InvestorsAugust 8, 2006
Charter Reports Second-Quarter 2006 Financial and Operating Results
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Click here to view the Second Quarter Financial Addendum.
ST. LOUIS--(BUSINESS WIRE)--Aug. 8, 2006--Charter Communications, Inc. (NASDAQ: CHTR) (along with its subsidiaries, the "Company" or "Charter") today reported its second-quarter 2006 financial results.
"We are pleased with the results for the second quarter, which reflect continued momentum and visible improvements in the operating metrics that drive our business," said Neil Smit, president and chief executive officer. "We are keenly focused on disciplined, targeted marketing and operational execution aimed at delivering profitable revenue growth. While there is still a lot of work to be done, I believe that we're building a solid foundation for growth," Smit said.
Highlights
-- Second-quarter revenues from continuing and discontinued
operations grew 8.7% year over year.
-- Quarterly adjusted EBITDA from continuing and discontinued
operations increased 4.2% compared to the second quarter of
2005. (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.)
-- Revenue generating units (RGUs) increased by 104,000, compared
to the 5,600 RGUs added in the second quarter of 2005.
-- Net gains improved on all product lines compared to the second
quarter of 2005, and total average monthly revenue per analog
video customer increased 10.0% year over year.
-- Telephone customers climbed to 257,600 as of June 30, 2006, up
35% from March 31, 2006. Phone service availability grew to
approximately 4.7 million homes as of June 30, 2006.
-- In July 2006, Charter completed the sale of certain
geographically non-strategic systems for net proceeds of
approximately $896 million.
The operating results of certain systems sold in July 2006 have been removed from continuing operations and placed in discontinued operations. All customer metrics in this release include all systems owned during the period, including those accounted for as discontinued operations, unless otherwise stated. (See "Discontinued Operations" section for further information.)
Operating Results
Charter's consistent focus on targeted marketing and improved service levels continued to drive RGU growth. Charter added a net 104,000 RGUs during the second quarter, a significant increase over second-quarter 2005 additions. Net gain improvements in every customer category contributed to overall RGU growth as compared to the year-ago quarter.
-- Telephone customers increased by approximately 66,500,
compared with a net gain of 12,500 customers in the year-ago
quarter.
-- High-speed Internet (HSI) customers increased by approximately
52,700, compared with a net gain of 43,800 customers in the
second quarter of 2005.
-- Digital video customers increased by approximately 22,600,
compared with a net loss of 9,000 customers a year ago.
-- Analog video customers decreased by approximately 37,800,
compared with a net loss of 41,700 customers in the second
quarter of 2005.
As of June 30, 2006, Charter served approximately 11,397,800 RGUs, comprised of 5,876,100 analog video, 2,889,000 digital video, 2,375,100 HSI, and 257,600 telephone customers.
Total average monthly revenue per analog video customer increased 10.0% for the second quarter of 2006, compared to the same period in 2005, and churn declined compared to the year ago quarter. Continued improvements in average revenue and churn resulted from Charter's bundled offers and marketing efforts to add high-quality customers.
Strong telephone growth continued, with total customers increasing 35% since the first quarter of 2006. During the second quarter, Charter made telephone service available to nearly 750,000 additional homes, bringing total homes passed with telephone service to approximately 4.7 million as of June 30, 2006. The Company remains on track to make the service available to between 6 million and 8 million homes by year-end 2006. In markets where telephone service is available, Charter continues to experience lower customer churn, increased revenue per analog video customer, and improved customer satisfaction, as customers take advantage of Charter's bundled product offerings.
Second-Quarter Financial Results
Second-quarter 2006 revenues from continuing operations increased 9.2%, up $117 million year over year, to $1.383 billion, resulting from both a larger customer base versus prior year, and increases in average revenue per customer. High Speed Internet revenues increased 19.7%, up $43 million year over year, and telephone revenues more than tripled to $29 million from $8 million in the second quarter of 2005. Commercial revenues increased 15.2%, up $10 million year over year, and advertising sales revenues increased 8.2%, or $6 million, year over year. Video revenues increased 3.9%, up $32 million year over year.
Second-quarter 2006 operating costs and expenses from continuing operations increased $95 million, or 12.0%, to $887 million, reflecting Charter's expenditures to support higher rates of customer growth and retention, as well as added expenses arising from higher programming costs associated with annual rate increases and higher customer volumes.
Operating income from continuing operations increased by $46 million year over year, to $146 million for the second quarter of 2006. Revenue growth exceeded operating cost growth during the period by $22 million, and depreciation and amortization expenses declined by $24 million year over year.
