InvestorsMarch 1, 2005
Charter Reports Fourth Quarter and Annual 2004 Financial and Operating Results
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Click here to view the Fourth Quarter Release and Financial Addendum.
ST. LOUIS--(BUSINESS WIRE)--March 1, 2005--Charter Communications, Inc. (NASDAQ: CHTR) (along with its subsidiaries, the Company or Charter) today reported financial and operating results for the three and 12 months ended December 31, 2004. The Company also provided pro forma results, reflecting the sales of certain cable systems in March and April 2004 and October 2003 as if these sales occurred on January 1, 2003. (See the Addendum of this news release for further details on pro forma information.)
Overview
-- Grew revenues 9% and adjusted EBITDA 11% for the fourth
quarter of 2004 compared to the pro forma fourth quarter of
2003. (Adjusted EBITDA is defined in the "Use of Non-GAAP
Financial Metrics" section of this news release.)
-- Increased high-speed data (HSD) revenues $53 million, or 35%,
compared to the pro forma year ago quarter.
-- Video revenues grew at a rate of 2% for the fourth quarter of
2004 compared to the pro forma year ago quarter primarily due
to increased average revenue per customer, partially offset by
analog customer losses during the year; Charter lost 83,100
analog and 14,200 digital video customers during the fourth
quarter and lost 209,000 analog and gained 86,100 digital
video customers during 2004.
-- Issued $862.5 million original purchase amount of 5.875%
Convertible Senior Notes due 2009 in November 2004 and $550
million Senior Floating Rate Notes due 2010 in December 2004,
providing additional liquidity and further extending
maturities.
-- Redeemed $588 million principal amount of 5.75% Convertible
Senior Notes due 2005 in December 2004.
Fourth Quarter Results
Fourth quarter 2004 revenues were $1.276 billion, an increase of $103 million, or 9%, over pro forma fourth quarter 2003 revenues of $1.173 billion and an increase of 5% over fourth quarter 2003 actual revenues of $1.217 billion. The increases in revenues are principally the result of growth in HSD revenues as well as increased commercial revenues and advertising sales. For the three months ended December 31, 2004, HSD revenues increased $53 million, or 35%, on a pro forma basis, reflecting 356,600 additional HSD customers since year end 2003 as well as a 9% increase in pro forma average revenue per HSD customer in the fourth quarter of 2004 compared to the same 2003 period. Commercial revenues increased $12 million, or 24%, on a pro forma basis, and advertising sales revenues increased $11 million, or 15%, on a pro forma basis compared to the year ago quarter. Video revenues increased 2% on a pro forma basis compared to the fourth quarter of 2003 primarily due to a 4% increase in pro forma average revenue per analog video customer.
Fourth quarter 2004 operating costs and expenses were $764 million, an increase of $54 million, or 8%, on a pro forma basis and an increase of $31 million, or 4%, on an actual basis, compared to the year ago quarter. The rise in fourth quarter 2004 operating costs and expenses over pro forma 2003 was primarily a result of an 8% increase in programming costs and a 14% increase in service costs from ongoing infrastructure maintenance. Operating costs as a percentage of revenues decreased in the fourth quarter of 2004 compared to the same 2003 pro forma period due to the focus on controlling costs during the quarter.
Charter reported income from operations of $108 million for the fourth quarter 2004 compared to fourth quarter 2003 income from operations of $178 million on a pro forma basis and $210 million on an actual basis. Income from operations decreased on a pro forma basis primarily due to a $41 million increase in depreciation and amortization, an $18 million loss recorded on the sale of assets in 2004, and gains associated with the renegotiation of unfavorable programming contracts in 2003, partially offset by a $49 million increase in adjusted EBITDA in 2004.
Net loss applicable to common stock and loss per common share for the fourth quarter of 2004 were $340 million and $1.12, respectively. For the fourth quarter of 2003, Charter reported actual net loss applicable to common stock and loss per common share of $58 million and 20 cents, respectively. The differences between net loss applicable to common stock for fourth quarter 2004 and net income applicable to common stock for the same year ago period were primarily the result of the decrease in income from operations of $102 million, a $49 million increase in interest expense, an $85 million decrease in the allocation of loss to minority interest and a $37 million decrease in the income tax benefit.
