What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-02 compared with 2023-01-27 · 129 added, 154 removed, 309 unchanged (48% of the section changed)

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We are a leading broadband connectivity company and cable operator serving more than 32 million customers in 41 states through our Spectrum brand.

Over an advanced high-capacity, two-way telecommunications network, we offer a full range of state-of-the-art residential and business services including Spectrum Internet, TV, Mobile and Voice.

Over an advanced communications network, we offer a full range of state-of-the-art residential and business services including Spectrum Internet, TV, Mobile and Voice.

For small and medium-sized companies, Spectrum Business delivers the same suite of broadband products and services coupled with special features and applications to enhance productivity, while for larger businesses and government entities, Spectrum Enterprise provides highly customized, fiber-based solutions.

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Business — Products and Services” for further description of these services, including customer statistics for different services.

During the year ended December 31, 2022, we added 1,728,000 mobile lines, 344,000 Internet customers and 126,000 residential and SMB customer relationships, which excludes mobile-only customers.

We continue to see lower customer move rates and switching behavior among providers, which has reduced our selling opportunities.

In October 2022, we introduced Spectrum One, which brings together Spectrum Internet, Advanced WiFi and Unlimited Spectrum Mobile, to offer consumers fast, reliable and secure online connections on their favorite devices at home and on-the-go in a high-value package which contributed to our increase in mobile lines in the fourth quarter.

In 2022, we also made targeted investments in employee wages and benefits inside of our operations to build employee skill sets and tenure as well as continued to invest in digitization of our customer service platforms and proactive maintenance all with the goal of improving the customer experience, reducing transactions and driving customer growth.

We spent $1.8 billion on our rural construction initiative during the year ended December 31, 2022.

We expect that over time, our rural construction initiative will support customer growth and in 2022, we constructed over 200,000 rural passings.

In addition, we continue to evolve and upgrade our network to provide higher Internet speeds and reliability and invest in our products and customer service platforms.

We currently offer Spectrum Internet products with speeds up to 1 Gbps across our entire footprint and over the next three years, we plan to upgrade our network to provide multi-gigabit speeds.

Our Advanced WiFi, a managed WiFi service that provides customers an optimized home network while providing greater control of their connected devices with enhanced security and privacy, is available to nearly all Internet customers.

We continue to invest in our ability to provide a differentiated Internet connectivity experience for our mobile and fixed Internet customers with the availability of over 500,000 out of home WiFi access points across our footprint.

In addition, we continue to work towards the construction of our own 5G mobile data-only network leveraging our CBRS PALs.

By continually improving our product set and offering consumers the opportunity to save money by switching to our services, we believe we can continue to penetrate our expanding footprint and attract more spend on additional products for our existing customers.

In June 2022, we entered into a joint venture with Comcast to develop and offer a next-generation streaming platform, Xumo, on a variety of streaming devices and smart TVs.

Our investment is approximately $981 million with $271 million paid in 2022 and with the remaining non-cancelable required contributions to be paid over multiple years.

We believe Spectrum-branded mobile services will drive higher sales of our core products, create longer customer lives and increase profitability and cash flow over time.

During the years ended December 31, 2022 and 2021, our mobile product line increased revenues by $3.0 billion and $2.2 billion, respectively, reduced Adjusted EBITDA by approximately $343 million and $311 million, respectively, and reduced free cash flow by approximately $1.1 billion and $853 million, respectively.

Mobile Adjusted EBITDA may continue to be negative primarily as a result of growth-related sales and marketing and other customer acquisition costs for mobile services, and depending on the pace of that growth.

We also expect to continue to see negative free cash flow from the timing of device-related cash flows when we sell devices to customers pursuant to equipment installment plans and capital expenditures related to CBRS build-out.

During the year ended December 31, 2023, we added 2,474,000 mobile lines and 155,000 Internet customers.

We spent $1.9 billion on our subsidized rural construction initiative during the year ended December 31, 2023 and activated approximately 295,000 subsidized rural passings.

Our mobile line and Internet customer additions were supported by our Spectrum One offering, which brings together Spectrum Internet, Advanced WiFi and Unlimited Spectrum Mobile to offer consumers fast, reliable and secure online connections on their favorite devices at home and on-the-go in a high-value package, and were further supported by growth in our legacy and new subsidized rural markets.

We continue to upgrade our network to provide higher Internet speeds and reliability and invest in our products and customer service platforms.

We currently offer Spectrum Internet products with speeds up to 1 Gbps across our entire footprint and we are upgrading our network to provide multi-gigabit speeds.

Our Advanced WiFi, a managed WiFi service that provides customers an optimized home network and greater control over connected devices with enhanced security and privacy, is available to all of our Internet customers.

We continue to invest in our ability to provide a differentiated Internet connectivity experience for our mobile and fixed Internet customers with increasing availability of out-of-home WiFi access points across our footprint.

In addition, we continue to work towards the construction of our own 5G mobile data-only network in targeted areas of our footprint leveraging our CBRS Priority Access Licenses.

We also continue to develop our video product.

In September 2023, we entered into a new affiliation agreement with The Walt Disney Company ("Disney"), which provides a template for a new programming affiliation approach where we partner with content providers to provide access to both linear and app-based DTC content.

In October 2023, we began deploying Xumo to new video customers.

Xumo combines a live TV experience with access to hundreds of content applications, and features unified search and discovery along with a curated content offering based on the customer's interests and subscriptions.

By continually improving our product set and offering consumers the opportunity to save money by switching to our services, we believe we can continue to penetrate our expanding footprint and sell additional products to our existing customers.

