body.htm
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 June 30, 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 June 30, 2007:
400,398,208
Number
of
shares of Class B common stock outstanding as of June 30, 2007:
50,000
Charter
Communications, Inc.
Quarterly
Report on Form 10-Q for the Period ended June 30, 2007
Table
of Contents
PART
I. FINANCIAL INFORMATION
|
Page
|
|
|
Item
1. Financial
Statements - Charter Communications, Inc. and
Subsidiaries
|
|
Condensed
Consolidated Balance Sheets as of June 30, 2007
|
|
and
December 31, 2006
|
4
|
Condensed
Consolidated Statements of Operations for the three and
six
|
|
months
ended June 30, 2007 and 2006
|
5
|
Condensed
Consolidated Statements of Cash Flows for the
|
|
six
months ended June 30, 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
|
29
|
|
|
Item
4. Controls and Procedures
|
30
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
Item
1. Legal Proceedings
|
31
|
|
|
Item
1A. Risk Factors
|
31
|
|
|
Item
4. Submission of Matters to a Vote of Security
Holders
|
36
|
|
|
Item
5. Other Information
|
37
|
|
|
Item
6. Exhibits
|
38
|
|
|
SIGNATURES
|
S-1
|
|
|
EXHIBIT
INDEX
|
E-1
|
This
quarterly report on Form 10-Q is for the three and six months ended June
30, 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 and
state 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)
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
81
|
|
|
$ |
60
|
|
Accounts
receivable, less allowance for doubtful accounts of
|
|
|
|
|
|
|
|
|
$19
and $16, respectively
|
|
|
224
|
|
|
|
195
|
|
Prepaid
expenses and other current assets
|
|
|
58
|
|
|
|
84
|
|
Total
current assets
|
|
|
363
|
|
|
|
339
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT
IN CABLE PROPERTIES:
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net of accumulated
|
|
|
|
|
|
|
|
|
depreciation
of $8,283 and $7,644, respectively
|
|
|
5,121
|
|
|
|
5,217
|
|
Franchises,
net
|
|
|
9,201
|
|
|
|
9,223
|
|
Total
investment in cable properties, net
|
|
|
14,322
|
|
|
|
14,440
|
|
|
|
|
|
|
|
|
|
|
OTHER
NONCURRENT ASSETS
|
|
|
366
|
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
15,051
|
|
|
$ |
15,100
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
1,258
|
|
|
$ |
1,298
|
|
Total
current liabilities
|
|
|
1,258
|
|
|
|
1,298
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM
DEBT
|
|
|
19,576
|
|
|
|
19,062
|
|
NOTE
PAYABLE – RELATED PARTY
|
|
|
61
|
|
|
|
57
|
|
DEFERRED
MANAGEMENT FEES – RELATED PARTY
|
|
|
14
|
|
|
|
14
|
|
OTHER
LONG-TERM LIABILITIES
|
|
|
792
|
|
|
|
692
|
|
MINORITY
INTEREST
|
|
|
195
|
|
|
|
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;
|
|
|
|
|
|
|
|
|
400,398,208
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
|
|
|
5,324
|
|
|
|
5,313
|
|
Accumulated
deficit
|
|
|
(12,221 |
) |
|
|
(11,536 |
) |
Accumulated
other comprehensive income
|
|
|
48
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ deficit
|
|
|
(6,849 |
) |
|
|
(6,219 |
) |
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ deficit
|
|
$ |
15,051
|
|
|
$ |
15,100
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSEDCONSOLIDATED
STATEMENTS OF OPERATIONS
(DOLLARS
IN MILLIONS, EXCEPT PER SHARE DATA)
Unaudited
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$ |
1,499
|
|
|
$ |
1,383
|
|
|
$ |
2,924
|
|
|
$ |
2,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
(excluding depreciation and amortization)
|
|
|
647
|
|
|
|
611
|
|
|
|
1,278
|
|
|
|
1,215
|
|
Selling,
general and administrative
|
|
|
317
|
|
|
|
279
|
|
|
|
620
|
|
|
|
551
|
|
Depreciation
and amortization
|
|
|
334
|
|
|
|
340
|
|
|
|
665
|
|
|
|
690
|
|
Asset
impairment charges
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
99
|
|
Other
operating expenses, net
|
|
|
1
|
|
|
|
7
|
|
|
|
5
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,299
|
|
|
|
1,237
|
|
|
|
2,568
|
|
|
|
2,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income from continuing operations
|
|
|
200
|
|
|
|
146
|
|
|
|
356
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(471 |
) |
|
|
(475 |
) |
|
|
(935 |
) |
|
|
(943 |
) |
Other
expense, net
|
|
|
(30 |
) |
|
|
(21 |
) |
|
|
(34 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(501 |
) |
|
|
(496 |
) |
|
|
(969 |
) |
|
|
(953 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before income taxes
|
|
|
(301 |
) |
|
|
(350 |
) |
|
|
(613 |
) |
|
|
(815 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAX EXPENSE
|
|
|
(59 |
) |
|
|
(52 |
) |
|
|
(128 |
) |
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(360 |
) |
|
|
(402 |
) |
|
|
(741 |
) |
|
|
(875 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
FROM DISCONTINUED OPERATIONS, NET OF TAX
|
|
|
--
|
|
|
|
20
|
|
|
|
--
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(360 |
) |
|
$ |
(382 |
) |
|
$ |
(741 |
) |
|
$ |
(841 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
PER COMMON SHARE, BASIC AND DILUTED:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$ |
(.98 |
) |
|
$ |
(1.27 |
) |
|
$ |
(2.02 |
) |
|
$ |
(2.76 |
) |
Net
loss
|
|
$ |
(.98 |
) |
|
$ |
(1.20 |
) |
|
$ |
(2.02 |
) |
|
$ |
(2.65 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding, basic and diluted
|
|
|
367,582,677
|
|
|
|
317,646,946
|
|
|
|
366,855,427
|
|
|
|
317,531,492
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS
IN MILLIONS)
Unaudited
|
|
Six
Months Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(741 |
) |
|
$ |
(841 |
) |
Adjustments
to reconcile net loss to net cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
665
|
|
|
|
698
|
|
Asset
impairment charges
|
|
|
--
|
|
|
|
99
|
|
Noncash
interest expense
|
|
|
30
|
|
|
|
87
|
|
Deferred
income taxes
|
|
|
123
|
|
|
|
60
|
|
Other,
net
|
|
|
34
|
|
|
|
17
|
|
Changes
in operating assets and liabilities, net of effects from acquisitions
and
dispositions:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(29 |
) |
|
|
30
|
|
Prepaid
expenses and other assets
|
|
|
26
|
|
|
|
29
|
|
Accounts
payable, accrued expenses and other
|
|
|
10
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
Net
cash flows from operating activities
|
|
|
118
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
(579 |
) |
|
|
(539 |
) |
Change
in accrued expenses related to capital expenditures
|
|
|
(39 |
) |
|
|
(9 |
) |
Other,
net
|
|
|
31
|
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
Net
cash flows from investing activities
|
|
|
(587 |
) |
|
|
(553 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Borrowings
of long-term debt
|
|
|
7,247
|
|
|
|
5,830
|
|
Repayments
of long-term debt
|
|
|
(6,727 |
) |
|
|
(5,858 |
) |
Proceeds
from issuance of debt
|
|
|
--
|
|
|
|
440
|
|
Payments
for debt issuance costs
|
|
|
(33 |
) |
|
|
(29 |
) |
Other,
net
|
|
|
3
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
Net
cash flows from financing activities
|
|
|
490
|
|
|
|
383
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
21
|
|
|
|
35
|
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
|
|
60
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, end of period
|
|
$ |
81
|
|
|
$ |
56
|
|
|
|
|
|
|
|
|
|
|
CASH
PAID FOR INTEREST
|
|
$ |
918
|
|
|
$ |
791
|
|
|
|
|
|
|
|
|
|
|
NONCASH
TRANSACTIONS:
|
|
|
|
|
|
|
|
|
Cumulative
adjustment to Accumulated Deficit for the adoption of FIN
48
|
|
$ |
56
|
|
|
$ |
--
|
|
Issuance
of debt by Charter Communications Operating, LLC
|
|
$ |
--
|
|
|
$ |
37
|
|
Retirement
of Renaissance Media Group LLC debt
|
|
$ |
--
|
|
|
$ |
(37 |
) |
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
June 30, 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.
