heather.roseman@chartercom.com
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
OF 1934
For
the quarterly period ended March 31, 2007
or
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
OF 1934
For
the transition period from ________ to _________
Commission
file number: 000-27927
Charter
Communications, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
43-1857213
|
(State
or other jurisdiction of incorporation or
organization)
|
(I.R.S.
Employer Identification
Number)
|
12405
Powerscourt Drive
St.
Louis, Missouri 63131
(Address
of principal executive offices including zip code)
(314)
965-0555
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. YES [X] NO [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated
filer o Accelerated
filer þ Non-accelerated
filer
o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes oNo
þ
Number
of
shares of Class A common stock outstanding as of March 31, 2007:
408,600,085
Number
of
shares of Class B common stock outstanding as of March 31, 2007: 50,000
Charter
Communications, Inc.
Quarterly
Report on Form 10-Q for the Period ended March 31, 2007
Table
of Contents
PART
I. FINANCIAL INFORMATION
|
Page
|
|
|
Item
1. Financial
Statements - Charter Communications, Inc. and Subsidiaries
|
|
Condensed
Consolidated Balance Sheets as of March
31, 2007
|
|
and
December 31, 2006
|
4
|
Condensed
Consolidated Statements of Operations for the three
|
|
months
ended March
31, 2007 and
2006
|
5
|
Condensed
Consolidated Statements of Cash Flows for the
|
|
three
months ended March
31, 2007 and 2006
|
6
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
|
|
Item
2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
18
|
|
|
Item
3. Quantitative
and Qualitative Disclosures about Market Risk
|
28
|
|
|
Item
4. Controls
and Procedures
|
29
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
Item
1. Legal
Proceedings
|
31
|
|
|
Item
1A. Risk Factors
|
31
|
|
|
Item
6. Exhibits
|
35
|
|
|
SIGNATURES
|
S-1
|
|
|
EXHIBIT
INDEX
|
E-1
|
This
quarterly report on Form 10-Q is for the three months ended March 31, 2007.
The Securities and Exchange Commission ("SEC") allows us to "incorporate by
reference" information that we file with the SEC, which means that we can
disclose important information to you by referring you directly to those
documents. Information incorporated by reference is considered to be part of
this quarterly report. In addition, information that we file with the SEC in
the
future will automatically update and supersede information contained in this
quarterly report. In this quarterly report, "we," "us" and "our" refer to
Charter Communications, Inc., Charter Communications Holding Company, LLC and
their subsidiaries.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS:
This
quarterly
report includes
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities
Act"),
and
Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange
Act"),
regarding, among other things, our plans, strategies and prospects, both
business and financial including, without limitation, the forward-looking
statements set forth in the "Results
of Operations"
and
"Liquidity
and Capital Resources"
sections
under Part I, Item 2. "Management’s
Discussion and Analysis of Financial Condition and Results of
Operations"
in this
quarterly
report.
Although we believe that our plans, intentions and expectations reflected in
or
suggested by these forward-looking statements are reasonable, we cannot assure
you that we will achieve or realize these plans, intentions or expectations.
Forward-looking statements are inherently subject to risks, uncertainties and
assumptions including, without limitation, the factors described under
"Risk
Factors"
under
Part II, Item 1A. Many of the forward-looking statements contained in this
quarterly
report may
be
identified by the use of forward-looking words such as "believe," "expect," "anticipate," "should," "planned," "will," "may," "intend," "estimated," "aim,"
"on track," "target," "opportunity"
and
"potential"
among
others. Important factors that could cause actual results to differ materially
from the forward-looking statements we make in this quarterly
report are
set
forth in this quarterly
report and
in
other reports or documents that we file from time to time with the SEC, and
include, but are not limited to:
|
·
|
the
availability, in general, of funds to meet interest payment obligations
under our debt and to fund our operations and necessary capital
expenditures, either through cash flows from operating activities,
further
borrowings or other sources and, in particular, our ability to
be able to
provide under the applicable debt instruments such funds (by dividend,
investment or otherwise) to the applicable obligor of such
debt;
|
|
·
|
our
ability to comply with all covenants in our indentures and credit
facilities, any violation of which could trigger a default of our
other
obligations under cross-default provisions;
|
|
·
|
our
ability to pay or refinance debt prior to or when it becomes due
and/or
refinance that debt through new issuances, exchange offers or otherwise,
including restructuring our balance sheet and leverage
position;
|
|
·
|
competition
from other distributors, including incumbent telephone companies,
direct
broadcast satellite operators, wireless broadband providers and
DSL
providers;
|
|
·
|
difficulties
in introducing and operating our telephone services, such as our
ability
to adequately meet customer expectations for the reliability of
voice
services, and our ability to adequately meet demand for installations
and
customer service;
|
|
·
|
our
ability to sustain and grow revenues and cash flows from operating
activities by offering video, high-speed Internet, telephone and
other
services, and to maintain and grow our customer base, particularly
in the
face of increasingly aggressive
competition;
|
|
·
|
our
ability to obtain programming at reasonable prices or to adequately
raise
prices to offset the effects of higher programming costs;
|
|
·
|
general
business conditions, economic uncertainty or slowdown;
and
|
|
·
|
the
effects of governmental regulation, including but not limited to
local
franchise authorities, on our business.
|
All
forward-looking statements attributable to us or any person acting on our behalf
are expressly qualified in their entirety by this cautionary statement. We
are
under no duty or obligation to update any of the forward-looking statements
after the date of this quarterly
report.
PART
I. FINANCIAL INFORMATION.
Item
1. Financial
Statements.
CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(DOLLARS
IN MILLIONS, EXCEPT PER SHARE DATA)
|
|
March
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
Cash
and cash equivalents, including restricted cash of $110 and $0,
respectively
|
|
$
|
205
|
|
$
|
60
|
|
Accounts
receivable, less allowance for doubtful accounts of
|
|
|
|
|
|
|
|
$16
and $16, respectively
|
|
|
158
|
|
|
195
|
|
Prepaid
expenses and other current assets
|
|
|
86
|
|
|
84
|
|
Total
current assets
|
|
|
449
|
|
|
339
|
|
|
|
|
|
|
|
|
|
INVESTMENT
IN CABLE PROPERTIES:
|
|
|
|
|
|
|
|
Property,
plant and equipment, net of accumulated
|
|
|
|
|
|
|
|
depreciation
of $7,968 and $7,644, respectively
|
|
|
5,178
|
|
|
5,217
|
|
Franchises,
net
|
|
|
9,218
|
|
|
9,223
|
|
Total
investment in cable properties, net
|
|
|
14,396
|
|
|
14,440
|
|
|
|
|
|
|
|
|
|
OTHER
NONCURRENT ASSETS
|
|
|
332
|
|
|
321
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
15,177
|
|
$
|
15,100
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
1,464
|
|
$
|
1,298
|
|
Total
current liabilities
|
|
|
1,464
|
|
|
1,298
|
|
|
|
|
|
|
|
|
|
LONG-TERM
DEBT
|
|
|
19,276
|
|
|
19,062
|
|
NOTE
PAYABLE - RELATED PARTY
|
|
|
59
|
|
|
57
|
|
DEFERRED
MANAGEMENT FEES - RELATED PARTY
|
|
|
14
|
|
|
14
|
|
OTHER
LONG-TERM LIABILITIES
|
|
|
709
|
|
|
692
|
|
MINORITY
INTEREST
|
|
|
194
|
|
|
192
|
|
PREFERRED
STOCK - REDEEMABLE; $.001 par value; 1 million
|
|
|
|
|
|
|
|
shares
authorized; 36,713 shares issued and outstanding
|
|
|
4
|
|
|
4
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’
DEFICIT:
|
|
|
|
|
|
|
|
Class
A Common stock; $.001 par value; 1.75 billion shares
authorized;
|
|
|
|
|
|
|
|
408,600,085
and 407,994,585 shares issued and outstanding,
respectively
|
|
|
--
|
|
|
--
|
|
Class
B Common stock; $.001 par value; 750 million
|
|
|
|
|
|
|
|
shares
authorized; 50,000 shares issued and outstanding
|
|
|
--
|
|
|
--
|
|
Preferred
stock; $.001 par value; 250 million shares
|
|
|
|
|
|
|
|
authorized;
no non-redeemable shares issued and outstanding
|
|
|
--
|
|
|
--
|
|
Additional
paid-in capital
|
|
|
5,320
|
|
|
5,313
|
|
Accumulated
deficit
|
|
|
(11,861
|
)
|
|
(11,536
|
)
|
Accumulated
other comprehensive income
|
|
|
(2
|
)
|
|
4
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ deficit
|
|
|
(6,543
|
)
|
|
(6,219
|
)
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ deficit
|
|
$
|
15,177
|
|
$
|
15,100
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(DOLLARS
IN MILLIONS, EXCEPT PER SHARE DATA)
Unaudited
|
|
Three
Months Ended March 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
1,425
|
|
$
|
1,320
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
Operating
(excluding depreciation and amortization)
|
|
|
631
|
|
|
604
|
|
Selling,
general and administrative
|
|
|
303
|
|
|
272
|
|
Depreciation
and amortization
|
|
|
331
|
|
|
350
|
|
Asset
impairment charges
|
|
|
--
|
|
|
99
|
|
Other
operating expenses, net
|
|
|
4
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
1,269
|
|
|
1,328
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) from continuing operations
|
|
|
156
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
OTHER
INCOME AND (EXPENSES):
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(464
|
)
|
|
(468
|
)
|
Other
income (expense), net
|
|
|
(4
|
)
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
(468
|
)
|
|
(457
|
)
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before income taxes
|
|
|
(312
|
)
|
|
(465
|
)
|
|
|
|
|
|
|
|
|
INCOME
TAX EXPENSE
|
|
|
(69
|
)
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(381
|
)
|
|
(473
|
)
|
|
|
|
|
|
|
|
|
INCOME
FROM DISCONTINUED OPERATIONS, NET OF TAX
|
|
|
--
|
|
|
14
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(381
|
)
|
$
|
(459
|
)
|
|
|
|
|
|
|
|
|
LOSS
PER COMMON SHARE, BASIC AND DILUTED:
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(1.04
|
)
|
$
|
(1.49
|
)
|
Net
loss
|
|
$
|
(1.04
|
)
|
$
|
(1.45
|
)
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding, basic and diluted
|
|
|
366,120,096
|
|
|
317,413,472
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS
IN MILLIONS)
Unaudited
|
|
Three
Months Ended March 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
loss
|
|
$
|
(381
|
)
|
$
|
(459
|
)
|
Adjustments
to reconcile net loss to net cash flows from operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
331
|
|
|
358
|
|
Asset
impairment charges
|
|
|
--
|
|
|
99
|
|
Noncash
interest expense
|
|
|
11
|
|
|
52
|
|
Deferred
income taxes
|
|
|
68
|
|
|
7
|
|
Other,
net
|
|
|
12
|
|
|
(7
|
)
|
Changes
in operating assets and liabilities, net of effects from acquisitions
and
dispositions:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
37
|
|
|
61
|
|
Prepaid
expenses and other assets
|
|
|
(4
|
)
|
|
3
|
|
Accounts
payable, accrued expenses and other
|
|
|
192
|
|
|
95
|
|
|
|
|
|
|
|
|
|
Net
cash flows from operating activities
|
|
|
266
|
|
|
209
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
(298
|
)
|
|
(241
|
)
|
Change
in accrued expenses related to capital expenditures
|
|
|
(32
|
)
|
|
(7
|
)
|
Purchase
of cable system
|
|
|
--
|
|
|
(42
|
)
|
Other,
net
|
|
|
9
|
|
|
14
|
|
|
|
|
|
|
|
|
|
Net
cash flows from investing activities
|
|
|
(321
|
)
|
|
(276
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Borrowings
of long-term debt
|
|
|
911
|
|
|
415
|
|
Repayments
of long-term debt
|
|
|
(691
|
)
|
|
(759
|
)
|
Proceeds
from issuance of debt
|
|
|
--
|
|
|
440
|
|
Payments
for debt issuance costs
|
|
|
(20
|
)
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
Net
cash flows from financing activities
|
|
|
200
|
|
|
86
|
|
|
|
|
|
|
|
|
|
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
145
|
|
|
19
|
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
|
|
60
|
|
|
21
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, end of period
|
|
$
|
205
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
CASH
PAID FOR INTEREST
|
|
$
|
304
|
|
$
|
240
|
|
|
|
|
|
|
|
|
|
NONCASH
TRANSACTIONS:
|
|
|
|
|
|
|
|
Issuance
of debt by Charter Communications Operating, LLC
|
|
$
|
--
|
|
$
|
37
|
|
Retirement
of Renaissance Media Group LLC debt
|
|
$
|
--
|
|
$
|
(37
|
)
|
Cumulative
adjustment to Accumulated Deficit for the adoption of FIN
48
|
|
$
|
56
|
|
$
|
--
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except per share amounts and where
indicated)
1. Organization
and Basis of Presentation
Charter
Communications, Inc. ("Charter") is a holding company whose principal assets
at
March 31, 2007 are the 55% controlling common equity interest (52% for
accounting purposes) in Charter Communications Holding Company, LLC ("Charter
Holdco") and "mirror" notes that are payable by Charter Holdco to Charter and
have the same principal amount and terms as those of Charter’s convertible
senior notes. Charter Holdco is the sole owner of CCHC, LLC ("CCHC"), which
is
the sole owner of Charter Communications Holdings, LLC ("Charter Holdings").
The
condensed consolidated financial statements include the accounts of Charter,
Charter Holdco, CCHC, Charter Holdings and all of their subsidiaries where
the
underlying operations reside, which are collectively referred to herein as
the
"Company." Charter has 100% voting control over Charter Holdco and had
historically consolidated Charter Holdco and its subsidiaries on that basis.
Charter continues to consolidate Charter Holdco as a variable interest entity
under Financial Accounting Standards Board ("FASB") Interpretation ("FIN")
46(R)
Consolidation
of Variable Interest Entities.