Net loss applicable to common stock and loss per common share for the second quarter of 2006 were $382 million and $1.20, respectively. For the second quarter of 2005, Charter reported net loss applicable to common stock and loss per common share of $356 million and $1.17, respectively. The increase in net loss applicable to common stock was primarily due to a $27 million loss on extinguishment of debt related to the credit facility refinancing in April 2006, a $24 million increase in interest expense, and a $27 million increase in income tax expense. These expense increases were partially offset by the $46 million increase in operating income from continuing operations.
Year to Date Financial Results
For the six months ended June 30, 2006, total revenues from continuing operations increased by 8.9%, up $222 million, to $2.703 billion, resulting from both a larger number of customers and higher average revenue per customer. HSI revenues increased 19.1%, up $81 million, and telephone revenues more than tripled to $49 million from $14 million in the year ago period. Commercial revenues increased 16.4%, up $21 million year over year, and advertising sales revenues increased 8.9%, up $12 million year over year. Video revenues increased 3.8%, up $61 million year over year.
Operating costs and expenses from continuing operations for the six months ended June 30, 2006 increased by 13.0%, or $203 million, to $1.759 billion, reflecting costs to serve a greater number of customers, expenditures on customer service enhancements, increased marketing spending, and annual programming rate increases.
Operating income from continuing operations decreased by 2.8%, or $4 million, to $138 million for the first six months of 2006. Revenue growth exceeded operating cost growth during the period by $19 million, and depreciation and amortization expenses declined by $40 million year over year. These benefits were offset by a $60 million increase in asset impairment charges related to Charter's asset sales to NewWave Communications and subsidiaries of Orange BroadBand Holding Company, LLC, and an $8 million increase in special charges primarily related to severance associated with closing call centers and divisional restructuring.
Net loss applicable to common stock and loss per common share for the six months ended June 30, 2006, were $841 million and $2.65, respectively. For the first six months of 2005, Charter reported net loss applicable to common stock and loss per common share of $709 million and $2.34, respectively. The increase in net loss applicable to common stock was primarily due to a $72 million increase in interest expense and a $35 million increase in loss on extinguishment of debt, primarily related to the credit facility refinancing in April 2006, along with the $4 million decrease in operating income from continuing operations.
Asset Sales
In 2006, the Company signed three separate definitive agreements to sell certain geographically non-strategic cable television systems serving approximately 356,000 analog video customers for a total of approximately $971 million. In July 2006, Charter completed the sales of systems in West Virginia and Virginia, serving approximately 239,700 analog video customers, to Cebridge Acquisition Co., LLC (the "Cebridge transaction") and systems in Illinois and Kentucky, serving approximately 73,300 analog video customers, to NewWave Communications (the "NewWave transaction"). The sale of systems in northern and southeastern Nevada, and in Colorado, New Mexico, and Utah, serving 43,000 analog video customers, to subsidiaries of Orange Broadband Holding Company, LLC (the "Orange transaction") is scheduled to close in the third quarter of 2006.
Charter expects to record a gain on the sale related to the Cebridge transaction of approximately $200 million in the third quarter of 2006.
Assuming the sales of systems in July 2005, the Cebridge transaction, the New Wave transaction, the pending Orange sale, and the acquisition in January 2006 had occurred as of January 1, 2005, pro forma revenue and adjusted EBITDA growth for the second quarter of 2006 over the pro forma second quarter of 2005 would have been 9.1% and 4.7%, respectively. Pro forma for the three sales of systems announced in 2006, Charter served approximately 5,520,100 analog video, 2,730,000 digital video, 2,264,200 HSI, and 257,600 telephone customers as of June 30, 2006.
Discontinued Operations
The results of operations for the West Virginia and Virginia cable systems, which were sold to Cebridge in July 2006, have been presented as discontinued operations, net of tax, for the three and six months ended June 30, 2006 and 2005. Charter has determined that these systems comprise operations and cash flows that, for financial reporting purposes, meet the criteria for discontinued operations in accordance with Generally Accepted Accounting Principles (GAAP). Income from discontinued operations, net of tax, for the second quarter of 2006 and 2005, were $20 million and $4 million, respectively. Income from discontinued operations for the six months ended June 30, 2006 and 2005 were $34 million and $29 million, respectively.
Results for second quarter of 2006 versus 2005
Total revenues, including revenues from discontinued operations, were $1.438 billion, an 8.7% increase over second-quarter 2005 revenues of $1.323 billion. Adjusted EBITDA, including adjusted EBITDA from discontinued operations, for the second quarter of 2006 was $519 million, a 4.2% increase over second-quarter 2005 adjusted EBITDA of $498 million.
Results for six months ended June 30, 2006 and 2005
Total revenues for the six months ended June 30, 2006, including revenues from discontinued operations, were $2.812 billion, an 8.4% increase over revenue of $2.594 billion for the same year-ago period. Adjusted EBITDA, including adjusted EBITDA from discontinued operations, for the six months ended June 30, 2006 was $990 million, a 1.7% increase over adjusted EBITDA of $973 million for the same year-ago period.