We are also beginning to see operational benefits from the targeted investments we are making in employee wages and benefits to build employee skill sets and tenure, as well as the continued investments in digitization of our customer service platforms and

proactive maintenance, all with the goal of improving the customer experience, reducing transactions and driving customer growth and retention.

We realized revenue, Adjusted EBITDA and income from operations during the periods presented as follows (in millions;

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Income from operations $ 12,559 $ 11,962 5.0 %

Adjusted EBITDA is defined as net income attributable to Charter shareholders plus net income attributable to noncontrolling interest, net interest expense, income taxes, depreciation and amortization, stock compensation expense, other income (expenses), net and other operating (income) expenses, net, such as special charges and (gain) loss on sale or retirement of assets.

Adjusted EBITDA is defined as net income attributable to Charter shareholders plus net income attributable to noncontrolling interest, net interest expense, income taxes, depreciation and amortization, stock compensation expense, other income (expense), net and other operating (income) expenses, net, such as special charges and (gain) loss on sale or retirement of assets.

See “—Use of Adjusted EBITDA and Free Cash Flow” for further information on Adjusted EBITDA and free cash flow.

Growth in total revenue was primarily due to growth in our residential Internet, mobile and commercial customers, price adjustments and higher advertising sales.

Adjusted EBITDA growth and changes in income from operations were impacted by growth in revenue and increases in operating costs and expenses, primarily mobile, costs to service customers and marketing.

Growth in total revenue was primarily due to growth in our residential Internet customers and residential mobile lines partly offset by lower residential video and advertising sales revenues.

Adjusted EBITDA and income from operations growth was driven by growth in revenue and increases in operating costs and expenses, primarily mobile device and other mobile direct costs and costs to service customers, partly offset by a decrease in programming expense.

Income from operations was also affected by a gain on the sale of towers and lower depreciation and amortization expense, partly offset by an increase in stock compensation expense.

Approximately 90% of our revenues for each of the years ended December 31, 2023 and 2022 are attributable to monthly subscription fees charged to customers for our Internet, video, voice, mobile and commercial services as well as regional sports and news channels.

Generally, these customer subscriptions may be discontinued by the customer at any time subject to a fee for certain commercial customers.

The remaining 10% of revenue is derived primarily from advertising revenues, franchise and other regulatory fee revenues (which are collected by us but then paid to local authorities), sales of mobile and video devices, processing fees or reconnection fees charged to customers to commence or reinstate service, installation, VOD and pay-per-view programming, and commissions related to the sale of merchandise by home shopping services.

The remaining 10% of our revenue is derived primarily from advertising revenues, franchise and other regulatory fee revenues (which are collected by us but then paid to local authorities), sales of mobile and video devices, processing fees or reconnection fees charged to customers to commence or reinstate service, installation, VOD and pay-per-view programming, and commissions related to the sale of merchandise by home shopping services.

Critical Accounting Policies and Estimates

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Costs associated with network construction or upgrades, placement of the customer drop to the dwelling and the placement of outlets within a dwelling along with the costs associated with the deployment of new customer premise equipment necessary to provide Internet, video or voice services, are capitalized.

Costs capitalized include materials, direct labor and certain indirect

Costs capitalized include materials, direct labor and certain indirect costs.

These indirect costs consist of compensation and overhead costs associated with support functions.

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The costs of disconnecting service and removing customer premise equipment from a dwelling and the costs to reconnect a customer drop or to redeploy previously installed customer premise equipment are charged to operating expense as incurred.

Costs for repairs and maintenance are charged to operating expense as incurred, while plant and equipment replacement, including replacement of certain components, betterments, and replacement of cable drops and outlets, are capitalized.

Costs for repairs and maintenance are charged to operating expense as incurred,

while plant and equipment replacement, including replacement of certain components, betterments, and replacement of cable drops and outlets, are capitalized.

We make judgments regarding the installation and construction activities to be capitalized.

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We monitor the appropriateness of our capitalization policies, and perform updates to our internal studies on an ongoing basis to determine whether facts or circumstances warrant a change to our capitalization policies.

Charter has federal tax net operating loss carryforwards that expire in 2035 resulting from the operations of Charter Communications Holding Company, LLC and its subsidiaries and from loss carryforwards received as a result of the merger with TWC.

In addition, Charter has state tax net operating loss carryforwards that generally expire in the years 2023 through 2042.

Such tax loss carryforwards can accumulate and be used to offset Charter’s future taxable income.

Charter's federal tax loss carryforwards are subject to Section 382 and other restrictions.

Charter also has indefinite life carryforwards as a result of Section 163(j) interest limitations.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.

In evaluating the need for a valuation allowance, management takes into account various factors, including the expiration date (if any) of such carryforwards, the expected level of future taxable income, available tax planning strategies and reversals of existing taxable temporary differences.

Approximately $11 million of valuation allowance associated with federal capital loss carryforwards and approximately $29 million of valuation allowance associated with state tax loss carryforwards and other miscellaneous deferred tax assets is

recorded on the December 31, 2022 consolidated balance sheet.

No valuation allowance is deemed necessary as of December 31, 2022 related to the Section 163(j) interest limitation, based on the indefinite life carryforward, expected reversal of various deferred tax liabilities (primarily GAAP fixed asset depreciation), and a history of utilizing interest expense disallowance carryovers.

We will continue to monitor this deferred tax asset and update the valuation allowance analysis as needed.

We recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities and expected benefits of utilizing loss carryforwards, including indefinite lived carryovers such as the Section 163(j) interest limitation.

Valuation allowances are established when management determines that it is more likely than not that some portion or the entire deferred tax asset will not be realized.

In evaluating the need for a valuation allowance, management takes into account various factors, including the expected level of future taxable income, available tax planning strategies and reversals of existing taxable temporary differences.

