Local franchise authorities have the ability to impose additional regulatory constraints on our business, which could further increase our expenses.
In addition to the franchise agreement, cable authorities in some jurisdictions have adopted cable regulatory ordinances that further regulate the operation of cable systems. This additional regulation increases the cost of operating our business. We cannot assure you that the local franchising authorities will not impose new and more restrictive requirements. Local franchising authorities who are certified to regulate rates in the communities where wethey operate generally have the power to reduce rates and order refunds on the rates charged for basic service and equipment.
Further regulation of the cable industry could cause us to delay or cancel service or programming enhancements, or impair our ability to raise rates to cover our increasing costs, resulting in increased losses.
Currently, rate regulation is strictly limited to the basic service tier and associated equipment and installation activities. However, the FCC and Congress continue to be concerned that cable rate increases are exceeding inflation notwithstanding the additional channels and services being provided.inflation. It is possible that either the FCC or Congress will further restrict the ability of cable system operators to implement rate increases. Should this occur, it would impede our ability to raise our rates. If we are unable to raise our rates in response to increasing costs, our losses would increase.
There has been legislative and regulatory interest in requiring cable operators to offer historically bundled programming services on an á la carte basis, or to at least offer a separately available child-friendly “family tier.” It is possible that new marketing restrictions could be adopted in the future. Such restrictions could adversely affect our operations.
Actions by pole owners might subject us to significantly increased pole attachment costs.
Changes in channel carriage regulations could impose significant additional costs on us.
Cable operators also face significant regulation of their channel carriage. We can be required to devote substantial capacity to the carriage of programming that we might not carry voluntarily, including certain local broadcast signals; local PEGpublic, educational and government access (“PEG”) programming; and unaffiliated, commercial leased access programming (required channel capacity for use by persons unaffiliated with the cable operator who desire to distribute programming over a cable system). Under two recently released FCC orders, it appears that our carriage obligations regarding local broadcast programming and commercial leased access programming will increase substantially if these orders are not reversed in administrative reconsiderations or judicial appeals. The FCC recently adopted a new transition plan in 2007 addressing the
cable industry’s broadcast carriage obligations once the broadcast industry migration from analog to digital transmission is completed, which is expected to occur in FebruaryJune 2009. Under the FCC’s transition plan, most cable systems will be required to offer both an analog and digital version of local broadcast signals for three years after the digital transition date. This burden could increase further if we are required to carry multiple programming streams included within a single digital broadcast transmission (multicast carriage) or if our broadcast carriage obligations are otherwise expanded. The FCC also adopted new commercial leased access rules which dramatically reduce the rate we can charge for leasing this capacity and dramatically increase our associated administrative burdens. These regulatory changes could disrupt existing programming commitments, interfere with our preferred use of limited channel capacity, and limit our ability to offer services that would maximize our revenue potential. It is possible that other legal restraints will be adopted limiting our discretion over programming decisions.
Offering voice communications service may subject us to additional regulatory burdens, causing us to incur additional costs.
We offer voice communications services over our broadband network and continue to develop and deploy VoIP services. The FCC has declared that certain VoIP services are not subject to traditional state public utility regulation. The full extent of the FCC preemption of state and local regulation of VoIP services is not yet clear. Expanding our offering of these services may require us to obtain certain authorizations, including federal and state licenses. We may not be able to obtain such authorizations in a timely manner, or conditions could be imposed upon such licenses or authorizations that may not be favorable to us. The FCC has extended certain traditional telecommunications requirements, such as E911, and Universal Service fund collection, CALEA, Customer Proprietary Network Information and telephone relay requirements to many VoIP providers such as us. Telecommunications companies generally are subject to other significant regulation which could also be extended to VoIP providers. If additional telecommunications regulations are applied to our VoIP service, it could cause us to incur additional costs.
Our principal physical assets consist of cable distribution plant and equipment, including signal receiving, encoding and decoding devices, headend reception facilities, distribution systems, and customer premise equipment for each of our cable systems.
Our cable plant and related equipment are generally attached to utility poles under pole rental agreements with local public utilities and telephone companies, and in certain locations are buried in underground ducts or trenches. We own or lease real property for signal reception sites, and own most of our service vehicles.
Our subsidiaries generally lease space for business offices throughout our operating divisions. Our headend and tower locations are located on owned or leased parcels of land, and we generally own the towers on which our equipment is located. Charter Holdco owns the real propertyland and building for our principal executive offices.office.
The physical components of our cable systems require maintenance as well as periodic upgrades to support the new services and products we introduce. We believe that our properties are generally in good operating condition and are suitable for our business operations.
We and our parent companies are also defendants or co-defendants in several other unrelated lawsuits claiming infringement of various patents relating to various aspects of our businesses. Other industry participants are also defendants in certain of these cases, and, in many cases including those described above, we expect that any potential liability would be the responsibility of our equipment vendors pursuant to applicable contractual indemnification provisions.
In the event that a court ultimately determines that we infringe on any intellectual property rights, we may be subject to substantial damages and/or an injunction that could require us or our vendors to modify certain products and services we offer to our subscribers, as well as negotiate royalty or license agreements with respect to the patents at issue. While we believe the lawsuits are without merit and intend to defend the actions vigorously, all of these patent lawsuits could be material to our consolidated results of operations of any one period, and no assurance can be given that any adverse outcome would not be material to our consolidated financial condition, results of operations, or liquidity.
factual and legal defenses to the claims at issue, in order to avoid the cost and distraction of continuing to litigate the case, we reached a settlement with the plaintiffs, which received final approval from the court on January 26, 2009. We have been subjected, in the normal course of business, to the assertion of other similar claims and could be subjected to additional such claims. We cannot predict the ultimate outcome of any such claims.
Other Proceedings
We and our parent companies also are party to other lawsuits and claims that arise in the ordinary course of conducting our business. The ultimate outcome of these other legal matters pending against us or our parent companies cannot be predicted, and although such lawsuits and claims are not expected individually to have a material adverse effect on our consolidated financial condition, results of operations, or liquidity, such lawsuits could have in the aggregate a material adverse effect on our consolidated financial condition, results of operations,
or liquidity. Whether or not we ultimately prevail in any particular lawsuit or claim, litigation can be time consuming and costly and injure our reputation.
Our membership interests are not publicly traded.
All of the membership interests of Charter Holdings are owned by CCHC. All of the outstanding capital stock of Charter Capital is owned by Charter Holdings. All of the membership interests of CCH II are owned by CCH I and indirectly by Charter Holdings. All of the outstanding capital stock of CCH II Capital Corp. is owned by CCH II. All of the membership interests of CCO Holdings are owned by CCH II and indirectly by Charter Holdings. All of the outstanding capital stock of CCO Holdings Capital Corp. is owned by CCO Holdings.Holdings, an indirect subsidiary of Charter.
None.
(D) Securities Authorized for Issuance Under Equity Compensation Plans
The following information is provided as of December 31, 20072008 with respect to equity compensation plans of Charter:
| | Number of Securities | | | | Number of Securities |
| | to be Issued Upon | | Weighted Average | | Remaining Available |
| | Exercise of Outstanding | | Exercise Price of | | for Future Issuance |
| | Options, Warrants | | Outstanding Options, | | Under Equity |
Plan Category | | and Rights | | Warrants and Rights | | Compensation Plans |
| | | | | | |
Equity compensation plans approved by security holders | | 25,681,561 | (1) | | | $ 4.02 | | 22,759,689 |
Equity compensation plans not approved by security holders | | 289,268 | (2) | | | $ 3.91 | | -- |
| | | | | | | | |
TOTAL | | 25,970,829 | | | | $ 4.02 | | 22,759,689 |
_____________ | | Number of Securities | | | | Number of Securities |
| | to be Issued Upon | | Weighted Average | | Remaining Available |
| | Exercise of Outstanding | | Exercise Price of | | for Future Issuance |
| | Options, Warrants | | Outstanding Options, | | Under Equity |
Plan Category | | and Rights | | Warrants and Rights | | Compensation Plans |
| | | | | | |
Equity compensation plans approved by security holders | | 22,043,636 | (1) | | $ | 3.82 | | 8,786,240 |
Equity compensation plans not approved by security holders | | 289,268 | (2) | | $ | 3.91 | | -- |
| | | | | | | | |
TOTAL | | 22,332,904 | | | $ | 3.82 | | 8,786,240 |
(1) | This total does not include 4,112,37512,008,625 shares issued pursuant to restricted stock grants made under Charter’s 2001 Stock Incentive Plan, which were or are subject to vesting based on continued employment, or 28,008,98533,036,871 performance shares issued under Charter’s Long Term Incentive Program under Charter’s 2001 Stock Incentive Plan,LTIP plan, which are subject to vesting based on continued employment and Charter’s achievement of certain performance criteria. |
(2) | Includes shares of Charter’s Class A common stock to be issued upon exercise of options granted pursuant to an individual compensation agreement with a consultant. |
For information regarding securities issued under Charter’s equity compensation plans, see Note 18 to our accompanying consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data.”
Reference is made to “Item“Part I. Item 1. Business – Recent Developments” which describes the Proposed Restructuring and “Part I. Item 1A. Risk Factors” especially the risk factors “—Risks Relating to Bankruptcy” and “Cautionary Statement Regarding Forward-Looking Statements,” which describe important factors that could cause actual results to differ from expectations and non-historical information contained herein. In addition, the following discussion should be read in conjunction with the audited consolidated financial statements of Charter Holdings, CCH II and CCO Holdings and subsidiaries as of and for the years ended December 31, 2008, 2007, 2006, and 2005.
2006.
Overview
Charter Holdings, including its indirect subsidiaries, CCH II and CCO Holdings through their operating subsidiary, Charter Operating, operateis a broadband communications businessescompany operating in the United States with approximately 5.65.5 million customers at December 31, 2007. Through our hybrid fiber2008. CCO Holdings Capital Corp. is a wholly-owned subsidiary of CCO Holdings and coaxial cable network, wewas formed and exists solely as a co-issuer of the public debt issued with CCO Holdings. CCO Holdings is a direct subsidiary of CCH II, which is an indirect subsidiary of Charter Holdings. Charter Holdings is an indirect subsidiary of Charter. We offer our customers traditional cable video programming (analog(basic and digital, which we refer to as "video" service), high-speed Internet access, and telephone services, as well as advanced broadband services (such as OnDemand, high definition television service and DVR). Results for Charter Holdings, CCH II, and CCO Holdings are discussed below. Because all operating activities take place at our subsidiary, Charter Operating, and its subsidiaries, results of operations are identical through operating income from continuing operations.
Approximately 89% and 88%86% of our revenues for each of the years ended December 31, 20072008 and 2006, respectively,2007 are attributable to monthly subscription fees charged to customers for our video, high-speed Internet, telephone, and commercial services provided by our cable systems. Generally, these customer subscriptions may be discontinued by the customer at any time. The remaining 11%14% of revenue for fiscal years 2008 and 12% of revenue2007 is derived primarily from advertising revenues, franchise fee revenues (which are collected by us but then paid to local franchising authorities), pay-per-view and OnDemand programming (where users are charged a fee for individual programs viewed), installation or reconnection fees charged to customers to commence or reinstate service, and commissions related to the sale of merchandise by home shopping services.
The cable industry's and our most significant competitive challenges stem from DBS providers and DSL service providers. In addition, telephoneTelephone companies either offer, or are making upgrades of their networks that will allow them to offer, services that provide features and functions similar to our video, high-speed Internet, and telephone services, and they also offer them in bundles similar to ours. We believe that competition from DBS and telephone companies has resulted in net video customer losses. In addition, we face increasingly limited opportunities to expandupgrade our video customer base now that approximately 56%62% of our video customers subscribe to our digital video service. These factors have contributed to decreased growth rates for digital video customers. Similarly, competition from DSLhigh-speed Internet providers along with increasing penetration of high-speed Internet service in homes with computers has resulted in decreased growth rates for high-speed Internet customers. In the recent past, we have grown revenues by offsetting video customer losses with price increases and sales of incremental services such as high-speed Internet, OnDemand, DVR, high definition television, and telephone. We expect to continue to grow revenues through price increases and high-speed Internet upgrades, increases in the number of our customers who purchase bundled services including high-speed Internet and telephone, and through sales of incremental advanced services including wireless networking, high definition television, OnDemand, and DVR service.services. In addition, we expect to increase revenues by expanding the sales of our services to our commercial customers. However, we cannot assure you that we will be able to grow revenues at historical rates, if at all. Dramatic declines in the housing market over the past year, including falling home prices and increasing foreclosures, together with significant increases in unemployment, have severely affected consumer confidence and may cause increased delinquencies or cancellations by our customers or lead to unfavorable changes in the mix of products purchased. The general economic downturn also may affect advertising sales, as companies seek to reduce expenditures and conserve cash. Any of these events may adversely affect our cash flow, results of operations and financial condition.
Our expenses primarily consist of operating costs, selling, general and administrative expenses, depreciation and amortization expense, impairment of franchise intangibles and interest expense. Operating costs primarily include programming costs, the cost of our workforce, cable service related expenses, advertising sales costs and franchise fees. Selling, general and administrative expenses primarily include salaries and benefits, rent expense, billing costs, call center costs, internal network costs, bad debt expense, and property taxes. We are attempting to control our costs of operations by maintaining strict controls on expenses. More specifically, we are focused on managing our cost structure by improving workforce productivity, and leveraging our growth,scale, and increasing the effectiveness of our purchasing activities.
Our
For the year ended December 31, 2008, our operating loss from continuing operations was $614 million and for the years ended December 31, 2007 and 2006, income from continuing operations increased towas $548 million and $367 million, respectively. We had a negative operating margin (defined as operating loss from continuing operations divided by revenues) of 9% for the year ended December 31, 2007 from $367 million for the year ended December 31, 2006. We had2008 and positive operating margins (defined as operating income from continuing operations divided by revenues) of 9% and 7% for the years ended December 31, 2007 and 2006, respectively. For the year ended December 31, 2008, the operating loss from continuing operations and negative operating margin is principally due to impairment of franchises incurred during the fourth quarter. The improvement in operating income from continuing operations in 2007 as compared to 2006 and positive operating margin for the years ended December 31, 2007 and 2006 is principally due to an increase in revenue over expenses as a resultincreased sales of increased customers for high-speed Internet, digital video,our bundled services and telephone customers, as well as overall rate increases.improved cost efficiencies.
We have a history of net losses. Further, we expect to continue to report net losses for the foreseeable future. Our net losses are principally attributable to insufficient revenue to cover the combination of operating expenses and interest expenses we incur because of our high amounts of debt, and depreciation expenses resulting from the capital investments we have made and continue to make in our cable properties. We expect that these expenses will remain significant.properties, and the impairment of our franchise intangibles.
Beginning in 2004 and continuing through 2007,2008, we sold several cable systems to divest geographically non-strategic assets and allow for more efficient operations, while also reducing debt orand increasing our liquidity. In 2006, 2007, and 2007,2008, we closed the sale of certain cable systems representing a total of approximately 390,300, 85,100, and 85,10014,100 video customers, respectively. As a result of these sales we have improved our geographic footprint by reducing our number of headends, increasing the number of customers per headend, and reducing the number of states in which the majority of our customers reside. We have also made certain geographically strategic acquisitions in 2006 and 2007, adding 17,600 and 25,500 video customers, respectively.
In 2006, we determined that the West Virginia and Virginia cable systems, which were part of the system sales disclosed above, comprised operations and cash flows that for financial reporting purposes met the criteria for discontinued operations. Accordingly, the results of operations for the West Virginia and Virginia cable systems (including a gain on sale of approximately $200 million recorded in the third quarter of 2006), have been presented as discontinued operations, net of tax, for the year ended December 31, 2006, and all prior periods presented herein have been reclassified to conform to the current presentation.2006.
Results of Operations
The following tables settable sets forth the percentages of revenues that items in the accompanying consolidated statements of operations constituteconstituted for the indicated periods presented (dollars in millions):
| | Charter Holdings |
| | Year Ended December 31, |
| | 2007 | | 2006 |
| | | | | | | | | | |
Revenues | | $ | 6,002 | | 100% | | $ | 5,504 | | 100% |
| | | | | | | | | | |
Costs and Expenses: | | | | | | | | | | |
Operating (excluding depreciation and amortization) | | | 2,620 | | 44% | | | 2,438 | | 44% |
Selling, general and administrative | | | 1,289 | | 21% | | | 1,165 | | 21% |
Depreciation and amortization | | | 1,328 | | 22% | | | 1,354 | | 25% |
Impairment of franchises | | | 178 | | 3% | | | -- | | -- |
Asset impairment charges | | | 56 | | 1% | | | 159 | | 3% |
Other operating (income) expenses, net | | | (17) | | -- | | | 21 | | -- |
| | | | | | | | | | |
| | | 5,454 | | 91% | | | 5,137 | | 93% |
| | | | | | | | | | |
Operating income from continuing operations | | | 548 | | 9% | | | 367 | | 7% |
| | | | | | | | | | |
Interest expense, net | | | (1,811) | | | | | (1,811) | | |
Gain (loss) on extinguishment of debt | | | (35) | | | | | 81 | | |
Other income (expense), net | | | (55) | | | | | 17 | | |
| | | | | | | | | | |
Loss from continuing operations before income taxes | | | (1,353) | | | | | (1,346) | | |
Income tax expense | | | (20) | | | | | (7) | | |
| | | | | | | | | | |
Loss from continuing operations | | | (1,373) | | | | | (1,353) | | |
| | | | | | | | | | |
Income from discontinued operations, net of tax | | | -- | | | | | 238 | | |
| | | | | | | | | | |
Net loss | | $ | (1,373) | | | | $ | (1,115) | | |
| | Year Ended December 31, |
| | 2008 | | 2007 |
| | | | | | | | | | |
Revenues | | $ | 6,479 | | 100% | | $ | 6,002 | | 100% |
| | | | | | | | | | |
Costs and Expenses: | | | | | | | | | | |
Operating (excluding depreciation and amortization) | | | 2,792 | | 43% | | | 2,620 | | 44% |
Selling, general and administrative | | | 1,401 | | 22% | | | 1,289 | | 21% |
Depreciation and amortization | | | 1,310 | | 20% | | | 1,328 | | 22% |
Impairment of franchises | | | 1,521 | | 23% | | | 178 | | 3% |
Asset impairment charges | | | -- | | -- | | | 56 | | 1% |
Other operating (income) expenses, net | | | 69 | | 1% | | | (17) | | -- |
| | | | | | | | | | |
| | | 7,093 | | 109% | | | 5,454 | | 91% |
| | | | | | | | | | |
Income (loss) from operations | | | (614) | | (9%) | | | 548 | | 9% |
| | | | | | | | | | |
Interest expense, net | | | (818) | | | | | (776) | | |
Change in value of derivatives | | | (62) | | | | | (46) | | |
Loss on extinguishment of debt | | | -- | | | | | (32) | | |
Other expense, net | | | (19) | | | | | (24) | | |
| | | | | | | | | | |
Loss before income tax expense | | | (1,513) | | | | | (330) | | |
Income tax benefit (expense) | | | 40 | | | | | (20) | | |
| | | | | | | | | | |
Net loss | | $ | (1,473) | | | | $ | (350) | | |
| | CCH II |
| | Year Ended December 31, |
| | 2007 | | 2006 |
| | | | | | | | | | |
Revenues | | $ | 6,002 | | 100% | | $ | 5,504 | | 100% |
| | | | | | | | | | |
Costs and Expenses: | | | | | | | | | | |
Operating (excluding depreciation and amortization) | | | 2,620 | | 44% | | | 2,438 | | 44% |
Selling, general and administrative | | | 1,289 | | 21% | | | 1,165 | | 21% |
Depreciation and amortization | | | 1,328 | | 22% | | | 1,354 | | 25% |
Impairment of franchises | | | 178 | | 3% | | | -- | | -- |
Asset impairment charges | | | 56 | | 1% | | | 159 | | 3% |
Other operating (income) expenses, net | | | (17) | | -- | | | 21 | | -- |
| | | | | | | | | | |
| | | 5,454 | | 91% | | | 5,137 | | 93% |
| | | | | | | | | | |
Operating income from continuing operations | | | 548 | | 9% | | | 367 | | 7% |
| | | | | | | | | | |
Interest expense, net | | | (1,014) | | | | | (975) | | |
Loss on extinguishment of debt | | | (32) | | | | | (27) | | |
Other income (expense), net | | | (70) | | | | | 2 | | |
| | | | | | | | | | |
Loss from continuing operations before income taxes | | | (568) | | | | | (633) | | |
Income tax expense | | | (20) | | | | | (7) | | |
| | | | | | | | | | |
Loss from continuing operations | | | (588) | | | | | (640) | | |
| | | | | | | | | | |
Income from discontinued operations, net of tax | | | -- | | | | | 238 | | |
| | | | | | | | | | |
Net loss | | $ | (588) | | | | $ | (402) | | |
| | CCO Holdings |
| | Year Ended December 31, |
| | 2007 | | 2006 |
| | | | | | | | | | |
Revenues | | $ | 6,002 | | 100% | | $ | 5,504 | | 100% |
| | | | | | | | | | |
Costs and Expenses: | | | | | | | | | | |
Operating (excluding depreciation and amortization) | | | 2,620 | | 44% | | | 2,438 | | 44% |
Selling, general and administrative | | | 1,289 | | 21% | | | 1,165 | | 21% |
Depreciation and amortization | | | 1,328 | | 22% | | | 1,354 | | 25% |
Impairment of franchises | | | 178 | | 3% | | | -- | | -- |
Asset impairment charges | | | 56 | | 1% | | | 159 | | 3% |
Other operating (income) expenses, net | | | (17) | | -- | | | 21 | | -- |
| | | | | | | | | | |
| | | 5,454 | | 91% | | | 5,137 | | 93% |
| | | | | | | | | | |
Operating income from continuing operations | | | 548 | | 9% | | | 367 | | 7% |
| | | | | | | | | | |
Interest expense, net | | | (776) | | | | | (766) | | |
Loss on extinguishment of debt | | | (32) | | | | | (27) | | |
Other income (expense), net | | | (70) | | | | | 2 | | |
| | | | | | | | | | |
Loss from continuing operations before income taxes | | | (330) | | | | | (424) | | |
Income tax expense | | | (20) | | | | | (7) | | |
| | | | | | | | | | |
Loss from continuing operations | | | (350) | | | | | (431) | | |
| | | | | | | | | | |
Income from discontinued operations, net of tax | | | -- | | | | | 238 | | |
| | | | | | | | | | |
Net loss | | $ | (350) | | | | $ | (193) | | |
Revenues. Average monthly revenue per basic video customer, measured on an annual basis, has increased from $82 in 2006 to $93 in 2007.2007 to $105 in 2008. Average monthly revenue per video customer represents total annual revenue, divided by twelve, divided by the average number of basic video customers during the respective period. Revenue growth in 2007 and 2006 primarily reflects increases in the number of telephone, high-speed Internet, and digital video customers, price increases, and incremental video revenues from OnDemand, DVR, and high-definition television services.services, offset by a decrease in basic video customers. Cable system sales, net of acquisitions, in 20062007 and 20072008 reduced the increase in revenues in 20072008 as compared to 20062007 by approximately $90$31 million. See “Part I. Item 1A – Risk Factors – Risks Relating to Bankruptcy – Our operations will be subject to the risks and uncertainties of bankruptcy.”
Revenues by service offering were as follows (dollars in millions):
| | Year Ended December 31, | | | | |
| | 2007 | | | 2006 | | | 2007 over 2006 | |
| | Revenues | | | % of Revenues | | | Revenues | | | % of Revenues | | | Change | | | % Change | |
| | | | | | | | | | | | | | | | | | |
Video | | $ | 3,392 | | | | 56 | % | | $ | 3,349 | | | | 61 | % | | $ | 43 | | | | 1 | % |
High-speed Internet | | | 1,252 | | | | 21 | % | | | 1,051 | | | | 19 | % | | | 201 | | | | 19 | % |
Telephone | | | 343 | | | | 6 | % | | | 135 | | | | 2 | % | | | 208 | | | | 154 | % |
Advertising sales | | | 298 | | | | 5 | % | | | 319 | | | | 6 | % | | | (21 | ) | | | (7 | %) |
Commercial | | | 341 | | | | 6 | % | | | 305 | | | | 6 | % | | | 36 | | | | 12 | % |
Other | | | 376 | | | | 6 | % | | | 345 | | | | 6 | % | | | 31 | | | | 9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 6,002 | | | | 100 | % | | $ | 5,504 | | | | 100 | % | | $ | 498 | | | | 9 | % |
| | Year Ended December 31, | | | | |
| | 2008 | | | 2007 | | | 2008 over 2007 | |
| | Revenues | | | % of Revenues | | | Revenues | | | % of Revenues | | | Change | | | % Change | |
| | | | | | | | | | | | | | | | | | |
Video | | $ | 3,463 | | | | 53 | % | | $ | 3,392 | | | | 56 | % | | $ | 71 | | | | 2 | % |
High-speed Internet | | | 1,356 | | | | 21 | % | | | 1,243 | | | | 21 | % | | | 113 | | | | 9 | % |
Telephone | | | 555 | | | | 9 | % | | | 345 | | | | 6 | % | | | 210 | | | | 61 | % |
Commercial | | | 392 | | | | 6 | % | | | 341 | | | | 6 | % | | | 51 | | | | 15 | % |
Advertising sales | | | 308 | | | | 5 | % | | | 298 | | | | 5 | % | | | 10 | | | | 3 | % |
Other | | | 405 | | | | 6 | % | | | 383 | | | | 6 | % | | | 22 | | | | 6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 6,479 | | | | 100 | % | | $ | 6,002 | | | | 100 | % | | $ | 477 | | | | 8 | % |
Video revenues consist primarily of revenues from analogbasic and digital video services provided to our non-commercial customers. VideoBasic video customers decreased by 213,400174,200 customers in 2007,2008, of which 97,10016,700 were related to systemasset sales, net of acquisitions. Digital video customers increased by 112,000213,000 customers in 2007.2008. The increase in 2007 was reduced by the sale, net of acquisitions, of 38,1007,600 digital customers. The increase in video revenues areis attributable to the following (dollars in millions):
| | 2007 compared to 2006 | |
| | | |
Rate adjustments and incremental video services | | $ | 88 | |
Increase in digital video customers | | | 59 | |
Decrease in analog video customers | | | (41 | ) |
System sales, net of acquisitions | | | (63 | ) |
| | | | |
| | $ | 43 | |
| | 2008 compared to 2007 | |
| | | |
Incremental video services and rate adjustments | | $ | 87 | |
Increase in digital video customers | | | 77 | |
Decrease in basic video customers | | | (72 | ) |
Asset sales, net of acquisitions | | | (21 | ) |
| | | | |
| | $ | 71 | |
High-speed Internet customers grew by 280,300192,700 customers in 2007.2008. The increase in 20072008 was reduced by systemasset sales, net of acquisitions, of 8,8005,600 high-speed Internet customers. The increase in high-speed Internet revenues from our non-commercialresidential customers areis attributable to the following (dollars in millions):
| | 2007 compared to 2006 | |
| | | |
Increase in high-speed Internet customers | | $ | 150 | |
Rate adjustments and service upgrades | | | 62 | |
System sales, net of acquisitions | | | (11 | ) |
| | | | |
| | $ | 201 | |
| | 2008 compared to 2007 | |
| | | |
Increase in high-speed Internet customers | | $ | 113 | |
Rate adjustments and service upgrades | | | 3 | |
Asset sales, net of acquisitions | | | (3 | ) |
| | | | |
| | $ | 113 | |
Revenues from telephone services increased primarilyby $220 million in 2008, as a result of an increase of 513,500389,500 telephone customers in 2007, of which 500 were related to acquisitions.