Liquidity
The results presented in this section reflect the operation of all assets owned during the first six months of 2006, including the operations of West Virginia and Virginia cable systems.
Net cash flows used in operating activities for the second quarter of 2006 were $4 million, compared to net cash flows provided by operating activities of $28 million for the year-ago quarter. The change in net cash provided by operating activities is primarily the result of an increase in cash interest expense of $54 million, partially offset by the $21 million higher increase in revenue compared to the rise in operating costs and expenses.
Net cash flows provided by operating activities for the six months ended June 30, 2006 were $205 million, compared to $181 million for the year-ago period. The increase in net cash provided by operating activities is primarily the result of changes in operating assets and liabilities, which provided $107 million more cash in 2006 than in 2005, while revenue growth outpaced operating cost growth by $17 million. These variances were partially offset by an increase in cash interest expense of $99 million.
Adjusted EBITDA totaled $519 million for the second quarter of 2006, an increase of $21 million, or 4.2%, compared with the year-ago quarter. Adjusted EBITDA totaled $990 million for the six months ended June 30, 2006, an increase of $17 million, or 1.7%, compared with the year-ago period.
Expenditures for property, plant, and equipment for the second quarter of 2006 were $298 million, compared to second-quarter 2005 expenditures of $331 million. The decrease in capital expenditures reflects decreases in spending on support capital, line extensions, and customer premise equipment, partially offset by a year over year increase in spending for scalable infrastructure. For the six months ended June 30, 2006, capital expenditures were $539 million, compared to $542 million for the same year-ago period. Increases in spending on customer premise equipment and scalable infrastructure were offset by decreases in support capital and line extensions. During 2006, Charter expects capital expenditures to be approximately $1.0 billion - $1.1 billion.
Charter reported negative free cash flow of $219 million for the second quarter of 2006, flat with the same year-ago quarter. Growth in revenues in excess of operating costs and expenses, and decreased capital expenditures, were offset by increased interest on cash-pay obligations. For the six months ended June 30, 2006, Charter reported negative free cash flow of $405 million, compared to $326 million for the year-ago period. The increase was primarily driven by higher interest on cash-pay obligations, partially offset by revenue growth that exceeded growth in operating costs and expenses.
As of June 30, 2006, Charter had $19.860 billion in long-term debt and $56 million of cash on hand. Charter's total potential availability under its credit facilities as of June 30, 2006 was approximately $900 million, none of which was limited by covenant restrictions. Pro forma for the asset sales that closed in July 2006, availability as of June 30, 2006 was approximately $1.7 billion, which was limited to $1.3 billion by covenant restrictions.
Use of Non-GAAP Financial Metrics
The Company uses certain measures that are not defined by GAAP 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, loss on sale of assets, asset impairment charges, and option compensation expense. As such, it eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of the Company's businesses and intangible assets recognized in business combinations as well as other non-cash or non-recurring items, and is unaffected by the Company's capital structure or investment activities. Adjusted EBITDA is a liquidity measure used by the 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.
Un-levered free cash flow is defined as adjusted EBITDA less purchases of property, plant and equipment. The Company believes this is an important measure, as it takes into account the period costs associated with capital expenditures used to upgrade, extend and maintain Charter's plant, without regard to the Company's 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 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, as presented, is reduced for management fees in the amounts of $30 million and $33 million for the three months ended June 30, 2006 and 2005, respectively, which amounts are added back for the purposes of calculating compliance with leverage covenants. As of June 30, 2006, Charter and its subsidiaries are in compliance with their debt covenants and expect to remain in compliance for the next 12 months.
Additional Information Available on Website
A reconciliation of results as reported to results including those reported as discontinued operations and to pro forma results can be found on the Investor Center of our website at www.charter.com in the "Other Financial Information" section. Pro forma income statements for the three and six months ended June 30, 2005 and 2006 and pro forma customer statistics are provided in the addendum of this news release.
Conference Call
The Company will host a conference call on Tuesday, August 8, 2006, 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 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 August 15, 2006. The passcode for the replay is 2366714.
