rates used determine benefit obligations net periodic pension benefit based yield large population high quality corporate bonds cash flows sufficient timing amount settle projected future defined benefit payments pension plan assets qualified pension plans held master trust qualified pension plans participating plans “master trust” investment policy qualified pension plans manage assets master trust objective provide pension liabilities met maintaining retirement income security participants plans beneficiaries investment portfolio mix pooled funds invested fixed income securities equity securities certain alternative investments objective matching plan liability performance diversifying risk achieving target investment return pension assets managed balanced portfolio comprised two major components returnseeking portion liabilitymatching portion company uses investment strategy designed increase fixed income allocation funded status qualified pension plans improves qualified pension plans reach set funded status milestones assets rebalanced shift assets equity fixed income based progress strategy target investment allocation pension fund assets permitted vary within specified ranges subject investment committee approval returnseeking securities cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated liabilitymatching securities target actual investment allocation qualified pension plans asset category consisted following tables set forth investment assets qualified pension plans level within fair value hierarchy december 31 2020 2019 acommingled funds include bond funds corporate us treasury debt securities equity funds global equity index infrastructure real estate securities readily determinable fair value valued using net assets provided administrator fund value fund based fair value underlying securities portfolio represents amount fund might reasonably expect receive securities upon sale less liabilities divided number units outstanding equity securities within funds valued using observable inputs either daily weekly basis resulting per share value serves basis current redemption value debt securities within funds valued based observable prices new issue market benchmark quotes secondary trading dealer quotes bcollective trust funds consist shortterm investment strategies comprised instruments issued fully guaranteed us government andor agencies multistrategy funds valued using net assets provided administrator fund value fund based readily determinable fair value underlying assets owned fund less liabilities divided number units outstanding cas practical expedient certain investment classes hold securities readily available redemption measured fair value using net asset value nav per share equivalent classified fair value hierarchy investments measured net asset value per share practical expedient following table summarizes investment classes fair value measured using nav per share equivalent practical expedient december 31 2020 2019 investment classes readily available redemption nav fund based fair value underlying assets portfolio certain investments report cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated nav per share month quarter lag material unfunded commitments respect investment classes athe alternative fund investment class includes funds various securities selected provide complimentary sources return equity bond portfolios better manage risk company’s alternative fund investments include holdings public equities exchange traded derivatives corporate bonds among others portion alternative funds cannot redeemed one year anniversary purchase date bfixed income funds invest residential commercial mortgages well global sovereign securities creal estate funds publicly traded invest primarily unlisted direct core real estate including superregional malls shopping centers commercial real estate eg education healthcare storage pension plan contributions company made cash contributions qualified pension plans years ended december 31 2020 2019 2018 however company may make discretionary cash contributions qualified pension plans future contributions dependent variety factors including current expected interest rates asset performance funded status qualified pension plans management’s judgment nonqualified unfunded pension plan company continue make contributions 2021 extent benefits paid benefit payments pension plans expected 268 million 2021 249 million 2022 236 million 2023 223 million 2024 211 million 2025 929 million 2026 2030 multiemployer plans company contributes multiemployer plans terms collectivebargaining agreements cover unionrepresented employees multiemployer plans provide medical pension retirement savings benefits active employees retirees company made contributions multiemployer plans 7 million 9 million 9 million years ended december 31 2020 2019 2018 respectively december 31 2020 2019 longterm liabilities includes approximately 98 million 101 million respectively related companys withdrawal multiemployer pension plan defined contribution benefit plans company’s employees may participate charter communications inc 401k savings plan “401k plan” employees qualify participation contribute 50 salary pretax basis subject maximum contribution limit determined irs company’s matching contribution discretionary equal 100 amount salary reduction participant elects defer 6 participant’s eligible compensation excluding catchup contributions paid company per pay period basis company made contributions 401k plan totaling 331 million 303 million 290 million years ended december 31 2020 2019 2018 respectively employees eligible participate company’s longterm incentive plan covered collective bargaining agreement company offers contribution retirement accumulation plan rap equal 3 eligible pay company made contributions rap totaling 162 million 152 million 151 million years ended december 31 2020 2019 2018 respectively cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated 21 recently issued accounting standards accounting standards adopted prior periods asu 201409 revenue contracts customers “asu 201409” upon adoption asu 201409 company recorded cumulativeeffect adjustment included increase total member’s equity 49 million january 1 2018 asu 201616 income taxes topic 740 intraentity transfers assets inventory asu 201616 company identified 38 million increase total members equity corresponding increase deferred tax assets related adoption asu 201616 recorded year ended december 31 2018 asu 201602 leases “asu 201602” february 2016 fasb issued asu 201602 requires lessees recognize almost leases balance sheet lease asset lease liability company adopted asu 201602 using modified retrospective approach cumulativeeffect adjustment recorded beginning period adoption january 1 2019 adoption standard impact company’s members equity results operations cash flows accounting standards adopted 2020 asu 201912 income taxes topic 740 simplifying accounting income taxes “asu 201912” december 2019 financial accounting standards board fasb issued accounting standards update asu 201912 intended simplify various aspects related accounting income taxes asu 201912 removes certain exceptions general principles topic 740 also clarifies amends existing guidance improve consistent application asu 201912 effective interim annual periods beginning december 15 2020 early adoption permitted company elected early adopt asu 201912 january 1 2020 adoption asu 201912 material impact companys consolidated financial statements amendments financial disclosures requirements guarantors issuers guaranteed securities sec regulation sx march 2020 sec adopted amendments financial disclosure requirements regulation sx guarantors issuers guaranteed securities final rule streamlines disclosure obligations existing rules including replacing condensed consolidating financial information summarized financial information obligor group issuers guarantors extent material longer requiring subsidiary issuer guarantor cash flow information longer requiring financial information nonguarantor subsidiaries also permits presentation required disclosures included managements discussion analysis mda section quarterly annual reports rather notes companys consolidated financial statements company voluntarily complied new disclosure requirements beginning quarterly report form 10q quarter ended september 30 2020 included summarized financial information mda cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated 22 parent company financial statements result limitations prohibitions distributions substantially net assets consolidated subsidiaries restricted distribution cco holdings parent company following condensed parentonly financial statements cco holdings account investment subsidiaries equity method accounting financial statements read conjunction consolidated financial statements company notes thereto cco holdings llc subsidiaries notes consolidated financial statements december 31 2020 2019 2018 dollars millions except indicated item 15 exhibits financial statement schedules following documents filed part annual report 1 financial statements listing financial statements notes reports independent public accountants required item 8 begins page annual report 2 financial statement schedules financial statement schedules required filed items 8 15c required applicable required information set forth applicable financial statements notes thereto 3 index exhibits begins page e1 annual report signatures pursuant requirements section 13 15d securities exchange act 1934 cco holdings llc cco holdings capital corp duly caused annual report signed behalf undersigned thereunto duly authorized cco holdings llc registrant kevin howard kevin howard senior vice president finance controller date march 3 2017 chief accounting officer cco holdings capital corp registrant kevin howard kevin howard senior vice president finance controller date march 3 2017 chief accounting officer pursuant requirements securities exchange act 1934 report signed following persons behalf cco holdings llc cco holdings capital corp capacities dates indicated signature title date thomas rutledge thomas rutledge chairman chief executive officer director principal executive officer march 3 2017 christopher l winfrey christopher l winfrey executive vice president chief financial officer principal financial officer march 3 2017 kevin howard kevin howard senior vice president finance controller chief accounting officer principal accounting officer march 3 2017 charter communications inc sole capacity manager cco holdings llc kevin howard kevin howard senior vice president finance controller date march 3 2017 chief accounting officer 1 exhibit index exhibits listed numbers corresponding exhibit table item 601 regulation sk e 1 e 2 e 3 e 4 e 5 e 6 e 7 filed herewith management compensatory plan arrangement e 8 f 1 report independent registered public accounting firm manager member cco holdings llc audited accompanying consolidated balance sheets cco holdings llc subsidiaries company december 31 2016 2015 related consolidated statements operations comprehensive income member’s equity cash flows years threeyear period ended december 31 2016 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position cco holdings llc subsidiaries december 31 2016 2015 results operations cash flows years threeyear period ended december 31 2016 conformity us generally accepted accounting principles signed kpmg llp st louis missouri march 3 2017 f 2 cco holdings llc subsidiaries consolidated balance sheets dollars millions accompanying notes integral part consolidated financial statements f 3 cco holdings llc subsidiaries consolidated statements operations dollars millions accompanying notes integral part consolidated financial statements f 4 cco holdings llc subsidiaries consolidated statements comprehensive income dollars millions accompanying notes integral part consolidated financial statements f 5 cco holdings llc subsidiaries consolidated statements changes members equity dollars millions accompanying notes integral part consolidated financial statements f 6 cco holdings llc subsidiaries consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements f 7 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated 1 organization basis presentation organization cco holdings llc together subsidiaries “cco holdings” “company” second largest cable operator united states leading broadband communications company providing video internet voice services residential business customers addition company sells video online advertising inventory local regional national advertising customers fiberdelivered communications managed information technology solutions larger enterprise customers company also owns operates regional sports networks local sports news lifestyle channels sells security home management services residential marketplace cco holdings holding company whose principal assets equity interests operating subsidiaries cco holdings direct subsidiary cch holdings llc “cch i” indirect subsidiary charter communications inc “charter” charter communications holdings llc “charter holdings” spectrum management holding company llc “spectrum management” consolidated financial statements include accounts cco holdings subsidiaries underlying operations reside collectively referred herein “company” significant intercompany accounts transactions among consolidated entities eliminated charter holdings spectrum management performed financing cash management treasury services cco holdings centralized basis changes member’s equity consolidated balance sheets related activities considered cash receipts contributions payments distributions purposes consolidated statements cash flows reflected financing activities basis presentation accompanying consolidated financial statements prepared accordance us generally accepted accounting principles “gaap” rules regulations securities exchange commission “sec” preparation financial statements conformity gaap requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period areas involving significant judgments estimates include capitalization labor overhead costs depreciation amortization costs purchase accounting valuations assets liabilities including limited property plant equipment intangibles goodwill pension benefits income taxes contingencies programming expense actual results could differ estimates 2 mergers acquisitions twc transaction may 18 2016 transactions contemplated agreement plan mergers dated may 23 2015 “merger agreement” among time warner cable inc “legacy twc” charter communications inc prior closing merger agreement “legacy charter” cch llc previously wholly owned subsidiary legacy charter “new charter” certain subsidiaries new charter completed “twc transaction” together bright house transaction described “transactions” result twc transaction new charter became new public parent company holds operations combined companies renamed charter communications inc pursuant terms merger agreement upon consummation twc transaction outstanding share legacy twc common stock legacy twc common stock held liberty broadband corporation “liberty broadband” liberty interactive corporation “liberty interactive” collectively “liberty parties” converted right receive option holder legacy twc common stock either 100 cash charter class common stock equivalent 05409 shares legacy charter class common stock “option consideration” b 115 cash charter class common stock equivalent 04562 shares legacy charter class common stock “option b consideration” actual number shares charter class common stock legacy twc stockholders received excluding liberty parties calculated multiplying exchange ratios 05409 04562 specified 09042 “parent merger exchange ratio” also exchange ratio used determine number shares charter class common stock legacy charter stockholders received per share legacy charter class common stock exchange f 8 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated ratio impact aggregate value represented shares charter class common stock issued twc transaction however impact actual number shares issued twc transaction approximately 277 million shares twc common stock outstanding closing twc transaction excluding twc common stock held liberty parties approximately 274 million shares converted right receive option consideration approximately 3 million shares converted right receive option b consideration liberty parties received approximately one share charter class common stock share legacy twc common stock owned equivalent 1106 shares legacy charter class common stock multiplied parent merger exchange ratio date completion transactions total value twc transaction approximately 85 billion including cash equity legacy twc assumed debt purchase price also includes estimated precombination vesting period fair value 514 million legacy twc equity awards converted charter awards upon closing twc transaction “converted twc awards” 69 million cash paid former legacy twc employees nonemployee directors held equity awards whether vested bright house transaction also may 18 2016 legacy charter advancenewhouse partnership “an” former parent bright house networks llc “bright house” completed previously announced transaction pursuant definitive contribution agreement “contribution agreement” charter acquired bright house “bright house transaction” pursuant bright house transaction charter became owner membership interests bright house assets primarily related bright house certain excluded assets liabilities nonoperating cash date acquisition purchase price totaled approximately 122 billion consisting 20 billion cash b 25 million convertible preferred units charter holdings face amount 25 billion pay 6 annual preferential dividend c approximately 310 million common units charter holdings exchangeable charter class common stock oneforone basis one share charter class b common stock liberty transaction connection twc transaction legacy charter liberty broadband completed previously announced transactions pursuant investment agreement liberty broadband purchased cash approximately 220 million shares charter class common stock valued 43 billion closing twc transaction partially finance cash portion twc transaction consideration connection bright house transaction liberty broadband purchased approximately 37 million shares charter class common stock valued 700 million closing bright house transaction “liberty transaction” financing transactions charter partially financed cash portion purchase price transactions additional indebtedness cash hand 2015 legacy charter issued 155 billion aggregate principal amount cco safari ii llc “cco safari ii” senior secured notes 38 billion aggregate principal amount cco safari iii llc “cco safari iii” senior secured bank loans 25 billion aggregate principal amount ccoh safari llc “ccoh safari” collectively cco safari ii cco safari iii safari escrow entities senior unsecured notes net proceeds initially deposited escrow accounts upon closing twc transaction proceeds released escrow ccoh safari notes became obligations cco holdings cco holdings capital corp “cco holdings capital” cco safari ii notes cco safari iii credit facilities became obligations charter communications operating llc “charter operating” charter communications operating capital corp ccoh safari merged cco holdings cco safari ii cco safari iii merged charter operating connection closing bright house transaction charter operating closed 26 billion aggregate principal amount term loan facility “term loan a” pursuant terms charter operating’s amended restated credit agreement dated may 18 2016 “credit agreement” 20 billion used fund cash portion bright house transaction 638 million used prepay terminate charter operating’s existing term a1 loans see note 9 f 9 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated acquisition accounting transactions enable charter apply operating strategy larger set assets accelerate product development innovation greater scale well effectively compete medium large commercial markets substantially operations acquired transactions contributed company operating results legacy twc legacy bright house included company’s consolidated statements operations period date transactions december 31 2016 revenues included companys consolidated statements operations 160 billion 26 billion legacy twc legacy bright house respectively year ended december 31 2016 charter applied acquisition accounting transactions total purchase price allocated identifiable tangible intangible assets acquired liabilities assumed based estimated fair values fair values primarily based thirdparty valuations using assumptions developed management information compiled management including limited future expected cash flows excess purchase price fair values recorded goodwill recognized transactions representative resources meet definition identifiable intangible asset include buyside synergies economies scale combined operations increased market share assembled workforces improved credit rating fair values assets acquired liabilities assumed preliminarily determined using income cost market approaches fair values primarily based significant inputs observable market thus represent level 3 measurement longterm debt assumed twc transaction represents level 1 measurement see note 12 property plant equipment valued utilizing cost approach cost approach considers amount required replace asset constructing purchasing new asset similar utility adjusts value consideration forms depreciation appraisal date described • physical depreciation loss value usefulness attributable solely use asset physical causes wear tear exposure elements • functional obsolescence loss value due factors inherent asset due changes technology design process resulting inadequacy overcapacity lack functional utility excess operating costs • economic obsolescence loss value due unfavorable external conditions economics industry geographic area change ordinances cost approach relies assumptions regarding current material labor costs required rebuild repurchase significant components property plant equipment along assumptions regarding age estimated useful lives property plant equipment franchise rights customer relationships valued using income approach model based present value estimated discrete future cash flows attributable intangible assets identified see note 6 information income approach model weighted average life customer relationships acquired twc transaction bright house transaction 11 years 10 years respectively fair value equity investments based either applying implied multiples estimated cash flows utilizing discounted cash flow model implied multiples estimated based precedent transactions comparable companies discounted cash flow model required estimating present value future cash flows investee legacy twc longterm debt assumed adjusted fair value based quoted market prices acquisition date quoted market values two legacy twc’s bonds higher principal amount related debt instrument resulted recognition net debt premium approximately 24 billion quoted market value debt instrument higher principal amount debt market interest rates lower stated interest rate debt premium amortized reduction interest expense remaining life applicable debt generally fair value adjustments reflected current assets current liabilities carrying value estimated approximate fair value shortterm nature items except risk management obligations risk management obligations assumed including various claims workers compensation employment practices auto general liabilities f 10 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated measured fair value acquisition date based actuarially determined study fair value adjustments reflected noncurrent assets longterm liabilities relating contractbased assets liabilities capital lease obligations deferred liabilities net pension liabilities outofmarket contractbased assets liabilities relating noncancelable executory contracts operating leases recognized based discounted cash flow models extent terms noncancelable contracts favorable unfavorable compared relative market terms similar contract acquisition date outofmarket element amortized contract consummated market terms acquisition date capital lease obligations measured fair value based present value amounts paid lease agreement using market participant discount rate deferred liabilities recorded acquisition accounting extent associated payment obligation substantive performance obligation net pension liabilities assumed twc transaction measured fair value based actuarially determined projected benefit obligation less fair value pension investments acquisition date see note 19 fair value assumptions considered acquisition accounting net pension liabilities deferred tax assets liabilities recorded deferred tax impact acquisition accounting adjustments primarily related property plant equipment franchises customer relationships assumed legacy twc longterm debt incremental deferred tax liabilities calculated primarily based tax effect stepup book basis net assets legacy twc excluding amount attributable nondeductible goodwill deferred tax liabilities recorded charter contributed company majority indirect subsidiaries limited liability companies subject income tax charter class common stock issued legacy twc stockholders charter holdings common units issued valued based opening share price charter class common stock acquisition date convertible preferred units charter holdings issued valued approximately 32 billion based binomial lattice model convertible bonds models future changes common