InvestorsFebruary 27, 2008
Charter Reports Fourth Quarter and Full Year Financial and Operating Results
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Click here to view the Fourth Quarter Financial Addendum.
Year- over- Year Double-Digit Pro Forma Revenue and Pro Forma
Adjusted EBITDA Growth for the Fifth Consecutive Quarter
ST. LOUIS--(BUSINESS WIRE)--Feb. 27, 2008--Charter Communications, Inc. (NASDAQ: CHTR) (along with its subsidiaries, the "Company" or "Charter") today reported its fourth quarter and full year 2007 financial and operating results.
- Fourth quarter pro forma revenue of $1.548 billion grew 10.6% year over year and actual revenue of $1.553 billion grew 9.9%, primarily driven by increases in telephone and high-speed Internet (HSI) revenues. (Pro forma results are described below in the "Use of Non-GAAP Financial Metrics" section and are provided in the addendum of this news release.)
- Fourth quarter pro forma adjusted EBITDA of $563 million increased 12.6% year over year and actual adjusted EBITDA grew 12.3%. (Adjusted EBITDA is defined in the "Use of Non-GAAP Financial Metrics" section and is reconciled to net cash flows from operating activities in the addendum of this news release.)
- Total ARPU (average revenue per customer) for the quarter increased 12.9% year over year, driven by increased sales of The Charter Bundle(TM) and advanced services growth.
- Revenue generating units (RGUs) increased by 199,100 on a pro forma basis during the fourth quarter of 2007, a 19.9% increase in net adds over the prior year fourth quarter.
Paul G. Allen, Charter Chairman of the Board and controlling shareholder, said, "I am pleased with the consistency of Charter's performance and its continuing success in building operational momentum. In 2007, Neil and our management team executed our strategic plans and drove operational and financial improvement. All of Charter's employees deserve recognition for the Company's performance, and I am proud of their efforts. We expect the Charter Bundle and Charter Business Bundle to continue to be the primary platform for success in 2008, and I am encouraged about the prospects for Charter as we continue to improve the experience for our customers."
"I am pleased to be announcing year-over-year double-digit pro forma revenue and adjusted EBITDA growth for the fifth consecutive quarter," said Neil Smit, President and Chief Executive Officer. "We have momentum coming out of 2007 and we remain disciplined in targeting our operating, marketing and capital investments to grow the business."
Key Operating Results
All of the following customer growth and ARPU statistics are presented on a pro forma basis. Charter added a net 199,100 RGUs during the fourth quarter of 2007, and for the full year added 835,900 RGUs, a 15.3% increase in RGU net adds over 2006. As of December 31, 2007, Charter served approximately 5,596,300 customers and the Company's 11,782,100 RGUs were comprised of 5,219,900 analog video, 2,920,400 digital video, 2,682,500 HSI, and 959,300 telephone customers.
- Telephone customers increased by approximately 155,300 in the fourth quarter of 2007, the most quarterly phone net additions in Charter history. The Company added 513,000 customers during the year 2007, ending the year at 10.6% penetration.
- HSI customers increased by approximately 50,500 in the fourth quarter of 2007 and by 289,100 during the year 2007. HSI ARPU increased 4.8% compared to the fourth quarter of 2006, primarily due to content improvements and customers purchasing enhanced speeds.
- Digital video customers increased by approximately 59,700 in the fourth quarter of 2007 and analog video customers decreased by 66,400. For the full year, the company gained 150,100 digital video customers and lost 116,300 analog video customers. Video ARPU increased 5.8% compared to the fourth quarter of 2006 due to growth in revenue from advanced services and rate adjustments.
- Fourth quarter 2007 total ARPU increased 12.9% to $97.99 from the same period in 2006, driven primarily by bundling, advanced services growth, and upgrading customers to higher Internet speeds and programming tiers.
Fourth Quarter Results - Pro Forma
Fourth quarter pro forma revenues were $1.548 billion, an increase of $148 million, or 10.6% - Charter's sixth consecutive quarter of year-over-year double-digit pro forma revenue growth. The increase resulted primarily from increases in telephone and HSI revenues.
Pro forma telephone revenues increased to $107 million from $49 million a year ago, as our telephone customer base has more than doubled since last year. Pro forma HSI revenues increased $49 million, up 17.7% year over year, due to increases in ARPU and the number of customers. Pro forma video revenues increased $28 million, up 3.4% year over year, primarily as a result of advanced services revenue growth. Pro forma commercial revenues increased $12 million, or 15.4%, as Charter continues to market the Charter Business Bundle(R) to small and medium-size businesses.
Pro forma operating expenses, which include programming, service and advertising sales costs, increased 10.0% year over year, reflecting annual programming rate increases, increased labor costs to support improved service levels, and growth of the Company's telephone business and other advanced services. Selling, general, and administrative expenses increased by 8.3% compared to the year-ago quarter, reflecting expenditures to further improve the customer experience and increased marketing expenditures targeted at revenue growth and retaining customers.
