InvestorsMay 10, 2004
Charter Reports First Quarter 2004 Financial and Operating Results
Share Article:
ST. LOUIS--(BUSINESS WIRE)--May 10, 2004-- Charter Communications, Inc. (Nasdaq: CHTR) (along with its subsidiaries, the Company) today reported financial and operating results for the three months ended March 31, 2004. The Company also provided pro forma results, which reflect the sales of certain cable systems to Atlantic Broadband Finance, LLC (of which the majority closed on March 1, 2004, and a small portion of which closed in April 2004) and WaveDivision Holdings, LLC, which closed on October 1, 2003, as if they both occurred on January 1, 2003. (See the Addendum of this news release for further information on pro forma results.)
Operating Highlights
The Company:
-- Added 125,200 residential high-speed data (HSD) customers
during the first quarter of 2004, on a pro forma basis. These
additions, together with HSD customer growth over the previous
three quarters, drove a 40% increase in HSD revenues on a pro
forma basis and a 38% increase on an actual basis, compared to
the year ago quarter.
-- Grew the digital video customer base by 68,800 customers
during the first quarter, compared to a loss of 31,500
customers during the year ago period, on a pro forma basis.
Charter also improved analog video customer trends with a loss
of 8,500 customers during the first quarter compared to a loss
of 49,000 in the year-ago period, on a pro forma basis.
-- Capital expenditures increased 83% over the unusually low year
ago period to $190 million, primarily driven by higher
spending on customer premise equipment resulting from more
customer connect activity and increased customer adoption of
advanced services, including high definition television and
digital video recorder technology. Expenditures on scalable
infrastructure related to the deployment of advanced services
including video on demand and commercial high-speed data
services also increased. In addition, aggressive new build
construction expenditures in the first quarter of 2004 more
than doubled compared to a year ago.
Financial Highlights
The Company:
-- Posted 5% revenue growth and 3% adjusted EBITDA growth on a
pro forma basis for the first quarter 2004 compared to the
year ago period. For the three months ended March 31, 2004,
Charter reported 3% revenue growth and 1% adjusted EBITDA
growth on an actual basis compared to first quarter 2003.
(Adjusted EBITDA is defined in the "Use of Non-GAAP Financial
Metrics" section of this news release.)
-- Completed the sale of geographically non-strategic cable
systems to Atlantic Broadband Finance, LLC for approximately
$733 million, subject to post-closing adjustments. Systems
divested in these transactions represent approximately 228,500
analog video customers.
-- Amended Charter Communications Operating, LLC (Charter
Operating) credit facility and concurrently issued $1.5
billion in Senior Second Lien Notes to refinance the bank debt
of three subsidiaries shortly after the first quarter ended.
The transaction extended beyond 2008 approximately $8.0
billion of scheduled debt maturities and credit facility
commitment reductions which would have otherwise come due
before that time.
Charter President and CEO Carl Vogel said, "We continue to build on the improvements made in 2003. We're focused on growing revenues and revenue generating units (RGU) by increasing our marketing activities and sales focus, while still maintaining financial discipline. We also continue our disciplined, incremental approach to improving our balance sheet and liquidity."
Mr. Vogel said, "Charter continued revenue and RGU growth through increased sales and marketing efforts, and improved customer service, together with technologically differentiated products. Pro forma advanced services RGUs, composed of digital video, residential HSD and telephony customers, increased 195,400 during the first quarter of 2004, up from 98,700 additions for the year ago quarter. As we add more customers who, along with existing customers, adopt our advanced services, we'll be positioned to improve our financial position."
Pro Forma First Quarter Results
Pro forma first quarter 2004 revenues were $1.185 billion, an increase of $55 million, or 5%, over pro forma first quarter 2003 revenues of $1.130 billion. This increase is principally the result of growth in HSD revenues, as well as increased commercial revenues. For the three months ended March 31, 2004, pro forma HSD revenues increased $47 million, or 40%, reflecting 423,800 additional HSD customers since March 2003, including 125,200 in the first quarter. In addition, first quarter 2004 average revenue per HSD customer increased 3% compared to the previous quarter on a pro forma basis. Pro forma commercial revenues increased $11 million, or 26%, and pro forma advertising sales revenues increased $3 million, or 5%, from first quarter 2003. Pro forma video revenues remained essentially flat with the year ago quarter.
First quarter 2004 pro forma operating costs and expenses rose $40 million, or 6%, compared to the year ago pro forma period, primarily a result of increased programming and marketing costs. First quarter 2004 programming costs increased 8% compared to the year ago period on a pro forma basis, an improvement from historic first quarter double digit increases. The improvement was partially the result of a $4 million reduction in programming costs related to settlements of contractual issues with a programming provider. The Company expects programming contracts to be renegotiated as they expire throughout the year, providing opportunities to reduce programming rate increases going forward. First quarter 2004 marketing expenses increased $12 million, or 63%, compared to the prior year, consistent with the Company's strategy to step up the promotion of its products and services.