Year to Date Results
For the year ended December 31, 2004, Charter generated pro forma revenues of $4.948 billion, an increase of 7% over pro forma revenues of $4.630 billion for the year ended December 31, 2003. Pro forma revenue growth is due primarily to a $197 million, or 36%, increase in HSD revenues year over year. For the year ended December 31, 2004, pro forma commercial revenues increased $48 million, or 26%, and pro forma advertising sales revenues increased $33 million, or 13%, compared to pro forma annual 2003 results. Actual revenues for the year ended December 31, 2004 of $4.977 billion increased 3% over actual revenues of $4.819 billion for 2003.
Pro forma operating costs and expenses for the year ended December 31, 2004 totaled $3.035 billion, up $240 million, or 9%, compared to 2003 pro forma results, primarily a result of increased programming and service costs. Actual operating costs and expenses of $3.051 billion for 2004 increased 5% compared to actual operating costs and expenses for 2003.
For the year ended December 31, 2004, pro forma loss from operations totaled $2.158 billion compared to pro forma income from operations of $445 million for 2003, primarily as a result of a $2.433 billion charge for the impairment of franchises recorded in 2004 primarily due to the use of a lower projected growth rate in the Company's valuation, resulting in revised estimates of future cash flows. Charter also recorded special charges of $104 million in 2004, primarily consisting of $85 million related to the settlement of class action lawsuits, which are subject to final documentation and court approval. Option compensation costs of $31 million and a $76 million increase in depreciation and amortization expense also unfavorably impacted income (loss) from operations in the comparison of 2004 to 2003. For the year ended December 31, 2004, actual loss from operations totaled $2.046 billion compared to income from operations of $516 million for the actual year ago period due to the same factors impacting the change in pro forma results, partially offset by a $91 million increase in pre-tax gain on the sale of assets recorded in 2004 compared to 2003.
Fourth Quarter Liquidity
Adjusted EBITDA totaled $512 million for the three months ended December 31, 2004, an increase of $49 million, or 11%, on a pro forma basis and an increase of $28 million, or 6%, on an actual basis, compared to the year ago period. Actual net cash flows from operating activities for the fourth quarter of 2004 were $89 million, compared to $127 million for the year ago quarter, primarily as a result of a $57 million increase in interest on cash pay obligations, partially offset by the growth in adjusted EBITDA.
Expenditures for property, plant and equipment for the fourth quarter of 2004 totaled $285 million, a decrease of approximately 19% compared to actual fourth quarter 2003, primarily due to lower line extension and rebuild/upgrade activity.
Un-levered free cash flow of $227 million for the fourth quarter of 2004 increased significantly compared to actual un-levered free cash flow of $133 million in the fourth quarter of 2003, primarily due to a decrease in capital expenditures and improved adjusted EBITDA.
Charter reported negative free cash flow of $129 million for the fourth quarter of 2004 compared to actual negative free cash flow of $166 million for the fourth quarter of 2003.
Year to Date Liquidity
Pro forma adjusted EBITDA totaled $1.913 billion for the year ended December 31, 2004, an increase of $78 million, or 4%, compared to $1.835 billion for the year 2003 on a forma basis. Actual adjusted EBITDA totaled $1.926 billion for the year ended December 31, 2004, essentially flat compared to actual 2003 adjusted EBITDA of $1.927 billion.
Actual net cash flows from operating activities for the year ended December 31, 2004, were $472 million, a decrease of 38% from $765 million reported a year ago, primarily the result of the $203 million increase in interest on cash pay obligations and a $83 million increase in cash used by operating assets and liabilities, primarily due to the benefit in 2003 from the collection of receivables from programmers related to prior period network launches.
Actual expenditures for property, plant and equipment for the year ended December 31, 2004 totaled $924 million, an increase of approximately 8% compared to 2003 capital expenditures of $854 million. The increase in capital expenditures resulted primarily from increased purchases of customer premise equipment, primarily for high definition television and digital video recorders. Expenditures for scalable infrastructure related primarily to the deployment of these advanced services, telephony plant readiness and commercial and residential HSD services also increased during 2004. These increases were partially offset by the continued decline in upgrade/rebuild expenditures due to Charter's substantial completion of rebuild activity in 2002.
Charter reported actual un-levered free cash flow of $1.002 billion for the year ended December 31, 2004, compared to actual un-levered free cash flow of $1.073 billion in 2003. The decline in un-levered free cash flow was primarily the result of increased capital expenditures as previously discussed.
The increase in capital expenditures along with increased interest on cash pay obligations resulted in actual negative free cash flow of $344 million for the year ended December 31, 2004, compared to actual negative free cash flow of $70 million for 2003.
