Charter Communications, Inc. (Nasdaq: CHTR) (along with its
subsidiaries, the "Company" or "Charter") today reported
fourth-quarter 2005 revenues of $1.342 billion, an increase of
5.2%, and adjusted EBITDA of $491 million, a decrease of 4.1%,
compared to the fourth quarter of 2004, primarily due to increased
marketing expenditures, costs associated with improved customer
service levels, and expenses related to revenue generating unit
(RGU) growth. Revenues for the 12 months ended December 31, 2005,
were $5.254 billion, an increase of 5.6% over 2004, and adjusted
EBITDA for the year was $1.927 billion, essentially flat with 2004.
Highlights -- During the fourth quarter Charter added a net 133,400
RGUs, the highest fourth-quarter RGU net gain in three years and a
dramatic improvement over the net loss of 27,600 RGUs in the fourth
quarter of 2004, while growing year-over-year average monthly
revenue per analog video customer nearly 8%. -- The Company added
442,300 RGUs during 2005, a nearly 75% increase over 2004
additions, pro forma for the July 2005 Asset Sales (as defined
below), reflecting continuous momentum in customer growth driven by
targeted marketing. -- Charter extended its telephone service
footprint reach to nearly 25% of total homes passed at the end of
2005, and grew the telephone customer base 35% during the fourth
quarter. "During the fourth quarter we continued to see customer
growth momentum generated by our investments in targeted marketing
and customer service improvements," said Neil Smit, President and
Chief Executive Officer. "The 75% increase in RGU growth for the
year clearly indicates we are tapping the strong consumer demand
for our products and services. Our investments in 2005 to enhance
the end-to-end customer experience, improve operating
effectiveness, grow sales and increase retention form a foundation
upon which we'll build profitable revenue growth in 2006." Charter
today also announced the signing of two separate definitive
agreements for an aggregate of approximately $896 million to sell
cable television systems serving approximately 549,000 RGUs,
including 316,000 analog video, 142,000 digital video and 91,000
high-speed Internet (HSI) customers in 1) West Virginia and
Virginia to Cebridge Connections, Inc.; and 2) Illinois and
Kentucky to Telecommunications Management, LLC, doing business as
New Wave Communications. These agreements are consistent with
Charter's strategy to optimize its footprint and demonstrate its
commitment to improve the efficiency of operations and focus on
geographically strategic assets. "Throughout 2005 and in early
2006, we took a number of steps to improve our liquidity and extend
maturities, and the asset sales announced today will further
enhance liquidity for reinvestment in our business for future
growth," said Mr. Smit. "Our primary focus is to increase
profitable revenues in order to maximize our return on invested
capital, and further improving our balance sheet and addressing
near-term maturities remains a priority. We'll explore
opportunities to further improve Charter's long-term financial
flexibility and to optimize our footprint through sales or trades
to enhance overall operating efficiency and growth potential," Mr.
Smit continued. "I believe we have the right strategy and the right
management team in place to better position Charter for long-term
sustained growth and success." Operating Results Charter's
increased investment in targeted marketing and improved service
levels during the second half of 2005 drove improvements in
customer growth across all product categories. During the fourth
quarter of 2005 Charter added a net 133,400 RGUs, the highest
fourth-quarter RGU net gain in three years, and a 161,000
improvement compared to the loss for the fourth quarter of 2004.
Fourth-quarter RGU growth was driven by the addition of 76,400 HSI
customers, 47,200 digital video customers, and 31,600 telephone
customers, partially offset by the loss of 21,800 analog video
customers. Analog video losses improved nearly 75% and digital
video gains reflect a 61,400 improvement compared to the fourth
quarter of 2004. Total revenue per analog video customer increased
7.6% for the fourth quarter of 2005 compared to 2004 due to
value-driven marketing, price increases, and an increase in sales
of telephone service and enhanced video services including video on
demand, high-definition television, and digital video recorders.
Digital video revenue per customer increased 10.3%, and average
revenue per HSI customer remained consistent with the year-ago
quarter. Pro forma for the July 2005 Asset Sales (as defined
below), Charter added 442,300 RGUs, a nearly 75% increase over 2004
additions. The Company added 312,600 HSI customers and 133,400
digital video customers on a pro forma basis during the year. On a
pro forma basis, Charter lost a net 79,800 analog video customers
during 2005, a more than 60% reduction from the loss of 209,000
analog video customers in 2004. Mr. Smit noted that churn for the
fourth quarter of 2005 declined compared to the fourth quarter of
2004, the fourth consecutive quarter of year-over-year improvement.
Bad debt expense for the fourth-quarter and full-year 2005 also
declined 9.6% and 17.2%, respectively, compared to 2004. "These
improvements, coupled with growth in average revenue per customer,
demonstrate the quality of the customers we're gaining," said Mr.