Charter
Holdco’s limited liability company agreement provides that so long as Charter’s
Class B common stock retains its special voting rights, Charter will maintain
a
100% voting interest in Charter Holdco. Voting control gives Charter full
authority and control over the operations of Charter Holdco. All significant
intercompany accounts and transactions among consolidated entities have been
eliminated.
The
Company is a broadband communications company operating in the United States.
The Company offers to residential and commercial customers traditional cable
video programming (analog and digital video), high-speed Internet services,
advanced broadband services such as high definition television, Charter
OnDemand™, and digital video recorder service, and, in many of our markets,
telephone service. The Company sells its cable video programming, high-speed
Internet, telephone, and advanced broadband services on a subscription basis.
The Company also sells local advertising on cable networks.
The
accompanying condensed consolidated financial statements of the Company have
been prepared in accordance with accounting principles generally accepted in
the
United States for interim financial information and the rules and regulations
of
the Securities and Exchange Commission (the "SEC"). Accordingly, certain
information and footnote disclosures typically included in Charter’s Annual
Report on Form 10-K have been condensed or omitted for this quarterly report.
The accompanying condensed consolidated financial statements are unaudited
and
are subject to review by regulatory authorities. However, in the opinion of
management, such financial statements include all adjustments, which consist
of
only normal recurring adjustments, necessary for a fair presentation of the
results for the periods presented. Interim results are not necessarily
indicative of results for a full year.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Areas involving significant judgments and estimates include
capitalization of labor and overhead costs; depreciation and amortization costs;
impairments of property, plant and equipment, franchises and goodwill; income
taxes; and contingencies. Actual results could differ from those
estimates.
Reclassifications
Certain
2006 amounts have been reclassified to conform with the 2007 presentation,
including discontinued operations as discussed in Note 3.
2. Liquidity
and Capital Resources
The
Company incurred net losses of $381 million and $459 million for the three
months ended March 31, 2007 and 2006, respectively. The Company’s net cash flows
from operating activities were $266 million and $209 million for the three
months ended March 31, 2007 and 2006, respectively.
CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except per share amounts and where
indicated)
The
Company has a significant level of debt. The Company's long-term financing
as of
March 31, 2007 consists of $5.6 billion of credit facility debt, $13.3 billion
accreted value of high-yield notes and $410 million accreted value of
convertible senior notes. For the remaining three quarterly periods of 2007,
$105 million of the Company’s debt matures, which was paid on April 2, 2007 upon
maturity of the 8.250% Charter Holdings senior notes. In 2008, $55 million
of
the Company’s debt matures, and in 2009, $882 million matures. Of the debt that
was scheduled to mature in 2009, $187 million was subject to a call redemption
that closed in April 2007, and $40 million was repurchased in a tender offer
that closed in April 2007. In 2010 and beyond, significant additional amounts
will become due under the Company’s remaining long-term debt
obligations.
The
Company requires significant cash to fund debt service costs, capital
expenditures and ongoing operations. The Company has historically funded these
requirements through cash flows from operating activities, borrowings under
its
credit facilities, sales of assets, issuances of debt and equity securities,
and
cash on hand. However, the mix of funding sources changes from period to period.
For the three months ended March 31, 2007, the Company generated $266 million
of
net cash flows from operating activities, after paying cash interest of $304
million. In addition, the Company used approximately $298 million for purchases
of property, plant and equipment. Finally, the Company generated net cash flows
from financing activities of $200 million, as a result of refinancing
transactions completed during the period.
The
Company expects that cash on hand, cash flows from operating activities, and
the
amounts available under its credit facilities will be adequate to meet its
cash
needs through 2008. The Company believes that cash flows from operating
activities and amounts available under the Company’s credit facilities may not
be sufficient to fund the Company’s operations and satisfy its interest and
principal repayment obligations in 2009, and will not be sufficient to fund
such
needs in 2010 and beyond. The Company continues to work with its financial
advisors concerning its approach to addressing liquidity, debt maturities,
and
overall balance sheet leverage.
Credit
Facility Availability
The
Company’s ability to operate depends upon, among other things, its continued
access to capital, including credit under the Charter Communications Operating,
LLC (“Charter Operating”) credit facilities. The Charter Operating credit
facilities, along with the Company’s indentures and the CCO Holdings, LLC (“CCO
Holdings”) credit facilities, contain certain restrictive covenants, some of
which require the Company to maintain specified leverage ratios, meet financial
tests, and provide annual audited financial statements with an unqualified
opinion from the Company’s independent auditors. As of March 31, 2007, the
Company was in compliance with the covenants under its indentures and credit
facilities, and the Company expects to remain in compliance with those covenants
for the next twelve months. As of March 31, 2007, the
Company’s potential availability under its revolving credit facility totaled
approximately $1.4 billion, none of which was limited by covenant
restrictions.
Continued
access to the Company’s credit facilities is subject to the Company remaining in
compliance with these covenants, including covenants tied to the Company’s
leverage ratio. If any event of non-compliance were to occur, funding under
the
credit facilities may not be available and defaults on some or potentially
all
of the Company’s debt obligations could occur. An event of default under any of
the Company’s debt instruments could result in the acceleration of its payment
obligations under that debt and, under certain circumstances, in cross-defaults
under its other debt obligations, which could have a material adverse effect
on
the Company’s consolidated financial condition and results of
operations.
Limitations
on Distributions
As
long
as the convertible notes remain outstanding and are not otherwise converted
into
shares of common stock, Charter must pay interest on the convertible senior
notes and repay the principal amount in November 2009. Charter’s
ability to make interest payments on its convertible senior notes, and, in
2009,
to repay the outstanding principal of its convertible senior notes of $413
million, net of $450 million of convertible senior notes held by CCHC, will
depend on its ability to raise additional capital and/or on receipt of payments
or distributions from Charter Holdco and its subsidiaries. As
of March 31, 2007, Charter Holdco was owed $4 million in intercompany loans
from
its subsidiaries and had $8 million in cash, which were available to pay
interest and principal on Charter's convertible senior notes.
In
addition, Charter has $50 million of U.S. government securities pledged as
security for the semi-annual interest
CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except per share amounts and where
indicated)
payments
on Charter’s convertible senior notes scheduled in 2007. As long as CCHC
continues to hold the $450 million of Charter’s convertible senior notes, CCHC
will receive interest payments from the government securities pledged for the
convertible senior notes. The cumulative amount of interest payments
expected to be received by CCHC is $40 million and may be available to be
distributed to pay semiannual interest due in 2008 and May 2009 on the
outstanding principal amount of $413 million of the convertible senior notes,
although CCHC may use those amounts for other purposes.
Distributions
by Charter’s subsidiaries to a parent company (including Charter, Charter Holdco
and CCHC) for
payment of principal on parent company notes, are
restricted under the indentures governing the CCH I Holdings, LLC (“CIH”) notes,
CCH I, LLC (“CCH I”) notes, CCH II, LLC (“CCH II”) notes, CCO Holdings notes,
and Charter Operating notes and under the CCO Holdings credit facilities
unless
there is no default under the applicable indenture and credit facilities, and
each applicable subsidiary’s leverage ratio test is met at the time of such
distribution. For
the
quarter ended March 31, 2007, there was no default under any of these indentures
or credit facilities. However, certain of the Company’s subsidiaries did not
meet their applicable leverage ratio tests based on March 31, 2007 financial
results. As a result, distributions from certain of the Company’s subsidiaries
to their parent companies would have been restricted at such time and will
continue to be restricted unless those tests are met. Distributions by Charter
Operating for payment of principal on parent company notes are further
restricted by the covenants in its credit facilities.
Distributions
by CIH, CCH I, CCH II, CCO Holdings and Charter Operating to a parent company
for payment of parent company interest are permitted if there is no default
under the aforementioned indentures and CCO Holdings credit facilities.
The
indentures governing the Charter Holdings notes permit Charter Holdings to
make
distributions to Charter Holdco for payment of interest or principal on the
convertible senior notes, only if, after giving effect to the distribution,
Charter Holdings can incur additional debt under the leverage ratio of 8.75
to
1.0, there is no default under Charter Holdings’ indentures, and other specified
tests are met. For the quarter ended March
31,
2007, there was no default under Charter Holdings’ indentures and the other
specified tests were met. However,
Charter Holdings did not meet the leverage ratio test of 8.75 to 1.0 based
on
March 31, 2007 financial results. As a result, distributions from Charter
Holdings to Charter or Charter Holdco would have been restricted at such time
and will continue to be restricted unless that test is met. During
periods
in which distributions are restricted,
the
indentures governing the Charter Holdings notes permit Charter Holdings and
its
subsidiaries to make specified investments (that are not restricted payments)
in
Charter Holdco or Charter, up to an amount determined by a formula, as long
as
there is no default under the indentures.
Recent
Financing Transactions
In
March
2007, Charter Operating entered into an Amended and Restated Credit Agreement
(the “Charter Operating Credit Agreement”) which provides for a $1.5 billion
senior secured revolving line of credit, a continuation of the existing $5.0
billion term loan facility (which was refinanced with new term loans in April
2007), and a $1.5 billion new term loan facility, which was funded in March
and
April 2007. In March 2007, CCO Holdings entered into a credit agreement which
consisted of a $350 million term loan facility funded in March and April 2007.
In April 2007, Charter Holdings completed a cash tender offer to purchase up
to
$100 million, including premiums and accrued interest, of its outstanding notes.
In addition, Charter Holdings redeemed $187 million of its 8.625% senior notes
due April 1, 2009 and CCO Holdings redeemed $550 million of its senior floating
rate notes due December 15, 2010. These redemptions closed in April 2007. See
Note 6.
3. Sales
of
Assets
In
2006,
the Company sold certain cable television systems serving a total of
approximately 356,000 analog video customers in 1) West Virginia and
Virginia
to
Cebridge Connections, Inc. (the “Cebridge Transaction”); 2) Illinois and
Kentucky to Telecommunications Management, LLC, doing business as New Wave
Communications (the “New Wave Transaction”) and 3) Nevada, Colorado, New Mexico
and Utah to Orange Broadband Holding Company, LLC
CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except per share amounts and where
indicated)
(the
“Orange Transaction”) for a total sales price of approximately $971 million. The
Company used the net proceeds from the asset sales to reduce borrowings, but
not
commitments, under the revolving portion of the Company’s credit facilities.
These cable systems met the criteria for assets held for sale. As such, the
assets were written down to fair value less estimated costs to sell resulting
in
asset impairment charges during the three months ended March 31, 2006 of
approximately $99 million related to the New Wave Transaction and the Orange
Transaction. The Company determined that the West Virginia and Virginia cable
systems comprise operations and cash flows that for financial reporting purposes
meet the criteria for discontinued operations. Accordingly, the results of
operations for the West Virginia and Virginia cable systems have been presented
as discontinued operations, net of tax for the three months ended March 31,
2006.
Summarized
consolidated financial information for the three months ended March 31, 2006
for
the West Virginia and Virginia cable systems is as follows:
|
|
Three
Months Ended
March
31, 2006
|
|
|
|
|
|
Revenues
|
|
$
|
54
|
|
Income
before income taxes
|
|
$
|
15
|
|
Income
tax expense
|
|
$
|
(1
|
)
|
Net
income
|
|
$
|
14
|
|
Earnings
per common share, basic and diluted
|
|
$
|
0.05
|
|
4. Franchises
and Goodwill
Franchise
rights represent the value attributed to agreements with local authorities
that
allow access to homes in cable service areas acquired through the purchase
of
cable systems. Management estimates the fair value of franchise rights at the
date of acquisition and determines if the franchise has a finite life or an
indefinite-life as defined by Statement of Financial Accounting Standards
(“SFAS”) No. 142, Goodwill
and Other Intangible Assets.
Franchises
that qualify for indefinite-life treatment under SFAS No. 142 are tested
for impairment annually each October 1 based on valuations, or more frequently
as warranted by events or changes in circumstances. Franchises are aggregated
into essentially inseparable asset groups to conduct the valuations. The asset
groups generally represent geographical clustering of the Company’s cable
systems into groups by which such systems are managed. Management believes
such
grouping represents the highest and best use of those assets.
As
of
March 31, 2007 and December 31, 2006, indefinite-lived and finite-lived
intangible assets are presented in the following table:
|
|
March
31, 2007
|
|
December 31,
2006
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Indefinite-lived
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchises
with indefinite lives
|
|
$
|
9,203
|
|
$
|
--
|
|
$
|
9,203
|
|
$
|
9,207
|
|
$
|
--
|
|
$
|
9,207
|
|
Goodwill
|
|
|
61
|
|
|
--
|
|
|
61
|
|
|
61
|
|
|
--
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,264
|
|
$
|
--
|
|
$
|
9,264
|
|
$
|
9,268
|
|
$
|
--
|
|
$
|
9,268
|
|
Finite-lived
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchises
with finite lives
|
|
$
|
23
|
|
$
|
8
|
|
$
|
15
|
|
$
|
23
|
|
$
|
7
|
|
$
|
16
|
|
For
the
three months ended March 31, 2007, the net carrying amount of indefinite-lived
and finite-lived franchises was reduced by $4 million, related to cable asset
sales completed in the first quarter of 2007. Franchise amortization
CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except per share amounts and where
indicated)
expense
represents the amortization relating to franchises that did not qualify for
indefinite-life treatment under SFAS No. 142, including costs associated with
franchise renewals. Franchise amortization expense for the three months ended
March 31, 2007 was approximately $1 million. The Company expects that
amortization expense on franchise assets will be approximately $3 million
annually for each of the next five years. Actual amortization expense in future
periods could differ from these estimates as a result of new intangible asset
acquisitions or divestitures, changes in useful lives and other relevant
factors.