Pro forma adjusted EBITDA totaled $563 million for the fourth quarter of 2007, an increase of 12.6% compared to the year-ago quarter - Charter's fifth consecutive quarter of double-digit, year over year pro forma adjusted EBITDA growth.
Pro forma net cash flows used in operating activities for the fourth quarter of 2007 were $2 million, compared to $28 million for the fourth quarter of 2006.
Annual Results - Pro Forma
For the year ended December 31, 2007, pro forma revenues were $5.971 billion, an increase of $588 million, or 10.9%, primarily from telephone and HSI revenue growth.
Pro forma telephone revenues increased to $343 million from $135 million a year ago. Pro forma HSI revenues increased $212 million, up 20.5% year over year. Pro forma video revenues increased $106 million, up 3.2% year over year. Pro forma commercial revenues increased $42 million, or 14.1%.
Pro forma operating expenses for the full year ended December 31, 2007, which include programming, service, and advertising sales costs, increased 9.7% year over year; and selling, general, and administrative expenses increased by 11.8%.
Pro forma adjusted EBITDA totaled $2.101 billion for the full year 2007, an increase of 11.9% compared to the full year 2006.
Pro forma net cash flows from operating activities for the full year 2007 were $317 million, compared to $267 million for the full year 2006.
Fourth Quarter Results - Actual
Fourth quarter revenues increased 9.9% and operating costs and expenses increased 8.6% compared to year-ago results.
Adjusted EBITDA for the fourth quarter of 2007 was $565 million, a 12.3% increase compared to the year-ago period.
Operating income from continuing operations was $85 million in the fourth quarter of 2007, compared to $163 million in the fourth quarter of 2006. The decrease was primarily related to a $178 million impairment of franchises in the fourth quarter of 2007. No comparable charge occurred in the fourth quarter of 2006.
Net loss for the fourth quarter of 2007 was $468 million, or $1.27 per common share. For the fourth quarter of 2006, Charter reported a net loss of $396 million and net loss per common share of $1.08. Despite adjusted EBITDA growth due to RGU net additions and an increase in bundled customers, net loss increased primarily due to the franchise impairment noted above.
Expenditures for property, plant, and equipment for the fourth quarter of 2007 were $354 million, compared to fourth quarter 2006 expenditures of $308 million. The increase in capital expenditures primarily reflects year-over-year increases in customer premise equipment and support capital.
There were no net cash flows generated or used in operating activities during the fourth quarter of 2007, compared to $25 million of net cash flows used in operating activities for the fourth quarter of 2006.
Annual Results - Actual
Revenues for the full year 2007 were $6.002 billion, an increase of 9.0% year over year. Operating costs and expenses were $3.891 billion, an increase of 8.4% compared to year-ago actual results. Adjusted EBITDA for the full year 2007 was $2.111 billion, a 10.3% increase compared to the year-ago period.
Operating income from continuing operations increased to $548 million for the full year 2007, compared to $367 million in the full year 2006. The primary drivers of the increase in operating income were increased revenues and higher margins year over year.
Net loss for the full year 2007 was $1.616 billion, or $4.39 per common share. For the full year 2006, Charter reported a net loss of $1.370 billion and net loss per common share of $4.13. Despite the increase in adjusted EBITDA due to RGU net additions and an increase in bundled customers, net loss increased year over year. This is primarily due to a $148 million charge related to the early retirement of debt in 2007, while a $101 million gain related to the early retirement of debt was recorded in 2006. Additionally, in 2006 a $200 million gain was recorded related to the sale of discontinued operations.
Capital expenditures for property, plant, and equipment for the full year 2007 were $1.244 billion, compared to $1.103 billion in 2006. Charter expects that capital expenditures in the year 2008 will total approximately $1.2 billion and approximately 75% of that amount will be directed toward success-based activities.
Net cash flows from operating activities for the full year 2007 were $327 million, compared to $323 million for the full year 2006.
As of December 31, 2007, Charter had $19.908 billion in long-term debt and $75 million of cash on hand. Availability under the Company's revolving credit facility totaled approximately $1.0 billion at year end, none of which was limited by covenant restrictions. Charter expects that cash on hand, cash flows from operating activities, and amounts available under its credit facilities will be adequate to meet its projected cash needs through the second or third quarter of 2009 and thereafter will not be sufficient to fund such needs. Charter will therefore need to obtain additional sources of liquidity by early 2009.
Use of Non-GAAP Financial Metrics
The Company uses certain measures that are not defined by Generally Accepted Accounting Principles ("GAAP") to evaluate various aspects of its business. Adjusted EBITDA, pro forma adjusted EBITDA, 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 depreciation and amortization, impairment charges, stock compensation expense, and other operating (income) expenses, such as special charges and loss on sale or retirement of assets. As such, it eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of the Company's businesses as well as other non-cash or non-recurring items, and is unaffected by the Company's capital structure or investment activities. Adjusted EBITDA and pro forma adjusted EBITDA are liquidity measures used by Company management and its board of directors to measure the Company's ability to fund operations and its 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.