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(R) video entertainment programming, Charter High-Speed(TM) Internet access service, and Charter Telephone(TM) services. 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 (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. The Company will not undertake to revise forward-looking projections to reflect events after this date. 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," "aim," "on track," 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:
-- the availability, in general, of funds to meet interest
payment obligations under our debt and to fund our operations
and necessary capital expenditures, either through cash flows
from operating activities, further borrowings or other sources
and, in particular, our ability to be able to provide under
applicable debt instruments such funds (by dividend,
investment or otherwise) to the applicable obligor of such
debt;
-- our ability to comply with all covenants in our indentures and
credit facilities, any violation of which 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 pay or refinance debt prior to or when it
becomes due and/or to take advantage of market opportunities
and market windows to refinance that debt through new
issuances, exchange offers or otherwise, including
restructuring our balance sheet and leverage position;
-- 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 a stable
customer base, particularly in the face of increasingly
aggressive competition from other service providers;
-- our ability to obtain programming at reasonable prices or to
pass programming 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 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 June 30,
----------------------------------
2006 2005
Actual Actual % Change
------------ ------------ --------
REVENUES:
Video $ 853 $ 821 3.9%
High-speed Internet 261 218 19.7%
Telephone 29 8 262.5%
Advertising sales 79 73 8.2%
Commercial 76 66 15.2%
Other 85 80 6.3%
------------ ------------
Total revenues 1,383 1,266 9.2%
------------ ------------
COSTS AND EXPENSES:
Programming 379 336 12.8%
Service 205 186 10.2%
Advertising sales 27 24 12.5%
General and administrative 233 216 7.9%
Marketing 43 30 43.3%
------------ ------------
Operating costs and expenses 887 792 12.0%
------------ ------------
Depreciation and amortization 340 364
Asset impairment charges - 8
Loss on sale of assets, net - -
Option compensation expense, net 3 4
Special charges, net 7 (2)
------------ ------------
Operating income from
continuing operations 146 100
------------ ------------
OTHER INCOME AND (EXPENSES):
Interest expense, net (475) (451)
Gain (loss) on derivative
instruments and hedging
activities, net 3 (1)
Gain (loss) on extinguishment of
debt (27) 1
Other, net 3 17
------------ ------------
(496) (434)
------------ ------------
Loss from continuing operations
before income taxes (350) (334)
Income tax expense (52) (25)
------------ ------------
Loss from continuing operations (402) (359)
Income from discontinued
operations, net of tax (a) 20 4
------------ ------------
Net loss (382) (355)
Dividends on preferred stock -
redeemable - (1)
------------ ------------
Net loss applicable to common
stock $ (382) $ (356)
============ ============
LOSS PER COMMON SHARE, BASIC AND
DILUTED:
Loss from continuing operations $ (1.27) $ (1.18)
============ ============
Net loss $ (1.20) $ (1.17)
============ ============
Weighted average common shares
outstanding, basic and diluted 317,646,946 303,620,347
============ ============
Six Months Ended June 30,
----------------------------------
2006 2005
Actual Actual % Change
------------ ------------ --------
REVENUES:
Video $ 1,684 $ 1,623 3.8%
High-speed Internet 506 425 19.1%
Telephone 49 14 250.0%
Advertising sales 147 135 8.9%
Commercial 149 128 16.4%
Other 168 156 7.7%
------------ ------------
Total revenues 2,703 2,481 8.9%
------------ ------------
COSTS AND EXPENSES:
Programming 755 678 11.4%
Service 408 356 14.6%
Advertising sales 52 47 10.6%
General and administrative 464 410 13.2%
Marketing 80 65 23.1%
------------ ------------
Operating costs and expenses 1,759 1,556 13.0%
------------ ------------
Depreciation and amortization 690 730
Asset impairment charges 99 39
Loss on sale of assets, net - 4
Option compensation expense, net 7 8
Special charges, net 10 2
------------ ------------
Operating income from
continuing operations 138 142
------------ ------------
OTHER INCOME AND (EXPENSES):
Interest expense, net (943) (871)
Gain (loss) on derivative
instruments and hedging
activities, net 11 26
Gain (loss) on extinguishment of
debt (27) 8
Other, net 6 15
------------ ------------
(953) (822)
------------ ------------
Loss from continuing operations
before income taxes (815) (680)
Income tax expense (60) (56)
------------ ------------