Actual First Quarter Results
For the first quarter of 2004, Charter generated revenues of $1.214 billion, an increase of 3% over last year's first quarter revenues of $1.178 billion. This growth is due primarily to a $46 million, or 38%, increase in HSD revenues. The increase was partially offset by a $17 million, or 2%, decline in video revenues in the first quarter, primarily a result of cable system divestitures. Commercial revenues increased $9 million, or 19%, and advertising sales revenues increased $2 million, or 4%, compared to the actual year ago quarter.
Operating costs and expenses for the first quarter 2004 totaled $751 million, up 4% compared to the year ago quarter, primarily a result of increased programming costs and marketing expenditures. First quarter 2004 income from operations totaled $175 million, an increase of $98 million from the $77 million in the year ago quarter, primarily as a result of the $108 million pre-tax gain on the sale of cable systems to Atlantic Broadband Finance, LLC.
The increase in income from operations was offset by the fact that, as previously reported, commencing in 2004 the Company is absorbing substantially all future net losses before income taxes that in the past were allocated to minority interest, because minority interest in Charter Communications Holding Company, LLC (Charter Holdco) was substantially eliminated at December 31, 2003. This resulted in an additional $124 million of net loss for the three months ended March 31, 2004. Subject to any changes in Charter Holdco's capital structure, future losses will be substantially absorbed by Charter. As a result of this and other factors, net loss applicable to common stock increased $112 million. Net loss applicable to common stock and loss per common share were $294 million and $1.00, respectively, for the 2004 first quarter. For the first quarter of 2003, Charter reported net loss applicable to common stock and loss per common share of $182 million and 62 cents, respectively.
For the three months ended March 31, 2004, the Company recorded special charges of $10 million, including approximately $9 million which represents litigation costs related to the tentative settlement of a national class action suit subject to final documentation and court approval.
Pro Forma Liquidity
Pro forma adjusted EBITDA totaled $450 million for the three months ended March 31, 2004, an increase of $15 million, or 3%, compared to the year ago period. Pro forma net cash flows from operating activities for the three months ended March 31, 2004, were $112 million, a decrease of 27% from $154 million for the year ago quarter, primarily a result of increases in cash interest expense, special charges, loss on debt to equity conversion and changes in operating assets and liabilities.
Actual Liquidity
Adjusted EBITDA totaled $463 million for the three months ended March 31, 2004, an increase of $5 million, or 1%, compared to the year ago period. Net cash flows from operating activities for the three months ended March 31, 2004, were $115 million, a decrease of 29% from $162 million reported a year ago, primarily a result of changes in operating assets and liabilities.
Expenditures for property, plant and equipment, including capitalized labor and overhead, for the first quarter of 2004 totaled $190 million, an increase of approximately 83% from first quarter 2003 when unusually low capital expenditures totaled $104 million. The increase in capital expenditures resulted from more customer connect activity and customer adoption of advanced services, including high definition television and digital video recorder technology. Expenditures on scalable infrastructure related to the deployment of advanced services including video on demand and commercial high-speed data services also increased during the quarter. In addition, aggressive new build construction expenditures in the first quarter of 2004 more than doubled compared to a year ago.
Charter reported un-levered free cash flow of $273 million for the first quarter of 2004, compared to un-levered free cash flow of $354 million in the first quarter of 2003. The decline in un-levered free cash flow was a result of increased capital expenditures as previously discussed.
The increase in capital expenditures resulted in negative free cash flow of $27 million for the first quarter of 2004, compared to free cash flow of $70 million for the first quarter of 2003.
On April 27, 2004, the Company amended the $5.1 billion Charter Operating credit facilities to, among other things, expand those facilities to approximately $6.5 billion. Charter used the additional proceeds, along with the proceeds from the concurrent issuance of $1.5 billion Senior Second Lien Notes (the Notes) to refinance the bank debt of its subsidiaries, CC VI Operating, LLC, Falcon Cable Communications, LLC, and CC VIII Operating, LLC. The amended facility combined with the Notes issuance provides the Company with $8 billion of financing to effectively replace the $9 billion available under the preexisting four credit facilities. The refinancing provides the Company increased borrowing availability and greater operating flexibility through the consolidation of bank facilities, less restrictive covenants and deferred maturities.
At March 31, 2004, the Company had $18.108 billion of outstanding indebtedness, and $153 million cash on hand. Unused availability as of the closing of the amendment and restatement of the Charter Operating credit facility was approximately $1.0 billion.
Operating Statistics
All operating statistics are pro forma for the sales of certain cable systems to Atlantic Broadband Finance, LLC and WaveDivision Holdings, LLC. (See the customer statistics table and related footnotes in the Addendum to this release for more information.)
During the first quarter of 2004, Charter continued its increased marketing efforts to stabilize its analog video customer base and to accelerate advanced service penetration, specifically in high-speed data. As a result, the Company generated a net increase of 186,900 RGUs, or 2%, during the first quarter of 2004 to end the quarter with 10,528,700 RGUs. The increase in RGUs was driven by a net gain of 125,200 residential high-speed data and 68,800 digital video customers during the quarter, and was partially offset by a net loss of 8,500 analog video customers. As of March 31, 2004, Charter served 6,192,000 analog video, 2,657,400 digital video and 1,653,000 residential high-speed data customers. The Company also served 26,300 telephony customers, principally in the St. Louis market, as of March 31, 2004. Charter increased customer relationships by 28,500 during the first quarter of 2004, driven by the addition of HSD-only customers.
