InvestorsNovember 5, 2002
Charter Reports Third Quarter 2002 Results; Demand for Digital Cable and High-Speed Data Remains Strong
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ST. LOUIS, Nov 5, 2002 (BUSINESS WIRE) -- Charter Communications, Inc.,
(Nasdaq:CHTR) today reported third quarter 2002 revenue of approximately $1.179
billion and operating cash flow of approximately $497 million. Charter
executives will discuss third quarter financial results and expectations for the
remainder of the year in a conference call at 7:30 AM CT this morning.
Third Quarter Financial HighlightsThird quarter revenue increased approximately 13% to approximately $1.179 billion and operating cash flow increased approximately 9% to approximately $497 million for the third quarter of 2002 compared to 2001 pro forma results. Pro forma third quarter 2001 results treat the acquisition of properties serving some 21,600 customers in April 2002, and the acquisition of High Speed Access Corporation in February 2002, as if they had occurred on January 1, 2001.
Revenue for the third quarter of 2002 increased approximately 13%, and operating cash flow increased approximately 6% compared to historical third quarter 2001.
Revenue and operating cash flow growth resulted primarily from increased digital video and high-speed data customers, as well as increased customer prices, partially offset by a decline in analog video customers. "We're committed to growing each segment of our business. Our high-end services, digital video and high-speed data, are continuing to grow at solid rates, and we're improving the overall customer experience by bundling our products and pricing our services competitively," said Carl Vogel, President and CEO.
Demand For Advanced Services ContinuesCharter's advanced broadband network passes nearly 12 million homes with the capability to deliver a wide range of television channels and programs, video on demand, high-speed data, home networking, and other interactive products and services. Charter added approximately 211,000 revenue generating units (RGUs) during the third quarter, fueled by a continued demand for digital video and high-speed data service. As of September 30, 2002, Charter Digital Cable(R) customers totaled approximately 2,528,000, or approximately 38% of Charter's video customer base, and Charter Pipeline(R) customers totaled approximately 1,055,000, or nearly 12% of high-speed data homes passed.
Deferred Tax LiabilityCharter is consulting with its auditors, KPMG LLP (KPMG) to evaluate the accounting for deferred tax liabilities. The issue relates to differences between the book and tax bases of certain companies acquired by Charter in 1999, and would increase intangible assets by this amount. After recording this additional liability, adjustments to income tax expense in certain subsequent periods could be required.
This issue does not affect Charter's previously reported revenue, operating cash flow or current or past cash tax obligations. Accordingly, it is not expected to have any cash impact.
The third quarter 2002 financial information being presented in this release does not give any effect to the adjustments which would be required if the deferred tax liability account were established. Any adjustments that are deemed appropriate for the third quarter will not affect revenue or operating cash flow as reported in this release.
Looking AheadCharter expects revenue for the fourth quarter of 2002 to increase approximately 8% to 9% over fourth quarter 2001 pro forma results. Operating cash flow for the fourth quarter is expected to increase approximately 4% to 5% over the same prior year period pro forma results. Advertising revenue is expected to be approximately $20 million less in the fourth quarter of 2002 than the year ago period, primarily due to less advertising by programmers related to the launch of new channels. Excluding launch support advertising, revenue growth in the fourth quarter is expected to be between 11% and 12% and operating cash flow is expected to grow between 9% and 10%. Charter expects to add approximately 300,000 RGUs, comprised of basic, digital, telephony and cable modem customers, in the fourth quarter.
Charter expects 2002 annual revenue growth of between 11% and 12% and annual operating cash flow growth of between 9% and 10%. Charter expects to add a total of approximately 900,000 RGUs during 2002, despite the loss of analog customers. Annual capital expenditures are expected to be $2.350 billion, down $125 million from original guidance of $2.475 billion.