Loss from continuing operations (875) (736)
Income from discontinued
operations, net of tax (a) 34 29
------------ ------------
Net loss (841) (707)
Dividends on preferred stock -
redeemable - (2)
------------ ------------
Net loss applicable to common
stock $ (841) $ (709)
============ ============
LOSS PER COMMON SHARE, BASIC AND
DILUTED:
Loss from continuing operations $ (2.76) $ (2.43)
============ ============
Net loss $ (2.65) $ (2.34)
============ ============
Weighted average common shares
outstanding, basic and diluted 317,531,492 303,465,474
============ ============
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 June 30,
----------------------------------
2006 2005
Pro Forma Pro Forma
(a) (a) % Change
------------ ------------ --------
REVENUES:
Video $ 838 $ 807 3.8%
High-speed Internet 257 216 19.0%
Telephone 29 9 222.2%
Advertising sales 78 72 8.3%
Commercial 74 64 15.6%
Other 84 79 6.3%
------------ ------------
Total revenues 1,360 1,247 9.1%
------------ ------------
COSTS AND EXPENSES:
Programming 372 330 12.7%
Service 201 184 9.2%
Advertising sales 27 24 12.5%
General and administrative 230 213 8.0%
Marketing 42 30 40.0%
------------ ------------
Operating costs and expenses 872 781 11.7%
------------ ------------
Adjusted EBITDA 488 466 4.7%
------------ ------------
Adjusted EBITDA margin 36% 37%
------------ ------------
Depreciation and amortization 340 367
Loss on sale of assets, net - -
Option compensation expense, net 3 4
Special charges, net 7 (2)
------------ ------------
Income from operations 138 97
------------ ------------
OTHER INCOME AND (EXPENSES):
Interest expense, net (459) (444)
Gain on derivative instruments
and hedging activities, net 3 (1)
Gain (loss) on extinguishment of
debt (27) 1
Other, net 3 17
------------ ------------
(480) (427)
------------ ------------
Loss before income taxes (342) (330)
Income tax expense (51) (25)
------------ ------------
Net loss (393) (355)
Dividends on preferred stock -
redeemable - (1)
------------ ------------
Net loss applicable to common stock $ (393) $ (356)
============ ============
Loss per common share, basic and
diluted $ (1.24) $ (1.17)
============ ============
Weighted average common shares
outstanding, basic and diluted 317,646,946 303,620,347
============ ============
Six Months Ended June 30,
----------------------------------
2006 2005
Pro Forma Pro Forma
(a) (a) % Change
------------ ------------ --------
REVENUES:
Video $ 1,655 $ 1,596 3.7%
High-speed Internet 499 422 18.2%
Telephone 49 17 188.2%
Advertising sales 145 133 9.0%
Commercial 145 125 16.0%
Other 165 153 7.8%
------------ ------------
Total revenues 2,658 2,446 8.7%
------------ ------------
COSTS AND EXPENSES:
Programming 740 668 10.8%
Service 400 352 13.6%
Advertising sales 51 46 10.9%
General and administrative 458 404 13.4%
Marketing 79 64 23.4%
------------ ------------
Operating costs and
expenses 1,728 1,534 12.6%
------------ ------------
Adjusted EBITDA 930 912 2.0%
------------ ------------
Adjusted EBITDA margin 35% 37%
------------ ------------
Depreciation and amortization 685 730
Loss on sale of assets, net - 4
Option compensation expense,
net 7 8
Special charges, net 10 2
------------ ------------
Income from operations 228 168
------------ ------------
OTHER INCOME AND (EXPENSES):
Interest expense, net (917) (860)
Gain on derivative
instruments and hedging
activities, net 11 26
Gain (loss) on extinguishment
of debt (27) 8
Other, net 6 15
------------ ------------
(927) (811)
------------ ------------
Loss before income taxes (699) (643)
Income tax expense (79) (55)
------------ ------------
Net loss (778) (698)
Dividends on preferred stock -
redeemable - (2)
------------ ------------
Net loss applicable to common
stock $ (778) $ (700)
============ ============
Loss per common share, basic
and diluted $ (2.45) $ (2.31)
============ ============
Weighted average common shares
outstanding, basic and diluted 317,531,492 303,465,474
============ ============
(a) Pro forma results reflect the acquisition of cable systems in
January 2006 and the sales of systems in July 2005, July 2006
and the announced sale of systems scheduled to close in the third
quarter of 2006 as if they occurred as of January 1, 2005 for
all periods presented.
June 30, 2006. Pro forma revenues were reduced by $23 million and
$45 million for the three and six months ended June 30, 2006,
respectively. Pro forma net loss was increased by $11 million for the
three months ended June 30, 2006 and reduced by $63 million for the
six months ended June 30, 2006.
June 30, 2005. Pro forma revenues were reduced by $19 million and
$35 million for the three and six months ended June 30, 2005,
respectively. Pro forma net loss was reduced by $0 and $9 million for
the three and six months ended June 30, 2005, respectively.