Use of Non-GAAP Financial Metrics
The Company uses certain measures that are not defined by GAAP (Generally Accepted Accounting Principles) to evaluate various aspects of its business. Adjusted EBITDA, un-levered free cash flow and free cash flow are non-GAAP financial measures and should be considered in addition to, not as a substitute for, net cash flows from operating activities reported in accordance with GAAP. These terms as defined by Charter may not be comparable to similarly titled measures used by other companies.
Adjusted EBITDA is defined as income from operations before special charges, non-cash depreciation and amortization, gain/loss on sale of assets, and option compensation expense. As such, it eliminates the significant level of non-cash depreciation and amortization expense that results from the capital intensive nature of our businesses and intangible assets recognized in business combinations as well as other non-cash or non-recurring items, and is unaffected by our capital structure or investment activities. Adjusted EBITDA is a liquidity measure used by Company management and the Board of Directors to measure our ability to fund operations and our financing obligations. For this reason, it is a significant component of Charter's annual incentive compensation program. However, a limitation of this measure is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues and the cash cost of financing for the Company. Company management evaluates these costs through other financial measures.
Un-levered free cash flow is defined as adjusted EBITDA less purchases of property, plant and equipment. We believe this is an important measure as it takes into account the period cost associated with capital expenditures used to upgrade, extend and maintain our plant without regard to our leverage structure.
Free cash flow is defined as un-levered free cash flow less interest on cash pay obligations. 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 dispositions. As such, it is unaffected by fluctuations in working capital levels from period to period.
The Company believes that adjusted EBITDA, un-levered free cash flow and free cash flow provide information useful to investors in assessing our ability to service our debt, fund operations, and make additional investments with internally generated funds. In addition, adjusted EBITDA generally correlates to the leverage ratio calculation under the Company's credit facilities or outstanding notes to determine compliance with the covenants contained in the facilities and notes (all such documents have been previously filed with the United States Securities and Exchange Commission). Adjusted EBITDA, as presented, is reduced for management fees in the amounts of $20 million for the three months ended March 31, 2004 and 2003, which amounts are added back for the purposes of leverage covenants. As of March 31, 2004, Charter and its subsidiaries are in compliance with their debt covenants.
Conference Call
The Company will host a Conference Call on Monday, May 10, 2004 at 4:00 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 by clicking on "About Us" at the top right of the page, then again on "Investor and News Center". 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 May 17, 2004. The passcode for the replay is 7075569.
About Charter Communications
Charter Communications, Inc., a broadband communications company, provides a full range of advanced broadband services to the home, including cable television on an advanced digital video programming platform via Charter Digital(TM) and Charter High-Speed Internet Service(TM). Charter also provides business to business video, data and Internet protocol (IP) solutions through Charter Business Division. 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 release 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 this release. 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 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 release are set forth in reports or documents that we file from time to time with 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, high-speed data and
other services and to maintain a stable customer base,
particularly in the face of increasingly aggressive
competition from other service providers;
-- our ability to achieve free cash flow;
-- our ability to pay or refinance debt as it becomes due,
commencing in 2005;
-- the 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 restatement of our
2000, 2001 and 2002 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, the putative class action, the unconsolidated
state action, and derivative shareholders litigation against
us;
-- our ability to comply with all covenants in our indentures and
credit facilities, 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 ability to obtain programming at reasonable prices or to
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 duty or obligation to update any of the forward-looking statements after the date of this release.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND OPERATING DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND SHARE DATA)
Three Months Ended March 31,
------------------------------------
2004 2003
Actual Actual % Change
------------ ------------ ---------
REVENUES:
Video $ 849 $ 866 (2)%
High-speed data 168 122 38%