Free cash flow is defined as net cash flows from operating activities, less capital expenditures and changes in accrued expenses related to capital expenditures.
The Company believes that adjusted EBITDA, pro forma adjusted EBITDA, and free cash flow provide information useful to investors in assessing Charter's ability to service its 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 and pro forma adjusted EBITDA, as presented, include management fee expenses in the amount of $31 million and $32 million for each of the three months ended December 31, 2007 and 2006, respectively, which expense amounts are excluded for the purposes of calculating compliance with leverage covenants.
In addition to the actual results for the three and twelve months ended December 31, 2006 and 2007, we have provided in this release pro forma results for the three and twelve months ended December 31, 2006 and 2007. We believe these pro forma results facilitate meaningful analysis of the results of operations. Pro forma results in this release reflect certain of our sales and acquisition of certain assets in 2006 and 2007 as if they had occurred as of January 1, 2006. Pro forma income statements for the three and twelve months ended December 31, 2006 and December 31, 2007 and pro forma customer statistics as of December 31, 2007, September 30, 2007 and December 31, 2006 are provided in the addendum of this news release.
Additional Information Available on Website
A slide presentation to accompany the fourth quarter conference call will be available on the Investor & News Center of our website at www.charter.com in the "Presentations/Webcasts" section. Pro forma data, including disclosure concerning the pro forma data and the basis upon which it was calculated, for each quarter of 2006 and 2007 can also be found on the Investor & News Center in the "Pro Forma Information" section. The pro forma income statement for the three months and twelve months ended December 31, 2006 and 2007 and pro forma historical customer statistics are also provided in the addendum of this news release.
Conference Call
The Company will host a conference call on Wednesday, February 27, 2008, at 9:00 a.m. 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 Charter" at the top of the home page. Participants should go to the call link at least 10 minutes prior to the start time to register. The call will be archived on the website beginning two hours after its completion. Accompanying slides will also be available on the site.
Those participating via telephone should dial 888/233-1576 no later than 10 minutes prior to the call. International participants should dial 706/643-3458. The passcode for the call is 32009033.
A replay of the call will be available at 800/642-1687 or 706/645-9291 beginning two hours after the completion of the call through the end of business on March 5, 2008. The passcode for the replay is 32009033.
About Charter Communications(R)
Charter Communications, Inc. is a leading broadband communications company and the third-largest publicly traded cable operator in the United States. Charter provides a full range of advanced broadband services, including advanced Charter Digital Cable(R) video entertainment programming, Charter High-Speed(R) Internet access, and Charter Telephone(R). Charter Business(TM) similarly provides scalable, tailored, and cost-effective broadband communications solutions to business organizations, such as business-to-business Internet access, data networking, video and music entertainment services, and business telephone. Charter's 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, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things, our plans, strategies and prospects, both business and financial. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions including, without limitation, the factors described under "Risk Factors" from time to time in our filings with the Securities and Exchange Commission ("SEC"). 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," "aim," "on track," "target," "opportunity" and "potential," among others. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this release are set forth in other reports or documents that we file from time to time with the SEC, and include, but are not limited to:
- the availability, in general, of funds to meet interest payment obligations under our debt and to fund our operations and necessary capital expenditures, either through cash flows from operating activities, further borrowings or other sources and, in particular, our ability to fund debt obligations (by dividend, investment or otherwise) to the applicable obligor of such debt;
- our ability to comply with all covenants in our indentures and credit facilities, any violation of which, if not cured in a timely manner, could trigger a default of our other obligations under cross-default provisions;
- our ability to pay or refinance debt prior to or when it becomes due and/or refinance that debt through new issuances, exchange offers or otherwise, including restructuring our balance sheet and leverage position;
