Charter Communications, Inc. (NASDAQ: CHTR) (along with its
subsidiaries, the �Company� or �Charter�) today reported financial
and operating results for the three and 12 months ended December
31, 2008.
Key year-over-year highlights:
- Pro forma1 annual revenues of
$6.467 billion grew 8.5% on a pro forma basis and annual revenues
increased 7.9% on an actual basis; pro forma fourth quarter
revenues of $1.653 billion grew 7.0% on a pro forma basis and
revenues grew 6.6% on an actual basis; primarily driven by
increases in telephone and high-speed Internet (HSI) revenues.
- Pro forma annual adjusted
EBITDA2 of $2.315 billion grew 10.3% on a pro forma basis and 2008
adjusted EBITDA grew 9.9% on an actual basis; pro forma fourth
quarter adjusted EBITDA of $619 million increased 10.1% on a pro
forma basis and adjusted EBITDA increased 9.7% on an actual
basis.
- Annual adjusted EBITDA margin of
35.8% increased 60 basis points on a pro forma and actual basis;
and fourth quarter adjusted EBITDA margin of 37.4% increased 100
basis points on a pro forma basis and actual basis.
- Total ARPU3 for the quarter
increased 10.2% to $108.27, driven by increased sales of The
Charter BundleTM, advanced services growth and upgrading customers
to higher service tiers.
- Revenue generating units (RGUs)
increased 5.5% with 650,900 net additions during 2008, including
45,300 during the fourth quarter.
�We are pleased with our operational results, which are
consistent with the preliminary results we reported last month. Our
success in growing the bundle, even in a challenging economic
environment, demonstrates our competitive position in this
industry. We will continue to focus on increasing penetration of
our triple play offering and enhancing our customers� overall
experience today and going forward,� said Neil Smit, President and
Chief Executive Officer.
Key Operating Results
All of the following customer growth and ARPU statistics are
presented on a pro forma basis. Charter added 45,300 RGUs during
the fourth quarter of 2008 and 650,900 RGUs during the full year.
Approximately 53% of Charter�s customers subscribe to a bundle, up
from 47% in the fourth quarter of 2007. Charter�s pro forma average
monthly revenue per basic video customer for the fourth quarter of
2008 was $108.27, an increase of 10.2% compared to fourth quarter
2007, primarily as a result of higher bundled penetration and an
increase in advanced services.
Fourth quarter RGU changes (on a pro forma basis for 2008 and
2007) consisted of the following:
- Digital video customers
increased by approximately 22,300 and basic video customers
decreased by 75,100 during the fourth quarter. Video ARPU was
$59.15 for the fourth quarter of 2008, up 5.3% year-over-year.
- Fourth quarter 2008 net gains of
HSI were approximately 22,900, compared to a net gain of
approximately 50,500 in the fourth quarter of 2007; and
- Fourth quarter 2008 net gains of
telephone customers were approximately 75,200, compared to a net
gain of approximately 155,300 in the fourth quarter of 2007.
Telephone penetration is now 12.9% of approximately 10.4 million
telephone homes passed as of December 31, 2008.
As of December 31, 2008, Charter served approximately 5,454,600
customers and the Company�s 12,403,100 RGUs were comprised of
5,045,700 basic video; 3,133,400 digital video; 2,875,200 HSI, and
1,348,800 telephone customers.
Fourth Quarter Results � Pro forma
Fourth quarter pro forma revenues were $1.653 billion, an
increase of 7.0%, or $108 million, over pro forma 2007 results. The
increase resulted primarily from telephone and HSI revenue
growth.
Pro forma telephone revenues for the 2008 fourth quarter were
$156 million, a 44.4% increase over fourth quarter 2007 pro forma
telephone revenues, driven by a larger telephone customer base. Pro
forma HSI revenues were $346 million, up 7.1% year-over-year on a
pro forma basis, due to an increased number of customers. Pro forma
video revenues were $862�million, up 2.1% year-over-year on a pro
forma basis, primarily as a result of digital and advanced services
revenue growth, partially offset by a decline in basic video
customers. Commercial revenues rose to $103 million, a 15.7%
increase on a pro forma basis, resulting from increased sales of
the Charter Business Bundle� primarily to small and medium-size
businesses.
Pro forma operating expenses for the 2008 fourth quarter, which
include programming, service and advertising sales costs, were $702
million, a 6.5% increase year-over-year on a pro forma basis,
reflecting annual programming rate increases, increased labor costs
to support improved service levels, and growth of the Company�s
telephone business and advanced services. Pro forma selling,
general, and administrative expenses were $332 million, up only
2.5% on a pro forma basis compared to the year-ago quarter,
reflecting efficiencies gained in our operations along with
continuing efforts to further improve the customer experience and
grow and retain customers.
Pro forma adjusted EBITDA totaled $619�million for the fourth
quarter of 2008, an increase of 10.1% compared to the pro forma
results for the year-ago quarter. The pro forma adjusted EBITDA
margin increased 100 basis points in the fourth quarter to 37.4%,
up from 36.4% in the year-ago quarter on a pro forma basis.