Smit. "Our targeted marketing investments and bundled-product
offerings are aimed to increase RGUs in order to grow profitable
revenues, and we're doing just that," he continued. Growth in
Charter's telephone customer base accelerated throughout 2005, with
a 35% increase in customers during the fourth quarter. As of
December 31, 2005, telephone service was available to a total of
2,918,000 homes, and the Company currently plans to pass six
million to eight million homes by year end 2006. In markets where
telephone service is available, Charter is experiencing reduced
customer churn, increased revenue-per-customer, and improved
customer satisfaction. As of December 31, 2005, Charter served
approximately 10,999,000 RGUs, 5,884,500 analog video, 2,796,600
digital video, 2,196,400 HSI and 121,500 telephone customers.
During July 2005, Charter completed the sale of certain
geographically non-strategic cable systems in Texas and West
Virginia (the "July 2005 Asset Sales"), which served approximately
26,800 analog video customers. The asset sales announced today are
not reflected in pro forma statistics. Fourth-Quarter Financial
Results Pro forma for the July 2005 Asset Sales, and excluding $6
million of credits issued to customers impacted by hurricanes
Katrina and Rita, revenue for the fourth quarter of 2005 increased
by $77 million, or 6.1%, compared to the fourth quarter of 2004.
Actual fourth-quarter 2005 revenues were $1.342 billion, an
increase of $66 million, or 5.2%, over fourth-quarter 2004 revenues
of $1.276 billion. The increase was primarily driven by growth in
HSI revenues of $34 million, or 16.7%, reflecting customer growth.
Video revenues increased $11 million, or 1.3%, compared to the
fourth quarter of 2004, due to an increase in average monthly video
revenue per customer and digital video customer growth, partially
offset by the loss of analog video customers. Telephone revenues
more than doubled to $13 million, reflecting significant growth in
this new service deployment. Commercial revenues increased $11
million, or 17.5%, and advertising sales revenues declined $4
million, or 4.8%, due primarily to higher political advertising in
the 2004 election year, for the fourth quarter of 2005 compared to
the fourth quarter of 2004. Fourth-quarter 2005 operating costs and
expenses were $851 million, an increase of $87 million, or 11.4%,
compared to the year-ago quarter. The primary drivers of these
increased operating costs and expenses were marketing expenditures,
costs associated with improved customer service levels, and
expenses related to RGU growth. These expenditures were necessary
to achieve Charter's goals to improve the end-to-end customer
experience, increase sales and retention, and grow profitable
revenues. Marketing costs increased $18 million, or 78.3%, compared
to the fourth quarter of 2004, due to increased targeted marketing
efforts that began in the third quarter of 2005 to generate
profitable revenue growth. Service costs increased $29 million, or
16.7%, as a result of increased RGUs and improved service levels.
General and administrative costs increased $18 million, or 8.5%,
due to increases related to investments to improve service levels
in Charter's customer care centers, partially offset by decreases
in bad debt expense and property taxes. Programming costs increased
$23 million, or 7.0%, compared to the fourth quarter of 2004,
primarily due to price increases, particularly in sports
programming. Advertising sales costs decreased $1 million, or 3.8%.
Charter reported income from operations of $119 million for the
fourth quarter of 2005, compared to $108 million for the fourth
quarter of 2004. The increase in income from operations was
primarily driven by an $18 million loss on sale of assets recorded
in the fourth quarter of 2004, compared to a $1 million loss in the
fourth quarter of 2005, partially offset by the higher operating
expenses described above. Net loss applicable to common stock for
the fourth quarter of 2005 was $336 million, and loss per common
share was $1.06. For the fourth quarter of 2004, Charter reported a
net loss applicable to common stock and loss per common share of
$340 million, and $1.12, respectively. Full-Year 2005 Financial
Results Pro forma for the July 2005 Asset Sales and the sale of
systems in March and April 2004, and excluding $12 million of
credits issued to customers impacted by the hurricanes, revenue for
the year ended December 31, 2005, increased $328 million, or 6.7%,
compared to the year ago period. Actual revenues for the 12 months
ended December 31, 2005, were $5.254 billion, an increase of $277
million, or 5.6%, over 2004 revenues of $4.977 billion. The
increase was driven primarily by growth in HSI revenues of $167
million, or 22.5%, primarily due to a higher customer base. Video
revenues increased $28 million, or 0.8%, compared to 2004, due to
an increase in average monthly video revenue per customer, and an
increase in digital video customers, partially offset by the loss
of analog video customers during the period, and $9 million of
credits issued to customers related to hurricane outages. Telephone
revenues increased $18 million, to $36 million, reflecting
significant growth in this new service deployment. Commercial
revenues increased $41 million, or 17.2%, and advertising sales
revenues increased $5 million, or 1.7%, due to increased local
advertising sales, partially offset by declines in national
advertising in 2005, reflecting higher political advertising in the
2004 election year. For the 12 months ended December 31, 2005,
operating costs and expenses were $3.327 billion, an increase of
$276 million, or 9.0%, compared to 2004. The primary drivers of
increased operating costs and expenses for the year were marketing
expenditures, costs associated with improved customer service
levels, and expenses related to RGU growth. Marketing costs
increased $23 million, or 18.9%, compared to 2004, due to increased
targeted marketing efforts that began in the third quarter of 2005
to generate profitable revenue growth. Service costs increased $112