The unaudited pro forma financial information has been presented
for comparative purposes and does not purport to be indicative of the
consolidated results of operations had these transactions been
completed as of the assumed date or which may be obtained in the
future. Adjusted EBITDA is a non-GAAP term. See page 7 of this
addendum for the reconciliation of adjusted EBITDA to net cash flows
from operating activities as defined by GAAP.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
June 30, December 31,
2006 2005
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 56 $ 21
Accounts receivable, net of allowance
for doubtful accounts 180 214
Prepaid expenses and other current
assets 84 92
Assets held for sale 768 -
------------- -------------
Total current assets 1,088 327
------------- -------------
INVESTMENT IN CABLE PROPERTIES:
Property, plant and equipment, net 5,392 5,840
Franchises, net 9,280 9,826
------------- -------------
Total investment in cable properties,
net 14,672 15,666
------------- -------------
OTHER NONCURRENT ASSETS: 385 438
------------- -------------
Total assets $ 16,145 $ 16,431
============= =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,220 $ 1,191
Liabilities held for sale 20 -
------------- -------------
Total current liabilities 1,240 1,191
------------- -------------
LONG-TERM DEBT 19,860 19,388
NOTE PAYABLE - RELATED PARTY 53 49
DEFERRED MANAGEMENT FEES - RELATED PARTY 14 14
OTHER LONG-TERM LIABILITIES 547 517
MINORITY INTEREST 189 188
PREFERRED STOCK - REDEEMABLE 4 4
SHAREHOLDERS' DEFICIT (5,762) (4,920)
------------- -------------
Total liabilities and shareholders'
deficit $ 16,145 $ 16,431
============= =============
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
Six Months Ended
June 30,
------------------------
2006 2005
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (841) $ (707)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Depreciation and amortization 698 759
Asset impairment charges 99 39
Noncash interest expense 87 114
Deferred income taxes 60 43
Loss on sale of assets, net - 4
Option compensation expense, net 7 8
Gain on derivative instruments and hedging
activities, net (11) (26)
Gain on extinguishment of debt 27 (14)
Other, net (6) (17)
Changes in operating assets and liabilities,
net of effects from acquisitions and
dispositions:
Accounts receivable 30 1
Prepaid expenses and other assets 29 -
Accounts payable, accrued expenses and
other 26 (23)
----------- -----------
Net cash flows from operating activities 205 181
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (539) (542)
Change in accrued expenses related to
capital expenditures (9) 45
Proceeds from sale of assets 9 8
Purchase of cable system (42) -
Proceeds from investments 28 17
Other, net - (5)
----------- -----------
Net cash flows from investing activities (553) (477)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt 5,830 635
Repayments of long-term debt (5,858) (946)
Proceeds from issuance of debt 440 -
Payments for debt issuance costs (29) (3)
----------- -----------
Net cash flows from financing activities 383 (314)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 35 (610)
CASH AND CASH EQUIVALENTS, beginning of period 21 650
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 56 $ 40
=========== ===========
CASH PAID FOR INTEREST $ 791 $ 744
=========== ===========
NONCASH TRANSACTIONS:
Issuance of debt by Charter Communications
Operating, LLC $ 37 $ 333
=========== ===========
Retirement of Renaissance Media Group LLC
debt $ (37) $ -
=========== ===========
Retirement of Charter Communications
Holdings, LLC debt $ - $ (346)
=========== ===========
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED SUMMARY OF OPERATING STATISTICS
Approximate as of
-----------------------------------------------
June 30, March 31, Dec. 31, June 30,
2006 (a) 2006 (a) 2005 (a) 2005 (a)
----------- ----------- ----------- -----------
Customer Summary:
Customer Relationships:
Residential (non-
bulk) analog video
customers (b) 5,600,300 5,640,200 5,616,300 5,683,400
Multi-dwelling
(bulk) and
commercial unit
customers (c) 275,800 273,700 268,200 259,700
----------- ----------- ----------- -----------
Total analog
video customers
(b) (c) 5,876,100 5,913,900 5,884,500 5,943,100
Non-video customers
(b) 296,500 287,700 272,700 248,400
----------- ----------- ----------- -----------
Total customer
relationships
(d) 6,172,600 6,201,600 6,157,200 6,191,500
=========== =========== =========== ===========
Average monthly
revenue per analog
video customer (e) $ 81.31 $ 77.64 $ 75.88 $ 73.94
Bundled customers (f) 2,136,900 2,064,400 1,958,200 1,795,200
Revenue Generating
Units:
Analog video
customers (b) (c) 5,876,100 5,913,900 5,884,500 5,943,100
Digital video
customers (g) 2,889,000 2,866,400 2,796,600 2,685,600
Residential high-
speed Internet
customers (h) 2,375,100 2,322,400 2,196,400 2,022,200
Residential
telephone customers
(i) 257,600 191,100 121,500 67,800
----------- ----------- ----------- -----------
Total revenue
generating
units (j) 11,397,800 11,293,800 10,999,000 10,718,700
=========== =========== =========== ===========