5. Accounts
Payable and Accrued Expenses
Accounts
payable and accrued expenses consist of the following as of March 31, 2007
and
December 31, 2006:
|
|
March
31,
2007
|
|
December 31,
2006
|
|
|
|
|
|
|
|
Accounts
payable - trade
|
|
$
|
155
|
|
$
|
92
|
|
Accrued
capital expenditures
|
|
|
65
|
|
|
97
|
|
Accrued
expenses:
|
|
|
|
|
|
|
|
Interest
|
|
|
559
|
|
|
410
|
|
Programming
costs
|
|
|
311
|
|
|
268
|
|
Franchise-related
fees
|
|
|
43
|
|
|
68
|
|
Compensation
|
|
|
87
|
|
|
110
|
|
Other
|
|
|
244
|
|
|
253
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,464
|
|
$
|
1,298
|
|
6. Long-Term
Debt
Long-term
debt consists of the following as of March
31,
2007 and
December 31, 2006:
|
|
March
31, 2007
|
|
December
31, 2006
|
|
|
|
Principal
Amount
|
|
Accreted
Value
|
|
Principal
Amount
|
|
Accreted
Value
|
|
Long-Term
Debt
|
|
|
|
|
|
|
|
|
|
Charter
Communications, Inc.:
|
|
|
|
|
|
|
|
|
|
5.875%
convertible senior notes due November 16, 2009
|
|
$ |
413
|
|
$ |
410
|
|
$ |
413
|
|
$ |
408
|
|
Charter
Communications Holdings, LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.250%
senior notes due April 1, 2007
|
|
|
105
|
|
|
105
|
|
|
105
|
|
|
105
|
|
8.625%
senior notes due April 1, 2009
|
|
|
187
|
|
|
187
|
|
|
187
|
|
|
187
|
|
10.000%
senior notes due April 1, 2009
|
|
|
105
|
|
|
105
|
|
|
105
|
|
|
105
|
|
10.750%
senior notes due October 1, 2009
|
|
|
71
|
|
|
71
|
|
|
71
|
|
|
71
|
|
9.625%
senior notes due November 15, 2009
|
|
|
52
|
|
|
52
|
|
|
52
|
|
|
52
|
|
10.250%
senior notes due January 15, 2010
|
|
|
32
|
|
|
32
|
|
|
32
|
|
|
32
|
|
11.750%
senior discount notes due January 15, 2010
|
|
|
21
|
|
|
21
|
|
|
21
|
|
|
21
|
|
11.125%
senior discount notes due January 15, 2011
|
|
|
52
|
|
|
52
|
|
|
52
|
|
|
52
|
|
13.500%
senior discount notes due January 15, 2011
|
|
|
62
|
|
|
62
|
|
|
62
|
|
|
62
|
|
9.920%
senior discount notes due April 1, 2011
|
|
|
63
|
|
|
63
|
|
|
63
|
|
|
63
|
|
10.000%
senior notes due May 15, 2011
|
|
|
71
|
|
|
71
|
|
|
71
|
|
|
71
|
|
11.750%
senior discount notes due May 15, 2011
|
|
|
55
|
|
|
55
|
|
|
55
|
|
|
55
|
|
12.125%
senior discount notes due January 15, 2012
|
|
|
91
|
|
|
91
|
|
|
91
|
|
|
91
|
|
CCH
I Holdings, LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except per share amounts and where
indicated)
11.125%
senior notes due January 15, 2014
|
|
|
151
|
|
|
151
|
|
|
151
|
|
|
151
|
|
13.500%
senior discount notes due January 15, 2014
|
|
|
581
|
|
|
581
|
|
|
581
|
|
|
581
|
|
9.920%
senior discount notes due April 1, 2014
|
|
|
471
|
|
|
471
|
|
|
471
|
|
|
471
|
|
10.000%
senior notes due May 15, 2014
|
|
|
299
|
|
|
299
|
|
|
299
|
|
|
299
|
|
11.750%
senior discount notes due May 15, 2014
|
|
|
815
|
|
|
815
|
|
|
815
|
|
|
815
|
|
12.125%
senior discount notes due January 15, 2015
|
|
|
217
|
|
|
217
|
|
|
217
|
|
|
216
|
|
CCH
I, LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.000%
senior notes due October 1, 2015
|
|
|
3,987
|
|
|
4,089
|
|
|
3,987
|
|
|
4,092
|
|
CCH
II, LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.250%
senior notes due September 15, 2010
|
|
|
2,198
|
|
|
2,190
|
|
|
2,198
|
|
|
2,190
|
|
10.250%
senior notes due October 1, 2013
|
|
|
250
|
|
|
261
|
|
|
250
|
|
|
262
|
|
CCO
Holdings, LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
floating notes due December 15, 2010
|
|
|
550
|
|
|
550
|
|
|
550
|
|
|
550
|
|
8¾%
senior notes due November 15, 2013
|
|
|
800
|
|
|
795
|
|
|
800
|
|
|
795
|
|
Charter
Communications Operating, LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.000%
senior second lien notes due April 30, 2012
|
|
|
1,100
|
|
|
1,100
|
|
|
1,100
|
|
|
1,100
|
|
8
3/8% senior second lien notes due April 30, 2014
|
|
|
770
|
|
|
770
|
|
|
770
|
|
|
770
|
|
Credit
Facilities
|
|
|
5,610
|
|
|
5,610
|
|
|
5,395
|
|
|
5,395
|
|
|
|
$
|
19,179
|
|
$
|
19,276
|
|
$
|
18,964
|
|
$
|
19,062
|
|
The
accreted values presented above generally represent the principal amount of
the
notes less the original issue discount at the time of sale plus the accretion
to
the balance sheet date except as follows. Certain of the CIH notes, CCH I notes
and CCH II notes issued in exchange for Charter Holdings notes and Charter
convertible notes in 2006 and 2005 are recorded for financial reporting purposes
at values different from the current accreted value for legal purposes and
notes
indenture purposes (the amount that is currently payable if the debt becomes
immediately due). As of March 31, 2007, the accreted value of the Company’s debt
for legal purposes and notes indenture purposes is approximately $19.1
billion.
In
March
2007, Charter Operating entered into the Charter Operating Credit Agreement
which provides for a $1.5 billion senior secured revolving line of credit,
a
continuation of the existing $5.0 billion term loan facility (the “Existing Term
Loan”), and a $1.5 billion new term loan facility (the “New Term Loan”), which
was funded in March and April 2007. Borrowings under the Charter Operating
Credit Agreement bear interest at a variable interest rate based on either
LIBOR
or a base rate, plus in either case, an applicable margin. The applicable margin
for LIBOR loans under the New Term Loan and revolving loans is 2.00% above
LIBOR. The revolving line of credit commitments terminate in March 2013. The
Existing Term Loan and the New Term Loan are subject to amortization at 1%
of
their initial principal amount per annum. The New Term Loan amortization
commences on March 31, 2008. The remaining principal amount of the New Term
Loan
will be due in March 2014.
The
terms
of the Existing Term Loan were amended in March 2007. The refinancing of the
$5.0 billion Existing Term Loan with new term loans was permitted under the
Charter Operating Credit Agreement and occurred in April 2007, with pricing
(LIBOR plus 2.00%) and amortization profile of such term loan matching the
New
Term Loan described above. The Charter Operating Credit Agreement also modified
the quarterly consolidated leverage ratio to be less restrictive.
In
March
2007, CCO Holdings entered into a credit agreement (the “CCO Holdings Credit
Agreement”) which consisted of a $350 million term loan facility (the “Term
Facility”). The Term Facility matures in September 2014 (the “Maturity Date”).
The CCO Holdings Credit Agreement also provides for additional incremental
term
loans (the “Incremental Loans”) maturing on the dates set forth in the notices
establishing such term loans, but no earlier than the Maturity Date. Borrowings
under the CCO Holdings Credit Agreement bear interest at a variable interest
rate based on either LIBOR or a base rate plus, in either case, an applicable
margin. The applicable margin for LIBOR term loans, other than Incremental
Loans, is 2.50% above LIBOR. The applicable margin with respect to Incremental
CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except per share amounts and where
indicated)
Loans
is
to be agreed upon by CCO Holdings and the lenders when the Incremental Loans
are
established. The CCO Holdings Credit Agreement is secured by the equity
interests of Charter Operating, and all proceeds thereof.
As
part
of the refinancing, the existing $350 million revolving/term credit facility
was
terminated. A $1 million loss was recognized related to the write-off of
unamortized deferred debt financing costs related to this facility.
Prior
to
March 31, 2007, $110 million was transferred to the trustee for use to pay
off
the remaining principal and interest of the CCH 8.250% senior notes due April
1,
2007. Such amount was not funded to bond holders until April 2, 2007. The cash
held by the trustee was reflected as restricted cash at March 31, 2007. In
April
2007, Charter Holdings completed a tender offer, in which $97.0 million of
Charter Holdings’ notes were accepted in exchange for $100 million of total
consideration, including premiums and accrued interest. In addition, Charter
Holdings redeemed $187 million of its 8.625% senior notes due April 1, 2009
and
CCO Holdings redeemed $550 million of its senior floating rate notes due
December 15, 2010. These redemptions closed in April 2007.
7. Minority
Interest and Equity Interest of Charter Holdco
Charter
is a holding company whose primary assets are a controlling equity interest
in
Charter Holdco, the indirect owner of the Company’s cable systems, and $413
million at March 31, 2007 and December 31, 2006 of mirror notes that are payable
by Charter Holdco to Charter, and which have the same principal amount and
terms
as those of Charter’s convertible senior notes. Minority
interest on the Company’s consolidated balance sheets as of March 31, 2007 and
December 31, 2006 represents Mr. Allen’s, Charter’s chairman and controlling
shareholder, 5.6% preferred membership interests in CC VIII, LLC ("CC VIII"),
an
indirect subsidiary of Charter Holdco, of $194 million and $192 million,
respectively.
8. Share
Lending Agreement
As
of
March 31, 2007, there were 39.8 million shares of Charter Class A common stock
outstanding that were issued in various offerings as required by the share
lending agreement, pursuant to which Charter had previously agreed to loan
up to
150 million shares to Citigroup Global Markets Limited ("CGML"). These offerings
of Charter’s Class A common stock were conducted to facilitate transactions by
which investors in Charter’s 5.875% convertible senior notes due 2009, issued on
November 22, 2004, hedged their investments in the convertible senior notes.
Charter did not receive any of the proceeds from the sale of this Class A common
stock. However, under the share lending agreement, Charter received a loan
fee
of $.001 for each share that it lent to CGML. Charter has no further obligation
to issue shares pursuant to this share lending agreement.
The
issuance of shares pursuant to this share lending agreement is essentially
analogous to a sale of shares coupled with a forward contract for the
reacquisition of the shares at a future date. An instrument that requires
physical settlement by repurchase of a fixed number of shares in exchange for
cash is considered a forward purchase instrument. While the share lending
agreement does not require a cash payment upon return of the shares, physical
settlement is required (i.e., the shares borrowed must be returned at the end
of
the arrangement). The fair value of the 39.8 million loaned shares outstanding
is approximately $111 million as of March 31, 2007. However, the net effect
on
shareholders’ deficit of the shares lent pursuant to the share lending
agreement, which includes Charter’s requirement to lend the shares and the
counterparties’ requirement to return the shares, is de minimis and represents
the cash received upon lending of the shares and is equal to the par value of
the common stock to be issued.
9. Comprehensive
Loss
Certain
marketable equity securities are classified as available-for-sale and reported
at market value with unrealized gains and losses recorded as accumulated other
comprehensive loss on the accompanying condensed consolidated balance sheets.
Additionally, the Company reports changes in the fair value of interest rate
agreements designated as hedging the variability of cash flows associated with
floating-rate debt obligations, that meet the effectiveness criteria of SFAS
No.
133, Accounting
for Derivative Instruments and Hedging Activities,
in
accumulated other comprehensive
CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except per share amounts and where
indicated)
loss,
after giving effect to the minority interest share of such gains and losses.
Comprehensive loss was $387 million and $460 million for the three months ended
March 31, 2007 and 2006, respectively.
10. Accounting
for Derivative Instruments and Hedging Activities
The
Company uses interest rate risk management derivative instruments, including
but
not limited to interest rate swap agreements and interest rate collar agreements
(collectively referred to herein as interest rate agreements) to manage its
interest costs. The Company’s policy is to manage its exposure to fluctuations
in interest rates by maintaining a mix of fixed and variable rate debt within
a
targeted range. Using interest rate swap agreements, the Company has agreed
to
exchange, at specified intervals through 2013, the difference between fixed
and
variable interest amounts calculated by reference to agreed-upon notional
principal amounts.
The
Company’s hedging policy does not permit it to hold or issue derivative
instruments for trading purposes. The Company does, however, have certain
interest rate derivative instruments that have been designated as cash flow
hedging instruments. Such instruments effectively convert variable interest
payments on certain debt instruments into fixed payments. For qualifying hedges,
SFAS No. 133 allows derivative gains and losses to offset related results on
hedged items in the consolidated statement of operations. The Company has
formally documented, designated and assessed the effectiveness of transactions
that receive hedge accounting. For the three months ended March
31,
2007
and 2006, other income (expense), net includes $0 and gains of $2 million,
respectively, which represent cash flow hedge ineffectiveness on interest rate
hedge agreements. This ineffectiveness arises from differences between critical
terms of the agreements and the related hedged obligations. Changes in the
fair
value of interest rate agreements designated as hedging instruments of the
variability of cash flows associated with floating rate debt obligations that
meet the effectiveness criteria of SFAS No. 133 are reported in accumulated
other comprehensive loss. For the three months ended March
31,
2007
and 2006, losses of $2 million and $1 million, respectively, related to
derivative instruments designated as cash flow hedges, were recorded in
accumulated other comprehensive loss. The amounts are subsequently reclassified
into interest expense as a yield adjustment in the same periods in which the
related interest on the floating-rate debt obligations affects earnings
(losses).
Certain
interest rate derivative instruments are not designated as hedges as they do
not
meet the effectiveness criteria specified by SFAS No. 133. However, management
believes such instruments are closely correlated with the respective debt,
thus
managing associated risk. Interest rate derivative instruments not designated
as
hedges are marked to fair value, with the impact recorded as other income
(expense) in the Company’s condensed consolidated statements of operations. For
the three months ended March
31,
2007
and 2006, other income (expense), net, includes losses of $1 million and
gains of $6 million, respectively, resulting from interest rate derivative
instruments not designated as hedges.