equity value charter valuation relies management’s assumptions including riskfree interest rate volatility discount yield precombination vesting period fair value converted twc awards based portion requisite service period completed acquisition date legacy twc employee award holders applied total fair value converted twc awards allocation purchase price certain assets liabilities preliminary subject change based additional information may obtained measurement period primarily related working capital measurement company continue obtain information assist finalizing fair value net assets acquired liabilities assumed expected differ materially preliminary estimates herein company apply measurement period adjustments including related impacts net income loss reporting period adjustments determined tables present calculation purchase price preliminary allocation purchase price assets acquired liabilities assumed transactions twc purchase price f 11 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated twc preliminary allocation purchase price since completion initial estimates second quarter 2016 company made measurement period adjustments fair value certain assets acquired liabilities assumed twc transaction including decrease 163 million property plant equipment decrease 240 million customer relationships increase 690 million franchises increase operating net liabilities 215 million decrease 4 million deferred income taxes resulting net decrease goodwill 76 million adjustments made primarily reflect updated appraisal results measurement period adjustment intangibles resulted decrease 20 million amortization expense relating prior quarters recorded fourth quarter 2016 measurement period adjustment property plant equipment resulted increase 12 million depreciation expense relating second quarter recorded third quarter 2016 company may record additional measurement period adjustments future periods bright house purchase price f 12 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated bright house preliminary allocation purchase price since completion initial estimates second quarter 2016 company made measurement period adjustments fair value certain assets acquired liabilities assumed bright house transaction including decrease 382 million property plant equipment increase 110 million customer relationships increase 381 million franchises decrease 1 million current assets resulting decrease goodwill 108 million adjustments made primarily reflect updated appraisal results measurement period adjustment intangibles resulted increase 7 million amortization expense relating prior quarters recorded fourth quarter 2016 measurement period adjustment property plant equipment third quarter inconsequential impact depreciation expense recorded prior quarter company may record additional measurement period adjustments future periods connection transactions subsidiaries charter contributed company net assets liabilities twc bright house except deferred tax liabilities charter noted net assets approximately 10 billion primarily comprised cash equivalents used source cash portion twc purchase price selected pro forma financial information following unaudited pro forma financial information company based historical consolidated financial statements legacy charter legacy twc legacy bright house intended provide information transactions related financing may affected company’s historical consolidated financial statements closed january 1 2015 pro forma financial information based available information assumptions company believes reasonable pro forma financial information illustrative informational purposes intended represent indicative company’s financial condition results operations would transactions described occurred date indicated pro forma financial information also considered representative company’s future financial condition results operations 3 summary significant accounting policies consolidation accompanying consolidated financial statements include accounts cco holdings entities cco holdings controlling interest company consolidates based upon evaluation company’s power voting rights similar rights direct activities another entity significantly impact entity’s economic performance obligation f 13 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated absorb expected losses entity right receive expected residual returns entity noncontrolling interest company’s balance sheet represents thirdparty interest cv viera llp company’s consolidated joint venture small cable system florida see note 7 significant intercompany accounts transactions among consolidated entities eliminated consolidation cash equivalents company considers highly liquid investments original maturities three months less cash equivalents investments carried cost approximates market value cash equivalents consist primarily money market funds property plant equipment additions property plant equipment recorded cost including material labor certain indirect costs associated construction cable transmission distribution facilities company’s capitalization based specific activities capitalized costs tracked composite basis fixed asset category cable system level specific asset basis assets sold retired estimated historical cost related accumulated depreciation removed costs associated initial placement customer drop dwelling initial placement outlets within dwelling along costs associated initial deployment customer premise equipment necessary provide video internet voice services capitalized costs capitalized include materials direct labor certain indirect costs indirect costs associated activities company’s personnel assist installation activities consist compensation costs associated support functions indirect costs primarily include employee benefits payroll taxes vehicle occupancy costs sales dispatch personnel associated capitalizable activities costs disconnecting service removing customer premise equipment dwelling costs reconnect customer drop redeploy previously installed customer premise equipment charged operating expensed incurred costs repairs maintenance charged operating expense incurred plant equipment replacement including replacement certain components betterments including replacement cable drops outlets capitalized depreciation recorded using straightline composite method management’s estimate useful lives related assets follows asset retirement obligations certain company’s franchise agreements leases contain provisions requiring company restore facilities remove equipment event franchise lease agreement renewed company expects continually renew franchise agreements therefore cannot reasonably estimate liabilities associated agreements remote possibility exists franchise agreements could terminated unexpectedly could result company incurring significant expense complying restoration removal provisions company significant liabilities related asset retirements recorded consolidated financial statements valuation longlived assets company evaluates recoverability longlived assets eg property plant equipment finitelived intangible assets held used events changes circumstances indicate carrying amount asset may recoverable events changes circumstances could include factors impairment company’s indefinite life assets changes technological advances fluctuations fair value assets adverse changes relationships local franchise authorities adverse changes market conditions deterioration operating results review indicates carrying value asset recoverable estimated undiscounted cash flows carrying value asset reduced f 14 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated estimated fair value company believes estimates future cash flows reasonable different assumptions regarding cash flows could materially affect evaluations asset recoverability impairments longlived assets held used recorded 2016 2015 2014 noncurrent assets noncurrent assets primarily include investments rightofentry costs intangible assets company accounts investments less majority owned investees either equity cost method company applies equity method investments ability exercise significant influence operating financial policies investee company’s share investee’s earnings losses included expense net consolidated statements operations company monitors investments indicators decrease investment value occurred temporary determined investment sustained temporary decline value investment written fair value charge earnings investments acquired measured fair value utilizing acquisition method accounting difference fair value amount underlying equity net assets equity method investments due previously unrecognized intangible assets investee amounts amortized component equity earnings losses recorded within expense net estimated useful life asset rightofentry costs represent costs incurred related agreements entered landlords real estate companies owners gain access building order provide cable service rightofentry costs generally deferred amortized amortization expense term agreement revenue recognition revenues residential commercial video internet voice services recognized related services provided advertising sales recognized estimated realizable values period advertisements broadcast cases company coordinates advertising sales efforts cable operators certain market remits amounts received customers less agreedupon percentage cable operator arrangements company acts principal company records revenues earned advertising customer gross basis amount remitted cable operator operating expense fees imposed company various governmental authorities passed monthly basis company’s customers periodically remitted authorities fees 711 million 255 million 248 million years ended december 31 2016 2015 2014 respectively reported video voice commercial revenues gross basis corresponding operating expense company acting principal taxes sales taxes imposed company’s customers collected remitted state local authorities recorded net basis company acting agent situation f 15 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated company’s revenues product line follows programming costs company various contracts obtain video programming vendors whose compensation typically based flat fee per customer cost right exhibit network programming arrangements recorded operating expenses month programming available exhibition programming costs paid month based calculations performed company subject periodic audits performed programmers certain programming contracts contain incentives paid programmers company receives payments recognizes incentives straightline basis life programming agreement reduction programming expense programming costs included statements operations 70 billion 27 billion 25 billion years ended december 31 2016 2015 2014 respectively advertising costs advertising costs associated marketing company’s products services generally expensed costs incurred multipleelement transactions normal course business company enters multipleelement transactions simultaneously customer vendor counterparty purchases multiple products andor services settles outstanding items contemporaneous purchase product service single counterparty transactions although negotiated contemporaneously may documented one contracts company’s policy accounting transaction negotiated contemporaneously record element transaction based respective estimated fair values products services purchased products services sold determining fair value respective elements company refers quoted market prices available historical transactions comparable cash transactions cash consideration received vendor recorded reduction price vendor’s product unless consideration reimbursement specific incremental identifiable cost incurred case cash consideration received would recorded reduction cost eg marketing costs ii identifiable benefit exchange consideration provided case revenue would recognized element stockbased compensation restricted stock restricted stock units stock options well equity awards market conditions measured grant date fair value amortized stock compensation expense requisite service period fair value options estimated date grant using blackscholes optionpricing model fair value equity awards market conditions estimated date grant using monte carlo simulations grant date weighted average assumptions used years f 16 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated ended december 31 2016 2015 2014 respectively riskfree interest rate 17 15 20 expected volatility 254 347 369 expected lives 13 years 65 years 65 years weighted average assumptions 2016 include assumptions used converted twc awards volatility assumptions based historical volatility legacy charter legacy twc company’s volatility assumptions represent management’s best estimate partially based historical volatility legacy twc due completion transactions expected lives estimated using historical exercise data valuations assume dividends paid pension plans company sponsors twc pension plan twc union pension plan twc excess pension plan defined note 19 pension benefits based formulas reflect employees’ years service compensation employment period actuarial gains losses changes amount either benefit obligation fair value plan assets resulting experience different assumed changes assumptions company elected follow marktomarket pension accounting policy recording actuarial gains losses annually fourth quarter earlier remeasurement event occurs interim period income taxes cco holdings single member limited liability company subject income tax cco holdings holds operations indirect subsidiaries majority indirect subsidiaries limited liability companies subject income tax certain indirect subsidiaries required file separate returns subject federal state tax cco holdings’ tax provision reflects tax provision entities required file separate returns company recognizes deferred tax assets liabilities temporary differences financial reporting basis tax basis indirect subsidiaries assets liabilities expected benefits utilizing loss carryforwards impact deferred taxes changes tax rates tax law applied years temporary differences expected settled reflected consolidated financial statements period enactment see note 16 charter company’s indirect parent company subject income taxes accordingly addition company’s deferred tax liabilities charter recorded net deferred tax liabilities approximately 267 billion december 31 2016 related investment charter holdings net loss carryforwards reflected company segments company’s operations managed reported chief executive officer “ceo” company’s chief operating decision maker consolidated basis ceo assesses performance allocates resources based consolidated results operations organizational reporting structure company one reportable segment cable services 4 allowance doubtful accounts activity allowance doubtful accounts summarized follows years presented f 17 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated 5 property plant equipment property plant equipment consists following december 31 2016 2015 company periodically evaluates estimated useful lives used depreciate assets estimated amount assets abandoned minimal use future significant change assumptions extent timing future asset retirements company’s use new technology upgrade programs could materially affect future depreciation expense depreciation expense years ended december 31 2016 2015 2014 50 billion 19 billion 18 billion respectively property plant equipment increased 243 billion result transactions see note 2 6 franchises goodwill intangible assets franchise rights represent value attributed agreements authorizations local state authorities allow access homes cable service areas valuation purposes defined future economic benefits right solicit service potential customers customer marketing rights right deploy market new services potential customers service marketing rights management estimates fair value franchise rights date acquisition determines franchise finite life indefinite life company concluded franchises including acquired part transactions qualify indefinite life treatment given legal regulatory contractual competitive economic factors limit period rights contribute cash flows reassess determination periodically whenever events substantive changes circumstances occur estimated fair value franchises determined utilizing income approach model based present value estimated discrete future cash flows attributable intangible assets identified assuming discount rate fair value franchises determined based estimated discrete discounted future cash flows using assumptions consistent internal forecasts franchise aftertax cash flow calculated aftertax cash flow generated potential customers obtained sum present value franchises’ aftertax cash flow years 1 10 continuing value aftertax cash flow beyond year 10 yields fair value franchises approach makes use unobservable factors projected revenues expenses capital expenditures customer trends discount rate applied estimated cash flows determination franchise discount rate derived company’s weighted average cost capital uses market participant’s cost equity aftertax cost debt reflects risks inherent cash flows company estimates discounted future cash flows using reasonable appropriate assumptions including among others penetration rates video internet voice revenue growth rates operating margins capital expenditures assumptions based company’s peers’ historical operating performance adjusted current expected competitive economic factors surrounding cable industry estimates assumptions made company’s valuations inherently subject significant uncertainties many beyond control assurance results achieved primary assumptions reasonable possibility occurrence variation would significantly affect measurement value include assumptions regarding revenue growth f 18 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated programming expense growth rates amount timing capital expenditures actual customer trends discount rate utilized franchises tested impairment annually frequently warranted events changes circumstances franchise assets aggregated essentially inseparable units accounting conduct valuations units accounting generally represent geographical clustering cable systems groups company assesses qualitative factors determine whether existence events circumstances leads determination likely indefinite lived intangible asset impaired optional qualitative assessment company determines likely indefinite lived intangible asset impaired quantitative testing necessary completing qualitative impairment testing company evaluates multitude factors affect fair value franchise assets examples factors include environmental competitive changes within operating footprint actual projected operating performance consistency operating margins equity debt market trends including changes market capitalization changes regulatory political landscape among factors consideration qualitative factors 2016 company concluded likely fair value franchise assets unit accounting exceeds carrying value assets therefore perform quantitative analysis periodically company elect perform quantitative analysis impairment testing company elects required perform quantitative analysis test franchise assets impairment methodology described utilized fair value goodwill determined using income approach market approach company’s income approach model used goodwill valuation consistent used franchise valuation noted except cash flows entire business enterprise used goodwill valuation company’s market approach model estimates fair value reporting unit based market prices actual precedent transactions similar businesses market valuations guideline public companies goodwill tested impairment november 30 year frequently warranted events changes circumstances accounting guidance also permits optional qualitative assessment goodwill determine whether likely carrying value reporting unit exceeds fair value qualitative assessment company determines likely fair value reporting unit less carrying amount quantitative testing would necessary company elects required perform twostep test accounting guidance first step involves comparison estimated fair value reporting unit carrying amount estimated fair value reporting unit exceeds carrying amount goodwill reporting unit considered impaired second step goodwill impairment necessary carrying amount reporting unit exceeds estimated fair value second step goodwill impairment test must performed comparison implied fair value reporting unit’s goodwill compared carrying amount determine amount impairment company’s franchise impairment testing 2016 company elected perform qualitative goodwill impairment assessment concluded goodwill impaired customer relationships recorded fair value date acquired less accumulated amortization customer relationships valuation purposes represent value business relationship existing customers calculated projecting discrete future aftertax cash flows customers including right deploy market additional services customers present value aftertax cash flows yields fair value customer relationships use different valuation assumptions definitions franchises customer relationships inclusion value selling additional services current customers within customer relationships versus franchises could significantly impact valuations resulting impairment customer relationships amortized accelerated sum years’ digits method useful lives 815 years based period current customers expected generate cash flows company periodically evaluates remaining useful lives customer relationships determine whether events circumstances warrant revision remaining periods amortization customer relationships evaluated impairment upon occurrence events changes circumstances indicating carrying amount asset may recoverable customer relationships deemed impaired carrying value exceeds projected undiscounted future cash flows associated customer relationships impairment customer relationships recorded years ended december 31 2016 2015 2014 f 19 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated december 31 2016 2015 indefinitelived finitelived intangible assets presented following table intangible assets consist primarily rightofentry costs amortization expense related customer relationships intangible assets years ended december 31 2016 2015 2014 19 billion 271 million 299 million respectively franchises goodwill customer relationships increased 613 billion 283 billion 156 billion respectively result transactions see note 2 company expects amortization expense finitelived intangible assets follows actual amortization expense future periods could differ estimates result new intangible asset acquisitions divestitures changes useful lives impairments relevant factors 7 investments connection transactions company acquired approximately 508 million legacy twc legacy bright house equitymethod costmethod investments adjusted fair value result applying acquisition accounting equitymethod investments acquired include sterling entertainment enterprises llc “sterling” dba sportsnet new york 268 owned mlb network llc “mlb network” 64 owned demand llc “in demand” 398 owned national cable communications llc “ncc” 200 owned among less significant equitymethod costmethod investments sterling mlb network primarily engaged development sports programming services demand provides programming video demand payperview subscription basis ncc represents multivideo program distributors advertisers f 20 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated investments consisted following december 31 2016 2015 companys equitymethod investments balance december 31 2016 reflected table includes differences acquisition date fair value certain investments acquired transactions underlying equity net assets investee referred basis difference discussed note 2 basis difference amortized component equity earnings remaining unamortized basis difference 436 million december 31 2016 company applies equity method accounting less significant equitymethod investments recorded noncurrent assets consolidated balance sheets december 31 2016 2015 year ended december 31 2016 net losses equitymethod investments 3 million recorded expense net consolidated statements operations years ended december 31 2015 2014 gains losses equitymethod investments insignificant noncontrolling interests assumed transactions recorded fair value acquisition date primarily relate thirdparty interest cv viera llp company’s consolidated joint venture small cable system florida year ended december 31 2016 net income attributable noncontrolling interest 1 million 2015 noncontrolling interest included 2 accretion preferred membership interests cc viii llc “cc viii” plus approximately 186 cc viii’s income net accretion december 31 2015 cc viii preferred interest held cch llc contributed cc viii subsequently canceled 8 accounts payable accrued liabilities accounts payable accrued liabilities consist following december 31 2016 2015 f 21 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated 9 longterm debt longterm debt consists following december 31 2016 2015 f 22 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated principal amount includes £625 million valued 770 million december 31 2016 using exchange rate date b principal amount includes £650 million valued 800 million december 31 2016 using exchange rate date accreted values presented table represent principal amount debt less original issue discount time sale deferred financing costs regards legacy twc debt assumed fair value premium adjustment result applying acquisition