million, or 16.9%, as a result of increased RGUs and improved
service levels. General and administrative costs increased $40
million, or 4.7%, due to increases related to investments to
improve service levels in Charter's customer care centers,
partially offset by decreases in bad debt expense, property taxes
and property and casualty insurance. Programming costs increased
$98 million, or 7.4%, compared to 2004, primarily due to price
increases, particularly in sports programming. Advertising sales
costs increased $3 million, or 3.1%. Charter reported income from
operations of $343 million for the year ended December 31, 2005,
compared to a loss of $2.046 billion for 2004. The variance in
income from operations was primarily driven by the impairment of
franchises and special charges in part related to litigation costs
incurred in the settlement of the securities class action lawsuits
recorded in 2004, as well as the variances discussed above,
partially offset by an $86 million gain primarily related to asset
sales occurring in March and April 2004, compared to a loss on sale
of assets of $6 million in 2005. Net loss applicable to common
stock and loss per common share for the year ended December 31,
2005, were $970 million, and $3.13, respectively. For the year
ended December 31, 2004, Charter reported net loss applicable to
common stock and loss per common share of $4.345 billion and
$14.47, respectively. Liquidity Pro forma for the July 2005 Asset
Sales and excluding the impact of credits associated with the
hurricanes, adjusted EBITDA decreased 2.4% for the fourth quarter
of 2005 as compared to the year-ago period. Actual adjusted EBITDA
totaled $491 million for the three months ended December 31, 2005,
a decrease of $21 million, or 4.1%, compared to the year-ago
period. Pro forma for the July 2005 Asset Sales and the sale of
systems in March and April 2004, and excluding the impact of
credits associated with the hurricanes, adjusted EBITDA increased
1.7% for the year ended December 31, 2005, compared to 2004. Actual
adjusted EBITDA for the year ended December 31, 2005, was $1.927
billion, essentially flat with 2004. Net cash flows provided by
operating activities for the fourth quarter of 2005 were $142
million, compared to $89 million for the year-ago quarter. Net cash
provided by operating activities decreased $212 million, or 44.9%,
to $260 million for the year ended December 31, 2005, from $472
million for 2004. The decrease in net cash provided by operating
activities is primarily a result of an increase in cash interest
expense of $189 million, combined with changes in operating assets
and liabilities that used $45 million more cash during 2005 than in
2004. Expenditures for property, plant and equipment for the fourth
quarter of 2005 were $273 million, compared to fourth-quarter 2004
expenditures of $285 million. For the year ended December 31, 2005,
expenditures for property, plant and equipment were $1.088 billion,
compared to $924 million in 2004. The increase in capital
expenditures was the result of expanding our telephone service
footprint, deployment of advanced digital set-top terminals, and
capital expenditures to replace plant and equipment destroyed by
the hurricanes. During 2006, Charter expects capital expenditures
to be flat with 2005 at approximately $1.0 billion - $1.1 billion,
primarily for purchases of customer premise equipment, support
capital, and scalable infrastructure investments. Charter reported
negative free cash flow of $172 million for the fourth quarter of
2005 compared to $129 million for the fourth quarter of 2004.
Negative free cash flow for the year ended December 31, 2005, was
$696 million, compared to $344 million for 2004. Higher capital
expenditures and interest on cash-pay obligations contributed to
the increase in negative free cash flow. As of December 31, 2005,
Charter had $19.388 billion of long-term debt and $21 million of
cash on hand. The Company's total potential borrowing availability
under the Charter Communications Operating, LLC ("Charter
Operating") credit facility totaled $553 million as of December 31,
2005, none of which was restricted by financial covenants.
Effective January 2, 2006, Charter had additional availability of
$600 million under the CCO Holdings, LLC senior bridge loan
commitment, which was reduced to $435 million as a result of the
debt offering described below. As part of the Company's ongoing
efforts to extend maturities and improve liquidity, in January
2006, CCH II, LLC and CCH II Capital Corp. issued $450 million of
10.250% Senior Notes due 2010 to repay, but not permanently reduce,
amounts outstanding under the Charter Operating revolving credit
facility. Pro forma for this transaction, approximate credit
facility availability was $984 million based on December 31, 2005,
outstanding debt balances and the bridge loan commitment was
reduced to $435 million, for a total of $1.419 billion of
availability. The asset sales announced this morning will also
provide additional liquidity and financial flexibility for the
Company. Under the terms of the bridge loan, bridge availability
will be reduced by the proceeds of asset sales. The Company expects
that cash on hand, cash flows from operating activities, and the
amounts available under its credit facilities and bridge loan will
be adequate to meet its cash needs in 2006. The Company plans to
continue its opportunistic approach to maintain liquidity, extend
maturities, and de-lever the balance sheet. Hurricanes Katrina and
Rita Charter's operations in the Gulf Coast were affected by
hurricanes Katrina and Rita, with the majority of damage in
Louisiana and Mississippi, and minor damage in Alabama and Georgia.
The hurricanes impacted approximately 216,000 customers. Service
has been restored to all areas. The Company has estimated credits
to customers for outages through December 31, 2005, which are
reflected as a reduction of revenue, of $6 million and $12 million
for the three and 12 months ended December 31, 2005, respectively.