At December 31, 2004, the Company had $19.5 billion of outstanding indebtedness, and $650 million cash on hand. Net availability of funds under the Charter Operating credit facilities was approximately $804 million at December 31, 2004.
Operating Statistics
All year-over-year changes in 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.)
Charter ended 2004 with 10,596,000 revenue generating units (RGUs), a net increase of 254,200 RGUs, or 2%, during 2004. The increase in RGUs was driven by a net gain of 356,600 residential HSD customers and 86,100 digital video customers during the year, partially offset by the 209,000 decrease in analog video customers during 2004. The Company's telephony customers increased by 20,500 during 2004.
During the fourth quarter, Charter lost 83,100 analog video and 14,200 digital video customers, and gained 64,500 residential HSD and 5,200 telephony customers.
As of December 31, 2004, Charter served 5,991,500 analog video, 2,674,700 digital video and 1,884,400 residential high-speed data customers. The Company also served 45,400 telephony customers as of December 31, 2004.
Charter Interim President and CEO Robert May said, "With a renewed sense of operational excellence, we're focused on basic blocking and tackling, including service delivery, customer care and the deployment of new products. Our objective is to capitalize on the unrealized value of the Company and its delivery platform. By driving improvements in service delivery, customer care and new product offerings, we will improve the value proposition to our customers."
Financing
In November 2004, Charter issued $862.5 million original purchase price amount of 5.875% Convertible Senior Notes due 2009. With the proceeds, the Company purchased a portfolio of U.S. Treasury securities as security for certain interest payments on the 5.875% Convertible Senior Notes and redeemed $588 million principal amount of its 5.75% Convertible Senior Notes due 2005. In December 2004, the Company issued $550 million Senior Floating Rate Notes due 2010 providing additional liquidity.
In addition, CC V Holdings, LLC (formerly known as Avalon Cable LLC), has called for redemption the CC V Holdings 11.875% Senior Discount Notes due 2008 (the Notes). CC V Holdings will redeem approximately $113 million of Notes, representing all of the outstanding Notes, at 103.958% of principal amount, plus accrued and unpaid interest to the anticipated date of redemption, on March 14, 2005. CC V Holdings called the Notes to comply with the Amended and Restated Credit Agreement (the Credit Agreement) of Charter Communications Operating, LLC (Charter Operating).
Charter Operating also provided additional guarantees and collateral for the benefit of the lenders under the Credit Agreement and holders of its 8% Senior Second Lien Notes due 2012 and 8.375% Senior Second Lien Notes due 2014. These actions were taken as required by the Credit Agreement upon the leverage ratio test of Charter Communications Holdings, LLC (as defined in its indentures) being met.
The Company believes cash on hand at December 31, 2004, cash flows from operating activities and the amounts available under our credit facilities will be sufficient to meet cash needs throughout 2005.
During 2005, Charter expects capital expenditures to total approximately $1 billion. The increase in capital expenditures for 2005 compared to 2004 is the result of expected increases in telephony services and further deployment of advanced digital boxes. Charter expects that the nature of these expenditures will continue to be composed primarily of purchases of customer premise equipment and for scalable infrastructure costs. The Company expects to fund capital expenditures for 2005 primarily from cash flows from operating activities and borrowings under our credit facilities.
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, option compensation expense, unfavorable contracts and other settlements, and impairment of franchises. As such, it eliminates the significant 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, this measure is limited in 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 costs 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 cash 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 $25 million and $18 million for the three months ended December 31, 2004 and 2003, respectively, which amounts are added back for the purposes of calculating compliance with leverage covenants. As of December 31, 2004, Charter and its subsidiaries were in compliance with their debt covenants.
Conference Call
The Company will host a Conference Call on Tuesday, March 1, 2005 at 10:30 AM 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 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 March 8, 2005. The passcode for the replay is 3720607.