As
of
March
31,
2007
and December 31, 2006, the Company had outstanding $3.4 billion and $1.7
billion, respectively, in notional amounts of interest rate swaps. The notional
amounts of interest rate instruments do not represent amounts exchanged by
the
parties and, thus, are not a measure of exposure to credit loss. The amounts
exchanged are determined by reference to the notional amount and the other
terms
of the contracts.
Certain
provisions of the Company’s 5.875% convertible senior notes due 2009 are
considered embedded derivatives for accounting purposes and are required to
be
accounted for separately from the convertible senior notes. In accordance with
SFAS No. 133, these derivatives are marked to market with gains or losses
recorded in interest expense on the Company’s condensed consolidated statement
of operations. For the three months ended March
31,
2007
and 2006, the Company recognized $0 and a gain of $2 million, respectively,
which resulted in a decrease in interest expense related to these derivatives.
At March
31,
2007
and December 31, 2006, $12 million is recorded in accounts payable and accrued
expenses relating to the short-term portion of these derivatives.
CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except per share amounts and where
indicated)
11. Other
Operating Expenses, Net
Other
operating expenses, net consist of the following for the three months ended
March 31, 2007 and 2006:
|
|
Three
Months
Ended
March 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Loss
on sale of assets, net
|
|
$
|
3
|
|
$
|
--
|
|
Special
charges, net
|
|
|
1
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4
|
|
$
|
3
|
|
Special
charges, net for the three months ended March 31, 2007 and 2006 primarily
represent severance associated with the closing of call centers and divisional
restructuring.
12. Other
Income
(Expense), Net
Other
income (expense), net consists of the following for the three months ended
March
31, 2007 and 2006:
|
|
Three
Months
Ended
March 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Gain
(loss) on derivative instruments and
hedging
activities, net
|
|
$
|
(1
|
)
|
$
|
8
|
|
Loss
on extinguishment of debt
|
|
|
(1
|
)
|
|
--
|
|
Minority
interest
|
|
|
(2
|
)
|
|
--
|
|
Loss
on investments
|
|
|
--
|
|
|
(1
|
)
|
Other,
net
|
|
|
--
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(4
|
)
|
$
|
11
|
|
13. Income
Taxes
All
operations are held through Charter Holdco and its direct and indirect
subsidiaries. Charter Holdco and the majority of its subsidiaries are limited
liability companies that are not subject to income tax. However, certain of
these subsidiaries are corporations and are subject to income tax. All of the
taxable income, gains, losses, deductions and credits of Charter Holdco are
passed through to its members: Charter, Charter
Investment, Inc. (“CII”) and
Vulcan Cable III Inc. ("Vulcan Cable"). Charter is responsible for its allocated
share of taxable income or loss of Charter Holdco in accordance with the Charter
Holdco limited liability company agreement (the "LLC Agreement") and partnership
tax rules and regulations. Charter also records financial statement deferred
tax
assets and liabilities related to its investments in Charter
Holdco.
As
of
March 31, 2007 and December 31, 2006, the Company had net deferred income tax
liabilities of approximately $526 million and $514 million, respectively.
Approximately $200 million of the deferred tax liabilities recorded in the
condensed consolidated financial statements at March 31, 2007 and December
31,
2006 relate to certain indirect subsidiaries of Charter Holdco, which file
separate income tax returns.
During
the three months ended March 31, 2007 and 2006, the Company recorded $69 million
and $9 million of income tax expense, respectively. Income tax expense of $1
million was associated with discontinued operations for the three months ended
March 31, 2006.
Income
tax expense is recognized through increases in the deferred tax
CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except per share amounts and where
indicated)
liabilities
related to Charter’s investment in Charter Holdco, as well as current federal
and state income tax expense and increases to the deferred tax liabilities
of
certain of Charter’s indirect corporate subsidiaries.
The
Company recorded an additional deferred tax asset of approximately $181 million
during the three months ended March 31, 2007, relating to net operating loss
carryforwards, but recorded a valuation allowance with respect to this amount
because of the uncertainty of the ability to realize a benefit from the
Company’s carryforwards in the future. The
Company had deferred tax assets of approximately $4.8 billion and $4.6 billion
as of March 31, 2007 and December 31, 2006, respectively, which included $2.0
billion of financial losses in excess of tax losses allocated to Charter from
Charter Holdco. The deferred tax assets also included approximately $2.8 billion
and $2.7 billion of tax net operating loss carryforwards as of March 31, 2007
and December 31, 2006, respectively (generally expiring in years 2007 through
2027), of Charter and its indirect corporate subsidiaries. Valuation
allowances of $4.4 billion and $4.2 billion as of March 31, 2007 and December
31, 2006, respectively, existed with respect to these deferred tax assets,
of
which $2.3 billion and $2.2 billion, respectively, relate to the tax net
operating loss carryforwards.
The
amount of any potential benefit from the Company’s tax net operating losses is
dependent on: (1) Charter and its indirect corporate subsidiaries’ ability to
generate future taxable income and (2) the impact of any future “ownership
changes” of Charter's common stock. An “ownership change” as defined in the
applicable federal income tax rules, would place significant limitations, on
an
annual basis, on the use of such net operating losses to offset any future
taxable income the Company may generate. Such limitations, in conjunction with
the net operating loss expiration provisions, could effectively eliminate the
Company’s ability to use a substantial portion of its net operating losses to
offset any future taxable income. Future transactions and the timing of such
transactions could cause such an ownership change. Transactions that could
contribute to causing such an ownership change include, but are not limited
to,
the following: The
issuance of shares of common stock upon future conversion of Charter’s
convertible senior notes, reacquisition of the shares borrowed under the share
lending agreement by Charter (of which 39.8 million remain outstanding as of
March 31, 2007), or acquisitions or sales of shares by certain holders of
Charter’s shares, including persons who have held, currently hold, or accumulate
in the future five percent or more of Charter’s outstanding stock (including
upon an exchange by Mr. Allen or his affiliates, directly or indirectly, of
membership units of Charter Holdco into CCI common stock). Many of the foregoing
transactions, including whether Mr. Allen exchanges his Charter Holdco units,
are beyond management’s control.
The
Company’s deferred tax liability arises from Charter’s investment in Charter
Holdco, and is largely attributable to the characterization of franchises for
financial reporting purposes as indefinite lived. If certain exchanges, as
described above, were to take place, Charter would likely record for financial
reporting purposes additional deferred tax liability related to its increased
interest in Charter Holdco.
Charter
Holdco is currently under examination by the Internal Revenue Service for the
tax years ending December 31, 2003 and 2002. In
addition, one of the Company’s indirect corporate subsidiaries is under
examination by the Internal Revenue Service for the tax year ended December
31,
2004. The
Company’s results (excluding Charter and its indirect corporate subsidiaries,
with the exception of the indirect corporate subsidiary under examination)
for
these years are subject to this examination. Management does not expect the
results of this examination to have a material adverse effect on the Company’s
consolidated financial condition or results of operations.
In
January 2007, the Company adopted FIN 48, Accounting
for Uncertainty in Income Taxes—an Interpretation of FASB Statement
No. 109,
which
provides criteria for the recognition, measurement, presentation and disclosure
of uncertain tax positions. A tax benefit from an uncertain position may be
recognized only if it is “more likely than not” that the position is sustainable
based on its technical merits. The adoption of FIN 48 resulted in a deferred
tax
benefit of $56 million related to a settlement with Mr. Allen regarding
ownership of the CC VIII preferred membership interests, which was recognized
as
a cumulative adjustment to accumulated deficit.
CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except per share amounts and where
indicated)
14. Contingencies
The
Company is a defendant or co-defendant in several unrelated lawsuits claiming
infringement of various patents relating to various aspects of its businesses.
Other industry participants are also defendants in certain of these cases,
and,
in many cases, the Company expects that any potential liability would be
the
responsibility of its equipment vendors pursuant to applicable contractual
indemnification provisions. In the event that a court ultimately determines
that
the Company infringes on any intellectual property rights, it may be subject
to
substantial damages and/or an injunction that could require the Company or
its
vendors to modify certain products and services the Company offers to its
subscribers. While the Company believes the lawsuits are without merit and
intends to defend the actions vigorously, the lawsuits could be material
to the
Company’s consolidated results of operations of any one period, and no assurance
can be given that any adverse outcome would not be material to the Company’s
consolidated financial condition, results of operations, or liquidity.
Charter
is a party to other lawsuits and claims that arise in the ordinary course of
conducting its business. The ultimate outcome of these other legal matters
pending against the Company or its subsidiaries cannot be predicted, and
although such lawsuits and claims are not expected individually to have a
material adverse effect on the Company’s consolidated financial condition,
results of operations, or liquidity, such lawsuits could have, in the aggregate,
a material adverse effect on the Company’s consolidated financial condition,
results of operations, or liquidity.
15. Stock
Compensation Plans
The
Company has stock option plans (the “Plans”) which provide for the grant of
non-qualified stock options, stock appreciation rights, dividend equivalent
rights, performance units and performance shares, share awards, phantom stock
and/or restricted stock (not to exceed 20,000,000 shares of Charter Class A
common stock), as each term is defined in the Plans. Employees, officers,
consultants and directors of the Company and its subsidiaries and affiliates
are
eligible to receive grants under the Plans. Options granted generally vest
over
four years from the grant date, with 25% generally vesting on the anniversary
of
the grant date and ratably thereafter. Generally, options expire 10 years
from the grant date. The Plans allow for the issuance of up to a total of
90,000,000 shares of Charter Class A common stock (or units convertible
into Charter Class A common stock). During the three months ended March 31,
2007, Charter granted 3.8 million stock options and 6.7 million performance
units under Charter’s Long-Term Incentive Program. The
Company recorded $5 million and $4 million of stock compensation expense which
is included in selling, general, and administrative expense for the three months
ended March 31, 2007 and 2006, respectively.
General
Charter
Communications, Inc. ("Charter")
is a
holding company whose principal assets at March 31, 2007 are the 55% controlling
common equity interest (52% for accounting purposes) in Charter Communications
Holding Company, LLC ("Charter
Holdco")
and
"mirror" notes that are payable by Charter
Holdco to
Charter
and
have
the same principal amount and terms as Charter’s
convertible senior notes.
"We," "us"
and
"our"
refer to
Charter and its subsidiaries.
We
are a
broadband communications company operating in the United States. We offer our
residential and commercial customers traditional cable video programming (analog
and digital video, which we refer to as “video service”), high-speed Internet
services, advanced broadband cable services (such as Charter OnDemand™ video
service (“OnDemand”), high definition television service, and digital video
recorder (“DVR”) service) and, in many of our markets, telephone service. We
sell our cable video programming, high-speed Internet, telephone, and advanced
broadband services on a subscription basis.
The
following table summarizes our customer statistics for analog and digital video,
residential high-speed Internet and residential telephone as of March
31,
2007 and 2006:
|
|
Approximate
as of
|
|
|
|
March
31,
|
|
March
31,
|
|
|
|
2007
(a)
|
|
2006
(a)
|
|
|
|
|
|
|
|
Video
Cable Services:
|
|
|
|
|
|
Analog
Video:
|
|
|
|
|
|
Residential
(non-bulk) analog video customers (b)
|
|
|
5,146,700
|
|
|
5,640,200
|
|
Multi-dwelling
(bulk) and commercial unit customers (c)
|
|
|
268,700
|
|
|
273,700
|
|
Total
analog video customers (b)(c)
|
|
|
5,415,400
|
|
|
5,913,900
|
|
|
|
|
|
|
|
|
|
Digital
Video:
|
|
|
|
|
|
|
|
Digital
video customers (d)
|
|
|
2,862,900
|
|
|
2,866,400
|
|
|
|
|
|
|
|
|
|
Non-Video
Cable Services:
|
|
|
|
|
|
|
|
Residential
high-speed Internet customers (e)
|
|
|
2,525,900
|
|
|
2,322,400
|
|
Residential
telephone customers (f)
|
|
|
572,600
|
|
|
191,100
|
|
After
giving effect to sales of certain non-strategic cable systems in the third
quarter of 2006 and in January 2007, analog video customers, digital video
customers, high-speed Internet customers and telephone customers would have
been
5,478,600, 2,683,500, 2,203,000 and 191,100, respectively, as of March 31,
2006.
|
(a)
|
"Customers"
include all persons our corporate billing records show as receiving
service (regardless of their payment status), except for complimentary
accounts (such as our employees). At March 31, 2007 and 2006, "customers"
include approximately 31,700 and 48,500 persons whose accounts were
over
60 days past due in payment, approximately 4,100 and 11,900 persons
whose
accounts were over 90 days past due in payment, and approximately
2,000
and 7,800 of which were over 120 days past due in payment, respectively.
|
|
(b)
|
"Analog
video customers" include all customers who receive video
services.
|
|
(c)
|
Included
within "video customers" are those in commercial and multi-dwelling
structures, which are calculated on an equivalent bulk unit ("EBU")
basis.
EBU is calculated for a system by dividing the bulk price charged
to
accounts in an area by the most prevalent price charged to non-bulk
residential customers in that market for the comparable tier of service.
The EBU method of estimating analog video customers is consistent
with the
methodology used in determining costs paid to programmers and has
been
used consistently.
|
|
(d)
|
"Digital
video customers" include all households that have one or more digital
set-top boxes or cable cards deployed.
|
|
(e)
|
"Residential
high-speed Internet customers" represent those residential customers
who
subscribe to our high-speed Internet service.
|
|
(f)
|
"Residential
telephone customers" include all residential customers receiving
telephone
service.
|
Overview
For
the
three months ended March 31, 2007, our operating income from continuing
operations was $156 million, and for the three months ended March 31, 2006,
our
operating loss from continuing operations was $8 million. We had an operating
margin of 11% for the three months ended March 31, 2007 and a negative operating
margin of 1% for the three months ended March 31, 2006. The increase in
operating income from continuing operations and operating margins for the three
months ended March 31, 2007 compared to the three months ended, March 31, 2006
was principally due to asset impairment charges during 2006, which did not
recur
in 2007, combined with revenues increasing at a faster rate than expenses,
reflecting increased operational efficiencies, improved geographic footprint,
and benefits from improved third party contracts.