2. Liquidity
and Capital Resources
The
Company incurred net losses of $360 million and $382 million for the three
months ended June 30, 2007 and 2006, respectively, and $741 million and $841
million for the six months ended June 30, 2007 and 2006,
respectively. The Company’s net cash flows from operating activities
were $118 million and $205 million for the six months ended June 30, 2007 and
2006, respectively.
The
Company has a significant amount of debt. The Company's long-term
financing as of June 30, 2007 consisted of $6.9 billion of credit facility
debt,
$12.3 billion accreted value of high-yield notes, and $411 million accreted
value of convertible senior notes. For the remaining two quarterly
periods of 2007, none of the Company’s debt matures. In 2008, $65
million of the Company’s debt matures, and in 2009, $666 million
matures. In 2010 and beyond, significant additional amounts will
become due under the Company’s remaining long-term debt
obligations.
CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except per share amounts and where
indicated)
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 six months ended June
30, 2007, the Company generated $118 million of net cash flows from operating
activities, after paying cash interest of $918 million. In addition,
the Company used approximately $579 million for purchases of property, plant
and
equipment. Finally, the Company generated net cash flows from
financing activities of $490 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
June 30, 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
June 30, 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 Charter’s 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 now held by Charter Holdco, 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 June 30, 2007, Charter Holdco was owed
$4 million in intercompany loans from its subsidiaries and had $14 million
in
cash, which were available to pay interest and principal on Charter's
convertible senior notes. In addition, Charter has $25 million of U.S.
government securities pledged as security for the semi-annual interest payments
on Charter’s convertible senior notes scheduled in 2007. On August 1,
2007, Charter Holdings distributed to CCHC an intercompany note issued by
Charter Operating with an outstanding balance, including accrued
interest, of $119 million. On the same day, CCHC distributed
such note to Charter Holdco along with $450 million of Charter’s convertible
senior notes and an investment account with $26 million of cash. As
long as Charter Holdco continues to hold the $450 million of Charter’s
convertible senior notes, Charter Holdco will receive interest payments from
the
government securities pledged for Charter’s convertible senior notes. The
cumulative amount of interest payments expected to be received by Charter Holdco
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
Charter’s convertible senior notes, although Charter Holdco may use those
amounts for other purposes.
CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except per share amounts and where
indicated)
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 unless each
applicable subsidiary’s leverage ratio test is met at the time of such
distribution. For the quarter ended June 30, 2007, there was no
default under any of these indentures or credit facilities and each subsidiary
met its applicable leverage ratio tests based on June 30, 2007 financial
results. Such distributions would be restricted, however, if any such
subsidiary fails to meet these tests at the time of the contemplated
distribution. In the past, certain subsidiaries have from time to
time failed to meet their leverage ratio test. There can be no
assurance that they will satisfy these tests at the time of the contemplated
distribution. Distributions by Charter Operating for payment of
principal on parent company notes are further restricted by the covenants in
its
credit facilities.
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
Charter’s 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 June 30,
2007, there was no default under Charter Holdings’ indentures, the other
specified tests were met, and Charter Holdings met its leverage ratio test
based
on June 30, 2007 financial results. Such distributions would be
restricted, however, if Charter Holdings fails to meet these tests at the time
of the contemplated distribution. In the past, Charter Holdings has
from time to time failed to meet this leverage ratio test. There can
be no assurance that Charter Holdings will satisfy these tests at the time
of
the contemplated distribution. 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 $97 million 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. Sale
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 (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 six months ended June 30, 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
CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except per share amounts and where
indicated)
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 and six
months ended June 30, 2006.
Summarized
consolidated financial information for the three and six months ended June
30,
2006 for the West Virginia and Virginia cable systems is as
follows:
|
|
Three
Months
Ended
June 30, 2006
|
|
|
Six
Months
Ended
June 30, 2006
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
55
|
|
|
$ |
109
|
|
Income
before income taxes
|
|
$ |
23
|
|
|
$ |
38
|
|
Income
tax expense
|
|
$ |
(3 |
) |
|
$ |
(4 |
) |
Net
income
|
|
$ |
20
|
|
|
$ |
34
|
|
Earnings
per common share, basic and diluted
|
|
$ |
0.06
|
|
|
$ |
0.11
|
|
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
June 30, 2007 and December 31, 2006, indefinite-lived and finite-lived
intangible assets are presented in the following table:
|
|
June
30, 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
|
|
$ |
9,187
|
|
|
$ |
--
|
|
|
$ |
9,187
|
|
|
$ |
9,207
|
|
|
$ |
--
|
|
|
$ |
9,207
|
|
Goodwill
|
|
|
64
|
|
|
|
--
|
|
|
|
64
|
|
|
|
61
|
|
|
|
--
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,251
|
|
|
$ |
--
|
|
|
$ |
9,251
|
|
|
$ |
9,268
|
|
|
$ |
--
|
|
|
$ |
9,268
|
|
Finite-lived
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchises
with finite lives
|
|
$ |
23
|
|
|
$ |
9
|
|
|
$ |
14
|
|
|
$ |
23
|
|
|
$ |
7
|
|
|
$ |
16
|
|
For
the
six months ended June 30, 2007, the net carrying amount of indefinite-lived
franchises was reduced by $20 million, related to cable asset sales completed
in
the first six months of 2007. Franchise amortization 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 and
six months ended June 30, 2007 was approximately $1 million and $2 million,
respectively. 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.
CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except per share amounts and where
indicated)
For
the
six months ended June 30, 2007, the net carrying amount of goodwill increased
$3
million as a result of the Company’s purchase of certain cable systems in
Pasadena, California in June 2007.
5. Accounts
Payable and Accrued Expenses
Accounts
payable and accrued expenses consist of the following as of June 30, 2007 and
December 31, 2006:
|
|
June
30,
2007
|
|
|
December 31,
2006
|
|
|
|
|
|
|
|
|
Accounts
payable - trade
|
|
$ |
100
|
|
|
$ |
92
|
|
Accrued
capital expenditures
|
|
|
58
|
|
|
|
97
|
|
Accrued
expenses:
|
|
|
|
|
|
|
|
|
Interest
|
|
|
397
|
|
|
|
410
|
|
Programming
costs
|
|
|
283
|
|
|
|
268
|
|
Franchise-related
fees
|
|
|
52
|
|
|
|
68
|
|
Compensation
|
|
|
102
|
|
|
|
110
|
|
Other
|
|
|
266
|
|
|
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,258
|
|
|
$ |
1,298
|
|
6. Long-Term
Debt
Long-term
debt consists of the following as of June 30, 2007 and December 31,
2006:
|
|
June
30, 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
|
|
|
$ |
411
|
|
|
$ |
413
|
|
|
$ |
408
|
|
Charter
Communications Holdings, LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.250%
senior notes due April 1, 2007
|
|
|
--
|
|
|
|
--
|
|
|
|
105
|
|
|
|
105
|
|
8.625%
senior notes due April 1, 2009
|
|
|
--
|
|
|
|
--
|
|
|
|
187
|
|
|
|
187
|
|
10.000%
senior notes due April 1, 2009
|
|
|
88
|
|
|
|
88
|
|
|
|
105
|
|
|
|
105
|
|
10.750%
senior notes due October 1, 2009
|
|
|
63
|
|
|
|
63
|
|
|
|
71
|
|
|
|
71
|
|
9.625%
senior notes due November 15, 2009
|
|
|
37
|
|
|
|
37
|
|
|
|
52
|
|
|
|
52
|
|
10.250%
senior notes due January 15, 2010
|
|
|
18
|
|
|
|
18
|
|
|
|
32
|
|
|
|
32
|
|
11.750%
senior discount notes due January 15, 2010
|
|
|
16
|
|
|
|
16
|
|
|
|
21
|
|
|
|
21
|
|
11.125%
senior discount notes due January 15, 2011
|
|
|
47
|
|
|
|
47
|
|
|
|
52
|
|
|
|
52
|
|
13.500%
senior discount notes due January 15, 2011
|
|
|
60
|
|
|
|
60
|
|
|
|
62
|
|
|
|
62
|
|
9.920%
senior discount notes due April 1, 2011
|
|
|
51
|
|
|
|
51
|
|
|
|
63
|
|
|
|
63
|
|
10.000%
senior notes due May 15, 2011
|
|
|
69
|
|
|
|
69
|
|
|
|
71
|
|
|
|
71
|
|
11.750%
senior discount notes due May 15, 2011
|
|
|
54
|
|
|
|
54
|
|
|
|
55
|
|
|
|
55
|
|
12.125%
senior discount notes due January 15, 2012
|
|
|
75
|
|
|
|
75
|
|
|
|
91
|
|
|
|
91
|
|
CCH
I Holdings, LLC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except per share amounts and where
indicated)
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
|
|
|
|
4,087
|
|
|
|
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
|
|
8
3/4% senior notes due November 15, 2013
|
|
|
800
|
|
|
|
795
|
|
|
|
800
|
|
|
|
795
|
|
Credit
facility
|
|
|
350
|
|
|
|
350
|
|
|
|
--
|
|
|
|
--
|
|
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
|
|
|
6,500
|
|
|
|
6,500
|
|
|
|
5,395
|
|
|
|
5,395
|
|
|
|
$ |
19,480
|
|
|
$ |
19,576
|
|
|
$ |
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. However, 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 June 30, 2007, the accreted value of the
Company’s debt for legal purposes and notes indenture purposes is approximately
$19.4 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 commencing on March 31, 2008 with the remaining
principal amount of the New Term Loan due in March 2014. 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”). 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 is 2.50% above LIBOR. 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. The refinancing resulted in a loss on extinguishment of
debt for the three and six months ended June 30, 2007 of approximately $12
million and $13 million, respectively, included in other expense, net on the
Company’s condensed consolidated statements of operations.