Advertising sales revenues consist primarily of revenues from commercial advertising customers, programmers and other vendors. In 2007, advertising sales revenues decreased primarily as a result of a decrease in national advertising sales, including political advertising, as a result of decreases in advertising sales revenues from
programmers, and2008, offset by a decrease of $3$10 million, as a result of system sales. For the years ended December 31, 2007 and 2006, we received $13 million and $17 million, respectively, in advertising sales revenues from vendors.related to lower average rates.
Commercial revenues consist primarily of revenues from services provided to our commercial customers. Commercial revenues increased primarily as a result of anincreased sales of the Charter Business Bundle® primarily
to small and medium-sized businesses. The increase in commercial high-speed Internet revenues. The increases werewas reduced by approximately $6$2 million in 2007 as a result of systemasset sales.
Advertising sales revenues consist primarily of revenues from commercial advertising customers, programmers and other vendors. In 2008, advertising sales revenues increased primarily as a result of increases in political advertising sales and advertising sales to vendors offset by significant decreases in revenues from the automotive and furniture sectors, and a decrease of $2 million related to asset sales. For the years ended December 31, 2008 and 2007, we received $39 million and $15 million, respectively, in advertising sales revenues from vendors.
Other revenues consist of franchise fees, equipment rental,regulatory fees, customer installations, home shopping, late payment fees, wire maintenance fees and other miscellaneous revenues. For each of the years ended December 31, 20072008 and 2006,2007, franchise fees represented approximately 47% and 52%, respectively,46% of total other revenues. The increase in other revenues in 2008 was primarily the result of increases in universal service fund revenues,franchise and other regulatory fees and wire maintenance fees, and late payment fees. The increase was reduced by approximately $7$3 million as a result of systemasset sales.
Operating expenses. The increase in our operating expenses is attributable to the following (dollars in millions):
| | 2007 compared to 2006 | |
| | | |
Programming costs | | $ | 106 | |
Labor costs | | | 49 | |
Costs of providing high-speed Internet and telephone services | | | 33 | |
Maintenance costs | | | 20 | |
Other, net | | | 23 | |
System sales, net of acquisitions | | | (49 | ) |
| | | | |
| | $ | 182 | |
| | 2008 compared to 2007 | |
| | | |
Programming costs | | $ | 90 | |
Labor costs | | | 44 | |
Franchise and regulatory fees | | | 23 | |
Maintenance costs | | | 19 | |
Costs of providing high-speed Internet and telephone services | | | 5 | |
Other, net | | | 13 | |
Asset sales, net of acquisitions | | | (22 | ) |
| | | | |
| | $ | 172 | |
Programming costs were approximately $1.6 billion and $1.5$1.6 billion, representing 60%59% and 61%60% of total operating expenses for the years ended December 31, 20072008 and 2006,2007, respectively. Programming costs consist primarily of costs paid to programmers for analog,basic, premium, digital, OnDemand, and pay-per-view programming. The increasesincrease in programming costs areis primarily a result of annual contractual rate increases.adjustments, offset in part by asset sales and customer losses. Programming costs were also offset by the amortization of payments received from programmers in support of launches of new channels of $22$33 million and $32$25 million in 20072008 and 2006,2007, respectively. We expect programming expenses to continue to increase, and at a higher rate than in 2008, due to a variety of factors, including amounts paid for retransmission consent, annual increases imposed by programmers, amounts paid for retransmission consent, and additional programming, including high-definition, OnDemand, and OnDemandpay-per-view programming, being provided to our customers.
Labor costs increased primarily due to an increase in headcount to support improved service levelsemployee base salary and telephone deployment.benefits.
Selling, general and administrative expenses. The increase in selling, general and administrative expenses is attributable to the following (dollars in millions):
| | 2007 compared to 2006 | |
| | | |
Customer care costs | | $ | 62 | |
Marketing costs | | | 58 | |
Employee costs | | | 24 | |
Property and casualty costs | | | (7 | ) |
Other, net | | | 2 | |
System sales, net of acquisitions | | | (15 | ) |
| | | | |
| | $ | 124 | |
| | 2008 compared to 2007 | |
| | | |
Marketing costs | | $ | 32 | |
Customer care costs | | | 23 | |
Bad debt and collection costs | | | 17 | |
Stock compensation costs | | | 14 | |
Employee costs | | | 7 | |
Other, net | | | 24 | |
Asset sales, net of acquisitions | | | (5 | ) |
| | | | |
| | $ | 112 | |
Depreciation and amortization. Depreciation and amortization expense decreased by $26$18 million in 2007.2008. During 2007,2008, the decrease in depreciation was primarily the result of systemasset sales, certain assets becoming fully depreciated, and an $8$81 million decrease due to the impact of changes in the useful lives of certain assets.assets during 2007, offset by depreciation on capital expenditures.
Impairment of franchises. LargelyWe recorded impairment of $1.5 billion and $178 million for the years ended December 31, 2008 and 2007, respectively. The impairment recorded in 2008 was largely driven by lower expected revenue growth resulting from the current economic downturn and increased competition. The impairment recorded in 2007 was largely driven by increased competition being experienced by us and our peers, we lowered our projected revenue and expense growth rates and increased our projected capital expenditures, and accordingly revised our estimates of future cash flows as compared to those used in prior valuations. As a result, we recorded $178 million of impairment for the year ended December 31, 2007. The valuation completed at October 1, 2006 showed franchise values in excess of book value, and thus resulted in no impairments.competition.
Asset impairment charges. Asset impairment charges for the yearsyear ended December 31, 2007 and 2006 representrepresents the write-down of assets related to cable asset sales to fair value less costs to sell. See Note 4 to the accompanying consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data.”
Other operating (income) expenses, net. The decreasechange in other operating (income) expenses, net is attributable to the following (dollars in millions):
| | 2007 compared to 2006 | |
| | | |
Decrease in losses on sales of assets | | $ | (11 | ) |
Decrease in special charges, net | | | (27 | ) |
| | | | |
| | $ | (38 | ) |
| | 2008 compared to 2007 | |
| | | |
Increase in losses on sales of assets | | $ | 16 | |
Increase in special charges, net | | | 70 | |
| | | | |
| | $ | 86 | |
For more information, see Note 15 to the accompanying consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data.”
Interest expense, net.
Charter Holdings. Net interest expense was $1.8 billion for each of the years ended December 31, 2007 and 2006. The impact of the increase in average debt outstanding from $18.7 billion in 2006 to $19.2 billion in 2007 was partially offset by the impact of a decrease in our average borrowing rate from 9.6% in 2006 to 9.3% in 2007.
CCH II. Net interest expense increased by $39$42 million in 20072008 from 2006.2007. The increase in net interest expense from 2007 to 2008 was a result of an increase in average debt outstanding increasing from $10.9 billion in 2006 to $11.9$9.4 billion in 2007 and was partiallyto $10.3 billion in 2008, offset by a decrease in our average borrowing rate from 8.6%7.6% in 20062007 to 8.1%6.9% in 2007.2008.
CCO HoldingsChange in value of derivatives.. Net Interest rate swaps are held to manage our interest costs and reduce our exposure to increases in floating interest rates. We expense the change in fair value of derivatives that do not qualify for hedge accounting and cash flow hedge ineffectiveness on interest rate swap agreements. The loss from the change in value of interest rate swaps increased by $10from $46 million in 2007 from 2006. The increaseto $62 million in net interest expense was a result of an increase in average debt outstanding from $8.7 billion in 2006 to $9.4 billion in 2007 and was partially offset by a decrease in our average borrowing rate from 8.2% in 2006 to 7.6% in 2007.2008.
Gain (loss)Loss on extinguishment of debt. Gain (loss)Loss on extinguishment of debt consists of the following for the years ended December 31, 20072008 and 2006 (dollars in millions).2007.
| | Year Ended December 31, | |
| | 2007 | | | 2006 | |
| | | | | | |
CCO Holdings debt refinancings | | $ | (19 | ) | | $ | (3 | ) |
Charter Operating credit facility refinancing | | | (13 | ) | | | (24 | ) |
| | | | | | | | |
Gain (loss) on extinguishment of debt – CCH II and CCO Holdings | | | (32 | ) | | | (27 | ) |
Charter Holdings debt exchanges and refinancings | | | (3 | ) | | | 108 | |
| | | | | | | | |
Gain (loss) on extinguishment of debt – Charter Holdings | | $ | (35 | ) | | $ | 81 | |
| | Year Ended December 31, | |
| | 2008 | | | 2007 | |
| | | | | | |
CCO Holdings notes redemption | | $ | -- | | | $ | (19 | ) |
Charter Operating credit facilities refinancing | | | -- | | | | (13 | ) |
| | | | | | | | |
| | $ | -- | | | $ | (32 | ) |
For more information, see Notes 9 and 16 to the accompanying consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data.”
Other income (expense),expense, net. The decreasechange in other income,expense, net is attributable to the following (dollars in millions):
| | 2007 compared to 2006 | |
| | Charter Holdings | | | CCH II and CCO Holdings | |
| | | | | | |
Decrease in gain (loss) on derivative instruments and hedging activities, net | | $ | (52 | ) | | $ | (52 | ) |
Decrease in minority interest | | | (3 | ) | | | (2 | ) |
Decrease in investment income | | | (15 | ) | | | (15 | ) |
Other, net | | | (2 | ) | | | (3 | ) |
| | | | | | | | |
| | $ | (72 | ) | | $ | (72 | ) |
| | 2008 compared to 2007 | |
| | | |
Decrease in minority interest | | $ | 9 | |
Decrease in loss on investment | | | 1 | |
Other, net | | | (5 | ) |
| | | | |
| | $ | 5 | |
For more information, see Note 17 to the accompanying consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data.”
Income tax expense.benefit (expense). Income tax benefit for the year ended December 31, 2008 was realized as a result of the decreases in certain deferred tax liabilities of certain of our indirect subsidiaries, attributable to the write-down of franchise assets for financial statement purposes and not for tax purposes. Income tax benefit for the year ended December 31, 2008 included $32 million of deferred tax benefit related to the impairment of franchises. Income tax expense in 2007 was recognized through increases in deferred tax liabilities and current federal and state income tax expenses of certain of our indirect subsidiaries. Income tax expense for the year ended December 31, 2007 includes $18 million of income tax expense previously recorded at our indirect parent company.
Income from discontinued operations, net of tax. Income from discontinued operations, net of tax, decreased in 2007 compared to 2006 due to the sale of the West Virginia and Virginia systems in July 2006.
Net loss. The impact to net loss in 2008 and 2007 and 2006as a result of asset impairment charges, impairment of franchises, and extinguishment of debt and gain on sale of discontinued operations, net of related tax effects, at Charter Holdings was to increase net loss by approximately $267 million$1.5 billion and decrease net loss by approximately $160 million, respectively, and at CCH II and CCO Holdings was to increase net loss by $264 million, and decrease net loss by approximately $52 million for each, respectively.
Liquidity and Capital Resources
Introduction
This section contains a discussion of our liquidity and capital resources, including a discussion of our cash position, sources and uses of cash, access to credit facilities and other financing sources, historical financing activities, cash needs, capital expenditures and outstanding debt.
Recent Developments – Restructuring
On February 12, 2009, Charter reached agreements in principle with the Noteholders holding approximately $4.1 billion in aggregate principal amount of notes issued by our parent companies, CCH I and CCH II. Pursuant to the Restructuring Agreements, on March 27, 2009, we and our parent companies filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code to implement the Proposed Restructuring pursuant to the Plan aimed at improving our parent companies’ capital structure.
The Proposed Restructuring is expected to be funded with cash from operations, the Notes Exchange, the New Debt Commitment, and the Rights Offering for which Charter has received a Back-Stop Commitment from certain Noteholders. In addition to the Restructuring Agreements, the Noteholders have entered into Commitment Letters, pursuant to which they have agreed to exchange and/or purchase, as applicable, certain securities of Charter, as described in more detail below.
Under the Notes Exchange, existing holders of CCH II Notes will be entitled to exchange their CCH II Notes for New CCH II Notes. CCH II Notes that are not exchanged in the Notes Exchange will be paid in cash in an amount equal to the outstanding principal amount of such CCH II Notes plus accrued but unpaid interest to the bankruptcy petition date plus post-petition interest, but excluding any call premiums or prepayment penalties and for the avoidance of doubt, any unmatured interest. The aggregate principal amount of New CCH II Notes to be issued pursuant to the Plan is expected to be approximately $1.5 billion plus accrued but unpaid interest to the bankruptcy petition date plus post-petition interest, but excluding any call premiums or prepayment penalties (collectively, the “Target Amount”), plus an additional $85 million.
Under the Commitment Letters, certain holders of CCH II Notes have committed to exchange, pursuant to the Notes Exchange, an aggregate of approximately $1.2 billion in aggregate principal amount of CCH II Notes, plus accrued but unpaid interest to the bankruptcy petition date plus post-petition interest, but excluding any call premiums or any
prepayment penalties. In the event that the aggregate principal amount of New CCH II Notes to be issued pursuant to the Notes Exchange would exceed the Target Amount, each Noteholder participating in the Notes Exchange will receive a pro rata portion of such Target Amount of New CCH II Notes, based upon the ratio of (i) the aggregate principal amount of CCH II Notes it has tendered into the Notes Exchange to (ii) the total aggregate principal amount of CCH II Notes tendered into the Notes Exchange. Participants in the Notes Exchange will receive a commitment fee equal to 1.5% of the principal amount plus interest on the CCH II Notes exchanged by such participant in the Notes Exchange.
Under the New Debt Commitment, certain holders of CCH II Notes have committed to purchase an additional amount of New CCH II Notes in an aggregate principal amount of up to $267 million. Participants in the New Debt Commitment will receive a commitment fee equal to the greater of (i) 3.0% of their respective portion of the New Debt Commitment or (ii) 0.83% of its respective portion of the New Debt Commitment for each month beginning April 1, 2009 during which its New Debt Commitment remains outstanding.
Under the Rights Offering, Charter will offer to existing holders of CCH I Notes that are accredited investors (as defined in Regulation D promulgated under the Securities Act) or qualified institutional buyers (as defined under Rule 144A of the Securities Act), the Rights to purchase shares of the new Class A Common Stock of Charter, to be issued upon our and our parent companies’ emergence from bankruptcy, in exchange for a cash payment at a discount to the equity value of Charter upon emergence. Upon emergence from bankruptcy, Charter’s new Class A Common Stock is not expected to be listed on any public or over-the-counter exchange or quotation system and will be subject to transfer restrictions. It is expected, however, that Charter will thereafter apply for listing of Charter’s new Class A Common Stock on the NASDAQ Stock Market as provided in the Term Sheet. The Rights Offering is expected to generate proceeds of up to approximately $1.6 billion and will be used to pay holders of CCH II Notes that do not participate in the Notes Exchange, repayment of certain amounts relating to the satisfaction of certain swap agreement claims against Charter Operating and for general corporate purposes.
Under the Commitment Letters, the Backstop Parties have agreed to subscribe for their respective pro rata portions of the Rights Offering, and certain of the Backstop Parties have, in addition, agreed to subscribe for a pro rata portion of any Rights that are not purchased by other holders of CCH I Notes in the Rights Offering (the “Excess Backstop”). Noteholders who have committed to participate in the Excess Backstop will be offered the option to purchase a pro rata portion of additional shares of Charter’s new Class A Common Stock, at the same price at which shares of the new Class A Common Stock will be offered in the Rights Offering, in an amount equal to $400 million less the aggregate dollar amount of shares purchased pursuant to the Excess Backstop. The Backstop Parties will receive a commitment fee equal to 3% of its respective equity backstop.
The Restructuring Agreements further contemplate that upon consummation of the Plan (i) CCO Holdings’ and Charter Operating’s notes and bank debt will remain outstanding, (ii) holders of notes issued by CCH II will receive New CCH II Notes pursuant to the Notes Exchange and/or cash, (iii) holders of notes issued by CCH I will receive shares of Charter’s new Class A Common Stock, (iv) holders of notes issued by CIH will receive warrants to purchase shares of common stock in Charter, (v) holders of notes of Charter Holdings will receive warrants to purchase shares of Charter’s new Class A Common Stock, (vi) holders of convertible notes issued by Charter will receive cash and preferred stock issued by Charter, (vii) holders of common stock will not receive any amounts on account of their common stock, which will be cancelled, and (viii) trade creditors will be paid in full. In addition, as part of the Proposed Restructuring, it is expected that consideration will be paid by holders of CCH I Notes to other entities participating in the financial restructuring. The recoveries summarized above are more fully described in the Term Sheet.
Pursuant to the Allen Agreement, in settlement of their rights, claims and remedies against Charter and its subsidiaries, and in addition to any amounts received by virtue of their holding any claims of the type set forth above, upon consummation of the Plan, Mr. Allen or his affiliates will be issued a number of shares of the new Class B Common Stock of Charter such that the aggregate voting power of such shares of new Class B Common Stock shall be equal to 35% of the total voting power of all new capital stock of Charter. Each share of new Class B Common Stock will be convertible, at the option of the holder, into one share of new Class A Common Stock, and will be subject to significant restrictions on transfer. Certain holders of new Class A Common Stock and new Class B Common Stock will receive certain customary registration rights with respect to their shares. Upon consummation of the Plan, Mr. Allen or his affiliates will also receive (i) warrants to purchase shares of new Class A common stock of Charter in an aggregate amount equal to 4% of the equity value of reorganized Charter, after giving effect to the Rights Offering, but prior to the issuance of warrants and equity-based awards provided for by the Plan, (ii) $85 million principal amount of New CCH II Notes, (iii) $25 million in cash for amounts owing to CII under a management agreement, (iv) up to $20 million in cash for reimbursement of fees and expenses in connection
with the Proposed Restructuring, and (v) an additional $150 million in cash. The warrants described above shall have an exercise price per share based on a total equity value equal to the sum of the equity value of reorganized Charter, plus the gross proceeds of the Rights Offering, and shall expire seven years after the date of issuance. In addition, on the effective date of the Plan, CII will retain a 1% equity interest in reorganized Charter Holdco and a right to exchange such interest into new Class A common stock of Charter.
The Restructuring Agreements also contemplate that upon emergence from bankruptcy each holder of 10% or more of the voting power of Charter will have the right to nominate one member of the initial Board for each 10% of voting power; and that at least Charter’s current Chief Executive Officer and Chief Operating Officer will continue in their same positions. The Restructuring Agreements require Noteholders to cast their votes in favor of the Plan and generally support the Plan and contain certain customary restrictions on the transfer of claims by the Noteholders.
In addition, the Restructuring Agreements contain an agreement by the parties that prior to commencement of the Chapter 11 cases, if performance by us or our parent companies of any term of the Restructuring Agreements would trigger a default under the debt instruments of CCO Holdings and Charter Operating, which debt is to remain outstanding such performance would be deemed unenforceable solely to the extent necessary to avoid such default.
The Restructuring Agreements and Commitment Letters are subject to certain termination events, including, among others:
· | the commitments set forth in the respective Noteholder’s Commitment Letter shall have expired or been terminated; |
· | Charter’s board of directors shall have been advised in writing by its outside counsel that continued pursuit of the Plan is inconsistent with its fiduciary duties, and the board of directors determines in good faith that, (A) a proposal or offer from a third party is reasonably likely to be more favorable to the Company than is proposed under the Term Sheet, taking into account, among other factors, the identity of the third party, the likelihood that any such proposal or offer will be negotiated to finality within a reasonable time, and the potential loss to the company if the proposal or offer were not accepted and consummated, or (B) the Plan is no longer confirmable or feasible; |
· | the Plan or any subsequent plan filed by us with the bankruptcy court (or a plan supported or endorsed by us) is not reasonably consistent in all material respects with the terms of the Restructuring Agreements; |
· | a disclosure statement order reasonably acceptable to Charter, the holders of a majority of the CCH I Notes held by the Requisite Holders and Mr. Allen has not been entered by the bankruptcy court on or before the 50th day following the bankruptcy petition date; |
· | a confirmation order reasonably acceptable to Charter, the Requisite Holders and Mr. Allen is not entered by the bankruptcy court on or before the 130th day following the bankruptcy petition date; |
· | any of the Chapter 11 cases of Charter is converted to cases under Chapter 7 of the Bankruptcy Code if as a result of such conversion the Plan is not confirmable; |
· | any Chapter 11 cases of Charter is dismissed if as a result of such dismissal the Plan is not confirmable; |
· | the order confirming the Plan is reversed on appeal or vacated; and |
· | any Restructuring Agreement or the Allen Agreement has terminated or been breached in any material respect subject to notice and cure provisions. |
The Allen Agreement contains similar provisions to those provisions of the Restructuring Agreements. There is no assurance that the treatment of creditors outlined above will not change significantly. For example, because the Proposed Restructuring is contingent on reinstatement of the credit facilities and certain notes of Charter Operating and CCO Holdings, failure to reinstate such debt would require Charter to revise the Proposed Restructuring. Moreover, if reinstatement does not occur and current capital market conditions persist, we and our parent companies may not be able to secure adequate new financing and the cost of new financing would likely be materially higher. The Proposed Restructuring would result in the reduction of Charter’s debt by approximately $8 billion.
The above summary of the Restructuring Agreements, Commitment Letters, Term Sheet and Allen Agreement is qualified in its entirety by the full text of the Restructuring Agreements, Commitment Letters, Term Sheet and Allen Agreement, copies of which are filed as Exhibits 10.1, 10.2, 10.3 and 10.4, respectively, to this Annual Report on Form 10-K, and incorporated herein by reference. See “Part I. Item 1A - Risk Factors – Risks Relating to Bankruptcy.”
Recent Developments – Interest Payments
Two of our parent companies, CIH and Charter Holdings, did not make the January Interest Payment on the Overdue Payment Notes. The Indentures for the Overdue Payment Notes permits a 30-day grace period for such interest payments through (and including) February 15, 2009. On February 11, 2009, in connection with the Commitment Letters and Restructuring Agreements, Charter and certain of its subsidiaries also entered into the Escrow Agreement. As required under the Indentures, Charter set a special record date for payment of such interest payments of February 28, 2009. Under the Escrow Agreement, the Ad-Hoc Holders agreed to deposit into an escrow account the Escrow Amount and the Escrow Agent will hold such amounts subject to the terms of the Escrow Agreement. Under the Escrow Agreement, if the transactions contemplated by the Restructuring Agreements are consummated on or before December 15, 2009 or such transactions are not consummated on or before December 15, 2009 due to material breach of the Restructuring Agreements by Charter or its direct or indirect subsidiaries, then the Ad-Hoc Holders will be entitled to receive their pro-rata share of the Escrow Amount. If the transactions contemplated by the Restructuring Agreements are not consummated on or prior to December 15, 2009 for any reason other than material breach of the Restructuring Agreements by Charter or its direct or indirect subsidiaries, then Charter, Charter Holdings, CIH or their designee shall be entitled to receive the Escrow Amount.
One of Charter’s subsidiaries, CCH II, did 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 Charter and its subsidiaries, including CCH II, filed voluntary Chapter 11 Bankruptcy prior to the expiration of the grace period.
Recent Developments – Charter Operating Credit Facility
On February 3, 2009, Charter Operating made a request to the administrative agent under the Credit Agreement, to borrow additional revolving loans under the Credit Agreement. Such borrowing request complied with the provisions of the Credit Agreement including section 2.2 (“Procedure for Borrowing”) thereof. On February 5, 2009, we received a notice from the administrative agent asserting that one or more Events of Default (as defined in the Credit Agreement) had occurred and was continuing under the Credit Agreement. In response, we sent a letter to the administrative agent on February 9, 2009, among other things, stating that no Event of Default under the Credit Agreement occurred or was continuing and requesting the administrative agent to rescind its notice of default and fund Charter Operating’s borrowing request. The administrative agent sent a letter to us on February 11, 2009, stating that it continues to believe that one or more events of default occurred and was continuing. As a result, with the exception of one lender who funded approximately $0.4 million, the lenders under the Credit Agreement have failed to fund Charter Operating’s borrowing request.
On March 27, 2009, JPMorgan Chase Bank, N. A., as Administrative Agent under the Credit Agreement, filed an adversary proceeding in bankruptcy court against Charter Operating and CCO Holdings seeking a declaration that there have been events of default under the Credit Agreement. Such a judgment would prevent Charter Operating and CCO Holdings from reinstating the terms and provisions of the Credit Agreement through the bankruptcy proceeding. Although it has not yet answered the complaint, Charter denies the allegations made by JP Morgan and intends to vigorously contest this matter.