We
have a
history of net losses. Further, we expect to continue to report net losses
for
the foreseeable future. Our net losses are principally attributable to
insufficient revenue to cover the combination
of operating expenses and interest
expenses we incur because of our high level of debt and depreciation expenses
that we incur resulting from the capital investments we have made and continue
to make in our cable properties. We expect that these expenses will remain
significant.
Sale
of Assets
In
2006,
we sold cable systems serving a total of approximately 356,000 analog video
customers for a total sales price of approximately $971 million. The Company
used the net proceeds from the asset sales to reduce borrowings, but not
commitments, under the revolving portion of the Company’s credit facilities.
These cable systems met the criteria for assets held for sale. As such, the
assets were written down to fair value less estimated costs to sell resulting
in
asset impairment charges during the three months ended March 31, 2006 of
approximately $99 million. The results of operations for the West Virginia
and
Virginia cable systems have been presented as discontinued operations, net
of
tax for the three months ended March 31, 2006.
Critical
Accounting Policies and Estimates
For
a
discussion of our critical accounting policies and the means by which we develop
estimates therefore, see "Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations" in our 2006 Annual Report on
Form
10-K.
RESULTS
OF OPERATIONS
Three
Months Ended March
31, 2007
Compared to Three Months Ended March 31, 2006
The
following table sets forth the percentages of revenues that items in the
accompanying condensed consolidated statements of operations constituted for
the
periods presented (dollars in millions, except per share data):
|
|
Three
Months Ended March 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,425
|
|
|
100
|
%
|
$
|
1,320
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
(excluding depreciation and amortization)
|
|
|
631
|
|
|
44
|
%
|
|
604
|
|
|
46
|
%
|
Selling,
general and administrative
|
|
|
303
|
|
|
21
|
%
|
|
272
|
|
|
21
|
%
|
Depreciation
and amortization
|
|
|
331
|
|
|
24
|
%
|
|
350
|
|
|
26
|
%
|
Asset
impairment charges
|
|
|
--
|
|
|
--
|
|
|
99
|
|
|
8
|
%
|
Other
operating expenses, net
|
|
|
4
|
|
|
--
|
|
|
3
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,269
|
|
|
89
|
%
|
|
1,328
|
|
|
101
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) from continuing operations
|
|
|
156
|
|
|
11
|
%
|
|
(8
|
)
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(464
|
)
|
|
|
|
|
(468
|
)
|
|
|
|
Other
income (expense), net
|
|
|
(4
|
)
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(468
|
)
|
|
|
|
|
(457
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before income taxes
|
|
|
(312
|
)
|
|
|
|
|
(465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
(69
|
)
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(381
|
)
|
|
|
|
|
(473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations, net of tax
|
|
|
--
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(381
|
)
|
|
|
|
$
|
(459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations, basic and diluted
|
|
$
|
(1.04
|
)
|
|
|
|
$
|
(1.49
|
)
|
|
|
|
Net
loss, basic and diluted
|
|
$
|
(1.04
|
)
|
|
|
|
$
|
(1.45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding, basic and diluted
|
|
|
366,120,096
|
|
|
|
|
|
317,413,472
|
|
|
|
|
Revenues.
Average
monthly revenue per analog video customer increased to $88 for the three months
ended March
31,
2007
from $78
for the three months ended March
31,
2006
primarily as a result of incremental revenues from OnDemand, DVR, and
high-definition television services and rate adjustments. Average monthly
revenue per analog video customer represents total quarterly revenue, divided
by
three, divided by the average number of analog video customers during the
respective period.
Revenues
by service offering were as follows (dollars in millions):
|
|
Three
Months Ended March 31,
|
|
|
|
2007
|
|
2006
|
|
2007
over 2006
|
|
|
|
Revenues
|
|
%
of
Revenues
|
|
Revenues
|
|
%
of
Revenues
|
|
Change
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video
|
|
$
|
838
|
|
|
59
|
%
|
$
|
831
|
|
|
63
|
%
|
$
|
7
|
|
|
1
|
%
|
High-speed
Internet
|
|
|
296
|
|
|
21
|
%
|
|
245
|
|
|
19
|
%
|
|
51
|
|
|
21
|
%
|
Telephone
|
|
|
63
|
|
|
4
|
%
|
|
20
|
|
|
1
|
%
|
|
43
|
|
|
215
|
%
|
Advertising
sales
|
|
|
63
|
|
|
4
|
%
|
|
68
|
|
|
5
|
%
|
|
(5
|
)
|
|
(7
|
%)
|
Commercial
|
|
|
81
|
|
|
6
|
%
|
|
73
|
|
|
6
|
%
|
|
8
|
|
|
11
|
%
|
Other
|
|
|
84
|
|
|
6
|
%
|
|
83
|
|
|
6
|
%
|
|
1
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,425
|
|
|
100
|
%
|
$
|
1,320
|
|
|
100
|
%
|
$
|
105
|
|
|
8
|
%
|
Video
revenues consist primarily of revenues from analog and digital video services
provided to our non-commercial customers. Analog video customers decreased
by
255,900 customers from March 31, 2006, 192,700 of which was related to asset
sales, compared to March 31, 2007, while digital video customers increased
by
116,400, offset by a loss of 62,900 customers related to asset sales. The
increase in video revenues is attributable to the following (dollars in
millions):
|
|
2007
compared to 2006
Increase
/ (Decrease)
|
|
|
|
|
|
Rate
adjustments and incremental video services
|
|
$
|
23
|
|
Increase
in digital video customers
|
|
|
16
|
|
Decrease
in analog video customers
|
|
|
(10
|
)
|
System
sales
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
$
|
7
|
|
High-speed
Internet customers grew by 285,600 customers, offset by a loss of 37,200
customers related to asset sales, from March 31, 2006 to March 31, 2007. The
increase in high-speed Internet revenues from our non-commercial customers
is
attributable to the following (dollars in millions):
|
|
2007
compared to 2006
Increase
/ (Decrease)
|
|
|
|
|
|
Increase
in high-speed Internet customers
|
|
$
|
37
|
|
Price
increases
|
|
|
18
|
|
System
sales
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
$
|
51
|
|
Revenues
from telephone services increased primarily as a result of an increase of
381,500 telephone customers from March 31, 2006 to March 31, 2007.
Advertising
sales revenues consist primarily of revenues from commercial advertising
customers, programmers and other vendors. Advertising sales revenues decreased
primarily as a result of a decrease in national advertising sales. For the
three
months ended March 31, 2007 and 2006, we received $4 million and $6 million,
respectively, in advertising sales revenues from programmers.
Commercial
revenues consist primarily of revenues from cable video and high-speed Internet
services provided to our commercial customers. Commercial revenues increased
primarily as a result of an increase in commercial high-speed Internet revenues
offset by a decrease of $3 million related to asset sales.
Other
revenues consist of revenues from franchise fees, equipment rental, customer
installations, home shopping, dial-up Internet service, late payment fees,
wire
maintenance fees and other miscellaneous revenues. For the three months ended
March 31, 2007 and 2006, franchise fees represented approximately 51% and 53%,
respectively, of total other revenues. The increase in other revenues was
primarily the result of increases in wire maintenance fees.
Operating
expenses.
The
increase in operating expenses is attributable to the following (dollars in
millions):
|
|
2007
compared to 2006
Increase
/ (Decrease)
|
|
|
|
|
|
Programming
costs
|
|
$
|
28
|
|
Costs
of providing high-speed Internet and telephone services
|
|
|
9
|
|
Maintenance
costs
|
|
|
4
|
|
Advertising
sales costs
|
|
|
2
|
|
Other,
net
|
|
|
1
|
|
System
sales
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
$
|
26
|
|
Programming
costs were approximately $393 million and $376 million, representing 62% of
total operating expenses for the three months ended March 31, 2007 and 2006,
respectively. Programming costs consist primarily of costs paid to programmers
for analog, premium, digital, OnDemand, and pay-per-view programming. The
increase in programming costs is primarily a result of contractual rate
increases. Programming costs were offset by the amortization of payments
received from programmers in support of launches of new channels of $5 million
for each of the three months ended March 31, 2007 and 2006, respectively. We
expect programming expenses to continue to increase due to a variety of factors,
including annual increases imposed by programmers, and additional programming,
including high-definition and OnDemand programming, being provided to customers.
Selling,
general and administrative expenses. The
increase in selling, general and administrative expenses is attributable to
the
following (dollars in millions):
|
|
2007
compared to 2006
Increase
/ (Decrease)
|
|
|
|
|
|
Customer
care costs
|
|
$
|
18
|
|
Marketing
costs
|
|
|
18
|
|
Employee
costs
|
|
|
7
|
|
Professional
service costs
|
|
|
(8
|
)
|
Other,
net
|
|
|
1
|
|
System
sales
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
$
|
31
|
|
Depreciation
and amortization. Depreciation
and amortization expense decreased by $19 million and was primarily the result
of systems sales and certain assets becoming fully depreciated.
Asset
impairment charges.
Asset
impairment charges for the three months ended March 31, 2006 represent the
write-down of assets related to cable asset sales to fair value less costs
to
sell. See Note 3 to the accompanying condensed consolidated financial statements
contained in “Item 1. Financial Statements.”
Other
operating expenses, net. The
increase in other operating expenses, net is attributable to the following
(dollars in millions):
|
|
2007
compared to 2006
|
|
|
|
|
|
Increase
in losses on sales of assets
|
|
$
|
3
|
|
Decrease
in special charges, net
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
$
|
1
|
|
For
more
information, see Note 11 to the accompanying condensed consolidated financial
statements contained in “Item 1. Financial Statements.”
Interest
expense, net. Net
interest expense decreased by $4 million, which was a result of a decrease
in
our average debt outstanding from $19.5 billion for the first quarter of 2006
to
$19.2 billion for the first quarter of 2007. Our average borrowing rate was
9.5%
in the first quarter of 2007 and 2006.
Other
income (expense), net. The
change in other income (expense), net is attributable to the following (dollars
in millions):
|
|
2007
compared to 2006
|
|
|
|
|
|
Decrease
in gain on derivative instruments and
hedging
activities, net
|
|
$
|
(9
|
)
|
Increase
in loss on extinguishment of debt
|
|
|
(1
|
)
|
Decrease
in minority interest
|
|
|
(2
|
)
|
Decrease
in loss on investments
|
|
|
1
|
|
Other,
net
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
$
|
(15
|
)
|
For
more
information, see Note 12 to the accompanying condensed consolidated financial
statements contained in “Item 1. Financial Statements.”
Income
tax expense. Income
tax expense was recognized through increases in deferred tax liabilities related
to our investment in Charter Holdco, as well as through current federal and
state income tax expense, and increases in the deferred tax liabilities of
certain of our indirect corporate subsidiaries. Income tax expense includes
$18
million of deferred tax expense related to asset sales occurring in the three
months ended March 31, 2007. Income tax expense was offset by deferred tax
benefits of $21 million related to asset impairment charges recorded in the
three months ended March 31, 2006. We do not expect to recognize a similar
benefit associated with the impairment of franchises in future periods. However,
the actual tax provision calculations in future periods will be the result
of
current and future temporary differences, as well as future operating
results.
Income
from discontinued operations, net of tax.
Income
from discontinued operations, net of tax decreased in the first quarter of
2007
compared to the first quarter of 2006 due to the sale of the West Virginia
and
Virginia systems in July 2006. For
more
information, see Note 3 to the accompanying condensed consolidated financial
statements contained in “Item 1. Financial Statements.”
Net
loss. The
impact to net loss in the three months ended March 31, 2007 and 2006
of asset
impairment charges and extinguishment of debt, was to increase net loss by
approximately $1 million and $99 million, respectively.
Loss
per common share. During
the first quarter of 2007 and 2006, net loss per common share decreased by
$0.41, or 28%, as a result of the factors described above.
Liquidity
and Capital Resources
Introduction
This
section contains a discussion of our liquidity and capital resources, including
a discussion of our cash position, sources and uses of cash, access to credit
facilities and other financing sources, historical financing activities, cash
needs, capital expenditures and outstanding debt.
We
have a
significant level of debt. Our long-term financing as of March 31, 2006 consists
of $5.6 billion of credit facility debt, $13.3 billion accreted value of
high-yield notes and $410 million accreted value of convertible senior notes.
For the remaining three quarterly periods of 2007, $105 million of our debt
matures, which was paid on April 2, 2007 upon maturity of the 8.250% Charter
Holdings senior notes. In 2008, $55 million of our debt matures, and in 2009,
$882 million matures. Of the debt that was scheduled to mature in 2009, $187
million was subject to a call redemption that closed in April 2007, and $40
million was repurchased in a tender offer that closed in April 2007. In 2010
and
beyond, significant additional amounts will become due under our remaining
long-term debt obligations.
Our
business requires significant cash to fund debt service costs, capital
expenditures and ongoing operations. We have historically funded these
requirements through cash flows from operating activities, borrowings under
our
credit facilities, sales of assets, issuances of debt and equity securities
and
cash on hand. However, the mix of funding sources changes from period to period.
For the three months
ended
March 31, 2007, we generated $266 million of net cash flows from operating
activities after paying cash interest of $304 million. In addition, we used
approximately $298 million for purchases of property, plant and equipment.
Finally, we had net cash flows provided by financing activities of $200 million.
We expect that our mix of sources of funds will continue to change in the future
based on overall needs relative to our cash flow and on the availability of
funds under our credit facilities, our access to the debt and equity markets,
the timing of possible asset sales and our ability to generate cash flows from
operating activities. We continue to explore asset dispositions as one of
several possible actions that we could take in the future to improve our
liquidity, but we do not presently believe future asset sales to be a
significant source of liquidity.
We
expect
that cash on hand, cash flows from operating activities, and the amounts
available under our credit facilities will be adequate to meet our and our
parent companies’ cash needs through 2008. We believe that cash flows from
operating activities and amounts available under our credit facilities may
not
be sufficient to fund our operations and satisfy our and our parent companies’
interest and principal repayment obligations in 2009 and will not be sufficient
to fund such needs in 2010 and beyond. We continue to work with our financial
advisors concerning our approach to addressing liquidity, debt maturities and
our overall balance sheet leverage.