In
April
2007, Charter Holdings completed a tender offer, in which $97 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
CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except per share amounts and where
indicated)
$550
million of its senior floating rate notes due December 15,
2010. These redemptions closed in April 2007. The
redemptions and tender resulted in a loss on extinguishment of debt for each
of
the three and six months ended June 30, 2007 of approximately $22 million
included in other expense, net on the Company’s condensed consolidated
statements of operations.
On
April
1, 2007, $105 million of Charter Holdings 8.25% notes matured and were paid
off
with proceeds from the CCO Holdings Credit Agreement.
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 June 30, 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 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 $195 million
and $192 million as of June 30, 2007 and December 31, 2006,
respectively.
8. Share
Lending Agreement
As
of
June 30, 2007, there were 29.8 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 29.8
million loaned shares outstanding was approximately $121 million as of June
30,
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 income 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 income, after giving effect to the minority
interest share of such gains and losses. Comprehensive loss was $310
million and $381 million for the three months ended June 30, 2007 and 2006,
respectively, and $697 million and $841 million for the six months ended June
30, 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)
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 each of the three months ended June 30,
2007 and 2006, other expense, net includes $0, and for the six months ended
June
30, 2007 and 2006, other expense, net includes $0 and a gain 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
that are designated as hedging instruments of the variability of cash flows
associated with floating rate debt obligations, and that meet the effectiveness
criteria of SFAS No. 133 are reported in accumulated other comprehensive
income. For the three months ended June 30,
2007 and 2006, gains of $50 million and $1 million, respectively, and for the
six months ended June 30, 2007 and 2006, a gain of $48 million and $0,
respectively, related to derivative instruments designated as cash flow hedges,
were recorded in accumulated other comprehensive income. The amounts
are subsequently reclassified as an increase or decrease to interest expense
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 June 30,
2007 and 2006, other expense, net, includes gains of $6 million and $3 million,
respectively, and for the six months ended June 30, 2007 and 2006, other
expense, net includes gains of $5 million and $9 million, respectively,
resulting from interest rate derivative instruments not designated as hedges.
As
of
June
30, 2007 and December 31, 2006, the Company had outstanding $3.0 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 June 30, 2007 and
2006, the Company recognized losses of $9 million and $0, respectively, and
for
the six months ended June 30, 2007 and 2006, the Company recognized losses
of $9
million and gains of $2 million, respectively. The losses resulted in
an increase in interest expense related to these derivatives and the gains
resulted in a decrease in interest expense. At June 30,
2007 and December 31, 2006, $9 million and $12 million, respectively, is
recorded in accounts payable and accrued expenses relating to the short-term
portion of these derivatives and $12 million and $0, respectively, is recorded
in other long-term liabilities related to the long-term portion.
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 and six months
ended June 30, 2007 and 2006
|
|
Three
Months
Ended
June 30,
|
|
|
Six
Months
Ended
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on sale of assets, net
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
3
|
|
|
$ |
--
|
|
Special
charges, net
|
|
|
1
|
|
|
|
7
|
|
|
|
2
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1
|
|
|
$ |
7
|
|
|
$ |
5
|
|
|
$ |
10
|
|
Special
charges, net for the three and six months ended June 30, 2007 and 2006 primarily
represent severance associated with the closing of call centers and divisional
restructuring.
12. Other
Expense, Net
Other
expense, net consists of the following for the three and six months ended June
30, 2007 and 2006:
|
|
Three
Months
Ended
June 30,
|
|
|
Six
Months
Ended
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on derivative instruments and
hedging
activities, net
|
|
$ |
6
|
|
|
$ |
3
|
|
|
$ |
5
|
|
|
$ |
11
|
|
Loss
on extinguishment of debt
|
|
|
(34 |
) |
|
|
(27 |
) |
|
|
(35 |
) |
|
|
(27 |
) |
Minority
interest
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(1 |
) |
Gain
(loss) on investments
|
|
|
(1 |
) |
|
|
5
|
|
|
|
(1 |
) |
|
|
4
|
|
Other,
net
|
|
|
--
|
|
|
|
(1 |
) |
|
|
--
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(30 |
) |
|
$ |
(21 |
) |
|
$ |
(34 |
) |
|
$ |
(10 |
) |
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
generally limited liability companies that are not subject to income
tax. However, certain of these limited liability companies are
subject to state income tax. In addition, the subsidiaries that are
corporations are subject to federal and state 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
June 30, 2007 and December 31, 2006, the Company had net deferred income tax
liabilities of approximately $582 million and $514 million,
respectively. Included in these deferred tax liabilities is
approximately $197 million and $200 million of deferred tax liabilities at
June
30, 2007 and December 31, 2006, respectively, relating to certain indirect
subsidiaries of Charter Holdco, which file separate income tax
returns.
During
the three and six months ended June 30, 2007, the Company recorded $59 million
and $128 million of income tax expense, respectively. During the
three and six months ended June 30, 2006, the Company recorded $55 million
CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars
in millions, except per share amounts and where
indicated)
and
$64
million of income tax expense, respectively. Income tax expense of $3
million and $4 million was associated with discontinued operations for the
same
periods. Income tax
expense is recognized through increases in the deferred tax 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 $238 million
during the six months ended June 30, 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 $4.9 billion and $4.6 billion as of June 30, 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 $2.9 billion and $2.7 billion
of
tax net operating loss carryforwards as of June 30, 2007 and December 31, 2006,
respectively (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 June 30, 2007 and December 31, 2006, respectively, existed with
respect to these deferred tax assets, of which $2.4 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 29.8 million remain outstanding as of June 30, 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, 2002 through 2005. In addition, Charter
and one
of the Company’s indirect corporate subsidiaries are under examination by the
Internal Revenue Service for the tax year ended December 31,
2004. Management does not expect the results of these
examinations 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 in the first
quarter of 2007.
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 and six months ended June 30,
2007, Charter granted 0.1 million and 3.9 million stock options, respectively,
and 0.2 million and 6.9 million performance units, respectively, under Charter’s
Long-Term Incentive Program. The Company recorded $5 million and $3
million of stock compensation expense for the three months ended June 30, 2007
and 2006, respectively, and $10 million and $7 million for the six months ended
June 30, 2007 and 2006, which is included in selling, general, and
administrative expense.
Item
2. Management's
Discussion and Analysis of Financial Condition and Results of Operations.
