InvestorsNovember 3, 2003
Charter Communications Reports Third Quarter 2003 Results
Share Article:
ST. LOUIS, Nov 3, 2003 (BUSINESS WIRE) -- Charter Communications, Inc. (Nasdaq:CHTR) (along with its subsidiaries, the Company) today reported financial and operating results for the three and nine months ended September 30, 2003.
Operating Highlights
-- Income from operations grew 29% year over year to $117 million
in the third quarter, and 12% to $306 million for the nine
months ended September 30, 2003.
-- High-speed data revenues increased 59% over last year's third
quarter to $145 million, principally the result of a 54%
increase in customers, totaling 519,800 year over year.
-- Net cash flow from operating activities in the third quarter
increased 24% year over year to $353 million. Net cash flow
from operating activities increased 22% year over year to $638
million for the nine months ended September 30, 2003.
-- Capital expenditures totaled $239 million, a decrease of 57%
as compared to the third quarter of 2002. Capital expenditures
for the nine months ended September 30, 2003 totaled $503
million, a decrease of 68% year over year.
-- The Company generated $96 million in free cash flow (as
defined in the Use of Non-GAAP Financial Metrics of this
release) for the first nine months of the year, an improvement
in excess of $1.1 billion as compared to the first nine months
of 2002.
-- Sequential unit gains were posted in every business segment in
the third quarter as a result of an extensive September
marketing campaign, which included free periods of service.
Sequential quarterly RGU growth was 2% and annual RGU growth
was 5% led by advanced-service RGU increases of 19% year over
year. Bundled customers increased 11% for the quarter, and 56%
year over year. (See the customer statistics table and related
footnotes on the attached Addendum for more information.)
-- Monthly revenues per customer relationship grew 7% to $61.46
compared to $57.66 a year ago.
-- Quarterly revenues grew 4% to $1.207 billion, and adjusted
EBITDA (as defined in the Use of Non-GAAP Financial Metrics in
this news release) increased 5% to $488 million as compared to
the third quarter of 2002. Revenues grew 7%, and adjusted
EBITDA grew 8% for the nine months ended September 30, 2003 as
compared to the prior year.
"Our third quarter focus was to accelerate our marketing efforts and improve our customer relationships," said Carl Vogel, President and CEO. "We offered free periods of service for all of our products in September, and introduced new pricing and marketing strategies in many markets. In addition, we have enhanced our high-speed data product by increasing the speeds to 2.0 megabits per second where possible, and worked to improve our service levels for this important product. The introduction of free periods, and increased marketing costs as compared to prior periods, has put some downward pressure on third quarter revenues, net cash flows from operating activities, and free cash flow. However, we believe this strategy will reposition Charter's services to consumers and build a foundation for potential increases in revenue and free cash flow in the future. We have instituted specific retention programs in the fourth quarter for customers added from these promotional offers which include offering additional incremental services such as video on demand, subscription video on demand and increased speed and broadband content for our high speed data platform.
"We continue to implement ways to further improve our operations, including the recently announced divestiture of geographically non-strategic assets, a strategy we announced over a year ago. Our primary long-term focus remains on increasing revenues, net cash flows from operating activities and adjusted EBITDA, by stabilizing our customer base and being disciplined with capital expenditures."
Third Quarter Results
For the third quarter of 2003, Charter generated revenues of $1.207 billion, an increase of 4% over last year's third quarter revenues of $1.166 billion. The increase is due primarily to growth in high-speed data revenues of $54 million or 59%, reflecting 519,800 additional customers since September 2002 including 140,700 in the third quarter. This increase was partially offset by a decline in advertising revenues in the current quarter. For the three months ended September 30, 2002, Charter received $27 million in advertising revenues from vendors representing 2% of quarterly revenue, whereas vendor advertising totaled $3 million in the third quarter of 2003. Video revenues totaled $866 million in the quarter as compared to the prior year's third quarter revenues of $862 million, whereas commercial revenues increased $11 million or 27% year over year for the quarter.
Operating costs and expenses totaled $719 million, a 3% increase over the year ago quarter, reflecting increases in programming and service costs. Programming costs increased primarily as a result of price increases, particularly in sports programming, and an increase in the number of channels carried at some system locations. These programming increases were partially offset by decreases in video customers. Service costs increased primarily due to additional activity associated with on-going infrastructure maintenance, and customer service, including activities associated with our promotional program.