Pro forma net cash flows used in operating activities for the
fourth quarter of 2008 were $12 million, compared to $3 million for
the fourth quarter of 2007 on a pro forma basis. The increase in
use of cash in operating activities is primarily the result of an
increase in interest on cash pay obligations, partially offset by
the increase in HSI and telephone revenues driven by the bundle and
improved cost efficiencies.
Annual Results � Pro forma
For the 12 months ended December 31, 2008, pro forma revenues
were $6.467 billion, an increase of $508 million, or 8.5%, on a pro
forma basis, primarily from telephone and HSI revenue growth.
Pro forma telephone revenues in 2008 increased to $555 million
from pro forma revenues of $345 million a year ago, up 60.9%
year-over-year. Pro forma HSI revenues increased to $1.353 billion,
up 9.4% year-over-year on a pro forma basis. Pro forma video
revenues were $3.455 billion, an increase of 2.7% year-over-year on
a pro forma basis. Pro forma commercial revenues increased to $391
million, up 15.7% on a pro forma basis.
Pro forma operating expenses for the 12 months ended December
31, 2008 were $2.787 billion, an increase of 7.4% year-over-year on
a pro forma basis; and selling, general, and administrative
expenses were $1.365 billion, up 7.9% on a pro forma basis.
Pro forma adjusted EBITDA totaled $2.315 billion for 2008, a pro
forma increase of 10.3% compared to 2007.
Pro forma net cash flows provided by operating activities for
2008 were $395 million, compared to $314 million for 2007 on a pro
forma basis. The increase in cash flows provided by operating
activities is primarily the result of increased sales of our
bundled services and improved cost efficiencies, partially offset
by an increase in interest on cash pay obligations.
Fourth Quarter Results � Actual
Fourth quarter revenues increased 6.6% and operating costs and
expenses increased 4.9% compared to year-ago results. Adjusted
EBITDA for the fourth quarter of 2008 rose 9.7% compared to the
year-ago period.
In the fourth quarter, the Company recorded approximately $1.521
billion of impairment of franchises for the year ended December 31,
2008 as a result of its annual impairment analysis, as required by
Statement of Financial Accounting Standards No. 142, �Goodwill and
Other Intangible Assets.�
As a result of the impairment charge, Charter reported a $1.257
billion loss from operations in the fourth quarter of 2008,
compared to income from operations of $85 million in the fourth
quarter of 2007. Net loss for the fourth quarter of 2008 was $1.495
billion, or $3.96 per common share. For the fourth quarter of 2007,
Charter reported a net loss of $468�million and a net loss per
common share of $1.27. The decrease in income from operations and
increase in net loss resulted primarily from the impairment charge,
partially offset by the increase in sales of our bundled services
and improved cost efficiencies.
Expenditures for property, plant, and equipment for the fourth
quarter of 2008 were $264 million, compared to fourth quarter 2007
expenditures of $354 million. The decrease in capital expenditures
primarily reflects year-over-year decreases in customer premise
equipment, support capital and line extensions.
Net cash flows used in operating activities for the fourth
quarter of 2008 were $11 million, compared to no change in cash
flows in 2007. The increase in use of cash in operating activities
is primarily the result of an increase in interest on cash pay
obligations, partially offset by the increase in HSI and telephone
revenues driven by the bundle and improved cost efficiencies.
Annual Results � Actual
Revenues for the 12 months ended December 31, 2008 increased
7.9% year-over-year. Operating costs and expenses rose 6.9%
compared to year-ago actual results. Adjusted EBITDA for 2008 grew
9.9% compared to the year-ago period. The adjusted EBITDA margin
increased 60 basis points to 35.8% for 2008.
Despite increased revenues and cost efficiencies, Charter
reported a loss from operations in 2008 of $614 million due to the
$1.521 billion impairment charge recorded in the fourth quarter of
2008. Charter reported income from operations of $548 million in
2007. Net loss for 2008 was $2.451 billion, or $6.56 per common
share. For 2007, Charter reported a net loss of $1.616 billion and
a net loss per common share of $4.39.
Capital expenditures for property, plant, and equipment for 2008
were $1.202 billion, compared to $1.244 billion in 2007. The
decrease in capital expenditures primarily reflects year-over-year
decreases in support capital and line extensions. Charter expects
that capital expenditures in the year 2009 will total approximately
$1.2 billion, with over 75% of that amount directed toward
success-based activities.
Net cash flows provided by operating activities for 2008 were
$399 million, compared to $327 million for 2007. The increase in
cash flows provided by operating activities is primarily the result
of revenue growth from HSI and telephone driven by the bundle, as
well as improved cost efficiencies, partially offset by an increase
in interest on cash pay obligations and changes in operating assets
and liabilities.