Credit
Facility Availability
Our
ability to operate depends upon, among other things, our continued access to
capital, including credit under the Charter Communications Operating, LLC
(“Charter Operating”) credit facilities. The Charter Operating credit
facilities, along with our indentures and the CCO Holdings, LLC (“CCO Holdings”)
credit facilities, contain certain restrictive covenants, some of which require
us to maintain specified leverage ratios and meet financial tests and to provide
annual audited financial statements with an unqualified opinion from our
independent auditors. As of March 31, 2007, we are in compliance with the
covenants under our indentures and credit facilities, and we expect to remain
in
compliance with those covenants for the next twelve months. As of March 31,
2007, our potential availability under our revolving credit facility totaled
approximately $1.4 billion, none of which was limited by covenant restrictions.
Continued access to our credit facilities is subject to our remaining in
compliance with these covenants, including covenants tied to our leverage ratio.
If any events of non-compliance occur, funding under the credit facilities
may
not be available and defaults on some or potentially all of our debt obligations
could occur. An event of default under any of our debt instruments could result
in the acceleration of our payment obligations under that debt and, under
certain circumstances, in cross-defaults under our other debt obligations,
which
could have a material adverse effect on our consolidated financial condition
and
results of operations.
Limitations
on Distributions
As
long
as the convertible notes remain outstanding and are not otherwise converted
into
shares of common stock, Charter must pay interest on the convertible senior
notes and repay the principal amount in November 2009. Charter’s
ability to make interest payments on its convertible senior notes, and, in
2009,
to repay the outstanding principal of its convertible senior notes of $413
million, net of $450 million of convertible senior notes held by CCHC, will
depend on its ability to raise additional capital and/or on receipt of payments
or distributions from Charter Holdco and its subsidiaries. As
of March 31, 2007, Charter Holdco was owed $4 million in intercompany loans
from
its subsidiaries and had $8 million in cash, which were available to pay
interest and principal on Charter's convertible senior notes.
In
addition, Charter has $50 million of U.S. government securities pledged as
security for the semi-annual interest payments on Charter’s convertible senior
notes scheduled in 2007. As long as CCHC continues to hold the $450
million of Charter’s convertible senior notes, CCHC will receive interest
payments from the government securities pledged for the convertible senior
notes. The cumulative amount of interest payments expected to be received
by CCHC is $40 million and may be available to be distributed to pay semiannual
interest due in 2008 and May 2009 on the outstanding principal amount of $413
million of the convertible senior notes, although CCHC may use those amounts
for
other purposes.
Distributions
by Charter’s subsidiaries to a parent company (including Charter, Charter Holdco
and CCHC) for
payment of principal on parent company notes, are
restricted under the indentures governing the CCH I Holdings, LLC (“CIH”) notes,
CCH I, LLC (“CCH I”) notes, CCH II, LLC (“CCH II”) notes, CCO Holdings notes,
and Charter Operating notes and under the CCO Holdings credit facilities
unless
there is no default under the applicable indenture and credit facilities, and
each applicable subsidiary’s leverage ratio test is met at the time of such
distribution. For
the
quarter ended March 31, 2007, there was no default under any of these indentures
or credit facilities. However, certain of our subsidiaries did not meet their
applicable leverage ratio tests based on March 31, 2007 financial results.
As a
result, distributions from certain of our subsidiaries to their parent companies
would have been restricted at such time and will continue to be restricted
unless those tests are met. Distributions by Charter Operating for payment
of
principal on parent company notes are further restricted by the covenants in
its
credit facilities.
Distributions
by CIH, CCH I, CCH II, CCO Holdings and Charter Operating to a parent company
for payment of parent company interest are permitted if there is no default
under the aforementioned indentures and CCO Holdings Credit facilities.
The
indentures governing the Charter Holdings notes permit Charter Holdings to
make
distributions to Charter Holdco for payment of interest or principal on the
convertible senior notes, only if, after giving effect to the distribution,
Charter Holdings can incur additional debt under the leverage ratio of 8.75
to
1.0, there is no default under Charter Holdings’ indentures, and other specified
tests are met. For the quarter ended March
31,
2007, there was no default under Charter Holdings’ indentures and the other
specified tests were met. However,
Charter Holdings did not meet the leverage ratio test of 8.75 to 1.0 based
on
March 31, 2007 financial results. As a result, distributions from Charter
Holdings to Charter or Charter Holdco would have been restricted at such time
and will continue to be restricted unless that test is met. During
periods
in which distributions are restricted,
the
indentures governing the Charter Holdings notes permit Charter Holdings and
its
subsidiaries to make specified investments (that are not restricted payments)
in
Charter Holdco or Charter, up to an amount determined by a formula, as long
as
there is no default under the indentures.
In
addition to the limitation on distributions under the various indentures
discussed above, distributions by our subsidiaries may be limited by applicable
law. See “Risk Factors —
Because
of our holding company structure, our outstanding notes are structurally
subordinated in right of payment to all liabilities of our subsidiaries.
Restrictions in our subsidiaries’ debt instruments and under applicable law
limit their ability to provide funds to us or our various debt
issuers.”
Access
to Capital
Our
significant amount of debt could negatively affect our ability to access
additional capital in the future. Additionally, our ability to incur additional
debt may be limited by the restrictive covenants in our indentures and credit
facilities. No assurances can be given that we will not experience liquidity
problems if we do not obtain sufficient additional financing on a timely basis
as our debt becomes due or because of adverse market conditions, increased
competition or other unfavorable events. If, at any time, additional capital
or
borrowing capacity is
required
beyond amounts internally generated or available under our credit facilities
or
through additional debt or equity financings, we would consider:
|
•
|
issuing
equity that would significantly dilute existing shareholders;
|
|
•
|
issuing
convertible debt or some other securities that may have structural
or
other priority over our existing notes and may also, in the case
of
convertible debt, significantly dilute Charter’s existing shareholders;
|
|
•
|
further
reducing our expenses and capital expenditures, which may impair
our
ability to increase revenue and grow operating cash flows;
|
|
•
|
selling
assets; or
|
|
•
|
requesting
waivers or amendments with respect to our credit facilities, which
may not
be available on acceptable terms; and cannot be assured.
|
If
the
above strategies are not successful, we could be forced to restructure our
obligations or seek protection under the bankruptcy laws. In addition, if we
need to raise additional capital through the issuance of equity or find it
necessary to engage in a recapitalization or other similar transaction, our
shareholders could suffer significant dilution and our noteholders might not
receive principal and interest payments to which they are contractually
entitled.
Recent
Financing Transactions
On
March
6, 2007, Charter Operating entered into an Amended and Restated Credit Agreement
among Charter Operating, CCO Holdings, the several lenders from time to time
that are parties thereto, JPMorgan Chase Bank, N.A., as administrative agent,
and certain other agents (the “Charter Operating Credit
Agreement”).
The
Charter Operating Credit Agreement provides for a $1.5 billion senior secured
revolving line of credit, a continuation of the existing $5.0 billion term
loan
facility (which was refinanced with new term loans in April 2007), and a $1.5
billion new term loan facility (the “New Term Loan”) which was funded in March
and April 2007. Borrowings under the Charter Operating Credit Agreement bear
interest at a variable interest rate based on either LIBOR or a base rate,
plus
in either case, an applicable margin. The applicable margin for LIBOR loans
under the New Term Loan and revolving loans is 2.00% above LIBOR. The revolving
line of credit commitments terminate on March 6, 2013. The Existing Term Loan
and the New Term Loan are subject to amortization at 1% of their initial
principal amount per annum. The New Term Loan amortization commences on March
31, 2008. The remaining principal amount of the New Term Loan will be due on
March 6, 2014.
The
terms
of the Existing Term Loan have been amended effective March 6, 2007. The
refinancing of the $5.0 billion Existing Term Loan with new term loans
(“Replacement Existing Term Loan”) was permitted under the Charter Operating
Credit Agreement and occurred in April 2007, with pricing (LIBOR plus 2.00%)
and
amortization profile of the Replacement Existing Term Loan matching the New
Term
Loan described above. The Charter Operating Credit Agreement contains financial
covenants requiring Charter Operating to maintain a quarterly consolidated
leverage ratio not to exceed 5 to 1 and a first lien leverage ratio not to
exceed 4 to 1.
On
March
6, 2007, CCO Holdings entered into a credit agreement among CCO Holdings, the
several lenders from time to time that are parties thereto, Bank of America,
N.A., as administrative agent, and certain other agents (the “CCO Holdings
Credit Agreement”). The CCO Holdings Credit Agreement consists of a $350 million
term loan facility (the “Term Facility”). The term loan matures on September 6,
2014 (the “Maturity Date”). The CCO Holdings Credit Agreement also provides for
additional incremental term loans (the “Incremental Loans”) maturing on the
dates set forth in the notices establishing such term loans, but no earlier
than
the Maturity Date. Borrowings under the CCO Holdings Credit Agreement bear
interest at a variable interest rate based on either LIBOR or a base rate plus,
in either case, an applicable margin. The applicable margin for LIBOR term
loans, other than Incremental Loans, is 2.50% above LIBOR. The applicable margin
with respect to Incremental Loans is to be agreed upon by CCO Holdings and
the
lenders when the Incremental Loans are established. The CCO Holdings Credit
Agreement is secured by the equity interests of Charter Operating, and all
proceeds thereof.
We
used a
portion of the additional proceeds from the Charter Operating Credit Agreement
and CCO Holdings Credit Agreement to redeem $550 million of CCO Holdings’
outstanding floating rate notes due 2010, to redeem approximately $187 million
of Charter Holdings’ outstanding 8.625% senior notes due 2009, to fund the
purchase of notes in a tender offer for total consideration (including premiums
and accrued interest) of $100 million of certain
notes
outstanding at Charter Holdings, and to repay $105 million of Charter Holdings’
notes maturing in April 2007. The remainder will be used for other general
corporate purposes.
Historical
Operating, Financing and Investing Activities
Our
cash
flows include the cash flows related to our discontinued operations for all
periods presented.
We
held
$205 million in cash and cash equivalents as of March 31, 2007, of which
$110 million was held by the trustee and restricted for payment of bonds due
April 1, 2007, compared to $60 million as of December 31, 2006. For the
three months ended March 31, 2007, we generated $266 million of net cash flows
from operating activities after paying cash interest of $304 million. In
addition, we used approximately $298 million for purchases of property, plant
and equipment. Finally, we had net cash flows provided by financing activities
of $200 million.
Operating
Activities. Net
cash
provided by operating activities increased $57 million, or 27%, from $209
million for the three months ended March 31, 2006 to $266 million for the three
months ended March 31, 2007. For the three months ended March 31, 2007, net
cash
provided by operating activities increased primarily as a result of revenues
increasing at a faster rate than cash expenses and changes in operating assets
and liabilities that provided $66 million more cash during the three months
ended March 31, 2007 than the corresponding period in 2006, offset by an
increase of $37 million in interest on cash pay obligations during the same
period.
Investing
Activities. Net
cash
used by investing activities was $321 million for the three months ended March
31, 2007 compared to net cash used by investing activities of $276 million
for
the three months ended March 31, 2006, which was primarily related to an
increase in purchases of property, plant, and equipment.
Financing
Activities. Net
cash
provided by financing activities was $200 million and $86 million for the three
months ended March 31, 2007 and 2006, respectively. The increase in cash
provided during the three months ended March 31, 2007 as compared to the
corresponding period in 2006, was primarily the result of increased borrowings
of long-term debt and a decrease in repayments.
Capital
Expenditures
We
have
significant ongoing capital expenditure requirements. Capital expenditures
were
$298 million and $241 million for the three months ended March
31,
2007 and
2006,
respectively. Capital expenditures increased as a result of increased spending
on customer premise equipment to meet increased customer growth and increases
in
scalable infrastructure as a result of high-speed data network upgrades and
telephone headend equipment. See the table below for more details.
Our
capital expenditures are funded primarily from cash flows from operating
activities, the issuance of debt and borrowings under credit facilities. In
addition, during the three months ended March
31,
2007
and
2006, our liabilities related to capital expenditures decreased $32 million
and
$7 million, respectively.
During
2007, we expect capital expenditures to be approximately $1.2 billion. We expect
that the nature of these expenditures will continue to be composed primarily
of
purchases of customer premise equipment related to telephone and other advanced
services, support capital and for scalable infrastructure costs. We have and
expect to continue to fund capital expenditures for 2007 primarily from cash
flows from operating activities and borrowings under our credit
facilities.
We
have
adopted capital expenditure disclosure guidance, which was developed by eleven
publicly traded cable system operators, including Charter, with the support
of
the National Cable & Telecommunications Association ("NCTA"). The disclosure
is intended to provide more consistency in the reporting of operating statistics
in capital expenditures and customers among peer companies in the cable
industry. These disclosure guidelines are not required disclosure under
Generally Accepted Accounting Principles ("GAAP"), nor do they impact our
accounting for capital expenditures under GAAP.
The
following table presents our major capital expenditures categories in accordance
with NCTA disclosure guidelines for the three months ended March 31, 2007 and
2006 (dollars in millions):
|
|
Three
Months Ended
March
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Customer
premise equipment (a)
|
|
$
|
161
|
|
$
|
130
|
|
Scalable
infrastructure (b)
|
|
|
49
|
|
|
34
|
|
Line
extensions (c)
|
|
|
24
|
|
|
26
|
|
Upgrade/Rebuild
(d)
|
|
|
12
|
|
|
9
|
|
Support
capital (e)
|
|
|
52
|
|
|
42
|
|
|
|
|
|
|
|
|
|
Total
capital expenditures
|
|
$
|
298
|
|
$
|
241
|
|
(a)
|
Customer
premise equipment includes costs incurred at the customer residence
to
secure new customers, revenue units and additional bandwidth revenues.