The impact on deferred taxes of changes in tax rates and tax law, if any, applied to the years during which temporary differences are expected to be settled, are reflected in the consolidated financial statements in the period of enactment.

In determining our tax provision for financial reporting purposes, we establish a reserve for uncertain tax positions unless such positions are determined to be “more likely than not” of being sustained upon examination, based on their technical merits.

In evaluating whether a tax position has met the more-likely-than-not recognition threshold, we presume the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information.

A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to be recognized in our financial statements.

The tax position is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized when the position is ultimately resolved.

There is considerable judgment involved in determining whether positions taken on the tax return are “more likely than not” of being sustained.

We adjust our uncertain tax reserve estimates periodically because of ongoing examinations by, and settlements with, the various taxing authorities, as well as changes in tax laws, regulations and interpretations.

Charter is currently under examination by the Internal Revenue Service ("IRS") for income tax purposes for 2016 and 2019.

Charter's 2020 and 2021 tax years remain open for examination and assessment.

Charter’s 2017 and 2018 tax years remain open solely for purposes of loss and credit carryforwards.

Charter’s short period return dated May 17, 2016 (prior to the merger with TWC and acquisition of Bright House) and prior years remain open solely for purposes of examination of Charter’s loss and credit carryforwards.

The IRS is currently examining Charter Holdings’ income tax returns for 2016, 2019 and 2021.

Charter Holdings’ 2020 tax year remains open for examination and assessment, while 2017 and 2018 remain open solely for purposes of credit carryforwards.

The IRS is currently examining TWC’s income tax returns for 2011 through 2015.

Prior to TWC’s separation from Time Warner Inc.

(“Time Warner”) in March 2009, TWC was included in the consolidated U.S.

federal and certain state income tax returns of Time Warner.

The IRS has examined Time Warner’s 2008 through 2010 income tax returns and the appeal results are being evaluated.

We do not anticipate that these examinations will have a material impact on our consolidated financial position or results of operations.

In addition, we are also subject to ongoing examinations of our tax returns by state and local tax authorities for various periods.

Activity related to these state and local examinations did not have a material impact on our consolidated financial position or results of operations during the year ended December 31, 2022, nor do we anticipate a material impact in the future.

There is considerable judgment involved in making such a determination.

We recognize interest and penalties accrued on uncertain income tax positions as part of the income tax provision.

Defined benefit pension plans

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As of December 31, 2023, the accumulated benefit obligation and fair value of plan assets was $2.4 billion and $2.6 billion, respectively, and the net funded asset was recorded as a $149 million noncurrent asset, $3 million current liability and $19 million long-term liability.

As of December 31, 2021, the accumulated benefit obligation and fair value of plan assets was $3.4 billion and $3.5 billion, respectively, and the net funded asset was recorded as a $114 million noncurrent asset, $4 million current liability and $27 million long-term liability.

As of December 31, 2022, the accumulated benefit obligation and fair value of plan assets was $2.2 billion and $2.6 billion, respectively, and the net funded asset was

recorded as a $362 million noncurrent asset, $5 million current liability and $17 million long-term liability.

In June 2023, we purchased a buy-in group annuity contract from a highly rated insurer and in October 2023, we announced plans to fully terminate the qualified pension plan.

The benefit obligation for the qualified pension plan as of December 31, 2023 of $2.4 billion was therefore determined on a plan termination basis for which it is assumed that a portion of eligible active and deferred vested participants will elect lump sum payments.

Pension benefits are based on formulas that reflect the employees’ years of service and compensation during their employment period.

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We use a December 31 measurement date for our pension plans.

We recognized net periodic pension benefit of $254 million and $305 million in 2022 and 2021, respectively.

Net periodic pension benefit or expense is determined using certain assumptions, including the expected long-term rate of return on plan assets, discount rate and mortality assumptions.

We determined the discount rate used to compute pension expense based on the yield of a large population of high-quality corporate bonds with cash flows sufficient in timing and amount to settle projected future defined benefit payments.

We recognized net periodic pension cost of $216 million in 2023 and net periodic pension benefit of $254 million in 2022.

Net periodic pension benefit or cost is determined using certain assumptions, including the expected long-term rate of return on plan assets, discount rate and mortality assumptions.

We determined the discount rate used to compute pension cost based on the yield of a large population of high-quality corporate bonds with cash flows sufficient in timing and amount to settle projected future defined benefit payments.

In developing the expected long-term rate of return on assets, we considered the current pension portfolio’s composition, past average rate of earnings, and our asset allocation targets.

We used a discount rate of 4.65% to determine the December 31, 2023 pension plan benefit obligation.

A decrease in the discount rate of 25 basis points would result in an $83 million increase in our pension plan benefit obligation as of December 31, 2022 and net periodic pension expense recognized in 2022 under our mark-to-market accounting policy.

A decrease in the discount rate of 25 basis points would result in an $80 million increase in our pension plan benefit obligation as of December 31, 2023 and net periodic pension cost recognized in 2023 under our mark-to-market accounting policy.

The expected long-term rate of return on plan assets used to determine net periodic pension benefit for the year ended December 31, 2024 is expected to be 5.00%.

A decrease in the expected long-term rate of return of 25 basis points to 4.75%, while holding all other assumptions constant, would result in

a decrease in our 2023 net periodic pension benefit of approximately $6 million.

A decrease in the expected long-term rate of return of 25 basis points to 4.75%, while holding all other assumptions constant, would result in a decrease in our 2024 net periodic pension benefit of approximately $6 million.

See Note 21 to the accompanying consolidated financial statements contained in “Part II.