Restructuring
As of December 31, 2008, Charter had $21.666 billion in total
debt. On February 12, 2009, Charter and its subsidiaries announced
that they have reached an agreement-in-principle with an ad hoc
committee of certain of the Company�s debt holders on the terms of
a financial restructuring to reduce the Company�s debt by
approximately $8 billion. Pursuant to the proposed restructuring,
holders of Charter�s common stock will not receive any amounts on
account of their common stock, which will be cancelled. As a part
of the reduction of debt, the agreement-in-principle also includes
the investment of more than $3 billion by certain of the Company�s
debt holders in the form of debt refinancing and new equity
capital. Under the terms of the agreement, the Company intends to
implement its financial restructuring through a Chapter 11 filing
to be initiated on or before April 1, 2009. The
agreement-in-principle contemplates paying trade creditors in full.
Charter expects that cash on hand and cash flows from operating
activities will be adequate to fund its projected cash needs as it
proceeds with its financial restructuring. The
agreement-in-principle is subject to numerous closing conditions
and there can be no assurance that the terms of the
agreement-in-principle will not change significantly.
One of Charter�s subsidiaries, CCH II, LLC, will not make its
scheduled payment of interest on March 16, 2009 on certain of its
outstanding senior notes. The governing indenture for such notes
permits a 30-day grace period for such interest payments, and
pursuant to its agreement with bondholders, Charter expects to make
its voluntary Chapter 11 filing prior to the expiration of the
grace period.
Use of Non-GAAP Financial Metrics
The Company uses certain measures that are not defined by
Generally Accepted Accounting Principles (�GAAP�) to evaluate
various aspects of its business. Adjusted EBITDA, pro forma
adjusted EBITDA, and free cash flow are non-GAAP financial measures
and should be considered in addition to, not as a substitute for,
net cash flows from operating activities reported in accordance
with GAAP. These terms, as defined by Charter, may not be
comparable to similarly titled measures used by other
companies.
Adjusted EBITDA is defined as income from operations before
depreciation and amortization, impairment charges, stock
compensation expense, and other operating expenses, such as special
charges and loss on sale or retirement of assets. As such, it
eliminates the significant non-cash depreciation and amortization
expense that results from the capital-intensive nature of the
Company�s businesses as well as other non-cash or non-recurring
items, and is unaffected by the Company�s capital structure or
investment activities. Adjusted EBITDA and pro forma adjusted
EBITDA are liquidity measures used by Company management and its
board of directors to measure the Company�s ability to fund
operations and its financing obligations. For this reason, it is a
significant component of Charter�s annual incentive compensation
program. However, this measure is limited in that it does not
reflect the periodic costs of certain capitalized tangible and
intangible assets used in generating revenues and the cash cost of
financing for the Company. Company management evaluates these costs
through other financial measures.
Free cash flow is defined as net cash flows from operating
activities, less capital expenditures and changes in accrued
expenses related to capital expenditures.
The Company believes that adjusted EBITDA, pro forma adjusted
EBITDA, and free cash flow provide information useful to investors
in assessing Charter�s ability to service its debt, fund
operations, and make additional investments with internally
generated funds. In addition, adjusted EBITDA generally correlates
to the leverage ratio calculation under the Company�s credit
facilities or outstanding notes to determine compliance with the
covenants contained in the facilities and notes (all such documents
have been previously filed with the United States Securities and
Exchange Commission). Adjusted EBITDA and pro forma adjusted
EBITDA, as presented, include management fee expenses in the amount
of $32 million and $31 million for the three months ended December
31, 2008 and 2007, respectively, and $131 million and $129 million
for the years ended December 31, 2008 and 2007, respectively, which
expense amounts are excluded for the purposes of calculating
compliance with leverage covenants.
In addition to the actual results for the three and 12 months
ended December 31, 2008 and 2007, we have provided pro forma
results in this release for the three and 12 months ended December
31, 2008 and 2007. We believe these pro forma results facilitate
meaningful analysis of the results of operations. Pro forma results
in this release reflect certain sales and acquisitions of cable
systems in 2008 and 2007 as if they had occurred as of January 1,
2007. Pro forma statements of operations for the three and 12
months ended December 31, 2008 and 2007; and pro forma customer
statistics as of December 31, 2007 and September 30, 2008; are
provided in the addendum of this news release.
About Charter Communications�
Charter Communications, Inc. is a leading broadband
communications company and the fourth-largest cable�operator in the
United States.�Charter provides a full range of advanced broadband
services, including advanced Charter Digital Cable� video
entertainment programming, Charter High-Speed� Internet access, and
Charter Telephone�. Charter Business� 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� brand.�More information
about Charter can be found at www.charter.com.