General
Charter
Communications, Inc. ("Charter") is a holding company whose principal assets
at
June 30, 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 June 30, 2007
and 2006:
|
|
Approximate
as of
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
(a)
|
|
|
2006
(a)
|
|
|
|
|
|
|
|
|
Video
Cable Services:
|
|
|
|
|
|
|
Analog
Video:
|
|
|
|
|
|
|
Residential
(non-bulk) analog video customers (b)
|
|
|
5,107,800
|
|
|
|
5,600,300
|
|
Multi-dwelling
(bulk) and commercial unit customers (c)
|
|
|
269,000
|
|
|
|
275,800
|
|
Total
analog video customers (b)(c)
|
|
|
5,376,800
|
|
|
|
5,876,100
|
|
|
|
|
|
|
|
|
|
|
Digital
Video:
|
|
|
|
|
|
|
|
|
Digital
video customers (d)
|
|
|
2,866,000
|
|
|
|
2,889,000
|
|
|
|
|
|
|
|
|
|
|
Non-Video
Cable Services:
|
|
|
|
|
|
|
|
|
Residential
high-speed Internet customers (e)
|
|
|
2,583,200
|
|
|
|
2,375,100
|
|
Telephone
customers (f)
|
|
|
700,300
|
|
|
|
257,600
|
|
After
giving effect to sales of certain non-strategic cable systems in the third
quarter of 2006, January 2007 and May 2007, analog video customers, digital
video customers, high-speed Internet customers and telephone customers would
have been 5,439,800, 2,703,300, 2,252,500 and 257,600, respectively, as of
June
30, 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 June 30, 2007 and 2006,
"customers" include approximately 33,600 and 55,900 persons whose
accounts
were over 60 days past due in payment, approximately 4,000 and 14,300
persons whose accounts were over 90 days past due in payment, and
approximately 1,700 and 8,900 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)
|
"Telephone
customers" include all customers receiving telephone
service.
|
Overview
For
the
three months ended June 30, 2007 and 2006, our operating income from continuing
operations was $200 million and $146 million, respectively, and for the six
months ended June 30, 2007 and 2006, our operating income from continuing
operations was $356 million and $138 million, respectively. We had
operating margins of 13% and 11% for the three months ended June 30, 2007 and
2006, respectively, and 12% and 5% for the six months ended June 30, 2007 and
2006, respectively. The increase in operating income from continuing
operations and operating margins for the three and six months ended June 30,
2007 compared to the three and six months ended June 30, 2006 was principally
due to revenues increasing at a faster rate than expenses, reflecting increased
operational efficiencies, improved geographic footprint, and benefits from
improved third party contracts, coupled with asset impairment charges during
the
six months ended June 30, 2006, which did not recur in 2007.
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 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. We
used the net proceeds from the asset sales to reduce borrowings, but not
commitments, under the revolving portion of our 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 six
months ended June 30, 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 and six months
ended June 30, 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
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 June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$ |
1,499
|
|
|
|
100 |
% |
|
$ |
1,383
|
|
|
|
100 |
% |
|
$ |
2,924
|
|
|
|
100 |
% |
|
$ |
2,703
|
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
(excluding depreciation
and amortization)
|
|
|
647
|
|
|
|
43 |
% |
|
|
611
|
|
|
|
44 |
% |
|
|
1,278
|
|
|
|
44 |
% |
|
|
1,215
|
|
|
|
45 |
% |
Selling,
general and administrative
|
|
|
317
|
|
|
|
21 |
% |
|
|
279
|
|
|
|
20 |
% |
|
|
620
|
|
|
|
21 |
% |
|
|
551
|
|
|
|
20 |
% |
Depreciation
and amortization
|
|
|
334
|
|
|
|
23 |
% |
|
|
340
|
|
|
|
25 |
% |
|
|
665
|
|
|
|
23 |
% |
|
|
690
|
|
|
|
26 |
% |
Asset
impairment charges
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
99
|
|
|
|
4 |
% |
Other
operating expenses, net
|
|
|
1
|
|
|
|
--
|
|
|
|
7
|
|
|
|
--
|
|
|
|
5
|
|
|
|
--
|
|
|
|
10
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,299
|
|
|
|
87 |
% |
|
|
1,237
|
|
|
|
89 |
% |
|
|
2,568
|
|
|
|
88 |
% |
|
|
2,565
|
|
|
|
95 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income from continuing operations
|
|
|
200
|
|
|
|
13 |
% |
|
|
146
|
|
|
|
11 |
% |
|
|
356
|
|
|
|
12 |
% |
|
|
138
|
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(471 |
) |
|
|
|
|
|
|
(475 |
) |
|
|
|
|
|
|
(935 |
) |
|
|
|
|
|
|
(943 |
) |
|
|
|
|
Other
expense, net
|
|
|
(30 |
) |
|
|
|
|
|
|
(21 |
) |
|
|
|
|
|
|
(34 |
) |
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(501 |
) |
|
|
|
|
|
|
(496 |
) |
|
|
|
|
|
|
(969 |
) |
|
|
|
|
|
|
(953 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before income taxes
|
|
|
(301 |
) |
|
|
|
|
|
|
(350 |
) |
|
|
|
|
|
|
(613 |
) |
|
|
|
|
|
|
(815 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAX EXPENSE
|
|
|
(59 |
) |
|
|
|
|
|
|
(52 |
) |
|
|
|
|
|
|
(128 |
) |
|
|
|
|
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(360 |
) |
|
|
|
|
|
|
(402 |
) |
|
|
|
|
|
|
(741 |
) |
|
|
|
|
|
|
(875 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
FROM DISCONTINUED OPERATIONS, NET OF TAX
|
|
|
--
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
--
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(360 |
) |
|
|
|
|
|
$ |
(382 |
) |
|
|
|
|
|
$ |
(741 |
) |
|
|
|
|
|
$ |
(841 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
PER COMMON SHARE, BASIC AND DILUTED:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$ |
(.98 |
) |
|
|
|
|
|
$ |
(1.27 |
) |
|
|
|
|
|
$ |
(2.02 |
) |
|
|
|
|
|
$ |
(2.76 |
) |
|
|
|
|
Net
loss
|
|
$ |
(.98 |
) |
|
|
|
|
|
$ |
(1.20 |
) |
|
|
|
|
|
$ |
(2.02 |
) |
|
|
|
|
|
$ |
(2.65 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding, basic and diluted
|
|
|
367,582,677
|
|
|
|
|
|
|
|
317,646,946
|
|
|
|
|
|
|
|
366,855,427
|
|
|
|
|
|
|
|
317,531,492
|
|
|
|
|
|
Revenues. Average
monthly revenue per analog video customer increased to $93 for the three months
ended June 30, 2007 from $82 for the three months ended June 30, 2006 and
increased to $88 for the six months ended June 30, 2007 from $80 for the six
months ended June 30, 2006, primarily as a result of increases in digital,
high-speed Internet and telephone customers, and incremental revenues from
OnDemand, DVR, high-definition television services, and rate
adjustments. Average monthly revenue per analog video customer
represents total quarterly revenue, divided by the number of respective months,
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 June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
over 2006
|
|
|
|
Revenues
|
|
|
%
of
Revenues
|
|
|
Revenues
|
|
|
%
of
Revenues
|
|
|
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video
|
|
$ |
859
|
|
|
|
57 |
% |
|
$ |
853
|
|
|
|
62 |
% |
|
$ |
6
|
|
|
|
1 |
% |
High-speed
Internet
|
|
|
310
|
|
|
|
21 |
% |
|
|
261
|
|
|
|
19 |
% |
|
|
49
|
|
|
|
19 |
% |
Telephone
|
|
|
80
|
|
|
|
5 |
% |
|
|
29
|
|
|
|
2 |
% |
|
|
51
|
|
|
|
176 |
% |
Advertising
sales
|
|
|
76
|
|
|
|
5 |
% |
|
|
79
|
|
|
|
6 |
% |
|
|
(3 |
) |
|
|
(4 |
)% |
Commercial
|
|
|
83
|
|
|
|
6 |
% |
|
|
76
|
|
|
|
5 |
% |
|
|
7
|
|
|
|
9 |
% |
Other
|
|
|
91
|
|
|
|
6 |
% |
|
|
85
|
|
|
|
6 |
% |
|
|
6
|
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,499
|
|
|
|
100 |
% |
|
$ |
1,383
|
|
|
|
100 |
% |
|
$ |
116
|
|
|
|
8 |
% |
|
|
Six
Months Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
over 2006
|
|
|
|
Revenues
|
|
|
%
of
Revenues
|
|
|
Revenues
|
|
|
%
of
Revenues
|
|
|
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video
|
|
$ |
1,697
|
|
|
|
58 |
% |
|
$ |
1,684
|
|
|
|
62 |
% |
|
$ |
13
|
|
|
|
1 |
% |
High-speed
Internet
|
|
|
606
|
|
|
|
21 |
% |
|
|
506
|
|
|
|
19 |
% |
|
|
100
|
|
|
|
20 |
% |
Telephone
|
|
|
142
|
|
|
|
5 |
% |
|
|
49
|
|
|
|
2 |
% |
|
|
93
|
|
|
|
190 |
% |
Advertising
sales
|
|
|
139
|
|
|
|
4 |
% |
|
|
147
|
|
|
|
5 |
% |
|
|
(8 |
) |
|
|
(5 |
)% |
Commercial
|
|
|
164
|
|
|
|
6 |
% |
|
|
149
|
|
|
|
6 |
% |
|
|
15
|
|
|
|
10 |
% |
Other
|
|
|
176
|
|
|
|
6 |
% |
|
|
168
|
|
|
|
6 |
% |
|
|
8
|
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,924
|
|
|
|
100 |
% |
|
$ |
2,703
|
|
|
|
100 |
% |
|
$ |
221
|
|
|
|
8 |
% |
Video
revenues consist primarily of revenues from analog and digital video services