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), Charter High-Speed(TM) Internet service and Charter Telephone(TM). Charter also provides business-to-business video, data and Internet protocol (IP) solutions through Charter Business(TM). 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. 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,
telephony and other services and to maintain a stable customer
base, particularly in the face of increasingly aggressive
competition from other service providers;
-- 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;
-- 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 repay or refinance debt as it becomes due;
-- 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, and our ability to reach a final approved settlement
with respect to the putative class action, the unconsolidated
state action, and derivative shareholders litigation against
us on the terms of the August 5, 2004 memoranda of
understanding;
-- 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 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 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 December 31,
-----------------------------------
2004 2003 % Change
------------ ------------ --------
REVENUES:
Video $ 839 $ 854 (2)%
High-speed data 203 153 33%
Advertising sales 84 75 12%
Commercial 63 55 15%
Other 87 80 9%
------------ ------------
Total revenues 1,276 1,217 5%
------------ ------------
COSTS AND EXPENSES:
Programming 328 315 4%
Advertising sales 26 23 13%
Service 174 157 11%
General and administrative 213 211 1%
Marketing 23 27 (15)%
------------ ------------
Operating costs and expenses 764 733 4%
------------ ------------
Adjusted EBITDA 512 484 6%
------------ ------------
Adjusted EBITDA margin 40% 40%
------------ ------------
Depreciation and amortization 390 358
Impairment of franchises - -
(Gain) loss on sale of assets,
net 18 (18)
Option compensation expense
(income), net (3) 3
Special charges, net 4 3
Unfavorable contracts and other
settlements (5) (72)
------------ ------------
Income (loss) from
operations 108 210
------------ ------------
OTHER INCOME AND EXPENSES:
Interest expense, net (443) (394)
Gain on derivative instruments
and hedging activities, net 21 30
Loss on debt to equity
conversions - -
Gain (loss) on extinguishment
of debt (10) -
Other, net 3 (7)
------------ ------------
(429) (371)
------------ ------------
Loss before minority interest,
income taxes and cumulative
effect of accounting change (321) (161)
Minority interest (5) 80
------------ ------------
Loss before income taxes and
cumulative effect of
accounting change (326) (81)
Income tax benefit (expense) (13) 24
------------ ------------
Loss before cumulative effect of
accounting change (339) (57)
Cumulative effect of accounting
change, net of tax - -
------------ ------------
Net loss (339) (57)
Dividends on preferred stock -
redeemable (1) (1)
------------ ------------
Net loss applicable to common
stock $ (340) $ (58)
============ ============
EARNINGS PER SHARE:
Basic and diluted $ (1.12) $ (0.20)
============ ============
Weighted average common shares
outstanding, basic and diluted 302,934,348 294,875,504
============ ============
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND OPERATING DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND SHARE DATA)
Year Ended December 31,
-----------------------------------
2004 2003 % Change
------------ ------------ --------
REVENUES:
Video $ 3,373 $ 3,461 (3)%
High-speed data 741 556 33%
Advertising sales 289 263 10%
Commercial 238 204 17%
Other 336 335 -
------------ ------------
Total revenues 4,977 4,819 3%
------------ ------------
COSTS AND EXPENSES:
Programming 1,319 1,249 6%
Advertising sales 98 88 11%
Service 663 615 8%
General and administrative 849 833 2%
Marketing 122 107 14%
------------ ------------
Operating costs and
expenses 3,051 2,892 5%
------------ ------------
Adjusted EBITDA 1,926 1,927 -
------------ ------------
Adjusted EBITDA margin 39% 40%
------------ ------------
Depreciation and amortization 1,495 1,453
Impairment of franchises 2,433 -
(Gain) loss on sale of assets,
net (86) 5
Option compensation expense
(income), net 31 4
Special charges, net 104 21
Unfavorable contracts and
other settlements (5) (72)
------------ ------------
Income (loss) from
operations (2,046) 516
------------ ------------
OTHER INCOME AND EXPENSES:
Interest expense, net (1,670) (1,557)
Gain on derivative instruments
and hedging activities, net 69 65
Loss on debt to equity
conversions (23) -
Gain (loss) on extinguishment
of debt (31) 267
Other, net 3 (16)
------------ ------------
(1,652) (1,241)
------------ ------------
Loss before minority interest,
income taxes and cumulative
effect of accounting change (3,698) (725)
Minority interest 19 377
------------ ------------
Loss before income taxes and
cumulative effect of
accounting change (3,679) (348)
Income tax benefit (expense) 103 110
------------ ------------
Loss before cumulative effect of
accounting change (3,576) (238)
Cumulative effect of accounting
change, net of tax (765) -
------------ ------------
Net loss (4,341) (238)
Dividends on preferred stock -
redeemable (4) (4)
------------ ------------
Net loss applicable to common
stock $ (4,345) $ (242)
============ ============
EARNINGS PER SHARE:
Basic and diluted $ (14.47) $ (0.82)
============ ============
Weighted average common shares
outstanding, basic and diluted 300,291,877 294,597,519
============ ============
NOTE: Certain 2003 amounts have been reclassified to conform
with the 2004 presentation.