accounting plusminus accretion amounts balance sheet date ii regards fixedrate british pound sterling denominated notes “sterling notes” remeasurement principal amount debt premium discount us dollars balance sheet date see note 11 however amount currently payable debt becomes immediately due equal principal amount debt company availability charter operating credit facilities approximately 28 billion december 31 2016 december 2016 charter operating entered amendment credit agreement decreasing applicable libor margin term loan term loan h term loan revolver 175 200 225 175 respectively eliminating libor floor term loan h term loan extending maturity term loan h 2022 term loan 2024 company recorded loss extinguishment debt 1 million year ended december 31 2016 related transactions february 2016 cco holdings cco holdings capital jointly issued 17 billion aggregate principal amount 5875 senior notes due 2024 “2024 notes” april 2016 issued 15 billion aggregate principal amount 5500 senior notes due 2026 “2026 notes” price 100075 aggregate principal amount net proceeds issuances used repurchase cco holdings’ 7000 senior notes due 2019 7375 senior notes due 2020 6500 senior notes due 2021 pay related fees expenses general corporate purposes debt repurchases resulted loss extinguishment debt 110 million year ended december 31 2016 april 2015 cco holdings cco holdings capital closed transactions issued 115 billion aggregate principal amount 5125 senior unsecured notes due 2023 “2023 notes” 750 million aggregate principal amount 5375 senior unsecured notes due 2025 “2025 notes” 800 million aggregate principal amount 5875 senior unsecured notes due 2027 “2027 notes” net proceeds issuance 2023 notes 2025 notes used finance tender offers subsequent call 10 billion aggregate principal amount cco holdings’ outstanding 7250 senior notes due 2017 700 million aggregate principal amount cco holdings’ outstanding 8125 senior notes due 2020 repurchased well general corporate purposes net proceeds issuance 2027 notes used call 800 million 14 billion aggregate principal amount cco holdings’ outstanding 7000 senior notes due 2019 debt repurchases resulted loss extinguishment debt 123 million year ended december 31 2015 company also recorded loss extinguishment debt approximately 3 million year ended december 31 2015 result repayment debt upon termination proposed transactions comcast corporation “comcast” discussed note 2 upon consummation transactions ccoh safari merged cco holdings cco safari ii cco safari iii merged charter operating result company assumed 218 billion aggregate principal amount debt year ended december 31 2015 charter incurred interest expense debt approximately 474 million f 23 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated cco holdings notes cco holdings notes senior debt obligations cco holdings cco holdings capital rank equally current future unsecured unsubordinated obligations cco holdings cco holdings capital structurally subordinated obligations subsidiaries cco holdings cco holdings may redeem cco holdings notes time premium optional redemption price declines 100 respective series’ principal amount plus accrued unpaid interest varying dates 2017 2024 addition time prior varying dates 2017 2021 cco holdings may redeem 35 40 regards certain notes issued 2015 2016 aggregate principal amount notes premium plus accrued unpaid interest redemption date net cash proceeds one equity offerings defined indenture provided certain conditions met event specified change control events cco holdings must offer purchase outstanding cco holdings notes holders purchase price equal 101 total principal amount notes plus accrued unpaid interest highyield restrictive covenants limitation indebtedness indentures governing cco holdings notes contain certain covenants restrict ability cco holdings cco holdings capital restricted subsidiaries • incur additional debt • pay dividends equity repurchase equity • make investments • sell substantially assets merge companies • sell assets • case restricted subsidiaries create permit exist dividend payment restrictions respect cco holdings guarantee parent companies debt issue specified equity interests • engage certain transactions affiliates • grant liens limitations certain circumstances regarding incurrence debt payment dividends making investments contained indentures cco holdings permit cco holdings restricted subsidiaries perform long giving pro forma effect leverage ratio would specified level issuer leverage ratio indentures 60 10 charter operating notes charter operating notes guaranteed cco holdings twc llc defined twce defined substantially operating subsidiaries charter operating collectively “subsidiary guarantors” addition charter operating notes secured perfected first priority security interest substantially assets charter operating extent liens perfected uniform commercial code filing financing statement liens rank equally liens collateral securing obligations charter operating credit facilities charter operating may redeem charter operating notes time premium charter operating notes subject terms conditions indenture governing charter operating notes charter operating notes contain customary representations warranties affirmative covenants limited negative covenants charter operating indenture also contains customary events default f 24 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated charter operating credit facilities charter operating credit facilities outstanding principal amount 89 billion december 31 2016 follows • term loan remaining principal amount 25 billion repayable quarterly installments aggregating 132 million 2017 2018 231 million 2019 264 million 2020 remaining balance due final maturity may 18 2021 pricing term loan libor plus 175 • term loan e remaining principal amount approximately 14 billion repayable equal quarterly installments aggregating 15 million loan year remaining balance due final maturity july 1 2020 pricing term loan e libor plus 225 libor floor 075 see note 22 amendments charter operating credit facilities completed 2017 • term loan f remaining principal amount approximately 12 billion repayable equal quarterly installments aggregating 12 million loan year remaining balance due final maturity january 3 2021 pricing term loan f libor plus 225 libor floor 075 see note 22 amendments charter operating credit facilities completed 2017 • term loan h remaining principal amount approximately 993 million repayable equal quarterly installments aggregating 10 million loan year remaining balance due final maturity january 15 2022 pricing term loan h libor plus 200 • term loan remaining principal amount approximately 28 billion repayable equal quarterly installments aggregating 28 million loan year remaining balance due final maturity january 15 2024 pricing term loan libor plus 225 • revolving loan allowing borrowings 30 billion maturing may 18 2021 pricing revolving loan libor plus 175 commitment fee 030 december 31 2016 220 million revolving loan utilized collateralize like principal amount letters credit 278 million letters credit issued company’s behalf amounts outstanding charter operating credit facilities bear interest charter operating’s election base rate libor 077 042 december 31 2016 december 31 2015 respectively defined plus applicable margin charter operating credit facilities also allow us enter incremental term loans future amortization set forth notices establishing term loans although charter operating credit facilities allow incurrence certain amount incremental term loans subject pro forma compliance financial maintenance covenants assurance given company could obtain additional incremental term loans future charter operating sought amount incremental term loans would allowable given time terms charter operating credit facilities obligations charter operating charter operating credit facilities guaranteed subsidiary guarantors obligations also secured lien substantially assets charter operating subsidiary guarantors extent lien perfected uniform commercial code filing financing statement ii pledge cco holdings equity interests owned charter operating’s subsidiaries well intercompany obligations owing entities restrictive covenants charter operating credit facilities contain representations warranties affirmative negative covenants customary financings type financial covenants measure performance standards set leverage tested end quarter charter operating credit facilities contain provisions requiring mandatory loan prepayments specific circumstances including connection certain sales assets long proceeds reinvested business additionally charter operating credit facilities provisions contain allowance restricted payments long consolidated leverage ratio greater 35 giving pro forma effect restricted payment charter operating credit facilities permit charter operating subsidiaries make distributions pay interest currently outstanding subordinated parent company indebtedness provided among things default occurred continuing charter operating credit facilities charter operating credit facilities also contain customary events default f 25 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated assumed legacy twc indebtedness company assumed approximately 224 billion aggregate principal amount time warner cable llc successor legacy twc outstanding debt obligations “twc llc” senior notes debentures time warner cable enterprises llc “twce” senior debentures varying maturities company applied acquisition accounting legacy twc result debt assumed adjusted fair value using quoted market values closing date fair value adjustment resulted recognition net debt premium approximately 24 billion twc llc senior notes debentures twc llc senior notes debentures guaranteed cco holdings charter operating twce subsidiary guarantors rank equally liens collateral securing obligations charter operating notes credit facilities interest series twc llc senior notes debentures payable semiannually exception sterling notes payable annually arrears twc llc indenture contains customary covenants relating restrictions ability twc llc material subsidiary create liens ability twc llc twce consolidate merge convey transfer substantially assets twc llc indenture also contains customary events default twc llc senior notes debentures may redeemed whole part time twc llc’s option redemption price equal greater applicable principal amount redeemed ii sum present values remaining scheduled payments applicable twc llc senior notes debentures discounted redemption date semiannual basis exception sterling notes annual basis comparable government bond rate plus designated number basis points described indenture applicable note debenture plus case accrued unpaid interest including redemption date company may offer redeem less sterling notes event certain changes tax laws us taxing authority us redemption would redemption price equal 100 principal amount together accrued unpaid interest sterling notes including redemption date twce senior debentures twce senior debentures guaranteed cco holdings charter operating twc llc subsidiary guarantors rank equally liens collateral securing obligations charter operating notes credit facilities interest series twce senior debentures payable semiannually arrears twce senior debentures redeemable maturity twce indenture contains customary covenants relating restrictions ability twce material subsidiary create liens ability twc llc twce consolidate merge convey transfer substantially assets twce indenture also contains customary events default limitations distributions company subsidiaries parent company payment principal parent company notes restricted indentures credit facilities discussed unless default applicable indenture credit facilities unless applicable subsidiary’s leverage ratio test met time distribution december 31 2016 default indentures credit facilities subsidiary met applicable leverage ratio tests based december 31 2016 financial results distributions would restricted however subsidiary fails meet tests time contemplated distribution past certain subsidiaries time failed meet leverage ratio test assurance satisfy tests time contemplated distribution distributions charter operating payment principal parent company notes restricted covenants credit facilities f 26 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated however without regard leverage calendar year portion thereof borrower flowthrough entity tax purposes long event default exists borrower may make distributions equity interests borrower amount sufficient make permitted tax payments addition limitation distributions various indentures distributions company’s subsidiaries may limited applicable law including delaware limited liability company act company’s subsidiaries may make distributions “surplus” defined act liquidity future principal payments company continues significant amounts debt business requires significant cash fund principal interest payments debt capital expenditures ongoing operations set forth company significant future principal payments company continues monitor capital markets expects undertake refinancing transactions utilize free cash flow cash hand extend reduce maturities principal obligations timing terms refinancing transactions subject market conditions based upon outstanding indebtedness december 31 2016 amortization term loans maturity dates senior subordinated notes total future principal payments total borrowings debt agreements december 31 2016 follows 10 loans receivable payable related party loans payable related party december 31 2016 consists loans charter communications holdings company llc “charter holdco” company 640 million interest accrues loans payable related party libor plus 2 loans receivable related party december 31 2015 consisted loans company ccoh safari ii llc ccoh safari cco safari ii cco safari iii 96 million 34 million 508 million 55 million respectively settled company upon merger safari escrow entities company loans payablerelated party december 31 2015 consisted loans charter holdco cch ii llc company 48 million 285 million respectively 11 accounting derivative instruments hedging activities company uses derivative instruments manage interest rate risk variable debt foreign exchange risk sterling notes hold issue derivative instruments speculative trading purposes interest rate derivative instruments used manage interest costs reduce company’s exposure increases floating interest rates company manages exposure fluctuations interest rates maintaining mix fixed variable rate debt using interest rate derivative instruments company agrees exchange specified intervals 2017 difference fixed variable interest amounts calculated reference agreedupon notional principal amounts december 31 2016 2015 company 850 million 11 billion respectively notional amounts interest rate derivative instruments outstanding notional amounts interest rate derivative instruments represent amounts exchanged f 27 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated parties thus measure exposure credit loss amounts exchanged determined reference notional amount terms contracts upon closing twc transaction company acquired interest rate derivative instrument assets fair value 85 million excluding accrued interest terminated settled respective counterparties second quarter 2016 88 million cash payment company 14 million interest accrued date termination resulted 11 million loss year ended december 31 2016 recorded gain loss financial instruments net consolidated statements operations upon closing twc transaction company assumed crosscurrency derivative instrument liabilities fair value 72 million excluding accrued interest crosscurrency derivative instruments used effectively convert £1275 billion aggregate principal amount fixedrate british pound sterling denominated debt including annual interest payments payment principal maturity fixedrate us dollar denominated debt crosscurrency swaps maturities june 2031 july 2042 company required post collateral crosscurrency derivative instruments derivative contracts liability position may 2016 company entered collateral holiday agreement 80 2031 2042 crosscurrency swaps eliminates requirement post collateral three years effect derivative instruments consolidated balance sheets presented table company’s interest rate crosscurrency derivative instruments designated hedges marked fair value period impact recorded gain loss financial instruments net consolidated statements operations derivative instruments designated cash flow hedges accounting purposes management continues believe instruments correlated respective debt thus managing associated risk effect financial instruments consolidated statements operations presented table f 28 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated 12 fair value measurements accounting guidance establishes threelevel hierarchy disclosure fair value measurements based upon transparency inputs valuation asset liability measurement date follows • level 1 inputs valuation methodology quoted prices unadjusted identical assets liabilities active markets • level 2 inputs valuation methodology include quoted prices similar assets liabilities active markets inputs observable asset liability either directly indirectly substantially full term financial instrument • level 3 inputs valuation methodology unobservable significant fair value measurement financial assets liabilities company estimated fair value financial instruments december 31 2016 2015 using available market information appropriate valuation methodologies considerable judgment however required interpreting market data develop estimates fair value accordingly estimates presented accompanying consolidated financial statements necessarily indicative amounts company would realize current market exchange carrying amounts cash equivalents receivables payables current assets liabilities approximate fair value short maturity instruments company’s cash equivalents december 31 2016 primarily invested money market funds money market funds valued closing price reported fund sponsor actively traded exchange approximates fair value money market funds potentially subject company concentration credit risk amount invested within one financial instrument exceed 250 million december 31 2016 december 31 2016 significant concentrations financial instruments single investee industry geographic location interest rate derivative instruments valued using present value calculation based implied forward libor curve adjusted charter operating’s counterparties’ credit risk weighted average pay rate company’s currently effective interest rate derivative instruments 159 161 december 31 2016 2015 respectively exclusive applicable spreads company’s financial instruments accounted fair value recurring basis presented table f 29 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated summary carrying value fair value company’s debt december 31 2016 2015 follows estimated fair value company’s senior notes debentures december 31 2016 2015 based quoted market prices active markets classified within level 1 valuation hierarchy estimated fair value company’s credit facilities based quoted market prices inactive markets classified within level 2 nonfinancial assets liabilities company’s nonfinancial assets equitymethod investments franchises property plant equipment intangible assets measured fair value recurring basis however subject fair value adjustments certain circumstances upon business combination evidence impairment may exist impairments recorded 2016 2015 2014 upon closing transactions legacy twc legacy bright house nonfinancial assets liabilities recorded fair values see note 2 13 operating costs expenses operating costs expenses exclusive items shown separately consolidated statements operations consist following periods presented programming costs consist primarily costs paid programmers basic premium digital video demand payperview programming regulatory connectivity produced content costs represent payments franchise regulatory authorities costs directly related providing video internet voice services well payments sports local news content produced company included regulatory connectivity produced content costs content acquisition costs los angeles lakers’ basketball games los angeles dodgers’ baseball games recorded games exhibited applicable season costs service customers include costs related field operations network operations customer care company’s residential small medium business customers including internal thirdparty labor installations service repairs maintenance billing collection occupancy vehicle costs marketing costs represent costs marketing current potential commercial residential customers including labor costs transition costs represent incremental costs incurred integrate twc bright house operations increase scale company’s business result transactions see note 2 includes bad debt expense corporate overhead advertising sales expenses indirect costs associated company’s enterprise business customers regional sports news networks property tax expense insurance expense stock compensation expense among others f 30 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated 14 operating expenses net operating expenses net consist following years presented merger restructuring costs merger restructuring costs represent costs incurred connection merger acquisition transactions related restructuring advisory legal accounting fees employee retention costs employee termination costs related transactions exit costs company expects incur additional merger restructuring costs connection transactions changes accruals merger restructuring costs january 1 2016 december 31 2016 presented addition costs indicated company recorded 248 million expense related accelerated vesting equity awards terminated employees year ended december 31 2016 pension benefits pension benefits include pension curtailment gain remeasurement gain expected return plan assets interest cost components net periodic pension benefit see note 19 special charges net special charges net primarily includes employee termination costs related transactions net amounts litigation settlements gain loss sale assets net gain loss sale assets net represents net gain loss recognized sales disposals fixed assets cable systems 15 stock compensation plans legacy charter’s 2009 stock incentive plan assumed charter upon closing transactions provides grants nonqualified stock options incentive stock options stock appreciation rights dividend equivalent rights performance units performance shares share awards phantom stock restricted stock units restricted stock directors officers f 31 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated employees company subsidiaries well others performing consulting services company eligible grants 2009 stock incentive plan april 2016 charter’s board directors stockholders approved additional 9 million shares charter class common stock units convertible charter class common stock 2009 stock incentive plan allows issuance 21 million shares charter class common stock units convertible charter class common stock closing twc transaction legacy twc employee equity awards converted charter class common stock equity awards terms conditions applicable legacy twc equity awards except number shares covered award option exercise prices adjusted stock award exchange ratio defined merger agreement intrinsic value converted twc awards approximately equal original awards closing transactions converted twc awards represented approximately 42 million charter restricted stock units 08 million charter stock options 05 million exercisable time conversion continue subject terms legacy twc equity plans converted twc awards measured fair value closing twc transaction fair value 514 million related legacy twc employee precombination service treated consideration transferred twc transaction see note 2 539 million relates postcombination service amortized stock compensation expense remaining vesting period awards fair values converted twc awards based valuation using assumptions developed management information compiled management including limited historical volatility exercise trends legacy charter legacy twc parent merger exchange ratio also applied outstanding legacy charter equity awards option exercise prices however terms equity awards change result transactions legacy charter stock options restricted stock units cliff vest upon three year anniversary grant stock options generally expire ten years grant date restricted stock units voting rights certain stock options restricted stock units vest based achievement stock price hurdles restricted stock generally vests annually one year beginning date grant legacy twc restricted stock units converted charter restricted stock units generally vest 50 third fourth anniversary grant date legacy twc stock options converted charter stock options vest ratably fouryear period expire ten years grant date december 31 2016 total unrecognized compensation remaining recognized future periods totaled 262 million stock options 1 million restricted stock 279 million restricted stock units weighted average period expected recognized 4 years stock options 4 months restricted stock 3 years restricted stock units company recorded 244 million 78 million 55 million stock compensation expense years ended december 31 2016 2015 2014 respectively included operating costs expenses company also recorded 248 million expense year ended december 31 2016 related accelerated vesting equity awards terminated employees recorded merger