Overview of Our Debt and Liquidity
We have significant amounts of debt. As of December 31, 2007,2008, the accreted value of Charter Holdings’, CCH II’s, and CCO Holdings’our total debt was approximately $19.5$11.8 billion, $12.3 billion, and $9.9 billion, respectively, as summarized below (dollars in millions):
| | December 31, 2007 | | | | |
| | | | | | Semi-Annual | | |
| | Principal | | Accreted | | Interest Payment | | Maturity |
| | Amount | | Value(a) | | Dates | | Date(b) |
Charter Operating: | | | | | | | | | |
8.000% senior second-lien notes due 2012 | $ | 1,100 | $ | 1,100 | | | 4/30 & 10/30 | | 4/30/12 |
8 3/8% senior second-lien notes due 2014 | | 770 | | 770 | | | 4/30 & 10/30 | | 4/30/14 |
Credit facility | | 6,844 | | 6,844 | | | | | varies |
CCO Holdings: | | | | | | | | | |
8 3/4% senior notes due 2013 | | 800 | | 795 | | | 5/15 & 11/15 | | 11/15/13 |
Credit facility | | 350 | | 350 | | | | | 9/6/14 |
Total CCO Holdings | | 9,864 | | 9,859 | | | | | |
| | | | | | | | | |
CCH II (a): | | | | | | | | | |
10.250% senior notes due 2010 | | 2,198 | | 2,192 | | | 3/15 & 9/15 | | 9/15/10 |
10.250% senior notes due 2013 | | 250 | | 260 | | | 4/1 & 10/1 | | 10/1/13 |
Total CCH II | | 12,312 | | 12,311 | | | | | |
| | | | | | | | | |
CCH I (a): | | | | | | | | | |
11.00% senior notes due 2015 | | 3,987 | | 4,083 | | | 4/1 & 10/1 | | 10/1/15 |
CIH (a): | | | | | | | | | |
11.125% senior notes due 2014 | | 151 | | 151 | | | 1/15 & 7/15 | | 1/15/14 |
13.500% senior discount notes due 2014 | | 581 | | 581 | | | 1/15 & 7/15 | | 1/15/14 |
9.920% senior discount notes due 2014 | | 471 | | 471 | | | 4/1 & 10/1 | | 4/1/14 |
10.000% senior notes due 2014 | | 299 | | 299 | | | 5/15 & 11/15 | | 5/15/14 |
11.750% senior discount notes due 2014 | | 815 | | 815 | | | 5/15 & 11/15 | | 5/15/14 |
12.125% senior discount notes due 2015 | | 217 | | 217 | | | 1/15 & 7/15 | | 1/15/15 |
Charter Holdings: | | | | | | | | | |
10.000% senior notes due 2009 | | 88 | | 88 | | | 4/1 & 10/1 | | 4/1/09 |
10.750% senior notes due 2009 | | 63 | | 63 | | | 4/1 & 10/1 | | 10/1/09 |
9.625% senior notes due 2009 | | 37 | | 37 | | | 5/15 & 11/15 | | 11/15/09 |
10.250% senior notes due 2010 | | 18 | | 18 | | | 1/15 & 7/15 | | 1/15/10 |
11.750% senior discount notes due 2010 | | 16 | | 16 | | | 1/15 & 7/15 | | 1/15/10 |
11.125% senior notes due 2011 | | 47 | | 47 | | | 1/15 & 7/15 | | 1/15/11 |
13.500% senior discount notes due 2011 | | 60 | | 60 | | | 1/15 & 7/15 | | 1/15/11 |
9.920% senior discount notes due 2011 | | 51 | | 51 | | | 4/1 & 10/1 | | 4/1/11 |
10.000% senior notes due 2011 | | 69 | | 69 | | | 5/15 & 11/15 | | 5/15/11 |
11.750% senior discount notes due 2011 | | 54 | | 54 | | | 5/15 & 11/15 | | 5/15/11 |
12.125% senior discount notes due 2012 | | 75 | | 75 | | | 1/15 & 7/15 | | 1/15/12 |
Total Charter Holdings | $ | 19,411 | $ | 19,506 | | | | | |
| | December 31, 2008 | | | | |
| | | | | | | Semi-Annual | | |
| | Principal | | | Accreted | | Interest Payment | | Maturity |
| | Amount | | | Value(a) | | Dates | | Date(b) |
CCO Holdings, LLC: | | | | | | | | | |
8 3/4% senior notes due 2013 | | $ | 800 | | | $ | 796 | | 5/15 & 11/15 | | 11/15/13 |
Credit facility | | | 350 | | | | 350 | | | | 9/6/14 |
Charter Communications Operating, LLC: | | | | | | | | | | | |
8.000% senior second-lien notes due 2012 | | | 1,100 | | | | 1,100 | | 4/30 & 10/30 | | 4/30/12 |
8 3/8% senior second-lien notes due 2014 | | | 770 | | | | 770 | | 4/30 & 10/30 | | 4/30/14 |
10.875% senior second-lien notes due 2014 | | | 546 | | | | 527 | | 3/15 & 9/15 | | 9/15/14 |
Credit facilities | | | 8,246 | | | | 8,246 | | | | varies |
| | | | | | | | | | | |
| | $ | 11,812 | | | $ | 11,789 | | | | |
(a) | The accreted values presented above generally represent the principal amount of the notes less the original issue discount at the time of sale, plus the accretion to the balance sheet date. However, certain notes are recorded for financial reporting purposes at values different from the current accreted value for |
| legal purposes and notes indenture purposes (the amount that is currently payable if the debt becomes immediately due). As is equal to the principal amount of December 31, 2007, the accreted value of Charter Holdings’, CCH II’s, and CCO Holdings’ debt for legal purposes and notes indentures purposes was $19.4 billion, $12.3 billion, and $9.9 billion, respectively.notes. |
(b) | In general, the obligors have the right to redeem all of the notes set forth in the above table (except with respect to the 10.000% Charter Holdings notes due 2009, the 10.75% Charter Holdings notes due 2009, and the 9.625% Charter Holdings notes due 2009) in whole or in part at their option, beginning at various times prior to their stated maturity dates, subject to certain conditions, upon the payment of the outstanding principal amount (plus a specified redemption premium) and all accrued and unpaid interest. For additional information see Note 9 to |
| the accompanying consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data.” |
In 2008, $65each of 2009, 2010, and 2011, $70 million of Charter Operating’s credit facility matures, and in 2009, an additional $188 million of Charter Holdings’ notes mature, and $65 million of Charter Operating’s credit facilityour debt matures. In 20102012 and beyond, significant additional amounts will become due under our remaining long-term debt obligations. The following tables summarizetable summarizes our payment obligations as of December 31, 20072008 under our long-term debt and certain other contractual obligations and commitments (dollars in millions).
| | Charter Holdings | |
| | Payments by Period | |
| | | | | Less than | | | | 1-3 | | | | 3-5 | | | More than | |
| | Total | | | 1 year | | | years | | | years | | | 5 years | |
| | | | | | | | | | | | | | | | | |
Contractual Obligations | | | | | | | | | | | | | | | | | |
Long-Term Debt Principal Payments (1) | | $ | 19,411 | | | $ | 65 | | | $ | 2,550 | | | $ | 1,586 | | | $ | 15,210 | |
Long-Term Debt Interest Payments (2) | | | 9,965 | | | | 1,632 | | | | 3,232 | | | | 2,758 | | | | 2,343 | |
Payments on Interest Rate Instruments (3) | | | 155 | | | | 44 | | | | 91 | | | | 20 | | | | -- | |
Capital and Operating Lease Obligations (4) | | | 91 | | | | 21 | | | | 32 | | | | 19 | | | | 19 | |
Programming Minimum Commitments (5) | | | 1,020 | | | | 331 | | | | 418 | | | | 215 | | | | 56 | |
Other (6) | | | 475 | | | | 374 | | | | 99 | | | | 2 | | | | -- | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 31,117 | | | $ | 2,467 | | | $ | 6,422 | | | $ | 4,600 | | | $ | 17,628 | |
| | Payments by Period | |
| | | | | Less than | | | | 1-3 | | | | 3-5 | | | More than | |
| | Total | | | 1 year | | | | years | | | | years | | | 5 years | |
| | | | | | | | | | | | | | | | | |
Contractual Obligations | | | | | | | | | | | | | | | | | |
Long-Term Debt Principal Payments (1) | | $ | 11,812 | | | $ | 70 | | | $ | 140 | | | $ | 3,355 | | | $ | 8,247 | |
Long-Term Debt Interest Payments (2) | | | 3,184 | | | | 650 | | | | 1,238 | | | | 1,190 | | | | 106 | |
Payments on Interest Rate Instruments (3) | | | 443 | | | | 127 | | | | 257 | | | | 59 | | | | -- | |
Capital and Operating Lease Obligations (4) | | | 96 | | | | 22 | | | | 35 | | | | 21 | | | | 18 | |
Programming Minimum Commitments (5) | | | 687 | | | | 315 | | | | 206 | | | | 166 | | | | -- | |
Other (6) | | | 475 | | | | 368 | | | | 88 | | | | 19 | | | | -- | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 16,697 | | | $ | 1,552 | | | $ | 1,964 | | | $ | 4,810 | | | $ | 8,371 | |
| | CCH II | |
| | Payments by Period | |
| | | | | Less than | | | | 1-3 | | | | 3-5 | | | More than | |
| | Total | | | 1 year | | | years | | | years | | | 5 years | |
| | | | | | | | | | | | | | | | | |
Contractual Obligations | | | | | | | | | | | | | | | | | |
Long-Term Debt Principal Payments (1) | | $ | 12,312 | | | $ | 65 | | | $ | 2,328 | | | $ | 1,230 | | | $ | 8,689 | |
Long-Term Debt Interest Payments (2) | | | 4,326 | | | | 836 | | | | 1,666 | | | | 1,264 | | | | 560 | |
Payments on Interest Rate Instruments (3) | | | 155 | | | | 44 | | | | 91 | | | | 20 | | | | -- | |
Capital and Operating Lease Obligations (4) | | | 91 | | | | 21 | | | | 32 | | | | 19 | | | | 19 | |
Programming Minimum Commitments (5) | | | 1,020 | | | | 331 | | | | 418 | | | | 215 | | | | 56 | |
Other (6) | | | 475 | | | | 374 | | | | 99 | | | | 2 | | | | -- | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 18,379 | | | $ | 1,671 | | | $ | 4,634 | | | $ | 2,750 | | | $ | 9,324 | |
| | CCO Holdings | |
| | Payments by Period | |
| | | | | Less than | | | | 1-3 | | | | 3-5 | | | More than | |
| | Total | | | 1 year | | | years | | | years | | | 5 years | |
| | | | | | | | | | | | | | | | | |
Contractual Obligations | | | | | | | | | | | | | | | | | |
Long-Term Debt Principal Payments (1) | | $ | 9,864 | | | $ | 65 | | | $ | 130 | | | $ | 1,230 | | | $ | 8,439 | |
Long-Term Debt Interest Payments (2) | | | 3,496 | | | | 585 | | | | 1,164 | | | | 1,213 | | | | 534 | |
Payments on Interest Rate Instruments (3) | | | 155 | | | | 44 | | | | 91 | | | | 20 | | | | -- | |
Capital and Operating Lease Obligations (4) | | | 91 | | | | 21 | | | | 32 | | | | 19 | | | | 19 | |
Programming Minimum Commitments (5) | | | 1,020 | | | | 331 | | | | 418 | | | | 215 | | | | 56 | |
Other (6) | | | 475 | | | | 374 | | | | 99 | | | | 2 | | | | -- | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 15,101 | | | $ | 1,420 | | | $ | 1,934 | | | $ | 2,699 | | | $ | 9,048 | |
(1) | | The tables presenttable presents maturities of long-term debt outstanding as of December 31, 2007.2008. Refer to Notes 9 and 21 to our accompanying consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data” for a description of our long-term debt and other contractual obligations and commitments. DoesThe table above does not include $123 million, $123 million, and $332the $240 million of Loans Payable – Related Party for Charter Holdings, CCH II,Party. See Note 10 to the accompanying consolidated financial statements contained in “Item 8. Financial Statements and CCO Holdings, respectivelySupplementary Data.” |
| | |
(2) | | Interest payments on variable debt are estimated using amounts outstanding at December 31, 20072008 and the average implied forward London Interbank Offering Rate (LIBOR) rates applicable for the quarter during the interest rate reset based on the yield curve in effect at December 31, 2007.2008. Actual interest payments will differ based on actual LIBOR rates and actual amounts outstanding for applicable periods. |
| | |
(3) | | Represents amounts we will be required to pay under our interest rate hedgeswap agreements estimated using the average implied forward LIBOR applicable rates for the quarter during the interest rate reset based on the yield curve in effect at December 31, 2007.2008. As a result of our filing of a Chapter 11 bankruptcy, the counterparties to the interest rate swap agreements have the option to terminate the underlying contract and, upon emergence of Charter from bankruptcy, receive payment for the market value of the interest rate swap agreement as measured on the date the contract is terminated. |
| | |
(4) | | We lease certain facilities and equipment under noncancelable operating leases. Leases and rental costs charged to expense for the years ended December 31, 2008 and 2007 and 2006, were $23$24 million and $23 million, respectively. |
| | |
(5) | | We pay programming fees under multi-year contracts ranging from three to ten years, typically based on a flat fee per customer, which may be fixed for the term, or may in some cases escalate over the term. Programming costs included in the accompanying statement of operations were approximately $1.6 billion and $1.5 billion, forin each of the years ended December 31, 20072008 and 2006, respectively.2007. Certain of our programming agreements are based on a flat fee per month or have guaranteed minimum payments. The table sets forth the aggregate guaranteed minimum commitments under our programming contracts. |
| | |
(6) | | “Other” represents other guaranteed minimum commitments, which consist primarily of commitments to our billing services vendors. |
The following items are not included in the contractual obligations tablestable because the obligations are not fixed and/or determinable due to various factors discussed below. However, we incur these costs as part of our operations:
| · | We rent utility poles used in our operations. Generally, pole rentals are cancelable on short notice, but we anticipate that such rentals will recur. Rent expense incurred for pole rental attachments for each of the years ended December 31, 20072008 and 2006,2007 was $47 million and $44 million, respectively.million. |
| · | We pay franchise fees under multi-year franchise agreements based on a percentage of revenues generated from video service per year. We also pay other franchise related costs, such as public education grants, under multi-year agreements. Franchise fees and other franchise-related costs included in the accompanying statement of operations were $172$179 million and $175$172 million for the years ended December 31, 20072008 and 2006,2007, respectively. |
| · | We also have $136$158 million in letters of credit, primarily to our various worker’s compensation, property and casualty, and general liability carriers, as collateral for reimbursement of claims. These letters of credit reduce the amount we may borrow under our credit facilities. |
Our business requires significant cash to fund debt service costs, capital expenditures and ongoing operations. We have historically funded these requirements through cash flows from operating activities, borrowings under our credit facilities, equity contributions from our parent companies, proceeds from sales of assets, issuances of debt securities, and cash on hand. However, the mix of funding sources changes from period to period. For the year ended December 31, 2007, Charter Holdings, CCH II, and CCO Holdings2008, we generated $323 million, $1.1 billion, and $1.4$1.5 billion of net cash flows from operating activities, after paying cash interest of $1.8 billion, $980 million, and $728 million, respectively.$774 million. In addition, we used $1.2 billion for purchases of property, plant and equipment. Finally, Charter Holdings and CCH II hadwe generated net cash flows provided byfrom financing activities of $825$689 million, as a result of financing transactions and $26 million, respectively, and CCO Holdingscredit facility borrowings completed during the year ended December 31, 2008. As of December 31, 2008, we had net cash used in financing activitieson hand of $226$948 million. We expect that our mix of sources of funds will continue to change in the future based on overall needs relative to our cash flow and on the availability of funds under the Charter Operating credit facilities, of our subsidiaries, our and our parent companies’ access to the debt markets, Charter’s access to the equity markets, the timing of possible asset sales, and based on our ability to generate cash flows from operating activities. On a consolidated basis, we and our parent companies have a significant level of debt, which totaled approximately $19.9$21.7 billion as of December 31, 2007.2008.
AfterDuring the receipt in Marchfourth quarter of 2008, of net proceeds from the Charter Operating 10.875% 2nd lien notes due 2014drew down all except $27 million of amounts available under the revolving credit facility. During the first quarter of 2009, Charter Operating presented a qualifying draw notice to the banks under the revolving credit facility but was refused those funds. See “Part I. Item 1. Business – Recent Developments – Charter Operating Credit Facility.” Additionally, upon filing bankruptcy, Charter Operating will no longer have access to the revolving credit facility and the Incremental Term Loans, wewill rely on cash on hand and cash flows from operating activities to fund our projected cash needs. We expect that cash on hand and cash flows from operating activities and the amounts available under Charter Operating’s credit facilities will be adequate to fund our and our parent companies’ projected cash needs including scheduled maturities, through 2009. We believe that cash flows from operating
activities, and the amounts available underpendency of our credit facilities will not be sufficient to fund our and our parent companies’ projected cash needs in 2010 (primarily as a result of the CCH II $2.2 billion of senior notes maturing in September 2010 ) and thereafter.expected Chapter 11 bankruptcy proceedings. Our projected cash needs and projected sources of liquidity depend upon, among other things, our actual results, the timing and amount of our capital expenditures, and ongoing compliance with the Charter Operating credit facilities, including obtaining an unqualified audit opinion fromoutcome of various matters in our independent accountants. Although weChapter 11 bankruptcy proceedings and our parent companies have been able to refinance or otherwise fund the repayment of debt in the past, we and our parent companies may not be able to access additional sources of refinancing on similar terms or pricing as those that are currently in place, or at all, or otherwise obtain other sources of funding. A continuationfinancial restructuring. The outcome of the recent turmoil in the credit markets and the general economic downturn could adversely impact the terms and/or pricing when we need to raise additional liquidity.
Access to Capital
Our significant amount of debt could negatively affect our ability to access additional capital in the future. Additionally, our ability to incur additional debt may be limited by the restrictive covenants in our indentures and credit facilities. No assurances can be given that we will not experience liquidity problems if we do not obtain sufficient additional financing on a timely basis as our debt becomes due or because of adverse market conditions, increased competition, or other unfavorable events. If, at any time, additional capital or borrowing capacity is required beyond amounts internally generated or available under our credit facilities, we would consider:
| • | issuing equity at the Charter or Charter Holdco level, the proceeds of which could be loaned or contributed to us; |
| • | issuing debt securities that may have structural or other priority over our existing notes; |
| • | further reducing our expenses and capital expenditures, which may impair our ability to increase revenue and grow operating cash flows; |
| • | selling assets; or |
| • | requesting waivers or amendments with respect to our credit facilities, which may not be available on acceptable terms; and cannot be assured. |
If the above strategies were not successful, we could be forced to restructure our obligations or seek protection under the bankruptcy laws. In addition, if we find it necessary to engage in a recapitalization or other similar transaction, our noteholders might not receive principal and interest payments to which they are contractually entitled.
Credit Facility Availability
Our ability to operate depends upon, among other things, our continued access to capital, including credit under the Charter Operating credit facilities. The Charter Operating credit facilities, along with our indentures and the CCO Holdings credit facility, contain certain restrictive covenants, some of which require us to maintain specified leverage ratios, and meet financial tests, and provide annual audited financial statements with an unqualified opinion from our independent accountants. As of December 31, 2007, we were in compliance with the covenants under our indentures and credit facilities, and we expect to remain in compliance with those covenants for the next twelve months. As of December 31, 2007, our potential availability under Charter Operating’s revolving credit facility totaled approximately $1.0 billion, none of which was limited by covenant restrictions. Continued access to our revolving credit facilityProposed Restructuring is subject to our remaining in compliance with these covenants, including covenants tiedsubstantial risks. See “Part I. Item 1A. Risk Factors — Risks Relating to Charter Operating’s leverage ratio and first lien leverage ratio. If any event of non-compliance were to occur, funding under the revolving credit facility may not be available and defaults on some or potentially all of our debt obligations could occur. An event of default under any of our debt instruments could result in the acceleration of our payment obligations under that debt and, under certain circumstances, in cross-defaults under our parent companies’ debt obligations, which could have a material adverse effect on our consolidated financial condition and results of operations.Bankruptcy.”
Parent Company Debt Obligations
Any financial or liquidity problems of our parent companies could cause serious disruption to our business and have a material adverse effect on our business and results of operations.
A failure by Charter Holdings, CIH, CCH I, CCH II or CCO Holdings to satisfy their debt payment obligations could, or a bankruptcy with respect to Charter Holdings, CIH, CCH I, CCH II, or CCO Holdings would, give the lenders under our credit facilities the right to accelerate the payment obligations under these facilities. Any such acceleration would be a default under the indenture governing our notes.
Limitations on Distributions
As long as Charter’s convertible senior notes remain outstanding and are not otherwise converted into shares of common stock, Charter must pay interest on the convertible senior notes and repay the principal amount. In October 2007, Charter Holdco completed an exchange offer in which $364 million of Charter’s 5.875% convertible senior notes due November 2009 were exchanged for $479 million of Charter’s 6.50% convertible senior notes. Approximately $49 million of Charter’s 5.875% convertible senior notes remain outstanding. Charter’s ability to make interest payments on its convertible senior notes and to repay the outstanding principal of its convertible senior notes will depend on its ability to raise additional capital and/or on receipt of payments or distributions from Charter Holdco and its subsidiaries. As of December 31, 2007,2008, Charter Holdco was owed $123$13 million in intercompany loans from Charter Operating and had $62$1 million in cash, which amounts were available to pay interest and principal on Charter’s convertible senior notes.notes to the extent not otherwise used, for example, to satisfy maturities at Charter Holdings. In addition, as long as Charter Holdco continues to hold the $137 million of Charter Holdings’ notes due 2009 and 2010 (as discussed further below), Charter Holdco will receive interest and principal payments from Charter Holdings to the extent Charter Holdings is able to make such payments. Such amounts may be available to pay interest and principal on Charter’s convertible senior notes, although Charter Holdco may use those amounts for other purposes.
Distributions by Charter’s subsidiaries to a parent company for payment of principal on parent company notes are restricted under the indentures governing the CIH notes, CCH I notes, CCH II notes, CCO Holdings notes, Charter Operatingour and our parent companies’ notes, and under the CCO Holdingsour credit facility, unless there is no default under the applicable indenture and credit facility,facilities, and unless each applicable subsidiary’s leverage ratio test is met at the time of such distribution. For the quarter ended December 31, 2007,2008, there was no default under any of these indentures or credit facilities, and each subsidiary met itsfacilities. However, certain of Charter’s subsidiaries did not meet their applicable leverage ratio tests based on December 31, 20072008 financial results. SuchAs a result, distributions from certain of Charter’s subsidiaries to their parent companies would have been restricted at such time and will continue to be restricted however, if any such subsidiary fails to meet theseunless those tests at the time of the contemplated distribution. In the past, certain subsidiaries have from time to time failed to meet their leverage ratio test. There can be no assurance that they will satisfy these tests at the time of the contemplated distribution.are met. Distributions by Charter Operating for payment of principal on parent company notes are further restricted by the covenants in the Charter Operatingits credit facilities.
Distributions by CIH, CCH I, CCH II, CCO Holdings, and Charter Operating to a parent company for payment of parent company interest are permitted if there is no default under the aforementioned indentures and CCO Holdings credit facility.
The indentures governing the Charter Holdings notes permit Charter Holdings to make distributions to Charter Holdco for payment of interest or principal on Charter’s convertible senior notes, only if, after giving effect to the distribution, Charter Holdings can incur additional debt under the leverage ratio of 8.75 to 1.0, there is no default under Charter Holdings’ indentures, and other specified tests are met. For the quarter ended December 31, 2007,2008, there was no default under Charter Holdings’ indentures, the other specified tests were met, and Charter Holdings met its leverage ratio test based on December 31, 20072008 financial results. Such distributions would be restricted, however, if Charter Holdings fails to meet these tests at the time of the contemplated distribution. In the past, Charter Holdings has from time to time failed to meet this leverage ratio test. There can be no assurance that Charter Holdings will satisfy these tests at the time of the contemplated distribution. During periods in which distributions are restricted, the indentures governing the Charter Holdings notes permit Charter Holdings and its subsidiaries to make specified investments (that are not restricted payments) in Charter Holdco or Charter, up to an amount determined by a formula, as long as there is no default under the indentures.
In addition to the limitation on distributions under the various indentures discussed above, distributions by ourCharter’s subsidiaries, including us, may be limited by applicable law.law, including the Delaware Limited Liability Company Act, under which Charter’s subsidiaries may only make distributions if they have “surplus” as defined in the act. It is uncertain whether we will have sufficient surplus at the relevant subsidiaries to make distributions, including for payment of interest and principal on the debts of the parents of such entities. See “Risk“Part I. Item 1A. Risk Factors — Because of our holding company structure, our outstanding notes are structurally subordinated in right of payment to all liabilities of our subsidiaries. Restrictions in our subsidiaries’subsidiary’s debt instruments and under applicable law limit their ability to provide funds to us or our various debt issuers.”
Historical Operating, Investing, and Financing and Investing Activities
Cash and Cash Equivalents. Charter Holdings, CCH II, and CCO HoldingsWe held $13$948 million $7 million, and $2 million, respectively, in cash and cash equivalents as of December 31, 20072008 compared to $38 million, $32 million, and $28$2 million as of December 31, 2006, respectively.2007. The increase in cash was the result of a draw-down on our revolving credit facility.
Operating Activities. Net cash provided by operating activities for Charter Holdings increased $16$94 million or 5%, from $307 million for the year ended December 31, 2006 to $323 million$1.4 billion for the year ended December 31, 2007 to $1.5 billion for the year ended December 31, 2008, primarily as a result of revenues increasing at a faster rate than cash operating expenses,revenue growth from high-speed Internet and telephone driven by bundled services, as well as improved cost efficiencies, offset by an increase of $80$37 million in interest on cash pay obligations and changes in operating assets and liabilities that provided $45$37 million less cash during the year ended December 31, 2007 than the corresponding period in 2006.same period.
Net cash provided by operating activities for CCH II increased $93 million, or 9%, from $1.0 billion for the year ended December 31, 2006 to $1.1 billion for the year ended December 31, 2007, primarily as a result of revenues increasing at a faster rate than cash operating expenses, offset by an increase of $44 million in interest on cash pay obligations and changes in operating assets and liabilities that provided $7 million less cash during the year ended December 31, 2007 than the corresponding period in 2006.