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 December 31,
-----------------------------------
2004 2003
Actual Pro Forma(a) % Change
------------ ------------ --------
REVENUES:
Video $ 839 $ 822 2%
High-speed data 203 150 35%
Advertising sales 84 73 15%
Commercial 63 51 24%
Other 87 77 13%
------------ ------------
Total revenues 1,276 1,173 9%
------------ ------------
COSTS AND EXPENSES:
Programming 328 303 8%
Advertising sales 26 23 13%
Service 174 152 14%
General and administrative 213 206 3%
Marketing 23 26 (12)%
------------ ------------
Operating costs and expenses 764 710 8%
------------ ------------
Adjusted EBITDA 512 463 11%
------------ ------------
Adjusted EBITDA margin 40% 39%
------------ ------------
Depreciation and amortization 390 349
Impairment of franchises - -
Loss on sale of assets, net 18 2
Option compensation expense
(income), net (3) 3
Special charges, net 4 3
Unfavorable contracts and other
settlements (5) (72)
------------ ------------
Income (loss) from
operations 108 178
------------ ------------
OTHER INCOME AND EXPENSES:
Interest expense, net (443) (388)
Gain on derivative instruments
and hedging activities, net 21 30
Loss on debt to equity
conversions - -
Gain (loss) on extinguishment
of debt (10) -
Other, net 3 (7)
------------ ------------
(429) (365)
------------ ------------
Loss before minority interest,
income taxes and cumulative
effect of accounting change (321) (187)
Minority interest (5) 94
------------ ------------
Loss before income taxes
and cumulative effect of
accounting change (326) (93)
Income tax benefit (expense) (13) 29
------------ ------------
Loss before cumulative effect of
accounting change (339) (64)
Cumulative effect of accounting
change, net of tax - -
------------ ------------
Net loss (339) (64)
Dividends on preferred stock -
redeemable (1) (1)
------------ ------------
Net loss applicable to common
stock $ (340) $ (65)
============ ============
EARNINGS PER SHARE:
Basic and diluted $ (1.12) $ (0.22)
============ ============
Weighted average common shares
outstanding, basic and diluted 302,934,348 294,875,504
============ ============
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND OPERATING DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND SHARE DATA)
Twelve Months Ended December 31,
-----------------------------------
2004 2003
Pro Forma(a) Pro Forma(a) % Change
------------- ------------ --------
REVENUES:
Video $ 3,352 $ 3,324 1%
High-speed data 738 541 36%
Advertising sales 288 255 13%
Commercial 236 188 26%
Other 334 322 4%
------------ ------------
Total revenues 4,948 4,630 7%
------------ ------------
COSTS AND EXPENSES:
Programming 1,310 1,198 9%
Advertising sales 98 86 14%
Service 660 597 11%
General and administrative 845 810 4%
Marketing 122 104 17%
------------ ------------
Operating costs and
expenses 3,035 2,795 9%
------------ ------------
Adjusted EBITDA 1,913 1,835 4%
------------ ------------
Adjusted EBITDA margin 39% 40%
------------ ------------
Depreciation and amortization 1,489 1,413
Impairment of franchises 2,433 -
Loss on sale of assets, net 19 24
Option compensation expense
(income), net 31 4
Special charges, net 104 21
Unfavorable contracts and
other settlements (5) (72)
------------ ------------
Income (loss) from
operations (2,158) 445
------------ ------------
OTHER INCOME AND EXPENSES:
Interest expense, net (1,666) (1,530)
Gain on derivative instruments
and hedging activities, net 69 65
Loss on debt to equity
conversions (23) -
Gain (loss) on extinguishment
of debt (31) 267
Other, net 3 (16)
------------ ------------
(1,648) (1,214)
------------ ------------
Loss before minority interest,
income taxes and cumulative
effect of accounting change (3,806) (769)
Minority interest 19 401
------------ ------------
Loss before income taxes
and cumulative effect of
accounting change (3,787) (368)
Income tax benefit (expense) 117 115
------------ ------------
Loss before cumulative effect of
accounting change (3,670) (253)
Cumulative effect of accounting
change, net of tax (765) -
------------ ------------
Net loss (4,435) (253)
Dividends on preferred stock -
redeemable (4) (4)
------------ ------------
Net loss applicable to common
stock $ (4,439) $ (257)
============ ============
EARNINGS PER SHARE:
Basic and diluted $ (14.78) $ (0.87)
============ ============
Weighted average common shares
outstanding, basic and diluted 300,291,877 294,597,519