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A discussion of changes in our results of operations during the year ended December 31, 2022 compared to the year ended December 31, 2021 has been omitted from this Annual Report on Form 10-K, but may be found in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on January 28, 2022, which is available free of charge on the SEC's website at www.sec.gov and on our investor relations website at ir.charter.com.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on January 27, 2023, which is available free of charge on the SEC's website at www.sec.gov and on Charter's investor relations website at ir.charter.com.

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

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Depreciation and amortization 8,696 8,903

Other operating expenses, net 281 329

Other operating (income) expense, net (53) 281

42,048 42,060

Income from operations 12,559 11,962

Other Income (Expenses):

Other Income (Expense):

Interest expense, net (5,188) (4,556)

Other income (expenses), net 56 (101)

Other income (expense), net (517) 56

(5,705) (4,500)

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Weighted average common shares outstanding, diluted 151,966,313 164,433,596

Total revenues grew $2.3 billion or 4.5% during the year ended December 31, 2022 as compared to 2021 primarily due to increases in the number of residential Internet, mobile and commercial customers, price adjustments and higher advertising sales.

Total revenues grew $585 million or 1.1% during the year ended December 31, 2023 as compared to 2022 primarily due to growth in residential Internet revenue, mobile device sales and residential mobile service revenues partly offset by lower residential video and advertising sales revenues as well as $68 million of total customer credits related to the temporary loss of Disney programming during 2023.

Revenues by service offering were as follows (dollars in millions;

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Voice 1,510 1,559 (3.1) %

Mobile service 2,243 1,698 32.1 %

Residential revenue 43,136 42,939 0.5 %

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Advertising sales 1,551 1,882 (17.6) %

Mobile 3,042 2,178 39.7 %

Other 2,797 2,174 28.7 %

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Increase in average residential Internet customers 178

The increase related to rate and product mix was primarily due to promotional roll-off and rate adjustments.

The increase related to rate and product mix was primarily due to promotional rate step-ups and rate adjustments, partly offset by lower bundled revenue allocation.

Residential Internet customers grew by 132,000 in 2023 compared to 2022.

Video revenues consist primarily of revenues from basic and digital video services provided to our residential customers, as well as franchise fees, equipment service fees and video installation revenue.

Video revenues consist primarily of revenues from video services provided to our residential customers, as well as franchise fees, equipment service fees and video installation revenue.

The decrease in video revenues was attributable to the following (dollars in millions):

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Decrease in average residential video customers $ (981)

Increase related to rate and product mix changes 451

Decrease related to rate and product mix changes (128)

Residential video customers decreased by 994,000 in 2023 compared to 2022.

The increase related to rate and product mix was primarily due to price adjustments and promotional roll-off and was partly offset by a higher mix of lower cost video packages within our video customer base

The decrease related to rate and product mix was primarily due to a higher mix of lower cost video packages within our video customer base and $63 million of customer credits related to the temporary loss of Disney programming in 2023, offset by the pass-through of programming cost increases and promotional rate step-ups.

The decrease in voice revenues from our residential customers was attributable to the following (dollars in millions):

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Decrease in average residential voice customers $ (184)

Increase related to rate 98

Increase related to rate adjustments 135

Residential wireline voice customers decreased by 985,000 in 2023 compared to 2022.

The increase in SMB commercial revenues was attributable to the following (dollars in millions):

The increase in mobile service revenues from our residential customers is attributable to the following (dollars in millions):

2023 compared to 2022

Increase in average residential mobile lines $ 883

Decrease related to rate (338)

Residential mobile lines increased by 2,403,000 in 2023 compared to 2022.

The decrease related to rate is primarily related to the Spectrum One offering and is partly offset by higher bundled revenue allocation.

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

2023 compared to 2022

Increase in SMB customers $ 76

Decrease related to rate and product mix changes (73)

SMB customers increased by 64,000 in 2022 compared to 2021.

Enterprise revenues increased $104 million during the year ended December 31, 2022 as compared to the corresponding period in 2021 primarily due to an increase in Internet PSUs offset by a $16 million one-time benefit incurred during the year ended December 31, 2021 as well as lower wholesale PSUs.

SMB customers grew by 15,000 in 2023 compared to 2022.

The decrease related to rate and product mix changes were primarily due to a higher mix of lower priced video packages and a lower number of voice lines per SMB customer relationship.

Enterprise revenues increased $93 million during the year ended December 31, 2023 as compared to the corresponding period in 2022 primarily due to an increase in Internet PSUs partly offset by lower wholesale PSUs.

Enterprise PSUs increased by 19,000 in 2023 compared to 2022.

Advertising sales revenues consist primarily of revenues from commercial advertising customers, programmers and other vendors, as well as local cable and advertising on regional sports and news channels.

Advertising sales revenues increased $288 million during the year ended December 31, 2022 as compared to the corresponding period in 2021 primarily due to an increase in political revenue.

During the years ended December 31, 2022 and 2021, mobile revenues included approximately $1.3 billion and $909 million of device revenues, respectively, and approximately $1.7 billion and $1.3 billion of service revenues, respectively.

The increases in revenues are a result of an increase of 1,728,000 lines from December 31, 2021 to December 31, 2022.

Other revenues consist of revenue from processing fees, regional sports and news channels (excluding intercompany charges or advertising sales on those channels), subsidy revenue, home shopping, video device sales, wire maintenance fees and other miscellaneous revenues.

Other revenues increased approximately $34 million during the year ended December 31, 2022 as compared to the corresponding period in 2021 primarily due to subsidy revenue related to our rural construction initiative and an increase in processing fees offset by a decrease in sales of video devices.

Advertising sales revenues decreased $331 million during the year ended December 31, 2023 as compared to the corresponding period in 2022 primarily due to a decrease in political revenue.