- the impact of competition from other distributors, including incumbent telephone companies, direct broadcast satellite operators, wireless broadband providers, and digital subscriber line ("DSL") providers;
- difficulties in growing, further introducing, and operating our telephone services, while adequately meeting customer expectations for the reliability of voice services;
- our ability to adequately meet demand for installations and customer service;
- our ability to sustain and grow revenues and cash flows from operating activities by offering video, high-speed Internet, telephone and other services, and to maintain and grow our customer base, particularly in the face of increasingly aggressive competition;
- our ability to obtain programming at reasonable prices or to adequately raise prices to offset the effects of higher programming costs;
- general business conditions, economic uncertainty or slowdown, including the recent significant slowdown in the new housing sector and overall economy; and
- the effects of governmental regulation 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,
-------------------------------------
2007 2006
Actual Actual % Change
------------ ------------ ----------
REVENUES:
Video $ 850 $ 829 2.5%
High-speed Internet 326 278 17.3%
Telephone 107 49 118.4%
Advertising sales 82 91 (9.9%)
Commercial 90 78 15.4%
Other 98 88 11.4%
------------ ------------
Total revenues 1,553 1,413 9.9%
------------ ------------
COSTS AND EXPENSES:
Operating (excluding
depreciation and
amortization) (a) 663 608 9.0%
Selling, general and
administrative (excluding
stock compensation expense)
(b) 325 302 7.6%
------------ ------------
Operating costs and
expenses 988 910 8.6%
------------ ------------
Adjusted EBITDA 565 503 12.3%
------------ ------------
Adjusted EBITDA margin 36.4% 35.6%
------------ ------------
Depreciation and
amortization 329 330
Impairment charges 178 -
Stock compensation expense 3 3
Other operating (income)
expenses, net (30) 7
------------ ------------
Operating income from
continuing operations 85 163
------------ ------------
OTHER INCOME AND (EXPENSES):
Interest expense, net (466) (466)
Change in value of
derivatives 70 (14)
Gain (loss) on
extinguishment of debt (113) -
Other income (expense), net (4) 2
------------ ------------
(513) (478)
------------ ------------
Loss from continuing operations
before income taxes (428) (315)
Income tax expense (40) (63)
------------ ------------
Loss from continuing operations (468) (378)
Income (loss) from discontinued
operations, net of tax - (18)
------------ ------------
Net loss $ (468) $ (396)
============ ============
LOSS PER COMMON SHARE, BASIC
AND DILUTED:
Loss from continuing
operations $ (1.27) $ (1.03)
============ ============
Net loss $ (1.27) $ (1.08)
============ ============
Weighted average common shares
outstanding, basic and diluted 369,916,556 365,331,337
============ ============
Year Ended December 31,
-------------------------------------
2007 2006
Actual Actual % Change
------------ ------------ ----------
REVENUES:
Video $ 3,392 $ 3,349 1.3%
High-speed Internet 1,252 1,051 19.1%
Telephone 343 135 154.1%
Advertising sales 298 319 (6.6%)
Commercial 341 305 11.8%
Other 376 345 9.0%
------------ ------------
Total revenues 6,002 5,504 9.0%
------------ ------------
COSTS AND EXPENSES:
Operating (excluding
depreciation and
amortization) (a) 2,620 2,438 7.5%
Selling, general and
administrative (excluding
stock compensation expense)
(b) 1,271 1,152 10.3%
------------ ------------
Operating costs and
expenses 3,891 3,590 8.4%
------------ ------------
Adjusted EBITDA 2,111 1,914 10.3%
------------ ------------
Adjusted EBITDA margin 35.2% 34.8%
------------ ------------
Depreciation and
amortization 1,328 1,354
Impairment charges 234 159
Stock compensation expense 18 13
Other operating (income)
expenses, net (17) 21
------------ ------------
Operating income from
continuing operations 548 367
------------ ------------
OTHER INCOME AND (EXPENSES):
Interest expense, net (1,851) (1,877)
Change in value of
derivatives 52 (4)
Gain (loss) on
extinguishment of debt (148) 101
Other income (expense), net (8) 14
------------ ------------
(1,955) (1,766)
------------ ------------
Loss from continuing operations
before income taxes (1,407) (1,399)
Income tax expense (209) (187)
------------ ------------
Loss from continuing operations (1,616) (1,586)
Income (loss) from discontinued
operations, net of tax - 216
------------ ------------
Net loss $ (1,616) $ (1,370)
============ ============
LOSS PER COMMON SHARE, BASIC
AND DILUTED:
Loss from continuing
operations $ (4.39) $ (4.78)
============ ============
Net loss $ (4.39) $ (4.13)
============ ============
Weighted average common shares
outstanding, basic and diluted 368,240,608 331,941,788
============ ============
(a) Operating expenses include programming, service, and advertising
sales expenses.
(b) Selling, general and administrative expenses include general and
administrative and marketing expenses.