restructuring costs f 32 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated summary activity charter’s stock options applying parent merger exchange ratio years ended december 31 2016 2015 2014 follows shares thousands except per share data summary activity charter’s restricted stock applying parent merger exchange ratio years ended december 31 2016 2015 2014 follows shares thousands except per share data f 33 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated summary activity charter’s restricted stock units applying parent merger exchange ratio years ended december 31 2016 2015 2014 follows shares thousands except per share data 16 income taxes cco holdings single member limited liability company subject income tax cco holdings holds operations indirect subsidiaries majority indirect subsidiaries limited liability companies subject income tax certain indirect subsidiaries required file separate returns subject federal state tax cco holdings’ tax provision reflects tax provision entities required file separate returns income tax benefit expense years ended december 31 2016 2015 2014 company recorded deferred income tax benefit expense shown tax provision future periods vary based current future temporary differences well future operating results income tax recognized primarily decreases increases deferred tax liabilities well current federal state income tax expense income tax benefit year ended december 31 2015 primarily result deemed liquidation charter holdco july 2015 deemed liquidation charter holdco taxable income gains losses deductions credits charter holdco indirect subsidiaries treated income charter tax provision future periods vary based future operating results well future book versus tax differences f 34 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated company’s effective tax rate differs derived applying applicable federal income tax rate 35 years ended december 31 2016 2015 2014 respectively follows deferred tax assets liabilities tax effects temporary differences give rise significant portions deferred tax assets deferred tax liabilities december 31 2016 2015 presented f 35 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated uncertain tax positions connection twc transaction company assumed 181 million gross unrecognized tax benefits exclusive interest penalties recorded within longterm liabilities net amount unrecognized tax benefits could impact effective tax rate 191 million company determined reasonably possible existing reserve uncertain tax positions december 31 2016 could decrease 35 million year ended december 31 2017 related various ongoing audits settlement discussions expiration statute limitations various state local agencies however various events could cause company’s current expectations change future uncertain tax positions ever recognized financial statements would recorded consolidated statements operations part income tax provision reconciliation beginning ending amount unrecognized tax benefits exclusive interest penalties included longterm liabilities accompanying consolidated balance sheets company follows tax years charter holdings charter communications holding company llc company’s indirect parent companies income tax purposes currently examination irs legacy charter’s tax years ending 2013 short period return dated may 17 2016 remain subject examination assessment years prior 2013 remain open solely purposes examination legacy charter’s loss credit carryforwards irs currently examining legacy twc’s income tax returns 2011 2012 legacy twc’s tax years ending 2013 2015 remain subject examination assessment prior legacy twc’s separation time warner inc “time warner” march 2009 “separation” legacy twc included consolidated us federal certain state income tax returns time warner irs currently examining time warner’s 2008 2010 income tax returns time warner’s income tax returns 2005 2007 periods prior separation settled exception immaterial item referred irs appeals division company anticipate examinations material impact company’s consolidated financial position results operations addition company also subject ongoing examinations company’s tax returns state local tax authorities various periods activity related state local examinations material impact company’s consolidated financial position results operations 2016 company anticipate material impact future 17 related party transactions following sets forth certain transactions company directors executive officers affiliates company involved case management arrangements subsidiaries debt issuers pay certain parent companies services charter party management arrangements spectrum management certain subsidiaries agreements charter spectrum management charter holdco provide management services cable systems owned operated subsidiaries costs associated providing services charged directly company’s operating subsidiaries costs incurred behalf charter’s operating subsidiaries considered part management fee costs recorded component operating costs expenses accompanying consolidated financial statements management fee charged company’s operating subsidiaries approximated expenses incurred spectrum management charter holdco charter behalf company’s operating subsidiaries 2016 2015 2014 liberty broadband may 23 2015 connection execution merger agreement amendment contribution agreement charter entered amended restated stockholders agreement liberty broadband legacy charter “stockholders agreement” charter holdings limited liability operating agreement “llc agreement” liberty broadband closing merger agreement contribution agreement may 18 2016 stockholders agreement replaced legacy charter’s existing stockholders agreement liberty broadband dated september 29 2014 f 36 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated superseded amended restated stockholders agreement among legacy charter liberty broadband dated march 31 2015 terms stockholders agreement number charter’s directors fixed 13 includes chief executive officer upon closing bright house transaction two designees selected became members board directors charter three designees selected liberty broadband continued members board directors charter remaining eight directors affiliated either liberty broadband liberty broadband entitled nominate least one director committees charter’s board directors subject applicable stock exchange listing rules certain specified voting equity ownership thresholds liberty broadband provided nominating corporate governance committee compensation benefit committee least majority directors independent liberty broadband company referred “unaffiliated directors” nominating corporate governance committee compensation benefits committee currently comprised three unaffiliated directors one designee liberty broadband liberty broadband also certain committee designation governance rights upon closing bright house transaction mr thomas rutledge company’s chief executive officer “ceo” became chairman board charter december 2016 charter entered letter agreement letter agreement exchanged charter holdings common units shares charter class common stock company purchased charter holdings common units letter agreement also requires pro rata participation affiliates repurchases shares charter class common stock sold shares units totaling 537 million 218 million already completed subject liberty broadbands right first refusal purchase shares units upon ans sale third party excluding company pursuant tra charter must pay 50 tax benefit realized charter stepup tax basis resulting future exchange sale preferred common units company aware dr john malone may deemed 364 voting interest liberty interactive chairman board directors executive officer position liberty interactive liberty interactive owns 383 common stock hsn inc “hsn” right elect 20 board members hsn liberty interactive wholly owns qvc inc “qvc” company programming relationships hsn qvc predate transaction liberty media years ended december 31 2016 2015 2014 company recorded payments aggregate approximately 53 million 17 million 14 million respectively hsn qvc part channel carriage fees revenue sharing arrangements home shopping sales made customers company’s footprint dr malone mr steven miron member charter’s board directors also serve board directors discovery communications inc “discovery” company aware dr malone owns 52 aggregate common stock discovery 287 voting interest discovery election directors company aware advancenewhouse programming partnership “an pp” affiliate mr miron ceo owns 100 series preferred stock discovery 100 series c preferred stock discovery representing approximately 340 outstanding equity discovery’s stock asconverted basis pp right appoint three directors total ten directors discovery’s board elected holders discovery’s series preferred stock addition dr malone member board directors lions gate entertainment corp lions gate parent company starz inc owns approximately 59 aggregate common stock lions gate 81 voting power pursuant ownership lions gate class voting shares company purchases programming discovery lions gate pursuant agreements entered prior dr malone mr miron joining charter’s board directors based publicly available information company believe either discovery lions gate would currently considered related parties amounts paid aggregate discovery lions gate represent less 3 total operating costs expenses years ended december 31 2016 2015 2014 equity investments company parent companies agreements certain equitymethod investees see note 7 pursuant company made received related party transaction payments company parent companies recorded payments equitymethod investees totaling 171 million 28 million years ended december 31 2016 2015 respectively company recorded advertising revenues transactions equitymethod investees totaling 7 million year ended december 31 2016 f 37 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated 18 commitments contingencies commitments following table summarizes contractual payment obligations company parent companies december 31 2016 company leases certain facilities equipment noncancelable capital operating leases rental costs charged expense years ended december 31 2016 2015 2014 215 million 49 million 43 million respectively b company pays programming fees multiyear contracts ranging three ten years typically based flat fee per customer may fixed term may cases escalate term programming costs included statement operations 70 billion 27 billion 25 billion years ended december 31 2016 2015 2014 respectively certain company’s programming agreements based flat fee per month guaranteed minimum payments table sets forth aggregate guaranteed minimum commitments company’s programming contracts c “other” represents guaranteed minimum commitments including rights negotiated directly content owners distribution companyowned channels networks commitments related company’s role advertising distribution sales agent third partyowned channels networks well commitments company’s customer premise equipment vendors following items included contractual obligation table due various factors discussed however company incurs costs part operations • company rents utility poles used operations generally pole rentals cancelable short notice company anticipates rentals recur rent expense incurred pole rental attachments years ended december 31 2016 2015 2014 115 million 53 million 49 million respectively • company pays franchise fees multiyear franchise agreements based percentage revenues generated video service per year company also pays franchise related costs public education grants multiyear agreements franchise fees franchiserelated costs included accompanying statement operations 534 million 212 million 208 million years ended december 31 2016 2015 2014 respectively • company also 278 million letters credit 220 million secured charter operating credit facility primarily various casualty carriers collateral reimbursement workers compensation auto liability general liability claims • minimum pension funding requirements presented table amounts determined beyond 2016 company made cash contributions qualified pension plans 2016 however company permitted make discretionary cash contributions qualified pension plans 2017 nonqualified pension plan company contributed 5 million 2016 continue make contributions 2017 extent benefits paid legal proceedings 2014 following announcement comcast legacy twc intent merge breffni barrett others filed suit supreme court state new york county new york comcast legacy twc respective officers directors later five similar class actions consolidated matter “ny actions” ny actions settled july 2014 however settlement terminated following termination comcast twc merger april 2015 may 2015 charter twc announced intent merge subsequently parties ny actions filed f 38 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated second consolidated class action complaint “second amended complaint” removing comcast defendant naming twc members twc board directors charter merger subsidiaries defendants second amended complaint generally alleges among things members twc board directors breached fiduciary duties twc stockholders charter merger negotiations entering merger agreement approving mergers charter aided abetted breaches fiduciary duties complaint sought among relief injunctive relief enjoining stockholder vote mergers unspecified declaratory equitable relief compensatory damages unspecified amount costs attorneys’ fees september 2015 parties entered memorandum understanding “mou” settle action pursuant mou defendants issued certain supplemental disclosures relating mergers form 8k plaintiffs agreed release prejudice claims could asserted defendants connection mergers settlement conditioned among things approval new york supreme court gave preliminary approval settlement october 2016 hearing consider final approval settlement set march 2017 event new york supreme court approve settlement charter intends vigorously defend case august 2015 purported stockholder charter matthew sciabacucchi filed lawsuit delaware court chancery behalf putative class charter stockholders challenging transactions charter twc liberty broadband announced charter may 26 2015 collectively “transactions” lawsuit names defendants liberty broadband charter board directors charter new charter plaintiff alleged transactions improperly benefit liberty broadband expense charter shareholders charter issued false misleading proxy statement connection transactions plaintiff requested among things delaware court chancery enjoin september 21 2015 special meeting charter stockholders charter stockholders asked vote transactions defendants disclosed certain information relating charter transactions disclosures demanded plaintiff included certain unlevered free cash flow projections charter ii form proxy right first refusal agreement “proxy” among liberty broadband charter new charter referenced description second amended restated stockholders agreement dated may 23 2015 among charter new charter liberty broadband september 9 2015 charter issued supplemental disclosures containing unlevered free cash flow projections charter return plaintiff agreed disclosure claims moot withdrew application enjoin charter stockholder vote transactions charter filed motion dismiss litigation court yet ruled upon charter denies liability believes substantial defenses intends vigorously defend suit california attorney general alameda county california district attorney investigating whether certain legacy charter’s waste disposal policies procedures practices violation california business professions code california health safety code investigation commenced january 2014 similar investigation involving legacy twc initiated february 2012 charter cooperating investigations company unable predict outcome investigations expect outcome material effect operations financial condition cash flows december 19 2011 sprint communications company lp “sprint” filed complaint us district court district kansas alleging legacy twc infringes 12 us patents purportedly relating voice internet protocol “voip” services course litigation sprint dismissed claims relating five asserted patents shortly trial sprint dropped claims respect two additional patents trial remaining five patents began february 13 2017 sprint charter completed presentation evidence trial jury deliberating decision expected time plaintiff seeking monetary damages approximately 150 million plaintiff also claiming twc willfully infringed patents may seek treble damages well attorneys’ fees costs charter intends vigorously defend lawsuit however assurances made defenses would ultimately successful time company expect outcome litigation material adverse effect operations financial condition cash flows although ultimate outcome litigation cannot predicted october 23 2015 new york office attorney general “ny ag” began investigation legacy twcs advertised internet speeds internet product advertising february 1 2017 ny ag filed suit supreme court state new york alleging legacy twcs advertising internet speeds false misleading suit seeks restitution injunctive relief company denies legacy twc engaged wrongdoing company intends defend vigorously however assurances made defenses would ultimately successful time f 39 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated company expect outcome litigation material adverse effect operations financial condition cash flows company defendant codefendant several lawsuits involving alleged infringement various patents relating various aspects businesses industry participants also defendants certain cases event court ultimately determines company infringes intellectual property rights company may subject substantial damages andor injunction could require company vendors modify certain products services company offers subscribers well negotiate royalty license agreements respect patents issue company believes lawsuits without merit intends defend actions vigorously assurance given adverse outcome would material company’s consolidated financial condition results operations liquidity company cannot predict outcome claims reasonably estimate range possible loss company party lawsuits claims regulatory inquiries arise ordinary course conducting business including lawsuits claiming violation wage hour laws breach contract vendors including three programmers ultimate outcome legal matters pending company cannot predicted although lawsuits claims expected individually material adverse effect company’s consolidated financial condition results operations liquidity lawsuits could aggregate material adverse effect company’s consolidated financial condition results operations liquidity whether company ultimately prevails particular lawsuit claim litigation time consuming costly injure company’s reputation 19 employee benefit plans pension plans upon completion twc transaction company assumed sponsorship legacy twc’s pension plans company sponsors two qualified defined benefit pension plans twc pension plan twc union pension plan provide pension benefits majority legacy twc employees company also provides nonqualified defined benefit pension plan certain employees twc excess pension plan f 40 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated changes projected benefit obligation fair value plan assets funded status pension plans january 1 2016 december 31 2016 presented projected benefit obligation accumulated benefit obligation fair value plan assets qualified pension plans nonqualified pension plan december 31 2016 consisted following pretax amounts recognized consolidated balance sheet december 31 2016 consisted following f 41 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated components net periodic benefit costs year ended december 31 2016 consisted following 195 million remeasurement gain recorded year ended december 31 2016 primarily driven effects increase discount rate 399 closing date twc transaction 420 december 31 2016 gain record pension assets december 31 2016 fair values weighted average assumptions used determine benefit obligations december 31 2016 consisted following weighted average discount rates used measure projected benefit obligation closing date twc transaction 399 rate compensation increase used measure projected benefit obligation closing twc transaction agegraded average increase 425 company utilized rp 2015mp2015 mortality tables published society actuaries measure benefit obligations december 31 2016 closing date twc transaction weighted average assumptions used determine net periodic benefit costs year ended december 31 2016 consisted following discount rate used determine net periodic pension benefit 399 closing date twc transaction remeasurement date june 30 2016 372 remeasurement date december 31 2016 b rate compensation increase used determine net periodic pension benefit 425 closing date twc transaction remeasurement date june 30 2016 0 thereafter see “pension plan curtailment amendment” discussion developing expected longterm rate return plan assets company considered pension portfolio’s composition past average rate earnings company’s future asset allocation targets weighted average expected longterm rate return plan assets used determine net periodic pension benefit year ended december 31 2017 expected 650 company determined discount rates used determine benefit obligations net periodic pension benefit based yield large population high quality corporate bonds cash flows sufficient timing amount settle projected future defined benefit payments f 42 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated pension plan curtailment amendment following closing twc transaction charter amended pension plans freeze future benefit accruals current active plan participants august 31 2016 effective september 1 2016 future compensation increases future service credited participants pension plans new hires eligible participate plans upon announcement approval plan amendment assumptions underlying pension liability pension asset values reassessed utilizing remeasurement date assumptions accordance charter’s marktomarket pension accounting policy record gains losses period remeasurement event occurs 675 million curtailment gain recorded year ended december 31 2016 primarily driven reduction compensation rate assumption 0 accordance terms plan amendment reflecting pension liability accumulated benefit obligation instead projected benefit obligation remeasurement date pension plan assets qualified pension plans held master trust qualified pension plans participating plans “master trust” investment policy qualified pension plans achieve reasonable longterm rate return plan assets acceptable level risk order maintain adequate funding levels investment portfolio mix fixedincome equity securities objective matching plan liability performance diversifying risk achieving target investment return pension plan’s investment committee establishes risk mitigation policies regularly monitors investment performance investment allocation policies execution strategies investment committee engages thirdparty investment firm responsibility executing directives investment committee monitoring performance individual investment managers master trust making adjustments changes within defined parameters necessary periodic basis investment committee conducts broad strategic review portfolio construction investment allocation policies neither company investment committee thirdparty investment firm manages assets internally directly utilizes derivative instruments hedging however investment mandate investment managers allows use derivatives components standard portfolio management strategies pension assets managed balanced portfolio comprised two major components returnseeking portion liabilitymatching portion expected role returnseeking investments achieve reasonable longterm growth pension assets prudent level risk role liabilitymatching investments provide partial hedge liability performance associated changes interest rates objective within returnseeking investments achieve asset diversity order balance return volatility company adopted investment strategy referred derisking glide path increase fixed income allocation funded status qualified pension plans improves qualified pension plans reach set funded status milestones assets rebalanced shift assets equity fixed income based progress strategy target investment allocation pension fund assets permitted vary within specified ranges subject investment committee approval returnseeking securities liabilitymatching securities target actual investment allocation qualified pension plans asset category december 31 2016 consisted following f 43 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated following table sets forth investment assets qualified pension plans exclude accrued investment income receivables accrued liabilities investments fair value measured net asset value per share practical expedient level within fair value hierarchy december 31 2016 common stocks mutual funds us treasury debt securities valued closing price reported active market individual securities traded single industry comprised significant portion common stock held qualified pension plan december 31 2016 b commingled equity funds commingled bond funds valued using net asset value provided administrator fund net asset value based readily determinable value underlying assets owned fund less liabilities divided number units outstanding c equity securities consist preferred stocks valued closing price reported active market individual securities traded corporate debt