Other revenues consist of revenue from mobile and video device sales, processing fees, regional sports and news channels (excluding intercompany charges or advertising sales on those channels), subsidy revenue, home shopping, wire maintenance fees and other miscellaneous revenues.

Other revenues increased approximately $623 million during the year ended December 31, 2023 as compared to the corresponding period in 2022 primarily due to higher mobile device sales partially offset by lower processing fees.

Operating costs and expenses .

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Programming $ (982)

Regulatory, connectivity and produced content (191)

Other costs of revenue 783

Costs to service customers 328

Marketing 268

Sales and marketing 68

Programming costs were approximately $10.6 billion and $11.6 billion for the years ended December 31, 2023 and 2022, representing 32% and 35% of total operating costs and expenses, respectively.

Programming costs consist primarily of costs paid to programmers for basic, digital, premium, video on demand, and pay-per-view programming.

Programming costs decreased as a result of fewer customers and a higher mix of lower cost video packages within our video customer base offset by contractual rate adjustments, including renewals and increases in amounts paid for retransmission consent.

Regulatory, connectivity and produced content decreased $191 million during the year ended December 31, 2022 compared to the corresponding period in 2021 primarily due to lower costs of video devices sold to customers and regulatory pass-through fees as well as lower sports rights costs as a result of more basketball games during 2021 as compared to 2022 as the prior period had additional games due to the delayed start of the 2020 - 2021 National Basketball Association ("NBA") season as a result of COVID-19.

Costs to service customers increased $379 million during the year ended December 31, 2022 compared to the corresponding period in 2021 primarily due to higher bad debt, adjustments to job structure, pay and benefits to build a more skilled and longer tenured workforce and fuel costs.

Mobile costs of $3.4 billion and $2.5 billion for the years ended December 31, 2022 and 2021, respectively, were comprised of mobile device, mobile service, customer acquisition and operating costs.

The increase is attributable to an increase in the number of mobile lines.

Programming costs consist primarily of costs paid to programmers for basic, premium, video on demand, and pay-per-view programming.

Programming costs decreased as a

result of a higher mix of lower cost video packages within our video customer base, fewer customers and a $61 million benefit related to the temporary loss of Disney programming during 2023, partly offset by contractual rate adjustments, including renewals and increases in amounts paid for retransmission consent.

Other costs of revenue increased $783 million during the year ended December 31, 2023 compared to the corresponding period in 2022 primarily due to higher mobile device sales and higher other mobile direct costs due to an increase in mobile lines, partially offset by lower regulatory pass-through fees and original content costs.

Costs to service customers increased $328 million during the year ended December 31, 2023 compared to the corresponding period in 2022 primarily due to adjustments to job structure, pay and benefits to build a more skilled and longer tenured workforce resulting in lower frontline employee attrition compared to 2022, and additional activity to support the accelerated growth of Spectrum Mobile.

Sales and marketing costs increased $68 million during the year ended December 31, 2023 compared to the corresponding period in 2022 primarily due to higher staffing across sales channels and the accelerated growth of Spectrum Mobile.

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

2023 compared to 2022

Advertising sales expense $ 84

Stock compensation expense $ 222

Corporate costs 84

Costs to sell and service bulk properties 48

Enterprise 24

Stock compensation expense 40

Advertising sales expense increased during the year ended December 31, 2022 compared to the corresponding prior period due to higher costs of sales fees driven by higher political revenue.

Corporate costs increased primarily due to higher computer and software expense and labor costs.

Property tax and insurance (35)

Stock compensation expense increased during the year ended December 31, 2023 compared to the corresponding prior period primarily due to an increase in equity awards granted.

Corporate, costs to sell and service bulk properties and enterprise costs increased primarily due to higher labor costs while property tax and insurance expense decreased during the year ended December 31, 2023 compared to the corresponding prior period primarily as a result of adjustments related to favorable development on prior year workers' compensation claims.

Depreciation and amortization.

Depreciation and amortization expense decreased by $207 million during the year ended December 31, 2023 compared to the corresponding period in 2022 primarily due to certain assets acquired in acquisitions becoming fully depreciated offset by an increase in depreciation as a result of more recent capital expenditures.

Other operating expenses, net.

The decrease in other operating expenses, net was attributable to the following (dollars in millions):

Other operating (income) expense, net.

The change in other operating (income) expense, net was attributable to the following (dollars in millions):

2023 compared to 2022

Special charges, net $ (75)

(Gain) loss on sale of assets, net (72)

(Gain) loss on disposal of assets, net (259)

For more information, see Note 14 to the accompanying consolidated financial statements contained in “Part II.

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Interest expense, net.

Net interest expense increased by $519 million in 2022 from 2021 primarily due to an increase in weighted average debt outstanding of approximately $8.3 billion as well as an increase in weighted average interest rates.

The increase in weighted average debt outstanding is primarily due to the issuance of notes throughout 2021 and 2022.

Other income (expenses), net.

The change in other income (expenses), net is attributable to the following (dollars in millions):

Net interest expense increased by $632 million in 2023 from 2022 primarily due to an increase in weighted average interest rates as well as an increase in weighted average debt outstanding of approximately $2.2 billion.

Other income (expense), net.

The change in other income (expense), net is attributable to the following (dollars in millions):

2023 compared to 2022

Loss on extinguishment of debt (see Note 8) $ 141

Loss on financial instruments, net (see Note 11) (9)

Gain (loss) on financial instruments, net (see Note 11) $ 140

Net periodic pension benefit (cost) (see Note 21) (470)

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Income tax expense.

We recognized income tax expense of $1.6 billion and $1.1 billion for the years ended December 31, 2022 and 2021, respectively .