============ ============
(a) Pro forma results reflect the sales of systems to Atlantic
Broadband Finance, LLC in March and April 2004 and
WaveDivision Holdings, LLC in October 2003, as if they both
occurred as of January 1, 2003. Actual revenues exceeded pro
forma revenues for the year ended December 31, 2004 and the
three and twelve months ended December 31, 2003 by $29
million, $44 million and $189 million, respectively. Actual
adjusted EBITDA exceeded pro forma adjusted EBITDA by $13
million, $21 million and $92 million for the year ended
December 31, 2004 and the three and twelve months ended
December 31, 2003, respectively. Pro forma net loss exceeded
actual net loss by $94 million, $7 million and $15 million for
the year ended December 31, 2004 and the three and twelve
months ended December 31, 2003, respectively. The unaudited
pro forma financial information required allocation of certain
revenues and expenses and such 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)
December 31,
-----------------
2004 2003
-------- -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 650 $ 127
Accounts receivable, net of allowance for
doubtful accounts 190 189
Prepaid expenses and other current assets 82 34
-------- -------
Total current assets 922 350
-------- -------
INVESTMENT IN CABLE PROPERTIES:
Property, plant and equipment, net 6,289 7,014
Franchises, net 9,878 13,680
-------- -------
Total investment in cable properties, net 16,167 20,694
-------- -------
OTHER NONCURRENT ASSETS 584 320
-------- -------
Total assets $ 17,673 $21,364
======== =======
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,217 $ 1,286
-------- -------
Total current liabilities 1,217 1,286
-------- -------
LONG-TERM DEBT 19,464 18,647
DEFERRED MANAGEMENT FEES - RELATED PARTY 14 14
OTHER LONG-TERM LIABILITIES 681 848
MINORITY INTEREST 648 689
PREFERRED STOCK - REDEEMABLE 55 55
SHAREHOLDERS' DEFICIT (4,406) (175)
-------- -------
Total liabilities and shareholders'
deficit $ 17,673 $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)
Year Ended
December 31,
----------------
2004 2003
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,341) $ (238)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Minority interest (19) (377)
Depreciation and amortization 1,495 1,453
Impairment of franchises 2,433 -
Option compensation expense, net 27 4
Special charges, net 85 -
Noncash interest expense 324 414
Gain on derivative instruments and hedging
activities, net (69) (65)
(Gain) loss on sale of assets, net (86) 5
Loss on debt to equity conversions 23 -
(Gain) loss on extinguishment of debt 20 (267)
Deferred income taxes (109) (110)
Cumulative effect of accounting change, net 765 -
Unfavorable contracts and other settlements (5) (72)
Other, net (3) 3
Changes in operating assets and liabilities, net
of effects from dispositions:
Accounts receivable (7) 70
Prepaid expenses and other assets (2) 5
Accounts payable, accrued expenses and other (59) (69)
Receivables from and payables to related
party,
including deferred management fees - 9
------- -------
Net cash flows from operating activities 472 765
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (924) (854)
Change in accrued expenses related to capital
expenditures (43) (33)
Proceeds from sale of assets 744 91
Purchases of investments (17) (11)
Other, net (3) (10)
------- -------
Net cash flows from investing activities (243) (817)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt 3,148 738
Repayments of long-term debt (5,448) (1,368)
Proceeds from issuance of debt 2,882 529
Payments for debt issuance costs (145) (41)
Purchase of pledge securities (143) -
------- -------
Net cash flows from financing activities 294 (142)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 523 (194)
CASH AND CASH EQUIVALENTS, beginning of period 127 321
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 650 $ 127
======= =======
CASH PAID FOR INTEREST $ 1,302 $ 1,111
======= =======
NONCASH TRANSACTIONS:
Debt exchanged for Charter Class A common stock $ 30 $ -
======= =======
Issuance of debt by CCH II, LLC $ - $ 1,572
======= =======
Retirement of debt $ - $ 1,866
======= =======
Issuance of preferred stock - redeemable, as
payment for acquisitions $ - $ 4
======= =======
Issuance of equity as partial payments for
acquisitions $ - $ 2
======= =======
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
-----------------------------------
Dec. 31,