securities valued based observable prices new issue market benchmark quotes secondary trading dealer quotes option adjusted spread model incorporated adjust spreads issues early redemption features final spreads added us treasury curve e collective trust funds primarily consist shortterm investment strategies comprised instruments issued fully guaranteed us government andor agencies valued using net asset value provided administrator fund net asset value based readily determinable value underlying assets owned fund less liabilities divided number units outstanding f us government agency assetbacked debt securities consist passthrough mortgagebacked securities issued federal home loan mortgage corporation federal national mortgage association valued using available trade information dealer quotes market indices research reports spreads bids offers g corporate assetbacked debt securities primarily consist passthrough mortgagebacked securities issued us foreign corporations valued using available trade information dealer quotes market indices research reports spreads bids offers f 44 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated h fixedincome securities consist foreign government debt securities municipal bonds us government agency debt securities valued based observable prices new issue market benchmark quotes secondary trading dealer quotes option adjusted spread model incorporated adjust spreads issues early redemption features final spreads added us treasury curve accrued investment income receivables includes amounts receivable foreign exchange contracts 70 million december 31 2016 accrued liabilities includes amounts accrued foreign exchange contracts 71 million december 31 2016 fair value assets liabilities associated foreign exchange contracts presented gross basis valued using exchange rates effect applicable currencies valuation date level 1 fair value measurement j certain investments measured fair value using net asset value per share equivalent practical expedient classified fair value hierarchy investments primarily consist hedge funds valued utilizing net asset value provided administrator fund based value underlying assets owned fund less liabilities divided number units outstanding shares fund redeemable underlying assets anticipated liquidated distributed investors near term material unfunded commitments respect investments fair value amounts presented table intended permit reconciliation fair value hierarchy total fair value plan assets discussed throughout footnote pension plan contributions company made cash contributions qualified pension plans year ended december 31 2016 however company may make discretionary cash contributions qualified pension plans future contributions dependent variety factors including current expected interest rates asset performance funded status qualified pension plans management’s judgment nonqualified unfunded pension plan company continue make contributions 2017 extent benefits paid benefit payments pension plans expected 170 million 2017 174 million 2018 177 million 2019 180 million 2020 182 million 2021 911 million 2022 2026 multiemployer plans upon completion twc transaction charter assumed legacy twc’s multiemployer plans company contributes number multiemployer plans terms collectivebargaining agreements cover unionrepresented employees multiemployer plans provide medical pension retirement savings benefits active employees retirees company made contributions multiemployer plans 31 million year ended december 31 2016 risks participating multiemployer pension plans different singleemployer pension plans following aspects assets contributed multiemployer pension plan one employer may used provide benefits employees participating employers b participating employer stops contributing multiemployer pension plan unfunded obligations plan may borne remaining participating employers c company chooses stop participating multiemployer pension plans may required pay plans amount based underfunded status plan referred withdrawal liability multiemployer pension plans company contributes received pension protection act “green” zone status 2015 zone status based recent information company received plan certified plan’s actuary among factors plans green zone least 80 funded defined contribution benefit plans company’s employees may participate charter communications inc 401k plan “401k plan” upon completion twc transaction charter assumed legacy twc’s defined contribution plan twc savings plan june 2016 company announced changes 401k plan twc savings plan effective september 1 2016 effective january 1 2017 401k plan twc savings plan merged one plan employees qualify participation contribute 50 salary pretax basis subject maximum contribution limit determined internal revenue service company’s matching contribution discretionary equal 100 amount salary reduction participant elects defer 6 participant’s eligible compensation excluding catchup contributions f 45 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated paid company per pay period basis company made contributions 401k plans totaling 147 million 23 million 19 million years ended december 31 2016 2015 2014 respectively employees eligible participate company’s longterm incentive plan covered collective bargaining agreement company offers contribution new retirement accumulation plan rap equal 3 eligible pay company made contributions rap totaling 48 million year ended december 31 2016 20 recently issued accounting standards may 2014 financial accounting standards board “fasb” issued accounting standards update “asu” 201409 revenue contracts customers “asu 201409” comprehensive revenue recognition standard supersede nearly existing revenue recognition guidance us gaap new standard provides single principlesbased fivestep model applied contracts customers steps 1 identify contracts customer 2 identify performance obligations contract 3 determine transaction price 4 allocate transaction price performance obligations contract 5 recognize revenue performance obligation satisfied specifically revenue recognized promised goods services transferred customer amount reflects consideration expected exchange goods services asu 201409 effective reflecting oneyear deferral interim annual periods beginning december 15 2017 january 1 2018 company early adoption standard permitted original effective date companies transition standard either retrospectively cumulativeeffect adjustment date adoption company currently process evaluating method transition utilized company continuing assess potential impacts adoption asu 201409 consolidated financial statements including developing new accounting policies internal controls processes facilitate adoption standard significant impacts upon adoption anticipated result deferral period time instead recognized immediately 1 residential installation revenues represent nonrefundable upfront fees convey material right customer 2 internal external commission expenses represent costs obtaining contract april 2015 fasb issued asu 201505 customer’s accounting fees paid cloud computing arrangement “asu 201505” provides guidance determining whether fees purchasing cloud computing services hosted software solutions considered internaluse software considered service contract cloud computing agreement includes software license accounted manner internaluse software customer contractual right take possession software hosting period without significant penalty feasible either run software customer’s hardware contract another vendor host software arrangements don’t meet requirements internaluse software accounted service contract asu 201505 effective interim annual periods beginning december 15 2015 january 1 2016 company adoption asu 201505 material impact company’s financial statements february 2016 fasb issued asu 201602 leases “asu 201602” requires lessees recognize almost leases balance sheet rightofuse asset lease liability lessees allowed account shortterm leases ie leases term 12 months less offbalance sheet consistent current operating lease accounting income statement purposes fasb retained dual model requiring leases classified either operating finance classification based criteria largely similar applied current lease accounting without explicit bright lines asu 201602 effective interim annual periods beginning december 15 2018 january 1 2019 company early adoption permitted new standard requires modified retrospective transition cumulativeeffect adjustment beginning earliest period presented financial statements company currently process evaluating impact adoption asu 201602 consolidated financial statements including identifying population leases evaluating technology solutions collecting lease data march 2016 fasb issued asu 201609 improvements employee sharebased payment accounting “asu 201609” includes multiple provisions intended simplify various aspects accounting sharebased payments new standard 1 requires excess tax benefits deficiencies recognized income tax expense benefit income statement period occur regardless whether benefit reduces taxes payable current period 2 requires classification excess tax benefits operating activity statements cash flows 3 allows entity make entitywide accounting policy election either estimate number awards expected vest account forfeitures occur 4 causes threshold employee sharebased awards partially settled cash f 46 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated qualify equity classification increase maximum statutory tax rates applicable jurisdiction asu 201609 effective interim annual periods december 15 2016 january 1 2017 company new standard generally requires modified retrospective transition cumulativeeffect adjustment beginning period adoption certain provisions requiring either prospective retrospective transition company adopted asu 201609 january 1 2017 company prospectively record deferred tax benefit expense associated difference book tax stock compensation expense january 1 2017 company also establish accounting policy election assume zero forfeitures stock award grants account forfeitures occur prospectively impact stock compensation expense aspects adoption asu 201609 anticipated material impact company’s consolidated financial statements august 2016 fasb issued asu 201615 classification certain cash receipts cash payments “asu 201615” clarifies entities classify cash receipts cash payments related eight specific cash flow matters statement cash flows objective reducing existing diversity practice asu 201615 effective interim annual periods beginning december 15 2017 january 1 2018 company early adoption permitted company currently process evaluating impact adoption asu 201615 consolidated financial statements 21 consolidating schedules charter operating twc llc twce cco holdings certain subsidiaries jointly severally fully unconditionally guarantee outstanding debt securities others cco holdings notes unsecured senior basis condensed consolidating financial information prepared presented pursuant sec regulation sx rule 310 financial statements guarantors issuers guaranteed securities registered certain charter operating subsidiaries regulated telephone entities become guarantor subsidiaries upon approval regulators information intended present financial position results operations cash flows individual companies groups companies accordance generally accepted accounting principles “charter operating restricted subsidiaries” column presented comply terms credit agreement “unrestricted subsidiary” column included condensed consolidating financial statements years ended december 31 2016 2015 consists cco safari nonrecourse subsidiary credit agreement held cco safari term g loans repaid april 2015 condensed consolidating financial statements december 31 2016 2015 years ended december 31 2016 2015 2014 follow f 47 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated f 48 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated f 49 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated f 50 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated f 51 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated f 52 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated f 53 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated f 54 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated f 55 cco holdings llc subsidiaries notes consolidated financial statements december 31 2016 2015 2014 dollars millions except indicated 22 subsequent events january 2017 charter operating entered amendment credit agreement decreasing applicable libor margin term loan e term loan f 200 eliminating libor floor february 2017 cco holdings cco holdings capital corp closed transactions issued 10 billion aggregate principal amount 5125 senior notes due may 1 2027 net proceeds used redeem cco holdings’ 6625 senior notes due 2022 pay related fees expenses general corporate purposes f 56 item 15 exhibits financial statement schedules following documents filed part annual report 1 financial statements listing financial statements notes reports independent public accountants required part ii item 8 financial statements supplementary data begins page annual report 2 financial statement schedules financial statement schedules required filed items 8 15c required applicable required information set forth applicable financial statements notes thereto 3 index exhibits begins page e1 annual report signatures pursuant requirements section 13 15d securities exchange act 1934 cco holdings llc cco holdings capital corp duly caused annual report signed behalf undersigned thereunto duly authorized cco holdings llc registrant kevin howard kevin howard date february 7 2020 executive vice president chief accounting officer controller cco holdings capital corp registrant kevin howard kevin howard date february 7 2020 executive vice president chief accounting officer controller pursuant requirements securities exchange act 1934 report signed following persons behalf cco holdings llc cco holdings capital corp capacities dates indicated signature title date thomas rutledge thomas rutledge chairman chief executive officer director principal executive officer february 7 2020 christopher l winfrey christopher l winfrey chief financial officer principal financial officer february 7 2020 kevin howard kevin howard executive vice president chief accounting officer controller principal accounting officer february 7 2020 charter communications inc sole capacity manager cco holdings llc kevin howard kevin howard date february 7 2020 executive vice president chief accounting officer controller 1 exhibit index exhibits listed numbers corresponding exhibit table item 601 regulation sk e 1 e 2 e 3 e 4 e 5 e 6 e 7 e 8 e 9 e 10 filed herewith management compensatory plan arrangement e 11 f 1 report independent registered public accounting firm manager member cco holdings llc cco holdings capital corp opinion consolidated financial statements audited accompanying consolidated balance sheets cco holdings llc subsidiaries company december 31 2019 2018 related consolidated statements operations changes member’s equity cash flows years threeyear period ended december 31 2019 related notes collectively consolidated financial statements opinion consolidated financial statements present fairly material respects financial position company december 31 2019 2018 results operations cash flows years threeyear period ended december 31 2019 conformity us generally accepted accounting principles change accounting principle discussed note 21 consolidated financial statements company changed method accounting leases january 1 2019 due adoption accounting standard codification topic 842 leases basis opinion consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud company required engaged perform audit internal control financial reporting part audits required obtain understanding internal control financial reporting purpose expressing opinion effectiveness company’s internal control financial reporting accordingly express opinion audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion signed kpmg llp served company’s auditor since 2003 st louis missouri february 7 2020 f 2 cco holdings llc subsidiaries consolidated balance sheets dollars million accompanying notes integral part consolidated financial statements f 3 cco holdings llc subsidiaries consolidated statements operations dollars millions accompanying notes integral part consolidated financial statements f 4 cco holdings llc subsidiaries consolidated statements changes member’s equity dollars millions accompanying notes integral part consolidated financial statements f 5 cco holdings llc subsidiaries consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements f 6 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated 1 organization basis presentation organization cco holdings llc together subsidiaries “cco holdings” “company” second largest cable operator united states leading broadband communications services company providing video internet voice services residential small medium business customers company also offers mobile service residential customers recently launched mobile service small medium business customers addition company sells video online advertising inventory local regional national advertising customers tailored communications managed solutions larger enterprise customers company also owns operates regional sports networks local sports news community channels cco holdings holding company whose principal assets equity interests operating subsidiaries cco holdings direct subsidiary cch holdings llc indirect subsidiary charter communications inc “charter” charter communications holdings llc “charter holdings” spectrum management holding company llc “spectrum management” outstanding capital stock cco holdings capital corp cco holdings capital owned cco holdings consolidated financial statements include accounts cco holdings subsidiaries underlying operations reside significant intercompany accounts transactions among consolidated entities eliminated charter holdings spectrum management performed financing cash management treasury services cco holdings centralized basis changes member’s equity consolidated balance sheets related activities considered cash receipts contributions payments distributions purposes consolidated statements cash flows reflected financing activities basis presentation accompanying consolidated financial statements prepared accordance us generally accepted accounting principles “gaap” rules regulations securities exchange commission “sec” preparation financial statements conformity gaap requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period areas involving significant judgments estimates include capitalization labor overhead costs impairments franchises goodwill pension benefits income taxes actual results could differ estimates certain prior period amounts reclassified conform 2019 presentation 2 summary significant accounting policies consolidation accompanying consolidated financial statements include accounts cco holdings entities cco holdings controlling interest noncontrolling interest company’s balance sheet represents thirdparty interest cv viera llp companys consolidated joint venture small cable system florida significant intercompany accounts transactions among consolidated entities eliminated consolidation cash equivalents company considers highly liquid investments original maturities three months less cash equivalents investments carried cost approximates market value property plant equipment additions property plant equipment recorded cost including material labor certain indirect costs associated construction cable transmission distribution facilities company’s capitalization based specific f 7 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated activities capitalized costs tracked composite basis fixed asset category cable system level specific asset basis assets sold retired estimated historical cost related accumulated depreciation removed costs associated placement customer drop dwelling placement outlets within dwelling along costs associated deployment new customer premise equipment necessary provide video internet voice services capitalized costs capitalized include materials direct labor overhead costs company capitalizes direct labor overhead using standards developed actual costs applicable operational data company calculates standards annually frequently circumstances dictate items labor rates overhead rates actual amount time required perform capitalizable activity overhead costs associated activities company’s personnel assist installation activities consist compensation indirect costs associated support functions indirect costs primarily include employee benefits payroll taxes vehicle occupancy costs disconnecting service removing customer premise equipment dwelling costs reconnect customer drop redeploy previously installed customer premise equipment charged operating expense incurred costs repairs maintenance charged operating expense incurred plant equipment replacement including replacement certain components betterments including replacement cable drops outlets capitalized depreciation recorded using straightline composite method management’s estimate useful lives related assets follows asset retirement obligations certain company’s franchise agreements leases contain provisions requiring company restore facilities remove equipment event franchise lease agreement renewed company expects continually renew franchise agreements therefore cannot reasonably estimate liabilities associated agreements remote possibility exists franchise agreements could terminated unexpectedly could result company incurring significant expense complying restoration removal provisions company significant liabilities related asset retirements recorded consolidated financial statements valuation longlived assets company evaluates recoverability longlived assets eg property plant equipment finitelived intangible assets held used events changes circumstances indicate carrying amount asset may recoverable events changes circumstances could include factors impairment company’s indefinite life assets changes technological advances fluctuations fair value assets adverse changes relationships local franchise authorities adverse changes market conditions deterioration current expected future operating results review indicates carrying value asset recoverable estimated undiscounted cash flows carrying value asset reduced estimated fair value company believes estimates future cash flows reasonable different assumptions regarding cash flows could materially affect evaluations asset recoverability impairments longlived assets held use recorded 2019 2018 2017 nonstrategic longlived assets held sale ultimately sold company recorded impairments approximately 41 million 75 million years ended december 31 2019 2018 respectively operating expenses net leases primary leased asset classes company include real estate dark fiber colocation facilities equipment lease agreements include lease nonlease components company accounts separately depending election made leased asset class real estate dark fiber leased asset classes company accounts lease nonlease components single lease component includes fixed payments measurement lease liabilities f 8 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated lease assets colocation facilities leased asset class company accounts lease nonlease components separately including fixed lease payment component measurement lease liabilities lease assets addition fixed lease payments certain company’s lease agreements include variable lease payments tied index rate change consumer price index variable payments included measurement lease liabilities lease assets lease assets lease liabilities initially recognized based present value future lease payments expected lease term leases implicit rate readily determinable company uses discount rate determining present value future payments based yieldtomaturity company’s secured publicly traded united states dollars denominated debt instruments interpolating duration debt term executed lease company’s leases base rent periods optional renewal periods leases base rent periods less 12 months recorded balance sheet purposes measurement lease liabilities expected lease terms may include renewal options reasonably certain company exercise options based conditions companys existing leases overall business strategies majority companys renewal options reasonably certain determining expected lease term company periodically reassess expected lease terms purchase options applicable based significant triggering events compelling economic reasons exercise options company’s primary lease income represents sublease income certain real estate leases sublease income included revenue presented gross rent expense customer premise equipment cpe would qualify lease company applies practical expedient combine operating lease subscription service revenue single performance obligation accordance revenue recognition accounting guidance subscription service predominant component noncurrent assets noncurrent assets primarily include investments customer contract costs intangible assets company accounts investments less majority owned investees either equity method equity securities company applies equity method investments ability exercise significant influence operating financial policies investee company’s share investee’s earnings losses included expense net consolidated statements operations company monitors investments indicators decrease investment