Income tax expense increased during the year ended December 31, 2022 compared to the corresponding period in 2021 primarily as a result of an increase in pretax income, lower benefit from state tax rate changes and decreased recognition of excess tax benefits resulting from share-based compensation during 2021.

We recognized income tax expense of $1.6 billion for both the years ended December 31, 2023 and 2022 .

For more information, see Note 17 to the accompanying consolidated financial statements contained in “Part II.

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Net income attributable to noncontrolling interest.

Net income attributable to noncontrolling interest for financial reporting purposes represents A/N’s portion of Charter Holdings’ net income based on its effective common unit ownership interest and the preferred dividend of $70 million for the year ended December 31, 2021.

Net income attributable to noncontrolling interest for financial reporting purposes represents A/N’s portion of Charter Holdings’ net income based on its effective common unit ownership interest.

For more information, see Note 10 to the accompanying consolidated financial statements contained in “Part II.

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For the purpose of calculating compliance with leverage covenants, we use Adjusted EBITDA, as presented, excluding certain expenses paid by our operating subsidiaries to other Charter entities.

Our debt covenants refer to these expenses as management fees, which fees were in the amount of $1.4 billion and $1.3 billion for the years ended December 31, 2022 and 2021, respectively.

Our debt covenants refer to these expenses as management fees, which fees were in the amount of $1.4 billion for each of the years ended December 31, 2023 and 2022.

A reconciliation of Adjusted EBITDA and free cash flow to net income attributable to Charter shareholders and net cash flows from operating activities, respectively, is as follows (dollars in millions):

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Stock compensation expense 692 470

Other expenses, net 225 430

Other, net 464 225

Adjusted EBITDA $ 21,894 $ 21,616

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Liquidity and Capital Resources

We have significant amounts of debt.

We have significant amounts of debt and require significant cash to fund principal and interest payments on our debt.

The principal amount of our debt as of December 31, 2023 was $97.6 billion, consisting of $12.4 billion of credit facility debt, $57.9 billion of investment grade senior secured notes and $27.3 billion of high-yield senior unsecured notes.

Our business requires significant cash to fund principal and interest payments on our debt.

As of December 31, 2022, $70.7 billion of our debt was rated investment grade and $26.7 billion was rated high yield debt.

This split rating allows us to access both the investment grade debt market and the high yield debt market.

Our split credit rating allows us to access both the investment grade debt market and the high yield debt market.

Our projected cash needs and projected sources of liquidity depend upon, among other things, our actual results, and the timing and amount of our expenditures.

As we continue to grow our market penetration of our mobile product, we will continue to experience negative working capital impacts from the timing of device-related cash flows when we sell devices to customers pursuant to equipment installment plans.

Further, in 2022, Charter has become a meaningful federal cash tax payer as the majority of our net operating losses have been utilized.

Further, in 2022, Charter became a meaningful federal cash tax payer as the majority of our net operating losses had been utilized.

Free cash flow was $3.5 billion and $6.1 billion for the years ended December 31, 2023 and 2022, respectively.

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We believe we have sufficient liquidity from cash on hand, free cash flow and Charter Operating’s revolving credit facility as well as access to the capital markets to fund our projected cash needs.

We continue to evaluate the deployment of our cash on hand and anticipated future free cash flow including to invest in our business growth and other strategic opportunities, including expanding the capacity of our network, the expansion of our network through our rural broadband construction initiative, the build-out and deployment of our CBRS spectrum, and mergers and acquisitions as well as stock repurchases and dividends.

We continue to evaluate the deployment of our cash on hand and anticipated future free cash flow, including investing in our business growth and other strategic opportunities, including expanding the capacity of our network, the expansion of our network through our rural broadband construction initiative, the build-out and deployment of our CBRS spectrum, and mergers and acquisitions as well as stock repurchases and dividends.

Charter's target leverage of net debt to the last twelve months Adjusted EBITDA remains at 4 to 4.5 times Adjusted EBITDA, and up to 3.5 times Adjusted EBITDA at the Charter Operating first lien level.

Our leverage ratio was 4.47 times Adjusted EBITDA as of December 31, 2022.

Charter's leverage ratio was 4.42 times Adjusted EBITDA as of December 31, 2023.

As Adjusted EBITDA grows, we expect to increase the total amount of our indebtedness to maintain leverage within Charter's target leverage range.

Excluding purchases from Liberty Broadband discussed below, during the years ended December 31, 2023 and 2022, Charter purchased in the public market approximately 6.9 million and 14.5 million shares, respectively, of Charter Class A common stock for approximately $2.7 billion and $7.1 billion, respectively.

Since the beginning of its buyback program in September 2016 through the year ended December 31, 2022, Charter has purchased in the public market approximately 149.4 million

shares of Class A common stock and Charter Holdings common units for approximately $68.5 billion, including purchases from Liberty Broadband and A/N discussed below.

Since the beginning of its buyback program in September 2016 through the year ended December 31, 2023, Charter has purchased in the public market approximately 158.3 million shares of Class A common stock and Charter Holdings common units for approximately $72.0 billion, including purchases from Liberty Broadband and A/N discussed below.

In February 2021, Charter and Liberty Broadband entered into a letter agreement (the “LBB Letter Agreement”).

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Under the LBB Letter Agreement, Liberty Broadband will sell to Charter, generally on a monthly basis, a number of shares of Charter Class A common stock representing an amount sufficient for Liberty Broadband’s ownership of Charter to be reduced such that it does not exceed the ownership cap then applicable to Liberty Broadband under the Stockholders Agreement at a purchase price per share equal to the volume weighted average price per share paid by Charter for shares repurchased during such immediately preceding calendar month other than (i) purchases from A/N, (ii) purchases in privately negotiated transactions or (iii) purchases for the withholding of shares of Charter Class A common stock pursuant to equity compensation programs of Charter.