Charter estimates the net loss of analog video customers related to
the hurricanes was approximately 8,200 through December 31, 2005,
and expects an additional 10,000 to 15,000 of customer losses in
the first quarter of 2006. Capital expenditures incurred in 2005
related to hurricane damages were approximately $44 million. The
Company does not expect to incur significant additional capital
expenditures related to hurricane damage repair. Use of Non-GAAP
Financial Metrics The Company uses certain measures that are not
defined by GAAP (Generally Accepted Accounting Principles) to
evaluate various aspects of its business. Adjusted EBITDA,
un-levered free cash flow and free cash flow are non-GAAP financial
measures and should be considered in addition to, not as a
substitute for, net cash flows from operating activities reported
in accordance with GAAP. These terms as defined by Charter may not
be comparable to similarly titled measures used by other companies.
Adjusted EBITDA is defined as income from operations before special
charges, non-cash depreciation and amortization, gain/loss on sale
or retirement of assets, asset or franchise impairment charges,
option compensation expense, and unfavorable contracts and
settlements. 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 Company management and the 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 $31
million and $25 million for the three months ended December 31,
2005 and 2004, respectively, which amounts are added back for the
purposes of calculating compliance with leverage covenants. As of
December 31, 2005, Charter and its subsidiaries are in compliance
with their debt covenants and expect to remain in compliance for
the next 12 months. Conference Call The Company will host a
Conference Call on Tuesday, February 28, 2006, at 9:00 AM Eastern
Time (ET) related to the contents of this release. The Conference
Call will be webcast live via the Company's website at
www.charter.com. Access the webcast by clicking on "About Us" at
the top right of the page, then again on "Investor Center."
Participants should go to the call link at least 10 minutes prior
to the start time to register. The call will be archived on the
website beginning two hours after its completion. Those
participating via telephone should dial 888-233-1576. International
participants should dial 706-643-3458. A replay will be available
at 800-642-1687 or 706-645-9291 beginning two hours after
completion of the call through midnight March 7, 2006. The passcode
for the replay is 5334687. About Charter Communications Charter
Communications, Inc., a leading broadband communications company,
provides a full range of advanced broadband services to the home,
including cable television on an advanced digital video programming
platform via Charter Digital(TM), Charter High-Speed(TM) Internet
service and Charter Telephone(TM). Charter Business(TM) provides
scalable, tailored and cost-effective broadband communications
solutions to organizations of all sizes through
business-to-business Internet, data networking, video and music
services. 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" 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, the bridge loan 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. -0- *T
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND OPERATING DATA (DOLLARS
IN MILLIONS, EXCEPT PER SHARE AND SHARE DATA) Three Months Ended
December 31, ------------------------------------ 2005 2004 Actual
Actual % Change ------------ ------------ --------- REVENUES: Video
(a) $ 850 $ 839 1.3% High-speed Internet (b) 237 203 16.7%
Telephone 13 5 160.0% Advertising sales 80 84 (4.8)% Commercial 74
63 17.5% Other 88 82 7.3% ------------ ------------ Total revenues
1,342 1,276 5.2% ------------ ------------ COSTS AND EXPENSES:
Programming 351 328 7.0% Service 203 174 16.7% Advertising sales 25
26 (3.8)% General and administrative 231 213 8.5% Marketing 41 23
78.3% ------------ ------------ Operating costs and expenses 851
764 11.4% ------------ ------------ Adjusted EBITDA 491 512 (4.1)%
------------ ------------ Adjusted EBITDA margin 37% 40%
------------ ------------ Depreciation and amortization 365 390
Impairment of franchises - - Asset impairment charges - - (Gain)
loss on sale of assets, net 1 18 Option compensation expense
(income), net 3 (3) Hurricane asset retirement loss - - Special
charges, net 3 4 Unfavorable contracts and other settlements - (5)
------------ ------------ Income (loss) from operations 119 108
------------ ------------ OTHER INCOME AND EXPENSES: Interest
expense, net (456) (443) Gain on derivative instruments and hedging
activities, net 7 21 Loss on debt to equity conversions - - Gain
(loss) on extinguishment of debt and preferred stock 23 (10) Other,
net 1 3 ------------ ------------ (425) (429) ------------
------------ Loss before minority interest, income taxes and
cumulative effect of accounting change (306) (321) Minority
interest 10 (5) ------------ ------------ Loss before income taxes
and cumulative effect of accounting change (296) (326) Income tax
benefit (expense) (40) (13) ------------ ------------ Loss before