Income from operations totaled $117 million, an increase of $26 million, or 29%, from the $91 million reported in the third quarter a year ago. The current year's third quarter results include a special charge of $8 million representing severance related costs incurred in connection with the Company's reorganization plan commenced in December 2002.
Adjusted EBITDA was $488 million, a 5% increase over adjusted EBITDA of $466 million for the year ago third quarter.
Net income applicable to common stock was $36 million for the quarter, including a $267 million gain recognized from a $1.9 billion debt exchange transaction completed in September 2003 (see Transactions for detail). Income per common share for the quarter was 12 cents (7 cents on a fully diluted basis). For the third quarter of 2002, Charter reported net loss applicable to common stock, and loss per common share, of $167 million and 57 cents, respectively.
Year to Date Results
Revenues for the first nine months of 2003 were $3.602 billion, an increase of $225 million, or 7%, over last year's revenues for the first three quarters of $3.377 billion. This increase is principally the result of increases in the number of high-speed data and digital video customers, as well as video and data price increases, offset somewhat by the decline in analog customers. For the nine months ended September 30, 2003, video revenues increased $54 million or 2%, high-speed data revenues increased $172 million or 74%, and commercial revenues increase $32 million or 27%. These increases were offset by the decline in advertising revenues mentioned above, which totaled $28 million for the nine months ended September 30, 2002, or approximately 1% of total revenues for the comparable 2002 period.
Operating costs and expenses rose $121 million, or 6%, compared to the nine months ended September 30, 2002, primarily due to increased programming and service costs.
Income from operations for the nine months ended September 30, 2003 totaled $306 million, an increase of 12% from $273 million reported a year ago.
Adjusted EBITDA totaled $1.443 billion for the nine months ended September 30, 2003, up $104 million, or 8%, compared to the year ago period. During the first nine months of 2003, $23 million for severance and related charges were recorded in connection with the Company's reorganization plan commenced in December 2002 as a special charge, partially offset by a $5 million credit related to a settlement with the Internet service provider Excite@Home.
Net loss applicable to common stock, and loss per common share for the nine months ended September 30, 2003, declined to $184 million and 62 cents, respectively, reflecting a favorable gain from a debt exchange of $267 million on September 23, 2003 (see Transactions). For the first nine months of 2002, Charter reported net loss applicable to common stock and loss per common share of $645 million and $2.19, respectively.
Transactions
The Company closed on the sale of its Port Orchard, WA system for $91 million on October 1, 2003. The proceeds from the sale were used to pay down bank debt.
The Company signed a definitive agreement September 3, 2003 with Atlantic Broadband, LLC for the sale of various cable television systems serving approximately 235,000 customers in Florida, Pennsylvania, Maryland, Delaware, New York and West Virginia for approximately $765 million cash. The transaction is expected to close during the first half of 2004, with the proceeds being used to further reduce bank debt.
On September 23, 2003, Charter and its indirect subsidiary closed on the exchange of an aggregate of $609 million principal amount of Charter's convertible senior notes, and $1.3 billion principal amount of the senior notes and senior discount notes issued by Charter Communications Holdings, LLC ("Holdings") from a small number of institutional investors in privately negotiated transactions in exchange for $1.6 billion of 10.25% senior notes due 2010 that were issued by the subsidiary. Through these exchanges, on a consolidated basis, Charter recorded a gain of approximately $267 million.
Liquidity
Net cash flows from operating activities for the nine months ended September 30, 2003 were $638 million, an increase of 22% from $522 million reported a year ago. Expenditures for property, plant and equipment, including capitalized labor and overhead for the first nine months of the year, totaled $503 million, a decline of approximately 68% of amounts reported for the comparable period in 2002 when capital expenditures totaled $1.588 billion.
Free cash flow for the nine months ended September 30, 2003 was $96 million, whereas, for the nine months ended September 30, 2002, Charter generated negative cash flow of $1.072 billion. In the third quarter of 2003, negative cash flow totaled $30 million as a result of capital expenditures necessary to satisfy the unit growth experienced in September.
At September 30, 2003, the Company had $18.5 billion of outstanding indebtedness, and $135 million in cash on hand. Borrowing capacity, as limited by financial covenants within Charter's credit facilities totaled $735 million at September 30, 2003.