About Charter CommunicationsCharter Communications, A Wired World Company(TM), is among the nation's largest broadband communications companies, currently serving approximately 6.7 million customers in 40 states. Charter provides a full range of advanced broadband services to the home, including cable television on an advanced digital video programming platform marketed under the Charter Digital Cable(R) brand and high-speed Internet access via Charter Pipeline(R). Commercial high-speed data, video and Internet solutions are provided under the Charter Business Networks(TM) brand. Advertising sales and production services are sold under Charter Media.
More information about Charter can be found at www.charter.com.Charter will conduct a conference call to discuss their operating results on Tuesday, November 5, 2002, at 8:30 AM Eastern Time. The call will be available live via webcast at www.charter.com. The call will be available on the "Investor Center" portion of the website, via "About Us." 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.
Cautionary Statement Regarding Forward-Looking Statements:This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things, our plans, strategies and prospects, both business and financial, including the statement under the caption "Looking Ahead." Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Many of the forward-looking statements contained in this news release may be identified by the use of forward-looking words such as "believe," "expect," "anticipate," "should," "planned," "will," "may," "intend," "estimated," and "potential," among others. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this news release are set forth in reports or documents that we file from time to time with the United States Securities and Exchange Commission or the SEC, and include, but are not limited to:
-- our ability to grow revenues and cash flow by offering
advanced products and services;
-- our ability to achieve free cash flow;
-- our ability to maintain and grow the number of basic, digital
and modem customers;
-- the cost and availability of funding for anticipated capital
expenditures for our upgrades, new equipment and facilities;
-- our ability to support new advanced services through our plant
technology upgrade;
-- our ability to compete effectively in a highly competitive and
changing environment;
-- our ability to obtain programming as needed and at reasonable
prices;
-- our ability to continue to do business with existing vendors,
particularly high-tech companies that do not have a long
operating history;
-- the results of the pending grand jury inquiry filed by the
United States Attorney's Office for the Eastern District of
Missouri, as well as other purported class action litigation
against the company;
-- general business conditions and economic uncertainty; and
-- the effects of governmental regulation on our business and our
ability to retain local franchises.
All forward-looking statements attributable to us or a person acting on our
behalf are expressly qualified in their entirety by this cautionary statement.
We are under no obligation to update any of the forward-looking statements after
the date of this news release to conform these statements to actual results or
to changes in our expectations.
CHARTER COMMUNICATIONS, INC., AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
Actual Pro Forma % Actual Pro Forma %
2002 2001(a) Change 2002 2001(a) Change
---------- --------- ----- ---------- ---------- -----
REVENUES:
Analog video $ 774,570 $ 733,502 $2,306,107 $2,177,060
Digital video 119,475 86,271 340,748 217,233
Cable modem 97,768 43,917 248,439 106,188
Advertising
sales 95,874 83,833 245,767 224,313
Other 90,824 99,556 274,197 288,846
---------- --------- --------- ---------
Total revenues 1,178,511 1,047,079 12.6% 3,415,258 3,013,640 13.3%
---------- --------- --------- ---------
OPERATING EXPENSES:
Analog video
programming 267,143 238,337 794,730 709,998
Digital video 41,736 27,329 117,690 67,404
Cable modem 40,807 40,338 114,728 99,309
Advertising
sales 22,378 17,177 63,006 50,260
Service 103,762 87,165 285,349 242,523
General and
administrative 153,415 141,865 464,243 420,180
Marketing 36,885 22,611 80,746 67,097
Corporate
expenses 15,464 15,014 47,555 52,283
---------- --------- --------- ---------
Operating
expenses 681,590 589,836 15.6% 1,968,047 1,709,054 15.2%
---------- --------- --------- ---------
Operating
cash flow(b) $ 496,921 $ 457,243 8.7% $1,447,211 $1,304,586 10.9%
========== ========= ========= ========
(a) The pro forma results reflect all significant acquisitions and
dispositions closed during 2002 and 2001, including systems
acquired from AT&T Broadband on June 30, 2001 and the Enstar
Limited Partnerships on April 10, 2002, as if the transactions
closed on January 1, 2001. Pro forma revenues exceed actual
revenues for the three and nine months ended September 30,
2001 by $3.2 million and $167.5 million, respectively. Actual
operating cash flow (OCF) exceeds pro forma OCF for three
months ended September 30, 2001 by $10.3 million and pro forma
operating cash flow (OCF) exceeds actual OCF for nine months
ended September 30, 2001 by $21.1 million. 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.
(b) Information concerning OCF has been included as it is used by
certain investors as one measure of financial performance. OCF
is not a measure of financial performance under accounting
principles generally accepted in the United States and is not
necessarily comparable to similarly titled measures used by
other companies. OCF should not be construed as an alternative
to operating income or to cash flows from operating activities
as determined in accordance with accounting principles
generally accepted in the United States.
CHARTER COMMUNICATIONS, INC., AND SUBSIDIARIES
UNAUDITED COMPARATIVE QUARTERLY OPERATING STATISTICS
(DOLLARS IN THOUSANDS)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------------
2002 2001 2002 2001
--------- --------- ----------- ------------
Pro Forma Operating
Cash Flow Margin(a) 42.2% 43.7% 42.4% 43.3%
Capital Expenditures
(dollars in
thousands) $ 584,948 $ 794,353 $ 1,698,850 $ 2,156,613
Pro Forma Operating
Cash Flow per Basic
Customer(a)(b) $ 74.19 $ 65.40 $ 216.07 $ 186.59
Capital Expenditures
per Basic
Customer(c) $ 87.33 $ 113.61 $ 253.64 $ 308.45
Free Cash Flow
Calculation:
Historical Operating
Cash Flow $ 496,921 $ 467,542 $ 1,447,211 $ 1,283,525
Less: Capital
Expenditures (584,948) (794,353) (1,698,850) (2,156,613)
--------- --------- ----------- -----------
Operating Free Cash
Flow(d) (88,027) (326,811) (251,639) (873,088)
Less: Cash Change in
Working Capital(e) (18,900) (36,237) (204,860) (368,462)
Less: Cash Paid for
Interest (161,055) (163,372) (693,976) (608,893)
--------- --------- ----------- -----------
Free Cash Flow (d) $(267,982) $(526,420) $(1,150,475) $(1,850,443)
========= ========= =========== ===========
(a) Refer to footnote (a) on page 1 of 4 of this addendum to the
earnings release for details related to the nature of the pro
forma information provided.
(b) Pro forma operating cash flow per pro forma basic customer is
calculated by dividing pro forma operating cash flow during
the respective period by pro forma basic customers as of the
end of the period.
(c) Capital expenditures per basic customer represent capital
expenditures during the respective period divided by basic
customers as of the end of the period.
(d) Operating free cash flow and free cash flow are not measures
of performance calculated in accordance with accounting
principles generally accepted in the United States. However,
we believe that operating free cash flow and free cash flow
are useful in evaluating our performance based on liquidity,
operating performance and leverage. Operating free cash flow
and free cash flow should not be construed as alternatives to
operating income as an indicator of our performance and may
not be comparable to similarly titled measures used by other
companies.
(e) Cash change in working capital is calculated based on the cash
flow changes in current assets and current liabilities during
the respective period, excluding changes related to interest.
CHARTER COMMUNICATIONS, INC., AND SUBSIDIARIES
UNAUDITED SUMMARY OF OPERATING STATISTICS
Actual Pro Forma Pro Forma
September 30, December 31, September 30,
2002 2001(a) 2001(a)
-------------- -------------- --------------
Basic Analog Video
Basic Homes Passed(b) 11,972,600 11,537,900 11,521,500
Basic Customers(c)(d) 6,697,900 6,975,300 6,991,700
Penetration of Basic
Homes Passed(e) 55.9% 60.5% 60.7%
Average Monthly
Revenue (for the
quarter ended) per
Basic Customer (as of
quarter end) $ 58.65 $ 53.06 $ 49.92
Digital Video
Digital Homes Passed(b) 11,492,800 10,638,300 10,366,600
Digital Customers(f) 2,527,700 2,144,800 1,951,200
Penetration of Digital
Homes Passed(e) 22.0% 20.2% 18.8%
Penetration of Basic
Customers(g) 37.7% 30.7% 27.9%
Digital Set-Top
Terminals Deployed 3,537,800 2,951,400 2,611,000
Data Services
Cable Modem Homes
Passed(b) 8,973,200 7,560,600 6,479,700
Data Customers:
Cable Modem
Customers(h) 1,055,400 607,700 507,700
Dial-up Customers 15,800 37,100 38,200
-------------- -------------- --------------
Total Data Customers 1,071,200 644,800 545,900
============== ============== ==============
Penetration of Cable
Modem Homes Passed(e) 11.8% 8.0% 7.8%
Revenue Generating Units(i)
Basic Customers(c)(d) 6,697,900 6,975,300 6,991,700
Digital Customers(f) 2,527,700 2,144,800 1,951,200
Cable Modem Customers(h) 1,055,400 607,700 507,700
Telephony Customers(j) 19,700 16,100 16,300
-------------- -------------- ---------------
Total Revenue
Generating Units 10,300,700 9,743,900 9,466,900
============== ============== ==============
Customer Relationships(k) 6,697,900 6,975,300 6,991,700
(a) The pro forma statistics reflect the acquisition of certain
Enstar systems which closed during 2002 and the acquisition of
telephony customers from AT&T on January 1, 2002 as if such
transactions had occurred on December 31, 2001 and September
30, 2001, respectively.
(b) Homes passed represent the estimated number of living units,
such as single residence homes, apartments and condominium
units, passed by the cable television distribution network in
a given cable system service area to which we offer the
service indicated.
(c) As of September 30, 2002 and 2001, basic customers include: 1)
approximately 50,300 and 16,800 customers (0.8% and 0.2% of
total customers), respectively, who pay for cable modem
service only; and 2) approximately 225,100 and 228,200
commercial customers, respectively, who are calculated on an
equivalent bulk unit ("EBU") basis. EBU is calculated for a
system by dividing the bulk rate charged to accounts in a
system by the most prevalent rate charged to non-bulk
residential customers in that system for the comparable tier
of service. The EBU method of calculating basic customers is
consistent with the methodology used in determining costs paid
to programmers and has been consistently applied.
(d) On February 11, 2002, the Company announced that it would
remove approximately 120,000 customers in the first quarter of
2002. This resulted principally from tightened credit and
disconnect policies and procedures.
(e) Penetration represents the number of customers as a percentage
of homes passed.
(f) Digital customers include all households that have one or more
digital set-top terminals. Included in digital customers at
September 30, 2002 and 2001 are 13,400 and 200 customers,
respectively, that receive digital service directly through
satellite transmission.
(g) Digital penetration of basic customers represents the number
of digital customers as a percentage of basic customers.
(h) As of September 30, 2002 and 2001, cable modem customers
include approximately 85,500 and 38,000 commercial customers,
respectively, who are calculated on an equivalent modem unit
("EMU") basis. EMU is calculated for a system by dividing the
aggregate commercial revenue for modem service by the average
effective rate charged in that system for modem service to
residential customers. We have utilized this methodology since
1999, as it conforms to the internal practices followed for
operating and capital expenditure budgeting.
(i) Revenue generating units include the total of all primary
analog video, digital video, cable modem and telephony
customers, not counting additional outlets.
(j) Telephony customers include all households purchasing
telephone service.
(k) Customer relationships include the number of customers that
receive at least one level of service encompassing video, data
and telephony services, without regard to which service(s)
customers purchase.
CONTACT: Charter Communications, Inc., St. Louis
Media:
Andy Morgan, 314/543-2217
amorgan@chartercom.com
or
Equity Analysts:
Mary Jo Moehle, 314/543-2397
mmoehle@chartercom.com
or
High Yield Analysts:
Ralph Kelly, 314/543-2388
rkelly@chartercom.com
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