Charter purchased from Liberty Broadband 6.2 million and 6.1 million shares of Charter Class A common stock for approximately $3.0 billion and $4.2 billion during the years ended December 31, 2022 and 2021, respectively.

In January 2023, Charter purchased from Liberty Broadband an additional 0.1 million shares of Charter Class A common stock for approximately $42 million.

Charter purchased from Liberty Broadband 1.0 million and 6.2 million shares of Charter Class A common stock for approximately $394 million and $3.0 billion during the years ended December 31, 2023 and 2022, respectively.

In December 2016, Charter and A/N entered into a letter agreement, as amended in December 2017 (the "A/N Letter Agreement"), that requires A/N to sell to Charter or to Charter Holdings, on a monthly basis, a number of shares of Charter Class A common stock or Charter Holdings common units that represents a pro rata participation by A/N and its affiliates in any repurchases of shares of Charter Class A common stock from persons other than A/N effected by Charter during the immediately preceding calendar month, at a purchase price equal to the average price paid by Charter for the shares repurchased from persons other than A/N during such immediately preceding calendar month.

A/N and Charter both have the right to terminate or suspend the pro rata repurchase arrangement on a prospective basis.

During the years ended December 31, 2022 and 2021, Charter Holdings purchased from A/N 3.2 million and 3.3 million Charter Holdings common units, respectively, for approximately $1.6 billion and $2.2 billion, respectively.

During the years ended December 31, 2023 and 2022, Charter Holdings purchased from A/N 1.1 million and 3.2 million Charter Holdings common units, respectively, for approximately $427 million and $1.6 billion, respectively.

As of December 31, 2023, Charter had remaining board authority to purchase an additional $170 million of Charter’s Class A common stock and/or Charter Holdings common units, excluding purchases from Liberty Broadband.

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However, there can be no assurance that we will actually complete any acquisitions, dispositions or system swaps, or that any such transactions will be material to our operations or results.

Recent Events

In January and February 2024, Charter Operating and Charter Communications Operating Capital Corp.

redeemed all of their outstanding senior secured floating rate notes due 2024 and paid in full all of their outstanding 4.500% senior secured notes due 2024 at maturity.

Free Cash Flow

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Increase in capital expenditures $ (1,739)

Increase in cash paid for taxes, net (1,168)

Changes in working capital, excluding mobile devices (772)

Increase in cash paid for interest, net (495)

Changes in working capital, mobile devices (184)

Increase in cash paid for taxes, net (108)

Increase in Adjusted EBITDA 278

Change in working capital, excluding change in accrued interest and taxes 188

Other, net 408

Free cash flow was reduced by $1.1 billion and $853 million during the years ended December 31, 2022 and 2021, respectively, due to mobile impacts negatively affecting working capital, capital expenditures and Adjusted EBITDA.

The increase in capital expenditures is primarily due to the rural construction initiative of $1.8 billion during the year ended December 31, 2022.

paid for taxes, net increased as Charter has become a meaningful federal cash tax payer in 2022.

Other, net for the year ended December 31, 2022 includes the payment of litigation settlements including the payment of a previously recorded litigation settlement with Sprint Communications Company L.P.

and T-Mobile USA, Inc.

See Note 14 to the accompanying consolidated financial statements contained in “Part II.

Financial Statements and Supplementary Data.”

Historical Operating, Investing, and Financing Activities

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Operating Activities.

Net cash provided by operating activities decreased $1.3 billion during the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to an increase in cash paid for taxes, higher cash paid for interest and the payment of litigation settlements offset by an increase in Adjusted EBITDA of $986 million.

Net cash provided by operating activities decreased $492 million during the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to a negative change in working capital and an increase in cash paid for interest and taxes, partly offset by an increase in Adjusted EBITDA and the payment of litigation settlements in 2022.

Investing Activities.

Net cash used in investing activities for the years ended December 31, 2023 and 2022 was $11.1 billion and $9.1 billion, respectively.

The increase in cash used was primarily due to an increase in capital expenditures, offset by changes in accrued expenses related to capital expenditures that increased by $473 million.

The increase in cash used was primarily due to an increase in capital expenditures and changes in accrued expenses related to capital expenditures.

Financing Activities.

Net cash used in financing activities decreased $3.1 billion during the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to a decrease in the purchase of treasury stock and noncontrolling interest offset by a decrease in the amount by which borrowings of long-term debt exceeded repayments.

Net cash used in financing activities decreased $2.5 billion during the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to a decrease in the purchase of treasury stock and noncontrolling interest partly offset by a decrease in the amount by which borrowings of long-term debt exceeded repayments.

Capital Expenditures

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Capital expenditures were $11.1 billion and $9.4 billion for the years ended December 31, 2023 and 2022, respectively.

The increase was primarily due to an increase in line extensions and customer premise equipment.

The increase in line extensions was primarily due to the rural construction initiative.

The increase was primarily due to an increase in line extensions in connection with our subsidized rural construction initiative and continued residential and commercial network expansion.

The increase in capital expenditures excluding line extensions was primarily driven by higher spend on network evolution, support capital and customer premise equipment, particularly Xumo.

See the table below for more details.

We currently expect full year 2023 capital expenditures, excluding line extensions, to be between $6.5 billion and $6.8 billion.

We expect 2023 line extensions capital expenditures to approximate $4 billion.

The actual amount of capital expenditures in 2023 will depend on a number of factors including, but not limited to, the pace of our network evolution and rural construction initiatives, supply chain timing and growth rates in our residential and commercial businesses.

We currently expect full year 2024 capital expenditures to total between $12.2 billion and $12.4 billion, including line extensions of approximately $4.5 billion and network evolution spend of approximately $1.6 billion.