cumulative effect of accounting change (336) (339) Cumulative
effect of accounting change, net of tax - - ------------
------------ Net loss (336) (339) Dividends on preferred stock -
redeemable - (1) ------------ ------------ Net loss applicable to
common stock $ (336) $ (340) ============ ============ Loss per
common share, basic and diluted $ (1.06) $ (1.12) ============
============ Weighted average common shares outstanding, basic and
diluted 317,272,233 302,934,348 ============ ============ Year
Ended December 31, ------------------------------------ 2005 2004
Actual Actual % Change ------------ ------------ ---------
REVENUES: Video (a) $ 3,401 $ 3,373 0.8% High-speed Internet (b)
908 741 22.5% Telephone 36 18 100.0% Advertising sales 294 289 1.7%
Commercial 279 238 17.2% Other 336 318 5.7% ------------
------------ Total revenues 5,254 4,977 5.6% ------------
------------ COSTS AND EXPENSES: Programming 1,417 1,319 7.4%
Service 775 663 16.9% Advertising sales 101 98 3.1% General and
administrative 889 849 4.7% Marketing 145 122 18.9% ------------
------------ Operating costs and expenses 3,327 3,051 9.0%
------------ ------------ Adjusted EBITDA 1,927 1,926 0.1%
------------ ------------ Adjusted EBITDA margin 37% 39%
------------ ------------ Depreciation and amortization 1,499 1,495
Impairment of franchises - 2,433 Asset impairment charges 39 -
(Gain) loss on sale of assets, net 6 (86) Option compensation
expense (income), net 14 31 Hurricane asset retirement loss 19 -
Special charges, net 7 104 Unfavorable contracts and other
settlements - (5) ------------ ------------ Income (loss) from
operations 343 (2,046) ------------ ------------ OTHER INCOME AND
EXPENSES: Interest expense, net (1,789) (1,670) Gain on derivative
instruments and hedging activities, net 50 69 Loss on debt to
equity conversions - (23) Gain (loss) on extinguishment of debt and
preferred stock 521 (31) Other, net 22 3 ------------ ------------
(1,196) (1,652) ------------ ------------ Loss before minority
interest, income taxes and cumulative effect of accounting change
(853) (3,698) Minority interest 1 19 ------------ ------------ Loss
before income taxes and cumulative effect of accounting change
(852) (3,679) Income tax benefit (expense) (115) 103 ------------
------------ Loss before cumulative effect of accounting change
(967) (3,576) Cumulative effect of accounting change, net of tax -
(765) ------------ ------------ Net loss (967) (4,341) Dividends on
preferred stock - redeemable (3) (4) ------------ ------------ Net
loss applicable to common stock $ (970) $ (4,345) ============
============ Loss per common share, basic and diluted $ (3.13) $
(14.47) ============ ============ Weighted average common shares
outstanding, basic and diluted 310,159,047 300,291,877 ============
============ (a) Video revenues is net of $4 million and $9 million
of credits issued to hurricanes Katrina and Rita impacted customers
related to service outages for the three months and year ended
December 31, 2005, respectively. (b) High-speed Internet revenues
is net of $2 million and $3 million of credits issued to hurricanes
Katrina and Rita impacted customers related to service outages for
the three months and year ended December 31, 2005. CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED
STATEMENTS OF OPERATIONS AND OPERATING DATA (DOLLARS IN MILLIONS,
EXCEPT PER SHARE AND SHARE DATA) Three Months Ended December 31,
------------------------------------- 2005 2004 Pro Forma (a) Pro
Forma (a) % Change ------------- ------------- --------- REVENUES:
Video $ 854 $ 835 2.3% High-speed Internet 239 203 17.7% Telephone
13 5 160.0% Advertising sales 80 84 (4.8)% Commercial 74 63 17.5%
Other 88 81 8.6% ------------ ------------ Total revenues 1,348
1,271 6.1% ------------ ------------ COSTS AND EXPENSES:
Programming 351 326 7.7% Service 203 173 17.3% Advertising sales 25
26 (3.8)% General and administrative 231 213 8.5% Marketing 41 24
70.8% ------------ ------------ Operating costs and expenses 851
762 11.7% ------------ ------------ Adjusted EBITDA 497 509 (2.4)%
------------ ------------ Adjusted EBITDA margin 37% 40%
------------ ------------ Depreciation and amortization 365 388
Impairment of franchises - - Asset impairment charges - - Loss on
sale of assets, net 1 18 Option compensation expense (income), net
3 (3) Special charges, net 3 4 Unfavorable contracts and other
settlements - (5) ------------ ------------ Income (loss) from
operations 125 107 ------------ ------------ OTHER INCOME AND
EXPENSES: Interest expense, net (456) (442) Gain on derivative
instruments and hedging activities, net 7 21 Loss on debt to equity
conversions - - Gain (loss) on extinguishment of debt and preferred
stock 23 (10) Other, net 1 3 ------------ ------------ (425) (428)
------------ ------------ Loss before minority interest, income
taxes and cumulative effect of accounting change (300) (321)
Minority interest 10 (5) ------------ ------------ Loss before
income taxes and cumulative effect of accounting change (290) (326)
Income tax benefit (expense) (40) (13) ------------ ------------
Loss before cumulative effect of accounting change (330) (339)