Advertising sales 59 57 4%
Commercial 56 47 19%
Other 82 86 (5)%
------------ ------------
Total revenues 1,214 1,178 3%
------------ ------------
COSTS AND EXPENSES:
Programming costs 334 314 6%
Advertising sales 23 21 10%
Service 155 150 3%
General and administrative 208 215 (3)%
Marketing 31 20 55%
------------ ------------
Operating costs and
expenses 751 720 4%
------------ ------------
Adjusted EBITDA 463 458 1%
------------ ------------
Adjusted EBITDA margin 38% 39%
------------ ------------
Depreciation and amortization 370 370
(Gain) loss on sale of assets,
net (106) 9
Option compensation expense,
net 14 -
Special charges, net 10 2
------------ ------------
Income from operations 175 77
------------ ------------
OTHER INCOME AND EXPENSES:
Interest expense, net (393) (390)
Gain (loss) on derivative
instruments and hedging
activities, net (7) 14
Loss on debt to equity
conversions (8) -
Other, net (2) (2)
------------ ------------
(410) (378)
------------ ------------
Loss before minority interest and
income taxes (235) (301)
Minority interest (4) 160
------------ ------------
Loss before income taxes (239) (141)
Income tax expense (54) (40)
------------ ------------
Net loss (293) (181)
Dividends on preferred stock -
redeemable (1) (1)
------------ ------------
Net loss applicable to common
stock $ (294) $ (182)
============ ============
Loss per common share, basic and
diluted $ (1.00) $ (0.62)
============ ============
Weighted average common shares
outstanding 295,106,077 294,466,137
============ ============
Three Months ended March 31,
------------------------------------
2004 2003
Pro Forma (a) Pro Forma (a) % Change
------------- ----------------------
REVENUES:
Video $ 828 $ 831 --%
High-speed data 165 118 40%
Advertising sales 58 55 5%
Commercial 54 43 26%
Other 80 83 (4)%
------------ ------------
Total revenues 1,185 1,130 5%
------------ ------------
COSTS AND EXPENSES:
Programming costs 325 301 8%
Advertising sales 23 20 15%
Service 152 146 4%
General and administrative 204 209 (2)%
Marketing 31 19 63%
------------ ------------
Operating costs and
expenses 735 695 6%
------------ ------------
Adjusted EBITDA 450 435 3%
------------ ------------
Adjusted EBITDA margin 38% 38%
------------ ------------
Depreciation and amortization 364 360
(Gain) loss on sale of assets,
net 2 8
Option compensation expense,
net 14 -
Special charges, net 10 2
------------ ------------
Income from operations 60 65
------------ ------------
OTHER INCOME AND EXPENSES:
Interest expense, net (389) (383)
Gain (loss) on derivative
instruments and hedging
activities, net (7) 14
Loss on debt to equity
conversions (8) -
Other, net (2) (2)
------------ ------------
(406) (371)
------------ ------------
Loss before minority interest and
income taxes (346) (306)
Minority interest (4) 163
------------ ------------
Loss before income taxes (350) (143)
Income tax expense (40) (40)
------------ ------------
Net loss (390) (183)
Dividends on preferred stock -
redeemable (1) (1)
------------ ------------
Net loss applicable to common
stock $ (391) $ (184)
============ ============
Loss per common share, basic and
diluted $ (1.32) $ (0.62)
============ ============
Weighted average common shares
outstanding 295,106,077 294,466,137
============ ============
NOTE: Certain 2003 amounts have been reclassified to conform with the
2004 presentation.
(a) Pro forma results reflect the sales of systems to Atlantic
Broadband Finance, LLC which closed on March 1, 2004 and WaveDivision
Holdings, LLC which closed on October 1, 2003, as if they both
occurred as of January 1, 2003. Additionally, the pro formas include
the sale of the New York system to Atlantic Broadband Finance, LLC,
which occurred in April 2004. Actual revenues exceeded pro forma
revenues for the three months ended March 31, 2004 and 2003 by $29
million and $48 million, respectively. Actual adjusted EBITDA exceeded
pro forma adjusted EBITDA by $13 million and $23 million for the three
months ended March 31, 2004 and 2003, respectively. Pro forma net loss
exceeded actual net loss by $97 million and $2 million for the three
months ended March 31, 2004 and 2003, respectively. The unaudited pro
forma financial information has been presented for comparative
purposes and does not purport to be indicative of the consolidated
results of operations had these transactions been completed as of the
assumed date or which may be obtained in the future. Adjusted EBITDA
is a non-GAAP term. See page 7 of this addendum for the reconciliation
of adjusted EBITDA to net cash flows from operating activities as
defined by GAAP.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND OPERATING DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND SHARE DATA)
Three Months Ended
-----------------------------------------
March 31, June 30, September 30,
2003 2003 2003
Pro Forma (a) Pro Forma (a) Pro Forma (a)
-----------------------------------------
REVENUES:
Video $ 831 $ 840 $ 831
High-speed data 118 132 141
Advertising sales 55 65 62
Commercial 43 46 48
Other 83 85 77
------------ ------------ -------------
Total revenues 1,130 1,168 1,159
------------ ------------ -------------
COSTS AND EXPENSES:
Programming costs 301 300 294
Advertising sales 20 22 21
Service 146 148 151
General and
administrative 209 197 198
Marketing 19 28 31
------------ ------------ -------------