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 December 31,
-------------------------------------
2007 2006
Pro Forma Pro Forma
(a) (a) % Change
------------ ------------ ----------
REVENUES:
Video $ 846 $ 818 3.4%
High-speed Internet 326 277 17.7%
Telephone 107 49 118.4%
Advertising sales 82 91 (9.9%)
Commercial 90 78 15.4%
Other 97 87 11.5%
------------ ------------
Total revenues 1,548 1,400 10.6%
------------ ------------
COSTS AND EXPENSES:
Operating (excluding
depreciation and
amortization) (b) 660 600 10.0%
Selling, general and
administrative (excluding
stock compensation expense)
(c) 325 300 8.3%
------------ ------------
Operating costs and
expenses 985 900 9.4%
------------ ------------
Adjusted EBITDA 563 500 12.6%
------------ ------------
Adjusted EBITDA margin 36.4% 35.7%
------------ ------------
Depreciation and
amortization 327 328
Impairment charges 178 -
Stock compensation expense 3 3
Other operating (income)
expenses, net (33) 7
------------ ------------
Operating income from
operations 88 162
------------ ------------
OTHER INCOME AND (EXPENSES):
Interest expense, net (466) (466)
Change in value of
derivatives 70 (14)
Gain (loss) on
extinguishment of debt (113) -
Other expense, net (4) 2
------------ ------------
(513) (478)
------------ ------------
Loss before income taxes (425) (316)
Income tax expense (42) (47)
------------ ------------
Net loss $ (467) $ (363)
============ ============
LOSS PER COMMON SHARE, BASIC
AND DILUTED: $ (1.26) $ (0.99)
============ ============
Weighted average common shares
outstanding, basic and diluted 369,916,556 365,331,337
============ ============
Year Ended December 31,
-------------------------------------
2007 2006
Pro Forma Pro Forma
(a) (a) % Change
------------ ------------ ----------
REVENUES:
Video $ 3,370 $ 3,264 3.2%
High-speed Internet 1,248 1,036 20.5%
Telephone 343 135 154.1%
Advertising sales 297 315 (5.7%)
Commercial 339 297 14.1%
Other 374 336 11.3%
------------ ------------
Total revenues 5,971 5,383 10.9%
------------ ------------
COSTS AND EXPENSES:
Operating (excluding
depreciation and
amortization) (b) 2,602 2,371 9.7%
Selling, general and
administrative (excluding
stock compensation expense)
(c) 1,268 1,134 11.8%
------------ ------------
Operating costs and
expenses 3,870 3,505 10.4%
------------ ------------
Adjusted EBITDA 2,101 1,878 11.9%
------------ ------------
Adjusted EBITDA margin 35.2% 34.9%
------------ ------------
Depreciation and
amortization 1,323 1,334
Impairment charges 178 -
Stock compensation expense 18 13
Other operating (income)
expenses, net (20) 19
------------ ------------
Operating income from
operations 602 512
------------ ------------
OTHER INCOME AND (EXPENSES):
Interest expense, net (1,851) (1,851)
Change in value of
derivatives 52 (4)
Gain (loss) on
extinguishment of debt (148) 101
Other expense, net (8) 14
------------ ------------
(1,955) (1,740)
------------ ------------
Loss before income taxes (1,353) (1,228)
Income tax expense (192) (179)
------------ ------------
Net loss $ (1,545) $ (1,407)
============ ============
LOSS PER COMMON SHARE, BASIC
AND DILUTED: $ (4.20) $ (4.24)
============ ============
Weighted average common shares
outstanding, basic and diluted 368,240,608 331,941,788
============ ============
(a) Pro forma results reflect certain sales and acquisitions of
cable systems in 2006 and 2007 as if they occurred as of January 1,
2006. The pro forma statements of operations do not include
adjustments for financing transactions completed by Charter during
the periods presented or certain other dispositions of assets
because those transactions did not significantly impact Charter's
adjusted EBITDA. However, all transactions completed in 2006 and
2007 have been reflected in the operating statistics. The pro forma
data is based on information available to Charter as of the date of
this document and certain assumptions that we believe are reasonable
under the circumstances. The financial data required allocation of
certain revenues and expenses and such information has been
presented for comparative purposes and is not intended to provide
any indication of what our actual financial position, or results of
operations would have been had the transactions described above been
completed on the dates indicated or to project our results of
operations for any future date.
(b) Operating expenses include programming, service, and advertising
sales expenses.
(c) Selling, general and administrative expenses include general and
administrative and marketing expenses.
December 31, 2007. Pro forma revenues were reduced by $5 million and
$31 million for the three months and year ended December 31, 2007,
respectively. Pro forma operating costs and expenses were reduced by
$3 million and $21 million for the three months and year ended
December 31, 2007, respectively. Pro forma net loss was reduced by
$1 million and $71 million for the three months and year ended
December 31, 2007, respectively.
December 31, 2006. Pro forma revenues were reduced by $13 million and
$121 million for the three months and year ended December 31, 2006,
respectively. Pro forma operating costs and expenses were reduced by
$10 million and $85 million for the three months and year ended
December 31, 2006, respectively. Pro forma net loss was reduced by
$33 million and increased by $37 million for the three months and
year ended December 31, 2006, respectively.