Cumulative effect of accounting change, net of tax - - ------------
------------ Net loss (330) (339) Dividends on preferred stock -
redeemable - (1) ------------ ------------ Net loss applicable to
common stock $ (330) $ (340) ============ ============ Loss per
common share, basic and diluted $ (1.04) $ (1.12) ============
============ Weighted average common shares outstanding, basic and
diluted 317,272,233 302,934,348 ============ ============ Year
Ended December 31, ------------------------------------ 2005 2004
Pro forma (a) Pro Forma (a) % Change ------------- -------------
--------- REVENUES: Video $ 3,401 $ 3,337 1.9% High-speed Internet
911 739 23.3% Telephone 36 18 100.0% Advertising sales 294 287 2.4%
Commercial 279 234 19.2% Other 336 314 7.0% ------------
------------ Total revenues 5,257 4,929 6.7% ------------
------------ COSTS AND EXPENSES: Programming 1,414 1,305 8.4%
Service 773 658 17.5% Advertising sales 101 97 4.1% General and
administrative 887 842 5.3% Marketing 145 122 18.9% ------------
------------ Operating costs and expenses 3,320 3,024 9.8%
------------ ------------ Adjusted EBITDA 1,937 1,905 1.7%
------------ ------------ Adjusted EBITDA margin 37% 39%
------------ ------------ Depreciation and amortization 1,497 1,481
Impairment of franchises - 2,422 Asset impairment charges 8 - Loss
on sale of assets, net 7 19 Option compensation expense (income),
net 14 31 Special charges, net 7 104 Unfavorable contracts and
other settlements - (5) ------------ ------------ Income (loss)
from operations 404 (2,147) ------------ ------------ OTHER INCOME
AND EXPENSES: Interest expense, net (1,787) (1,664) Gain on
derivative instruments and hedging activities, net 50 69 Loss on
debt to equity conversions - (23) Gain (loss) on extinguishment of
debt and preferred stock 521 (31) Other, net 22 3 ------------
------------ (1,194) (1,646) ------------ ------------ Loss before
minority interest, income taxes and cumulative effect of accounting
change (790) (3,793) Minority interest 1 19 ------------
------------ Loss before income taxes and cumulative effect of
accounting change (789) (3,774) Income tax benefit (expense) (115)
103 ------------ ------------ Loss before cumulative effect of
accounting change (904) (3,671) Cumulative effect of accounting
change, net of tax - (765) ------------ ------------ Net loss (904)
(4,436) Dividends on preferred stock - redeemable (3) (4)
------------ ------------ Net loss applicable to common stock $
(907) $ (4,440) ============ ============ Loss per common share,
basic and diluted $ (2.93) $ (14.78) ============ ============
Weighted average common shares outstanding, basic and diluted
310,159,047 300,291,877 ============ ============ (a) Pro forma
results reflect the sales of systems in March and April 2004 and in
July 2005 (collectively referred to as the "System Sales") as if
they occurred as of January 1, 2004 for all periods presented and
the removal of the financial impact of hurricanes Katrina and Rita.
Actual revenues were reduced by $5 million for the three months
ended December 31, 2004 and $9 million and $48 million for the
years ended December 31, 2005 and 2004, respectively, related to
the System Sales and were increased by $6 million and $12 million
for the three months and year ended December 31, 2005,
respectively, related to credits issued to hurricanes Katrina and
Rita impacted customers related to service outages. Actual adjusted
EBITDA was reduced by $3 million for the three months ended
December 31, 2004 and $2 million and $21 million for the years
ended December 30, 2005 and 2004, respectively, related to the
System Sales and was increased by $6 million and $12 million for
the three months and year ended December 31, 2005, respectively,
for the hurricanes revenue credits. Actual net loss was reduced by
$0.3 million for the three months ended December 31, 2004 and
reduced by $32 million and increased by $95 million for the year
ended December 31, 2005 and 2004, respectively, related to the
System Sales and was reduced by $6 million and $12 million for the
three months and year ended December 31, 2005, respectively,
related to the hurricanes revenue credits and $19 million for the
year ended December 31, 2005 related to the hurricane asset
retirement loss. 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) December 31,
----------------- 2005 2004 -------- ------- ASSETS CURRENT ASSETS:
Cash and cash equivalents $ 21 $ 650 Accounts receivable, net of
allowance for doubtful accounts 214 190 Prepaid expenses and other
current assets 92 82 -------- ------- Total current assets 327 922
-------- ------- INVESTMENT IN CABLE PROPERTIES: Property, plant
and equipment, net 5,840 6,289 Franchises, net 9,826 9,878 --------
------- Total investment in cable properties, net 15,666 16,167
-------- ------- OTHER NONCURRENT ASSETS: 438 584 -------- -------
Total assets $ 16,431 $17,673 ======== ======= LIABILITIES AND
SHAREHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable and
accrued expenses $ 1,191 $ 1,217 -------- ------- Total current
liabilities 1,191 1,217 -------- ------- LONG-TERM DEBT 19,388
19,464 NOTE PAYABLE - RELATED PARTY 49 - DEFERRED MANAGEMENT FEES -