Operating costs and
expenses 695 695 695
------------ ------------ -------------
Adjusted EBITDA 435 473 464
------------ ------------ -------------
Adjusted EBITDA margin 38% 40% 40%
------------ ------------ -------------
Depreciation and
amortization 360 363 341
(Gain) loss on sale of
assets, net 8 4 10
Option compensation
expense, net - - 1
Special charges, net 2 8 8
Unfavorable contracts and
other settlements - - -
------------ ------------ -------------
Income from operations 65 98 104
------------ ------------ -------------
OTHER INCOME AND EXPENSES:
Interest expense, net (383) (379) (380)
Gain (loss) on derivative
instruments and hedging
activities, net 14 (10) 31
Gain on debt exchange - - 267
Other, net (2) (2) (5)
------------ ------------ -------------
(371) (391) (87)
------------ ------------ -------------
Income (loss) before
minority interest and
income taxes (306) (293) 17
Minority interest 163 155 (11)
------------ ------------ -------------
Income (loss) before income
taxes (143) (138) 6
Income tax benefit (expense) (40) 98 28
------------ ------------ -------------
Net income (loss) (183) (40) 34
Dividends on preferred stock
- redeemable (1) (1) (1)
------------ ------------ -------------
Net income (loss) applicable
to common stock $ (184) $ (41) $ 33
============ ============ =============
Earnings (loss) per common
share, basic $ (0.62) $ (0.14) $ 0.11
============ ============ =============
Earnings (loss) per common
share, diluted $ (0.62) $ (0.14) $ 0.07
============ ============ =============
Weighted average common
shares outstanding, basic 294,466,137 294,474,596 294,566,878
============ ============ =============
Weighted average common
shares outstanding, diluted 294,466,137 294,474,596 637,822,843
============ ============ =============
Three Months
Ended Year Ended
-------------
December 31, December 31,
2003 2003
Pro Forma(a) Pro Forma(a)
---------------------------
REVENUES:
Video $ 822 $ 3,324
High-speed data 150 541
Advertising sales 73 255
Commercial 51 188
Other 77 322
------------ ------------
Total revenues 1,173 4,630
------------ ------------
COSTS AND EXPENSES:
Programming costs 303 1,198
Advertising sales 23 86
Service 152 597
General and administrative 206 810
Marketing 26 104
------------ ------------
Operating costs and expenses 710 2,795
------------ ------------
Adjusted EBITDA 463 1,835
------------ ------------
Adjusted EBITDA margin 39% 40%
------------ ------------
Depreciation and amortization 349 1,413
(Gain) loss on sale of assets, net 2 24
Option compensation expense, net 3 4
Special charges, net 3 21
Unfavorable contracts and other
settlements (72) (72)
------------ ------------
Income from operations 178 445
------------ ------------
OTHER INCOME AND EXPENSES:
Interest expense, net (388) (1,530)
Gain (loss) on derivative instruments
and hedging activities, net 30 65
Gain on debt exchange - 267
Other, net (7) (16)
------------ ------------
(365) (1,214)
------------ ------------
Income (loss) before minority interest and
income taxes (187) (769)
Minority interest 94 401
------------ ------------
Income (loss) before income taxes (93) (368)
Income tax benefit (expense) 29 115
------------ ------------
Net income (loss) (64) (253)
Dividends on preferred stock - redeemable (1) (4)
------------ ------------
Net income (loss) applicable to common
stock $ (65) $ (257)
============ ============
Earnings (loss) per common share, basic $ (0.22) $ (0.87)
============ ============
Earnings (loss) per common share, diluted $ (0.22) $ (0.87)
============ ============
Weighted average common shares outstanding,
basic 294,875,504 294,597,519
============ ============
Weighted average common shares outstanding,
diluted 294,875,504 294,597,519
============ ============
(a) Pro forma results reflect the sales of systems to Atlantic
Broadband Finance, LLC which closed on March 1, 2004 and WaveDivision
Holdings, LLC which closed on October 1, 2003, as if they both
occurred as of January 1, 2003. Additionally, the pro formas include
the sale of the New York system to Atlantic Broadband Finance, LLC,
which occurred in April 2004. Actual revenues exceeded pro forma
revenues for the three months ended March 31, 2003, June 30, 2003,
September 30, 2003, December 31, 2003 and the year ended December 31,
2003 by $48 million, $49 million, $48 million, $44 million and $189
million, respectively. Actual adjusted EBITDA exceeded pro forma
adjusted EBITDA by $23 million, $24 million, $24 million, $21 million
and $92 million for the three months ended March 31, 2003, June 30,
2003, September 30, 2003, December 31, 2003 and the year ended
December 31, 2003, respectively. Pro forma net loss exceeded actual
net loss by $2 million, $3 million, $7 million and $15 million for the
three months ended March 31, 2003, June 30, 2003, December 31, 2003
and the year ended December 31, 2003, respectively. Actual net income
exceeded pro forma net income by $3 million for the three months ended
September 30, 2003. The unaudited pro forma financial information has
been presented for comparative purposes and does not purport to be
indicative of the consolidated results of operations had these
transactions been completed as of the assumed date or which may be
obtained in the future. Adjusted EBITDA is a non-GAAP term. See page 7
of this addendum for the reconciliation of adjusted EBITDA to net cash