Operating Statistics
RGUs totaled approximately 10,676,700 at September 30, 2003, an increase of approximately 511,800 units, or 5% from the September 30, 2002 totals. The increase in RGUs was driven by an extensive marketing campaign, including free periods of service, resulting in an increase in high-speed data and digital video customers of 519,800 and 137,100, respectively. These increases were partially offset by a loss of 149,500 analog video customers, or 2% over the past twelve months.
RGUs increased approximately 213,200 units, or 2%, as compared to the second quarter of 2003. The Company reported sequential net gains of analog and digital video customers of approximately 11,200 and 60,900, respectively, during the third quarter. Third quarter analog video customer gain was .2%, and quarterly digital video customers increased 2%. Charter added approximately 140,700 high-speed data customers, a sequential increase of 10%, during the quarter, bringing the total high-speed data customers served to 1,489,700.
Use of Non-GAAP Financial Metrics
The Company believes that adjusted EBITDA and free cash flow have traditionally provided additional information useful in analyzing underlying business results, while minimizing the differences in GAAP (Generally Accepted Accounting Principles) financial reporting that result from, among other things, differences in peer company depreciation policies, financial leverage, and tax strategies. Both adjusted EBITDA and free cash flow are measures of our ability to service our debt, fund continued growth, and make additional investments with internally generated funds. Adjusted EBITDA and free cash flow are non-GAAP financial metrics and should be considered in addition to, not as a substitute for, income from operations, net loss, or net cash flows from operating activities reported in accordance with GAAP. In addition, adjusted EBITDA generally correlates to the amount utilized under the Company's various credit facilities, senior notes, and senior discount notes for its leverage ratio covenants. Adjusted EBITDA, as presented, is reduced for management fees in the amounts of $17 million and $56 million for the three months and nine months ended September 30, 2003 and $15 million and $48 million for the three months and the nine months ended September 30, 2002, which amounts are added back for the purposes of leverage covenants.
Adjusted EBITDA is defined as income from operations before special charges, non-cash depreciation and amortization, and option compensation expense. A reconciliation of adjusted EBITDA to income from operations is included in the Addendum. Free cash flow is defined as adjusted EBITDA less purchases of property, plant and equipment, and interest on cash pay obligations. As such, it is unaffected by fluctuations in working capital levels from period to period. It can also be computed as net cash flows from operating activities, less capital expenditures and special charges, adjusted for the change in operating assets and liabilities, net of acquisitions. A reconciliation of free cash flows to net cash flows from operating activities is included in the Addendum as well. Adjusted EBITDA and free cash flow as defined by Charter may not be comparable to similarly titled measures used by other companies.
Conference Call
The Company will host a Conference Call Monday, November 3, 2003 at 1:00 PM Eastern Time (ET) related to the contents of this release.
The Conference Call will be webcast live via the Company's website at www.charter.com. Access the webcast through the "Investor Center" portion of the website, via the "About Us" heading at the top of the page. Participants should go to the call link at least 10 minutes prior to the start time to register. The call will be archived on the website beginning two hours after its completion.
Those participating via telephone should dial 888-233-1576. International participants should dial 706-643-3458.
A replay will be available at 800-642-1687 or 706-645-9291 beginning two hours after completion of the call through midnight November 10, 2003. The passcode for the replay is 3748238.
About Charter Communications
Charter Communications(R), A Wired World Company(TM), is the nation's third-largest broadband communications company. Charter provides a full range of advanced broadband services to the home, including cable television on an advanced digital video programming platform via Charter Digital Cable(R) brand and high-speed Internet access marketed under the Charter Pipeline(R)brand. Commercial high-speed data, video and Internet solutions are provided under the Charter Business Networks (R) brand. Advertising sales and production services are sold under the Charter Media(R) brand. More information about Charter can be found at www.charter.com.