It
also includes customer installation costs in accordance with SFAS
No. 51,
Financial
Reporting by Cable Television Companies, and
customer premise equipment (e.g., set-top terminals and cable modems,
etc.).
|
(b)
|
Scalable
infrastructure includes costs, not related to customer premise equipment
or our network, to secure growth of new customers, revenue units
and
additional bandwidth revenues 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).
|
We
are
exposed to various market risks, including fluctuations in interest rates.
We
use interest rate risk management derivative instruments, including but not
limited to interest rate swap agreements and interest rate collar agreements
(collectively referred to herein as interest rate agreements) as required under
the terms of the credit facilities of our subsidiaries. Our policy is to manage
our exposure to fluctuations in interest rates by maintaining a mix of fixed
and
variable rate debt within a targeted range. Using interest rate swap agreements,
we agree to exchange, at specified intervals through 2013, the difference
between fixed and variable interest amounts calculated by reference to
agreed-upon notional principal amounts. Interest rate risk management agreements
are not held or issued for speculative or trading purposes.
As
of
March 31, 2007 and December 31, 2006, our long-term debt totaled approximately
$19.3 billion and $19.1 billion, respectively. This debt was comprised of
approximately $5.6 billion and $5.4 billion of credit facilities debt, $13.3
billion and $13.3 billion accreted amount of high-yield notes and $410 million
and $408 million accreted amount of convertible senior notes, respectively.
As
of
March
31,
2007 and December 31, 2006,
the
weighted average interest rate on the credit facility debt was approximately
7.1% and 7.9%, respectively, the weighted average interest rate on the
high-yield notes was approximately 10.1% and 10.3% and the weighted average
interest rate on the convertible senior notes was approximately 5.9%, resulting
in a blended weighted average interest rate of 9.1% and 9.5%, respectively.
The
interest rate on approximately 85% and 78% of the total principal amount of
our
debt was effectively fixed, including the effects of our interest rate hedge
agreements as of March 31, 2007 and December 31, 2006, respectively. The fair
value of our high-yield notes was $13.3 billion at March 31, 2007 and December
31, 2006. The fair value of our convertible senior notes was $552 million and
$576 million at March 31, 2007 and December 31, 2006, respectively. The fair
value of our credit facilities is $5.6 billion and $5.4 billion at March 31,
2007 and December 31, 2006, respectively. The fair value of high-yield and
convertible notes is based on quoted market prices, and the fair value of the
credit facilities is based on dealer quotations.
We
do not
hold or issue derivative instruments for trading purposes. We do, however,
have
certain interest rate derivative instruments that have been designated as cash
flow hedging instruments. Such instruments effectively convert variable interest
payments on certain debt instruments into fixed payments. For qualifying hedges,
SFAS No. 133 allows derivative gains and losses to offset related results on
hedged items in the consolidated statement of operations. We have formally
documented, designated and assessed the effectiveness of transactions that
receive hedge accounting. For the three months ended March 31, 2007 and 2006,
other income (expense), net includes $0 and gains of $2 million, respectively,
which represent cash flow hedge ineffectiveness on interest rate hedge
agreements arising from differences between critical terms of the agreements
and
the related hedged obligations. Changes in the fair value of interest rate
agreements designated as hedging instruments of the variability of cash flows
associated with floating-rate debt obligations that meet the effectiveness
criteria of SFAS No. 133 are reported in accumulated other comprehensive loss.
For
the
three months ended March
31,
2007
and
2006, losses of $2 million and $1 million, respectively, related to derivative
instruments designated as cash flow hedges, was recorded in accumulated other
comprehensive loss. The
amounts are subsequently reclassified into interest expense as a yield
adjustment in the same periods in which the related interest on the
floating-rate debt obligations affects earnings (losses).
Certain
interest rate derivative instruments are not designated as hedges as they do
not
meet the effectiveness criteria specified by SFAS No. 133. However, management
believes such instruments are closely correlated with the respective debt,
thus
managing associated risk. Interest rate derivative instruments not designated
as
hedges are marked to fair value, with the impact recorded as other income
(expense) in the Company’s condensed consolidated statements of operations. For
the three months ended March
31,
2007
and 2006, other income (expense),
net
includes
losses of $1 million and gains of $6 million, respectively, resulting from
interest rate derivative instruments not designated as hedges.
The
table
set forth below summarizes the fair values and contract terms of financial
instruments subject to interest rate risk maintained by us as of March 31,
2007
(dollars in millions):
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
Thereafter
|
|
Total
|
|
Fair
Value at March 31, 2007
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Rate
|
$ |
105
|
|
$ |
--
|
|
$ |
827
|
|
$ |
2,251
|
|
$ |
303
|
|
$ |
1,191
|
|
$ |
8,342
|
|
$ |
13,019
|
|
$ |
13,435
|
Average Interest Rate
|
|
8.25%
|
|
|
--
|
|
|
7.67%
|
|
|
10.26%
|
|
|
11.21%
|
|
|
8.32%
|
|
|
10.70%
|
|
|
10.21%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
Rate
|
$
|
--
|
|
$
|
55
|
|
$
|
55
|
|
$
|
605
|
|
$
|
55
|
|
$
|
55
|
|
$
|
5,335
|
|
$
|
6,160
|
|
$
|
6,063
|
Average Interest Rate
|
|
--
|
|
|
6.83%
|
|
|
6.82%
|
|
|
8.95%
|
|
|
7.10%
|
|
|
7.20%
|
|
|
7.21%
|
|
|
7.37%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
to Fixed Swaps
|
$
|
675
|
|
$
|
--
|
|
$
|
--
|
|
$
|
500
|
|
$
|
300
|
|
$
|
1,000
|
|
$
|
1,000
|
|
$
|
3,475
|
|
$
|
(4)
|
Average Pay Rate
|
|
6.97%
|
|
|
--
|
|
|
--
|
|
|
6.81%
|
|
|
6.98%
|
|
|
6.89%
|
|
|
6.94%
|
|
|
6.92%
|
|
|
|
Average Receive Rate
|
|
7.31%
|
|
|
--
|
|
|
--
|
|
|
6.99%
|
|
|
7.02%
|
|
|
7.17%
|
|
|
7.25%
|
|
|
7.18%
|
|
|
|
The
notional amounts of interest rate instruments do not represent amounts exchanged
by the parties and, thus, are not a measure of our exposure to credit loss.
The
amounts exchanged are determined by reference to the notional amount and the
other terms of the contracts. The estimated fair value approximates the costs
(proceeds) to settle the outstanding contracts. Interest rates on variable
debt
are estimated using the average implied forward London Interbank Offering Rate
(LIBOR) rates for the year of maturity based on the yield curve in effect
at March 31, 2007.
At
March
31, 2007 and December 31, 2006, we had outstanding $3.4 billion and $1.7
billion, respectively, in notional amounts of interest rate swaps. The notional
amounts of interest rate instruments do not represent amounts exchanged by
the
parties and, thus, are not a measure of exposure to credit loss. The amounts
exchanged are determined by reference to the notional amount and the other
terms
of the contracts.
Item
4. Controls
and
Procedures.
As
of the
end of the period covered by this report, management, including our Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness
of
the design and operation of our disclosure controls and procedures with respect
to the information generated for use in this quarterly report. The evaluation
was based in part upon reports and certifications provided by a number of
executives. Based upon, and as of the date of that evaluation, our
Chief
Executive Officer and Chief Financial Officer concluded that the disclosure
controls and procedures were effective to provide reasonable assurances that
information required to be disclosed in the reports we file or submit under
the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Commission’s rules and forms.
There
was
no change in our internal control over financial reporting during the quarter
ended March 31, 2007 that has materially affected, or is reasonably likely
to
materially affect, our internal control over financial reporting.
In
designing and evaluating the disclosure controls and procedures, our management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance of achieving
the
desired control objectives and management necessarily was required to apply
its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures. Based upon the above evaluation, Charter’s management believes that
its controls provide such reasonable assurances.
PART
II. OTHER INFORMATION.
We
are a
defendant or co-defendant in several unrelated lawsuits claiming infringement
of
various patents relating to various aspects of our businesses. Other industry
participants are also defendants in certain of these cases, and, in many cases,
we expect that any potential liability would be the responsibility of our
equipment vendors pursuant to applicable contractual indemnification provisions.
In the event that a court ultimately determines that we infringe on any
intellectual property rights, we may be subject to substantial damages and/or
an
injunction that could require us or our vendors to modify certain products
and
services we offer to our subscribers. While we believe the lawsuits are without
merit and intend to defend the actions vigorously, the lawsuits could be
material to our consolidated results of operations of any one period, and no
assurance can be given that any adverse outcome would not be material to our
consolidated financial condition, results of operations or liquidity.
We
are a
party to other lawsuits and claims that arise in the ordinary course of
conducting our business. The ultimate outcome of these other legal matters
pending against us or our subsidiaries cannot be predicted, and although such
lawsuits and claims are not expected individually to have a material adverse
effect on our consolidated financial condition, results of operations or
liquidity, such lawsuits could have, in the aggregate, a material adverse effect
on our consolidated financial condition, results of operations or
liquidity.
Item
1A. Risk
Factors.
Our
Annual Report on Form 10-K for the year ended December 31, 2006 includes “Risk
Factors” under Item 1A of Part I. Except for the updated risk factors described
below, there have been no material changes from the risk factors described
in
our Form 10-K. The information below updates, and should be read in conjunction
with, the risk factors and information disclosed in our Form 10-K.
Risks
Related to Significant Indebtedness of Us and Our
Subsidiaries
We
and our subsidiaries have a significant amount of existing debt and may incur
significant additional debt, including secured debt, in the future, which could
adversely affect our financial health and our ability to react to changes in
our
business.
We
and
our subsidiaries have a significant amount of debt and may (subject to
applicable restrictions in their debt instruments) incur additional debt in
the
future. As of March 31, 2007, our total debt was approximately $19.3 billion,
our shareholders’ deficit was approximately $6.5 billion and the deficiency of
earnings to cover fixed charges for the three months ended March 31, 2007 was
$310 million.
As
of
March 31, 2007, approximately $413 million aggregate principal amount of
Charter’s convertible notes were outstanding, which matures in 2009. We will
need to raise additional capital and/or receive distributions or payments from
our subsidiaries in order to satisfy this debt obligation. An additional $450
million aggregate principal amount of Charter’s convertible notes was held by
CCHC.
Because
of our significant indebtedness, our ability to raise additional capital at
reasonable rates or at all is uncertain, and the ability of our subsidiaries
to
make distributions or payments to their parent companies is subject to
availability of funds and restrictions under our subsidiaries’ applicable debt
instruments and under applicable law. If we need to raise additional capital
through the issuance of equity or find it necessary to engage in a
recapitalization or other similar transaction, our shareholders could suffer
significant dilution, and in the case of a recapitalization or other similar
transaction, our noteholders might not receive principal and interest payments
to which they are contractually entitled.
Our
significant amount of debt could have other important consequences. For example,
the debt will or could:
|
·
|
require
us to dedicate a significant portion of our cash flow from operating
activities to make payments on our debt, which will reduce our
funds
available for working capital, capital expenditures and other general
corporate expenses;
|
|
·
|
limit
our flexibility in planning for, or reacting to, changes in our
business,
the cable and telecommunications industries and the economy at
large;
|
|
·
|
place
us at a disadvantage as compared to our competitors that have
proportionately less debt;
|
|
·
|
make
us vulnerable to interest rate increases, because approximately
15% of our
borrowings are, and will continue to be, at variable rates of
interest;
|
|
·
|
expose
us to increased interest expense as we refinance existing lower
interest
rate instruments;
|
|
·
|
adversely
affect our relationship with customers and
suppliers;
|
|
·
|
limit
our ability to borrow additional funds in the future, due to applicable
financial and restrictive covenants in our
debt;
|
|
·
|
make
it more difficult for us to satisfy our obligations to the holders
of our
notes and for our subsidiaries to satisfy their obligations to
their
lenders under their credit facilities and to their noteholders;
and
|
|
·
|
limit
future increases in the value, or cause a decline in the value
of our
equity, which could limit our ability to raise additional capital
by
issuing equity.
|
A
default
by one of our subsidiaries under its debt obligations could result in the
acceleration of those obligations, which in turn could trigger cross defaults
under other agreements governing our long-term indebtedness. In addition, the
secured lenders under our credit facilities and the holders of the Charter
Operating senior second-lien notes could foreclose on their collateral, which
includes equity interest in our subsidiaries, and exercise other rights of
secured creditors. Any default under those credit facilities or the indentures
governing our convertible notes or our subsidiaries’ debt could adversely affect
our growth, our financial condition, our results of operations, and our ability
to make payments on our convertible notes, our credit facilities, and other
debt
of our subsidiaries, and could force us to seek the protection of the bankruptcy
laws. We and our subsidiaries may incur significant additional debt in the
future. If current debt levels increase, the related risks that we now face
will
intensify.
We
may not be able to access funds under the Charter Operating credit facilities
if
we fail to satisfy the covenant restrictions in such credit facilities, which
could adversely affect our financial condition and our ability to conduct our
business.
Our
subsidiaries have historically relied on access to credit facilities in order
to
fund operations and to service parent company debt, and we expect such reliance
to continue in the future. Our total potential borrowing availability under
our
revolving credit facility was approximately $1.4 billion as of March 31, 2007,
none of which is limited by covenant restrictions. There
can
be no assurance that our actual availability under our credit facilities will
not be limited by covenant restrictions in the future.
One
of
the conditions to the availability of funding under our credit facilities is
the
absence of a default under such facilities, including as a result of any failure
to comply with the covenants under the facilities. Among other covenants, the
Charter Operating credit facilities require us to maintain specific leverage
ratios. The Charter Operating credit facilities also provide that Charter
Operating has to obtain an unqualified audit opinion from its independent
accountants for each fiscal year. There can be no assurance that Charter
Operating will be able to continue to comply with these or any other of the
covenants under the credit facilities.