flows from operating activities as defined by GAAP.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
March 31, December 31,
2004 2003
--------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 153 $ 127
Accounts receivable, net of allowance for
doubtful accounts 164 189
Prepaid expenses and other current assets 39 34
--------- ------------
Total current assets 356 350
--------- ------------
INVESTMENT IN CABLE PROPERTIES:
Property, plant and equipment, net 6,710 7,014
Franchises, net 13,196 13,680
--------- ------------
Total investment in cable properties, net 19,906 20,694
--------- ------------
OTHER NONCURRENT ASSETS 310 320
--------- ------------
Total assets $ 20,572 $ 21,364
========= ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,250 $ 1,286
--------- ------------
Total current liabilities 1,250 1,286
--------- ------------
LONG-TERM DEBT 18,108 18,647
DEFERRED MANAGEMENT FEES - RELATED PARTY 14 14
OTHER LONG-TERM LIABILITIES 893 848
MINORITY INTEREST 693 689
PREFERRED STOCK - REDEEMABLE 55 55
SHAREHOLDERS' DEFICIT (441) (175)
--------- ------------
Total liabilities and shareholders'
deficit $ 20,572 $ 21,364
========= ============
NOTE: Certain 2003 amounts have been reclassified to conform with
the 2004 presentation.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
Three Months Ended
March 31,
------------------
2004 2003
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (293) $ (181)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Minority interest 4 (160)
Depreciation and amortization 370 370
Option compensation expense, net 10 -
Noncash interest expense 93 106
(Gain) loss on derivative instruments and
hedging activities, net 7 (14)
(Gain) loss on sale of assets, net (106) 9
Loss on debt to equity conversions 8 -
Deferred income taxes 54 40
Other, net 2 11
Changes in operating assets and liabilities, net
of effects from dispositions:
Accounts receivable 22 26
Prepaid expenses and other assets (7) (3)
Accounts payable, accrued expenses and other (49) (50)
Receivables from and payables to related
party,
including deferred management fees - 8
-------- --------
Net cash flows from operating activities 115 162
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (190) (104)
Change in accrued expenses related to capital
expenditures (6) (124)
Proceeds from sale of assets 725 -
Purchases of investments (3) (3)
-------- --------
Net cash flows from investing activities 526 (231)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt 165 346
Repayments of long-term debt (779) (152)
Payments for debt issuance costs (1) -
-------- --------
Net cash flows from financing activities (615) 194
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 26 125
CASH AND CASH EQUIVALENTS, beginning of period 127 321
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 153 $ 446
======== ========
CASH PAID FOR INTEREST $ 229 $ 160
======== ========
NONCASH TRANSACTIONS:
Debt exchanged for Charter Class A common stock $ 10 $ -
======== ========
NOTE: Certain 2003 amounts have been reclassified to conform with
the 2004 presentation.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED SUMMARY OF OPERATING STATISTICS
Approximate as of
---------------------------------------
March 31, December 31, September 30,
2004 2003 2003
Actual (a) Pro Forma (a) Pro Forma (a)
----------- ---------------------------
Customer Summary:
Customer Relationships:
Residential (non-bulk)
analog video customers (b) 5,953,200 5,963,000 6,002,600
Multi-dwelling (bulk) and
commercial unit customers
(c) 238,800 237,500 236,400
----------- ------------- -------------
Total analog video
customers (b) (c) 6,192,000 6,200,500 6,239,000
Non-video customers (b) 142,700 105,700 73,700
----------- ------------- -------------
Total customer
relationships (d) 6,334,700 6,306,200 6,312,700
=========== ============= =============
Pro forma average monthly
revenue per analog video
customer (e) $63.75 $62.86 $61.98
Bundled customers (f) 1,510,300 1,422,100 1,367,800
Revenue Generating Units:
Analog video customers (b)
(c) 6,192,000 6,200,500 6,239,000
Digital video customers (g) 2,657,400 2,588,600 2,570,300
Residential high-speed data
customers (h) 1,653,000 1,527,800 1,441,500
Telephony customers (i) 26,300 24,900 24,100
----------- ------------- -------------
Total revenue generating
units (j) 10,528,700 10,341,800 10,274,900
=========== ============= =============
Cable Video Services:
Analog Video:
Estimated homes passed (k) 11,895,400 11,817,500 11,724,700
Analog video customers
(b)(c) 6,192,000 6,200,500 6,239,000
Estimated penetration of
analog video homes passed
(b) (c) (k) (l) 52% 52% 53%
Pro forma average monthly
analog revenue per analog
video customer (m) $36.58 $36.23 $36.63
Analog video customers
quarterly net gain (loss)
(b) (c) (n) (8,500) (38,500) 11,000
Digital Video:
Estimated digital homes
passed (k) 11,776,700 11,716,400 11,570,400
Digital video customers (g) 2,657,400 2,588,600 2,570,300
Estimated penetration of
digital homes passed (g)
(k) (l) 23% 22% 22%
Digital percentage of analog
video customers (b) (c) (g)
(o) 43% 42% 41%
Digital set-top terminals
deployed 3,756,300 3,634,500 3,617,000
Pro forma average
incremental monthly digital
revenue per digital video
customer (m) $22.87 $23.00 $23.22
Digital video customers
quarterly net gain (loss)