Net cash provided by operating activities for CCO Holdings increased $135 million, or 11%, from $1.2 billion for the year ended December 31, 2006 to $1.4 billion for the year ended December 31, 2007, primarily as a result of revenues increasing at a faster rate than cash operating expenses and changes in operating assets and liabilities that provided $6 million more cash during the year ended December 31, 2007 than the corresponding period in 2006, offset by an increase of $16 million in interest on cash pay obligations during the same period.
Investing Activities. Net cash used in investing activities for each of Charter Holdings, CCH II and CCO Holdings for the years ended December 31, 20072008 and 20062007 was $1.2 billion and $65 million, respectively. Investing activities used $1.1 billion more cash during the year ended December 31, 2007 than the corresponding period in 2006 primarily due to $1.0 billion of proceeds received in 2006 from the sale of assets, including cable systems.billion.
Financing Activities. Net cash provided by financing activities was $689 million for Charter Holdings and CCH II was $825 million and $26 million,the year ended December 31, 2008 and net cash used byin financing activities for CCO Holdings was $226 million for the year ended December 31, 2007, respectively. Net cash used by financing activities for Charter Holdings, CCH II and CCO Holdings was $218 million, $935 million, and $1.1 billion for the year ended December 31, 2006, respectively.2007. The increase in cash provided for Charter Holdings and CCH II and the decrease in cash used for CCO Holdings during the year ended December 31, 20072008 compared to the corresponding period in 2006,2007 was primarily the result of an increase in the amount by which borrowings exceeded repayments of long-term debt.debt and a decrease in distributions.
Capital Expenditures
We have significant ongoing capital expenditure requirements. Capital expenditures were $1.2 billion and $1.1 billion forin each of the years ended December 31, 20072008 and 2006, respectively. Capital expenditures increased as a result of spending on customer premise equipment and support capital to meet increased digital, high-speed Internet, and telephone customer growth.2007. See the table below for more details.
Our capital expenditures are funded primarily from cash flows from operating activities and the issuance of debt and borrowings under credit facilities.debt. In addition, during the years ended December 31, 2007 and 2006, our liabilities related to capital expenditures decreased by $39 million and $2 million for the years ended December 31, 2008 and increased by $24 million,2007, respectively.
During 2008,2009, we expect capital expenditures to be approximately $1.2 billion. We expect that the nature of these expenditures will continue to be composed primarily of purchases of customer premise equipment related to telephone and other advanced services, support capital, and scalable infrastructure. We have funded and expect to continue to fundThe actual amount of our capital expenditures for 2008 primarily from cash flows from operating activitiesdepends on the deployment of advanced broadband services and borrowings under our credit facilities.offerings. We may need additional capital if there is accelerated growth in high-speed Internet, telephone or digital customers or there is an increased need to respond to competitive pressures by expanding the delivery of other advanced services.
We have adopted capital expenditure disclosure guidance, which was developed by eleven then publicly traded cable system operators, including Charter, with the support of the National Cable & Telecommunications Association (“NCTA”).NCTA. The disclosure is intended to provide more consistency in the reporting of capital expenditures among peer companies in the cable industry. These disclosure guidelines are not required disclosures under accounting principles generally accepted in the United States (“GAAP”),GAAP, nor do they impact our accounting for capital expenditures under GAAP.
The following table presents our major capital expenditures categories in accordance with NCTA disclosure guidelines for the years ended December 31, 20072008 and 20062007 (dollars in millions):
| | For the years ended December 31, | |
| | 2007 | | | 2006 | |
| | | | | | |
Customer premise equipment (a) | | $ | 578 | | | $ | 507 | |
Scalable infrastructure (b) | | | 232 | | | | 214 | |
Line extensions (c) | | | 105 | | | | 107 | |
Upgrade/Rebuild (d) | | | 52 | | | | 45 | |
Support capital (e) | | | 277 | | | | 230 | |
| | | | | | | | |
Total capital expenditures | | $ | 1,244 | | | $ | 1,103 | |
____________ | | For the years ended December 31, | |
| | 2008 | | | 2007 | |
| | | | | | |
Customer premise equipment (a) | | $ | 595 | | | $ | 578 | |
Scalable infrastructure (b) | | | 251 | | | | 232 | |
Line extensions (c) | | | 80 | | | | 105 | |
Upgrade/rebuild (d) | | | 40 | | | | 52 | |
Support capital (e) | | | 236 | | | | 277 | |
| | | | | | | | |
Total capital expenditures | | $ | 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, Financial Reporting by Cable Television Companies, 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). |
Description of Our Outstanding Debt
Overview
As of December 31, 2008 and 2007, our total debt was approximately $11.8 billion and $9.9 billion, respectively. This debt was comprised of approximately $8.6 billion and $7.2 billion of credit facility debt and $3.2 billion and $2.7 billion accreted amount of high-yield notes at December 31, 2008 and 2007, respectively. See the organizational chart on page 5 and the first table under “— Liquidity and Capital Resources — Overview of Our Debt and Liquidity” for debt outstanding by issuer.
As of December 31, 2008 and 2007, the blended weighted average interest rate on our debt was 6.4% and 7.3%, respectively. The interest rate on approximately 64% and 68% of the total principal amount of our debt was effectively fixed, including the effects of our interest rate hedge agreements, as of December 31, 2008 and 2007, respectively. The fair value of our high-yield notes was $2.4 billion and $2.6 billion at December 31, 2008 and 2007, respectively. The fair value of our credit facilities was $6.2 billion and $6.7 billion at December 31, 2008 and 2007, respectively. The fair value of high-yield notes was based on quoted market prices, and the fair value of the credit facilities was based on dealer quotations.
The following description is a summary of certain provisions of our credit facilities and our notes (the “Debt Agreements”). The summary does not restate the terms of the Debt Agreements in their entirety, nor does it describe all terms of the Debt Agreements. The agreements and instruments governing each of the Debt Agreements are complicated and you should consult such agreements and instruments for more detailed information regarding the Debt Agreements. See the organizational chart on page 4 and the first table under “ — Liquidity and Capital Resources — Overview of Our Debt and Liquidity” for debt outstanding by issuer.
Credit Facilities – General
Charter Operating Credit Facilities
TheUnder the terms of the Proposed Restructuring, the Charter Operating credit facilities were amended and restated in March 2007, among other things, to defer maturities and to increase availability.will remain outstanding although the revolving line of credit would no longer be available for new borrowings. The Charter Operating credit facilities provide borrowing availability of up to $8.0 billion as follows:
| • | a term loan with aan initial total principal amount of $6.5 billion, which is repayable in equal quarterly installments, commencing March 31, 2008, and aggregating in each loan year to 1% of the original amount of the term loan, with the remaining balance due at final maturity on March 6, 2014; and |
| | |
| • | a revolving line of credit of $1.5 billion, with a maturity date on March 6, 2013. |
The Charter Operating credit facilities also allow us to enter into incremental term loans in the future with an aggregate amount of up to $1.0 billion, with amortization as set forth in the notices establishing such term loans, but with no amortization greater than 1% prior to the final maturity of the existing term loan. However, In March 2008, Charter Operating borrowed $500 million principal amount of incremental term loans (the “Incremental Term Loans”) under the Charter Operating credit facilities. The Incremental Term Loans have a final maturity of March 6, 2014 and prior to that date will amortize in quarterly principal installments totaling 1% annually beginning on June 30, 2008. The Incremental Term Loans bear interest at LIBOR plus 5.0%, with a LIBOR floor of 3.5%, and are otherwise governed by and subject to the existing terms of the Charter Operating credit facilities. Net proceeds from the Incremental Term Loans were used for general corporate purposes. Although the Charter Operating credit facilities allow for the incurrence of up to an additional $500 million in incremental term loans, no assurance can be given that suchwe could obtain additional incremental term loans could be obtainedin the future if Charter Operating sought to do so.so especially after filing a Chapter 11 bankruptcy proceeding on March 27, 2009.
Amounts outstanding under the Charter Operating credit facilities bear interest, at Charter Operating’s election, at a base rate or the Eurodollar rate, as defined, plus a margin for Eurodollar loans of up to 2.00% for the revolving credit facility and 2.00% for the term loan, and quarterly commitment fees of 0.5% per annum is payable on the average daily unborrowed balance of the revolving credit facility. If an event of default were to occur, such as a bankruptcy filing, Charter Operating would not be able to elect the Eurodollar rate and would have to pay interest at the base rate plus the applicable margin.
The obligations of Charter Operating under the Charter Operating credit facilities (the “Obligations”) are guaranteed by Charter Operating’s immediate parent company, CCO Holdings, and subsidiaries of Charter Operating, except for certain subsidiaries, including immaterial subsidiaries and subsidiaries precluded from guaranteeing by reason of the provisions of other indebtedness to which they are subject (the “non-guarantor subsidiaries”). The Obligations are also secured by (i) a lien on substantially all of the assets of Charter Operating and its subsidiaries (other than assets of the non-guarantor subsidiaries), to the extent such lien can be perfected under the Uniform Commercial Code by the filing of a financing statement, and (ii) a pledge by CCO Holdings of the equity interests owned by it in Charter Operating or any of Charter Operating’s subsidiaries, as well as intercompany obligations owing to it by any of such entities.
CCO Holdings Credit Facility
In March 2007, CCO Holdings entered into a credit agreement (the “CCO Holdings credit facility”) which consists of a $350 million term loan facility. Under the terms of the Proposed Restructuring, the CCO Holdings credit facility will remain outstanding. The facility matures in September 2014. The CCO Holdings credit facility also allows us to enter into incremental term loans in the future, maturing on the dates set forth in the notices establishing such term loans, but no earlier than the maturity date of the existing term loans. However, no assurance can be given that such incremental term loans could be obtained if CCO Holdings sought to do so. Borrowings under the CCO Holdings credit facility bear interest at a variable interest rate based on either LIBOR or a base rate plus, in either case, an applicable margin. The applicable margin for LIBOR term loans, other than incremental loans, is 2.50% above LIBOR. If an event of default were to occur, such as a bankruptcy filing, CCO Holdings would not be able to elect the Eurodollar rate and would have to pay interest at the base rate plus the applicable margin. The applicable margin with respect to incremental loans is to be agreed upon by CCO Holdings and the lenders when the incremental loans are established. The CCO Holdings credit facility is secured by the equity interests of Charter Operating, and all proceeds thereof.
Credit Facilities — Restrictive Covenants
Charter Operating Credit Facilities
The Charter Operating credit facilities contain representations and warranties, and affirmative and negative covenants customary for financings of this type. The financial covenants measure performance against standards set for leverage to be tested as of the end of each quarter. Additionally, the Charter Operating credit facilities contain provisions requiring mandatory loan prepayments under specific circumstances, including in connection with certain sales of assets, so long as the proceeds have not been reinvested in the business.
The Charter Operating credit facilities permit Charter Operating and its subsidiaries to make distributions to pay interest on the Charter convertible notes, the CCHC notes, the Charter Holdings notes, the CIH notes, the CCH I notes, the CCH II notes, the CCO Holdings notes, the CCO Holdings credit facility, and the Charter Operating second-lien notes, provided that, among other things, no default has occurred and is continuing under the credit facilities. Conditions to future borrowings include absence of a default or an event of default under the credit facilities, and the continued accuracy in all material respects of the representations and warranties, including the absence since December 31, 2005 of any event, development, or circumstance that has had or could reasonably be expected to have a material adverse effect on our business.
The events of default under the Charter Operating credit facilities include among other things:
| | |
| • | the failure to make payments when due or within the applicable grace period, |
| | period; |
| • | the failure to comply with specified covenants, including, but not limited to.to, a covenant to annually deliver audited financial statements for Charter Operating with an unqualified opinion from our independent accountants |
| | and without a “going concern” or like qualification or exception; |
| • | the failure to pay or the occurrence of events that cause or permit the acceleration of other indebtedness owing by CCO Holdings, Charter Operating, or Charter Operating’s subsidiaries in amounts in excess of $100 million in aggregate principal amount, |
| | amount; |
| • | the failure to pay or the occurrence of events that result in the acceleration of other indebtedness owing by certain of CCO Holdings’ direct and indirect parent companies in amounts in excess of $200 million in |
| | |
| | aggregate principal amount, |
| | amount; |
| • | Paul Allen and/or certain of his family members and/or their exclusively owned entities (collectively, the “Paul Allen Group”) ceasing to have the power, directly or indirectly, to vote at least 35% of the ordinary voting power of Charter Operating, |
| | Operating; |
| • | the consummation of any transaction resulting in any person or group (other than the Paul Allen Group) having power, directly or indirectly, to vote more than 35% of the ordinary voting power of Charter Operating, unless the Paul Allen Group holds a greater share of ordinary voting power of Charter Operating,Operating; and |
| | |
| • | Charter Operating ceasing to be a wholly-owned direct subsidiary of CCO Holdings, except in certain very limited circumstances. |
CCO Holdings Credit Facility
The CCO Holdings credit facility contains covenants that are substantially similar to the restrictive covenants for the CCO Holdings notes except that the leverage ratio is 5.50 to 1.0. See “-Summary of Restricted Covenants of Our
High Yield Notes.” The CCO Holdings credit facility contains provisions requiring mandatory loan prepayments under specific circumstances, including in connection with certain sales of assets, so long as the proceeds have not been reinvested in the business. The CCO Holdings credit facility permits CCO Holdings and its subsidiaries to make distributions to pay interest on the CCICharter convertible senior notes, the CCHC notes, the Charter Holdings notes, the CIH notes, the CCH I notes, the CCH II notes, the CCO Holdings notes, and the Charter Operating second-lien notes, provided that, among other things, no default has occurred and is continuing under the CCO Holdings credit facility.
Outstanding Notes
CCO Holdings, LLC Notes
In November 2003 and August 2005, CCO Holdings and CCO Holdings Capital Corp. jointly issued $500 million and $300 million, respectively, total principal amount of 8¾% senior notes due 2013 (the “CCOH 2013 Notes”). The CCOH 2013 Notes are senior debt obligations of CCO Holdings and CCO Holdings Capital Corp. They rank equally with all other current and future unsecured, unsubordinated obligations of CCO Holdings and CCO Holdings Capital Corp., including the CCO Holdings credit facility. The CCOH 2013 Notes are structurally subordinated to all obligations of subsidiaries of CCO Holdings, including the Charter Operating notes and the Charter Operating credit facilities. Under the terms of the Proposed Restructuring, the CCO Holdings notes will remain outstanding.
Charter Communications Operating, LLC Notes
OnIn April 27, 2004, Charter Operating and Charter Communications Operating Capital Corp. jointly issued $1.1 billion of 8% senior second-lien notes due 2012 and $400 million of 8 3/8% senior second-lien notes due 2014. In March and June 2005, Charter Operating consummated exchange transactions with a small number of institutional holders of Charter Holdings 8.25% senior notes due 2007 pursuant to which Charter Operating issued, in private placement transactions, approximately $333 million principal amount of its 8 3/8% senior second-lien notes due 2014 in exchange for approximately $346 million of the Charter Holdings 8.25% senior notes due 2007. In March 2006, Charter Operating exchanged $37 million of Renaissance Media Group LLC 10% senior discount notes due 2008 for $37 million principal amount of Charter Operating 8 3/8% senior second-lien notes due 2014. In March 2008, Charter Operating issued $546 million principal amount of 10.875% senior second-lien notes due 2014, guaranteed by CCO Holdings and certain other subsidiaries of Charter Operating, in a private transaction. Net proceeds from the senior second-lien notes were used to reduce borrowings, but not commitments, under the revolving portion of the Charter Operating credit facilities.
Subject to specified limitations, CCO Holdings and those subsidiaries of Charter Operating that are guarantors of, or otherwise obligors with respect to, indebtedness under the Charter Operating credit facilities and related obligations are required to guarantee the Charter Operating notes. The note guarantee of each such guarantor is:
| · | a senior obligation of such guarantor; |
| · | structurally senior to the outstanding CCO Holdings notes (except in the case of CCO Holdings’ note guarantee, which is structurally pari passu with such senior notes), the outstanding CCH II notes, the outstanding CCH I notes, the outstanding CIH notes, the outstanding Charter Holdings notes and the outstanding Charter convertible senior notes; |
| · | senior in right of payment to any future subordinated indebtedness of such guarantor; and |
| · | effectively senior to the relevant subsidiary’s unsecured indebtedness, to the extent of the value of the collateral but subject to the prior lien of the credit facilities. |
The Charter Operating notes and related note guarantees are secured by a second-priority lien on all of Charter Operating’s and its subsidiaries’ assets that secure the obligations of Charter Operating or any subsidiary of Charter Operating with respect to the Charter Operating credit facilities and the related obligations. The collateral currently consists of the capital stock of Charter Operating held by CCO Holdings, all of the intercompany obligations owing to CCO Holdings by Charter Operating or any subsidiary of Charter Operating, and substantially all of Charter Operating’s and the guarantors’ assets (other than the assets of CCO Holdings) in which security interests may be perfected under the Uniform Commercial Code by filing a financing statement (including capital stock and intercompany obligations), including, but not limited to:
| · | with certain exceptions, all capital stock (limited in the case of capital stock of foreign subsidiaries, if any, to 66% of the capital stock of first tier foreign Subsidiaries) held by Charter Operating or any guarantor; and |
| · | with certain exceptions, all intercompany obligations owing to Charter Operating or any guarantor. |
In the event that additional liens are granted by Charter Operating or its subsidiaries to secure obligations under the Charter Operating credit facilities or the related obligations, second priority liens on the same assets will be granted to secure the Charter Operating notes, which liens will be subject to the provisions of an intercreditor agreement (to which none of Charter Operating or its affiliates are parties). Notwithstanding the foregoing sentence, no such second priority liens need be provided if the time such lien would otherwise be granted is not during a guarantee and pledge availability period (when the Leverage Condition is satisfied), but such second priority liens will be required to be provided in accordance with the foregoing sentence on or prior to the fifth business day of the commencement of the next succeeding guarantee and pledge availability period.
The Charter Operating notes are senior debt obligations of Charter Operating and Charter Communications Operating Capital Corp. To the extent of the value of the collateral (but subject to the prior lien of the credit facilities), they rank effectively senior to all of Charter Operating’s future unsecured senior indebtedness.
CCO Holdings, LLC Notes
In November 2003 and August 2005, CCO Holdings and CCO Holdings Capital Corp. jointly issued $500 million and $300 million, respectively, total principal amount Under the terms of 8¾% senior notes due 2013 ( the “CCOH 2013 Notes”). The CCOH 2013 Notes are senior debt obligations of CCO Holdings and CCO Holdings Capital Corp. They rank equally with all other current and future unsecured, unsubordinated obligations of CCO Holdings and CCO Holdings Capital Corp., including the CCO Holdings credit facility. The CCOH 2013 Notes are structurally subordinated to all obligations of subsidiaries of CCO Holdings, includingProposed Restructuring, the Charter Operating notes and the Charter Operating credit facilities.will remain outstanding.
CCH II, LLC Notes
In September 2003 and January 2006, CCH II and CCH II Capital Corp. jointly issued approximately $2.2 billion total principal amount of 10.25% senior notes due 2010 (the “CCH II 2010 Notes”) and, in September 2006, issued $250 million total principal amount of 10.25% senior notes due 2013 (the “CCH II 2013 Notes” and, together with the CCH II 2010 Notes, the “CCH II notes”) in exchange for an aggregate of $270 million of certain Charter Holdings notes. The CCH II Notes are senior debt obligations of CCH II and CCH II Capital Corp. They rank equally with all other current and future unsecured, unsubordinated obligations of CCH II and CCH II Capital Corp. The CCH II 2013 Notes are guaranteed on a senior unsecured basis by Charter Holdings. The CCH II notes are structurally subordinated to all obligations of subsidiaries of CCH II, including the CCO Holdings notes, the Charter Operating notes and the Charter Operating credit facilities.
CCH I, LLC Notes
In September 2005, CCH I and CCH I Capital Corp. jointly issued $3.5 billion total principal amount of 11% senior secured notes due October 2015 in exchange for an aggregate amount of $4.2 billion of certain Charter Holdings notes and, in September 2006, issued an additional $462 million total principal amount of such notes in exchange for an aggregate of $527 million of certain Charter Holdings notes. The notes are guaranteed on a senior unsecured basis by Charter Holdings and are secured by a pledge of 100% of the equity interest of CCH I’s wholly owned direct subsidiary, CCH II, and by a pledge of the CC VIII interests, and the proceeds thereof. Such pledges are subject to significant limitations as described in the related pledge agreement.
The CCH I notes are senior debt obligations of CCH I and CCH I Capital Corp. To the extent of the value of the collateral, they rank senior to all of CCH I’s future unsecured senior indebtedness. The CCH I notes are structurally subordinated to all obligations of subsidiaries of CCH I, including the CCH II notes, CCO Holdings notes, the Charter Operating notes and the Charter Operating credit facilities.
CCH I Holdings, LLC Notes
In September 2005, CIH and CCH I Holdings Capital Corp. jointly issued $2.5 billion total principal amount of 9.92% to 13.50% senior accreting notes due 2014 and 2015 in exchange for an aggregate amount of $2.4 billion of Charter Holdings notes due 2011 and 2012, issued over six series of notes and with varying interest rates as set forth in the table above under “Liquidity and Capital Resources – Overview of Our Debt and Liquidity.” The notes are guaranteed on a senior unsecured basis by Charter Holdings.
The CIH notes are senior debt obligations of CIH and CCH I Holdings Capital Corp. They rank equally with all other current and future unsecured, unsubordinated obligations of CIH and CCH I Holdings Capital Corp. The CIH notes are structurally subordinated to all obligations of subsidiaries of CIH, including the CCH I notes, the CCH II notes, the CCO Holdings notes, the Charter Operating notes and the Charter Operating credit facilities.
Charter Communications Holdings, LLC Notes
From March 1999 through January 2002, Charter Holdings and Charter Communications Holdings Capital Corporation (“Charter Capital”) jointly issued $10.2 billion total principal amount of notes, of which $578 million total principal amount was outstanding as of December 31, 2007. The notes were issued over 15 series of notes with maturities from 2007 through 2012 and have varying interest rates as set forth in the table above under “Liquidity and Capital Resources – Overview of Our Debt and Liquidity.” The Charter Holdings notes are senior debt obligations of Charter Holdings and Charter Capital. They rank equally with all other current and future unsecured, unsubordinated obligations of Charter Holdings and Charter Capital. They are structurally subordinated to the obligations of Charter Holdings’ subsidiaries, including the CIH notes, the CCH I notes, CCH II notes, the CCO Holdings notes, the Charter Operating notes, and the Charter Operating credit facilities.
Redemption Provisions of Our High Yield Notes
The various notes issued by us and our subsidiaries included in the table may be redeemed in accordance with the following table or are not redeemable until maturity as indicated:
Note Series | | Redemption Dates | | Percentage of Principal |
| | | | | | |
CCO Holdings: | | | | | | |
8 3/4% senior notes due 2013 | | November 15, 2008 – November 14, 2009 | | | 104.375 | % |
| | November 15, 2009 – November 14, 2010 | | | 102.917 | % |
| | November 15, 2010 – November 14, 2011 | | | 101.458 | % |
| | Thereafter | | | 100.000 | % |
Charter Operating:Operating: | | | | | | |
8% senior second-lien notes due 2012 | | At any time | | | * | |
8 3/8% senior second-lien notes due 2014 | | April 30, 2009 – April 29, 2010 | | | 104.188 | % |
| | April 30, 2010 – April 29, 2011 | | | 102.792 | % |
| | April 30, 2011 – April 29, 2012 | | | 101.396 | % |
| | Thereafter | | | 100.000 | % |
CCO Holdings: | | | | | | |
8 3/4%10.875% senior notes due 2013 | | November 15, 2008 – November 14, 2009 | | | 104.375 | % |
| | November 15, 2009 – November 14, 2010 | | | 102.917 | % |
| | November 15, 2010 – November 14, 2011 | | | 101.458 | % |
| | Thereafter | | | 100.000 | % |
CCH II:
| | | | | | |
10.250% senior notes due 2010 | | September 15, 2008 – September 14, 2009 | | | 105.125 | % |
| | Thereafter | | | 100.000 | % |
10.250% senior notes due 2013** | | October 1, 2010 – September 30, 2011 | | | 105.125 | % |
| | October 1, 2011 – September 30, 2012 | | | 102.563 | % |
| | Thereafter | | | 100.000 | % |
CCH I: | | | | | | |
11.000% senior notes due 2015*** | | October 1, 2010 – September 30, 2011 | | | 105.500 | % |
| | October 1, 2011 – September 30, 2012 | | | 102.750 | % |
| | October 1, 2012 – September 30, 2013 | | | 101.375 | % |
| | Thereafter | | | 100.000 | % |
CIH: | | | | | |
11.125% senior discountsecond-lien notes due 2014 | January 15, 2008 - January 14, 2009 | | | 101.854 | % |
| Thereafter | | | 100.000 | % |
13.500% senior discount notes due 2014 | January 15, 2008 - January 14, 2009 | | | 102.250 | % |
| Thereafter | | | 100.000 | % |
9.920% senior discount notes due 2014 | At any time | | | 100.000 | % |
10.000% senior discount notes due 2014 | September 30, 2007 - May 14, 2008 | | | 103.333 | % |
| May 15, 2008 - May 14, 2009 | | | 101.667 | % |
| Thereafter | | | 100.000 | % |
11.750% senior discount notes due 2014 | September 30, 2007 - May 14, 2008 | | | 103.917 | % |
| May 15, 2008 - May 14, 2009 | | | 101.958 | % |
| Thereafter | | | 100.000 | % |
12.125% senior discount notes due 2015 | January 15, 2008 - January 14, 2009 | | | 104.042 | % |
| January 15, 2009 - January 14, 2010 | | | 102.021 | % |
| Thereafter | | | 100.000 | % |
Charter Holdings: | | | | ** | |
10.000% senior notes due 2009 | Not callable | | | N/A | |
10.750% senior discount notes due 2009 | Not callable | | | N/A | |
9.625% senor notes due 2009 | Not callable | | | N/A | |
10.250% senior notes due 2010 | January 15, 2008 – Thereafter | | | 100.000 | % |
11.750% senior discount notes due 2010 | January 15, 2008 – Thereafter | | | 100.000 | % |
11.125% senior notes due 2011 | January 15, 2008 – January 14, 2009 | | | 101.854 | % |
| Thereafter | | | 100.000 | % |
13.500% senior discount notes due 2011 | January 15, 2008 – January 14, 2009 | | | 102.250 | % |
| Thereafter | | | 100.000 | % |
9.920% senior discount notes due 2011 | At any time | | | 100.000 | % |
10.000% senior notes due 2011 | May 15, 2007 – May 14, 2008 | | | 103.333 | % |
| May 15, 2008 – May 14, 2009 | | | 101.667 | % |
| Thereafter | | | 100.000 | % |
11.750% senior discount notes due 2011 | May 15, 2007 – May 14, 2008 | | | 103.917 | % |
| May 15, 2008 – May 14, 2009 | | | 101.958 | % |
| Thereafter | | | 100.000 | % |
12.125% senior discount notes due 2012 | January 15, 2008 – January 14, 2009 | | | 104.042 | % |
| January 15, 2009 – January 14, 2010 | | | 102.021 | % |
| Thereafter | | | 100.000 | % |
| * | Charter Operating may, at any time and from time to time, at their option, redeem the outstanding 8% second lien notes due 2012, in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the redemption date, plus the Make-Whole Premium. The Make-Whole Premium is an amount equal to the excess of (a) the present value of the remaining interest and principal payments due on aan 8% senior second-lien notes due 2012 to its final maturity date, computed using a discount rate equal to the Treasury Rate on such date plus 0.50%, over (b) the outstanding principal amount of such Note. |
| ** | CCH IICharter Operating may priorredeem the outstanding 10.875% second lien notes due 2014, at their option, on or after varying dates, in each case at a premium, plus the Make-Whole Premium. The Make-Whole Premium is an amount equal to October 1, 2009 in the eventexcess of a qualified equity offering providing sufficient proceeds, redeem up to 35%(a) the present value of the aggregateremaining interest and principal payments due on a 10.875% senior second-lien note due 2014 to its final maturity date, computed using a discount rate equal to the Treasury Rate on such date plus 0.50%, over (b) the outstanding principal amount of the CCH IIsuch note. The Charter Operating 10.875% senior second-lien notes may be redeemed at a redemption price of 110.25% of the principal amount plus accrued and unpaid interest.any time on or after March 15, 2012 at specified prices. |
| *** | CCH I may, prior to October 1, 2008 in the event of a qualified equity offering providing sufficient proceeds, redeem up to 35% of the aggregate principal amount of the CCH I notes at a redemption price of 111% of the principal amount plus accrued and unpaid interest. |
In the event that a specified change of control event occurs, each of the respective issuers of the notes must offer to repurchase any then outstanding notes at 101% of their principal amount or accrued value, as applicable, plus accrued and unpaid interest, if any.