Cautionary Statement Regarding Forward-Looking Statements:
This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things, our plans, strategies and prospects, both business and financial. 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. Many of the forward-looking statements contained in this news release may be identified by the use of forward-looking words such as "believe," "expect," "anticipate," "should," "planned," "will," "may," "intend," "estimated," and "potential," among others. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this news release are set forth in reports or documents that we file from time to time with the United States Securities and Exchange Commission, or the SEC, and include, but are not limited to:
-- our ability to sustain and grow revenues and cash flows from
operating activities by offering video and data services and
to maintain a stable customer base, particularly in the face
of increasingly aggressive competition from other service
providers;
-- our and our subsidiaries' ability to comply with all covenants
in our indentures and their credit facilities and indentures,
any violation of which would result in a violation of the
applicable facility or indenture and could trigger a default
of other obligations under cross default provisions;
-- our and our subsidiaries' ability to refinance debt as it
becomes due, commencing in 2005;
-- availability 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;
-- any adverse consequences arising out of our and our
subsidiaries' prior restatement of the financial statements;
-- the results of the pending grand jury investigation by the
United States Attorney's Office for the Eastern District of
Missouri, the pending SEC Division of Enforcement
investigation and the putative class action and derivative
shareholders litigation against us;
-- our ability to achieve free cash flow;
-- our ability to obtain programming at reasonable prices or pass
cost increases on to our customers;
-- general business conditions, economic uncertainty or slowdown;
and
-- the effects of governmental regulation, including but not
limited to local franchise taxing authorities, on our
business.
All forward-looking statements attributable to us or a person acting on our behalf are expressly qualified in their entirety by this cautionary statement. We are under no obligation to update any of the forward looking statements after the date of this news release to conform these statements to actual results or to changes in our expectations.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND OPERATING DATA
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
(restated) (restated)
REVENUES:
Video $ 866 $ 862 $ 2,607 $ 2,553
High-speed data 145 91 403 231
Advertising sales 64 86 188 216
Commercial 52 41 149 117
Other 80 86 255 260
---------- ---------- ---------- ----------
Total revenues 1,207 1,166 3,602 3,377
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Programming costs 307 296 934 873
Advertising sales 21 23 65 63
Service 156 138 458 394
General and
administrative 204 201 622 595
Marketing 31 42 80 113
---------- ---------- ---------- ----------
Operating costs
and expenses 719 700 2,159 2,038
---------- ---------- ---------- ----------
Adjusted EBITDA 488 466 1,443 1,339
Depreciation and
amortization 362 374 1,118 1,061
Option compensation
expense, net 1 1 1 4
Special charges, net 8 - 18 1
---------- ---------- ---------- ----------
Income from
operations 117 91 306 273
---------- ---------- ---------- ----------
OTHER INCOME AND EXPENSES:
Interest expense, net (387) (379) (1,163) (1,114)
Gain (loss) on
derivative instruments
and hedging
activities, net 31 (76) 35 (106)
Gain on debt
exchange, net 267 - 267 -
Other, net (5) (3) (9) (8)
---------- ---------- ---------- ----------
(94) (458) (870) (1,228)
---------- ---------- ---------- ----------
Income (loss) before
minority interest,
income taxes and
cumulative effect of
accounting change 23 (367) (564) (955)
Minority interest (14) 195 297 507
---------- ---------- ---------- ----------
Income (loss) before
income taxes and
cumulative effect
of accounting change 9 (172) (267) (448)
Income tax benefit 28 6 86 12
---------- ---------- ---------- ----------
Income (loss) before
cumulative effect of
accounting change 37 (166) (181) (436)
Cumulative effect of
accounting change, net
of tax - - - (206)
---------- ---------- ---------- ----------
Net income (loss) 37 (166) (181) (642)
Dividends on preferred
stock - redeemable (1) (1) (3) (3)
---------- ---------- ---------- ----------
Net income (loss)
applicable to common
stock $ 36 $ (167) $ (184) $ (645)
========== ========== ========== ==========
EARNINGS (LOSS) PER SHARE:
Basic $ 0.12 $ (0.57) $ (0.62) $ (2.19)
========== ========== ========== ==========
Diluted $ 0.07 $ (0.57) $ (0.62) $ (2.19)
========== ========== ========== ==========
Weighted average common
shares outstanding,
basic 294,566,878 294,454,659 294,503,840 294,434,575
=========== =========== =========== ===========
Weighted average common
shares outstanding,
diluted 637,822,843 294,454,659 294,503,840 294,434,575
=========== =========== =========== ===========
NOTE: Certain 2002 amounts have been reclassified to conform with the
2003 presentation.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
September 30, December 31,
2003 2002
------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 135 $ 321
Accounts receivable, net of allowance