(g) (n) 68,800 18,300 58,500
Estimated video on demand
homes passed (k) 4,567,000 4,476,000 3,982,800
Non-Video Cable Services:
High-Speed Data Services:
Estimated high-speed data
homes passed (k) 10,392,800 10,321,100 10,108,300
Residential high-speed data
customers (h) 1,653,000 1,527,800 1,441,500
Estimated penetration of
high-speed data homes
passed (h) (k) (l) 16% 15% 14%
Pro forma average monthly
high-speed data revenue per
high-speed data customer
(m) $34.58 $33.45 $33.99
Residential high-speed data
customers quarterly net
gain (h) (n) 125,200 86,300 137,400
Dial-up customers 8,900 9,600 10,900
Telephony customers (i) 26,300 24,900 24,100
Pro forma average monthly
telephony revenue per
telephony customer (m) $49.70 $49.15 $49.89
Approximate as of
----------------------------
June 30, March 31,
2003 2003
Pro Forma (a) Pro Forma (a)
----------------------------
Customer Summary:
Customer Relationships:
Residential (non-bulk) analog video
customers (b) 5,996,100 6,036,600
Multi-dwelling (bulk) and commercial
unit customers (c) 231,900 229,300
------------- --------------
Total analog video customers (b) (c) 6,228,000 6,265,900
Non-video customers (b) 70,500 54,900
------------- --------------
Total customer relationships (d) 6,298,500 6,320,800
============= ==============
Pro forma average monthly revenue per
analog video customer (e) $62.32 $59.88
Bundled customers (f) 1,233,600 1,174,300
Revenue Generating Units:
Analog video customers (b) (c) 6,228,000 6,265,900
Digital video customers (g) 2,511,800 2,556,700
Residential high-speed data customers
(h) 1,304,100 1,229,200
Telephony customers (i) 23,700 22,800
------------- --------------
Total revenue generating units (j) 10,067,600 10,074,600
============= ==============
Cable Video Services:
Analog Video:
Estimated homes passed (k) 11,672,200 11,579,300
Analog video customers (b)(c) 6,228,000 6,265,900
Estimated penetration of analog video
homes passed (b) (c) (k) (l) 53% 54%
Pro forma average monthly analog revenue
per analog video customer (m) $36.92 $36.46
Analog video customers quarterly net
gain (loss) (b) (c) (n) (37,900) (49,000)
Digital Video:
Estimated digital homes passed (k) 11,522,500 11,395,500
Digital video customers (g) 2,511,800 2,556,700
Estimated penetration of digital homes
passed (g) (k) (l) 22% 22%
Digital percentage of analog video
customers (b) (c) (g) (o) 40% 41%
Digital set-top terminals deployed 3,554,600 3,621,700
Pro forma average incremental monthly
digital revenue per digital video
customer (m) $23.28 $22.29
Digital video customers quarterly net
gain (loss) (g) (n) (44,900) (31,500)
Estimated video on demand homes passed
(k) 3,727,300 3,581,100
Non-Video Cable Services:
High-Speed Data Services:
Estimated high-speed data homes passed
(k) 9,909,600 9,509,500
Residential high-speed data customers
(h) 1,304,100 1,229,200
Estimated penetration of high-speed data
homes passed (h) (k) (l) 13% 13%
Pro forma average monthly high-speed
data revenue per high-speed data
customer (m) $34.74 $33.79
Residential high-speed data customers
quarterly net gain (h) (n) 74,900 130,200
Dial-up customers 11,700 12,700
Telephony customers (i) 23,700 22,800
Pro forma average monthly telephony
revenue per telephony customer (m) $49.98 $48.50
Pro forma results reflect the sales of systems to Atlantic Broadband
Finance, LLC which closed on March 1, 2004 and WaveDivision Holdings,
LLC which closed on October 1, 2003, as if they both occurred as of
January 1, 2003. Additionally, the pro formas include the sale of
the New York system to Atlantic Broadband Finance, LLC, which
occurred in April 2004.
See footnotes to unaudited summary of operating statistics on page 6
of this Addendum.
(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). Further, "customers"
include persons receiving service under promotional programs that
offered up to two months of service for free, some of whom had not
requested to be disconnected, but had not become paying customers as
of March 31, 2004. If such persons do not become paying customers, we
do not believe this would have a material impact on our consolidated
financial condition or consolidated results of operations. In
addition, at March 31, 2004, December 31, 2003, September 30, 2003,
June 30, 2003 and March 31, 2003, "customers" include approximately
5,800, 6,500, 7,100, 8,700 and 3,700 persons, whose accounts were over
90 days past due in payment and approximately 2,200, 2,000, 2,300,
1,900 and 1,000 of which were over 120 days past due in payment,
respectively.
(b) "Analog video customers" include all customers who receive video
services (including those who also purchase high-speed data and
telephony services) but excludes approximately 142,700, 105,700,
73,700, 70,500 and 54,900 customer relationships at March 31, 2004,
December 31, 2003, September 30, 2003, June 30, 2003 and March 31,
2003, 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.
(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 consistently applied year over year.
As we increase our effective analog video 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.
(d) "Customer relationships" include the number of customers that
receive at least one or more levels of service, encompassing video and
data services, without regard to which service(s) such customers
receive. 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.