RELATED PARTY 14 14 OTHER LONG-TERM LIABILITIES 517 681 MINORITY
INTEREST 188 648 PREFERRED STOCK - REDEEMABLE 4 55 SHAREHOLDERS'
DEFICIT (4,920) (4,406) -------- ------- Total liabilities and
shareholders' deficit $ 16,431 $17,673 ======== ======= CHARTER
COMMUNICATIONS, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED
STATEMENTS OF CASH FLOWS (DOLLARS IN MILLIONS) Year Ended December
31, ---------------- 2005 2004 ------- ------- CASH FLOWS FROM
OPERATING ACTIVITIES: Net loss $ (967) $(4,341) Adjustments to
reconcile net loss to net cash flows from operating activities:
Minority interest (1) (19) Depreciation and amortization 1,499
1,495 Impairment of franchises - 2,433 Asset impairment charges 39
- (Gain) loss on sale of assets, net 6 (86) Option compensation
expense, net 14 27 Hurricane asset retirement loss 19 - Special
charges, net - 85 Unfavorable contracts and other settlements - (5)
Noncash interest expense 254 324 Gain on derivative instruments and
hedging activities, net (50) (69) Loss on debt to equity
conversions - 23 (Gain) loss on extinguishment of debt and
preferred stock (527) 20 Other, net (22) (3) Deferred income taxes
109 (109) Cumulative effect of accounting change, net of tax - 765
Changes in operating assets and liabilities, net of effects from
acquisitions and dispositions: Accounts receivable (29) (7) Prepaid
expenses and other assets 97 (2) Accounts payable, accrued expenses
and other (181) (59) ------- ------- Net cash flows from operating
activities 260 472 ------- ------- CASH FLOWS FROM INVESTING
ACTIVITIES: Purchases of property, plant and equipment (1,088)
(924) Change in accrued expenses related to capital expenditures 8
(43) Proceeds from sale of assets 44 744 Purchases of investments
(3) (17) Proceeds from investments 17 - Other, net (3) (3) -------
------- Net cash flows from investing activities (1,025) (243)
------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings of
long-term debt 1,207 3,148 Repayments of long-term debt (1,239)
(5,448) Proceeds from issuance of debt 294 2,882 Payments for debt
issuance costs (70) (145) Redemption of preferred stock (56) -
Purchase of pledge securities - (143) ------- ------- Net cash
flows from financing activities 136 294 ------- ------- NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (629) 523 CASH AND
CASH EQUIVALENTS, beginning of period 650 127 ------- ------- CASH
AND CASH EQUIVALENTS, end of period $ 21 $ 650 ======= ======= CASH
PAID FOR INTEREST $ 1,526 $ 1,302 ======= ======= NONCASH
TRANSACTIONS: Issuance of debt by CCH I Holdings, LLC $ 2,423 $ -
======= ======= Issuance of debt by CCH I, LLC $ 3,686 $ - =======
======= Issuance of debt by Charter Communications Operating, LLC $
333 $ - ======= ======= Retirement of Charter Communications
Holdings, LLC debt $(7,000) $ - ======= ======= Issuance of shares
in Securities Class Action Settlement $ 15 $ - ======= ======= CC
VIII Settlement - exchange of interests $ 418 $ - ======= =======
Debt exchanged for Charter Class A common stock $ - $ 30 =======
======= CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES UNAUDITED
SUMMARY OF OPERATING STATISTICS Approximate as of
--------------------------------------- December 31, September 30,
December 31, 2005 (a) 2005 (a) 2004 (a) ------------- -----------
----------- Customer Summary: Customer Relationships: Residential
(non-bulk) analog video customers (b) 5,616,300 5,636,100 5,739,900
Multi-dwelling (bulk) and commercial unit customers (c) 268,200
270,200 251,600 ----------- ----------- ----------- Total analog
video customers (b) (c) 5,884,500 5,906,300 5,991,500 Non-video
customers (b) 272,700 261,800 228,700 ----------- -----------
----------- Total customer relationships (d) 6,157,200 6,168,100
6,220,200 =========== =========== =========== Average monthly
revenue per analog video customer (e) $ 75.88 $ 74.32 $ 70.50
Bundled customers (f) 1,944,800 1,872,700 1,659,700 Revenue
Generating Units: Analog video customers (b) (c) 5,884,500
5,906,300 5,991,500 Digital video customers (g) 2,796,600 2,749,400
2,674,700 Residential high-speed Internet customers (h) 2,196,400
2,120,000 1,884,400 Residential telephone customers (i) 121,500
89,900 45,400 ----------- ----------- ----------- Total revenue
generating units (j) 10,999,000 10,865,600 10,596,000 ===========
=========== =========== Video Cable Services: Analog Video:
Estimated homes passed (k) 12,519,300 12,336,000 12,085,900 Analog
video customers (b)(c) 5,884,500 5,906,300 5,991,500 Estimated
penetration of analog video homes passed (b) (c) (k) (l) 47% 48%
50% Average monthly analog revenue per analog video customer (m) $
37.66 $ 37.95 $ 37.52 Analog video customers quarterly net loss (b)
(c) (n) (21,800) (36,800) (83,100) Digital Video: Estimated digital
video homes passed (k) 12,427,800 12,236,700 12,000,500 Digital
video customers (g) 2,796,600 2,749,400 2,674,700 Estimated
penetration of digital homes passed (g) (k) (l) 23% 22% 22% Digital
penetration of analog video customers (b) (c) (g) (o) 48% 47% 45%
Digital set-top terminals deployed 3,981,100 3,908,800 3,791,600
Average incremental monthly digital revenue per digital video