for doubtful accounts 190 259
Receivables from related party - 8
Prepaid expenses and other current
assets 33 45
------------- ------------
Total current assets 358 633
------------- ------------
INVESTMENT IN CABLE PROPERTIES:
Property, plant and equipment, net 7,053 7,679
Franchises, net 13,721 13,727
------------- ------------
Total investment in cable
properties, net 20,774 21,406
------------- ------------
OTHER NONCURRENT ASSETS 319 345
------------- ------------
Total assets $ 21,451 $ 22,384
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,216 $ 1,345
------------- ------------
Total current liabilities 1,216 1,345
------------- ------------
LONG-TERM DEBT 18,498 18,671
DEFERRED MANAGEMENT FEES - RELATED PARTY 14 14
OTHER LONG-TERM LIABILITIES 1,032 1,212
MINORITY INTEREST 763 1,050
PREFERRED STOCK - REDEEMABLE 55 51
SHAREHOLDERS' EQUITY (DEFICIT) (127) 41
------------- ------------
Total liabilities and shareholders'
equity (deficit) $ 21,451 $ 22,384
============= ============
NOTE: Certain 2002 amounts have been reclassified to conform with the
2003 presentation.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
Nine Months Ended
September 30,
----------------------
2003 2002
---------- ----------
(restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (181) $ (642)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Minority interest (297) (507)
Depreciation and amortization 1,118 1,061
Noncash interest expense 319 291
Loss (gain) on derivative instruments
and hedging activities, net (35) 106
Gain on debt exchange, net (267) -
Deferred income taxes (86) (12)
Change in accounting principle, net - 206
Other, net 5 7
Changes in operating assets and liabilities,
net of effects from acquisitions:
Accounts receivable 70 45
Prepaid expenses and other assets 7 7
Accounts payable, accrued expenses and other (24) (37)
Receivables from and payables to related
party, including deferred management fees 9 (3)
---------- ----------
Net cash flows from operating
activities 638 522
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (503) (1,588)
Change in accounts payable and accrued
expenses related to capital expenditures (109) (89)
Payments for acquisitions, net of cash
acquired - (139)
Purchases of investments (8) (10)
Other, net (8) 1
---------- ----------
Net cash flows from investing
activities (628) (1,825)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt 450 2,440
Repayments of long-term debt (646) (1,487)
Proceeds from issuance of debt 29 895
Payments for debt issuance costs (29) (40)
Capital contributions - 1
---------- ----------
Net cash flows from financing
activities (196) 1,809
---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (186) 506
CASH AND CASH EQUIVALENTS, beginning of period 321 2
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 135 $ 508
========== ==========
CASH PAID FOR INTEREST $ 756 $ 696
========== ==========
NONCASH TRANSACTIONS:
Issuance of debt by CCH II, LLC $ 1,572 $ -
========== ==========
Retirement of debt $ 1,866 $ -
========== ==========
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED SUMMARY OF OPERATING STATISTICS
Approximate as of
--------------------------------------
September 30, June 30, September 30,
2003 (a) 2003 (a) 2002 (a)
------------ ----------- ------------
Customer Summary:
Customer Relationships:
Video customers (b)(c) 6,498,100 6,486,900 6,647,600
Non-video customers (b) 54,800 52,000 50,300
------------ ----------- ------------
Total customer
relationships (d) 6,552,900 6,538,900 6,697,900
============ =========== ============
Average monthly revenue per
customer relationship (e) $61.46 $61.82 $57.66
Bundled customers (f) 1,434,900 1,297,000 919,600
Revenue Generating Units:
Analog video customers (b)(c) 6,498,100 6,486,900 6,647,600
Digital video customers (g) 2,664,800 2,603,900 2,527,700
High-speed data customers
(h)(i) 1,489,700 1,349,000 969,900
Telephony customers (j) 24,100 23,700 19,700
------------ ----------- ------------
Total revenue generating
units (k) 10,676,700 10,463,500 10,164,900
============ =========== ============
Video Services:
Analog Video:
Estimated homes passed (l) 12,403,400 12,189,400 11,972,600
Analog video customers (b)(c) 6,498,100 6,486,900 6,647,600
Estimated penetration of
analog video homes passed
(b)(c)(l)(m) 52% 53% 56%
Average monthly analog
revenue per analog video
customer (n) $36.66 $36.98 $35.75
Digital Video:
Estimated digital homes
passed (l) 12,243,300 11,958,200 11,492,800
Digital video customers (g) 2,664,800 2,603,900 2,527,700
Estimated penetration of
digital homes passed (g)(l)(m) 22% 22% 22%
Digital percentage of analog
video customers (b)(c)(g)(o) 41% 40% 38%
Digital set-top terminals
deployed 3,749,200 3,680,000 3,537,800
Average incremental monthly
digital revenue per digital
customer (n) $23.41 $23.47 $23.77
Estimated video on demand
homes passed (l) 3,948,700 3,371,900 1,994,700
Non-Video Services:
High-Speed Data Services:
Estimated high-speed data
homes passed (l) 10,496,900 10,013,100 8,973,200
Residential high-speed data
customers (h)(i) 1,489,700 1,349,000 969,900
Estimated penetration of
high-speed data homes
passed (h)(i)(l)(m) 14% 13% 11%
Average monthly high-speed
data revenue per high-speed
data customer (n) $34.05 $34.59 $33.70
Dial-up customers 10,900 11,700 15,800
Telephony customers (j) 24,100 23,700 19,700
See footnotes to unaudited summary of operating statistics on
page 5 of this Addendum.