(e) Pro forma average monthly revenue per analog customer is
calculated as total pro forma quarterly revenue divided by three
divided by average pro forma analog customers during the respective
quarter. This calculation is pro forma giving affect to the reduction
of monthly revenue and average analog customers for the disposition of
systems sold to Atlantic Broadband Finance, LLC and WaveDivision
Holdings, LLC (as discussed on page 5 of this addendum).
(f) "Bundled customers" include customers subscribing to Charter's
video service and high-speed 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 on
March 31, 2004, December 31, 2003, September 30, 2003, June 30, 2003
and March 31, 2003 are approximately 12,000, 12,000, 12,400, 13,100
and 14,800 customers, respectively, that receive digital video service
directly through satellite transmission.
(h) 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 142,700, 105,700, 73,700, 70,500 and 54,900 of
these customers at March 31, 2004, December 31, 2003, September 30,
2003, June 30, 2003 and March 31, 2003, respectively, who were
high-speed data only customers.
(i) "Telephony customers" include all households receiving telephone
service.
(j) "Revenue generating units" represent the sum total of all primary
analog video, digital video, high-speed data and telephony customers,
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.
(k) "Homes passed" represent 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 where we
offer the service indicated. Homes passed exclude commercial units
passed by the cable distribution network. These estimates are updated
for all periods presented when estimates change.
(l) Penetration represents customers as a percentage of homes passed.
(m) "Pro forma average monthly revenue" represents pro forma quarterly
revenue for the service indicated divided by three divided by average
number of pro forma customers for the service indicated during the
respective quarter. This calculation is pro forma giving affect to the
reduction of monthly revenue and average analog customers for the
disposition of systems sold to Atlantic Broadband Finance, LLC and
WaveDivision Holdings, LLC (as discussed on page 5 of this addendum).
(n) "Quarterly net gain (loss)" represents the net gain or loss in the
respective quarter for the service indicated.
(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
----------------------------------
March 31, 2004 March 31, 2003
----------------- ----------------
Actual Pro Forma Actual Pro Forma
------- --------- ------ ---------
Adjusted EBITDA (a) $463 $450 $458 $435
Less: Purchases of property, plant
and equipment (190) (188) (104) (100)
------- --------- ------ ---------
Un-levered free cash flow 273 262 354 335
Less: Interest on cash pay
obligations (b) (300) (296) (284) (277)
------- --------- ------ ---------
Free cash flow (27) (34) 70 58
Purchases of property, plant and
equipment 190 188 104 100
Special charges, net (10) (10) (2) (2)
Other, net (4) (9) 9 5
Change in operating assets and
liabilities (34) (23) (19) (7)
------- --------- ------ ---------
Net cash flows from operating
activities $115 $112 $162 $154
======= ========= ====== =========
Three Months Ended Year Ended
------------------------------------
June 30, September 30, December 31, December 31,
2003 2003 2003 2003
Pro Forma Pro Forma Pro Forma Pro Forma
--------- ------------- ------------ ------------
Adjusted EBITDA (a) $473 $464 $463 $1,835
Less: Purchases of
property, plant and
equipment (157) (233) (345) (835)
--------- ------------- ------------ ------------
Un-levered free cash
flow 316 231 118 1,000
Less: Interest on
cash pay obligations
(b) (274) (272) (293) (1,116)
--------- ------------- ------------ ------------
Free cash flow 42 (41) (175) (116)
Purchases of
property, plant and
equipment 157 233 345 835
Special charges, net (8) (8) (3) (21)
Other, net (9) 2 (9) (11)
Change in operating
assets and
liabilities (64) 163 (36) 56
--------- ------------- ------------ ------------
Net cash flows from
operating activities $118 $349 $122 $743
========= ============= ============ ============
(a) See pages 1 and 2 of this addendum for detail of the components
included within adjusted EBITDA.
(b) 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
statements of operations.
The above schedules are presented in order to reconcile adjusted
EBITDA, un-levered free cash flows and free cash flows, all non-GAAP
measures, to the most directly comparable GAAP measures in accordance
with Section 401(b) of the Sarbanes-Oxley Act.
Pro forma results reflect the sales of systems to Atlantic Broadband
Finance, LLC which closed on March 1, 2004 and WaveDivision Holdings,
LLC which closed on October 1, 2003, as if they both occurred as of
January 1, 2003. Additionally, the pro formas include the sale of the
New York system to Atlantic Broadband Finance, LLC, which occurred in
April 2004.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CAPITAL EXPENDITURES
(DOLLARS IN MILLIONS)
Three Months Ended
March 31,
--------------------
2004 2003
--------- ---------
Customer premise equipment (a) $ 114 $ 64
Scalable infrastructure (b) 19 8
Line extensions (c) 23 8
Upgrade/Rebuild (d) 11 15
Support capital (e) 23 9
--------- ---------
Total capital expenditures (f) $ 190 $ 104
========= =========
(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 months
ended March 31, 2004 and 2003, respectively.
CONTACT: Charter Communications, Inc.
Media:
David Andersen, 314-543-2213
or
Analysts:
Tamar Gerber, 303-323-1383
or
Mary Jo Moehle, 314-543-2397
SOURCE: Charter Communications, Inc.