customer (m) $ 26.45 $ 25.94 $ 23.99 Digital video customers
quarterly net gain (loss) (g) (n) 47,200 63,800 (14,200) Non-Video
Cable Services: High-Speed Internet Services: Estimated high-speed
Internet homes passed (k) 11,260,300 10,985,400 10,682,800
Residential high-speed Internet customers (h) 2,196,400 2,120,000
1,884,400 Estimated penetration of high-speed Internet homes passed
(h) (k) (l) 20% 19% 18% Average monthly high-speed Internet revenue
per high- speed Internet customer (m) $ 36.60 $ 36.86 $ 36.53
Residential high-speed Internet customers quarterly net gain (h)
(n) 76,400 97,800 64,500 Telephone Services: Estimated telephone
homes passed (k) 2,918,000 2,365,400 914,900 Residential telephone
customers (i) 121,500 89,900 45,400 Average monthly telephone
revenue per telephone customer (m) $ 39.57 $ 39.74 $ 41.95
Residential telephone customers quarterly net gain (i) (n) 31,600
22,100 5,200 Included in the 21,800 net loss of analog video
customers for the fourth quarter of 2005 is approximately 8,200 of
net losses related to systems impacted by hurricanes Katrina and
Rita. We currently estimate additional analog video customer losses
of approximately 10,000 to 15,000 related hurricanes Katrina and
Rita in the first quarter of 2006. After giving effect to the sale
of certain non-strategic cable systems in July 2005, December 31,
2004 analog video customers, digital video customers and high-speed
Internet customers would have been 5,964,300, 2,663,200 and
1,883,800, respectively. (a) "Customers" include all persons our
corporate billing records show as receiving service (regardless of
their payment status), except for complimentary accounts (such as
our employees). In addition, at December 31, 2005, September 30,
2005 and December 31, 2004, "customers" include approximately
50,500, 44,400 and 44,700 persons whose accounts were over 60 days
past due in payment, approximately 14,300, 9,800 and 5,200 persons
whose accounts were over 90 days past due in payment and
approximately 7,400, 6,000 and 2,300 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 272,700, 261,800 and 228,700 customer
relationships at December 31, 2005, September 30, 2005 and December
31, 2004, 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 December 31, 2005, September 30, 2005 and December
31, 2004 are approximately 8,600, 8,900 and 10,100 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 December 31, 2005, September 30,
2005 and December 31, 2004, approximately 1,943,000, 1,876,000 and
1,667,000 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 December 31, 2005, September 30, 2005 and December 31, 2004,
approximately 102,200, 72,100 and 34,100 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 Ended Year Ended
December 31, December 31, ------------------- -------------------
2005 2004 2005 2004 Actual Actual Actual Actual --------- ---------
--------- --------- Adjusted EBITDA (a) $ 491 $ 512 $ 1,927 $ 1,926
Less: Purchases of property, plant and equipment (273) (285)
(1,088) (924) -------- -------- -------- -------- Un-levered free
cash flow 218 227 839 1,002 Less: Interest on cash pay obligations
(b) (390) (356) (1,535) (1,346) -------- -------- -------- --------
Free cash flow (172) (129) (696) (344) Purchases of property, plant
and equipment 273 285 1,088 924 Special charges, net (3) (4) (7)
(19) Other, net (2) (10) (12) (21) Change in operating assets and
liabilities 46 (53) (113) (68) -------- -------- -------- --------
Net cash flows from operating activities $ 142 $ 89 $ 260 $ 472
======== ======== ======== ======== Three Months Ended Year Ended
December 31, December 31, ------------------- -------------------
2005 2004 2005 2004 Pro forma Pro forma Pro forma Pro forma (c) (c)
(c) (c) --------- --------- --------- --------- Adjusted EBITDA (a)
$ 497 $ 509 $ 1,937 $ 1,905 Less: Purchases of property, plant and
equipment (273) (285) (1,087) (920) -------- -------- --------
-------- Un-levered free cash flow 224 224 850 985 Less: Interest
on cash pay obligations (b) (390) (355) (1,533) (1,340) --------
-------- -------- -------- Free cash flow (166) (131) (683) (355)
Purchases of property, plant and equipment 273 285 1,087 920
Special charges, net (3) (4) (7) (19) Other, net (2) (10) (12) (21)
Change in operating assets and liabilities 46 (53) (113) (60)
-------- -------- -------- -------- Net cash flows from operating
activities $ 148 $ 87 $ 272 $ 465 ======== ======== ========
======== (a) See UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
AND OPERATING DATA for detail of the components included within
adjusted EBITDA. (b) Interest on cash pay obligations excludes
accretion of original issue discounts on certain debt securities
and amortization of deferred financing costs that are reflected as
interest expense in our consolidated statements of operations. (c)
Pro forma results reflect the sales of systems in March and April
2004 and July 2005 as if they occurred as of January 1, 2004 for
all periods presented and the removal of the financial impact of
hurricanes Katrina and Rita. 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. *T
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