(a) "Customers" include all persons corporate billing records show as
receiving service, regardless of their payment status, except for
complimentary accounts (such as our employees).
(b) Analog video customers include all customers who purchase video
services (including those who also purchase high-speed data and
telephony services), but excludes approximately 54,800, 52,000 and
50,300 customer relationships, respectively, who pay for high-speed
data service only and who are only counted as high-speed data
customers (and therefore are shown as "non-video" customers). This
represents a change in our methodology from prior reports through
September 30, 2002, in which high-speed data service only customers
were included within our analog video customers. We made this change
because we determined that most of these customers were unable to
receive our most basic level of analog video service because this
service was physically secured or blocked, was unavailable in certain
areas or the customers were unaware that this service was available to
them. However, this year through an ongoing study, we have determined
that 13,400 of these high-speed data customers have been receiving or
were otherwise upgraded to receive, analog video services. This
resulted in 11,100 customers being added to the June 30, 2003 analog
video customers and an additional 2,300 being added to the September
30, 2003 analog video customers. Additionally, 135,200 of our analog
video customers have been added during this quarter pursuant to
promotional programs, which include the initial two months of service
for free. There is no assurance that they will remain as customers
once the period of free service expires.
(c) Included within video customers are 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 consistently applied year over year. As we
increase our effective analog prices to residential customers without
a corresponding increase in the prices charged to commercial service
or multi-dwelling customers, our EBU count will decline even if there
is no real loss in commercial service or multi-dwelling customers. Our
policy is not to count complimentary accounts (such as our employees)
as customers.
(d) Customer relationships include the number of customers that
receive at least one level of service encompassing video and data
services, without regard to which service(s) such customers purchase.
This statistic is computed in accordance with the guidelines of the
National Cable & Telecommunications Association (NCTA) that have been
adopted by eleven publicly traded cable operators (including Charter)
as an industry standard.
(e) Average monthly revenue per customer relationship is calculated as
total quarterly revenue divided by three divided by average customer
relationships during the respective quarter.
(f) Bundled customers include customers subscribing to Charter's video
service and data service. Bundled customers do not include customers
who only subscribe to video service.
(g) Digital video customers include all households that have one or
more digital set-top terminals. Included in digital video customers at
September 30, 2003, June 30, 2003 and September 30, 2002 are 12,600,
13,300 and 13,400 customers, respectively, that receive digital video
service directly through satellite transmission. Additionally, 121,000
of our digital video customers have been added during this quarter
pursuant to promotional programs which include the initial two months
of service for free. There is no assurance that they will remain as
customers once the period of free service expires.
(h) As noted above, all of these customers also receive video service
and are included in the video statistics above, except that the video
statistics do not include approximately 54,800, 52,000 and 50,300 of
these customers at September 30, 2003, June 30, 2003 and September 30,
2002, respectively, who were high-speed data only customers.
Additionally, 103,800 of our high-speed data customers have been added
during this quarter pursuant to promotional programs which include the
initial two months of service for free. There is no assurance that
they will remain as customers once the period of free service expires.
(i) During the first three quarters of 2002, commercial high-speed
data customers were calculated on an Equivalent Modem Unit or EMU
basis, which involves converting commercial revenues to residential
customer counts. Given the growth plans for our commercial data
business, we do not believe that converting commercial revenues to
residential customer counts is the most meaningful way to disclose or
describe this growing business. We, therefore, excluded 85,500 EMUs
that were previously reported in our September 30, 2002 customer
totals for comparative purposes.