Summary of Restrictive Covenants of Our High Yield Notes
The following description is a summary of certain restrictions of our Debt Agreements. The summary does not restate the terms of the Debt Agreements in their entirety, nor does it describe all restrictions of the Debt
Agreements. The agreements and instruments governing each of the Debt Agreements are complicated and you should consult such agreements and instruments for more detailed information regarding the Debt Agreements.
The notes issued by Charter Holdings, CIH, CCH I, CCH II, CCO Holdings and Charter Operating (together, the “note issuers”) were issued pursuant to indentures that contain covenants that restrict the ability of the note issuers and their subsidiaries to, among other things:
· | pay dividends or make distributions in respect of capital stock and other restricted payments; |
· | consolidate, merge, or sell all or substantially all assets; |
· | enter into sale leaseback transactions; |
· | create restrictions on the ability of restricted subsidiaries to make certain payments; or |
· | enter into transactions with affiliates. |
However, such covenants are subject to a number of important qualifications and exceptions. Below we set forth a brief summary of certain of the restrictive covenants.
Restrictions on Additional Debt
The limitations on incurrence of debt and issuance of preferred stock contained in various indentures permit each of the respective notes issuers and its restricted subsidiaries to incur additional debt or issue preferred stock, so long as, after giving pro forma effect to the incurrence, the leverage ratio would be below a specified level for each of the note issuers as follows:
Issuer | | Leverage Ratio |
| | |
CCO | | 4.25 to 1 |
CCOH | | 4.5 to 1 |
CCH IICCO | | 5.5 to 1 |
CCH I | | 7.5 to 1 |
CIH | | 8.75 to 1 |
Charter Holdings | | 8.754.25 to 1 |
In addition, regardless of whether the leverage ratio could be met, so long as no default exists or would result from the incurrence or issuance, each issuer and their restricted subsidiaries are permitted to issue among other permitted indebtedness:
| · | up to an amount of debt under credit facilities not otherwise allocated as indicated below: |
· | Charter Operating: $6.8 billion |
· | CIH, CCH I, CCH II and CCO Holdings: $9.75 billion |
· | Charter Holdings: $3.5Operating: $6.8 billion |
| · | up to $75 million of debt incurred to finance the purchase or capital lease of new assets; |
| · | up to $300 million of additional debt for any purpose; |
| · | Charter Holdings and CIH may incur additional debt in an amount equal to 200% of proceeds of new cash equity proceeds received since March 1999, the date of our first indenture, and not allocated for restricted payments or permitted investments (the “Equity Proceeds Basket”); and |
| · | other items of indebtedness for specific purposes such as intercompany debt, refinancing of existing debt, and interest rate swaps to provide protection against fluctuation in interest rates. |
Indebtedness under a single facility or agreement may be incurred in part under one of the categories listed above and in part under another, and generally may also later be reclassified into another category including as debt incurred under the leverage ratio. Accordingly, indebtedness under our credit facilities is incurred under a
combination of the categories of permitted indebtedness listed above. The restricted subsidiaries of note issuers are generally not permitted to issue subordinated debt securities.
Restrictions on Distributions
Generally, under the various indentures each of the note issuers and their respective restricted subsidiaries are permitted to pay dividends on or repurchase equity interests, or make other specified restricted payments, only if the applicable issuer can incur $1.00 of new debt under the applicable leverage ratio test after giving effect to the transaction and if no default exists or would exist as a consequence of such incurrence. If those conditions are met, restricted payments may be made in a total amount of up to the following amounts for the applicable issuer as indicated below:
· | Charter Operating: the sum of 100% of Charter Operating’s Consolidated EBITDA, as defined, minus 1.3 times its Consolidated Interest Expense, as defined, plus 100% of new cash and appraised non-cash equity proceeds received by Charter Operating and not allocated to certain investments, cumulatively from April 1, 2004, plus $100 million; |
· | CCO Holdings: the sum of 100% of CCO Holdings’ Consolidated EBITDA, as defined, minus 1.3 times its Consolidated Interest Expense, as defined, plus 100% of new cash and appraised non-cash equity proceeds received by CCO Holdings and not allocated to certain investments, cumulatively from October 1, 2003, plus $100 million; and |
· | CCH II:Charter Operating: the sum of 100% of CCH II’sCharter Operating’s Consolidated EBITDA, as defined, minus 1.3 times its Consolidated Interest Expense, as defined, plus 100% of new cash and appraised non-cash equity proceeds received by CCH IICharter Operating and not allocated to certain investments, cumulatively from JulyApril 1, 2003, plus $100 million; |
· | CCH I: the sum of 100% of CCH I’s Consolidated EBITDA, as defined, minus 1.3 times its Consolidated Interest Expense, as defined, plus 100% of new cash and appraised non-cash equity proceeds received by CCH I and not allocated to certain investments, all cumulative from September 28, 2005, plus $100 million; |
· | CIH: the sum of the greater of (a) $500 million or (b) 100% of CIH’s Consolidated EBITDA, as defined, minus 1.2 times its Consolidated Interest Expense, as defined, plus 100% of new cash and appraised non-cash equity proceeds received by CIH and not allocated to the debt incurrence covenant or to permitted investments, all cumulatively from September 28, 2005; and |
· | Charter Holdings: the sum of 100% of Charter Holdings’ Consolidated EBITDA, as defined, minus 1.2 times its Consolidated Interest Expense, as defined, plus 100% of new cash and appraised non-cash equity proceeds received by Charter Holdings and not allocated to the debt incurrence covenant or to permitted investments, all cumulatively from March 1999, the date of the first Charter Holdings indenture,2004, plus $100 million. |
In addition, each of the note issuers may make distributions or restricted payments, so long as no default exists or would be caused by transactions among other distributions or restricted payments:
| · | to repurchase management equity interests in amounts not to exceed $10 million per fiscal year; |
| · | regardless of the existence of any default, to pay pass-through tax liabilities in respect of ownership of equity interests in the applicable issuer or its restricted subsidiaries; or |
| · | to make other specified restricted payments including merger fees up to 1.25% of the transaction value, repurchases using concurrent new issuances, and certain dividends on existing subsidiary preferred equity interests. |
Each of CIH, CCH I, CCH II, CCO Holdings and Charter Operating and their respective restricted subsidiaries may make distributions or restricted payments: (i) so long as certain defaults do not exist and even if the applicable leverage test referred to above is not met, to enable certain of its parents to pay interest on certain of their indebtedness or (ii) so long as the applicable issuer could incur $1.00 of indebtedness under the applicable leverage ratio test referred to above, to enable certain of its parents to purchase, redeem or refinance certain indebtedness.
Restrictions on Investments
Each of the note issuers and their respective restricted subsidiaries may not make investments except (i) permitted investments or (ii) if, after giving effect to the transaction, their leverage would be above the applicable leverage ratio.
Permitted investments include, among others:
· | investments in and generally among restricted subsidiaries or by restricted subsidiaries in the applicable issuer; |
· | For Charter Operating: |
· | investments aggregating up to $750 million at any time outstanding; and |
· | investments aggregating up to 100% of new cash equity proceeds received by Charter Operating since April 27, 2004 to the extent the proceeds have not been allocated to the restricted payments covenant. |
· | investments aggregating up to $750 million at any time outstanding; |
· | investments aggregating up to 100% of new cash equity proceeds received by CCO Holdings since November 10, 2003 to the extent the proceeds have not been allocated to the restricted payments covenant; |
· | For CCH II:Charter Operating: |
· | investments aggregating up to $750 million at any time outstanding; |
· | investments aggregating up to 100% of new cash equity proceeds received by CCH IICCO Holdings since September 23, 2003April 27, 2004 to the extent the proceeds have not been allocated to the restricted payments covenant; |
· | investments aggregating up to $750 million at any time outstanding; |
· | investments aggregating up to 100% of new cash equity proceeds received by CCH I since September 28, 2005 to the extent the proceeds have not been allocated to the restricted payments covenant; |
· | investments aggregating up to $750 million at any time outstanding; |
· | investments aggregating up to 100% of new cash equity proceeds received by CIH since March 1999 and not allocated to the debt incurrence or restricted payments covenant (as if CIH had been in existence at all times during such periods); |
· | investments in productive assets (including through equity investments) aggregating up to $150 million since March 1999;
|
· | other investments aggregating up to $50 million since March 1999; and
|
· | investments aggregating up to 100% of new cash equity proceeds received by Charter Holdings since March 1999 and not allocated to the debt incurrence or restricted payments covenant;
|
Restrictions on Liens
Charter Operating and its restricted subsidiaries are not permitted to grant liens senior to the liens securing the Charter Operating notes, other than permitted liens, on their assets to secure indebtedness or other obligations, if,
after giving effect to such incurrence, the senior secured leverage ratio (generally, the ratio of obligations secured by first priority liens to four times EBITDA, as defined, for the most recent fiscal quarter for which internal financial reports are available) would exceed 3.75 to 1.0. The restrictions on liens for each of the other note issuers only applies to liens on assets of the issuers themselves and does not restrict liens on assets of subsidiaries. With respect to all of the note issuers, permitted liens include liens securing indebtedness and other obligations under credit facilities (subject to specified limitations in the case of Charter Operating), liens securing the purchase price of financed new assets, liens securing indebtedness of up to $50 million and other specified liens.
Restrictions on the Sale of Assets; Mergers
The note issuers are generally not permitted to sell all or substantially all of their assets or merge with or into other companies unless their leverage ratio after any such transaction would be no greater than their leverage ratio immediately prior to the transaction, or unless after giving effect to the transaction, leverage would be below the applicable leverage ratio for the applicable issuer, no default exists, and the surviving entity is a U.S. entity that assumes the applicable notes.
The note issuers and their restricted subsidiaries may generally not otherwise sell assets or, in the case of restricted subsidiaries, issue equity interests, in excess of $100 million unless they receive consideration at least equal to the fair market value of the assets or equity interests, consisting of at least 75% in cash, assumption of liabilities, securities converted into cash within 60 days, or productive assets. The note issuers and their restricted subsidiaries are then required within 365 days after any asset sale either to use or commit to use the net cash proceeds over a specified threshold to acquire assets used or useful in their businesses or use the net cash proceeds to repay specified debt, or to offer to repurchase the issuer’s notes with any remaining proceeds.
Restrictions on Sale and Leaseback Transactions
The note issuers and their restricted subsidiaries may generally not engage in sale and leaseback transactions unless, at the time of the transaction, the applicable issuer could have incurred secured indebtedness under its leverage ratio test in an amount equal to the present value of the net rental payments to be made under the lease, and the sale of the assets and application of proceeds is permitted by the covenant restricting asset sales.
Prohibitions on Restricting Dividends
The note issuers’ restricted subsidiaries may generally not enter into arrangements involving restrictions on their ability to make dividends or distributions or transfer assets to the applicable note issuer unless those restrictions with respect to financing arrangements are on terms that are no more restrictive than those governing the credit facilities existing when they entered into the applicable indentures or are not materially more restrictive than customary terms in comparable financings and will not materially impair the applicable note issuers’ ability to make payments on the notes.
Affiliate Transactions
The indentures also restrict the ability of the note issuers and their restricted subsidiaries to enter into certain transactions with affiliates involving consideration in excess of $15 million without a determination by the board of directors of the applicable note issuer that the transaction complies with this covenant, or transactions with affiliates involving over $50 million without receiving an opinion as to the fairness to the holders of such transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing.
Cross Acceleration
Our indentures and those of certain of our parent companies and our subsidiaries include various events of default, including cross acceleration provisions. Under these provisions, a failure by any of the issuers or any of their restricted subsidiaries to pay at the final maturity thereof the principal amount of other indebtedness having a principal amount of $100 million or more (or any other default under any such indebtedness resulting in its acceleration) would result in an event of default under the indenture governing the applicable notes. As a result, an event of default related to the failure to repay principal at maturity or the acceleration of the indebtedness under the Charter Holdings notes, CIH notes, CCH I notes, CCH II notes, CCO Holdings notes, Charter Operating notes or the Charter Operating credit facilities could cause cross-defaults under our or our parent companies’ indentures.
Recently Issued Accounting Standards
In September 2006,December 2007, the FASB issued SFAS 157,No. 141R, Fair Value MeasurementsBusiness Combinations: Applying the Acquisition Method, which establishes a frameworkprovides guidance on the accounting and reporting for measuring fair value and expands disclosures about fair value measurements.business combinations. SFAS 157No. 141R is effective for fiscal years beginning after NovemberDecember 15, 2007 and interim periods within those fiscal years.2008. We will adopt SFAS 157No. 141R effective January 1, 2009. We do not expect that the adoption of SFAS No. 141R will have a material impact on our financial statements.
In December 2007, the FASB issued SFAS No. 160, Consolidations, which provides guidance on the accounting and reporting for minority interests in consolidated financial statements. SFAS No. 160 requires losses to be allocated to non-controlling (minority) interests even when such amounts are deficits. As such, future losses will be allocated between Charter and the Charter Holdco non-controlling interest. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. We will adopt SFAS No. 160 effective January 1, 2009. We do not expect that the adoption of SFAS No. 160 will have a material impact on our financial statements.
In February 2008, the FASB issued FASB Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157, which deferred the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008 for nonfinancial assets and nonfinancial liabilities. We will apply SFAS No. 157 to nonfinancial assets and nonfinancial liabilities beginning January 1, 2009. We are in the process of assessing the impact of SFAS No. 157 on our financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133, which requires companies to disclose their objectives and strategies for using derivative instruments, whether or not designated as hedging instruments under SFAS No. 133. SFAS No. 161 is effective for interim periods and fiscal years beginning after November 15, 2008. We will adopt SFAS No. 161 effective January 1, 2009. We do not expect that the adoption of SFAS 157No. 161 will have a material impact on our financial statements.
In February 2007,April 2008, the FASB issued SFAS 159,FSP FAS 142-3, The Fair Value Option for FinancialDetermination of the Useful Life of Intangible Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115, which allows measurement at fair valueamends the factors to be considered in renewal or extension assumptions used to determine the useful life of eligible financial assets and liabilities that are not otherwise measured at fair value. If the fair value option for an eligible item is elected, unrealized gains and losses for that item shall be reported in current earnings at each subsequent reporting date. SFAS 159 also establishes presentation and disclosure requirements designed to draw comparison between the different measurement attributes the company elects for similar types of assets and liabilities. SFAS 159a recognized intangible asset. FSP FAS 142-3 is effective for interim periods and fiscal years beginning after NovemberDecember 15, 2007.2008. We will adopt FSP FAS 142-3 effective January 1, 2009. We do not expect that the adoption of SFAS 159FSP FAS 142-3 will have a material impact on our financial statements.
In December 2007,May 2008, the FASB issued SFAS 141R, Business Combinations: ApplyingFSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), which specifies that issuers of convertible debt instruments that may be settled in cash upon conversion should separately account for the Acquisition Method,liability and SFAS 160, Consolidations, which provide guidance on the accounting and reporting for business combinations and minority interestsequity components in consolidated financial statements. SFAS 141R and SFAS 160a manner reflecting their nonconvertible debt borrowing rate when interest costs are recognized in subsequent periods. FSP APB 14-1 is effective for interim periods and fiscal years beginning after December 15, 2008. EarlyWe will adopt FSP APB 14-1 effective January 1, 2009. We do not expect that the adoption is prohibited. We are currently assessing theof FSP APB 14-1 will have a material impact of SFAS 141R and SFAS 160 on our financial statements.
We do not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on our accompanying financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
We are exposed to various market risks, including fluctuations in interest rates. We use interest rate risk management derivative instruments, including but not limited to interest rate swap agreements and interest rate collar agreements (collectively referred to herein as interest rate agreements), to manage our interest costs and reduce our exposure to increases in floating interest rates.rates. Our policy is to manage our exposure to fluctuations in interest rates by maintaining a mix of fixed and variable rate debt within a targeted range. Using interest rate swap agreements, we agree to exchange, at specified intervals through 2013, the difference between fixed and variable interest amounts calculated by reference to agreed-upon notional principal amounts. At the banks’ option, certain interest rate swap agreements may be extended through 2014.
As of December 31, 2008 and 2007, our total debt was approximately $11.8 billion and 2006, Charter Holdings’, CCH II’s,$9.9 billion, respectively. As of December 31, 2008 and CCO Holdings’ accreted value of consolidated long-term debt,2007, the weighted average interest ratesrate on the credit facility debt was approximately 5.5% and percentage6.8%, respectively, and the weighted average interest rate on the high-yield notes was approximately 8.8% and 8.2%, respectively, resulting in a blended weighted average interest rate of 6.4% and 7.3%, respectively. The
interest rate on approximately 64% and 68% of the total principal amount of our debt was effectively fixed, including the effects of our interest rate hedge agreements, are as follows (dollars in millions):
| | Consolidated Charter Holdings | | | Consolidated CCH II | | | Consolidated CCO Holdings | |
| | 2007 | | | 2006 | | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
Consolidated long-term debt - accreted value | | $ | 19,506 | | | $ | 18,654 | | | $ | 12,311 | | | $ | 11,062 | | | $ | 9,859 | | | $ | 8,610 | |
Weighted average interest rate - credit facilities | | | 6.8 | % | | | 7.9 | % | | | 6.8 | % | | | 7.9 | % | | | 6.8 | % | | | 7.9 | % |
Weighted average interest rate - high-yield notes | | | 10.3 | % | | | 10.3 | % | | | 9.1 | % | | | 9.3 | % | | | 8.2 | % | | | 8.5 | % |
Blended weighted average interest rate | | | 9.1 | % | | | 9.6 | % | | | 7.9 | % | | | 8.6 | % | | | 7.3 | % | | | 8.2 | % |
Debt effectively fixed | | | 85 | % | | | 77 | % | | | 76 | % | | | 61 | % | | | 68 | % | | | 49 | % |
of December 31, 2008 and 2007, respectively.
We do not hold or issue derivative instruments for trading purposes. We do, however, have certain interest rate derivative instruments that have been designated as cash flow hedging instruments. Such instruments effectively convert variable interest payments on certain debt instruments into fixed payments. For qualifying hedges, SFAS No. 133 allows derivative gains and losses to offset related results on hedged items in the consolidated statement of operations. We have formally documented, designated and assessed the effectiveness of transactions that receive hedge accounting. For the years ended December 31, 2008 and 2007, and 2006, other income (expense), net includes gains of $0 and $2 million, respectively, which representthere was no cash flow hedge ineffectiveness on interest rate hedge agreements. This ineffectiveness arises from differences between critical terms of the agreements and the related hedged obligations.
Changes in the fair value of interest rate agreements that are designated as hedging instruments of the variability of cash flows associated with floating-rate debt obligations, and that meet the effectiveness criteria of SFAS No. 133 are reported in accumulated other comprehensive income (loss).loss. For the years ended December 31, 20072008 and 2006,2007, losses of $123$180 million and $1$123 million, respectively, related to derivative instruments designated as cash flow hedges, were recorded in accumulated other comprehensive income (loss).loss. The amounts are subsequently reclassified as an increase or decrease to interest expense in the same periods in which the related interest on the floating-rate debt obligations affects earnings (losses).
Certain interest rate derivative instruments are not designated as hedges as they do not meet the effectiveness criteria specified by SFAS No. 133. However, management believes such instruments are closely correlated with the respective debt, thus managing associated risk. Interest rate derivative instruments not designated as hedges are marked to fair value, with the impact recorded as other income (expense), net,a change in value of derivatives in our statements of operations. For the years ended December 31, 2008 and 2007, and 2006, other income (expense), netchange in value of derivatives includes losses of $46$62 million and gains of $4$46 million, respectively, resulting from interest rate derivative instruments not designated as hedges.
The table set forth below summarizes the fair values and contract terms of financial instruments subject to interest rate risk maintained by Charter Holdings, CCH II, and CCO Holdingsus as of December 31, 20072008 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | Fair Value at December 31, 2007 | |
| | | | | | | | | | | | | | | | | | | | | | |
Charter Holdings Consolidated | | | | | | | | | | | | | | | | | | | | | | |
Fixed Rate Debt | | $ | -- | | | $ | 188 | | | $ | 2,232 | | | $ | 281 | | | $ | 1,175 | | | $ | 8,341 | | | $ | 12,217 | | | $ | 10,281 | |
Average Interest Rate | | | -- | | | | 10.18 | % | | | 10.26 | % | | | 11.25 | % | | | 8.26 | % | | | 10.70 | % | | | 10.39 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CCH II Consolidated | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed Rate Debt | | $ | -- | | | $ | -- | | | $ | 2,198 | | | $ | -- | | | $ | 1,100 | | | $ | 1,820 | | | $ | 5,118 | | | $ | 4,958 | |
Average Interest Rate | | | -- | | | | -- | | | | 10.25 | % | | | -- | | | | 8.00 | % | | | 8.80 | % | | | 9.25 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CCO Holdings Consolidated | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed Rate Debt | | $ | -- | | | $ | -- | | | $ | -- | | | $ | -- | | | $ | 1,100 | | | $ | 1,570 | | | $ | 2,670 | | | $ | 2,568 | |
Average Interest Rate | | | -- | | | | -- | | | | -- | | | | -- | | | | 8.00 | % | | | 8.57 | % | | | 8.33 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Charter Holdings, CCH II and CCO Holdings Consolidated | | | | | | | | | | | | | | | | | | | | | |
Variable Rate Debt | | $ | 65 | | | $ | 65 | | | $ | 65 | | | $ | 65 | | | $ | 65 | | | $ | 6,869 | | | $ | 7,194 | | | $ | 6,723 | |
Average Interest Rate | | | 5.94 | % | | | 5.59 | % | | | 6.16 | % | | | 6.51 | % | | | 6.77 | % | | | 6.41 | % | | | 6.40 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest Rate Instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Variable to Fixed Swaps | | $ | -- | | | $ | -- | | | $ | 500 | | | $ | 300 | | | $ | 2,500 | | | $ | 1,000 | | | $ | 4,300 | | | $ | (169 | ) |
Average Pay Rate | | | -- | | | | -- | | | | 6.81 | % | | | 6.98 | % | | | 6.95 | % | | | 6.94 | % | | | 6.93 | % | | | | |
Average Receive Rate | | | -- | | | | -- | | | | 6.25 | % | | | 6.35 | % | | | 6.90 | % | | | 6.95 | % | | | 6.80 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Fair Value at December 31, 2008 | |
Debt | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed Rate | | $ | -- | | | $ | -- | | | $ | -- | | | $ | 1,100 | | | $ | 800 | | | $ | 1,316 | | | $ | 3,216 | | | $ | 2,428 | |
Average Interest Rate | | | -- | | | | -- | | | | -- | | | | 8.00 | % | | | 8.75 | % | | | 9.41 | % | | | 8.76 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Variable Rate | | $ | 70 | | | $ | 70 | | | $ | 70 | | | $ | 70 | | | $ | 1,385 | | | $ | 6,931 | | | $ | 8,596 | | | $ | 6,187 | |
Average Interest Rate | | | 4.20 | % | | | 3.52 | % | | | 4.59 | % | | | 4.87 | % | | | 4.76 | % | | | 4.87 | % | | | 4.83 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest Rate Instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Variable to Fixed Swaps | | $ | -- | | | $ | 500 | | | $ | 300 | | | $ | 2,500 | | | $ | 1,000 | | | $ | -- | | | $ | 4,300 | | | $ | (411 | ) |
Average Pay Rate | | | -- | | | | 6.99 | % | | | 7.16 | % | | | 7.13 | % | | | 7.12 | % | | | -- | | | | 7.11 | % | | | | |
Average Receive Rate | | | -- | | | | 2.82 | % | | | 3.41 | % | | | 4.86 | % | | | 4.86 | % | | | -- | | | | 4.52 | % | | | | |
The notional amounts of interest rate instruments do not represent amounts exchanged by the parties and, thus, are not a measure of our exposure to credit loss. The amounts exchanged are determined by reference to the notional amount and the other terms of the contracts. The estimated fair value approximates the costs (proceeds) to settle the outstanding contracts.contracts adjusted for Charter Operating’s credit risk. Interest rates on variable debt are estimated using the average implied forward LIBOR for the year of maturity based on the yield curve in effect at December 31, 2007,2008 including applicable bank spread.