An
event
of default under the credit facilities or indentures, if not waived, could
result in the acceleration of those debt obligations and, consequently, could
trigger cross defaults under other agreements governing our long-term
indebtedness. In addition, the secured lenders under our credit facilities
and
the holders of the Charter Operating senior second-lien notes could foreclose
on
their collateral, which includes equity interest in our subsidiaries, and
exercise other rights of secured creditors. Any default under those credit
facilities or the indentures governing our convertible notes or our
subsidiaries’ debt could adversely affect our growth, our financial condition,
our results of operations, and our ability to make payments on our convertible
notes, our credit facilities, and other debt of our subsidiaries, and could
force us to seek the protection of the bankruptcy laws, which could materially
adversely impact our ability to operate our business and to make payments under
our debt instruments.
We
depend on generating sufficient cash flow and having access to additional
external liquidity sources to fund our debt obligations, capital expenditures,
and ongoing operations.
Our
ability to service our debt and to fund our planned capital expenditures and
ongoing operations will depend on both our ability to generate cash flow and
our
access to additional external liquidity sources. Our ability to generate cash
flow is dependent on many factors, including:
· |
competition
from other distributors, including incumbent telephone companies,
direct
broadcast satellite operators, wireless broadband providers and DSL
providers;
|
· |
unforeseen
difficulties we may encounter in our continued introduction of our
telephone services such as our ability to meet heightened customer
expectations for the reliability of voice services compared to other
services we provide, and our ability to meet heightened demand for
installations and customer service;
|
· |
our
ability to sustain and grow revenues by offering video, high-speed
Internet, telephone and other services, and to maintain and grow
a stable
customer base, particularly in the face of increasingly aggressive
competition from other service
providers;
|
· |
our
ability to obtain programming at reasonable prices or to pass programming
cost increases on to our customers;
|
· |
general
business conditions, economic uncertainty or slowdown;
and
|
· |
the
effects of governmental regulation, including but not limited to
local
franchise authorities, on our
business.
|
Some
of
these factors are beyond our control. If we are unable to generate sufficient
cash flow or access additional external liquidity sources, we may not be able
to
service and repay our debt, operate our business, respond to competitive
challenges, or fund our other liquidity and capital needs. Although we and
our
subsidiaries have been able to raise funds through issuances of debt in the
past, we may not be able to access additional sources of external liquidity
on
similar terms, if at all. We expect that cash on hand, cash flows from operating
activities, and the amounts available under our credit facilities will be
adequate to meet our cash needs through 2008. We believe that cash flows from
operating activities and amounts available under our credit facilities may
not
be sufficient to fund our operations and satisfy our interest and principal
repayment obligations in 2009 and will not be sufficient to fund such needs
in
2010 and beyond. See “Part I. Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations —
Liquidity and Capital Resources.”
Because
of our holding company structure, our outstanding notes are structurally
subordinated in right of payment to all liabilities of our subsidiaries.
Restrictions in our subsidiaries’ debt instruments and under applicable law
limit their ability to provide funds to us or our various debt
issuers.
Charter’s
primary assets are its equity interests in its subsidiaries. Our operating
subsidiaries are separate and distinct legal entities and are not obligated
to
make funds available to us for payments on our notes or other obligations in
the
form of loans, distributions or otherwise. Our subsidiaries’ ability to make
distributions to us is subject to their compliance with the terms of their
credit facilities and indentures and restrictions under applicable law. Under
the Delaware limited liability company act, our subsidiaries may only make
distributions to us if they have “surplus” as defined in the act. Under
fraudulent transfer laws, our subsidiaries may not make distributions to us
or
the applicable debt issuers to service debt obligations if they are insolvent
or
are rendered insolvent thereby. The measures of insolvency for purposes of
these
fraudulent transfer laws vary depending upon the law applied in any proceeding
to determine whether a fraudulent transfer has occurred. Generally, however,
an
entity would be considered insolvent if:
· |
the
sum of its debts, including contingent liabilities, was greater than
the
fair saleable value of all its
assets;
|
· |
the
present fair saleable value of its assets was less than the amount
that
would be required to pay its probable liability on its existing debts,
including contingent liabilities, as they became absolute and mature;
or
|
· |
it
could not pay its debts as they became
due.
|
While
we
believe that our relevant subsidiaries currently have surplus and are not
insolvent, there can be no assurance that these subsidiaries will be permitted
to make distributions in the future in compliance with these restrictions in
amounts needed to service our indebtedness. Our direct or indirect subsidiaries
include the borrowers and guarantors under the Charter Operating and CCO
Holdings credit facilities. Several of our subsidiaries are also obligors and
guarantors under other senior high yield notes. Our convertible notes are
structurally subordinated in right of payment to all of the debt and other
liabilities of our subsidiaries. As of March 31, 2007, our total debt was
approximately $19.3 billion, of which approximately $18.9 billion was
structurally senior to our convertible notes.
In
the
event of bankruptcy, liquidation or dissolution of one or more of our
subsidiaries, that subsidiary’s assets would first be applied to satisfy its own
obligations, and following such payments, such subsidiary may not have
sufficient assets remaining to make payments to us as an equity holder or
otherwise. In that event:
|
·
|
the
lenders under Charter Operating’s credit facilities whose interests are
secured by substantially all of our operating assets, will have the
right
to be paid in full before us from any of our subsidiaries’ assets;
and
|
|
·
|
the
holders of preferred membership interests in our subsidiary, CC VIII,
would have a claim on a portion of its assets that may reduce the
amounts
available for repayment to holders of our outstanding notes.
|
Risks
Related to Regulatory and Legislative Matters
Our
cable system franchises are non-exclusive. Accordingly, local franchising
authorities can grant additional franchises and create competition in market
areas where none existed previously, resulting in overbuilds, which could
adversely affect results of operations.
Our
cable
system franchises are non-exclusive. Consequently, local franchising authorities
can grant additional franchises to competitors in the same geographic area
or
operate their own cable systems. In addition, certain telephone companies are
seeking authority to operate in local communities without first obtaining a
local franchise. As a result, competing operators may build systems in areas
in
which we hold franchises. In some cases municipal utilities may legally compete
with us without obtaining a franchise from the local franchising
authority.
Legislative
proposals have been introduced in the United States Congress and in state
legislatures that would greatly streamline cable franchising. This legislation
is intended to facilitate entry by new competitors, particularly local telephone
companies. Such legislation has passed in numerous states, including states
where we have significant operations. Although most of these states have
provided some regulatory relief for incumbent cable operators, some of these
proposals are generally viewed as being more favorable to new entrants due
to a
number of factors, including efforts to withhold streamlined cable franchising
from incumbents until after the expiration of their existing franchises, and
the
potential for new entrants to serve only higher-income areas of a particular
community. To the extent incumbent cable operators are not able to avail
themselves of this streamlined franchising process, such operators may continue
to be subject to more onerous franchise requirements at the local level than
new
entrants. In March 2007, the FCC released a ruling designed to streamline
competitive cable franchising. Among other things, the FCC prohibited local
franchising authorities from imposing “unreasonable” build-out requirements and
established a mechanism whereby competing providers can secure “interim
authority” to offer cable service if the local franchising authority has not
acted on a franchise application within 90 days (in the case of competitors
with
existing right of way authority) or 180 days (in the case of competitors without
existing right of way authority). Local regulators have appealed the FCC’s
ruling.
The
existence of more than one cable system operating in the same territory is
referred to as an overbuild. These overbuilds could adversely affect our growth,
financial condition and results of operations by creating or increasing
competition. As of March 31, 2007, we are aware of traditional overbuild
situations impacting approximately 9% of our estimated homes passed, and
potential traditional overbuild situations in areas servicing approximately
an
additional 4% of our estimated homes passed. Additional overbuild situations
may
occur in other systems.
We
may be required to provide access to our networks to other Internet service
providers which could significantly increase our competition and adversely
affect our ability to provide new products and
services.
A
number
of companies, including independent Internet service providers, or ISPs, have
requested local authorities and the FCC to require cable operators to provide
non-discriminatory access to cable’s broadband infrastructure, so that these
companies may deliver Internet services directly to customers over cable
facilities. In a 2005 ruling, commonly referred to as Brand
X,
the
Supreme Court upheld an FCC decision making it less likely that any
nondiscriminatory “open access” requirements (which are generally associated
with common carrier regulation of “telecommunications services”) will be imposed
on the cable industry by local, state or federal authorities. The Supreme Court
held that the FCC was correct in classifying cable provided Internet service
as
an “information service,” rather than a “telecommunications service.”
Notwithstanding Brand
X,
there
has been increasing advocacy by certain Internet content providers and consumer
groups for new federal laws or regulations to adopt so-called “net neutrality”
principles limiting the ability of broadband network owners (like Charter)
to
manage and control their own networks. The proposals might prevent network
owners, for example, from charging bandwidth intensive content providers, such
as certain online gaming, music, and video service providers, an additional
fee
to ensure quality delivery of the services to consumers. If we were required
to
allocate a portion of our bandwidth capacity to other Internet service
providers, or were prohibited from charging heavy bandwidth intensive services
a
fee for use of our networks, we believe that it could impair our ability to
use
our bandwidth in ways that would generate
maximum
revenues. In April 2007, the FCC issued a notice of inquiry regarding the
marketing practices of broadband providers as a precursor to considering the
need for any FCC regulation of internet service providers.
Changes
in channel carriage regulations could impose significant additional costs on
us.
Cable
operators also face significant regulation of their channel carriage. They
currently can be required to devote substantial capacity to the carriage of
programming that they might not carry voluntarily, including certain local
broadcast signals, local public, educational and government access programming,
and unaffiliated commercial leased access programming. This carriage burden
could increase in the future, particularly if cable systems were required to
carry both the analog and digital versions of local broadcast signals (dual
carriage) or to carry multiple program streams included with a single digital
broadcast transmission (multicast carriage). Additional government-mandated
broadcast carriage obligations could disrupt existing programming commitments,
interfere with our preferred use of limited channel capacity and limit our
ability to offer services that would maximize customer appeal and revenue
potential. Although the FCC issued a decision in February 2005, confirming
an
earlier ruling against mandating either dual carriage or multicast carriage,
that decision is subject to a petition for reconsideration which is pending.
In
addition, the FCC could reverse its own ruling or Congress could legislate
additional carriage obligations. The FCC is in the process of initiating a
new
rulemaking to explore the cable industry’s carriage obligations once the
broadcast industry transition from analog to digital transmission is completed
in February 2009. It is possible that the FCC will rule in favor of dual
carriage and/or multicast carriage in certain circumstances.
The
index
to the exhibits begins on page E-1 of this quarterly report.
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, Charter
Communications, Inc. has duly caused this quarterly report to be signed on
its
behalf by the undersigned, thereunto duly authorized.
CHARTER
COMMUNICATIONS, INC.,
Registrant
Dated:
May 3, 2007
|
By:
/s/
Kevin D. Howard
|
|
Name:
|
Kevin
D. Howard
|
|
Title:
|
Vice
President and
|
|
|
Chief
Accounting Officer
|
Exhibit
Number
|
|
Description
of Document
|
|
|
|
3.1(a)
|
|
Restated
Certificate of Incorporation of Charter Communications, Inc. (Originally
incorporated July 22, 1999) (incorporated by reference to Exhibit
3.1 to
Amendment No. 3 to the registration statement on Form S-1 of Charter
Communications, Inc. filed on October 18, 1999 (File No.
333-83887)).
|
3.1(b)
|
|
Certificate
of Amendment of Restated Certificate of Incorporation of Charter
Communications, Inc. filed May 10, 2001 (incorporated by reference
to
Exhibit 3.1(b) to the annual report on Form 10-K filed by Charter
Communications, Inc. on March 29, 2002 (File No.
000-27927)).
|
3.2
|
|
Amended
and Restated By-laws of Charter Communications, Inc. as of October
30,
2006 (incorporated by reference to Exhibit 3.1 to the quarterly report
on
Form 10-Q of Charter Communications, Inc. filed on October 31, 2006
(File
No. 000-27927)).
|
10.1
|
|
Amended
and Restated Credit Agreement, dated as of March 6, 2007, among Charter
Communications Operating, LLC, CCO Holdings, LLC, the lenders from
time to time parties thereto and JPMorgan Chase Bank, N.A., as
administrative agent (incorporated by reference to Exhibit 10.1 to
the
current report on Form 8-K of Charter Communications, Inc. filed
on March
9, 2007 (File No. 000-27927)).
|
10.2
|
|
Amended
and Restated Guarantee and Collateral Agreement made by CCO Holdings,
LLC,
Charter Communications Operating, LLC and certain of its subsidiaries
in
favor of JPMorgan Chase Bank, N.A. ,as administrative agent, dated
as of
March 18, 1999, as amended and restated as of March 6,
2007 (incorporated by reference to Exhibit 10.2 to the current report
on Form 8-K of Charter Communications, Inc. filed on March 9, 2007
(File
No. 000-27927)).
|
10.3
|
|
Credit
Agreement, dated as of March 6, 2007, among CCO Holdings, LLC, the
lenders
from time to time parties thereto and Bank of America, N.A., as
administrative agent (incorporated by reference to Exhibit 10.3 to
the
current report on Form 8-K of Charter Communications, Inc. filed
on March
9, 2007 (File No. 000-27927)).
|
10.4
|
|
Pledge
Agreement made by CCO Holdings, LLC in favor of Bank of America,
N.A., as
Collateral Agent, dated as of March 6, 2007 (incorporated by reference
to
Exhibit 10.4 to the current report on Form 8-K of Charter Communications,
Inc. filed on March 9, 2007 (File No. 000-27927)).
|
10.5
|
|
Separation
Agreement and Release for Sue Ann R. Hamilton (incorporated by reference
to Exhibit 99.1 to the current report on Form 8-K of Charter
Communications, Inc. filed on March 14, 2007 (File No. 000-27927)).
|
12.1* |
|
Computation
of Ratio of Earnings to Fixed Charges. |
31.1*
|
|
Certificate
of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a)
under
the Securities Exchange Act of 1934.
|
31.2*
|
|
Certificate
of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a)
under
the Securities Exchange Act of 1934.
|
32.1*
|
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 (Chief Executive
Officer).
|
32.2*
|
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 (Chief Financial
Officer).
|
*
Document attached
+
Management compensatory plan or arrangement