(j) Telephony customers include all households purchasing telephone
service.
(k) Revenue generating units represent the sum total of all primary
analog video, digital video, high-speed data and telephony customers
(including those under promotional pricing programs that may not
generate cash revenues initially or at all), not counting additional
outlets within one household. For example, a customer who receives two
types of services (such as analog video and digital video) would be
treated as two revenue generating units, and if that customer added on
high-speed data service, the customer would be treated as three
revenue generating units. This statistic is computed in accordance
with the guidelines of the NCTA that have been adopted by eleven
publicly traded cable operators (including Charter) as an industry
standard.
(l) Homes passed represents our estimate of the number of living
units, such as single family homes, apartment units and condominium
units passed by the cable distribution network in the areas in which
we offer the service indicated. Homes passed excludes commercial units
passed by the cable distribution network. The figures in this table
reflect an increase at September 30, 2003 in our estimated homes
passed from that previously reported for June 30, 2003. This increase
is in part due to a refinement of methods used to estimate homes
passed and in part due to line mileage within our network that was not
previously reflected.
(m) Penetration represents customers as a percentage of homes passed.
(n) Average monthly revenue represents quarterly revenue for the
service indicated divided by three divided by average number of
customers for the service indicated during the respective quarter.
(o) Represents the number of digital video customers as a percentage
of analog video customers.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED RECONCILIATION OF NON-GAAP MEASURES TO GAAP MEASURES
(DOLLARS IN MILLIONS)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Adjusted EBITDA $488 $466 $1,443 $1,339
Depreciation and amortization (362) (374) (1,118) (1,061)
Option compensation expense,
net (1) (1) (1) (4)
Special charge, net (8) - (18) (1)
--------- --------- --------- ---------
Income from operations $117 $91 $306 $273
========= ========= ========= =========
Adjusted EBITDA $488 $466 $1,443 $1,339
Less: Interest on cash pay
obligations (a) (279) (279) (844) (823)
Less: Purchases of property,
plant and equipment (239) (550) (503) (1,588)
--------- --------- --------- ---------
Free cash flow (30) (363) 96 (1,072)
Purchase of property, plant and
equipment 239 550 503 1,588
Special charges, net (8) - (18) (1)
Other, net (3) (3) (5) (5)
Change in operating assets and
liabilities 155 101 62 12
--------- --------- --------- ---------
Net cash flows from operating
activities $353 $285 $638 $522
========= ========= ========= =========
(a) Interest on cash pay obligations excludes accretion of original
issue discounts on certain debt securities and amortization of
deferred financing costs that are reflected as interest expense in
our statement of operations.
The above schedules are presented in order to reconcile operating
cash flow and free cash flows, both non-GAAP measures, to the most
directly comparable GAAP measures in accordance with Section 401(b) of
the Sarbanes-Oxley Act.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CAPITAL EXPENDITURES
(DOLLARS IN MILLIONS)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2003 2002 2003 2002
--------- ------- ------- --------
Customer premise equipment (a) $ 118 $ 182 $ 253 $ 593
Scalable infrastructure (b) 15 60 35 179
Line extensions (c) 38 26 69 69
Upgrade/Rebuild (d) 33 214 76 558
Support capital (e) 35 68 70 189
--------- ------- ------- --------
Total capital expenditures (f) $ 239 $ 550 $ 503 $ 1,588
========= ======= ======= ========
(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 51 and customer premise equipment
(e.g., set-top terminals and cable modems, etc.).
(b) Scalable infrastructure includes costs, not related to customer
premise equipment or our network, to secure growth of new customers,
revenue units and additional bandwidth revenues or provide service
enhancements (e.g., headend equipment).
(c) Line extensions include network costs associated with entering new
service areas (e.g., fiber/coaxial cable, amplifiers, electronic
equipment, make-ready and design engineering).
(d) Upgrade/rebuild includes costs to modify or replace existing
fiber/coaxial cable networks, including betterments.
(e) Support capital includes costs associated with the replacement or
enhancement of non-network assets due to technological and physical
obsolescence (e.g., non-network equipment, land, buildings and
vehicles).
(f) Represents all capital expenditures made during the three and
nine months ended September 30, 2003 and 2002, respectively.
SOURCE: Charter Communications, Inc.
Charter Communications, Inc.
David Andersen, 314-543-2213
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