Dec. 31, Sept. 30, 2003
2004(a) 2004(a) Pro Forma(a)
----------- ----------- -----------
Customer Summary:
Customer Relationships:
Residential (non-bulk) analog
video customers (b) 5,739,900 5,825,000 5,963,000
Multi-dwelling (bulk) and
commercial unit customers (c) 251,600 249,600 237,500
----------- ----------- -----------
Total analog video customers
(b) (c) 5,991,500 6,074,600 6,200,500
Non-video customers (b) 228,700 216,200 105,700
----------- ----------- -----------
Total customer relationships
(d) 6,220,200 6,290,800 6,306,200
=========== =========== ===========
Pro forma average monthly revenue
per analog video customer (e) $70.50 $68.15 $62.86
Bundled customers (f) 1,659,700 1,617,600 1,422,100
Revenue Generating Units:
Analog video customers (b) (c) 5,991,500 6,074,600 6,200,500
Digital video customers (g) 2,674,700 2,688,900 2,588,600
Residential high-speed data
customers (h) 1,884,400 1,819,900 1,527,800
Telephony customers (i) 45,400 40,200 24,900
----------- ----------- -----------
Total revenue generating
units (j) 10,596,000 10,623,600 10,341,800
=========== =========== ===========
Cable Video Services:
Analog Video:
Estimated homes passed (k) 12,085,900 12,066,300 11,817,500
Analog video customers (b)(c) 5,991,500 6,074,600 6,200,500
Estimated penetration of analog
video homes passed (b) (c) (k)
(l) 50% 50% 52%
Pro forma average monthly analog
revenue per analog video
customer (m) $37.52 $37.13 $36.23
Analog video customers quarterly
net loss (b) (c) (n) (83,100) (58,600) (38,500)
Digital Video:
Estimated digital homes passed
(k) 12,000,500 11,966,400 11,716,400
Digital video customers (g) 2,674,700 2,688,900 2,588,600
Estimated penetration of digital
homes passed (g) (k) (l) 22% 22% 22%
Digital percentage of analog
video customers (b) (c) (g) (o) 45% 44% 42%
Digital set-top terminals
deployed 3,791,600 3,792,900 3,634,500
Pro forma average incremental
monthly digital revenue per
digital video customer (m) $23.99 $23.97 $23.00
Digital video customers quarterly
net gain (loss) (g) (n) (14,200) 38,700 18,300
Non-Video Cable Services:
High-Speed Data Services:
Estimated high-speed data homes
passed (k) 10,682,800 10,618,200 10,321,100
Residential high-speed data
customers (h) 1,884,400 1,819,900 1,527,800
Estimated penetration of high-
speed data homes passed (h) (k)
(l) 18% 17% 15%
Pro forma average monthly high-
speed data revenue per high-
speed data customer (m) $36.53 $35.68 $33.45
Residential high-speed data
customers quarterly net gain (h)
(n) 64,500 108,500 86,300
Dial-up customers 3,800 7,300 9,600
Telephony customers (i) 45,400 40,200 24,900
Pro forma average monthly telephony
revenue per telephony customer (m) $41.95 $43.26 $49.15
Pro forma results reflect the sales of systems to Atlantic
Broadband Finance, LLC in March and April 2004 and WaveDivision
Holdings, LLC which closed in October 2003, as if they both
occurred as of January 1, 2003.
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). At December 31, 2004, September 30, 2004, and
December 31, 2003, "customers" include approximately 44,700,
46,000 and 72,700 persons whose accounts were over 60 days
past due in payment, approximately 5,200, 5,500 and 6,500
persons whose accounts were over 90 days past due in payment
and approximately 2,300, 2,000 and 2,000 of which were over
120 days past due in payment, respectively.
(b) "Analog video customers" as of December 31, 2004 and September
30, 2004 include all customers who receive video services
(including those who also purchase high-speed data and
telephony services) but excludes approximately 228,700 and
216,200 customer relationships at December 31, 2004 and
September 30, 2004, respectively, who receive high-speed data
service only or telephony service only and who are only
counted as high-speed data customers or telephony customers,
and therefore are shown as "non-video" customers. As of
December 31, 2003, "analog video customers" include all
customers who receive video services (including those who also
purchase high-speed data and telephony services) but exclude
approximately 105,700 customer relationships at December 31,
2003 who received high-speed data service only and who are
only counted as high-speed data customers, and therefore are
shown as "non-video customers." Telephony customers
represented approximately 11,300 and 10,700 of the 228,700 and
216,200 "non-video customers" as of December 31, 2004 and
September 30, 2004, respectively.