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, December 31,
2007 2006
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 75 $ 60
Accounts receivable, net of allowance
for doubtful accounts 225 195
Prepaid expenses and other current
assets 36 84
------------ ------------
Total current assets 336 339
------------ ------------
INVESTMENT IN CABLE PROPERTIES:
Property, plant and equipment, net 5,103 5,217
Franchises, net 8,942 9,223
------------ ------------
Total investment in cable
properties, net 14,045 14,440
------------ ------------
OTHER NONCURRENT ASSETS 285 321
------------ ------------
Total assets $ 14,666 $ 15,100
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,332 $ 1,298
------------ ------------
Total current liabilities 1,332 1,298
------------ ------------
LONG-TERM DEBT 19,908 19,062
NOTE PAYABLE - RELATED PARTY 65 57
DEFERRED MANAGEMENT FEES - RELATED PARTY 14 14
OTHER LONG-TERM LIABILITIES 1,035 692
MINORITY INTEREST 199 192
PREFERRED STOCK - REDEEMABLE 5 4
SHAREHOLDERS' DEFICIT (7,892) (6,219)
------------ ------------
Total liabilities and shareholders'
deficit $ 14,666 $ 15,100
============ ============
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
Year Ended December 31,
-----------------------
2007 2006
------------ ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,616) $ (1,370)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Depreciation and amortization 1,328 1,362
Impairment charges 234 159
Noncash interest expense 40 128
Change in value of derivatives (52) 4
Deferred income taxes 198 202
Gain on sale of assets, net (3) (192)
(Gain) loss on extinguishment of debt 136 (101)
Other, net 2 4
Changes in operating assets and
liabilities, net of effects from
acquisitions and dispositions:
Accounts receivable (36) 24
Prepaid expenses and other assets 45 55
Accounts payable, accrued expenses and
other 51 48
------------ ---------
Net cash flows from operating
activities 327 323
------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,244) (1,103)
Change in accrued expenses related to
capital expenditures (2) 24
Proceeds from sale of assets, including
cable systems 104 1,020
Other, net 4 (6)
------------ ---------
Net cash flows from investing
activities (1,138) (65)
------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt 7,877 6,322
Repayments of long-term debt (7,017) (6,938)
Proceeds from issuance of debt - 440
Payments for debt issuance costs (42) (44)
Other, net 8 1
------------ ---------
Net cash flows from financing
activities 826 (219)
------------ ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 15 39
CASH AND CASH EQUIVALENTS, beginning of
period 60 21
------------ ---------
CASH AND CASH EQUIVALENTS, end of period $ 75 $ 60
============ =========
CASH PAID FOR INTEREST $ 1,792 $ 1,671
============ =========
NONCASH TRANSACTIONS:
Cumulative adjustment to Accumulated
Deficit for the adoption of FIN 48 $ 56 $ -
============ =========
Issuance of 6.50% convertible notes $ 479 $ -
============ =========
Issuance of debt by CCH I, LLC $ - $ 419
============ =========
Issuance of debt by CCH II, LLC $ - $ 410
============ =========
Issuance of debt by Charter Communications
Operating, LLC $ - $ 37
============ =========
Retirement of Charter Communications
Holdings, LLC debt $ - $ (796)
============ =========
Retirement of Renaissance Media Group LLC
debt $ - $ (37)
============ =========
Issuance of Class A common stock $ - $ 68
============ =========
Retirement of 5.875% convertible notes $ (364) $ (255)
============ =========
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED SUMMARY OF OPERATING STATISTICS
Approximate
---------------------------------------
Actual Pro Forma as of
------------ --------------------------
December 31, September 30, December 31,
2007 (a) 2007 (a) 2006 (a)
------------ ------------ ------------
Customer Summary:
Customer Relationships:
Residential (non-bulk) video
customers (b) 4,959,800 5,012,400 5,077,200
Multi-dwelling (bulk) and
commercial unit customers
(c) 260,100 273,900 259,000
------------ ------------ ------------
Total video customers 5,219,900 5,286,300 5,336,200
Non-video customers (b) 376,400 362,000 331,400
------------ ------------ ------------
Total customer
relationships (d) 5,596,300 5,648,300 5,667,600
============ ============ ============
Pro forma average monthly
revenue per video customer
(e) $ 97.99 $ 95.24 $ 86.81
Pro forma average monthly
video revenue per video
customer (m) $ 56.05 $ 55.13 $ 52.99
Residential bundled
customers (f) 2,506,700 2,440,200 2,180,700
Revenue Generating Units:
Video customers (b) (c) 5,219,900 5,286,300 5,336,200
Digital video customers (g) 2,920,400 2,860,700 2,770,300
Residential high-speed
Internet customers (h) 2,682,500 2,632,000 2,393,400
Telephone customers (i) 959,300 804,000 446,300
------------ ------------ ------------
Total revenue generating
units (j) 11,782,100 11,583,000 10,946,200
============ ============ ============
Video Cable Services:
Video:
Estimated homes passed (k) 11,847,600 11,641,300 11,519,000
Video customers (b)(c) 5,219,900 5,286,300 5,336,200
Estimated penetration of
video homes passed (b) (c)
(k) (l) 44.1% 45.4% 46.3%
Pro forma video customers
quarterly net gain (loss)
(b) (c) (n) (66,400) (38,700) (40,700)
Digital Video:
Estimated digital video
homes passed (k) 11,753,300 11,546,400 11,385,000
Digital video customers (g) 2,920,400 2,860,700 2,770,300
Estimated penetration of
digital homes passed (g)
(k) (l) 24.8% 24.8% 24.3%
Digital penetration of video
customers (b) (c) (g) (o) 55.9% 54.1% 51.9%