At December 31, 20072008 and 2006,2007, we had outstanding $4.3 billion and $1.7$4.3 billion, respectively, in notional amounts of interest rate swaps. The notional amounts of interest rate instruments do not represent amounts exchanged by the parties and, thus, are not a measure of exposure to credit loss. The amounts exchanged are determined by reference to the notional amount and the other terms of the contracts.
Our consolidated financial statements, the related notes thereto, and the reports of independent accountants are included in this annual report beginning on page F-1.
None.
Item 9A. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
As of the end of the period covered by this report, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures with respect to the information generated for use in this annual report. The evaluation was based in part upon reports and certifications provided by a number of executives. Based upon, and as of the date of that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to provide reasonable assurances that information required to be disclosed in the reports we file or submit
under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission’sSEC’s rules and forms.
There was no change in our internal control over financial reporting during the fourth quarter of 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon the above evaluation, we believe that our controls provide such reasonable assurances.
There was no change in our internal control over financial reporting during the fourth quarter of 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
The following information under “Management’s Report on Internal Control Over Financial Reporting” is not filed but is furnished pursuant to Reg S-K Item 308T, "Internal Control Over Financial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers and Newly Public Companies."
Charter’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control system was designed to provide reasonable assurance to Charter’s management and board of directors regarding the preparation and fair presentation of published financial statements.
Charter’s management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2007.2008. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control — Integrated Framework. Based on management’s assessment utilizing these criteria we believe that, as of December 31, 2007,2008, our internal control over financial reporting was effective.
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.
Item 9B. Other Information.
None.
PART IIIParent Company Debt Obligations
Our executive officersAs long as Charter’s convertible senior notes remain outstanding and are not otherwise converted into shares of common stock, Charter must pay interest on the convertible senior notes and repay the principal amount. Charter’s ability to make interest payments on its convertible senior notes and to repay the outstanding principal of its convertible senior notes will depend on its ability to raise additional capital and/or on receipt of payments or distributions from Charter Holdco and its subsidiaries. As of December 31, 2008, Charter Holdco was owed $13 million in intercompany loans from Charter Operating and had $1 million in cash, which amounts were available to pay interest and principal on Charter’s convertible senior notes to the extent not otherwise used, for example, to satisfy maturities at Charter Holdings. In addition, as long as Charter Holdco continues to hold the $137 million of Charter Holdings’ notes due 2009 and 2010 (as discussed further below), Charter Holdco will receive interest and principal payments from Charter Holdings to the extent Charter Holdings is able to make such payments. Such amounts may be available to pay interest and principal on Charter’s convertible senior notes, although Charter Holdco may use those amounts for other purposes.
Distributions by Charter’s subsidiaries to a parent company for payment of principal on parent company notes are restricted under the indentures governing our employees, but theyand our parent companies’ notes, and under our credit facility, unless there is no default under the applicable indenture and credit facilities, and unless each applicable subsidiary’s leverage ratio test is met at the time of such distribution. For the quarter ended December 31, 2008, there was no default under any of these indentures or credit facilities. However, certain of Charter’s subsidiaries did not meet their applicable leverage ratio tests based on December 31, 2008 financial results. As a result, distributions from certain of Charter’s subsidiaries to their parent companies would have been restricted at such time and will continue to be restricted unless those tests are employees of, and appointedmet. Distributions by Charter Operating for payment of principal on parent company notes are further restricted by the sole manager of Charter Holdings,covenants in its credit facilities.
Distributions by CIH, CCH I, CCH II, CCO Holdings, and Charter Operating to a parent company for payment of parent company interest are permitted if there is no default under the aforementioned indentures and CCO Holdings and our parent. Neithercredit facility.
The indentures governing the Charter Holdings CCH II nor CCOnotes permit Charter Holdings have a boardto make distributions to Charter Holdco for payment of directors. None of us have a compensation committee nor do we establish compensation policy. As employees of Charter, our executive officers receive compensation from Charter. You should referinterest or principal on Charter’s convertible senior notes, only if, after giving effect to the proxy statementdistribution, Charter Holdings can incur additional debt under the leverage ratio of 8.75 to 1.0, there is no default under Charter Holdings’ indentures, and other specified tests are met. For the quarter ended December 31, 2008, there was no default under Charter Holdings’ indentures, the other specified tests were met, and Charter Holdings met its leverage ratio test based on December 31, 2008 financial results. Such distributions would be restricted, however, if Charter Holdings fails to meet these tests at the time of the contemplated distribution. In the past, Charter Holdings has from time to time failed to meet this leverage ratio test. There can be no assurance that Charter Holdings will satisfy these tests at the time of the contemplated distribution. During periods in which distributions are restricted, the indentures governing the Charter Holdings notes permit Charter Holdings and its subsidiaries to make specified investments (that are not restricted payments) in Charter Holdco or Charter, up to an amount determined by a formula, as long as there is no default under the indentures.
In addition to the limitation on distributions under the various indentures discussed above, distributions by Charter’s subsidiaries, including us, may be limited by applicable law, including the Delaware Limited Liability Company Act, under which Charter’s subsidiaries may only make distributions if they have “surplus” as defined in the act. It is uncertain whether we will have sufficient surplus at the relevant subsidiaries to make distributions, including for Charter’s annual meeting for a discussionpayment of its compensation policiesinterest and principal on the compensationdebts of its executive officers.the parents of such entities. See “Part I. Item 1A. Risk Factors — Because of our holding company structure, our outstanding notes are structurally subordinated in right of payment to all liabilities of our subsidiaries. Restrictions in our subsidiary’s debt instruments and under applicable law limit their ability to provide funds to us or our various debt issuers.”
Historical Operating, Investing, and Financing Activities
Charter’s Audit Committee appoints, retains, compensates and oversees the independent registered public accounting firm (subject, if applicable, to board of director and/or stockholder ratification), and approves in advance all fees and termsOperating Activities. Net cash provided by operating activities increased $94 million from $1.4 billion for the audit engagementyear ended December 31, 2007 to $1.5 billion for the year ended December 31, 2008, primarily as a result of revenue growth from high-speed Internet and non-audit engagements where non-audittelephone driven by bundled services, are not prohibitedas well as improved cost efficiencies, offset by Section 10Aan increase of $37 million in interest on cash pay obligations and changes in operating assets and liabilities that provided $37 million less cash during the same period.
Investing Activities. Net cash used in investing activities for each of the Securities Exchange Actyears ended December 31, 2008 and 2007 was $1.2 billion.
Financing Activities. Net cash provided by financing activities was $689 million for the year ended December 31, 2008 and net cash used in financing activities was $226 million for the year ended December 31, 2007. The increase in cash provided during the year ended December 31, 2008 compared to the corresponding period in 2007 was primarily the result of 1934, as amended with respect to independent registered public accounting firms. Pre-approvalsan increase in the amount by which borrowings exceeded repayments of non-audit services are sometimes delegated tolong-term debt and a single memberdecrease in distributions.
Capital Expenditures
We have significant ongoing capital expenditure requirements. Capital expenditures were $1.2 billion in each of the Charter’s Audit Committee. However, any pre-approvals madeyears ended December 31, 2008 and 2007. See the table below for more details.
Our capital expenditures are funded primarily from cash flows from operating activities and the issuance of debt. In addition, our liabilities related to capital expenditures decreased by Charter’s Audit Committee’s designee are presented at the Charter’s Audit Committee’s next regularly scheduled meeting. Charter’s Audit Committee has an obligation to consult with management on these matters. Charter’s Audit Committee approved 100% of the KPMG fees$39 million and $2 million for the years ended December 31, 2008 and 2007, and 2006. Each year, including 2007, with respect to the proposed audit engagement, Charter’s Audit Committee reviews the proposed risk assessment process in establishing the scope of examination and the reportsrespectively.
During 2009, we expect capital expenditures to be rendered.approximately $1.2 billion. We expect the nature of these expenditures will continue to be composed primarily of purchases of customer premise equipment related to telephone and other advanced services, support capital, and scalable infrastructure. The actual amount of our capital expenditures depends on the deployment of advanced broadband services and offerings. We may need additional capital if there is accelerated growth in high-speed Internet, telephone or digital customers or there is an increased need to respond to competitive pressures by expanding the delivery of other advanced services.
In its capacity as a committee of Charter’s Board, Charter’s Audit Committee overseesWe have adopted capital expenditure disclosure guidance, which was developed by eleven then publicly traded cable system operators, including Charter, with the worksupport of the independent registered publicNCTA. The disclosure is intended to provide more consistency in the reporting of capital expenditures among peer companies in the cable industry. These disclosure guidelines are not required disclosures under GAAP, nor do they impact our accounting firm (including resolution of disagreements between management and the public accounting firm regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services. capital expenditures under GAAP.
The independent registered public accounting firm reports directly to Charter’s Audit Committee. In performing its functions, Charter’s Audit Committee undertakes those tasks and responsibilities that,following table presents our major capital expenditures categories in its judgment, most effectively contribute to and implement the purposes of Charter’s Audit Committee charter. For more detail of Charter’s Audit Committee’s authority and responsibilities, see the Charter’s Audit Committee charter on Charter’s website, www.charter.com.
Audit Fees
Duringaccordance with NCTA disclosure guidelines for the years ended December 31, 2008 and 2007 (dollars in millions):
| | For the years ended December 31, | |
| | 2008 | | | 2007 | |
| | | | | | |
Customer premise equipment (a) | | $ | 595 | | | $ | 578 | |
Scalable infrastructure (b) | | | 251 | | | | 232 | |
Line extensions (c) | | | 80 | | | | 105 | |
Upgrade/rebuild (d) | | | 40 | | | | 52 | |
Support capital (e) | | | 236 | | | | 277 | |
| | | | | | | | |
Total capital expenditures | | $ | 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, Financial Reporting by Cable Television Companies, 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). |
Description of Our Outstanding Debt
Overview
As of December 31, 2008 and 2006, Charter incurred fees2007, our total debt was approximately $11.8 billion and related expenses for professional services rendered by KPMG for the audits of Charter and its subsidiaries’ financial statements (including three subsidiaries that are also public registrants), for the review of Charter and its subsidiaries’ interim financial statements and two registration statement filings in 2007 and seven offering memoranda and registration statement filings in 2006 totaling approximately $4.2 million and $5.9 million,$9.9 billion, respectively.
Audit-Related Fees
Charter incurred fees to KPMG This debt was comprised of approximately $0.02 million$8.6 billion and $0.01 million during the years ended$7.2 billion of credit facility debt and $3.2 billion and $2.7 billion accreted amount of high-yield notes at December 31, 2008 and 2007, respectively. See the organizational chart on page 5 and 2006, respectively. These services were primarily related to certain agreed-upon procedures.
Tax Fees
None.
All Other Fees
None.the first table under “— Liquidity and Capital Resources — Overview of Our Debt and Liquidity” for debt outstanding by issuer.
As of December 31, 2008 and 2007, the blended weighted average interest rate on our debt was 6.4% and 7.3%, respectively. The interest rate on approximately 64% and 68% of the total principal amount of our debt was effectively fixed, including the effects of our interest rate hedge agreements, as of December 31, 2008 and 2007, respectively. The fair value of our high-yield notes was $2.4 billion and $2.6 billion at December 31, 2008 and 2007, respectively. The fair value of our credit facilities was $6.2 billion and $6.7 billion at December 31, 2008 and 2007, respectively. The fair value of high-yield notes was based on quoted market prices, and the fair value of the credit facilities was based on dealer quotations.
The following description is a summary of certain provisions of our credit facilities and our notes (the “Debt Agreements”). The summary does not restate the terms of the Debt Agreements in their entirety, nor does it describe all terms of the Debt Agreements. The agreements and instruments governing each of the Debt Agreements are complicated and you should consult such agreements and instruments for more detailed information regarding the Debt Agreements.
Credit Facilities – General
Charter Operating Credit Facilities
Under the terms of the Proposed Restructuring, the Charter Operating credit facilities will remain outstanding although the revolving line of credit would no longer be available for new borrowings. The Charter Operating credit facilities provide borrowing availability of up to $8.0 billion as follows:
| • | a term loan with an initial total principal amount of $6.5 billion, which is repayable in equal quarterly installments, commencing March 31, 2008, and aggregating in each loan year to 1% of the original amount of the term loan, with the remaining balance due at final maturity on March 6, 2014; and |
| • | a revolving line of credit of $1.5 billion, with a maturity date on March 6, 2013. |
The Charter Operating credit facilities also allow us to enter into incremental term loans in the future with an aggregate amount of up to $1.0 billion, with amortization as set forth in the notices establishing such term loans, but with no amortization greater than 1% prior to the final maturity of the existing term loan. In March 2008, Charter Operating borrowed $500 million principal amount of incremental term loans (the “Incremental Term Loans”) under the Charter Operating credit facilities. The Incremental Term Loans have a final maturity of March 6, 2014 and prior to that date will amortize in quarterly principal installments totaling 1% annually beginning on June 30, 2008. The Incremental Term Loans bear interest at LIBOR plus 5.0%, with a LIBOR floor of 3.5%, and are otherwise governed by and subject to the existing terms of the Charter Operating credit facilities. Net proceeds from the Incremental Term Loans were used for general corporate purposes. Although the Charter Operating credit facilities allow for the incurrence of up to an additional $500 million in incremental term loans, no assurance can be given that we could obtain additional incremental term loans in the future if Charter Operating sought to do so especially after filing a Chapter 11 bankruptcy proceeding on March 27, 2009.
Amounts outstanding under the Charter Operating credit facilities bear interest, at Charter Operating’s election, at a base rate or the Eurodollar rate, as defined, plus a margin for Eurodollar loans of up to 2.00% for the revolving credit facility and 2.00% for the term loan, and quarterly commitment fees of 0.5% per annum is payable on the average daily unborrowed balance of the revolving credit facility. If an event of default were to occur, such as a bankruptcy filing, Charter Operating would not be able to elect the Eurodollar rate and would have to pay interest at the base rate plus the applicable margin.
The obligations of Charter Operating under the Charter Operating credit facilities (the “Obligations”) are guaranteed by Charter Operating’s immediate parent company, CCO Holdings, and subsidiaries of Charter Operating, except for certain subsidiaries, including immaterial subsidiaries and subsidiaries precluded from guaranteeing by reason of the provisions of other indebtedness to which they are subject (the “non-guarantor subsidiaries”). The Obligations are also secured by (i) a lien on substantially all of the assets of Charter Operating and its subsidiaries (other than assets of the non-guarantor subsidiaries), to the extent such lien can be perfected under the Uniform Commercial Code by the filing of a financing statement, and (ii) a pledge by CCO Holdings of the equity interests owned by it in Charter Operating or any of Charter Operating’s subsidiaries, as well as intercompany obligations owing to it by any of such entities.
CCO Holdings Credit Facility
In March 2007, CCO Holdings entered into a credit agreement (the “CCO Holdings credit facility”) which consists of a $350 million term loan facility. Under the terms of the Proposed Restructuring, the CCO Holdings credit facility will remain outstanding. The facility matures in September 2014. The CCO Holdings credit facility also allows us to enter into incremental term loans in the future, maturing on the dates set forth in the notices establishing such term loans, but no earlier than the maturity date of the existing term loans. However, no assurance can be given that such incremental term loans could be obtained if CCO Holdings sought to do so. Borrowings under the CCO Holdings credit facility bear interest at a variable interest rate based on either LIBOR or a base rate plus, in either case, an applicable margin. The applicable margin for LIBOR term loans, other than incremental loans, is 2.50% above LIBOR. If an event of default were to occur, such as a bankruptcy filing, CCO Holdings would not be able to elect the Eurodollar rate and would have to pay interest at the base rate plus the applicable margin. The applicable margin with respect to incremental loans is to be agreed upon by CCO Holdings and the lenders when the incremental loans are established. The CCO Holdings credit facility is secured by the equity interests of Charter Operating, and all proceeds thereof.
Credit Facilities — Restrictive Covenants
Charter Operating Credit Facilities
The Charter Operating credit facilities contain representations and warranties, and affirmative and negative covenants customary for financings of this type. The financial covenants measure performance against standards set for leverage to be tested as of the end of each quarter. Additionally, the Charter Operating credit facilities contain provisions requiring mandatory loan prepayments under specific circumstances, including in connection with certain sales of assets, so long as the proceeds have not been reinvested in the business.
The Charter Operating credit facilities permit Charter Operating and its subsidiaries to make distributions to pay interest on the Charter convertible notes, the CCHC notes, the Charter Holdings notes, the CIH notes, the CCH I notes, the CCH II notes, the CCO Holdings notes, the CCO Holdings credit facility, and the Charter Operating second-lien notes, provided that, among other things, no default has occurred and is continuing under the credit facilities. Conditions to future borrowings include absence of a default or an event of default under the credit facilities, and the continued accuracy in all material respects of the representations and warranties, including the absence since December 31, 2005 of any event, development, or circumstance that has had or could reasonably be expected to have a material adverse effect on our business.
The events of default under the Charter Operating credit facilities include among other things:
| • | the failure to make payments when due or within the applicable grace period; |
| • | the failure to comply with specified covenants, including, but not limited to, a covenant to deliver audited financial statements for Charter Operating with an unqualified opinion from our independent accountants and without a “going concern” or like qualification or exception; |
| • | the failure to pay or the occurrence of events that cause or permit the acceleration of other indebtedness owing by CCO Holdings, Charter Operating, or Charter Operating’s subsidiaries in amounts in excess of $100 million in aggregate principal amount; |
| • | the failure to pay or the occurrence of events that result in the acceleration of other indebtedness owing by certain of CCO Holdings’ direct and indirect parent companies in amounts in excess of $200 million in aggregate principal amount; |
| • | Paul Allen and/or certain of his family members and/or their exclusively owned entities (collectively, the “Paul Allen Group”) ceasing to have the power, directly or indirectly, to vote at least 35% of the ordinary voting power of Charter Operating; |
| • | the consummation of any transaction resulting in any person or group (other than the Paul Allen Group) having power, directly or indirectly, to vote more than 35% of the ordinary voting power of Charter Operating, unless the Paul Allen Group holds a greater share of ordinary voting power of Charter Operating; and |
| • | Charter Operating ceasing to be a wholly-owned direct subsidiary of CCO Holdings, except in certain very limited circumstances. |
CCO Holdings Credit Facility
The CCO Holdings credit facility contains covenants that are substantially similar to the restrictive covenants for the CCO Holdings notes except that the leverage ratio is 5.50 to 1.0. See “-Summary of Restricted Covenants of Our
PART IVHigh Yield Notes.” The CCO Holdings credit facility contains provisions requiring mandatory loan prepayments under specific circumstances, including in connection with certain sales of assets, so long as the proceeds have not been reinvested in the business. The CCO Holdings credit facility permits CCO Holdings and its subsidiaries to make distributions to pay interest on the Charter convertible senior notes, the CCHC notes, the Charter Holdings notes, the CIH notes, the CCH I notes, the CCH II notes, the CCO Holdings notes, and the Charter Operating second-lien notes, provided that, among other things, no default has occurred and is continuing under the CCO Holdings credit facility.
(a) | The following documents are filed as part of this annual report: |
CCO Holdings, LLC Notes
In November 2003 and August 2005, CCO Holdings and CCO Holdings Capital Corp. jointly issued $500 million and $300 million, respectively, total principal amount of 8¾% senior notes due 2013 (the “CCOH 2013 Notes”). The CCOH 2013 Notes are senior debt obligations of CCO Holdings and CCO Holdings Capital Corp. They rank equally with all other current and future unsecured, unsubordinated obligations of CCO Holdings and CCO Holdings Capital Corp., including the CCO Holdings credit facility. The CCOH 2013 Notes are structurally subordinated to all obligations of subsidiaries of CCO Holdings, including the Charter Operating notes and the Charter Operating credit facilities. Under the terms of the Proposed Restructuring, the CCO Holdings notes will remain outstanding.
Charter Communications Operating, LLC Notes
In April 2004, Charter Operating and Charter Communications Operating Capital Corp. jointly issued $1.1 billion of 8% senior second-lien notes due 2012 and $400 million of 8 3/8% senior second-lien notes due 2014. In March and June 2005, Charter Operating consummated exchange transactions with a small number of institutional holders of Charter Holdings 8.25% senior notes due 2007 pursuant to which Charter Operating issued, in private placement transactions, approximately $333 million principal amount of its 8 3/8% senior second-lien notes due 2014 in exchange for approximately $346 million of the Charter Holdings 8.25% senior notes due 2007. In March 2006, Charter Operating exchanged $37 million of Renaissance Media Group LLC 10% senior discount notes due 2008 for $37 million principal amount of Charter Operating 8 3/8% senior second-lien notes due 2014. In March 2008, Charter Operating issued $546 million principal amount of 10.875% senior second-lien notes due 2014, guaranteed by CCO Holdings and certain other subsidiaries of Charter Operating, in a private transaction. Net proceeds from the senior second-lien notes were used to reduce borrowings, but not commitments, under the revolving portion of the Charter Operating credit facilities.
Subject to specified limitations, CCO Holdings and those subsidiaries of Charter Operating that are guarantors of, or otherwise obligors with respect to, indebtedness under the Charter Operating credit facilities and related obligations are required to guarantee the Charter Operating notes. The note guarantee of each such guarantor is:
| (1)· | Financial Statements.a senior obligation of such guarantor; |
A listing of the financial statements, notes and reports of our independent registered public accounting firm required by Item 8 begins on page F-1 of this annual report.
| (2)· | Financial Statement Schedules. |
No financial statement schedules are required to be filed by Items 8 and 15(d) because they are not required or are not applicable, or the required information is set forth in the applicable financial statements or notes thereto.
| (3) | The indexstructurally senior to the exhibits begins on page E-1outstanding CCO Holdings notes (except in the case of this annual report. |
We agree to furnish to the SEC, upon request, copies of any long-term debt instruments that authorize an amount of securities constituting 10% or less of the total assets of Charter Holdings, CCH II or CCO Holdings and their subsidiaries on a consolidated basis.
SIGNATURESCCO Holdings’ note guarantee, which is structurally pari passu with such senior notes), the outstanding CCH II notes, the outstanding CCH I notes, the outstanding CIH notes, the outstanding Charter Holdings notes and the outstanding Charter convertible senior notes;
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation have duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | CHARTER COMMUNICATIONS HOLDINGS, LLC | |
| | Registrant | |
| | By: CHARTER COMMUNICATIONS, INC., Sole Manager | |
Date: March 21, 2008 | | By: | | |
| | | | Neil Smit |
| | | | President and Chief Executive Officer |
| | | | |
| · | CHARTER COMMUNICATIONS HOLDINGS CAPITAL CORPORATIONsenior in right of payment to any future subordinated indebtedness of such guarantor; and |
| · | Registrant |
Date: March 21, 2008 | | By: | | /s/ Neil Smit |
| | | | Neil Smit |
| | | | President and Chief Executive Officereffectively senior to the relevant subsidiary’s unsecured indebtedness, to the extent of the value of the collateral but subject to the prior lien of the credit facilities. |
Pursuant
The Charter Operating notes and related note guarantees are secured by a second-priority lien on all of Charter Operating’s and its subsidiaries’ assets that secure the obligations of Charter Operating or any subsidiary of Charter Operating with respect to the requirementsCharter Operating credit facilities and the related obligations. The collateral currently consists of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalfcapital stock of Charter Communications, Inc, the sole managerOperating held by CCO Holdings, all of the Registrant,intercompany obligations owing to CCO Holdings by Charter Operating or any subsidiary of Charter Operating, and substantially all of Charter Operating’s and the guarantors’ assets (other than the assets of CCO Holdings) in which security interests may be perfected under the capacitiesUniform Commercial Code by filing a financing statement (including capital stock and on the dates indicated.intercompany obligations), including, but not limited to:
| · | with certain exceptions, all capital stock (limited in the case of capital stock of foreign subsidiaries, if any, to 66% of the capital stock of first tier foreign Subsidiaries) held by Charter Operating or any guarantor; and |
| · | with certain exceptions, all intercompany obligations owing to Charter Operating or any guarantor. |
In the event that additional liens are granted by Charter Operating or its subsidiaries to secure obligations under the Charter Operating credit facilities or the related obligations, second priority liens on the same assets will be granted to secure the Charter Operating notes, which liens will be subject to the provisions of an intercreditor agreement (to which none of Charter Operating or its affiliates are parties). Notwithstanding the foregoing sentence, no such second priority liens need be provided if the time such lien would otherwise be granted is not during a guarantee and pledge availability period (when the Leverage Condition is satisfied), but such second priority liens will be required to be provided in accordance with the foregoing sentence on or prior to the fifth business day of the commencement of the next succeeding guarantee and pledge availability period.
The Charter Operating notes are senior debt obligations of Charter Operating and Charter Communications Operating Capital Corp. To the extent of the value of the collateral (but subject to the prior lien of the credit facilities), they rank effectively senior to all of Charter Operating’s future unsecured senior indebtedness. Under the terms of the Proposed Restructuring, the Charter Operating notes will remain outstanding.