provided to our non-commercial customers. Analog video customers
decreased by 259,700 customers from June 30, 2006, 196,700 of which was related
to asset sales, compared to June 30, 2007. Digital video customers
increased by 97,000, offset by a loss of 65,600 customers related to asset
sales. The increase in video revenues is attributable to the
following (dollars in millions):
|
|
Three
months ended
June
30, 2007
compared
to
three
months ended
June
30, 2006
Increase
/ (Decrease)
|
|
|
Six
months ended
June
30, 2007
compared
to
six
months ended
June
30, 2006
Increase
/ (Decrease)
|
|
|
|
|
|
|
|
|
Rate
adjustments and incremental video services
|
|
$ |
24
|
|
|
$ |
43
|
|
Increase
in digital video customers
|
|
|
16
|
|
|
|
32
|
|
Decrease
in analog video customers
|
|
|
(11 |
) |
|
|
(18 |
) |
System
sales
|
|
|
(23 |
) |
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
6
|
|
|
$ |
13
|
|
High-speed
Internet customers grew by 291,100 customers, offset by a loss of 39,600
customers related to asset sales, from June 30, 2006 to June 30,
2007. The increase in high-speed Internet revenues from our
non-commercial customers is attributable to the following (dollars in
millions):
|
|
Three
months ended
June
30, 2007
compared
to
three
months ended
June
30, 2006
Increase
/ (Decrease)
|
|
|
Six
months ended
June
30, 2007
compared
to
six
months ended
June
30, 2006
Increase
/ (Decrease)
|
|
|
|
|
|
|
|
|
Increase
in high-speed Internet customers
|
|
$ |
40
|
|
|
$ |
76
|
|
Price
increases
|
|
|
14
|
|
|
|
33
|
|
System
sales
|
|
|
(5 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
49
|
|
|
$ |
100
|
|
Revenues
from telephone services increased primarily as a result of an increase of
442,700 telephone customers from June 30, 2006 to June 30, 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,
including political advertising and as a result of decreases in advertising
sales revenues from programmers. For the three months ended June 30,
2007 and 2006, we received $2 million and $4 million, and for the six months
ended June 30, 2007 and 2006, we received $6 million and $10 million, in
advertising sales revenues from programmers, respectively.
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 video and
high-speed Internet revenues, offset by decreases of $2 million and $5 million
related to asset sales for the three months and six months ended June 30, 2007,
respectively.
Other
revenues consist of 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
June 30, 2007 and 2006, franchise fees represented approximately 49% and 52%,
respectively, of total other revenues. For the six months ended June
30, 2007 and 2006, franchise fees represented approximately 50% and 53%,
respectively, of total other revenues. The increase in other revenues
was primarily the result of increases in wire maintenance fees and late payment
fees.
Operating
expenses. The increase in operating
expenses is attributable to the following (dollars in millions):
|
|
Three
months ended
June
30, 2007
compared
to
three
months ended
June
30, 2006
Increase
/ (Decrease)
|
|
|
Six
months ended
June
30, 2007
compared
to
six
months ended
June
30, 2006
Increase
/ (Decrease)
|
|
|
|
|
|
|
|
|
Programming
costs
|
|
$ |
21
|
|
|
$ |
47
|
|
Costs
of providing telephone services
|
|
|
10
|
|
|
|
21
|
|
Labor
costs
|
|
|
16
|
|
|
|
17
|
|
Maintenance
costs
|
|
|
4
|
|
|
|
8
|
|
Other,
net
|
|
|
2
|
|
|
|
5
|
|
System
sales
|
|
|
(17 |
) |
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
36
|
|
|
$ |
63
|
|
Programming
costs were approximately $388 million and $379 million, representing 60% and
62%
of total operating expenses for the three months ended June 30, 2007 and 2006,
respectively, and were approximately $781 million and $755 million, representing
61% and 62% of total operating expenses for the six months ended June 30, 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 and in the three months ended June 30, 2007 was
offset by approximately $4 million of favorable programming contract
settlements. Programming costs were also offset by the amortization
of payments received from programmers in support of launches of new channels
of
$5 million and $4 million for the three months ended June 30, 2007 and 2006
and
$10 million and $9 million for the six months ended June 30, 2007 and 2006,
respectively. System sales above include decreases in expense of
approximately $12 million and $21 million, respectively, for the three and
six
months ended June 30, 2007 related to programming. 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):
|
|
Three
months ended
June
30, 2007
compared
to
three
months ended
June
30, 2006
Increase
/ (Decrease)
|
|
|
Six
months ended
June
30, 2007
compared
to
six
months ended
June
30, 2006
Increase
/ (Decrease)
|
|
|
|
|
|
|
|
|
Customer
care costs
|
|
$ |
19
|
|
|
$ |
37
|
|
Marketing
costs
|
|
|
17
|
|
|
|
35
|
|
Employee
costs
|
|
|
8
|
|
|
|
15
|
|
Other,
net
|
|
|
(1 |
) |
|
|
(8 |
) |
System
sales
|
|
|
(5 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
38
|
|
|
$ |
69
|
|
Depreciation
and amortization. Depreciation and amortization
expense decreased by $6 million and $25 million for the three and six months
ended June 30, 2007 compared to June 30, 2006, respectively, and was primarily
the result of systems sales and certain assets becoming fully
depreciated.
Other
operating expenses, net. For the three months ended
June 30, 2007 compared to June 30, 2006, the decrease in other operating
expenses, net is attributable to a $6 million decrease in special
charges. For the six months ended June 30, 2007 compared to June 30,
2006, the decrease in other operating expenses, net is attributable to an $8
million decrease in special charges, offset by a $3 million increase in losses
on sales of assets. For more information, see Note 11 to the
accompanying condensed consolidated financial statements contained in “Item 1.
Financial Statements.”
Interest
expense, net. For the three months ended June 30,
2007 compared to the three months ended June 30, 2006, net interest expense
decreased by $4 million, which was a result of a decrease in our average debt
outstanding from $19.7 billion for the second quarter of 2006 to $19.2 billion
for the second quarter of 2007 as well as a decrease in our average borrowing
rate from 9.4% in the second quarter of 2006 to 9.2% in the second quarter
of
2007. For the six months ended June 30, 2007 compared to the six
months ended June 30, 2006, net interest expense decreased by $8 million, which
was a result of a decrease in our average debt outstanding from $19.7 billion
to
$19.2 billion as well as a decrease in our average borrowing rate from 9.4%
for
the six months ended June 30, 2006 to 9.3% for the six months ended June 30,
2007, respectively.
Other
expense, net. The decrease in other expense, net is
attributable to the following (dollars in millions):
|
|
Three
months ended
June
30, 2007
compared
to
three
months ended
June
30, 2006
Increase
/ (Decrease)
|
|
|
Six
months ended
June
30, 2007
compared
to
six
months ended
June
30, 2006
Increase
/ (Decrease)
|
|
|
|
|
|
|
|
|
Increase
(decrease) in gain on derivative instruments
and
hedging activities, net
|
|
$ |
3
|
|
|
$ |
(6 |
) |
Increase
in loss on extinguishment of debt
|
|
|
(7 |
) |
|
|
(8 |
) |
Increase
in minority interest
|
|
|
--
|
|
|
|
(2 |
) |
Increase
in loss on investments
|
|
|
(6 |
) |
|
|
(5 |
) |
Other,
net
|
|
|
1
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
(9 |
) |
|
$ |
(24 |
) |
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 was offset by deferred tax
benefits of $21 million related to asset impairment charges recorded in the
six
months ended June 30, 2006. Income tax expense includes $19 million
of deferred tax expense related to asset sales occurring in the six months
ended
June 30, 2007.
Income
from discontinued operations, net of tax. Income from
discontinued operations, net of tax decreased in the three and six months
ending
June 30, 2007 compared to three and six months ended June 30, 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. Net loss decreased by $22 million, or 6%, for
the three months ended June 30, 2007 compared to the three months ended June
30,
2006 and by $100 million, or 12%, for the six months ended June 30, 2007
compared to the six months ended June 30, 2006 as a result of the factors
described above.