Digital set-top terminals
deployed 4,192,700 4,125,400 3,985,600
Pro forma digital video
customers quarterly net
gain (g) (n) 59,700 16,700 41,100
Non-Video Cable Services:
High-Speed Internet Services:
Estimated high-speed
Internet homes passed (k) 11,023,700 10,907,400 10,761,000
Residential high-speed
Internet customers (h) 2,682,500 2,632,000 2,393,400
Estimated penetration of
high-speed Internet homes
passed (h) (k) (l) 24.3% 24.1% 22.2%
Pro forma average monthly
high-speed Internet revenue
per high-speed Internet
customer (m) $ 40.86 $ 40.87 $ 38.98
Pro forma high-speed
Internet customers
quarterly net gain (h) (n) 50,500 53,900 59,200
Telephone Services:
Estimated telephone homes
passed (k) 9,013,900 8,289,200 6,799,300
Telephone customers (i) 959,300 804,000 446,300
Estimated penetration of
telephone homes passed (h)
(k) (l) 10.6% 9.7% 6.6%
Pro forma average monthly
telephone revenue per
telephone customer (m) $ 41.77 $ 42.48 $ 42.26
Pro forma telephone
customers quarterly net
gain (i) (n) 155,300 102,700 106,500
Pro forma operating statistics reflect the sales and acquisitions of
cable systems in 2006 and 2007 as if such transactions had occurred
as of the last day of the respective period for all periods
presented. The pro forma statements of operations do not include
adjustments for financing transactions completed by Charter during
the periods presented or certain other dispositions of assets because
those transactions did not significantly impact Charter's adjusted
EBITDA. However, all transactions completed in 2006 and 2007 have
been reflected in the operating statistics.
At September 30, 2007 actual video customers, digital video customers,
high-speed Internet customers and telephone customers were 5,347,800,
2,882,900, 2,639,200, and 802,600, respectively.
At December 31, 2006 actual video customers, digital video customers,
high-speed Internet customers and telephone customers were 5,433,300,
2,808,400, 2,402,200, and 445,800, respectively.
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). In addition, at
December 31, 2007, September 30, 2007, and December 31, 2006,
"customers" include approximately 48,200, 33,800, and 32,700 persons
whose accounts were over 60 days past due in payment, approximately
10,700, 5,700, and 5,400 persons whose accounts were over 90 days
past due in payment and approximately 2,900, 2,100, and 2,700 of
which were over 120 days past due in payment, respectively.
(b) "Video customers" include all residential customers who receive
video services (including those who also purchase high-speed Internet
and telephone services) but excludes approximately 376,400, 362,000,
and 331,400 customer relationships at December 31, 2007, September
30, 2007, and December 31, 2006, respectively, who receive high-speed
Internet service only, telephone service only, or both high-speed
Internet service and telephone service and who are only counted as
high-speed Internet customers or telephone 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 video
customers is consistent with the methodology used in determining
costs paid to programmers and has been used consistently. As we
increase our effective 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 one or more levels of service, encompassing video, Internet
and telephone 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 video customer" is
calculated as total quarterly pro forma revenue divided by three
divided by average pro forma video customers during the respective
quarter.
(f) "Residential bundled customers" include residential customers
receiving a combination of at least two different types of service,
including Charter's video service, high-speed Internet service or
telephone. "Residential bundled customers" do not include residential
customers who only subscribe to video service.
(g) "Digital video customers" include all video customers that have
one or more digital set-top boxes or cable cards deployed. Included
in "digital video customers" on December 31, 2007, September 30,
2007, and December 31, 2006 are approximately 2,000, 3,100, and 4,700
customers, respectively, that receive digital video service directly
through satellite transmission.
(h) "Residential high-speed Internet customers" represent those
residential customers who subscribe to our high-speed Internet
service. At December 31, 2007, September 30, 2007, and December 31,
2006, approximately 2,392,900, 2,343,300, and 2,114,200 of these
high-speed Internet customers, respectively, receive video and/or
telephone services from us and are included within the respective
statistics above.
(i) "Telephone customers" include all customers receiving telephone
service. As of December 31, 2007, September 30, 2007, and December
31, 2006, approximately 920,600, 770,600, and 418,600 of these
telephone customers, respectively, receive video and/or high-speed
Internet services from us and are included within the respective
statistics above.
(j) "Revenue generating units" represent the sum total of all video,
digital video, high-speed Internet and telephone 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 Internet 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
for the service indicated.
(m) "Pro forma average monthly revenue per customer" represents
quarterly pro forma revenue for the service indicated divided by
three divided by the number of pro forma customers for the service
indicated during the respective quarter.
(n) "Pro forma quarterly net gain (loss)" represents the pro forma net
gain or loss in the respective quarter for the service indicated.