Redemption Provisions of Our High Yield Notes
The various notes issued by us and our subsidiaries included in the table may be redeemed in accordance with the following table or are not redeemable until maturity as indicated:
Note Series | | Redemption Dates | | Percentage of Principal |
| | | | | |
| | | Chairman of the Board of Directors | | March 18, 2008 |
| Paul G. Allen | | | | |
CCO Holdings: | | | | | | |
| 8 3/4% senior notes due 2013 | | President, Chief Executive | | March 21,November 15, 2008
|
| Neil Smit | | Officer, Director (Principal Executive Officer) – November 14, 2009 | | | 104.375 | % |
| | | Charter Communications Holdings Capital CorporationNovember 15, 2009 – November 14, 2010 | | | 102.917 | % |
| | November 15, 2010 – November 14, 2011 | | | 101.458 | % |
| | Thereafter | | | 100.000 | % |
Charter Operating: | | | | | | |
| /s/ Jeffrey T. Fisher8% senior second-lien notes due 2012 | | Executive Vice President and Chief Financial Officer | | |
| Jeffrey T. Fisher | | (Principal Financial Officer)At any time | | | * | |
8 3/8% senior second-lien notes due 2014 | | April 30, 2009 – April 29, 2010 | | | 104.188 | % |
| | April 30, 2010 – April 29, 2011 | | | |
102.792 | /s/ Kevin D. Howard | | Vice President, Controller and Chief Accounting Officer | | |
| Kevin D. Howard | | (Principal Accounting Officer) | | % |
| | April 30, 2011 – April 29, 2012 | | | |
101.396 | /s/ W. Lance Conn | | Director, Charter Communications, Inc. | | |
| W. Lance Conn | | | | % |
| | Thereafter | | | 100.000 | % |
10.875% senior second-lien notes due 2014 | | At any time | | | Director, Charter Communications, Inc.
| | |
| Nathaniel A. Davis | | | | |
| | | | | |
| | | Director, Charter Communications, Inc.
| | |
| Jonathan L. Dolgen | | | | |
| | | | | |
| | | Director, Charter Communications, Inc.
| | |
| Rajive Johri | | | | |
| | | | | |
| | | Director, Charter Communications, Inc.
| | |
| Robert P. May | | | | |
| | | | | |
| | | Director, Charter Communications, Inc.
| | |
| David C. Merritt | | | | |
| | | | | |
| | | Director, Charter Communications, Inc.
| | |
| Marc B. Nathanson | | | | |
| | | | ** | |
| * | Charter Operating may, at any time and from time to time, at their option, redeem the outstanding 8% second lien notes due 2012, in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the redemption date, plus the Make-Whole Premium. The Make-Whole Premium is an amount equal to the excess of (a) the present value of the remaining interest and principal payments due on an 8% senior second-lien notes due 2012 to its final maturity date, computed using a discount rate equal to the Treasury Rate on such date plus 0.50%, over (b) the outstanding principal amount of such Note. |
| ** | Charter Operating may redeem the outstanding 10.875% second lien notes due 2014, at their option, on or after varying dates, in each case at a premium, plus the Make-Whole Premium. The Make-Whole Premium is an amount equal to the excess of (a) the present value of the remaining interest and principal payments due on a 10.875% senior second-lien note due 2014 to its final maturity date, computed using a discount rate equal to the Treasury Rate on such date plus 0.50%, over (b) the outstanding principal amount of such note. The Charter Operating 10.875% senior second-lien notes may be redeemed at any time on or after March 15, 2012 at specified prices. |
| | | | |
| | Director, Charter Communications, Inc. | | March 18, 2008 |
Jo Allen Patton | | | | |
| | | | |
| | Director, Charter Communications, Inc. | | March 21, 2008 |
John H. Tory | | | | |
| | | | |
/s/ Larry W. Wangberg | | Director, Charter Communications, Inc. | | March 21, 2008 |
Larry W. Wangberg | | | | |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, CCH II, LLC and CCH II Capital Corp. have duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | |
| | Registrant | |
| | By: CHARTER COMMUNICATIONS, INC., Sole Manager | |
Date: March 21, 2008 | | By: | | |
| | | | Neil Smit |
| | | | President and Chief Executive Officer |
| | | | |
| | CCH II CAPITAL CORP. |
| | Registrant |
Date: March 21, 2008 | | By: | | |
| | | | Neil Smit |
| | | | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Charter Communications, Inc. and in the capacities and on the dates indicated.
| | | | | |
| | | | | |
| | | Chairman of the Board of Directors | | March 18, 2008 |
| Paul G. Allen | | | | |
| | | | | |
| | | President, Chief Executive | | March 21, 2008 |
| Neil Smit | | Officer, Director (Principal Executive Officer) | | |
| | | CCH II Capital Corp | | |
| | | | | |
| s/ Jeffrey T. Fisher | | Executive Vice President and Chief Financial Officer | | March 21, 2008 |
| Jeffrey T. Fisher | | (Principal Financial Officer) | | |
| | | | | |
| /s/ Kevin D. Howard | | Vice President, Controller and Chief Accounting Officer | | March 21, 2008 |
| Kevin D. Howard | | (Principal Accounting Officer) | | |
| | | | | |
| /s/ W. Lance Conn | | Director, Charter Communications, Inc. | | March 18, 2008 |
| W. Lance Conn | | | | |
| | | | | |
| | | Director, Charter Communications, Inc. | | March __, 2008 |
| Nathaniel A. Davis | | | | |
| | | | | |
| | | Director, Charter Communications, Inc. | | March 12, 2008 |
| Jonathan L. Dolgen | | | | |
| | | | | |
| | | Director, Charter Communications, Inc. | | March __, 2008 |
| Rajive Johri | | | | |
| | | | | |
| | | Director, Charter Communications, Inc. | | March 21, 2008 |
| Robert P. May | | | | |
| | | | | |
| | | Director, Charter Communications, Inc. | | March 21, 2008 |
| David C. Merritt | | | | |
| | | | | |
| | | Director, Charter Communications, Inc. | | March 21, 2008 |
| Marc B. Nathanson | | | | |
In the event that a specified change of control event occurs, each of the respective issuers of the notes must offer to repurchase any then outstanding notes at 101% of their principal amount or accrued value, as applicable, plus accrued and unpaid interest, if any.
Summary of Restrictive Covenants of Our High Yield Notes
The following description is a summary of certain restrictions of our Debt Agreements. The summary does not restate the terms of the Debt Agreements in their entirety, nor does it describe all restrictions of the Debt Agreements. The agreements and instruments governing each of the Debt Agreements are complicated and you should consult such agreements and instruments for more detailed information regarding the Debt Agreements.
The notes issued by CCO Holdings and Charter Operating (together, the “note issuers”) were issued pursuant to indentures that contain covenants that restrict the ability of the note issuers and their subsidiaries to, among other things:
/s/ Jo Allen Patton· | incur indebtedness; |
· | pay dividends or make distributions in respect of capital stock and other restricted payments; |
· | consolidate, merge, or sell all or substantially all assets; |
· | enter into sale leaseback transactions; |
· | create restrictions on the ability of restricted subsidiaries to make certain payments; or |
· | enter into transactions with affiliates. |
However, such covenants are subject to a number of important qualifications and exceptions. Below we set forth a brief summary of certain of the restrictive covenants.
Restrictions on Additional Debt
The limitations on incurrence of debt and issuance of preferred stock contained in various indentures permit each of the respective notes issuers and its restricted subsidiaries to incur additional debt or issue preferred stock, so long as, after giving pro forma effect to the incurrence, the leverage ratio would be below a specified level for each of the note issuers as follows:
Issuer | | Director, Charter Communications, Inc. | | March 18, 2008Leverage Ratio |
Jo Allen Patton | | | | |
CCOH | | 4.5 to 1 |
CCO | | 4.25 to 1 |
|
In addition, regardless of whether the leverage ratio could be met, so long as no default exists or would result from the incurrence or issuance, each issuer and their restricted subsidiaries are permitted to issue among other permitted indebtedness:
| Director, Charter Communications, Inc. | | March 21, 2008 | John H. Tory | | | | |
| · | | | |
/s/ Larry W. Wangberg | | Director, Charter Communications, Inc. | | March 21, 2008 |
Larry W. Wangberg | | | | up to an amount of debt under credit facilities not otherwise allocated as indicated below: |
· | CCO Holdings: $9.75 billion |
· | Charter Operating: $6.8 billion |
| · | up to $75 million of debt incurred to finance the purchase or capital lease of new assets; |
| · | up to $300 million of additional debt for any purpose; and |
| · | other items of indebtedness for specific purposes such as intercompany debt, refinancing of existing debt, and interest rate swaps to provide protection against fluctuation in interest rates. |
Indebtedness under a single facility or agreement may be incurred in part under one of the categories listed above and in part under another, and generally may also later be reclassified into another category including as debt incurred under the leverage ratio. Accordingly, indebtedness under our credit facilities is incurred under a combination of the categories of permitted indebtedness listed above. The restricted subsidiaries of note issuers are generally not permitted to issue subordinated debt securities.
Restrictions on Distributions
Generally, under the various indentures each of the note issuers and their respective restricted subsidiaries are permitted to pay dividends on or repurchase equity interests, or make other specified restricted payments, only if the applicable issuer can incur $1.00 of new debt under the applicable leverage ratio test after giving effect to the transaction and if no default exists or would exist as a consequence of such incurrence. If those conditions are met, restricted payments may be made in a total amount of up to the following amounts for the applicable issuer as indicated below:
· | CCO Holdings: the sum of 100% of CCO Holdings’ Consolidated EBITDA, as defined, minus 1.3 times its Consolidated Interest Expense, as defined, plus 100% of new cash and appraised non-cash equity proceeds received by CCO Holdings and not allocated to certain investments, cumulatively from October 1, 2003, plus $100 million; and |
· | Charter Operating: the sum of 100% of Charter Operating’s Consolidated EBITDA, as defined, minus 1.3 times its Consolidated Interest Expense, as defined, plus 100% of new cash and appraised non-cash equity proceeds received by Charter Operating and not allocated to certain investments, cumulatively from April 1, 2004, plus $100 million. |
In addition, each of the note issuers may make distributions or restricted payments, so long as no default exists or would be caused by transactions among other distributions or restricted payments:
| · | to repurchase management equity interests in amounts not to exceed $10 million per fiscal year; |
| · | regardless of the existence of any default, to pay pass-through tax liabilities in respect of ownership of equity interests in the applicable issuer or its restricted subsidiaries; or |
| · | to make other specified restricted payments including merger fees up to 1.25% of the transaction value, repurchases using concurrent new issuances, and certain dividends on existing subsidiary preferred equity interests. |
Each of CCO Holdings and Charter Operating and their respective restricted subsidiaries may make distributions or restricted payments: (i) so long as certain defaults do not exist and even if the applicable leverage test referred to above is not met, to enable certain of its parents to pay interest on certain of their indebtedness or (ii) so long as the applicable issuer could incur $1.00 of indebtedness under the applicable leverage ratio test referred to above, to enable certain of its parents to purchase, redeem or refinance certain indebtedness.
Restrictions on Investments
Each of the note issuers and their respective restricted subsidiaries may not make investments except (i) permitted investments or (ii) if, after giving effect to the transaction, their leverage would be above the applicable leverage ratio.
Permitted investments include, among others:
· | investments in and generally among restricted subsidiaries or by restricted subsidiaries in the applicable issuer; |
· | For CCO Holdings: |
· | investments aggregating up to $750 million at any time outstanding; |
· | investments aggregating up to 100% of new cash equity proceeds received by CCO Holdings since November 10, 2003 to the extent the proceeds have not been allocated to the restricted payments covenant; |
· | investments aggregating up to $750 million at any time outstanding; |
· | investments aggregating up to 100% of new cash equity proceeds received by CCO Holdings since April 27, 2004 to the extent the proceeds have not been allocated to the restricted payments covenant. |
Restrictions on Liens
Charter Operating and its restricted subsidiaries are not permitted to grant liens senior to the liens securing the Charter Operating notes, other than permitted liens, on their assets to secure indebtedness or other obligations, if,
after giving effect to such incurrence, the senior secured leverage ratio (generally, the ratio of obligations secured by first priority liens to four times EBITDA, as defined, for the most recent fiscal quarter for which internal financial reports are available) would exceed 3.75 to 1.0. The restrictions on liens for each of the other note issuers only applies to liens on assets of the issuers themselves and does not restrict liens on assets of subsidiaries. With respect to all of the note issuers, permitted liens include liens securing indebtedness and other obligations under credit facilities (subject to specified limitations in the case of Charter Operating), liens securing the purchase price of financed new assets, liens securing indebtedness of up to $50 million and other specified liens.
Restrictions on the Sale of Assets; Mergers
The note issuers are generally not permitted to sell all or substantially all of their assets or merge with or into other companies unless their leverage ratio after any such transaction would be no greater than their leverage ratio immediately prior to the transaction, or unless after giving effect to the transaction, leverage would be below the applicable leverage ratio for the applicable issuer, no default exists, and the surviving entity is a U.S. entity that assumes the applicable notes.
The note issuers and their restricted subsidiaries may generally not otherwise sell assets or, in the case of restricted subsidiaries, issue equity interests, in excess of $100 million unless they receive consideration at least equal to the fair market value of the assets or equity interests, consisting of at least 75% in cash, assumption of liabilities, securities converted into cash within 60 days, or productive assets. The note issuers and their restricted subsidiaries are then required within 365 days after any asset sale either to use or commit to use the net cash proceeds over a specified threshold to acquire assets used or useful in their businesses or use the net cash proceeds to repay specified debt, or to offer to repurchase the issuer’s notes with any remaining proceeds.
Restrictions on Sale and Leaseback Transactions
The note issuers and their restricted subsidiaries may generally not engage in sale and leaseback transactions unless, at the time of the transaction, the applicable issuer could have incurred secured indebtedness under its leverage ratio test in an amount equal to the present value of the net rental payments to be made under the lease, and the sale of the assets and application of proceeds is permitted by the covenant restricting asset sales.
Prohibitions on Restricting Dividends
The note issuers’ restricted subsidiaries may generally not enter into arrangements involving restrictions on their ability to make dividends or distributions or transfer assets to the applicable note issuer unless those restrictions with respect to financing arrangements are on terms that are no more restrictive than those governing the credit facilities existing when they entered into the applicable indentures or are not materially more restrictive than customary terms in comparable financings and will not materially impair the applicable note issuers’ ability to make payments on the notes.
Affiliate Transactions
The indentures also restrict the ability of the note issuers and their restricted subsidiaries to enter into certain transactions with affiliates involving consideration in excess of $15 million without a determination by the board of directors of the applicable note issuer that the transaction complies with this covenant, or transactions with affiliates involving over $50 million without receiving an opinion as to the fairness to the holders of such transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing.
Cross Acceleration
Our indentures and those of certain of our parent companies and our subsidiaries include various events of default, including cross acceleration provisions. Under these provisions, a failure by any of the issuers or any of their restricted subsidiaries to pay at the final maturity thereof the principal amount of other indebtedness having a principal amount of $100 million or more (or any other default under any such indebtedness resulting in its acceleration) would result in an event of default under the indenture governing the applicable notes. As a result, an event of default related to the failure to repay principal at maturity or the acceleration of the indebtedness under the Charter Holdings notes, CIH notes, CCH I notes, CCH II notes, CCO Holdings notes, Charter Operating notes or the Charter Operating credit facilities could cause cross-defaults under our or our parent companies’ indentures.
SIGNATURESRecently Issued Accounting Standards
PursuantIn December 2007, the FASB issued SFAS No. 141R, Business Combinations: Applying the Acquisition Method, which provides guidance on the accounting and reporting for business combinations. SFAS No. 141R is effective for fiscal years beginning after December 15, 2008. We will adopt SFAS No. 141R effective January 1, 2009. We do not expect that the adoption of SFAS No. 141R will have a material impact on our financial statements.
In December 2007, the FASB issued SFAS No. 160, Consolidations, which provides guidance on the accounting and reporting for minority interests in consolidated financial statements. SFAS No. 160 requires losses to be allocated to non-controlling (minority) interests even when such amounts are deficits. As such, future losses will be allocated between Charter and the requirementsCharter Holdco non-controlling interest. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. We will adopt SFAS No. 160 effective January 1, 2009. We do not expect that the adoption of Section 13SFAS No. 160 will have a material impact on our financial statements.
In February 2008, the FASB issued FASB Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157, which deferred the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008 for nonfinancial assets and nonfinancial liabilities. We will apply SFAS No. 157 to nonfinancial assets and nonfinancial liabilities beginning January 1, 2009. We are in the process of assessing the impact of SFAS No. 157 on our financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133, which requires companies to disclose their objectives and strategies for using derivative instruments, whether or 15(d)not designated as hedging instruments under SFAS No. 133. SFAS No. 161 is effective for interim periods and fiscal years beginning after November 15, 2008. We will adopt SFAS No. 161 effective January 1, 2009. We do not expect that the adoption of SFAS No. 161 will have a material impact on our financial statements.
In April 2008, the FASB issued FSP FAS 142-3, Determination of the Securities Exchange ActUseful Life of 1934, CCO Holdings, LLC and CCO Holdings Capital Corp. have duly caused this annual reportIntangible Assets, which amends the factors to be signedconsidered in renewal or extension assumptions used to determine the useful life of a recognized intangible asset. FSP FAS 142-3 is effective for interim periods and fiscal years beginning after December 15, 2008. We will adopt FSP FAS 142-3 effective January 1, 2009. We do not expect that the adoption of FSP FAS 142-3 will have a material impact on its behalf byour financial statements.
In May 2008, the undersigned, thereunto duly authorized.FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), which specifies that issuers of convertible debt instruments that may be settled in cash upon conversion should separately account for the liability and equity components in a manner reflecting their nonconvertible debt borrowing rate when interest costs are recognized in subsequent periods. FSP APB 14-1 is effective for interim periods and fiscal years beginning after December 15, 2008. We will adopt FSP APB 14-1 effective January 1, 2009. We do not expect that the adoption of FSP APB 14-1 will have a material impact on our financial statements.
We do not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on our accompanying financial statements.
| | | |
| | Registrant | |
| | By: CHARTER COMMUNICATIONS, INC., Sole Manager | |
Date: March 21, 2008 | | By: | | |
| | | | Neil Smit |
| | | | President and Chief Executive Officer |
| | | | |
| | CCO HOLDINGS CAPITAL CORP.Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
|
| | Registrant |
Date: March 21, 2008 | | By: | | |
| | | | Neil Smit |
| | | | President and Chief Executive Officer |
PursuantInterest Rate Risk
We are exposed to various market risks, including fluctuations in interest rates. We use interest rate swap agreements to manage our interest costs and reduce our exposure to increases in floating interest rates. Our policy is to manage our exposure to fluctuations in interest rates by maintaining a mix of fixed and variable rate debt within a targeted range. Using interest rate swap agreements, we agree to exchange, at specified intervals through 2013, the requirementsdifference between fixed and variable interest amounts calculated by reference to agreed-upon notional principal amounts. At the banks’ option, certain interest rate swap agreements may be extended through 2014.
As of December 31, 2008 and 2007, our total debt was approximately $11.8 billion and $9.9 billion, respectively. As of December 31, 2008 and 2007, the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Charter Communications, Inc. and in the capacities andweighted average interest rate on the dates indicated.
| | | | | |
| | | | | |
| | | Chairman of the Board of Directors | | March 18, 2008 |
| Paul G. Allen | | | | |
| | | | | |
| | | President, Chief Executive | | March 21, 2008 |
| Neil Smit | | Officer, Director (Principal Executive Officer) | | |
| | | CCO Holdings Capital Corp. | | |
| | | | | |
| s/ Jeffrey T. Fisher | | Executive Vice President and Chief Financial Officer | | March 21, 2008 |
| Jeffrey T. Fisher | | (Principal Financial Officer) | | |
| | | | | |
| /s/ Kevin D. Howard | | Vice President, Controller and Chief Accounting Officer | | March 21, 2008 |
| Kevin D. Howard | | (Principal Accounting Officer) | | |
| | | | | |
| /s/ W. Lance Conn | | Director, Charter Communications, Inc. | | March 18, 2008 |
| W. Lance Conn | | | | |
| | | | | |
| | | Director, Charter Communications, Inc. | | March __, 2008 |
| Nathaniel A. Davis | | | | |
| | | | | |
| | | Director, Charter Communications, Inc. | | March 12, 2008 |
| Jonathan L. Dolgen | | | | |
| | | | | |
| | | Director, Charter Communications, Inc. | | March __, 2008 |
| Rajive Johri | | | | |
| | | | | |
| | | Director, Charter Communications, Inc. | | March 21, 2008 |
| Robert P. May | | | | |
| | | | | |
| | | Director, Charter Communications, Inc. | | March 21, 2008 |
| David C. Merritt | | | | |
| | | | | |
| | | Director, Charter Communications, Inc. | | March 21, 2008 |
| Marc B. Nathanson | | | | |
credit facility debt was approximately 5.5% and 6.8%, respectively, and the weighted average interest rate on the high-yield notes was approximately 8.8% and 8.2%, respectively, resulting in a blended weighted average interest rate of 6.4% and 7.3%, respectively. The
interest rate on approximately 64% and 68% of the total principal amount of our debt was effectively fixed, including the effects of our interest rate hedge agreements, as of December 31, 2008 and 2007, respectively.
We do not hold or issue derivative instruments for trading purposes. We do, however, have certain interest rate derivative instruments that have been designated as cash flow hedging instruments. Such instruments effectively convert variable interest payments on certain debt instruments into fixed payments. For qualifying hedges, SFAS No. 133 allows derivative gains and losses to offset related results on hedged items in the consolidated statement of operations. We have formally documented, designated and assessed the effectiveness of transactions that receive hedge accounting. For the years ended December 31, 2008 and 2007, there was no cash flow hedge ineffectiveness on interest rate hedge agreements. This ineffectiveness arises from differences between critical terms of the agreements and the related hedged obligations.
Changes in the fair value of interest rate agreements that are designated as hedging instruments of the variability of cash flows associated with floating-rate debt obligations, and that meet the effectiveness criteria of SFAS No. 133 are reported in accumulated other comprehensive loss. For the years ended December 31, 2008 and 2007, losses of $180 million and $123 million, respectively, related to derivative instruments designated as cash flow hedges, were recorded in accumulated other comprehensive loss. The amounts are subsequently reclassified as an increase or decrease to interest expense in the same periods in which the related interest on the floating-rate debt obligations affects earnings (losses).
Certain interest rate derivative instruments are not designated as hedges as they do not meet the effectiveness criteria specified by SFAS No. 133. However, management believes such instruments are closely correlated with the respective debt, thus managing associated risk. Interest rate derivative instruments not designated as hedges are marked to fair value, with the impact recorded as a change in value of derivatives in our statements of operations. For the years ended December 31, 2008 and 2007, change in value of derivatives includes losses of $62 million and $46 million, respectively, resulting from interest rate derivative instruments not designated as hedges.
The table set forth below summarizes the fair values and contract terms of financial instruments subject to interest rate risk maintained by us as of December 31, 2008 (dollars in millions):
/s/ Jo Allen Patton | | Director, Charter Communications, Inc. | | March 18, 2008 |
Jo Allen Patton | | | | |
| | | | |
| | Director, Charter Communications, Inc. | | March 21, 2008 |
John H. Tory | | | | |
| | | | |
/s/ Larry W. Wangberg | | Director, Charter Communications, Inc. | | March 21, 2008 |
Larry W. Wangberg | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Fair Value at December 31, 2008 | |
Debt | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed Rate | | $ | -- | | | $ | -- | | | $ | -- | | | $ | 1,100 | | | $ | 800 | | | $ | 1,316 | | | $ | 3,216 | | | $ | 2,428 | |
Average Interest Rate | | | -- | | | | -- | | | | -- | | | | 8.00 | % | | | 8.75 | % | | | 9.41 | % | | | 8.76 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Variable Rate | | $ | 70 | | | $ | 70 | | | $ | 70 | | | $ | 70 | | | $ | 1,385 | | | $ | 6,931 | | | $ | 8,596 | | | $ | 6,187 | |
Average Interest Rate | | | 4.20 | % | | | 3.52 | % | | | 4.59 | % | | | 4.87 | % | | | 4.76 | % | | | 4.87 | % | | | 4.83 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest Rate Instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Variable to Fixed Swaps | | $ | -- | | | $ | 500 | | | $ | 300 | | | $ | 2,500 | | | $ | 1,000 | | | $ | -- | | | $ | 4,300 | | | $ | (411 | ) |
Average Pay Rate | | | -- | | | | 6.99 | % | | | 7.16 | % | | | 7.13 | % | | | 7.12 | % | | | -- | | | | 7.11 | % | | | | |
Average Receive Rate | | | -- | | | | 2.82 | % | | | 3.41 | % | | | 4.86 | % | | | 4.86 | % | | | -- | | | | 4.52 | % | | | | |
The notional amounts of interest rate instruments do not represent amounts exchanged by the parties and, thus, are not a measure of our exposure to credit loss. The amounts exchanged are determined by reference to the notional amount and the other terms of the contracts. The estimated fair value approximates the costs (proceeds) to settle the outstanding contracts adjusted for Charter Operating’s credit risk. Interest rates on variable debt are estimated using the average implied forward LIBOR for the year of maturity based on the yield curve in effect at December 31, 2008 including applicable bank spread.
At December 31, 2008 and 2007, we had outstanding $4.3 billion and $4.3 billion, respectively, in notional amounts of interest rate swaps. The notional amounts of interest rate instruments do not represent amounts exchanged by the parties and, thus, are not a measure of exposure to credit loss. The amounts exchanged are determined by reference to the notional amount and the other terms of the contracts.
(ExhibitsOur consolidated financial statements, the related notes thereto, and the reports of independent accountants are listedincluded in this annual report beginning on page F-1.
None.
Item 9A. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
As of the end of the period covered by numbers correspondingthis report, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures with respect to the Exhibit Tableinformation generated for use in this annual report. The evaluation was based in part upon reports and certifications provided by a number of executives. Based upon, and as of the date of that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to provide reasonable assurances that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon the above evaluation, we believe that our controls provide such reasonable assurances.
There was no change in our internal control over financial reporting during the fourth quarter of 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
The following information under “Management’s Report on Internal Control Over Financial Reporting” is not filed but is furnished pursuant to Reg S-K Item 601308T, "Internal Control Over Financial Reporting in Regulation S-K).Exchange Act Periodic Reports of Non-Accelerated Filers and Newly Public Companies."