The actual amount of capital expenditures in 2024 will depend on a number of factors including, but not limited to, the pace of our network evolution and expansion initiatives, supply chain timing and growth rates in our residential and commercial businesses.

Our capital expenditures are funded primarily from cash flows from operating activities and borrowings on our credit facility.

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Scalable infrastructure (b)

Line extensions (c)

Upgrade/rebuild (d)

Support capital (e)

Total capital expenditures $ 9,376 $ 7,635

Capital expenditures included in total related to:

Upgrade/rebuild (c)

Support capital (d)

Capital expenditures, excluding line extensions 7,100 6,389

Line extensions (c)

Subsidized rural construction line extensions 1,822 1,436

Other line extensions 2,193 1,551

Total line extensions (e)

Total capital expenditures $ 11,115 $ 9,376

Commercial services $ 1,560 $ 1,511

Subsidized rural construction initiative (f)

$ 1,870 $ 1,504

Mobile $ 314 $ 376

Rural construction initiative (f)

(a) Customer premise equipment includes costs incurred at the customer residence to secure new customers and revenue generating units, including customer installation costs and customer premise equipment (e.g., digital receivers and cable modems).

(b) Scalable infrastructure includes costs not related to customer premise equipment, to secure growth of new customers and revenue generating units, or provide service enhancements (e.g., headend equipment).

(c) Line extensions include network costs associated with entering new service areas (e.g., fiber/coaxial cable, amplifiers, electronic equipment, make-ready and design engineering).

(d) Upgrade/rebuild includes costs to modify or replace existing fiber/coaxial cable networks, including betterments.

(e) Support capital includes costs associated with the replacement or enhancement of non-network assets due to technological and physical obsolescence (e.g., non-network equipment, land, buildings and vehicles).

(f) The rural construction initiative subcategory includes expenditures associated with our Rural Construction Initiative (for which separate reporting was initiated in 2022), excluding customer premise equipment and installation.

(a) Customer premise equipment includes equipment and devices located at the customer's premise used to deliver our Internet, video and voice services (e.g., modems, routers and set-top boxes), as well as installation costs.

(b) Scalable infrastructure includes costs, not related to customer premise equipment or our network, to secure growth of new customers or provide service enhancements (e.g., headend equipment).

(c) Upgrade/rebuild includes costs to modify or replace existing fiber/coaxial cable networks, including our network evolution initiative which started in 2022.

(d) Support capital includes costs associated with the replacement or enhancement of non-network assets (e.g., back-office systems, non-network equipment, land and buildings, vehicles, tools and test equipment).

(e) Line extensions include network costs associated with entering new service areas (e.g., fiber/coaxial cable, amplifiers, electronic equipment, make-ready and design engineering).

(f) The subsidized rural construction initiative subcategory includes projects for which we are receiving subsidies from federal, state and local governments (for which separate reporting was initiated in 2022), excluding customer premise equipment and installation.

As of December 31, 2023, the accreted value of our total debt was approximately $97.8 billion, as summarized below (dollars in millions):

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4.400% senior notes due 2061 1,400 1,389 6/1 & 12/1 12/1/2061

3.950% senior notes due 2062 1,400 1,380 6/30 & 12/30 6/30/2062

5.500% senior notes due 2063 1,000 986 4/1 & 10/1 4/1/2063

Credit facilities 12,413 12,359 Varies

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8.375% senior debentures due 2033 1,000 1,220 1/15 & 7/15 7/15/2033

8.375% senior debentures due 2033 1,000 1,238 7/15 & 1/15 7/15/2033

$ 97,588 $ 97,777

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However, the amount that is currently payable if the debt becomes immediately due is equal to the principal amount of the debt.

In regards to the Sterling Notes, the principal amount of the debt and any premium or discount is remeasured into US dollars as of each balance sheet date.

We have availability under our credit facilities of approximately $4.0 billion as of December 31, 2022.

In regards to the Sterling Notes, the principal amount of the debt and any premium or discount is remeasured

into US dollars as of each balance sheet date.

We had availability under our credit facilities of approximately $5.2 billion as of December 31, 2023.

(b) In general, the obligors have the right to redeem all of the notes set forth in the above table in whole or in part at their option, beginning at various times prior to their stated maturity dates, subject to certain conditions, upon the payment of the outstanding principal amount (plus a specified redemption premium) and all accrued and unpaid interest.

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(d) Principal amount includes £650 million valued at $828 million as of December 31, 2023 using the exchange rate as of December 31, 2023.

In 2022, Charter Operating entered into an amendment to its credit agreement.

Also in 2022, CCO Holdings and CCO Holdings Capital Corp.

In 2023, CCO Holdings and CCO Holdings Capital Corp.

jointly issued $1.1 billion aggregate principal amount of senior unsecured notes and Charter Operating and Charter Communications Operating Capital Corp.

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The notes were issued at varying rates, prices and maturity dates and the net proceeds were used to pay related fees and expenses and for general corporate purposes, including funding buybacks of Charter Class A common stock and Charter Holdings common units as well as repaying certain indebtedness.

In 2023, Charter Operating entered into amendments to its credit agreement to (i) replace London Interbank Offering Rate (“LIBOR”) as the benchmark rate applicable to the credit facilities with Secured Overnight Financing Rate (“SOFR”), (ii) incur a new Term B-3 Loan and a new Term B-4 Loan;

and (iii) concurrently cancel certain of Charter Operating's existing Term B-1 Loan (upon assignment to Charter Operating and conversion into Term B-4 Loan) and Term B-2 Loan (upon assignment to Charter Operating), among other amendments.

See Note 8 to the accompanying consolidated financial statements contained in “Part II.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis