InvestorsOctober 31, 2006
Charter Reports Third-Quarter 2006 Financial and Operating Results
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Click here to view the Third Quarter Financial Addendum.
ST. LOUIS--(BUSINESS WIRE)--Oct. 31, 2006--Charter Communications, Inc. (NASDAQ: CHTR) (along with its subsidiaries, the "Company" or "Charter") today reported its third-quarter 2006 financial results.
"During the third quarter we increased marketing spend targeting high-value relationships, and accelerated phone service launches to enable bundled service offerings and to generate improved revenue growth," said Neil Smit, president and chief executive officer. "We're building momentum, and I believe the operating improvements we've implemented over the past year, along with ongoing refinements to our geographic footprint, have positioned us for continued growth," said Mr. Smit.
- Third-quarter revenues grew 10.9% year over year on a pro forma basis, primarily driven by strong high-speed Internet (HSI) and phone performance.
- Quarterly adjusted EBITDA increased 6.9% compared to the third quarter of 2005 on a pro forma basis. (Pro forma 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.)
- During the third quarter of 2006, Charter completed sales of geographically non-strategic cable operating systems (the "Third Quarter 2006 Asset Sales"), serving a total of 390,300 analog video customers, and signed an agreement to sell additional systems serving 33,000 analog video customers. Upon closing of the asset sale signed in the third quarter of 2006, Charter expects a 45% headend reduction and an increase in customers per headend of approximately 67% compared to year end 2005.
- On a pro forma basis, bundled customers increased 19% compared to third quarter 2005 and revenue generating units (RGUs) increased 210,300 during the third quarter of 2006, a 20% increase compared to the 175,500 RGUs added in the third quarter of 2005.
- Telephone customers climbed to 339,600 as of September 30, 2006, up more than 30% from June 30, 2006. Telephone homes passed grew to approximately 5.9 million as of September 30, 2006.
Pro forma results in this release reflect the Third Quarter 2006 Asset Sales, the acquisition in January 2006 and the sale in July 2005, as if they had occurred as of January 1, 2005, for the statement of operations data and other financial data, and as if such transactions had occurred as of the last day of the respective period for the operating data. Pro forma income statements for the three and nine months ended September 30, 2005 and 2006 and pro forma customer statistics are provided in the addendum of this news release.
Pro Forma Operating Results
Charter's consistent focus on targeted marketing, bundled service offerings, and continued deployment of telephone service drove RGU growth. As of the end of the third quarter 2006, 37% of Charter's customers subscribed to a bundled package, up from 31% a year ago. Charter added a net 210,300 RGUs during the third quarter on a pro forma basis including:
- HSI customers increased by approximately 88,100.
- Telephone customers increased by approximately 82,000.
- Digital video customers increased by approximately 49,400.
- Analog video customers decreased by approximately 9,200.
As of September 30, 2006, Charter served approximately 10,927,300 RGUs, comprised of 5,476,600 analog video, 2,767,900 digital video, 2,343,200 HSI, and 339,600 telephone customers.
Total average monthly revenue per video customer (ARPU) increased 11.9%, with video ARPU increasing 5.6% and HSI ARPU increasing 4.3%, for the third quarter of 2006, as compared to the same period in 2005.
Strong telephone growth continued, with total customers increasing over 30% since the second quarter of 2006. During the third quarter, Charter added 1.2 million telephone homes passed, bringing total phone homes passed to approximately 5.9 million as of September 30, 2006. The Company expects to pass between 6.5 million and 7 million homes with telephone service by year-end 2006. In markets where telephone service is available, customers take advantage of bundled offers, and Charter generally experiences higher customer retention, increased video and HSI customer growth rates, higher revenue per video customer, and improved customer satisfaction, as customers take advantage of Charter's bundled product offerings.
Third-Quarter Pro Forma Results
On a pro forma basis, third quarter revenues increased 10.9%, or $135 million, to $1.377 billion, resulting from both a larger customer base versus the prior year and increases in average revenue per customer. Pro forma HSI revenues increased 21.0%, up $46 million year over year, and telephone revenues more than tripled to $37 million from $11 million in the third quarter of 2005. Commercial and advertising revenues each increased by $10 million year over year on a pro forma basis, or 15.2% and 14.1%, respectively. Video revenues increased 4.5%, up $36 million year over year on a pro forma basis.
Third-quarter 2006 pro forma operating costs and expenses increased $105 million, or 13.0%, to $914 million, reflecting continued emphasis on building and accelerating rollout of our phone product and expenditures to support higher rates of customer growth and retention, as well as higher programming costs associated with annual rate increases and higher advanced services purchases.
Third-Quarter GAAP Results
These results include the operations of the assets sold in the third quarter of 2006. As discussed below, the operating results of the West Virginia and Virginia cable systems are included in discontinued operations.
Third-quarter 2006 revenues were $1.388 billion, a year over year increase of 9.7%, and operating costs and expenses from continuing operations increased 11.8%, to $921 million.
Operating income from continuing operations increased by $12 million year over year, to $66 million for the third quarter of 2006. Revenue growth exceeded operating costs and expense growth during the period by $26 million; depreciation and amortization expenses declined by $28 million year over year; and the year over year comparison benefited from the $19 million hurricane asset retirement loss in 2005. These improvements were partially offset by $60 million of asset impairment charges for systems that met the criteria of assets held for sale in the third quarter of 2006.
Net loss applicable to common stock and loss per common share for the third quarter of 2006 were $133 million and 41 cents, respectively. For the third quarter of 2005, Charter reported net income applicable to common stock of $75 million, and earnings per common share were 24 cents and 9 cents on a basic and fully diluted basis, respectively. The $208 million change to net income (loss) applicable to common stock was primarily due to a $362 million lower gain on extinguishment of debt related to the September 2006 debt exchange compared to the gain related to the September 2005 debt exchanges and a $40 million increase in income tax expense, partially offset by a $196 million increase in income from discontinued operations.
Asset Sales
In the third quarter of 2006, the Company closed five separate sales of geographically non-strategic cable television systems, serving approximately 390,300 analog video customers, for a total of approximately $1 billion. 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"). In September 2006, Charter completed 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"). Additional sales were completed during the third quarter serving a total of 34,300 analog video customers in South Carolina, Oklahoma, Kansas, Missouri and Texas.
Charter recorded a gain on the sale related to the Cebridge transaction of approximately $200 million in the third quarter of 2006. The assets sold in the New Wave transaction and the Orange transaction were written down to fair value less estimated costs to sell, resulting in asset impairment charges during the first quarter of 2006 of approximately $99 million. The Company also recorded $60 million of asset impairment charges related to systems that met the criteria of assets held for sale during the third quarter of 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 months and nine months ended September 30, 2006 and 2005, respectively. 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 third quarter of 2006 and 2005 was $200 million and $4 million, respectively. Income from discontinued operations for the three months and nine months ended September 30, 2006 and 2005 was $234 million and $33 million, respectively.
Liquidity
Net cash flows provided by operating activities for the third quarter of 2006 were $143 million, compared to net cash used in operating activities of $63 million for the year-ago quarter. The increase is primarily the result of the $261 million increase in cash provided by operating assets and liabilities, partially offset by an increase in interest on cash pay obligations of $57 million.
Net cash flows provided by operating activities for the nine months ended September 2006 were $348 million, compared to $118 million for the year-ago period. The increase is primarily the result of the $368 million increase in cash provided by operating assets and liabilities, partially offset by an increase in interest on cash pay obligations of $156 million.
Adjusted EBITDA totaled $467 million for the third quarter of 2006, an increase of 5.9%, compared with the year-ago quarter. Adjusted EBITDA totaled $1.411 billion for the nine months ended September 30, 2006, a 3.3% increase compared with the year-ago period.
Pro forma adjusted EBITDA totaled $463 million for the third quarter of 2006, an increase of 6.9%, compared with the year-ago quarter. Pro forma adjusted EBITDA totaled $1.389 billion for the nine months ended September 30, 2006, a 3.6% increase compared with the year-ago period.
Expenditures for property, plant, and equipment for the third quarter of 2006 were $256 million, compared to third-quarter 2005 expenditures of $273 million. The decrease in capital expenditures reflects decreases in spending on support capital and line extensions, partially offset by a year over year increase in spending for customer premise equipment. For the nine months ended September 30, 2006, capital expenditures were $795 million, compared to $815 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 total approximately $1.1 billion.
Charter reported negative free cash flow of $234 million for the third quarter of 2006, compared to negative free cash flow of $198 million for 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 nine months ended September 30, 2006, Charter reported negative free cash flow of $639 million, compared to negative free cash flow of $524 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 by $21 million and a $20 million decrease in capital expenditures.
As of September 30, 2006, Charter had $18.8 billion in long-term debt and $85 million of cash on hand. Charter's total potential availability under its credit facilities as of September 30, 2006 was approximately $1.6 billion, although the actual availability at that time was limited to $673 million due to covenant restrictions.
Debt and Convertible Note Exchanges
In September 2006, Charter Communications Holdings, LLC ("Charter Holdings") and its wholly owned subsidiaries, CCH I, LLC ("CCH I") and CCH II, LLC ("CCH II"), completed the exchange of approximately $797 million in total principal amount of outstanding debt securities of Charter Holdings. Holders of Charter Holdings notes due in 2009-2010 tendered $308 million principal amount of notes for $250 million principal amount of new 10.25% CCH II notes due 2013 and $37 million principal amount of 11% CCH I notes due 2015. Holders of Charter Holdings notes due 2011-2012 tendered $490 million principal amount of notes for $425 million principal amount of 11% CCH I notes due 2015. Also in September 2006, CCHC, LLC ("CCHC") and CCH II completed the exchange of $450 million principal amount of Charter's outstanding 5.875% senior convertible notes due 2009 for $188 million in cash, 45 million shares of Charter's Class A common stock, and $146 million principal amount of 10.25% CCH II notes due 2010.
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, pro forma 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 or retirement 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 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.
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, pro forma 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 and pro forma adjusted EBITDA, as presented, are reduced for management fees in the amounts of $31 million and $33 million for the three months ended September 30, 2006 and 2005, respectively, which amounts are added back for the purposes of calculating compliance with leverage covenants. As of September 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 slide presentation to accompany the third quarter conference call will be available on the Investor and 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 in 2005 and the first three quarters of 2006 can also be found on the Investor and News Center in the "Pro Forma Information" section. Pro forma income statements for the three months and nine months ended September 30, 2005 and 2006 and pro forma customer statistics are also provided in the addendum of this news release.
Conference Call
The Company will host a conference call on Tuesday, October 31, 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 "Investor and News Center" at the bottom left 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. 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 November 7, 2006. The passcode for the replay is 6981456.
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," "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 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 DATA)
Three Months Ended September 30,
---------------------------------------
2006 2005
Actual Actual % Change
------------ -------------- ----------
REVENUES:
Video $ 836 $ 811 3.1%
High-speed Internet 267 222 20.3%
Telephone 37 9 311.1%
Advertising sales 81 72 12.5%
Commercial 78 68 14.7%
Other 89 83 7.2%
------------ --------------
Total revenues 1,388 1,265 9.7%
------------ --------------
COSTS AND EXPENSES:
Programming 371 343 8.2%
Service 216 196 10.2%
Advertising sales 28 25 12.0%
General and administrative 250 223 12.1%
Marketing 56 37 51.4%
------------ --------------
Operating costs and
expenses 921 824 11.8%
------------ --------------
Adjusted EBITDA 467 441 5.9%
------------ --------------
Adjusted EBITDA margin 33.6% 34.9%
------------ --------------
Depreciation and
amortization 334 362
Asset impairment charges 60 -
Loss on sale of assets,
net 2 1
Option compensation
expense, net 3 3
Hurricane asset retirement
loss - 19
Special charges, net 2 2
------------ --------------
Operating income from
continuing operations 66 54
------------ --------------
OTHER INCOME AND (EXPENSES):
Interest expense, net (466) (462)
Gain (loss) on derivative
instruments and hedging
activities, net (3) 17
Gain on extinguishment of
debt 128 490
Other, net 6 (3)
------------ --------------
(335) 42
------------ --------------
Income (loss) from continuing
operations before income
taxes (269) 96
Income tax expense (64) (24)
------------ --------------
Income (loss) from continuing
operations (333) 72
Income (loss) from
discontinued operations, net
of tax 200 4
------------ --------------
Net income (loss) (133) 76
Dividends on preferred stock
- redeemable - (1)
------------ --------------
Net income (loss) applicable
to common stock $ (133) $ 75
============ ==============
EARNINGS (LOSS) PER SHARE:
Income (loss) from
continuing operations,
basic $ (1.02) $ 0.23
============ ==============
Income (loss) from
continuing operations,
diluted $ (1.02) $ 0.08
============ ==============
Net income (loss), basic $ (0.41) $ 0.24
============ ==============
Net income (loss), diluted $ (0.41) $ 0.09
============ ==============
Weighted average common
shares outstanding, basic 326,910,632 316,214,740
============ ==============
Weighted average common
shares outstanding, diluted 326,910,632 1,012,591,842
============ ==============
Nine Months Ended September 30,
---------------------------------------
2006 2005
Actual Actual % Change
------------ -------------- ----------
REVENUES:
Video $ 2,520 $ 2,434 3.5%
High-speed Internet 773 647 19.5%
Telephone 86 23 273.9%
Advertising sales 228 207 10.1%
Commercial 227 196 15.8%
Other 257 239 7.5%
------------ --------------
Total revenues 4,091 3,746 9.2%
------------ --------------
COSTS AND EXPENSES:
Programming 1,126 1,021 10.3%
Service 624 552 13.0%
Advertising sales 80 72 11.1%
General and administrative 714 633 12.8%
Marketing 136 102 33.3%
------------ --------------
Operating costs and
expenses 2,680 2,380 12.6%
------------ --------------
Adjusted EBITDA 1,411 1,366 3.3%
------------ --------------
Adjusted EBITDA margin 34.5% 36.5%
------------ --------------
Depreciation and
amortization 1,024 1,092
Asset impairment charges 159 39
Loss on sale of assets,
net 2 5
Option compensation
expense, net 10 11
Hurricane asset retirement
loss - 19
Special charges, net 12 4
------------ --------------
Operating income from
continuing operations 204 196
------------ --------------
OTHER INCOME AND (EXPENSES):
Interest expense, net (1,409) (1,333)
Gain (loss) on derivative
instruments and hedging
activities, net 8 43
Gain on extinguishment of
debt 101 498
Other, net 12 12
------------ --------------
(1,288) (780)
------------ --------------
Income (loss) from continuing
operations before income
taxes (1,084) (584)
Income tax expense (124) (80)
------------ --------------
Income (loss) from continuing
operations (1,208) (664)
Income (loss) from
discontinued operations, net
of tax 234 33
------------ --------------
Net income (loss) (974) (631)
Dividends on preferred stock
- redeemable - (3)
------------ --------------
Net income (loss) applicable
to common stock $ (974) $ (634)
============ ==============
EARNINGS (LOSS) PER SHARE:
Income (loss) from
continuing operations,
basic $ (3.77) $ (2.16)
============ ==============
Income (loss) from
continuing operations,
diluted $ (3.77) $ (2.16)
============ ==============
Net income (loss), basic $ (3.04) $ (2.06)
============ ==============
Net income (loss), diluted $ (3.04) $ (2.06)
============ ==============
Weighted average common
shares outstanding, basic 320,680,698 307,761,930
============ ==============
Weighted average common
shares outstanding, diluted 320,680,698 307,761,930
============ ==============
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND OPERATING DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Three Months Ended September 30,
---------------------------------------
2006 2005
Pro Forma (a) Pro Forma (a) % Change
------------- -------------- ---------
REVENUES:
Video $ 830 $ 794 4.5%
High-speed Internet 265 219 21.0%
Telephone 37 11 236.4%
Advertising sales 81 71 14.1%
Commercial 76 66 15.2%
Other 88 81 8.6%
------------- --------------
Total revenues 1,377 1,242 10.9%
------------- --------------
COSTS AND EXPENSES:
Programming 368 336 9.5%
Service 214 193 10.9%
Advertising sales 28 24 16.7%
General and administrative 248 219 13.2%
Marketing 56 37 51.4%
------------- --------------
Operating costs and
expenses 914 809 13.0%
------------- --------------
Adjusted EBITDA 463 433 6.9%
------------- --------------
Adjusted EBITDA margin 33.6% 34.9%
------------- --------------
Depreciation and
amortization 332 354
Asset impairment charges 20 -
Loss on sale of assets,
net - 1
Option compensation
expense, net 3 3
Hurricane asset retirement
loss - 19
Special charges, net 2 2
------------- --------------
Operating income from
operations 106 54
------------- --------------
OTHER INCOME AND (EXPENSES):
Interest expense, net (466) (452)
Gain (loss) on derivative
instruments and hedging
activities, net (3) 17
Gain on extinguishment of
debt 128 490
Other, net 6 (3)
------------- --------------
(335) 52
------------- --------------
Income (loss) before income
taxes (229) 106
Income tax expense (53) (23)
------------- --------------
Net income (loss) (282) 83
Dividends on preferred stock
- redeemable - (1)
------------- --------------
Net income (loss) applicable
to common stock $ (282) $ 82
============= ==============
EARNINGS (LOSS) PER SHARE:
Basic $ (0.86) $ 0.26
============= ==============
Diluted $ (0.86) $ 0.09
============= ==============
Weighted average common
shares outstanding, basic 326,272,226 316,214,740
============= ==============
Weighted average common
shares outstanding, diluted 326,272,226 1,012,591,842
============= ==============
Nine Months Ended September 30,
---------------------------------------
2006 2005
Pro Forma (a) Pro Forma (a) % Change
------------- -------------- ---------
REVENUES:
Video $ 2,478 $ 2,383 4.0%
High-speed Internet 763 639 19.4%
Telephone 86 28 207.1%
Advertising sales 225 204 10.3%
Commercial 220 190 15.8%
Other 252 233 8.2%
------------- --------------
Total revenues 4,024 3,677 9.4%
------------- --------------
COSTS AND EXPENSES:
Programming 1,105 1,000 10.5%
Service 612 544 12.5%
Advertising sales 78 70 11.4%
General and administrative 705 621 13.5%
Marketing 135 101 33.7%
------------- --------------
Operating costs and
expenses 2,635 2,336 12.8%
------------- --------------
Adjusted EBITDA 1,389 1,341 3.6%
------------- --------------
Adjusted EBITDA margin 34.5% 36.5%
------------- --------------
Depreciation and
amortization 1,013 1,080
Asset impairment charges 20 -
Loss on sale of assets,
net - 5
Option compensation
expense, net 10 10
Hurricane asset retirement
loss - 19
Special charges, net 12 4
------------- --------------
Operating income from
operations 334 223
------------- --------------
OTHER INCOME AND (EXPENSES):
Interest expense, net (1,383) (1,312)
Gain (loss) on derivative
instruments and hedging
activities, net 8 43
Gain on extinguishment of
debt 101 498
Other, net 12 12
------------- --------------
(1,262) (759)
------------- --------------
Income (loss) before income
taxes (928) (536)
Income tax expense (132) (78)
------------- --------------
Net income (loss) (1,060) (614)
Dividends on preferred stock
- redeemable - (3)
------------- --------------
Net income (loss) applicable
to common stock $ (1,060) $ (617)
============= ==============
EARNINGS (LOSS) PER SHARE:
Basic $ (3.31) $ (2.00)
============= ==============
Diluted $ (3.31) $ (2.00)
============= ==============
Weighted average common
shares outstanding, basic 320,466,343 307,761,930
============= ==============
Weighted average common
shares outstanding, diluted 320,466,343 307,761,930
============= ==============
(a) Pro forma results reflect the acquisition of cable systems in January 2006 and the sales of cable systems in July 2005 and certain sales of cable systems in the third quarter of 2006 as if they occurred as of January 1, 2005 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 dispositions of assets because those transactions did not materially impact Charter's adjusted EBITDA. However, all transactions completed in July 2005, January 2006 and the third quarter of 2006 have been reflected in the operating statistics. The pro forma data are 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. September 30, 2006. Pro forma revenues were reduced by $11 million and $67 million for the three and nine months ended September 30, 2006, respectively. Pro forma operating costs and expenses were reduced by $7 million and $45 million for the three and nine months ended September 30, 2006, respectively. Pro forma net loss was increased by $149 million and $86 million for the three and nine months ended September 30, 2006, respectively. September 30, 2005. Pro forma revenues were reduced by $23 million and $69 million for the three and nine months ended September 30, 2005, respectively. Pro forma operating costs and expenses were reduced by $15 million and $44 million for the three and nine months ended September 30, 2005, respectively. Pro forma net income was increased by $7 million for the three months ended September 30, 2005. Pro forma net loss was reduced by $17 million for the nine months ended September 30, 2005. 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)
September 30, December 31,
2006 2005
------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 85 $ 21
Accounts receivable, net of allowance
for doubtful accounts 186 214
Prepaid expenses and other current
assets 90 92
------------- ------------
Total current assets 361 327
------------- ------------
INVESTMENT IN CABLE PROPERTIES:
Property, plant and equipment, net 5,263 5,840
Franchises, net 9,221 9,826
------------- ------------
Total investment in cable properties,
net 14,484 15,666
------------- ------------
OTHER NONCURRENT ASSETS: 353 438
------------- ------------
Total assets $ 15,198 $ 16,431
============= ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,360 $ 1,191
------------- ------------
Total current liabilities 1,360 1,191
------------- ------------
LONG-TERM DEBT 18,799 19,388
NOTE PAYABLE - RELATED PARTY 55 49
DEFERRED MANAGEMENT FEES - RELATED PARTY 14 14
OTHER LONG-TERM LIABILITIES 602 517
MINORITY INTEREST 191 188
PREFERRED STOCK - REDEEMABLE 4 4
SHAREHOLDERS' DEFICIT (5,827) (4,920)
------------- ------------
Total liabilities and shareholders'
deficit $ 15,198 $ 16,431
============= ============
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
Nine Months Ended
September 30,
--------------------
2006 2005
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (974) $ (631)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization 1,032 1,134
Asset impairment charges 159 39
Noncash interest expense 108 188
Deferred income taxes 123 71
(Gain) loss on sale of assets, net (198) 5
Option compensation expense, net 10 11
Gain on derivative instruments and hedging
activities, net (8) (43)
Gain on extinguishment of debt (101) (504)
Other, net (12) 7
Changes in operating assets and liabilities,
net of effects from acquisitions and
dispositions:
Accounts receivable 46 (3)
Prepaid expenses and other assets 23 85
Accounts payable, accrued expenses and other 140 (241)
--------- ---------
Net cash flows from operating activities 348 118
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (795) (815)
Change in accrued expenses related to capital
expenditures 4 36
Proceeds from sale of assets, including cable
systems 988 38
Purchase of cable system (42) -
Purchase of investments - (3)
Proceeds from investments 42 17
Other, net (1) (2)
--------- ---------
Net cash flows from investing activities 196 (729)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt 5,970 897
Repayments of long-term debt (6,846) (1,141)
Proceeds from issuance of debt 440 294
Payments for debt and equity issuance costs (44) (67)
--------- ---------
Net cash flows from financing activities (480) (17)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 64 (628)
CASH AND CASH EQUIVALENTS, beginning of period 21 650
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 85 $ 22
========= =========
CASH PAID FOR INTEREST $ 1,121 $ 1,170
========= =========
NONCASH TRANSACTIONS:
Issuance of debt by CCH I Holdings, LLC $ - $ 2,423
========= =========
Issuance of debt by CCH I, LLC $ 419 $ 3,686
========= =========
Issuance of debt by CCH II, LLC $ 410 $ -
========= =========
Issuance of debt by Charter Communications
Operating, LLC $ 37 $ 333
========= =========
Retirement of Charter Communications Holdings,
LLC debt $ (796) $ (7,000)
========= =========
Retirement of Renaissance Media Group LLC debt $ (37) $ -
========= =========
Issuance of Class A common stock $ 68 $ -
========= =========
Retirement of convertible notes $ (255) $ -
========= =========
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED SUMMARY OF OPERATING STATISTICS
Actual
--------------
September 30,
2006 (a)
--------------
Customer Summary:
Customer Relationships:
Residential (non-bulk) analog video customers (b) 5,216,900
Multi-dwelling (bulk) and commercial unit customers
(c) 259,700
--------------
Total analog video customers (b) (c) 5,476,600
Non-video customers (b) 289,700
--------------
Total customer relationships (d) 5,766,300
==============
Pro forma average monthly revenue per analog video
customer (e) $ 83.76
Bundled customers (f) 2,124,600
Revenue Generating Units:
Analog video customers (b) (c) 5,476,600
Digital video customers (g) 2,767,900
Residential high-speed Internet customers (h) 2,343,200
Residential telephone customers (i) 339,600
--------------
Total revenue generating units (j) 10,927,300
==============
Video Cable Services:
Analog Video:
Estimated homes passed (k) 11,811,400
Analog video customers (b)(c) 5,476,600
Estimated penetration of analog video homes passed (b)
(c) (k) (l) 46%
Pro forma average monthly analog revenue per analog
video customer (m) $ 38.22
Analog video customers quarterly net gain (loss) (b)
(c) (n) (9,200)
Digital Video:
Estimated digital video homes passed (k) 11,774,800
Digital video customers (g) 2,767,900
Estimated penetration of digital homes passed (g) (k)
(l) 24%
Digital penetration of analog video customers (b) (c)
(g) (o) 51%
Digital set-top terminals deployed 3,946,000
Pro forma average incremental monthly digital revenue
per digital video customer (m) $ 28.96
Digital video customers quarterly net gain (loss) (g)
(n) 49,400
Non-Video Cable Services:
High-Speed Internet Services:
Estimated high-speed Internet homes passed (k) 10,763,300
Residential high-speed Internet customers (h) 2,343,200
Estimated penetration of high-speed Internet homes
passed (h) (k) (l) 22%
Pro forma average monthly high-speed Internet revenue
per high-speed Internet customer (m) $ 38.60
Residential high-speed Internet customers quarterly
net gain (loss) (h) (n) 88,100
Telephone Services:
Estimated telephone homes passed (k) 5,892,000
Residential telephone customers (i) 339,600
Pro foma average monthly telephone revenue per
telephone customer (m) $ 42.40
Residential telephone customers quarterly net gain (i)
(n) 82,000
Approximate Pro forma as of
-----------------------------------------
June 30, December 31, September 30,
2006 (a) 2005 (a) 2005 (a)
------------ ------------- --------------
Customer Summary:
Customer Relationships:
Residential (non-bulk)
analog video customers
(b) 5,234,700 5,262,900 5,277,400
Multi-dwelling (bulk) and
commercial unit customers
(c) 251,100 243,900 246,100
------------ ------------- --------------
Total analog video
customers (b) (c) 5,485,800 5,506,800 5,523,500
Non-video customers (b) 284,600 258,700 245,000
------------ ------------- --------------
Total customer
relationships (d) 5,770,400 5,765,500 5,768,500
============ ============= ==============
Pro forma average monthly
revenue per analog video
customer (e) $ 81.92 $ 76.27 $ 74.86
Bundled customers (f) 2,028,700 1,856,100 1,785,600
Revenue Generating Units:
Analog video customers (b)
(c) 5,485,800 5,506,800 5,523,500
Digital video customers
(g) 2,718,500 2,638,500 2,588,700
Residential high-speed
Internet customers (h) 2,255,100 2,097,700 2,023,900
Residential telephone
customers (i) 257,600 136,000 104,700
------------ ------------- --------------
Total revenue generating
units (j) 10,717,000 10,379,000 10,240,800
============ ============= ==============
Video Cable Services:
Analog Video:
Estimated homes passed (k) 11,770,600 11,643,900 11,450,000
Analog video customers
(b)(c) 5,485,800 5,506,800 5,523,500
Estimated penetration of
analog video homes passed
(b) (c) (k) (l) 47% 47% 48%
Pro forma average monthly
analog revenue per analog
video customer (m) $ 38.29 $ 37.45 $ 37.84
Analog video customers
quarterly net gain (loss)
(b) (c) (n) (30,700) (16,700) (10,100)
Digital Video:
Estimated digital video
homes passed (k) 11,723,500 11,588,300 11,391,100
Digital video customers
(g) 2,718,500 2,638,500 2,588,700
Estimated penetration of
digital homes passed (g)
(k) (l) 23% 23% 23%
Digital penetration of
analog video customers
(b) (c) (g) (o) 50% 48% 47%
Digital set-top terminals
deployed 3,874,800 3,740,700 3,668,000
Pro forma average
incremental monthly
digital revenue per
digital video customer
(m) $ 29.09 $ 26.60 $ 26.12
Digital video customers
quarterly net gain (loss)
(g) (n) 23,500 49,800 68,900
Non-Video Cable Services:
High-Speed Internet
Services:
Estimated high-speed
Internet homes passed (k) 10,665,700 10,543,500 10,268,600
Residential high-speed
Internet customers (h) 2,255,100 2,097,700 2,023,900
Estimated penetration of
high-speed Internet homes
passed (h) (k) (l) 21% 20% 20%
Pro forma average monthly
high-speed Internet
revenue per high-speed
Internet customer (m) $ 38.30 $ 36.55 $ 37.01
Residential high-speed
Internet customers
quarterly net gain (loss)
(h) (n) 52,000 73,800 94,600
Telephone Services:
Estimated telephone homes
passed (k) 4,658,500 2,918,000 2,365,400
Residential telephone
customers (i) 257,600 136,000 104,700
Pro foma average monthly
telephone revenue per
telephone customer (m) $ 43.19 $ 39.38 $ 39.27
Residential telephone
customers quarterly net
gain (i) (n) 66,500 31,300 22,100
Pro forma results reflect the acquisition of cable systems in January 2006 and the sales of cable systems in July 2005 and the third quarter of 2006 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 dispositions of assets because those transactions did not materially impact Charter's adjusted EBITDA. However, all transactions completed in July 2005, January 2006 and the third quarter of 2006 have been reflected in the operating statistics. At June 30, 2006, actual analog video customers, digital video customers, high-speed Internet customers and telephone customers were 5,876,100, 2,889,000, 2,375,100 and 257,600, respectively. At December 31, 2005, actual analog video customers, digital video customers, high-speed Internet customers and telephone customers were 5,884,500, 2,796,600, 2,196,400 and 121,500, respectively. At September 30, 2005, actual analog video customers, digital video customers, high-speed Internet customers and telephone customers were 5,906,300, 2,749,400, 2,120,000 and 89,900, 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
September 30, 2006, June 30, 2006, December 31, 2005 and September
30, 2005, "customers" include approximately 51,200, 55,900, 50,500
and 49,300 persons whose accounts were over 60 days past due in
payment, approximately 11,300, 14,300, 14,300 and 9,900 persons whose
accounts were over 90 days past due in payment and approximately
6,200, 8,900, 7,400 and 6,000 of which were over 120 days past due in
payment, respectively.