value occurred temporary determined investment sustained temporary decline value investment written fair value charge earnings investments acquired measured fair value utilizing acquisition method accounting difference fair value amount underlying equity net assets equity method investments due previously unrecognized intangible assets investee amounts amortized component equity earnings losses recorded within expense net estimated useful life asset customer contract costs deferred noncurrent assets upfront costs incurred obtain customer contract upfront costs fulfill customer contract discussed customer contract costs accounting policy revenue recognition nature services residential services residential customers offered video internet voice services primarily subscription basis residential customers may generally cancel subscriptions end monthly service period without penalty subscription service provided accounted distinct performance obligation revenue recognized ratably monthly service period subscription services delivered optional service purchased generally accounted distinct performance obligation purchased revenue recognized service provided residential video customers option purchase additional tiers services well videoondemand “vod” programming payperview programming perevent basis video revenues consist primarily revenues selected f 9 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated programming service tier well vod fees payperview fees retransmission fees regulatory fees equipment service fees video installation fees residential internet customers receive data download upload services speeds dependent selected tier service customers also offered security suite inhome wifi product outofhome wifi service internet revenues consist primarily data services wifi service fees internet installation fees residential voice customers receive unlimited local long distance calling united states canada mexico puerto rico voicemail call waiting caller id call forward features customers may also purchase international calling either minute packages minutes per month voice revenues consist primarily voice services regulatory fees small medium business small medium business customers offered video internet voice services similar provided residential customers small medium business customers may generally cancel subscriptions end monthly service period without penalty subscription service provided accounted distinct performance obligation revenue recognized ratably monthly service period subscription services delivered enterprise services enterprise clients include tailored communications products managed service solutions larger businesses well highcapacity lastmile data connectivity services mobile wireline carriers wholesale basis services primarily offered subscription basis contractually specified noncancelable service period subscription service provided accounted distinct performance obligation revenue recognized ratably contract period subscription services delivered enterprise subscription services billed monthly recurring charges customers related installation services applicable billed upon completion customer installation services accounted distinct performance obligations rather component connectivity services therefore upfront installation fees deferred recognized revenue related contract period advertising services company offers local regional national businesses opportunity advertise individual multiple service areas cable television networks digital outlets placement advertising accounted distinct performance obligation revenue recognized point time advertising distributed service areas company formed advertising interconnects entered representation agreements video distributors company sells advertising behalf distributors service areas company entered representation agreements another operator area sell advertising company’s behalf representation arrangements company controls sale advertising acts principal transaction company recognizes revenue earned advertising customer gross basis amount remitted distributor operating expense representation arrangements company control sale advertising acts agent transaction company recognizes revenue net fee remitted distributor mobile also offer mobile service residential customers recently launched mobile service small medium business customers mobile services sold unlimited data plan bythegig data usage plan revenue recognized ratably monthly service period services delivered customers purchase mobile equipment including devices accessory products option pay devices interestfree monthly installment plans sale equipment separate performance obligation revenue recognized sale equipment upon delivery acceptance customer control passes customer f 10 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated company’s revenues product line follows fees imposed company various governmental authorities passed monthly basis company’s customers periodically remitted authorities fees 11 billion 10 billion 961 million years ended december 31 2019 2018 2017 respectively reported video voice mobile commercial revenues gross basis corresponding operating expense company acting principal certain taxes sales taxes imposed company’s customers collected remitted state local authorities recorded net basis company acting agent situations significant portion revenue derived customers may generally cancel monthly subscriptions time without penalty amount revenue related unsatisfied performance obligations necessarily indicative future revenue recognized existing customer base revenue customers contractually specified term noncancelable service period recognized term contracts generally two seven years enterprise contracts weighted average term approximately three years significant judgments evaluating revenue recognition company often provides multiple services customer provision customer premise equipment installation services additional service tiers may significant level integration interdependency subscription video internet voice connectivity services provided judgment required determine whether provision customer premise equipment installation services additional service tiers considered distinct accounted separately distinct accounted together subscription services allocation transaction price distinct performance obligations bundled residential service subscriptions requires judgment transaction price bundle residential services frequently less sum standalone selling prices individual service company allocates residential services bundle discount among services discount relates based relative standalone selling prices services standalone selling prices company’s residential video internet services directly observable standalone selling price company’s residential voice service estimated using adjusted market assessment approach relies upon information peers competitors sell residential voice services individually company believes residential small medium business nonrefundable upfront installation fees charged customers result material right renew contract fees required paid upon subsequent renewals residential small medium business upfront fee deferred period fee remains material customer company estimated approximately six months estimation period fee remains material customer requires consideration quantitative qualitative factors including average installation fee average revenue per customer behavior among others f 11 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated deferred revenue contract liabilities timing revenue recognition may differ timing invoicing customers residential small medium business enterprise customers invoiced subscription services advance service period deferred revenue liabilities contract liabilities recorded company collects payments advance performing services deferred revenue liabilities contract liabilities also recorded company invoices customers upfront installation services recognized revenue time residential small medium business installation revenues deferred period fee remains material customer enterprise installation revenues deferred using portfolio approach average contract life enterprise service category december 31 2019 2018 current deferred revenue liabilities consisting customer prepayments 366 million 410 million respectively upfront installation fees 94 million 84 million respectively included accounts payable accrued liabilities december 31 2019 2018 longterm deferred revenue liabilities consisting enterprise upfront installation fees 34 million included longterm liabilities customer contract costs company recognizes asset incremental costs obtaining contract customer amortization period costs expected longer one year costs expected recovered enterprise sales commission costs meet requirements deferred result recognized using portfolio approach commission expense weightedaverage enterprise contract period deferred enterprise commission costs included noncurrent assets consolidated balance sheet totaled 143 million 142 million december 31 2019 2018 respectively amortization period residential small medium business commissions costs less one year company applies practical expedient allows costs expensed incurred company determined amortization period associated residential small medium business commission costs less one year based qualitative quantitative factors company recognizes asset costs incurred fulfill contract costs directly related services provided contract generate enhance resources entity used performing service obligations contract expected recovered rightofentry costs represent upfront costs incurred related agreements entered multiple dwelling units “mdus” including landlords real estate companies owners gain access building order market service customers reside building rightofentry costs meet requirements deferred result recognized term contracts deferred rightofentry costs included noncurrent assets consolidated balance sheet totaled 284 million 273 million december 31 2019 2018 respectively amortization expense 67 million 62 million included regulatory connectivity produced content within operating costs expenses consolidated statements operations year ended december 31 2019 2018 respectively residential small medium business installation costs capitalized property plant equipment expensed incurred cable industryspecific guidance programming costs company various contracts obtain video programming vendors whose compensation typically based flat fee per customer cost right exhibit network programming arrangements recorded operating expenses month programming available exhibition programming costs paid month based calculations performed company subject periodic audits performed programmers certain programming contracts contain cash noncash consideration programmers consideration received relate separate product service company recognizes consideration straightline basis life programming agreement reduction programming expense programming costs included statements operations 113 billion 111 billion 106 billion years ended december 31 2019 2018 2017 respectively advertising costs advertising costs associated marketing company’s products services generally expensed costs incurred multipleelement transactions normal course business company enters multipleelement transactions simultaneously customer vendor counterparty purchases multiple products andor services settles outstanding items f 12 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated contemporaneous purchase product service single counterparty transactions although negotiated contemporaneously may documented one contracts company’s policy accounting transaction negotiated contemporaneously record element transaction based respective estimated fair values products services purchased products services sold determining fair value respective elements company refers quoted market prices available historical transactions comparable cash transactions cash consideration received vendor recorded reduction price vendor’s product unless consideration reimbursement specific incremental identifiable cost incurred case cash consideration received would recorded reduction cost eg marketing costs ii identifiable benefit exchange consideration provided case revenue would recognized element stockbased compensation restricted stock restricted stock units stock options well equity awards market conditions measured grant date fair value amortized stock compensation expense requisite service period fair value options estimated date grant using blackscholes optionpricing model fair value equity awards market conditions estimated date grant using monte carlo simulations grant date weighted average assumptions used years ended december 31 2019 2018 2017 respectively riskfree interest rate 25 24 18 expected volatility 27 25 expected lives 49 years 51 years 46 years company’s volatility assumptions represent management’s best estimate based historical volatility charter expected lives estimated using historical exercise data valuations assume dividends paid company elected accounting policy assume zero forfeitures stock awards grants account forfeitures occur defined benefit pension plans company sponsors three qualified defined benefit pension plans one nonqualified defined benefit pension plan provide pension benefits majority employees employed time warner cable inc twc merger twc pension benefits based formulas reflect employees’ years service compensation employment period actuarial gains losses changes amount either benefit obligation fair value plan assets resulting experience different assumed changes assumptions company elected follow marktomarket pension accounting policy recording actuarial gains losses annually fourth quarter earlier remeasurement event occurs interim period income taxes cco holdings single member limited liability company subject income tax cco holdings holds operations indirect subsidiaries majority indirect subsidiaries limited liability companies subject income tax certain indirect subsidiaries required file separate returns subject federal state tax cco holdings’ tax provision reflects tax provision entities required file separate returns company recognizes deferred tax assets liabilities temporary differences financial reporting basis tax basis indirect subsidiaries assets liabilities expected benefits utilizing loss carryforwards impact deferred taxes changes tax rates tax law applied years temporary differences expected settled reflected consolidated financial statements period enactment see note 16 charter subject income taxes accordingly addition company’s deferred tax liabilities charter recorded net deferred tax liabilities approximately 177 billion 174 billion december 31 2019 2018 respectively related investment charter holdings net loss carryforwards reflected company segments company’s operations managed reported chief executive officer “ceo” company’s chief operating decision maker consolidated basis ceo assesses performance allocates resources based consolidated results operations organizational reporting structure company one reportable segment cable services f 13 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated 3 allowance doubtful accounts activity allowance doubtful accounts summarized follows years presented 4 property plant equipment property plant equipment consists following december 31 2019 2018 company periodically evaluates estimated useful lives used depreciate assets estimated amount assets abandoned minimal use future significant change assumptions extent timing future asset retirements company’s use new technology upgrade programs could materially affect future depreciation expense depreciation expense years ended december 31 2019 2018 2017 78 billion 79 billion 78 billion respectively 5 franchises goodwill intangible assets franchise rights represent value attributed agreements authorizations local state authorities allow access homes cable service areas valuation purposes defined future economic benefits right solicit service potential customers customer marketing rights right deploy market new services potential customers service marketing rights management estimates fair value franchise rights date acquisition determines franchise finite life indefinite life company concluded franchises qualify indefinite life treatment given legal regulatory contractual competitive economic factors limit period rights contribute companys cash flows company reassesses determination periodically whenever events substantive changes circumstances occur franchises tested impairment annually frequently warranted events changes circumstances franchise assets aggregated essentially inseparable units accounting conduct valuations units accounting generally represent geographical clustering companys cable systems groups company assesses qualitative factors determine whether existence events circumstances leads determination likely indefinite f 14 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated lived intangible asset impaired optional qualitative assessment company determines likely indefinite lived intangible asset impaired quantitative testing necessary completing qualitative impairment testing company evaluates multitude factors affect fair value franchise assets examples factors include environmental competitive changes within operating footprint actual projected operating performance consistency operating margins equity debt market trends including changes market capitalization changes regulatory political landscape among factors company performed qualitative assessment 2019 also included consideration fair value appraisal performed tax purposes beginning 2019 december 31 2018 valuation date appraisal consideration qualitative factors 2019 including results appraisal company concluded likely fair value franchise assets unit accounting exceeds carrying value assets therefore perform quantitative analysis assessment date periodically company elect perform quantitative analysis impairment testing company elects required perform quantitative analysis test franchise assets impairment methodology described utilized quantitative analysis performed estimated fair value franchises determined utilizing income approach model based present value estimated discrete future cash flows attributable intangible assets identified assuming discount rate fair value franchises determined based estimated discrete discounted future cash flows using assumptions consistent internal forecasts franchise aftertax cash flow calculated aftertax cash flow generated potential customers obtained sum present value franchises’ aftertax cash flow years 1 10 continuing value aftertax cash flow beyond year 10 yields fair value franchises approach makes use unobservable factors projected revenues expenses capital expenditures customer trends discount rate applied estimated cash flows determination franchise discount rate derived company’s weighted average cost capital uses market participant’s cost equity aftertax cost debt reflects risks inherent cash flows company estimates discounted future cash flows using reasonable appropriate assumptions including among others penetration rates revenue growth rates operating margins capital expenditures assumptions based company’s peers’ historical operating performance adjusted current expected competitive economic factors surrounding cable industry estimates assumptions made company’s valuations inherently subject significant uncertainties many beyond control assurance results achieved primary assumptions reasonable possibility occurrence variation would significantly affect measurement value include assumptions regarding revenue growth programming expense growth rates amount timing capital expenditures actual customer trends discount rate utilized company determined one reporting unit purposes assessment goodwill impairment fair value reporting unit determined using income approach market approach company’s income approach model used reporting unit valuation consistent used franchise valuation noted except cash flows entire business enterprise used reporting unit valuation company’s market approach model estimates fair value reporting unit based market prices actual precedent transactions similar businesses market valuations guideline public companies goodwill tested impairment november 30 year frequently warranted events changes circumstances accounting guidance also permits optional qualitative assessment goodwill determine whether likely carrying value reporting unit exceeds fair value qualitative assessment company determines likely fair value reporting unit less carrying amount quantitative testing would necessary quantitative assessment performed qualitative assessment results likely determination qualitative assessment performed quantitative assessment considers whether carrying amount reporting unit exceeds fair value case impairment charge recorded extent reporting unit’s carrying value exceeds fair value company’s franchise impairment testing 2019 company elected perform qualitative goodwill impairment assessment incorporated results appraisal consideration qualitative factors relevant companys franchise impairment testing result assessment company concluded goodwill impaired customer relationships recorded fair value date acquired less accumulated amortization customer relationships valuation purposes represent value business relationship existing customers calculated projecting discrete future aftertax cash flows customers including right deploy market additional services customers present value aftertax cash flows yields fair value customer relationships use different valuation assumptions definitions franchises customer relationships inclusion value selling additional services current customers within customer relationships versus franchises could significantly impact valuations f 15 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated resulting impairment customer relationships amortized accelerated sum years’ digits method useful lives 815 years based period current customers expected generate cash flows company periodically evaluates remaining useful lives customer relationships determine whether events circumstances warrant revision remaining periods amortization customer relationships evaluated impairment upon occurrence events changes circumstances indicating carrying amount asset may recoverable customer relationships deemed impaired carrying value exceeds projected undiscounted future cash flows associated customer relationships impairment customer relationships recorded years ended december 31 2019 2018 2017 december 31 2019 2018 indefinitelived finitelived intangible assets presented following table amortization expense related customer relationships intangible assets years ended december 31 2019 2018 2017 22 billion 24 billion 27 billion respectively company expects amortization expense finitelived intangible assets follows actual amortization expense future periods could differ estimates result new intangible asset acquisitions divestitures changes useful lives impairments adoption new accounting standards relevant factors f 16 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated 6 investments consisted following december 31 2019 2018 company’s equitymethod investments consist investments companies develop sports programming services develop applications improve security control privacy connected devices homes businesses broadband network operators distribute multivideo programs national advertisers provide programming video demand payperview subscription basis companys equitymethod investments balances reflected table includes differences acquisition date fair value certain investments acquired underlying equity net assets investee referred basis difference basis difference amortized component equity earnings remaining unamortized basis difference 183 million 387 million december 31 2019 2018 respectively company applies equity method accounting less significant equitymethod investments recorded noncurrent assets consolidated balance sheets december 31 2019 2018 years ended december 31 2019 2018 2017 net losses equitymethod investments 131 million 46 million 4 million respectively recorded expense net consolidated statements operations net losses equitymethod investments years ended december 31 2019 2018 included impairments equity investments approximately 121 million 38 million respectively 7 accounts payable accrued liabilities accounts payable accrued liabilities consist following december 31 2019 2018 f 17 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated 8 leases components lease related expenses net follows includes shortterm leases variable leases costs 120 million year ended december 31 2019 supplemental cash flow information related leases follows f 18 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated supplemental balance sheet information related leases follows maturities lease liabilities follows f 19 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated following table presents company’s unadjusted lease commitments december 31 2018 required disclosure companies adopting lease standard prospectively without revising comparative period information 9 longterm debt longterm debt consists following december 31 2019 2018 f 20 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated principal amount includes £625 million valued 828 million 796 million december 31 2019 2018 respectively using exchange rate date b principal amount includes £650 million valued 861 million 827 million december 31 2019 2018 respectively using exchange rate date