Video Cable Services:
Analog Video:
Estimated homes
passed (k) 12,640,200 12,582,100 12,519,300 12,287,500
Analog video
customers (b) (c) 5,876,100 5,913,900 5,884,500 5,943,100
Estimated
penetration of
analog video homes
passed (b) (c) (k)
(l) 46% 47% 47% 48%
Average monthly
analog revenue per
analog video
customer (m) $ 38.45 $ 37.97 $ 37.66 $ 38.51
Analog video
customers quarterly
net gain (loss) (b)
(c) (n) (37,800) 29,400 (21,800) (41,700)
Digital Video:
Estimated digital
video homes passed
(k) 12,557,200 12,493,100 12,427,800 12,156,300
Digital video
customers (g) 2,889,000 2,866,400 2,796,600 2,685,600
Estimated
penetration of
digital homes
passed (g) (k) (l) 23% 23% 23% 22%
Digital penetration
of analog video
customers (b) (c)
(g) (o) 49% 48% 48% 45%
Digital set-top
terminals deployed 4,130,500 4,086,900 3,981,100 3,836,600
Average incremental
monthly digital
revenue per digital
video customer (m) $ 28.96 $ 27.66 $ 26.45 $ 25.64
Digital video
customers quarterly
net gain (loss) (g)
(n) 22,600 69,800 47,200 (9,000)
Non-Video Cable
Services:
High-Speed Internet
Services:
Estimated high-speed
Internet homes
passed (k) 11,376,800 11,338,200 11,260,300 10,984,100
Residential high-
speed Internet
customers (h) 2,375,100 2,322,400 2,196,400 2,022,200
Estimated
penetration of
high-speed Internet
homes passed (h)
(k) (l) 21% 20% 20% 18%
Average monthly
high-speed Internet
revenue per high-
speed Internet
customer (m) $ 38.32 $ 37.33 $ 36.60 $ 37.67
Residential high-
speed Internet
customers quarterly
net gain (h) (n) 52,700 126,000 76,400 43,800
Telephone Services:
Estimated telephone
homes passed (k) 4,658,500 3,911,600 2,918,000 1,619,900
Residential telephone
customers (i) 257,600 191,100 121,500 67,800
Average monthly
telephone revenue
per telephone
customer (m) $ 42.67 $ 43.00 $ 39.57 $ 41.26
Residential telephone
customers quarterly
net gain (i) (n) 66,500 69,600 31,600 12,500
After giving effect to the sale of certain non-strategic cable
systems in July and the announced sale of systems scheduled to close
in the third quarter of 2006, June 30, 2006 analog video customers,
digital video customers, high-speed Internet customers and telephone
customers would have been 5,520,100, 2,730,000, 2,264,200, 257,600,
respectively.
After giving effect to the sale of certain non-strategic cable
systems in July and the announced sale of systems scheduled to close
in the third quarter of 2006, March 31, 2006 analog video customers,
digital video customers, high-speed Internet customers and telephone
customers would have been 5,552,200, 2,707,200, 2,212,400, 191,100,
respectively.
After giving effect to the acquisition of cable systems in January
2006 and the sale of certain non-strategic cable systems in July and
the announced sale of systems scheduled to close in the third quarter
of 2006, December 31, 2005 analog video customers, digital video
customers, high-speed Internet customers and telephone customers would
have been 5,542,100, 2,650,500, 2,106,000 and 136,000, respectively.
After giving effect to the acquisition of cable systems in January
2006 and the sale of certain non-strategic cable systems in July 2005,
July 2006 and the announced sale of systems scheduled to close in the
third quarter of 2006, June 30, 2005 analog video customers, digital
video customers, high-speed Internet customers and telephone customers
would have been 5,570,000, 2,532,300, 1,937,000, 82,600, respectively.
See footnotes to unaudited summary of operating statistics on page
7 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 June 30, 2006, March 31, 2006, December 31, 2005 and June 30,
2005, "customers" include approximately 55,900, 48,500, 50,500 and
45,100 persons whose accounts were over 60 days past due in
payment, approximately 14,300, 11,900, 14,300 and 8,200 persons
whose accounts were over 90 days past due in payment and
approximately 8,900, 7,800, 7,400 and 4,500 of which were over 120
days past due in payment, respectively.
(b) "Analog video customers" include all customers who receive video
services (including those who also purchase high-speed Internet
and telephone services) but excludes approximately 296,500,
287,700, 272,700 and 248,400 customer relationships at June 30,
2006, March 31, 2006, December 31, 2005 and June 30, 2005,
respectively, who receive high-speed Internet service only or
telephone service only 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 analog video customers is consistent with the
methodology used in determining costs paid to programmers and has
been used consistently. As we increase our effective analog video
prices to residential customers without a corresponding increase
in the prices charged to commercial service or multi-dwelling
customers, our EBU count will decline even if there is no real
loss in commercial service or multi-dwelling customers.
(d) "Customer relationships" include the number of customers that
receive 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) "Average monthly revenue per analog video customer" is calculated
as total quarterly revenue divided by three divided by average
analog video customers during the respective quarter.