(b) "Analog video customers" include all customers who receive video
services (including those who also purchase high-speed Internet and
telephone services) but excludes approximately 289,700, 284,600,
258,700 and 245,000 customer relationships at September 30, 2006,
June 30, 2006, December 31, 2005 and September 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 "analog 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) "Pro forma average monthly revenue per analog video customer" is
calculated as total quarterly pro forma revenue divided by three
divided by average pro forma 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 September 30, 2006, June 30, 2006, December 31, 2005 and September
30, 2005 are approximately 6,700, 8,400, 8,600 and 8,900 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
September 30, 2006, June 30, 2006, December 31, 2005 and September
30, 2005, approximately 2,079,000, 1,996,400, 1,860,000 and 1,798,800
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 September 30, 2006, June 30, 2006, December
31, 2005 and September 30, 2005, approximately 314,000, 233,500,
116,600 and 86,900 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) "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) "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 Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2006 2005 2006 2005
Actual Actual Actual Actual
--------- --------- --------- ---------
Adjusted EBITDA from
continuing and discontinued
operations (a) $ 467 $ 463 $ 1,457 $ 1,436
Less: Purchases of property,
plant and equipment (256) (273) (795) (815)
--------- --------- --------- ---------
Un-levered free cash flow 211 190 662 621
Less: Interest on cash pay
obligations (b) (445) (388) (1,301) (1,145)
--------- --------- --------- ---------
Free cash flow (234) (198) (639) (524)
Purchases of property, plant
and equipment 256 273 795 815
Special charges, net (2) - (12) (4)
Other, net (1) (1) (5) (10)
Change in operating assets and
liabilities 124 (137) 209 (159)
--------- --------- --------- ---------
Net cash flows from operating
activities $ 143 $ (63) $ 348 $ 118
========= ========= ========= =========
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2006 2005 2006 2005
Pro forma Pro forma Pro forma Pro forma
(c) (c) (c) (c)
--------- --------- --------- ---------
Adjusted EBITDA (a) $ 463 $ 433 $ 1,389 $ 1,341
Less: Purchases of property,
plant and equipment (254) (264) (777) (788)
--------- --------- --------- ---------
Un-levered free cash flow 209 169 612 553
Less: Interest on cash pay
obligations (b) (445) (378) (1,275) (1,124)
--------- --------- --------- ---------
Free cash flow (236) (209) (663) (571)
Purchases of property, plant
and equipment 254 264 777 788
Special charges, net (2) - (12) (4)
Other, net (1) (1) (5) (10)
Change in operating assets and
liabilities 124 (137) 209 (159)
--------- --------- --------- ---------
Net cash flows from operating
activities $ 139 $ (83) $ 306 $ 44
========= ========= ========= =========
(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.
(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 the sales of systems in July 2005 and certain sales
of cable systems in the third quarter of 2006 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 Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2006 2005 2006 2005
-------- -------- -------- --------
Customer premise equipment (a) $ 120 $ 94 $ 378 $ 322
Scalable infrastructure (b) 49 49 146 138
Line extensions (c) 23 37 82 114
Upgrade/Rebuild (d) 13 13 36 35
Support capital (e) 51 80 153 206
-------- -------- -------- --------
Total capital expenditures $ 256 $ 273 $ 795 $ 815
======== ======== ======== ========
(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.