Loss
per common share. During the three months ended June
30, 2007 compared to the three months ended June 30, 2006, net loss per common
share decreased by $0.22, or 18%, and during the six months ended June 30,
2007,
net loss per common share decreased by $0.63, or 24%, compared to the six months
ended June 30, 2006, 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
significant amounts of debt. Our long-term financing as of June 30,
2007 consisted of $6.9 billion of credit facility debt, $12.3 billion accreted
value of high-yield notes, and $411 million accreted value of convertible senior
notes. For the remaining two quarterly periods of 2007, none of our
debt matures. In 2008, $65 million of our debt matures, and in 2009,
$666 million matures. 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 six months ended June 30, 2007, we generated $118
million of net cash flows from operating activities after paying cash interest
of $918 million. In addition, we used approximately $579 million for
purchases of property, plant and equipment. Finally, we had net cash
flows provided by financing activities of $490 million, as a result of
refinancing transactions completed during the period. 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 based on 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 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. 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 June 30, 2007, we were 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 June 30, 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 Charter’s 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 now held by Charter Holdco, 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 June 30, 2007, Charter Holdco was owed
$4 million in intercompany loans from its subsidiaries and had $14 million
in
cash, which were available to pay interest and principal on Charter's
convertible senior notes. In addition, Charter has $25 million of U.S.
government securities pledged as security for the semi-annual interest payments
on Charter’s convertible senior notes scheduled in 2007. On
August 1, 2007, Charter Holdings distributed to CCHC an intercompany note issued
by Charter Operating with an outstanding balance, including accrued
interest, of $119 million. On the same day, CCHC distributed
such note to Charter Holdco along with $450 million of Charter’s convertible
senior note and an investment account with $26 million of cash. As
long as Charter Holdco continues to hold the $450 million of Charter’s
convertible senior notes, Charter Holdco 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 Charter Holdco
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
Charter’s convertible senior notes, although Charter Holdco 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 unless each applicable subsidiary’s leverage ratio test is met
at the time of such distribution. For the quarter ended June 30,
2007, there was no default under any of these indentures or credit facilities
and each subsidiary met its applicable leverage ratio tests based on June 30,
2007 financial results. Such distributions would be restricted,
however, if any such subsidiary fails to meet these tests at the time of the
contemplated distribution. In the past, certain subsidiaries have
from time to time failed to meet their leverage ratio test. There can
be no assurance that they will satisfy these tests at the time of the
contemplated distribution. Distributions by Charter Operating for
payment of principal on parent company notes are further restricted by the
covenants in its credit facilities.
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
Charter’s 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 June 30,
2007, there was no default under Charter Holdings’ indentures, the other
specified tests were met, and Charter Holdings met its leverage ratio test
based
on June 30, 2007 financial results. Such distributions would be
restricted, however, if Charter Holdings fails to meet these tests at the time
of the contemplated distribution. In the past, Charter Holdings has
from time to time failed to meet this leverage ratio test. There can
be no assurance that Charter Holdings will satisfy these tests at the time
of
the contemplated distribution. 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 were 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 the full 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) (“Replacement
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 Replacement
Existing Term Loan, the New Term Loan, and revolving loans is 2.00% above
LIBOR. The revolving line of credit commitments terminate on March 6,
2013. The Replacement Existing Term Loan and the New Term Loan are
subject to amortization at 1% of their initial principal amount per annum and
amortization commences on March 31, 2008. The remaining principal
amount of the Replacement Existing Term Loan and the New Term Loan will be
due
on March 6, 2014. 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”). 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 is 2.50% above
LIBOR. 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 Charter Holdings’ notes
outstanding at Charter Holdings, and to repay $105 million of Charter Holdings’
notes maturing in April 2007. The remainder was used for other
general corporate purposes.
Historical
Operating, Financing and Investing Activities
Our
cash
flows for the six months ended June 30, 2006 include the cash flows related
to
our discontinued operations.
We
held
$81 million in cash and cash equivalents as of June 30, 2007 compared to
$60 million as of December 31, 2006. For the six months ended
June 30, 2007, we generated $118 million of net cash flows from operating
activities after paying cash interest of $918 million. In addition,
we used approximately $579 million for purchases of property, plant and
equipment. Finally, we had net cash flows provided by financing
activities of $490 million.
Operating
Activities. Net cash provided by operating
activities decreased $87 million, or 42%, from $205 million for the six months
ended June 30, 2006 to $118 million for the six months ended June 30,
2007. For the six months ended June 30, 2007, net cash provided by
operating activities decreased primarily as a result of changes in operating
assets and liabilities that provided $78 million less cash during the six months
ended June 30, 2007 than the corresponding period in 2006, and an increase
of
$49 million in interest on cash pay obligations during the same period, offset
by revenues increasing at a faster rate than cash expenses.
Investing
Activities. Net cash used by investing activities
increased to $587 million for the six months ended June 30, 2007 compared to
$553 million for the six months ended June 30, 2006, which was primarily related
to an increase in cash used for the purchase of property, plant, and equipment
and a decrease in accrued expenses related to capital expenditures.
Financing
Activities. Net cash provided by financing
activities was $490 million and $383 million for the six months ended June
30,
2007 and 2006, respectively. The increase in cash provided during the
six months ended June 30, 2007 as compared to the corresponding period in 2006,
was primarily the result of increased borrowings of long-term debt.
Capital
Expenditures
We
have
significant ongoing capital expenditure requirements. Capital
expenditures were $579 million and $539 million for the six months ended June
30, 2007 and 2006, respectively. Capital expenditures increased as a
result of spending on customer premise equipment and support capital to meet
increased digital, high-speed Internet, and telephone customer
growth. 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 six months ended June 30, 2007
and 2006, our liabilities related to capital expenditures decreased $39 million
and $9 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 funded 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 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 and six months ended June 30,
2007
and 2006 (dollars in millions):
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
premise equipment (a)
|
|
$ |
128
|
|
|
$ |
128
|
|
|
$ |
289
|
|
|
$ |
258
|
|
Scalable
infrastructure (b)
|
|
|
51
|
|
|
|
63
|
|
|
|
100
|
|
|
|
97
|
|
Line
extensions (c)
|
|
|
25
|
|
|
|
33
|
|
|
|
49
|
|
|
|
59
|
|
Upgrade/Rebuild
(d)
|
|
|
12
|
|
|
|
14
|
|
|
|
24
|
|
|
|
23
|
|
Support
capital (e)
|
|
|
65
|
|
|
|
60
|
|
|
|
117
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capital expenditures
|
|
$ |
281
|
|
|
$ |
298
|
|
|
$ |
579
|
|
|
$ |
539
|
|
(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 boxes 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).
|
Item
3. Quantitative and
Qualitative Disclosures about Market Risk.
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
June 30, 2007 and December 31, 2006, our long-term debt totaled approximately
$19.6 billion and $19.1 billion, respectively. This debt was
comprised of approximately $6.9 billion and $5.4 billion of credit facilities
debt, $12.3 billion and $13.3 billion accreted amount of high-yield notes and
$411 million and $408 million accreted amount of convertible senior notes,
respectively.