(f) "Bundled customers" include customers receiving a combination of
at least two different types of service, including Charter's video
service, high-speed Internet service or telephone. "Bundled
customers" do not include customers who only subscribe to video
service.
(g) "Digital video customers" include all households that have one or
more digital set-top terminals. Included in "digital video
customers" on June 30, 2006, March 31, 2006, December 31, 2005 and
June 30, 2005 are approximately 8,400, 8,500, 8,600 and 9,700
customers, respectively, that receive digital video service
directly through satellite transmission.
(h) "Residential high-speed Internet customers" represent those
customers who subscribe to our high-speed Internet service. At
June 30, 2006, March 31, 2006, December 31, 2005 and June 30,
2005, approximately 2,102,700, 2,055,500, 1,943,000 and 1,787,600
of these high-speed Internet customers, respectively, receive
video and/or telephone services from us and are included within
the respective statistics above.
(i) "Residential telephone customers" include all households receiving
telephone service. As of June 30, 2006, March 31, 2006, December
31, 2005 and June 30, 2005, approximately 233,500, 170,300,
102,200 and 54,000 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 analog
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) "Average monthly revenue per customer" represents quarterly
revenue for the service indicated divided by three divided by the
number of customers for the service indicated during the
respective quarter.
(n) "Quarterly net gain (loss)" represents the net gain or loss in the
respective quarter for the service indicated.
(o) "Digital penetration of analog video customers" 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 Six Months
Ended June 30, Ended June 30,
---------------- ---------------
2006 2005 2006 2005
Actual Actual Actual Actual
-------- ------- ------- -------
Adjusted EBITDA from continuing and
discontinued operations (a) $ 519 $ 498 $ 990 $ 973
Less: Purchases of property, plant
and equipment (298) (331) (539) (542)
-------- ------- ------- -------
Un-levered free cash flow 221 167 451 431
Less: Interest on cash pay
obligations (b) (440) (386) (856) (757)
-------- ------- ------- -------
Free cash flow (219) (219) (405) (326)
Purchases of property, plant and
equipment 298 331 539 542
Special charges, net (7) - (10) (4)
Other, net (2) (3) (4) (9)
Change in operating assets and
liabilities (74) (81) 85 (22)
-------- ------- ------- -------
Net cash flows from operating
activities $ (4) $ 28 $ 205 $ 181
======== ======= ======= =======
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ---------------
2006 2005 2006 2005
Pro Pro Pro Pro
forma forma forma forma
(c) (c) (c) (c)
-------- ------- ------- -------
Adjusted EBITDA (a) $ 488 $ 466 $ 930 $ 912
Less: Purchases of property, plant
and equipment (290) (324) (524) (524)
-------- ------- ------- -------
Un-levered free cash flow 198 142 406 388
Less: Interest on cash pay
obligations (b) (424) (379) (830) (746)
-------- ------- ------- -------
Free cash flow (226) (237) (424) (358)
Purchases of property, plant and
equipment 290 324 524 524
Special charges, net (7) - (10) (4)
Other, net (2) (3) (4) (9)
Change in operating assets and
liabilities (74) (81) 85 (22)
-------- ------- ------- -------
Net cash flows from operating
activities $ (19) $ 3 $ 171 $ 131
======== ======= ======= =======
(a) Adjusted EBITDA is calculated from page 1 of the addendum by
taking revenue from continuing operations less operating costs and
expenses from continuing operations plus adjusted EBITDA from
discontinued operations. For details of the components of pro
forma adjusted EBITDA, see page 2 of the addendum.
(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.
(c) Pro forma results reflect the acquisition of cable systems in
January 2006 and sales of systems in July 2005, July 2006 and the
announced sale of systems scheduled to close in the third quarter
of 2006, June 30, as if they occurred as of January 1, 2005 for
all periods presented.
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.
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CAPITAL EXPENDITURES
(DOLLARS IN MILLIONS)
Three Months Six Months
Ended June 30, Ended June 30,
--------------- ---------------
2006 2005 2006 2005
------- ------- ------- -------
Customer premise equipment (a) $ 128 $ 142 $ 258 $ 228
Scalable infrastructure (b) 63 47 97 89
Line extensions (c) 33 48 59 77
Upgrade/Rebuild (d) 14 12 23 22
Support capital (e) 60 82 102 126
------- ------- ------- -------
Total capital expenditures $ 298 $ 331 $ 539 $ 542
======= ======= ======= =======
(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 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).
CONTACT: Charter Communications, Inc.
Media:
Anita Lamont, 314-543-2215
or
Analysts:
Mary Jo Moehle, 314-543-2397
SOURCE: Charter Communications, Inc