(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" as of December 31, 2004 and September
30, 2004 include the number of customers that receive one or
more levels of service, encompassing video, data and telephony
services, without regard to which service(s) such customers
receive. As of December 31, 2003 , "customer relationships"
include the number of customers that receive one or more
levels of video and data services, without regard to which
service(s) such customers receive. Telephony customers
represented approximately 11,300 and 10,700 of the 6,220,200
and 6,290,800 "customer relationships" as of December 31, 2004
and September 30, 2004, respectively. 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" as of December 31, 2004 and September 30,
2004 include customers receiving a combination of at least two
different types of service, including Charter's video service,
high-speed data service or telephony. As of December 31, 2003,
"bundled customers" include customers subscribing to both
Charter's video service and high-speed data service. "Bundled
customers" do not include customers who only subscribe to
video service. By including telephony customers, "bundled
customers" include approximately 16,200 and 15,000 more
customers as of December 31, 2004 and September 30, 2004,
respectively.
(g) "Digital video customers" include all households that have one
or more digital set-top terminals. Included in "digital video
customers" on December 31, 2004, September 30, 2004 and
December 31, 2003 are approximately 10,100, 10,700 and 12,000
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. However, the video
statistics do not include approximately 217,400, 205,500 and
105,700 of these customers at December 31, 2004, September 30,
2004 and December 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 service (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 our cable distribution network in
the areas where we offer the service indicated. "Homes passed"
exclude commercial units passed by our 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 the average number of pro forma customers for the
service indicated during the respective quarter. This
calculation is pro forma giving effect 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 Year Ended
December 31, December 31,
-------------- ----------------
2004 2003 2004 2003
----- -------- -------- -------
Adjusted EBITDA (a) $512 $484 $1,926 $1,927
Less: Purchases of property, plant and
equipment (285) (351) (924) (854)
----- -------- -------- -------
Un-levered free cash flow 227 133 1,002 1,073
Less: Interest on cash pay
obligations (b) (356) (299) (1,346) (1,143)
----- -------- -------- -------
Free cash flow (129) (166) (344) (70)
Purchases of property, plant and
equipment 285 351 924 854
Special charges, net (4) (3) (19) (21)
Other, net (13) (8) (21) (13)
Change in operating assets and
liabilities (50) (47) (68) 15
----- -------- -------- -------
Net cash flows from operating
activities $89 $127 $472 $765
===== ======== ======== =======
Three
Months Year Ended
Ended December 31,
Dec. 31, ----------------
2003 2004 2003
Pro Pro Pro
Forma Forma Forma
-------- -------- -------
Adjusted EBITDA (a) $463 $1,913 $1,835
Less: Purchases of property, plant and
equipment (345) (922) (835)
-------- -------- -------
Un-levered free cash flow 118 991 1,000
Less: Interest on cash pay
obligations (b) (293) (1,342) (1,116)
-------- -------- -------
Free cash flow (175) (351) (116)
Purchases of property, plant and
equipment 345 922 835
Special charges, net (3) (19) (21)
Other, net (9) (26) (11)
Change in operating assets and
liabilities (36) (57) 56
-------- -------- -------
Net cash flows from operating
activities $122 $469 $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 consolidated 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 in March and April 2004 and
WaveDivision Holdings, LLC in October 2003, as if they both
occurred as of January 1, 2003.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CAPITAL EXPENDITURES
(DOLLARS IN MILLIONS)
Three Months
Ended Year Ended
December 31, December 31,
------------ ------------
2004 2003 2004 2003
----- ----- ----- -----
Customer premise equipment (a) $ 106 $ 127 $ 451 $ 380
Scalable infrastructure (b) 53 32 108 67
Line extensions (c) 37 62 131 131
Upgrade/Rebuild (d) 21 56 49 132
Support capital (e) 68 74 185 144
----- ----- ----- -----
Total capital expenditures (f) $ 285 $ 351 $ 924 $ 854
===== ===== ===== =====
(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 and year ended December 31, 2004 and 2003, respectively.
CONTACT:
Charter Communications, Inc., St. Louis
Press:
Dave Mack
303-323-1392
Analysts:
Mary Jo Moehle
314-543-2397
http://www.charter.com
SOURCE: Charter Communications, Inc.