As
of
June 30, 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 10.3% and the
weighted average interest rate on the convertible senior notes was approximately
5.9%, resulting in a blended weighted average interest rate of 9.2% and 9.5%,
respectively. The interest rate on approximately 80% and 78% of the
total principal amount of our debt was effectively fixed, including the effects
of our interest rate hedge agreements as of June 30, 2007 and December 31,
2006,
respectively. The fair value of our high-yield notes was $12.5
billion and $13.3 billion at June 30, 2007 and December 31, 2006,
respectively. The fair value of our convertible senior notes was $730
million and $576 million at June 30, 2007 and December 31, 2006,
respectively. The fair value of our credit facilities is $6.8 billion
and $5.4 billion at June 30, 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 each of the three months ended June 30, 2007 and
2006, other expense, net includes $0 and for the six months ended June 30,
2007
and 2006, other expense, net includes $0 and a gain 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 that are designated as hedging instruments of the variability
of
cash flows associated with floating-rate debt obligations, and that meet the
effectiveness criteria of SFAS No. 133 are reported in accumulated other
comprehensive income. For the three months
ended
June 30, 2007
and 2006, gains of $50 million and $1 million, respectively, and for the six
months ended June 30, 2007 and 2006, a gain of $48 million and $0, respectively,
related to derivative instruments designated as cash flow hedges, was recorded
in accumulated other comprehensive income. The amounts are subsequently
reclassified as an increase or decrease to interest expense 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 June 30,
2007 and 2006, other expense, net
includes gains of $6 million and $3 million, respectively, and for the six
months ended June 30, 2007 and 2006, other expense, net includes gains of $5
million and $9 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 June 30, 2007
(dollars in millions):
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair
Value at June 30, 2007
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Rate
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
601 |
|
|
$ |
2,232 |
|
|
$ |
282 |
|
|
$ |
1,175 |
|
|
$ |
8,340 |
|
|
$ |
12,630 |
|
|
$ |
13,212 |
Average
Interest Rate
|
|
|
--
|
|
|
|
--
|
|
|
|
7.22 |
% |
|
|
10.26 |
% |
|
|
11.25 |
% |
|
|
8.26 |
% |
|
|
10.70 |
% |
|
|
10.24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
Rate
|
|
$ |
--
|
|
|
$ |
65
|
|
|
$ |
65
|
|
|
$ |
65
|
|
|
$ |
65
|
|
|
$ |
65
|
|
|
$ |
6,525
|
|
|
$ |
6,850
|
|
|
$ |
6,792
|
Average
Interest
Rate
|
|
|
--
|
|
|
|
7.19 |
% |
|
|
7.27 |
% |
|
|
7.41 |
% |
|
|
7.52 |
% |
|
|
7.60 |
% |
|
|
7.34 |
% |
|
|
7.34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
to Fixed Swaps
|
|
$ |
200
|
|
|
$ |
--
|
|
|
$ |
--
|
|
|
$ |
500
|
|
|
$ |
300
|
|
|
$ |
1,000
|
|
|
$ |
1,000
|
|
|
$ |
3,000
|
|
|
$ |
53
|
Average
Pay
Rate
|
|
|
6.74 |
% |
|
|
--
|
|
|
|
--
|
|
|
|
6.81 |
% |
|
|
6.98 |
% |
|
|
6.89 |
% |
|
|
6.94 |
% |
|
|
6.89 |
% |
|
|
|
Average
Receive
Rate
|
|
|
7.34 |
% |
|
|
--
|
|
|
|
--
|
|
|
|
7.42 |
% |
|
|
7.45 |
% |
|
|
7.58 |
% |
|
|
7.65 |
% |
|
|
7.55 |
% |
|
|
|
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 June 30,
2007.
At
June
30, 2007 and December 31, 2006, we had outstanding $3.0 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 June 30, 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.
Item
1. Legal
Proceedings.
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 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 June 30, 2007, our total debt was approximately $19.6
billion, our shareholders’ deficit was approximately $6.8 billion and the
deficiency of earnings to cover fixed charges for the three and six months
ended
June 30, 2007 was $300 million and $610 million, respectively.
As
of
June 30, 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 are held by Charter Holdco.
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
20% of our
borrowings are, and will continue to be, subject to 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 amounts
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 June
30, 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 the Charter
Operating 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;
|
·
|
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 and
state 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 June 30,
2007, our total debt was approximately $19.6 billion, of which approximately
$19.2 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 Our Business
We
operate in a very competitive business environment, which affects our ability
to
attract and retain customers and can adversely affect our business and
operations
The
industry in which we operate is highly competitive and has become more so in
recent years. In some instances, we compete against companies with
fewer regulatory burdens, easier access to financing, greater personnel
resources, greater brand name recognition, and long-established relationships
with regulatory authorities and customers. Increasing consolidation
in the cable industry and the repeal of certain ownership rules may provide
additional benefits to certain of our competitors, either through access to
financing, resources, or efficiencies of scale.
Our
principal competitors for video services throughout our territory are direct
broadcast satellite operators (“DBS”). The two largest DBS providers
are The DIRECTV Group, Inc. and Echostar Communications,
Inc. Competition from DBS, including intensive marketing efforts with
aggressive pricing and exclusive programming has had an adverse impact on our
ability to retain customers. DBS has grown rapidly over the last several years.
The cable industry, including us, has lost a significant number of video
customers to DBS competition, and we face serious challenges in this area in
the
future. In some areas, DBS operators have entered into co-marketing
arrangements with other of our competitors to offer service bundles combining
video services provided by the DBS operator and digital subscriber line Internet
services (“DSL”) along with traditional telephone service offered by the
telephone companies. These service bundles substantially resemble our
bundles. We believe that competition from DBS service providers may
present greater challenges in areas of lower population density, and that our
systems service a higher concentration of such areas than those of certain
other
major cable service providers.
Local
telephone companies and electric utilities can offer video and other services
in
competition with us and they increasingly may do so in the
future. Two major local telephone companies, AT&T and Verizon,
have both announced that they are making upgrades of their
networks. Some upgraded portions of these networks are or will be
capable of carrying two-way video services that are comparable to ours,
high-speed data services that operate at speeds as high or higher than those
we
make available to customers in these areas, and digital voice services that
are
similar to ours. In addition, these companies continue to offer their
traditional telephone services as well as bundles that include wireless voice
services provided by affiliated companies. Based on internal
estimates, we believe that AT&T’s and Verizon’s upgrades have been completed
in systems representing approximately 6% to 7% of our homes passed as of June
30, 2007, an increase from an estimated 2% at March 31, 2007. Additional
upgrades in markets in which we operate are expected. In areas where
they have launched video services, these parties are aggressively marketing
video, voice and data bundles at entry level prices similar to those we use
to
market our bundles.
The
existence of more than one cable system operating in the same territory is
referred to as an overbuild. Overbuilds could adversely affect our
growth, financial condition, and results of operations, by creating or
increasing competition. Based on internal estimates, as of June 30,
2007, we are aware of traditional overbuild situations impacting approximately
8% of our estimated homes passed, and potential traditional overbuild situations
in areas servicing approximately an additional 1% of our estimated homes
passed. Additional overbuild situations may occur in other
systems.
With
respect to our Internet access services, we face competition, including
intensive marketing efforts and aggressive pricing, from telephone companies
and
other providers of DSL. DSL service is competitive with high-speed
Internet service over cable systems. In addition, DBS providers have
entered into joint marketing arrangements with Internet access providers to
offer bundled video and Internet service, which competes with our ability to
provide bundled services to our customers. Moreover, as we expand our
telephone offerings, we will face considerable competition from established
telephone companies and other carriers.
In
order
to attract new customers, from time to time we make promotional offers,
including offers of temporarily reduced price or free service. These
promotional programs result in significant advertising, programming and
operating expenses, and also require us to make capital expenditures to acquire
customer premise equipment. Customers who subscribe to our services
as a result of these offerings may not remain customers for any significant
period of time following the end of the promotional period. A failure
to retain existing customers and customers added through promotional offerings
or to collect the amounts they owe us could have a material adverse effect
on
our business and financial results.
Mergers,
joint ventures, and alliances among franchised, wireless, or private cable
operators, DBS providers, local exchange carriers, and others, may provide
additional benefits to some of our competitors, either through access to
financing, resources, or efficiencies of scale, or the ability to provide
multiple services in direct competition with us.
In
addition to the various competitive factors discussed above, our business
is
subject to risks relating to increasing competition for the leisure and
entertainment time of consumers. Our business competes with all other sources
of
entertainment and information delivery, including broadcast television, movies,
live events, radio broadcasts, home video products, console games, print
media,
and the Internet. Technological advancements, such as
video-on-demand, new video formats, and Internet streaming and downloading,
have
increased the number of entertainment and information delivery choices available
to consumers, and intensified the challenges posed by audience fragmentation.
The increasing number of choices available to audiences could negatively
impact
not only consumer demand for our products and services, but also advertisers’
willingness to purchase advertising from us. If we do not respond
appropriately to further increases in the leisure and entertainment choices
available to consumers, our competitive position could deteriorate, and our
financial results could suffer.
We
cannot
assure you that our cable systems will allow us to compete
effectively. Additionally, as we expand our offerings to include
other telecommunications services, and to introduce new and enhanced services,
we will be subject to competition from other providers of the services we
offer. We cannot predict the extent to which competition may affect
our business and operations in the future.
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 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 many 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 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 we are not able to avail ourselves of this
streamlined franchising process, we 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.
We
may be required to provide access to our network 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 continued
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. We can be required to devote substantial capacity to the
carriage of programming that we might not carry voluntarily, including certain
local broadcast signals, local public, educational and government access
programming, and unaffiliated commercial leased access
programming. This carriage burden could increase in the future,
particularly if we are required to carry both an 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 our revenue potential. The FCC recently
initiated 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. The FCC is considering new carriage
obligations in an effort to facilitate that transition that could increase
the
capacity cable operators must devote to the retransmission of broadcast
signals.
Item
4. Submission of Matters
to a Vote of Security Holders.