(o) "Digital penetration of video customers" represents the number of
digital video customers as a percentage of video customers.
CHARTER COMMUNICATIONS, INC. AND
SUBSIDIARIES
UNAUDITED RECONCILIATION OF NON-GAAP
MEASURES TO GAAP MEASURES
(DOLLARS IN MILLIONS)
Three Months Year Ended
Ended December 31,
December 31,
------------- ---------------
2007 2006 2007 2006
Actual Actual Actual Actual
------ ------ ------- -------
Net cash flows from operating activities $- $(25) $327 $323
Less: Purchases of property, plant and
equipment (354) (308) (1,244) (1,103)
Less: Change in accrued expenses related
to capital expenditures 49 20 (2) 24
------ ------ ------- -------
Free cash flow (305) (313) (919) (756)
Interest on cash pay obligations (a) 457 448 1,811 1,749
Purchases of property, plant and
equipment 354 308 1,244 1,103
Change in accrued expenses related to
capital expenditures (49) (20) 2 (24)
Other, net 7 (2) 33 15
Change in operating assets and
liabilities 101 82 (60) (127)
------ ------ ------- -------
Adjusted EBITDA from continuing and
discontinued operations (b) $565 $503 $2,111 $1,960
====== ====== ======= =======
Three Months Year Ended
Ended December 31,
December 31,
------------- ---------------
2007 2006 2007 2006
Pro Pro Pro Pro
Forma Forma Forma Forma
(c) (c) (c) (c)
------ ------ ------- -------
Net cash flows from operating activities $(2) $(28) $317 $267
Less: Purchases of property, plant and
equipment (354) (308) (1,244) (1,085)
Less: Change in accrued expenses related
to capital expenditures 49 20 (2) 24
------ ------ ------- -------
Free cash flow (307) (316) (929) (794)
Interest on cash pay obligations (a) 457 448 1,811 1,723
Purchases of property, plant and
equipment 354 308 1,244 1,085
Change in accrued expenses related to
capital expenditures (49) (20) 2 (24)
Other, net 7 (2) 33 15
Change in operating assets and
liabilities 101 82 (60) (127)
------ ------ ------- -------
Adjusted EBITDA (b) $563 $500 $2,101 $1,878
====== ====== ======= =======
(a) Interest on cash pay obligations excludes accretion of original
issue discounts on certain debt securities and amortization of
deferred financing costs that are reflected as interest expense in
our consolidated statements of operations.
(b) See page 1 of this addendum for detail of the components included
within adjusted EBITDA. Adjusted EBITDA from continuing and
discontinued operations of $503 million and $2.0 billion for the
three months and year ended December 31, 2006, respectively, includes
$0 and $46 million of adjusted EBITDA recorded in discontinued
operations in our consolidated statements of operations.
(c) Pro forma results reflect certain sales and acquisitions of cable
systems in 2006 and 2007 as if they occurred as of January 1, 2006.
The above schedules are presented in order to reconcile adjusted
EBITDA and free cash flows, both non-GAAP measures, to the most
directly comparable GAAP measures in accordance with Section 401(b)
of the Sarbanes-Oxley Act.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
CAPITAL EXPENDITURES
(DOLLARS IN MILLIONS)
Three Months Ended Year Ended
December 31, December 31,
------------------- ------------
2007 2006 2007 2006
------------- ---- ----- -----
Customer premise equipment (a) $ 150 $ 129 $ 578 $ 507
Scalable infrastructure (b) 68 68 232 214
Line extensions (c) 29 25 105 107
Upgrade/Rebuild (d) 17 9 52 45
Support capital (e) 90 77 277 230
------------- ---- ----- -----
Total capital expenditures $ 354 $ 308 $1,244 $1,103
============= ==== ===== =====
(a) Customer premise equipment includes costs incurred at the customer
residence to secure new customers, revenue units and additional
bandwidth revenues. It also includes customer installation costs in
accordance with SFAS No. 51 and customer premise equipment (e.g.,
set-top boxes and cable modems, etc.).
(b) Scalable infrastructure includes costs, not related to customer
premise equipment or our network, to secure growth of new customers,
revenue units and additional bandwidth revenues or provide service
enhancements (e.g., headend equipment).
(c) Line extensions include network costs associated with entering new
service areas (e.g., fiber/coaxial cable, amplifiers, electronic
equipment, make-ready and design engineering).
(d) Upgrade/rebuild includes costs to modify or replace existing
fiber/coaxial cable networks, including betterments.
(e) Support capital includes costs associated with the replacement or
enhancement of non-network assets due to technological and physical
obsolescence (e.g., non-network equipment, land, buildings and
vehicles).
CONTACT: Charter Communications, Inc.
Media:
Anita Lamont, 314-543-2215
or
Analysts:
Mary Jo Moehle, 314-543-2397
SOURCE: Charter Communications, Inc.