Cautionary Statement Regarding Forward-Looking
Statements:
This release includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended,
regarding, among other things, our plans, strategies and prospects,
both business and financial. Although we believe that our plans,
intentions and expectations reflected in or suggested by these
forward-looking statements are reasonable, we cannot assure you
that we will achieve or realize these plans, intentions or
expectations. Forward-looking statements are inherently subject to
risks, uncertainties and assumptions, including, without
limitation, the factors described under "Risk Factors" from time to
time in our filings with the Securities and Exchange Commission
("SEC"). Many of the forward-looking statements contained in this
release may be identified by the use of forward-looking words such
as "believe," "expect," "anticipate," "should," "planned," "will,"
"may," "intend," "estimated," "aim," "on track," "target,"
"opportunity" and "potential," among others. Important factors that
could cause actual results to differ materially from the
forward-looking statements we make in this release are set forth in
other reports or documents that we file from time to time with the
SEC, including our quarterly reports on Form 10-Q filed in 2008 and
our most recent annual report on Form 10-K and include, but are not
limited to:
- the completion of the Company's
announced restructuring including the outcome, and impact on our
business, of any resulting proceedings under Chapter 11 of the
Bankruptcy Code;
- the availability and access, in
general, of funds to meet interest payment obligations under our
debt and to fund our operations and necessary capital expenditures,
either through cash on hand, cash flows from operating activities,
further borrowings or other sources and, in particular, our ability
to fund debt obligations (by dividend, investment or otherwise) to
the applicable obligor of such debt;
- our ability to comply with all
covenants in our indentures and credit facilities, any violation of
which, if not cured in a timely manner, could trigger a default of
our other obligations under cross-default provisions;
- our ability to repay debt prior
to or when it becomes due and/or successfully access the capital or
credit markets to refinance that debt through new issuances,
exchange offers or otherwise, including restructuring our balance
sheet and leverage position, especially given recent volatility and
disruption in the capital and credit markets;
- the impact of competition from
other distributors, including but not limited to incumbent
telephone companies, direct broadcast satellite operators, wireless
broadband providers, and digital subscriber line ("DSL")
providers;
- difficulties in growing and
operating our telephone services, while adequately meeting customer
expectations for the reliability of voice services;
- our ability to adequately meet
demand for installations and customer service;
- our ability to sustain and grow
revenues and cash flows from operating activities by offering
video, high-speed Internet, telephone and other services, and to
maintain and grow our customer base, particularly in the face of
increasingly aggressive competition;
- our ability to obtain
programming at reasonable prices or to adequately raise prices to
offset the effects of higher programming costs;
- general business conditions,
economic uncertainty or downturn, including the recent volatility
and disruption in the capital and credit markets and the
significant downturn in the housing sector and overall economy;
and
- the effects of governmental
regulation on our business.
All forward-looking statements attributable to us or any person
acting on our behalf are expressly qualified in their entirety by
this cautionary statement. We are under no duty or obligation to
update any of the forward-looking statements after the date of this
release.
1 Pro forma results are described below in the �Use of Non-GAAP
Financial Metrics� section and are provided in the addendum of this
news release.
2 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.
3 Average revenue per basic video customer.
� � � � � �
CHARTER COMMUNICATIONS, INC. AND
SUBSIDIARIESUNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
AND OPERATING DATA(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND
SHARE DATA) � �
Three Months Ended December 31, Year
Ended December 31, 2008 2007 2008
2007 Actual Actual % Change
Actual Actual % Change �
REVENUES:
Video $ 864 $ 850 1.6 % $ 3,463 $ 3,392 2.1 % High-speed Internet
347 324 7.1 % 1,356 1,243 9.1 % Telephone 156 108 44.4 % 555 345
60.9 % Commercial 103 90 14.4 % 392 341 15.0 % Advertising sales 85
82 3.7 % 308 298 3.4 % Other � 101 � � 99 � 2.0 % � 405 � � 383 �
5.7 % Total revenues � 1,656 � � 1,553 � 6.6 % � 6,479 � � 6,002 �
7.9 % �
COSTS AND EXPENSES: Operating (excluding
depreciation and amortization) (a) 703 663 6.0 % 2,792 2,620 6.6 %
Selling, general and
administrative (excluding stock compensation expense) (b)
� 333 � � 325 � 2.5 % � 1,368 � � � 1,271 � 7.6 % Operating costs
and expenses � 1,036 � � 988 � 4.9 % � 4,160 � � 3,891 � 6.9 % �
Adjusted EBITDA � 620 � � 565 � 9.7 % � 2,319 � � 2,111 � 9.9 % �
Adjusted EBITDA margin � 37.4 % � 36.4 % � 35.8 % � 35.2 % �
Depreciation and amortization 329 329 1,310 1,328 Impairment
charges 1,521 178 1,521 234 Stock compensation expense 9 3 33 18
Other operating expenses, net � 18 � � (30 ) � 69 � � (17 ) �
Income (loss) from operations � (1,257 ) � 85 � � (614 ) � 548 � �
OTHER INCOME (EXPENSES): Interest expense, net (486 ) (466 )
(1,903 ) (1,851 ) Change in value of derivatives (28 ) 70 (29 ) 52
Other expense, net � (1 ) � (117 ) � (8 ) � (156 ) � (515 ) � (513
) � (1,940 ) � (1,955 ) � Loss before income taxes (1,772 ) (428 )
(2,554 ) (1,407 ) � Income tax benefit (expense) � 277 � � (40 ) �
103 � � (209 ) � Net loss $ (1,495 ) $ (468 ) $ (2,451 ) $ (1,616 )
� Loss per common share, basic and diluted $ (3.96 ) $ (1.27 ) $
(6.56 ) $ (4.39 ) � Weighted average common shares outstanding,
basic and diluted � 377,920,301 � � 369,916,556 � � 373,464,920 � �
368,240,608 � � � (a) Operating expenses include programming,
service, and advertising sales expenses. � (b) Selling, general and
administrative expenses include general and administrative and
marketing expenses. � Adjusted EBITDA is a non-GAAP term. See page
7 of this addendum for the reconciliation of adjusted EBITDA to net
cash flows from operating activities as defined by GAAP. � �
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND OPERATING DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND SHARE DATA) � � �
� � � �
Three Months Ended December 31, Year Ended
December 31, �
2008 2007 2008 2007
Pro Forma (a) Pro Forma (a) % Change Pro
Forma (a) Pro Forma (a) % Change �
REVENUES: Video $ 862 $ 844 2.1 % $ 3,455 $ 3,363 2.7 %
High-speed Internet 346 323 7.1 % 1,353 1,237 9.4 % Telephone 156
108 44.4 % 555 345 60.9 % Commercial 103 89 15.7 % 391 338 15.7 %
Advertising sales 85 82 3.7 % 308 296 4.1 % Other � 101 � � 99 �
2.0 % � 405 � � 380 � 6.6 %
Total revenues
� 1,653 � � 1,545 � 7.0 % � 6,467 � � 5,959 � 8.5 % �
COSTS AND
EXPENSES: Operating (excluding depreciation and amortization)
(b) 702 659 6.5 % 2,787 2,596 7.4 %
Selling, general and
administrative (excluding stock compensation expense) (c)
� 332 � � 324 � 2.5 % � 1,365 � � 1,265 � 7.9 % Operating costs and
expenses � 1,034 � � 983 � 5.2 % � 4,152 � � 3,861 � 7.5 % �
Adjusted EBITDA � 619 � � 562 � 10.1 % � 2,315 � � 2,098 � 10.3 % �
Adjusted EBITDA margin � 37.4 % � 36.4 % � 35.8 % � 35.2 % �
Depreciation and amortization 328 327 1,307 1,320 Impairment
charges 1,521 178 1,521 178 Stock compensation expense 9 3 33 18
Other operating expenses, net � 14 � � (33 ) � 65 � � (20 ) �
Income (loss) from operations � (1,253 ) � 87 � � (611 ) � 602 � �
OTHER INCOME (EXPENSES): Interest expense, net (486 ) (466 )
(1,903 ) (1,851 ) Change in value of derivatives (28 ) 70 (29 ) 52
Other expense, net � (1 ) � (117 ) � (8 ) � (156 ) � (515 ) � (513
) � (1,940 ) � (1,955 ) � Loss before income taxes (1,768 ) (426 )
(2,551 ) (1,353 ) � Income tax benefit (expense) � 277 � � (42 ) �
103 � � (195 ) � Net loss $ (1,491 ) $ (468 ) $ (2,448 ) $ (1,548 )
� Loss per common share, basic and diluted $ (3.95 ) $ (1.27 ) $
(6.55 ) $ (4.21 ) � Weighted average common shares outstanding,
basic and diluted � 377,920,301 � � 369,916,556 � � 373,464,920 � �
368,240,608 � � �
(a) Pro forma results reflect certain sales and acquisitions of
cable systems in 2007 and 2008 as if they occurred as of January 1,
2007. The pro forma statements of operations do not include
adjustments for financing transactions completed by Charter during
the periods presented or certain other dispositions of assets
because those transactions did not significantly impact Charter's
adjusted EBITDA. However, all transactions completed in 2007 and
2008 have been reflected in the operating statistics. The pro forma
data is based on information available to Charter as of the date of
this document and certain assumptions that we believe are
reasonable under the circumstances. The financial data required
allocation of certain revenues and expenses and such information
has been presented for comparative purposes and is not intended to
provide any indication of what our actual financial position, or
results of operations would have been had the transactions
described above been completed on the dates indicated or to project
our results of operations for any future date.
(b) Operating expenses include programming, service, and
advertising sales expenses.
(c) Selling, general and administrative expenses include general
and administrative and marketing expenses.
December 31, 2008. Pro forma revenues, operating costs
and expenses and net loss were reduced by $3 million, $2 million
and $4 million, respectively, for the three months ended December
31, 2008. Pro forma revenues, operating costs and expenses and net
loss were reduced by $12 million, $8 million and $3 million,
respectively, for the year ended December 31, 2008.
December 31, 2007. Pro forma revenues, operating costs
and expenses and net loss were reduced by $8 million, $5 million
and $0, respectively, for the three months ended December 31, 2007.
Pro forma revenues, operating costs and expenses and net loss were
reduced by $43 million, $30 million and $68 million, respectively,
for the year ended December 31, 2007.