accreted values presented table represent principal amount debt adjusted original issue discount premium time sale deferred financing costs regards debt assumed acquisitions fair value premium adjustments result applying acquisition accounting plus accretion amounts balance sheet date however amount currently payable debt becomes immediately due equal principal amount debt regards fixedrate british pound sterling denominated notes “sterling notes” principal amount debt premium discount remeasured us dollars balance sheet date see note 11 company availability charter communications operating llc charter operating credit facilities approximately 47 billion december 31 2019 cco holdings cco holdings capital jointly issued 455 billion aggregate principal amount senior unsecured notes varying rates prices maturity dates charter operating charter communications operating capital corp f 21 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated jointly issued 605 billion aggregate principal amount senior secured notes varying rates prices maturity dates net proceeds used pay related fees expenses general corporate purposes including distributions companys parent companies fund buybacks charter class common stock charter holdings common units well repaying certain indebtedness years ended december 31 2019 2017 company repurchased 135 billion 28 billion respectively various series senior notes loss extinguishment debt consisted following years ended december 31 2019 2017 cco holdings notes cco holdings notes senior debt obligations cco holdings cco holdings capital rank equally current future unsecured unsubordinated obligations cco holdings cco holdings capital structurally subordinated obligations subsidiaries cco holdings cco holdings may redeem cco holdings notes time premium optional redemption price declines 100 respective series’ principal amount plus accrued unpaid interest varying dates 2020 2027 addition time prior varying dates 2020 2022 cco holdings may redeem 40 aggregate principal amount certain notes premium plus accrued unpaid interest redemption date net cash proceeds one equity offerings defined indenture provided certain conditions met event specified change control events cco holdings must offer purchase outstanding cco holdings notes holders purchase price equal 101 total principal amount notes plus accrued unpaid interest highyield restrictive covenants limitation indebtedness indentures governing cco holdings notes contain certain covenants restrict ability cco holdings cco holdings capital restricted subsidiaries • incur additional debt • pay dividends equity repurchase equity • make investments • sell substantially assets merge companies • sell assets • case restricted subsidiaries create permit exist dividend payment restrictions respect cco holdings guarantee parent companies debt issue specified equity interests • engage certain transactions affiliates • grant liens limitations certain circumstances regarding incurrence debt payment dividends making investments contained indentures cco holdings permit cco holdings restricted subsidiaries perform long giving pro forma effect leverage ratio would specified level issuer leverage ratio indentures 60 10 leverage ratio 42 december 31 2019 f 22 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated charter operating notes charter operating notes guaranteed cco holdings substantially operating subsidiaries charter operating addition charter operating notes secured perfected first priority security interest substantially assets charter operating extent liens perfected uniform commercial code filing financing statement liens rank equally liens collateral securing obligations charter operating credit facilities charter operating may redeem charter operating notes time premium charter operating notes subject terms conditions indenture governing charter operating notes charter operating notes contain customary representations warranties affirmative covenants limited negative covenants charter operating indenture also contains customary events default charter operating credit facilities charter operating credit facilities outstanding principal amount 104 billion december 31 2019 follows • term loan a2 remaining principal amount approximately 205 million repayable quarterly installments aggregating 11 million loan year remaining balance due final maturity march 31 2023 pricing term loan a2 libor plus 150 • term loan a4 remaining principal amount approximately 40 billion repayable quarterly installments aggregating 202 million loan year remaining balance due final maturity february 1 2025 pricing term loan a4 libor plus 125 • term loan b1 remaining principal amount approximately 24 billion repayable equal quarterly installments aggregating 25 million loan year remaining balance due final maturity april 30 2025 pricing term loan b1 libor plus 175 • term loan b2 remaining principal amount approximately 38 billion repayable equal quarterly installments aggregating 38 million loan year remaining balance due final maturity february 1 2027 pricing term loan b2 libor plus 175 • revolving loan allowing borrowings 475 billion 249 million maturing march 31 2023 45 billion maturing february 1 2025 pricing revolving loan libor plus 150 commitment fee 030 portion maturing 2023 libor plus 125 commitment fee 020 portion maturing 2025 december 31 2019 36 million revolving loan utilized collateralize like principal amount letters credit 363 million letters credit issued company’s behalf amounts outstanding charter operating credit facilities bear interest charter operating’s election base rate libor 173 250 december 31 2019 2018 respectively defined plus applicable margin charter operating credit facilities also allow us enter incremental term loans future amortization set forth notices establishing term loans although charter operating credit facilities allow incurrence certain amount incremental term loans subject pro forma compliance financial maintenance covenants assurance given company could obtain additional incremental term loans future charter operating sought amount incremental term loans would allowable given time terms charter operating credit facilities obligations charter operating charter operating credit facilities guaranteed cco holdings substantially operating subsidiaries charter operating obligations also secured lien substantially assets charter operating subsidiaries extent lien perfected uniform commercial code filing financing statement ii pledge cco holdings equity interests owned charter operating’s subsidiaries well intercompany obligations owing entities restrictive covenants charter operating credit facilities contain representations warranties affirmative negative covenants customary financings type financial covenants measure performance standards set leverage tested end quarter charter operating credit facilities contain provisions requiring mandatory loan prepayments specific f 23 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated circumstances including connection certain sales assets long proceeds reinvested business additionally charter operating credit facilities provisions contain allowance restricted payments certain limitations charter operating credit facilities permit charter operating subsidiaries make distributions pay interest currently outstanding subordinated parent company indebtedness provided among things default occurred continuing charter operating credit facilities charter operating credit facilities also contain customary events default time warner cable llc notes debentures time warner cable llc twc llc senior notes debentures guaranteed cco holdings substantially operating subsidiaries charter operating rank equally liens collateral securing obligations charter operating notes credit facilities interest series twc llc senior notes debentures payable semiannually exception sterling notes payable annually arrears twc llc indenture contains customary covenants relating restrictions ability twc llc material subsidiary create liens ability twc llc time warner cable enterprises llc twce consolidate merge convey transfer substantially assets twc llc indenture also contains customary events default twc llc senior notes debentures may redeemed whole part time twc llc’s option redemption price equal greater applicable principal amount redeemed ii sum present values remaining scheduled payments applicable twc llc senior notes debentures discounted redemption date semiannual basis exception sterling notes annual basis comparable government bond rate plus designated number basis points described indenture applicable note debenture plus case accrued unpaid interest including redemption date company may offer redeem less sterling notes event certain changes tax laws us taxing authority us redemption would redemption price equal 100 principal amount together accrued unpaid interest sterling notes including redemption date twce debentures twce senior debentures guaranteed cco holdings substantially operating subsidiaries charter operating twc llc rank equally liens collateral securing obligations charter operating notes credit facilities interest series twce senior debentures payable semiannually arrears twce senior debentures redeemable maturity twce indenture contains customary covenants relating restrictions ability twce material subsidiary create liens ability twc llc twce consolidate merge convey transfer substantially assets twce indenture also contains customary events default limitations distributions company’s subsidiaries parent company payment principal parent company notes restricted indentures credit facilities discussed unless default applicable indenture credit facilities unless applicable subsidiary’s leverage ratio test met time distribution december 31 2019 default indentures credit facilities subsidiary met applicable leverage ratio tests based december 31 2019 financial results assurance satisfy tests time contemplated distribution distributions charter operating payment principal parent company cco holdings notes restricted covenants credit facilities however without regard leverage calendar year portion thereof borrower flowthrough entity tax purposes long event default exists borrower may make distributions equity interests borrower amount sufficient make permitted tax payments f 24 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated addition limitation distributions various indentures distributions company’s subsidiaries may limited applicable law including delaware limited liability company act company’s subsidiaries may make distributions “surplus” defined act liquidity future principal payments company continues significant amounts debt business requires significant cash fund principal interest payments debt capital expenditures ongoing operations set forth company significant future principal payments company continues monitor capital markets expects undertake refinancing transactions utilize free cash flow cash hand extend reduce maturities principal obligations timing terms refinancing transactions subject market conditions based upon outstanding indebtedness december 31 2019 amortization term loans maturity dates senior subordinated notes total future principal payments total borrowings debt agreements follows 10 loans payable related party loans payable related party december 31 2019 2018 consists loans charter communications holding company llc “charter holdco” company 699 million 674 million respectively loans charter company 260 million 251 million respectively interest accrued loans payable related party libor plus 150 periods ending december 31 2019 2018 11 accounting derivative instruments hedging activities company uses derivative instruments manage foreign exchange risk sterling notes hold issue derivative instruments speculative trading purposes crosscurrency derivative instruments used effectively convert £1275 billion aggregate principal amount fixedrate british pound sterling denominated debt including annual interest payments payment principal maturity fixedrate us dollar denominated debt crosscurrency swaps maturities june 2031 july 2042 company required post collateral crosscurrency derivative instruments derivative contracts liability position april 2019 company entered collateral holiday agreement 60 2031 2042 crosscurrency swaps eliminates requirement post collateral three years well ten year collateral cap remaining 40 crosscurrency swaps limits required collateral posting 40 crosscurrency swaps 150 million fair value companys crosscurrency derivatives included longterm liabilities companys consolidated balance sheets 224 million 237 million december 31 2019 2018 respectively company’s derivative instruments designated hedges marked fair value period impact recorded gain loss financial instruments net consolidated statements operations derivative instruments designated hedges accounting purposes management continues believe instruments closely correlated respective debt thus managing associated risk f 25 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated effect financial instruments consolidated statements operations presented table 12 fair value measurements accounting guidance establishes threelevel hierarchy disclosure fair value measurements based transparency inputs valuation asset liability measurement date follows • level 1 inputs valuation methodology quoted prices unadjusted identical assets liabilities active markets • level 2 inputs valuation methodology include quoted prices similar assets liabilities active markets inputs observable asset liability either directly indirectly substantially full term financial instrument • level 3 inputs valuation methodology unobservable significant fair value measurement financial assets liabilities company estimated fair value financial instruments december 31 2019 2018 using available market information appropriate valuation methodologies considerable judgment however required interpreting market data develop estimates fair value accordingly estimates presented accompanying consolidated financial statements necessarily indicative amounts company would realize current market exchange carrying amounts cash equivalents receivables payables current assets liabilities approximate fair value short maturity instruments financial instruments accounted fair value recurring basis classified within level 2 valuation hierarchy include companys crosscurrency derivative instruments valued 224 million 237 million december 31 2019 2018 respectively estimated fair value company’s senior notes debentures december 31 2019 2018 based quoted market prices active markets classified within level 1 valuation hierarchy estimated fair value company’s credit facilities based quoted market prices inactive markets classified within level 2 summary carrying value fair value company’s debt december 31 2019 2018 follows f 26 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated nonfinancial assets liabilities company’s nonfinancial assets equitymethod investments franchises property plant equipment intangible assets measured fair value recurring basis however subject fair value adjustments certain circumstances evidence impairment may exist impairments recorded fair values generally classified within level 3 valuation hierarchy 13 operating costs expenses operating costs expenses exclusive items shown separately consolidated statements operations consist following periods presented programming costs consist primarily costs paid programmers basic premium digital video demand payperview programming regulatory connectivity produced content costs represent payments franchise regulatory authorities costs directly related providing video internet voice services well payments sports local news content produced company included regulatory connectivity produced content costs content acquisition costs los angeles lakers’ basketball games los angeles dodgers’ baseball games recorded games exhibited applicable season costs service customers include costs related field operations network operations customer care company’s residential small medium business customers including internal thirdparty labor noncapitalizable portion installations service repairs maintenance bad debt expense billing collection occupancy vehicle costs marketing costs represent costs marketing current potential commercial residential customers including labor costs mobile costs represent costs associated companys mobile service device service costs marketing sales commissions retail stores personnel costs taxes among others includes corporate overhead advertising sales expenses indirect costs associated company’s enterprise business customers regional sports news networks property tax insurance expense stock compensation expense among others 14 operating expenses net operating expenses net consist following years presented merger restructuring costs merger restructuring costs represent costs incurred connection merger acquisition transactions related restructuring advisory legal accounting fees employee retention costs employee termination costs related f 27 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated acquisitions changes accruals merger restructuring costs january 1 2017 december 31 2019 presented addition costs indicated company recorded 5 million 49 million expense related accelerated vesting equity awards terminated employees years ended december 31 2018 2017 respectively special charges net special charges net primarily includes employee termination costs related acquisitions net amounts litigation settlements 2018 2017 special charges net also includes 22 million 83 million charge related companys withdrawal liability multiemployer pension plan respectively loss sale assets net loss sale assets net represents net loss recognized sales disposals fixed assets including 42 million 75 million impairment nonstrategic assets years ended december 31 2019 2018 respectively 15 stock compensation plans charter’s stock incentive plan provides grants nonqualified stock options incentive stock options stock appreciation rights dividend equivalent rights performance units performance shares share awards phantom stock restricted stock units restricted stock directors officers employees company subsidiaries well others performing consulting services company eligible grants stock incentive plan stock incentive plan allows issuance 16 million shares charter class common stock units convertible charter class common stock charter stock options restricted stock units generally cliff vest upon three year anniversary grant certain stock options restricted stock units vest based achievement stock price hurdles stock options generally expire ten years grant date restricted stock units voting rights restricted stock generally vests one year date grant twc restricted stock units converted charter restricted stock units 2016 generally vest 50 third fourth anniversary grant date december 31 2019 total unrecognized compensation remaining recognized future periods totaled 175 million stock options 09 million restricted stock 205 million restricted stock units weighted average period expected recognized 2 years stock options 4 months restricted stock 2 years restricted stock units company recorded 315 million 285 million 261 million stock compensation expense years ended december 31 2019 2018 2017 respectively included operating costs expenses company also recorded 5 million 49 million expense years ended december 31 2018 2017 respectively related accelerated vesting equity awards terminated employees recorded merger restructuring costs operating expenses net consolidated statements operations f 28 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated summary activity charter’s stock options years ended december 31 2019 2018 2017 follows shares thousands except per share data summary activity charter’s restricted stock years ended december 31 2019 2018 2017 follows shares thousands except per share data f 29 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated summary activity charter’s restricted stock units years ended december 31 2019 2018 2017 follows shares thousands except per share data 16 income taxes cco holdings single member limited liability company subject income tax cco holdings holds operations indirect subsidiaries majority indirect subsidiaries limited liability companies subject income tax certain indirect subsidiaries required file separate returns subject federal state tax cco holdings’ tax provision reflects tax provision entities required file separate returns generally taxable income gains losses deductions credits cco holdings passed indirect members charter advancenewhouse partnership “an” charter responsible share taxable income loss cco holdings allocated accordance charter holdings limited liability company agreement partnership tax rules regulations charter also records financial statement deferred tax assets liabilities related investment underlying net assets cco holdings income tax expense years ended december 31 2019 2018 2017 company recorded deferred income tax expense shown tax provision future periods vary based current future temporary differences well future operating results income tax recognized primarily decreases increases deferred tax liabilities well current state income tax expense 2019 internal entity simplification tax provision future periods vary based future operating results well future book versus tax differences f 30 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated company’s effective tax rate differs derived applying applicable federal income tax rate 21 years ended december 31 2019 2018 35 year ended december 31 2017 respectively follows deferred tax assets liabilities tax effects temporary differences give rise significant portions deferred tax assets december 31 2019 2018 presented uncertain tax positions net amount unrecognized tax benefits recorded december 31 2019 could impact effective tax rate 134 million company determined reasonably possible existing reserve uncertain tax positions december 31 2019 could decrease approximately 31 million year ended december 31 2020 related various ongoing audits settlement discussions expiration statute limitations various state local agencies however various events could cause company’s current expectations change future uncertain tax positions ever recognized financial statements would recorded consolidated statements operations part income tax provision reconciliation beginning ending amount unrecognized tax benefits exclusive interest penalties included longterm liabilities accompanying consolidated balance sheets company follows f 31 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated company recognizes interest penalties accrued uncertain income tax positions part income tax provision interest penalties included longterm liabilities accompanying consolidated balance sheets company 51 million 43 million december 31 2019 2018 respectively tax years charter currently examination internal revenue service irs income tax purposes charters 2016 2019 tax years remain open examination assessment charter’s short period return dated may 17 2016 prior twc bright house networks llc transactions remain subject examination assessment years prior 2016 remain open solely purposes examination charter’s loss credit carryforwards irs currently examining charter holdings’ income tax return 2016 charter holdings’ 2017 2019 tax years remain open examination assessment irs currently examining twc’s income tax returns 2011 2014 twc’s tax year 2015 remains subject examination assessment prior twc’s separation time warner inc “time warner” march 2009 twc included consolidated us federal certain state income tax returns time warner irs examined time warner’s 2008 2010 income tax returns results appeal company anticipate examinations material impact company’s consolidated financial position results operations addition company also subject ongoing examinations company’s tax returns state local tax authorities various periods activity related state local examinations material impact company’s consolidated financial position results operations year ended december 31 2019 company anticipate material impact future 17 comprehensive income following table sets forth consolidated statements comprehensive income years ended december 31 2019 2018 2017 18 related party transactions following sets forth certain transactions company directors executive officers affiliates company involved case management arrangements subsidiaries debt issuers pay certain parent companies services charter party management arrangements one subsidiaries spectrum management certain subsidiaries agreements charter spectrum management charter holdco provide management services cable systems owned operated subsidiaries costs associated providing services charged directly company’s operating subsidiaries costs incurred behalf charter’s operating subsidiaries considered part management fee costs recorded component operating costs expenses accompanying consolidated financial statements management fee charged company’s operating subsidiaries approximated expenses incurred spectrum management charter holdco charter behalf company’s operating subsidiaries 2019 2018 2017 liberty broadband terms amended restated stockholders agreement liberty broadband legacy charter dated may 23 2015 “stockholders agreement” number charter’s directors fixed 13 includes ceo two designees selected members board directors charter three designees selected liberty broadband members board directors charter remaining eight directors affiliated either liberty broadband liberty broadband