The
annual meeting of shareholders of Charter Communications, Inc. was held on
June
12, 2007. Of the total 408,616,474 shares of Class A common stock issued,
outstanding and eligible to be voted at the meeting, 364,693,586 shares,
representing the same number of votes, were represented in person or by proxy
at
the meeting. Of the total 50,000 shares of Class B common stock issued,
outstanding and eligible to be voted at the meeting, 50,000 shares, representing
3,391,820,310 votes, were represented in person or by proxy at the meeting.
Three matters were submitted to a vote of the shareholders at the
meeting.
ELECTION
OF ONE CLASS A/CLASS B DIRECTOR. The holders of the Class A common stock
and the Class B common stock voting together elected Robert P. May as the
Class A/Class B director, to hold office for a term of one year. The
voting results are set forth below:
NOMINEE
|
|
FOR
|
|
WITHHELD
|
|
BROKER
NON-VOTE
|
Robert
P. May
|
|
|
3,751,644,025
|
|
|
|
4,869,871
|
|
|
N/A
|
|
ELECTION
OF ELEVEN CLASS B DIRECTORS. The holder of the Class B common stock elected
eleven Class B directors to the Board of Directors, each to hold office for
a term of one year. The voting results are set forth below:
NOMINEE
|
|
FOR
|
|
|
WITHHELD
|
|
Paul
G. Allen
|
|
|
3,391,820,310
|
|
|
|
0
|
|
W.
Lance Conn
|
|
|
3,391,820,310
|
|
|
|
0
|
|
Nathaniel
A. Davis
|
|
|
3,391,820,310
|
|
|
|
0
|
|
Jonathan
L. Dolgen
|
|
|
3,391,820,310
|
|
|
|
0
|
|
Rajive
Johri
|
|
|
3,391,820,310
|
|
|
|
0
|
|
David
C. Merritt
|
|
|
3,391,820,310
|
|
|
|
0
|
|
Marc
B. Nathanson |
|
|
3,391,820,310
|
|
|
|
0
|
|
Jo
Allen Patton |
|
|
3,391,820,310
|
|
|
|
0
|
|
Neil
Smit |
|
|
3,391,820,310
|
|
|
|
0
|
|
John
H. Tory |
|
|
3,391,820,310
|
|
|
|
0
|
|
Larry
W. Wangberg |
|
|
3,391,820,310
|
|
|
|
0
|
|
RATIFICATION
OF KPMG LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. The holders
of
the Class A common stock and the Class B common stock voting together
ratified KPMG LLP as Charter Communications, Inc.’s independent registered
public accounting firm for the year ended December 31, 2007. The voting
results are set forth below:
FOR
|
|
AGAINST
|
|
ABSTAIN
|
|
BROKER
NON-VOTE
|
3,753,652,733
|
|
|
2,573,249
|
|
|
|
287,914
|
|
|
|
N/A
|
|
Under
the
Certificate of Incorporation and Bylaws of Charter Communications, Inc. for
purposes of determining whether votes have been cast, abstentions and broker
“non-votes” are not counted and therefore do not have an effect on the
proposals
Item
5. Other
Information.
Charter
entered into amended and restated employment agreements ("New Agreements")
as of
August 1, 2007, with J. T. Fisher, Executive Vice President and Chief Financial
Officer; Michael J. Lovett, Executive Vice President and Chief Operating
Officer; Grier C. Raclin, Executive Vice President, General Counsel and
Corporate Secretary; and Robert A. Quigley, Executive Vice President and Chief
Marketing Officer, all Named Executive Officers ("NEO") of
Charter. These New Agreements replace the existing employment
agreements for each of the individuals. In addition, Charter will
enter into an Addendum to Employment Agreement (the "Addendum") as of August
1,
2007, with Neil Smit, President and Chief Executive Officer, who is also a
NEO. The following is a brief description of the New Agreements and
the general terms of the Addendum. The full text of each of the New
Agreements and the Addendum have been filed as exhibits to this Form
10-Q.
The
New
Agreements are for terms of between two and three years, automatically renewable
for a one-year period unless either party gives written notice not later than
90
days prior to the termination of the agreement. The New Agreements
set forth annual base salary amounts, target bonus amounts as a percentage
of
annual base salary under Charter's Executive Bonus Plan and special equity
grants to each NEO. The specific amounts for each NEO are set forth
in the table below. The New Agreements also provide that the NEOs
shall be entitled to receive such benefits and perquisites that are generally
provided to senior executives of a comparable level at Charter and to
participate in the 2005 Executive Cash Award Plan (the "Cash Award
Plan"). The New Agreement of Mr. Lovett provides that Mr. Lovett will
receive a one time additional contribution to the Cash Award Plan equal to
1.5
times base salary.
The
New
Agreements provide that, in the event that the Executive is terminated by
Charter without "Cause'' or the Executive elects to terminate the New Agreement
for "Good Reason,'' as those terms are defined in the New Agreements, the
Executive will receive the severance payment set forth in the table below in
52
bi-weekly installments; a lump sum payment equal to payments due under COBRA
for
at least 24 months; and the vesting of options and restricted stock
for as long as severance payments are made, subject to acceleration
if a "Change of Control" (as such term is defined in the New
Agreements) occurs during the severance period (in Mr. Lovett's case all
options, performance units, shares and restricted shares also accelerate upon
Termination by the Company without Cause or by the Executive for Good
Reason) and subject to the
restrictions
contained in Section 409A of the Internal Revenue Code. In the event
of termination by reason of "Disability," as that term is defined in the New
Agreements, or death, Charter shall pay in a lump sum payment all unpaid salary
and earned bonus, as well as the pro rata portion of the bonus for the
year of termination, payable when other senior executives bonuses are
paid. The New Agreements contain a two-year non-compete provision and
a two-year non-solicitation clause.
The
Addendum provides that Mr. Smit will receive certain awards of equity of Charter
under Charter's 2001 Stock Incentive Plan, an additional amount of severance
pay
than as set forth in his employment agreement, and that Mr. Smit will
participate in the Cash Award Plan, resulting in $1.44 million being credited
to
his account under the plan.
The
following table sets forth a summary of amounts contained in each of the New
Agreements and the Addendum:
Name
|
Term
ofAgreement
|
Base
Salary ($)
|
Bonus
Target
(%
of Base Salary)
|
Special
Equity Grant
|
Severance
Pay ($)
|
Neil
Smit,
President
and Chief Executive
Officer
|
No
change
|
No
change
|
No
change
|
Restricted
Stock – 600,000 shares
2007
Performance Units – 600,000
|
(Base
salary+ Target Bonus) x 3
|
J.
T. Fisher
Executive
Vice President and
Chief
Financial Officer
|
2
years,
9
months
|
515,000
|
70
|
Restricted
Stock – 50,000 shares
2007
Performance Units – 50,000
|
(Base
Salary+ Target Bonus) x 2
|
Michael
J. Lovett
Executive
Vice President and
Chief
Operating Officer
|
3
years
|
731,150
|
100
|
Restricted
Stock – 553,643 shares
2007
Performance Units – 553,643
|
(Base
Salary+ Target Bonus) x 2.5
|
Robert
A. Quigley
Executive
Vice President and
Chief
Marketing Officer
|
2
years,
3
months
|
470,025
|
60
|
Restricted
Stock – 150,000 and 75,000 shares
2007
Performance Units – 150,000
|
(Base
Salary+ Target Bonus) x 2
|
Grier
C. Raclin
Executive
Vice President,
General
Counsel and
Corporate
Secretary
|
2
years,
9
months
|
470,025
|
60
|
Restricted
Stock – 150,000 shares
2007
Performance Units – 150,000
|
(Base
Salary+ Target Bonus) x 2
|
Item
6. Exhibits.
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:
August 2, 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+*
|
|
Addendum
to the Employment Agreement between Neil Smit and Charter Communications,
Inc., dated as of August 1, 2007.
|
10.2+*
|
|
Amended
and Restated Employment Agreement between Jeffrey T. Fisher and Charter
Communications, Inc., dated as of August 1, 2007.
|
10.3+*
|
|
Amended
and Restated Employment Agreement between Michael J. Lovett and Charter
Communications, Inc., dated as of August 1, 2007.
|
10.4+*
|
|
Amended
and Restated Employment Agreement between Robert A. Quigley and Charter
Communications, Inc., dated as of August 1, 2007.
|
10.5+*
|
|
Amended
and Restated Employment Agreement between Grier C. Raclin and Charter
Communications, Inc., dated as of August 1, 2007.
|
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