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
SUBSIDIARIESUNAUDITED CONSOLIDATED BALANCE
SHEETS(DOLLARS IN MILLIONS) � �
December 31,
December 31, 2008 2007 �
ASSETS �
CURRENT ASSETS: Cash and cash equivalents $ 960 $ 75 Accounts
receivable, net of allowance for doubtful accounts 222 225 Prepaid
expenses and other current assets � 36 � � 36 � Total current
assets � 1,218 � � 336 � � INVESTMENT IN CABLE PROPERTIES:
Property, plant and equipment, net 4,987 5,103 Franchises, net �
7,384 � � 8,942 �
Total investment in cable
properties, net
� 12,371 � � 14,045 � � OTHER NONCURRENT ASSETS � 293 � � 285 �
Total assets $ 13,882 � $ 14,666 � �
LIABILITIES AND
SHAREHOLDERS' DEFICIT � CURRENT LIABILITIES: Accounts payable
and accrued expenses $ 1,310 $ 1,332 Current portion of long-term
debt � 155 � � - � Total current liabilities � 1,465 � � 1,332 � �
LONG-TERM DEBT 21,511 19,908 � NOTE PAYABLE - RELATED PARTY 75 65 �
DEFERRED MANAGEMENT FEES - RELATED PARTY 14 14 � OTHER LONG-TERM
LIABILITIES 1,120 1,035 � MINORITY INTEREST 203 199 � PREFERRED
STOCK - REDEEMABLE - 5 � SHAREHOLDERS' DEFICIT � (10,506 ) � (7,892
) Total liabilities and shareholders' deficit $ 13,882 � $ 14,666 �
� �
CHARTER COMMUNICATIONS, INC. AND
SUBSIDIARIESUNAUDITED CONSOLIDATED STATEMENTS OF CASH
FLOWS(DOLLARS IN MILLIONS) � � � � � �
Three Months Ended December
31,
Year Ended December 31,
2008 2007 2008 2007 � CASH FLOWS FROM
OPERATING ACTIVITIES: Net loss $ (1,495 ) $ (468 ) $ (2,451 ) $
(1,616 ) Adjustments to reconcile net loss to net cash flows from
operating activities: Depreciation and amortization 329 329 1,310
1,328 Impairment charges 1,521 178 1,521 234 Noncash interest
expense 16 9 59 40 Change in value of derivatives 28 (70 ) 29 (52 )
Deferred income taxes (276 ) 37 (107 ) 198 Other, net 10 86 49 135
Changes in operating assets and liabilities, net of effects from
dispositions Accounts receivable 24 (3 ) 3 (36 ) Prepaid expenses
and other assets 8 24 (1 ) 45 Accounts payable, accrued expenses
and other � (176 ) � (122 ) � (13 ) � 51 � Net cash flows from
operating activities � (11 ) � - � � 399 � � 327 � � CASH FLOWS
FROM INVESTING ACTIVITIES: Purchases of property, plant and
equipment (264 ) (354 ) (1,202 ) (1,244 ) Change in accrued
expenses related to capital expenditures 2 49 (39 ) (2 ) Other, net
� 32 � � 102 � � 31 � � 108 �
Net cash flows from investing
activities
� (230 ) � (203 ) � (1,210 ) � (1,138 ) � CASH FLOWS FROM FINANCING
ACTIVITIES: Borrowings of long-term debt 750 405 3,105 7,877
Repayments of long-term debt (116 ) (176 ) (1,354 ) (7,017 )
Payments for debt issuance costs - (9 ) (42 ) (42 ) Other, net � (2
) � (1 ) � (13 ) � 8 � Net cash flows from financing activities �
632 � � 219 � � 1,696 � � 826 � � NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 391 16 885 15 CASH AND CASH EQUIVALENTS,
beginning of period � 569 � � 59 � � 75 � � 60 � CASH AND CASH
EQUIVALENTS, end of period $ 960 � $ 75 � $ 960 � $ 75 � � CASH
PAID FOR INTEREST $ 606 � $ 562 � $ 1,847 � $ 1,792 � � NONCASH
TRANSACTIONS:
Cumulative adjustment to
Accumulated Deficit for the adoption of FIN 48
$ - � $ - � $ - � $ 56 � Issuance of 6.50% convertible notes $ - �
$ 479 � $ - � $ 479 � Retirement of 5.875% convertible notes $ - �
$ (364 ) $ - � $ (364 ) � � � �
CHARTER COMMUNICATIONS, INC. AND
SUBSIDIARIESUNAUDITED SUMMARY OF OPERATING STATISTICS �
�
Approximate as of Actual Pro Forma
December 31, September 30, December 31,
2008 (a) 2008 (a) 2007 (a) �
Customer
Summary: Customer Relationships: Residential (non-bulk)
basic video customers (b) 4,779,000 4,846,300 4,944,400
Multi-dwelling (bulk) and commercial unit customers (c) � 266,700 �
� 274,500 � � 258,800 � Total basic video customers 5,045,700
5,120,800 5,203,200 � Non-video customers (b) � 408,900 � � 407,700
� � 375,800 � Total customer relationships (d) � 5,454,600 � �
5,528,500 � � 5,579,000 � � Pro forma average monthly revenue per
basic video customer (e) $ 108.27 $ 106.19 $ 98.24 Pro forma
average monthly video revenue per basic video customer (f) $ 59.15
$ 58.92 $ 56.17 � Residential bundled customers (g) 2,749,000
2,712,800 2,501,300 �
Revenue Generating Units: Basic video
customers (b) (c) 5,045,700 5,120,800 5,203,200 Digital video
customers (h) 3,133,400 3,111,100 2,912,800 Residential high-speed
Internet customers (i) 2,875,200 2,852,300 2,676,900 Telephone
customers (j) � 1,348,800 � � 1,273,600 � � 959,300 � Total revenue
generating units (k) � 12,403,100 � � 12,357,800 � � 11,752,200 � �
Video Cable Services: Basic Video: Estimated homes
passed (l) 11,918,100 11,897,000 11,705,700 Basic video customers
(b)(c) 5,045,700 5,120,800 5,203,200 Estimated penetration of basic
homes passed (b) (c) (l) (m) 42.3 % 43.0 % 44.5 % Pro forma basic
video customers quarterly net loss (b) (c) (n) (75,100 ) (25,900 )
(65,800 ) �
Digital Video: Digital video customers (h)
3,133,400 3,111,100 2,912,800 Digital penetration of basic video
customers (b) (c) (h) (o) 62.1 % 60.8 % 56.0 % Digital set-top
terminals deployed 4,550,000 4,493,600 4,182,700 Pro forma digital
video customers quarterly net gain (h) (n) 22,300 61,400 59,500 �
Non-Video Cable Services: High-Speed Internet
Services: Estimated high-speed Internet homes passed (l)
11,257,800 11,214,400 10,990,100 Residential high-speed Internet
customers (i) 2,875,200 2,852,300 2,676,900 Estimated penetration
of high-speed Internet homes passed (i) (l) (m) 25.5 % 25.4 % 24.4
% Pro forma average monthly high-speed Internet revenue per
high-speed Internet customer (f) $ 40.26 $ 40.53 $ 40.54 Pro forma
high-speed Internet customers quarterly net gain (i) (n) 22,900
70,500 50,500 �
Telephone Services: Estimated telephone
homes passed (l) 10,434,400 10,214,600 9,013,900 Telephone
customers (j) 1,348,800 1,273,600 959,300 Estimated penetration of
telephone homes passed (i) (l) (m) 12.9 % 12.5 % 10.6 % Pro forma
average monthly telephone revenue per telephone customer (f) $
41.06 $ 40.67 $ 41.74 Pro forma telephone customers quarterly net
gain (j) (n) 75,200 98,400 155,300 � �
Pro forma operating statistics reflect the sales of cable
systems in 2007 and 2008 as if such transactions had occurred as of
the last day of the respective period for all periods presented.
The pro forma statements of operations do not include adjustments
for financing transactions completed by Charter during the periods
presented or certain other dispositions of assets because those
transactions did not significantly impact Charter's adjusted
EBITDA. However, all transactions completed in 2007 and 2008 have
been reflected in the operating statistics.
At September 30, 2008 actual basic video customers, digital
video customers, high-speed Internet customers and telephone
customers were 5,136,100, 3,118,500, 2,858,200, and 1,274,300,
respectively.
At December 31, 2007 actual basic video customers, digital video
customers, high-speed Internet customers and telephone customers
were 5,219,900, 2,920,400, 2,682,500, and 959,300,
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. In addition, at
December 31, 2008, September 30, 2008, and December 31, 2007,
�customers� include approximately 36,000, 42,100, and 48,200
persons, respectively, whose accounts were over 60 days past due in
payment, approximately 5,300, 7,700, and 10,700 persons,
respectively, whose accounts were over 90 days past due in payment
and approximately 2,700, 3,800, and 2,900 persons, respectively,
whose accounts were over 120 days past due in payment.
(b) "Basic video customers" include all residential customers
who receive video services (including those who also purchase
high-speed Internet and telephone services) but excludes
approximately 408,900, 407,700, and 375,800 customer relationships
at December 31, 2008, September 30, 2008, and December 31, 2007,
respectively, who receive high-speed Internet service only,
telephone service only, or both high-speed Internet service and
telephone service and who are only counted as high-speed Internet
customers or telephone customers.
(c) Included within "basic 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 basic video customers is consistent with the
methodology used in determining costs paid to programmers and has
been used consistently each reporting year. As we increase our
effective video prices to residential customers without a
corresponding increase in the prices charged to commercial service
or multi-dwelling customers, our EBU count will decline even if
there is no real loss in commercial service or multi-dwelling
customers.
(d) "Customer relationships" include the number of customers
that receive one or more levels of service, encompassing video,
Internet and telephone services, without regard to which service(s)
such customers receive. This statistic is computed in accordance
with the guidelines of the National Cable & Telecommunications
Association (NCTA) that have been adopted by eleven publicly traded
cable operators, including Charter.
(e) "Pro forma average monthly revenue per basic video customer"
is calculated as total quarterly pro forma revenue divided by three
divided by average pro forma basic video customers during the
respective quarter.
(f) "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.
(g) "Residential bundled customers" include residential
customers receiving a combination of at least two different types
of service, including Charter's video service, high-speed Internet
service or telephone. "Residential bundled customers" do not
include residential customers who only subscribe to video
service.
(h) "Digital video customers" include all basic video customers
that have one or more digital set-top boxes or cable cards
deployed.