entitled nominate least one director committees charters f 32 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated board directors subject applicable stock exchange listing rules certain specified voting equity ownership thresholds liberty broadband provided nominating corporate governance committee compensation benefit committee least majority directors independent liberty broadband charter referred “unaffiliated directors” nominating corporate governance committee compensation benefits committee currently comprised three unaffiliated directors one designee liberty broadband liberty broadband also certain committee designation governance rights mr thomas rutledge company’s ceo chairman board charter december 2017 charter entered amendment letter agreement “letter agreement” requires sell charter holdings monthly basis number shares charter class common stock charter holdings common units represents pro rata participation affiliates repurchases shares charter class common stock persons effected charter immediately preceding calendar month purchase price equal average price paid charter shares repurchased persons immediately preceding calendar month charter right terminate suspend pro rata repurchase arrangement prospective basis pursuant tra charter must pay 50 tax benefit realized charter stepup tax basis resulting future exchange sale preferred common units company aware dr john malone director emeritus charter chairman board directors holder 490 voting interest liberty broadband may deemed 399 voting interest qurate retail inc qurate board directors qurate wholly owns hsn inc “hsn” qvc inc “qvc” company programming relationships hsn qvc years ended december 31 2019 2018 2017 company recorded revenue aggregate approximately 50 million 73 million 77 million respectively hsn qvc part channel carriage fees revenue sharing arrangements home shopping sales made customers company’s footprint dr malone mr steven miron member charter’s board directors also serve board directors discovery communications inc “discovery” company aware dr malone owns 12 series common stock 936 series b common stock 26 series c common stock discovery 282 voting interest discovery election directors company aware advancenewhouse programming partnership “an pp” affiliate mr miron ceo owns 100 series a1 preferred stock discovery 100 series c1 preferred stock discovery 241 voting interest matters election directors pp also right appoint three directors total twelve directors discovery’s board company purchases programming discovery pursuant agreements entered prior dr malone mr miron joining charter’s board directors based publicly available information company believe discovery would currently considered related party amount paid discovery represents less 3 total operating costs expenses years ended december 31 2019 2018 2017 equity investments company parent companies agreements certain equity investees see note 6 pursuant company made received related party transaction payments company parent companies recorded payments equity investees totaling 314 million 361 million 317 million years ended december 31 2019 2018 2017 respectively f 33 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated 19 commitments contingencies commitments following table summarizes company’s parent companies payment obligations december 31 2019 contractual obligations company pays programming fees multiyear contracts ranging three ten years typically based flat fee per customer may fixed term may cases escalate term programming costs included statement operations 113 billion 111 billion 106 billion years ended december 31 2019 2018 2017 respectively certain company’s programming agreements based flat fee per month guaranteed minimum payments table sets forth aggregate guaranteed minimum commitments company’s programming contracts b “other” represents guaranteed minimum commitments including rights negotiated directly content owners distribution companyowned channels networks commitments related role advertising distribution sales agent third partyowned channels networks commitments customer premise equipment device vendors contractual obligations related thirdparty network augmentation following items included contractual obligation table due various factors discussed however company incurs costs part operations • company rents utility poles used operations generally pole rentals cancelable short notice company anticipates rentals recur rent expense incurred pole rental attachments years ended december 31 2019 2018 2017 180 million 171 million 167 million respectively • company pays franchise fees multiyear franchise agreements based percentage revenues generated video service per year company also pays franchise related costs public education grants multiyear agreements franchise fees franchiserelated costs included accompanying statement operations 750 million 747 million 705 million years ended december 31 2019 2018 2017 respectively • company 363 million letters credit 36 million secured charter operating credit facility primarily various casualty carriers collateral reimbursement workers compensation auto liability general liability claims • minimum pension funding requirements presented table amounts determined beyond 2019 company made cash contributions qualified pension plans 2019 however company permitted make discretionary cash contributions qualified pension plans 2020 nonqualified pension plan company contributed 4 million 2019 continue make contributions 2020 extent benefits paid legal proceedings august 2015 purported stockholder charter matthew sciabacucchi filed lawsuit delaware court chancery behalf putative class charter stockholders challenging transactions involving charter twc liberty broadband announced charter may 26 2015 lawsuit named defendants charter board directors alleged transactions resulted breaches fiduciary duty charter’s directors liberty broadband improperly benefited challenged transactions expense charter stockholders lawsuit proceeded discovery phase charter denies liability believes substantial defenses vigorously defending lawsuit although charter unable predict outcome lawsuit expect outcome material effect operations financial condition cash flows f 34 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated california attorney general alameda county california district attorney investigating whether certain charter’s waste disposal policies procedures practices violation california business professions code california health safety code investigation commenced january 2014 similar investigation involving twc initiated february 2012 charter cooperating investigations company unable predict outcome investigations expect outcome material effect operations financial condition cash flows december 19 2011 sprint communications company lp “sprint” filed complaint us district court district kansas alleging twc infringed certain us patents purportedly relating voice internet protocol “voip” services trial jury returned verdict 140 million twc concluded twc willfully infringed sprint’s patents court subsequently declined enhance damage award result purported willful infringement awarded sprint additional 6 million representing prejudgment interest damages award company appealed case united states court appeals federal circuit company lost appeal company filed petition writ certiorari united states supreme court denied november 4 2019 company paid verdict interest costs full company continues pursue indemnity one vendors brought patent suit sprint tc tech llc v sprint us district court district delaware implicating sprints lte technology ultimate outcomes pursuit indemnity company’s vendor tc tech litigation cannot predicted company expect outcome indemnity claim outcome tc tech litigation material adverse effect operations financial condition sprint filed second suit charter bright house networks llc december 2 2017 united states district court district delaware suit alleges infringement 15 patents related companys provision voice internet protocol “voip” services ten asserted legacy twc matter described charter vigorously defending case company unable predict outcome sprint suit expect litigation material effect operations financial condition cash flows sprint filed third suit charter may 17 2018 united states district court eastern district virginia suit alleges infringement three patents related companys video demand services company vigorously defending case court transferred case united states district court district delaware december 20 2018 pursuant agreement parties company unable predict outcome litigation expect litigation material effect operations financial condition cash flows addition sprint litigation described company parent companies defendants codefendants several additional lawsuits involving alleged infringement various intellectual property relating various aspects businesses industry participants also defendants certain cases event court ultimately determines company infringes intellectual property company may subject substantial damages andor injunction could require company vendors modify certain products services company offers subscribers well negotiate royalty license agreements respect intellectual property issue company believes lawsuits without merit intends defend actions vigorously assurance given adverse outcome would material company’s consolidated financial condition results operations liquidity company cannot predict outcome claims reasonably estimate range possible loss company parent companies party lawsuits claims regulatory inquiries arise ordinary course conducting business ultimate outcome legal matters pending company cannot predicted although lawsuits claims expected individually material adverse effect company’s consolidated financial condition results operations liquidity lawsuits could aggregate material adverse effect company’s consolidated financial condition results operations liquidity whether company ultimately prevails particular lawsuit claim litigation time consuming costly injure company’s reputation 20 employee benefit plans pension plans company sponsors three qualified defined benefit pension plans one nonqualified defined benefit pension plan provide pension benefits majority employees employed twc merger twc f 35 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated changes projected benefit obligation fair value plan assets funded status pension plans january 1 december 31 presented december 31 2019 2018 qualified pension plans represented 33 billion 30 billion respectively projected benefit obligation accumulated benefit obligation company’s nonqualified pension plan represented 35 million 34 million respectively b fair value plan assets consists entirely company’s qualified pension plans pretax amounts recognized consolidated balance sheet december 31 2019 2018 consisted following components net periodic benefit cost years ended december 31 2019 2018 2017 consisted following remeasurement gains losses recorded years ended december 31 2019 2018 2017 primarily driven changes discount rate well gains losses record pension assets fair value remeasurement loss recorded f 36 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated year ended december 31 2017 also impacted adoption revised lump sum conversion mortality tables published irs effective january 1 2018 discount rates used determine benefit obligations december 31 2019 2018 348 437 respectively company utilized rp 2015mp2015 mortality tables published society actuaries measure benefit obligations december 31 2019 2018 weighted average assumptions used determine net periodic benefit costs consisted following developing expected longterm rate return plan assets company considered pension portfolio’s composition past average rate earnings company’s future asset allocation targets weighted average expected longterm rate return plan assets discount rate used determine net periodic pension benefit year ended december 31 2020 expected 500 348 respectively company determined discount rates used determine benefit obligations net periodic pension benefit based yield large population high quality corporate bonds cash flows sufficient timing amount settle projected future defined benefit payments pension plan assets qualified pension plans held master trust qualified pension plans participating plans “master trust” investment policy qualified pension plans manage assets master trust objective provide pension liabilities met maintaining retirement income security participants plans beneficiaries investment portfolio mix pooled funds invested fixed income securities equity securities certain alternative investments objective matching plan liability performance diversifying risk achieving target investment return pension assets managed balanced portfolio comprised two major components returnseeking portion liabilitymatching portion company uses investment strategy designed increase fixed income allocation funded status qualified pension plans improves qualified pension plans reach set funded status milestones assets rebalanced shift assets equity fixed income based progress strategy target investment allocation pension fund assets permitted vary within specified ranges subject investment committee approval returnseeking securities liabilitymatching securities target actual investment allocation qualified pension plans asset category consisted following f 37 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated following tables set forth investment assets qualified pension plans level within fair value hierarchy december 31 2019 2018 commingled funds include bond funds corporate us treasury debt securities equity funds global equity index infrastructure real estate securities readily determinable fair value valued using net assets provided administrator fund value fund based fair value underlying securities portfolio represents amount fund might reasonably expect receive securities upon sale less liabilities divided number units outstanding equity securities within funds valued using observable inputs either daily weekly basis resulting per share value serves basis current redemption value debt securities within funds valued based observable prices new issue market benchmark quotes secondary trading dealer quotes b collective trust funds consist shortterm investment strategies comprised instruments issued fully guaranteed us government andor agencies multistrategy funds valued using net assets provided administrator fund value fund based readily determinable fair value underlying assets owned fund less liabilities divided number units outstanding c practical expedient certain investment classes hold securities readily available redemption measured fair value using net asset value nav per share equivalent classified fair value hierarchy investments measured net asset value per share practical expedient following table summarizes investment classes fair value measured using nav per share equivalent practical expedient december 31 2019 2018 investment classes readily available redemption nav fund based fair value underlying assets portfolio certain investments report nav per share month quarter lag material unfunded commitments respect investment classes alternative fund investment class includes funds various securities selected provide complimentary sources return equity bond portfolios better manage risk company’s alternative fund investments include f 38 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated holdings public equities exchange traded derivatives corporate bonds among others portion alternative funds cannot redeemed one year anniversary purchase date b fixed income funds invest residential commercial mortgages well global sovereign securities c real estate funds publicly traded invest primarily unlisted direct core real estate including superregional malls shopping centers commercial real estate eg education healthcare storage pension plan contributions company made cash contributions qualified pension plans years ended december 31 2019 2018 2017 however company may make discretionary cash contributions qualified pension plans future contributions dependent variety factors including current expected interest rates asset performance funded status qualified pension plans management’s judgment nonqualified unfunded pension plan company continue make contributions 2020 extent benefits paid benefit payments pension plans expected 183 million 2020 186 million 2021 188 million 2022 190 million 2023 190 million 2024 929 million 2025 2029 multiemployer plans company contributes multiemployer plans terms collectivebargaining agreements cover unionrepresented employees multiemployer plans provide medical pension retirement savings benefits active employees retirees company made contributions multiemployer plans 9 million 9 million 18 million years ended december 31 2019 2018 2017 respectively december 31 2019 2018 longterm liabilities includes approximately 101 million 104 million respectively related companys withdrawal multiemployer pension plan defined contribution benefit plans company’s employees may participate charter communications inc 401k savings plan “401k plan” employees qualify participation contribute 50 salary pretax basis subject maximum contribution limit determined internal revenue service company’s matching contribution discretionary equal 100 amount salary reduction participant elects defer 6 participant’s eligible compensation excluding catchup contributions paid company per pay period basis company made contributions 401k plan totaling 303 million 290 million 274 million years ended december 31 2019 2018 2017 respectively employees eligible participate company’s longterm incentive plan covered collective bargaining agreement company offers contribution retirement accumulation plan rap equal 3 eligible pay company made contributions rap totaling 152 million 151 million 139 million years ended december 31 2019 2018 2017 respectively 21 recently issued accounting standards accounting standards adopted prior periods asu 201409 revenue contracts customers “asu 201409” upon adoption asu 201409 company recorded cumulativeeffect adjustment included increase total members equity 49 million january 1 2018 asu 201616 income taxes topic 740 intraentity transfers assets inventory asu 201616 company identified 38 million increase total members equity corresponding increase deferred tax assets related adoption asu 201616 recorded year ended december 31 2018 f 39 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated accounting standards adopted january 1 2019 asu 201602 leases “asu 201602” february 2016 fasb issued asu 201602 requires lessees recognize almost leases balance sheet lease asset lease liability income statement purposes fasb retained dual model requiring leases classified either operating finance classification based criteria largely similar criteria applied legacy lease accounting without explicit bright lines company adopted asu 201602 using modified retrospective approach cumulativeeffect adjustment recorded beginning period adoption january 1 2019 therefore company recognized measured operating leases consolidated balance sheet without revising comparative period information disclosure transition company elected package practical expedients permitted transition guidance within standard eliminates reassessment past leases classification initial direct costs company elect use hindsight reassess lease terms impairment adoption date company elected land easements practical expedient allows company retrospectively treat land easements leases however must apply lease accounting prospectively land easements meet definition lease company implemented internal controls key system functionality enable preparation financial information adoption new standard resulted recording leased assets lease liabilities company’s operating leases approximately 963 million 990 million respectively january 1 2019 difference leased assets lease liabilities primarily represents prior year end deferred rent liabilities balance resulting historical straightlining operating leases effectively reclassified upon adoption reduce measurement leased assets adoption standard impact company’s members equity results operations cash flows adoption new standard resulted additional interim annual lease disclosures see note 8 asu 201813 changes disclosure requirements fair value measurement asu 201813 august 2018 fasb issued asu 201813 amends fair value measurement disclosure requirements eliminate add modify certain disclosures improve effectiveness disclosure notes financial statements asu 201813 effective interim annual periods beginning december 15 2019 early adoption permitted company early adopted asu 201813 january 1 2019 adoption asu 201813 material impact companys consolidated financial statements asu 201814 changes disclosure requirements defined benefit plans asu 201814 august 2018 fasb issued asu 201814 amends defined benefit plan disclosure requirements eliminate add modify certain disclosures improve effectiveness disclosure notes financial statements asu 201814 effective interim annual periods beginning december 15 2021 early adoption permitted company early adopted asu 201814 january 1 2019 adoption asu 201814 material impact companys consolidated financial statements asu 201704 simplifying test goodwill impairment “asu 201704” january 2017 fasb issued asu 201704 eliminates step two goodwill impairment test new standard extent carrying amount reporting unit exceeds fair value company record impairment charge equal difference asu 201704 effective interim annual periods beginning december 15 2019 company elected early adopt asu 201704 connection completion november 30 2019 annual impairment assessment adoption asu 201704 material impact companys consolidated financial statements f 40 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated accounting standards adopted january 1 2020 asu 201613 measurement credit losses financial instruments “asu 201613” june 2016 fasb issued asu 201613 requires financial asset group financial assets measured amortized cost basis assessed impairment current expected credit loss model rather incurred loss model measurement expected credit losses based relevant information past events including historical experience current conditions reasonable supportable forecasts affect collectability reported amount primary financial assets company scope asu 201613 include accounts receivables equipment installment plan notes receivables company adopted asu 201613 january 1 2020 adoption asu 201613 material impact companys consolidated financial statements asu 201815 customer’s accounting implementation costs cloud computing arrangement service contract asu 201815 august 2018 fasb issued asu 201815 requires upfront implementation costs incurred cloud computing arrangement hosting arrangement service contract amortized hosting expense term arrangement beginning module component hosting arrangement ready intended use company adopted asu 201815 january 1 2020 adoption asu 201815 material impact companys consolidated financial statements asu 201902 improvements accounting costs films license agreements program materials asu 201902 march 2019 fasb issued asu 201902 aligns accounting production costs episodic television series accounting production costs films regarding cost capitalization amortization impairment presentation disclosure company adopted asu 201902 january 1 2020 adoption asu 201902 material impact companys consolidated financial statements accounting standards yet adopted asu 201912 income taxes topic 740 simplifying accounting income taxes “asu 201912” december 2019 fasb issued asu 201912 intended simplify various aspects related accounting income taxes asu 201912 removes certain exceptions general principles topic 740 also clarifies amends existing guidance improve consistent application asu 201912 effective interim annual periods beginning december 15 2020 january 1 2021 company early adoption permitted company currently evaluating impact adoption asu 201912 consolidated financial statements 22 consolidating schedules charter operating twc llc twce cco holdings certain subsidiaries jointly severally fully unconditionally guarantee outstanding debt securities others cco holdings notes unsecured senior basis condensed consolidating financial information prepared presented pursuant sec regulation sx rule 310 financial statements guarantors issuers guaranteed securities registered certain charter operating subsidiaries regulated telephone entities become guarantor subsidiaries upon approval regulators information intended present financial position results operations cash flows individual companies groups companies accordance generally accepted accounting principles “charter operating restricted subsidiaries” column presented comply terms credit agreement condensed consolidating financial statements december 31 2019 2018 years ended december 31 2019 2018 2017 follow f 41 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated f 42 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated f 43 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated f 44 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated f 45 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated f 46 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated f 47 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated f 48 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated f 49 cco holdings llc subsidiaries notes consolidated financial statements december 31 2019 2018 2017 dollars millions except indicated f 50