(i) "Residential high-speed Internet customers" represent those
residential customers who subscribe to our high-speed Internet
service. At December 31, 2008, September 30, 2008, and December 31,
2007, approximately 2,576,600, 2,554,400, and 2,387,900 of these
high-speed Internet customers, respectively, receive video and/or
telephone services from us and are included within the respective
statistics above.
(j) "Telephone customers" include all customers receiving
telephone service. As of December 31, 2008, September 30, 2008, and
December 31, 2007, approximately 1,311,200, 1,232,400, and 920,600
of these telephone customers, respectively, receive video and/or
high-speed Internet services from us and are included within the
respective statistics above.
(k) "Revenue generating units" represent the sum total of all
basic 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
basic 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.
(l) "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.
(m) "Penetration" represents customers as a percentage of homes
passed for the service indicated.
(n) "Pro forma quarterly net gain (loss)" represents the pro
forma net gain or loss in the respective quarter for the service
indicated.
(o) "Digital penetration of basic video customers" represents
the number of digital video customers as a percentage of basic
video customers.
� �
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED RECONCILIATION OF NON-GAAP MEASURES TO GAAP
MEASURES (DOLLARS IN MILLIONS) � � � � �
Three Months
Ended December 31, Year Ended December 31, 2008
2007 2008 2007 Actual Actual
Actual Actual � Net cash flows from operating
activities $ (11 ) $ - $ 399 $ 327 Less: Purchases of property,
plant and equipment (264 ) (354 ) (1,202 ) (1,244 ) Less: Change in
accrued expenses related to capital expenditures � 2 � � 49 � � (39
) � (2 ) � Free cash flow (273 ) (305 ) (842 ) (919 ) � Interest on
cash pay obligations (b) 470 457 1,844 1,811 Purchases of property,
plant and equipment 264 354 1,202 1,244 Change in accrued expenses
related to capital expenditures (2 ) (49 ) 39 2 Other, net 17 7 65
33 Change in operating assets and liabilities � 144 � � 101 � � 11
� � (60 ) � Adjusted EBITDA (c) $ 620 � $ 565 � $ 2,319 � $ 2,111 �
� � �
Three Months Ended December 31, Year Ended December
31, 2008 2007 2008 2007 Pro
Forma (a) Pro Forma (a) Pro Forma (a) Pro
Forma (a) � Net cash flows from operating activities $ (12 ) $
(3 ) $ 395 $ 314 Less: Purchases of property, plant and equipment
(264 ) (354 ) (1,202 ) (1,244 ) Less: Change in accrued expenses
related to capital expenditures � 2 � � 49 � � (39 ) � (2 ) � Free
cash flow (274 ) (308 ) (846 ) (932 ) � Interest on cash pay
obligations (b) 470 457 1,844 1,811 Purchases of property, plant
and equipment 264 354 1,202 1,244 Change in accrued expenses
related to capital expenditures (2 ) (49 ) 39 2 Other, net 17 7 65
33 Change in operating assets and liabilities � 144 � � 101 � � 11
� � (60 ) � Adjusted EBITDA (c) $ 619 � $ 562 � $ 2,315 � $ 2,098 �
� �
(a) Pro forma results reflect certain sales and acquisitions of
cable systems in 2007 and 2008 as if they occurred as of January 1,
2007.
(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) See page 1 of this addendum for detail of the components
included within adjusted EBITDA.
The above schedules are presented in order to reconcile adjusted
EBITDA and free cash flows, both non-GAAP measures, to the most
directly comparable GAAP measures in accordance with Section 401(b)
of the Sarbanes-Oxley Act.
� �
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES CAPITAL
EXPENDITURES (DOLLARS IN MILLIONS) � � � � �
Three
Months Ended December 31, Year Ended December 31,
2008 2007 2008 2007 � Customer premise
equipment (a) $ 115 $ 150 $ 595 $ 578 Scalable infrastructure (b)
66 68 251 232 Line extensions (c) 17 29 80 105 Upgrade/Rebuild (d)
3 17 40 52 Support capital (e) � 63 � 90 � 236 � 277 � Total
capital expenditures $ 264 $ 354 $ 1,202 $ 1,244 � �
(a) Customer premise equipment includes costs incurred at the
customer residence to secure new customers, revenue units and
additional bandwidth revenues. It also includes customer
installation costs in accordance with SFAS No. 51 and customer
premise equipment (e.g., set-top boxes and cable modems, etc.).
(b) Scalable infrastructure includes costs, not related to
customer premise equipment or our network, to secure growth of new
customers, revenue units and additional bandwidth revenues or
provide service enhancements (e.g., headend equipment).
(c) Line extensions include network costs associated with
entering new service areas (e.g., fiber/coaxial cable, amplifiers,
electronic equipment, make-ready and design engineering).
(d) Upgrade/rebuild includes costs to modify or replace existing
fiber/coaxial cable networks, including betterments.
(e) Support capital includes costs associated with the
replacement or enhancement of non-network assets due to
technological and physical obsolescence (e.g., non-network
equipment, land, buildings and vehicles).
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