Exhibit | Description |
| |
3.1 | Certificate of Formation of Charter Communications Holdings, LLC (incorporated by reference to Exhibit 3.3 to Amendment No. 2 to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on June 22, 1999 (File No. 333-77499)). |
3.2 | Second Amended and Restated Limited Liability Company Agreement for Charter Communications Holdings, LLC, dated as of October 31, 2005 (incorporated by reference to Exhibit 10.21 to the quarterly report on Form 10-Q of Charter Communications, Inc. filed on November 2, 2005 (File No. 000-27927)). |
3.3 | Certificate of Incorporation of Charter Communications Holdings Capital Corporation (incorporated by reference to Exhibit 3.1 to Amendment No. 2 to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on June 22, 1999 (File No. 333-77499)). |
3.4(a) | By-laws of Charter Communications Holdings Capital Corporation (incorporated by reference to Exhibit 3.4 to Amendment No. 2 to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on June 22, 1999 (File No. 333-77499)). |
3.4(b) | Amendment to By-Laws of Charter Communications Holdings Capital Corporation, dated as of October 30, 2001 (incorporated by reference to Exhibit 3.4(b) to the annual report on Form 10-K of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation on March 29, 2002 (File No. 333-77499)). |
3.5 | Certificate of Formation of CCH II, LLC (incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the registration statement on Form S-4 of CCH II, LLC and CCH II Capital Corporation filed on March 24, 2004 (File No. 333-111423)). |
3.6 | Amended and Restated Limited Liability Company Agreement of CCH II, LLC, dated as of July 10, 2003 (incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the registration statement on Form S-4 of CCH II, LLC and CCH II Capital Corporation filed on March 24, 2004 (File No. 333-111423)). |
3.7 | Certificate of Incorporation of CCH II Capital Corporation (incorporated by reference to Exhibit 3.3 to Amendment No. 1 to the registration statement on Form S-4 of CCH II, LLC and CCH II Capital Corporation filed on March 24, 2004 (File No. 333-111423)). |
3.8 | Amended and Reinstated By-laws of CCH II Capital Corporation (incorporated by reference to Exhibit 3.4 to Amendment No. 1 to the registration statement on Form S-4 of CCH II, LLC and CCH II Capital Corporation filed on March 24, 2004 (File No. 333-111423)). |
3.9(a) | Certificate of Formation of CCO Holdings, LLC (incorporated by reference to Exhibit 3.1 to the registration statement on Form S-4 of CCO Holdings, LLC and CCO Holdings Capital Corporation filed on February 6, 2004 (File No. 333-112593)). |
3.9(b) | Certificate of Correction of Certificate of Formation of CCO Holdings, LLC (incorporated by reference to Exhibit 3.2 to the registration statement on Form S-4 of CCO Holdings, LLC and CCO Holdings Capital Corporation filed on February 6, 2004 (File No. 333-112593)). |
3.10 | Amended and Restated Limited Liability Company Agreement of CCO Holdings, LLC, dated as of June 19, 2003 (incorporated by reference to Exhibit 3.3 to the registration statement on Form S-4 of CCO Holdings, LLC and CCO Holdings Capital Corporation filed on February 6, 2004 (File No. 333-112593)). |
Charter’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control system was designed to provide reasonable assurance to Charter’s management and board of directors regarding the preparation and fair presentation of published financial statements.
Charter’s management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control — Integrated Framework. Based on management’s assessment utilizing these criteria we believe that, as of December 31, 2008, our internal control over financial reporting was effective.
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.
Item 9B. Other Information.
None.
Exhibit | Description |
| |
3.11(a) | Certificate of Incorporation of CCO Holdings Capital Corp. (originally named CC Holdco I Capital Corp.) (incorporated by reference to Exhibit 3.4 to the registration statement on Form S-4 of CCO Holdings, LLC and CCO Holdings Capital Corporation filed on February 6, 2004 (File No. 333-112593)). |
3.11(b) | Certificate of Amendment of Certificate of Incorporation of CCO Holdings Capital Corp. (incorporated by reference to Exhibit 3.5 to the registration statement on Form S-4 of CCO Holdings, LLC and CCO Holdings Capital Corporation filed on February 6, 2004 (File No. 333-112593)). |
3.12 | Certificate of Formation of CCO Holdings, LLC (incorporated by reference to Exhibit 3.1 to the registration statement on Form S-4 of CCO Holdings, LLC and CCO Holdings Capital Corporation filed on February 6, 2004 (File No. 333-112593)). |
| Certain long-term debt instruments, none of which relates to authorized indebtedness that exceeds 10% of the consolidated assets of the Registrants have not been filed as exhibits to this Form 10-K. The Registrants agree to furnish to the Commission upon its request a copy of any instrument defining the rights of holders of long- term debt of the Company and its consolidated subsidiaries. |
4.1(a) | Indenture relating to the 9.920% Senior Discount Notes due 2011, dated as of March 17, 1999, among Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and Harris Trust and Savings Bank (incorporated by reference to Exhibit 4.3(a) to Amendment No. 2 to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on June 22, 1999 (File No. 333-77499)). |
4.1(b) | First Supplemental Indenture relating to the 9.920% Senior Discount Notes due 2011, dated as of September 28, 2005, among Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee (incorporated by reference to Exhibit 10.4 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
4.2(a) | Indenture relating to the 10.00% Senior Notes due 2009, dated as of January 12, 2000, between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and Harris Trust and Savings Bank (incorporated by reference to Exhibit 4.1(a) to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on January 25, 2000 (File No. 333-95351)). |
4.2(b) | First Supplemental Indenture relating to the 10.00% Senior Notes due 2009, dated as of September 28, 2005, between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee (incorporated by reference to Exhibit 10.5 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
4.3(a) | Indenture relating to the 10.25% Senior Notes due 2010, dated as of January 12, 2000, among Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and Harris Trust and Savings Bank (incorporated by reference to Exhibit 4.2(a) to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on January 25, 2000 (File No. 333-95351)). |
4.3(b) | First Supplemental Indenture relating to the 10.25% Senior Notes due 2010, dated as of September 28, 2005, among Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee (incorporated by reference to Exhibit 10.6 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
4.4(a) | Indenture relating to the 11.75% Senior Discount Notes due 2010, dated as of January 12, 2000, among Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and Harris Trust and Savings Bank (incorporated by reference to Exhibit 4.3(a) to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on January 25, 2000 (File No. 333-95351)). |
Exhibit | Description |
| |
4.4(b) | First Supplemental Indenture relating to the 11.75% Senior Discount Notes due 2010, among Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee, dated as of September 28, 2005 (incorporated by reference to Exhibit 10.7 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
4.5(a) | Indenture dated as of January 10, 2001 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 10.750% senior notes due 2009 (incorporated by reference to Exhibit 4.2(a) to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on February 2, 2001 (File No. 333-54902)). |
4.5(b) | First Supplemental Indenture dated as of September 28, 2005 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 10.750% Senior Notes due 2009 (incorporated by reference to Exhibit 10.8 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
4.6(a) | Indenture dated as of January 10, 2001 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 11.125% senior notes due 2011 (incorporated by reference to Exhibit 4.2(b) to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on February 2, 2001 (File No. 333-54902)). |
4.6(b) | First Supplemental Indenture dated as of September 28, 2005, between Charter Communications Holdings, LLC, Charter Communications Capital Corporation and BNY Midwest Trust Company governing 11.125% Senior Notes due 2011 (incorporated by reference to Exhibit 10.9 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
4.7(a) | Indenture dated as of January 10, 2001 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 13.500% senior discount notes due 2011 (incorporated by reference to Exhibit 4.2(c) to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on February 2, 2001 (File No. 333-54902)). |
4.7(b) | First Supplemental Indenture dated as of September 28, 2005, between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 13.500% Senior Discount Notes due 2011 (incorporated by reference to Exhibit 10.10 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
4.8(a) | Indenture dated as of May 15, 2001 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 9.625% Senior Notes due 2009 (incorporated by reference to Exhibit 10.2(a) to the current report on Form 8-K filed by Charter Communications, Inc. on June 1, 2001 (File No. 000-27927)). |
4.8(b) | First Supplemental Indenture dated as of January 14, 2002 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 9.625% Senior Notes due 2009 (incorporated by reference to Exhibit 10.2(a) to the current report on Form 8-K filed by Charter Communications, Inc. on January 15, 2002 (File No. 000-27927)). |
4.8(c) | Second Supplemental Indenture dated as of June 25, 2002 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 9.625% Senior Notes due 2009 (incorporated by reference to Exhibit 4.1 to the quarterly report on Form 10-Q filed by Charter Communications, Inc. on August 6, 2002 (File No. 000-27927)). |
4.8(d) | Third Supplemental Indenture dated as of September 28, 2005 between Charter Communications Holdings, LLC, Charter Communications Capital Corporation and BNY Midwest Trust Company as Trustee governing 9.625% Senior Notes due 2009 (incorporated by reference to Exhibit 10.11 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
Exhibit | Description |
| |
4.9(a) | Indenture dated as of May 15, 2001 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 10.000% Senior Notes due 2011 (incorporated by reference to Exhibit 10.3(a) to the current report on Form 8-K filed by Charter Communications, Inc. on June 1, 2001 (File No. 000-27927)). |
4.9(b) | First Supplemental Indenture dated as of January 14, 2002 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 10.000% Senior Notes due 2011 (incorporated by reference to Exhibit 10.3(a) to the current report on Form 8-K filed by Charter Communications, Inc. on January 15, 2002 (File No. 000-27927)). |
4.9(c) | Second Supplemental Indenture dated as of June 25, 2002 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 10.000% Senior Notes due 2011 (incorporated by reference to Exhibit 4.2 to the quarterly report on Form 10-Q filed by Charter Communications, Inc. on August 6, 2002 (File No. 000-27927)). |
4.9(d) | Third Supplemental Indenture dated as of September 28, 2005 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing the 10.000% Senior Notes due 2011 (incorporated by reference to Exhibit 10.12 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
4.10(a) | Indenture dated as of May 15, 2001 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 11.750% Senior Discount Notes due 2011 (incorporated by reference to Exhibit 10.4(a) to the current report on Form 8-K filed by Charter Communications, Inc. on June 1, 2001 (File No. 000-27927)). |
4.10(b) | First Supplemental Indenture dated as of September 28, 2005 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 11.750% Senior Discount Notes due 2011 (incorporated by reference to Exhibit 10.13 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
4.11(a) | Indenture dated as of January 14, 2002 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 12.125% Senior Discount Notes due 2012 (incorporated by reference to Exhibit 10.4(a) to the current report on Form 8-K filed by Charter Communications, Inc. on January 15, 2002 (File No. 000-27927)). |
4.11(b) | First Supplemental Indenture dated as of June 25, 2002 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 12.125% Senior Discount Notes due 2012 (incorporated by reference to Exhibit 4.3 to the quarterly report on Form 10-Q filed by Charter Communications, Inc. on August 6, 2002 (File No. 000-27927)). |
4.11(c) | Second Supplemental Indenture dated as of September 28, 2005 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 12.125% Senior Discount Notes due 2012 (incorporated by reference to Exhibit 10.14 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
10.1 | Indenture dated as of September 28, 2005 among CCH I Holdings, LLC and CCH I Holdings Capital Corp., as Issuers and Charter Communications Holdings, LLC, as Parent Guarantor, and The Bank of New York Trust Company, NA, as Trustee, governing: 11.125% Senior Accreting Notes due 2014, 9.920% Senior Accreting Notes due 2014, 10.000% Senior Accreting Notes due 2014, 11.75% Senior Accreting Notes due 2014, 13.50% Senior Accreting Notes due 2014, 12.125% Senior Accreting Notes due 2015 (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
Exhibit | Description |
| |
10.2(a) | Indenture dated as of September 28, 2005 among CCH I, LLC and CCH I Capital Corp., as Issuers, Charter Communications Holdings, LLC, as Parent Guarantor, and The Bank of New York Trust Company, NA, as Trustee, governing 11.00% Senior Secured Notes due 2015 (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
10.2(b) | First Supplemental Indenture relating to the 11.00% Senior Secured Notes due 2015, dated as of September 14, 2006, by and between CCH I, LLC, CCH I Capital Corp. as Issuers, Charter Communications Holdings, LLC as Parent Guarantor and The Bank of New York Trust Company, N.A. as trustee (incorporated by reference to Exhibit 10.4 to the current report on Form 8-K of Charter Communications, Inc. on September 19, 2006 (File No. 000-27927)). |
10.3 | Indenture relating to the 10.25% Senior Notes due 2010, dated as of September 23, 2003, among CCH II, LLC, CCH II Capital Corporation and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K of Charter Communications Inc. filed on September 26, 2003 (File No. 000-27927)). |
10.4 | Indenture relating to the 10.25% Senior Notes due 2013, dated as of September 14, 2006, by and between CCH II, LLC, CCH II Capital Corp. as Issuers, Charter Communications Holdings, LLC as Parent Guarantor and The Bank of New York Trust Company, N.A. as trustee (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K of Charter Communications, Inc. on September 19, 2006 (File No. 000-027927)). |
10.5 | Indenture relating to the 8 3/4% Senior Notes due 2013, dated as of November 10, 2003, by and among CCO Holdings, LLC, CCO Holdings Capital Corp. and Wells Fargo Bank, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Charter Communications, Inc.'s current report on Form 8-K filed on November 12, 2003 (File No. 000-27927)). |
10.6 | Indenture relating to the 8% senior second lien notes due 2012 and 8 3/8% senior second lien notes due 2014, dated as of April 27, 2004, by and among Charter Communications Operating, LLC, Charter Communications Operating Capital Corp. and Wells Fargo Bank, N.A. as trustee (incorporated by reference to Exhibit 10.32 to Amendment No. 2 to the registration statement on Form S-4 of CCH II, LLC filed on May 5, 2004 (File No. 333-111423)). |
10.7(a) | Pledge Agreement made by CCH I, LLC in favor of The Bank of New York Trust Company, NA, as Collateral Agent dated as of September 28, 2005 (incorporated by reference to Exhibit 10.15 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
10.7(b) | Amendment to the Pledge Agreement between CCH I, LLC in favor of The Bank of New York Trust Company, N.A., as Collateral Agent, dated as of September 14, 2006 (incorporated by reference to Exhibit 10.3 to the current report on Form 8-K of Charter Communications, Inc. on September 19, 2006 (File No. 000-27927)). |
10.8 | Consulting Agreement, dated as of March 10, 1999, by and between Vulcan Northwest Inc., Charter Communications, Inc. (now called Charter Investment, Inc.) and Charter Communications Holdings, LLC (incorporated by reference to Exhibit 10.3 to Amendment No. 4 to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on July 22, 1999 (File No. 333-77499)). |
10.9 | Second Amended and Restated Mutual Services Agreement, dated as of June 19, 2003 between Charter Communications, Inc. and Charter Communications Holding Company, LLC (incorporated by reference to Exhibit 10.5(a) to the quarterly report on Form 10-Q filed by Charter Communications, Inc. on August 5, 2003 (File No. 000-27927)). |
10.10 | Third Amended and Restated Limited Liability Company Agreement for CC VIII, LLC, dated as of October 31, 2005 (incorporated by reference to Exhibit 10.20 to the quarterly report on Form 10-Q filed by Charter Communications, Inc. on November 2, 2005 (File No. 000-27927)). |
10.11(a) | Amended and Restated Limited Liability Company Agreement of Charter Communications Operating, LLC, dated as of June 19, 2003 (incorporated by reference to Exhibit No. 10.2 to the quarterly report on Form 10-Q filed by Charter Communications, Inc. on August 5, 2003 (File No. 000-27927)). |
10.11(b) | First Amendment to the Amended and Restated Limited Liability Company Agreement of Charter Communications Operating, LLC, adopted as of June 22, 2004 (incorporated by reference to Exhibit 10.16(b) to the annual report on Form 10-K filed by Charter Communications, Inc. on February 28, 2006 (File No. 000-27927)). |
Exhibit | Description |
| |
10.12 | Amended and Restated Management Agreement, dated as of June 19, 2003, between Charter Communications Operating, LLC and Charter Communications, Inc. (incorporated by reference to Exhibit 10.4 to the quarterly report on Form 10-Q filed by Charter Communications, Inc. on August 5, 2003 (File No. 333-83887)). |
10.13(a) | Stipulation of Settlement, dated as of January 24, 2005, regarding settlement of Consolidated Federal Class Action entitled in Re Charter Communications, Inc. Securities Litigation. (incorporated by reference to Exhibit 10.48 to the Annual Report on Form 10-K filed by Charter Communications, Inc. on March 3, 2005 (File No. 000-27927)). |
10.13(b) | Amendment to Stipulation of Settlement, dated as of May 23, 2005, regarding settlement of Consolidated Federal Class Action entitled In Re Charter Communications, Inc. Securities Litigation (incorporated by reference to Exhibit 10.35(b) to Amendment No. 3 to the registration statement on Form S-1 filed by Charter Communications, Inc. on June 8, 2005 (File No. 333-121186)). |
10.14 | Settlement Agreement and Mutual Release, dated as of February 1, 2005, by and among Charter Communications, Inc. and certain other insureds, on the other hand, and Certain Underwriters at Lloyd's of London and certain subscribers, on the other hand. (incorporated by reference to Exhibit 10.49 to the annual report on Form 10-K filed by Charter Communications, Inc. on March 3, 2005 (File No. 000-27927)). |
10.15 | Stipulation of Settlement, dated as of January 24, 2005, regarding settlement of Federal Derivative Action, Arthur J. Cohn v. Ronald L. Nelson et al and Charter Communications, Inc. (incorporated by reference to Exhibit 10.50 to the annual report on Form 10-K filed by Charter Communications, Inc. on March 3, 2005 (File No. 000-27927)). |
10.16 | Settlement Agreement and Mutual Releases, dated as of October 31, 2005, by and among Charter Communications, Inc., Special Committee of the Board of Directors of Charter Communications, Inc., Charter Communications Holding Company, LLC, CCHC, LLC, CC VIII, LLC, CC V, LLC, Charter Investment, Inc., Vulcan Cable III, LLC and Paul G. Allen (incorporated by reference to Exhibit 10.17 to the quarterly report on Form 10-Q of Charter Communications, Inc. filed on November 2, 2005 (File No. 000-27927)). |
10.17 | Exchange Agreement, dated as of October 31, 2005, by and among Charter Communications Holding Company, LLC, Charter Investment, Inc. and Paul G. Allen (incorporated by reference to Exhibit 10.18 to the quarterly report on Form 10-Q of Charter Communications, Inc. filed on November 2, 2005 (File No. 000-27927)). |
10.18 | CCHC, LLC Subordinated and Accreting Note, dated as of October 31, 2005 (revised) (incorporated by reference to Exhibit 10.3 to the current report on Form 8-K of Charter Communications, Inc. filed on November 4, 2005 (File No. 000-27927)). |
10.19 | Amended and Restated Credit Agreement, dated as of March 6, 2007, among Charter Communications Operating, LLC, CCO Holdings, LLC, the lenders from time to time parties thereto and JPMorgan Chase Bank, N.A., as administrative agent (Incorporated by reference to Exhibit 10.1 to the current report on Form 8-K of Charter Communications, Inc. filed on March 9, 2007 (File No. 000-27927)). |
10.20 | Amended and Restated Guarantee and Collateral Agreement made by CCO Holdings, LLC, Charter Communications Operating, LLC and certain of its subsidiaries in favor of JPMorgan Chase Bank, N.A. ,as administrative agent, dated as of March 18, 1999, as amended and restated as of March 6, 2007 (Incorporated by reference to Exhibit 10.2 to the current report on Form 8-K of Charter Communications, Inc. filed on March 9, 2007 (File No. 000-27927)). |
10.21 | Credit Agreement, dated as of March 6, 2007, among CCO Holdings, LLC, the lenders from time to time parties thereto and Bank of America, N.A., as administrative agent (Incorporated by reference to Exhibit 10.3 to the current report on Form 8-K of Charter Communications, Inc. filed on March 9, 2007 (File No. 000-27927)). |
10.22 | Pledge Agreement made by CCO Holdings, LLC in favor of Bank of America, N.A., as Collateral Agent, dated as of March 6, 2007 (Incorporated by reference to Exhibit 10.4 to the current report on Form 8-K of Charter Communications, Inc. filed on March 9, 2007 (File No. 000-27927)). |
10.23(a)+ | Charter Communications Holdings, LLC 1999 Option Plan (incorporated by reference to Exhibit 10.4 to Amendment No. 4 to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on July 22, 1999 (File No. 333-77499)). |
Exhibit | Description |
| |
10.23(b)+ | Assumption Agreement regarding Option Plan, dated as of May 25, 1999, by and between Charter Communications Holdings, LLC and Charter Communications Holding Company, LLC (incorporated by reference to Exhibit 10.13 to Amendment No. 6 to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on August 27, 1999 (File No. 333-77499)). |
10.23(c)+ | Form of Amendment No. 1 to the Charter Communications Holdings, LLC 1999 Option Plan (incorporated by reference to Exhibit 10.10(c) to Amendment No. 4 to the registration statement on Form S-1 of Charter Communications, Inc. filed on November 1, 1999 (File No. 333-83887)). |
10.23(d)+ | Amendment No. 2 to the Charter Communications Holdings, LLC 1999 Option Plan (incorporated by reference to Exhibit 10.4(c) to the annual report on Form 10-K filed by Charter Communications, Inc. on March 30, 2000 (File No. 000-27927)). |
10.23(e)+ | Amendment No. 3 to the Charter Communications 1999 Option Plan (incorporated by reference to Exhibit 10.14(e) to the annual report of Form 10-K of Charter Communications, Inc. filed on March 29, 2002 (File No. 000-27927)). |
10.23(f)+ | Amendment No. 4 to the Charter Communications 1999 Option Plan (incorporated by reference to Exhibit 10.10(f) to the annual report on Form 10-K of Charter Communications, Inc. filed on April 15, 2003 (File No. 000-27927)). |
10.24(a)+ | Charter Communications, Inc. 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.25 to the quarterly report on Form 10-Q filed by Charter Communications, Inc. on May 15, 2001 (File No. 000-27927)). |
10.24(b)+ | Amendment No. 1 to the Charter Communications, Inc. 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.11(b) to the annual report on Form 10-K of Charter Communications, Inc. filed on April 15, 2003 (File No. 000-27927)). |
10.24(c)+ | Amendment No. 2 to the Charter Communications, Inc. 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.10 to the quarterly report on Form 10-Q filed by Charter Communications, Inc. on November 14, 2001 (File No. 000-27927)). |
10.24(d)+ | Amendment No. 3 to the Charter Communications, Inc. 2001 Stock Incentive Plan effective January 2, 2002 (incorporated by reference to Exhibit 10.15(c) to the annual report of Form 10-K of Charter Communications, Inc. filed on March 29, 2002 (File No. 000-27927)). |
10.24(e)+ | Amendment No. 4 to the Charter Communications, Inc. 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.11(e) to the annual report on Form 10-K of Charter Communications, Inc. filed on April 15, 2003 (File No. 000-27927)). |
10.24(f)+ | Amendment No. 5 to the Charter Communications, Inc. 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.11(f) to the annual report on Form 10-K of Charter Communications, Inc. filed on April 15, 2003 (File No. 000-27927)). |
10.24(g)+ | Amendment No. 6 to the Charter Communications, Inc. 2001 Stock Incentive Plan effective December 23, 2004 (incorporated by reference to Exhibit 10.43(g) to the registration statement on Form S-1 of Charter Communications, Inc. filed on October 5, 2005 (File No. 333-128838)). |
10.24(h)+ | Amendment No. 7 to the Charter Communications, Inc. 2001 Stock Incentive Plan effective August 23, 2005 (incorporated by reference to Exhibit 10.43(h) to the registration statement on Form S-1 of Charter Communications, Inc. filed on October 5, 2005 (File No. 333-128838)). |
10.24(i)+ | Description of Long-Term Incentive Program to the Charter Communications, Inc. 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.18(g) to the annual report on Form 10-K filed by Charter Communications Holdings, LLC on March 31, 2005 (File No. 333-77499)). |
10.25+ | Description of Charter Communications, Inc. 2006 Executive Bonus Plan (incorporated by reference to Exhibit 10.2 to the quarterly report on Form 10-Q filed by Charter Communications, Inc. on May 2, 2006 (File No. 000-27927)). |
10.26+ | Amended and Restated Executive Cash Award Plan (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K of Charter Communications, Inc. filed December 6, 2007 (File No. 000-27927)). |
10.27(a)+ | Employment Agreement, dated as of August 9, 2005, by and between Neil Smit and Charter Communications, Inc. (incorporated by reference to Exhibit 99.1 to the current report on Form 8-K of Charter Communications, Inc. filed on August 15, 2005 (File No. 000-27927)). |
Exhibit | Description |
| |
10.27(b)+ | Addendum to the Employment Agreement between Neil Smit and Charter Communications, Inc., dated as of August 1, 2007 (incorporated by reference to Exhibit 10.1 to the quarterly report on Form 10-Q of Charter Communications, Inc. filed on August 2, 2007 (File No. 000-27927)). |
10.28+ | Amended and Restated Employment Agreement between Jeffrey T. Fisher and Charter Communications, Inc., dated as of August 1, 2007 (incorporated by reference to Exhibit 10.2 to the quarterly report on Form 10-Q of Charter Communications, Inc. filed on August 2, 2007 (File No. 000-27927)). |
10.29+ | Amended and Restated Employment Agreement between Michael J. Lovett and Charter Communications, Inc., dated as of August 1, 2007 (incorporated by reference to Exhibit 10.3 to the quarterly report on Form 10-Q of Charter Communications, Inc. filed on August 2, 2007 (File No. 000-27927)). |
10.30+ | Amended and Restated Employment Agreement between Robert A. Quigley and Charter Communications, Inc., dated as of August 1, 2007 (incorporated by reference to Exhibit 10.4 to the quarterly report on Form 10-Q of Charter Communications, Inc. filed on August 2, 2007 (File No. 000-27927)).
|
10.31+ | Amended and Restated Employment Agreement between Grier C. Raclin and Charter Communications, Inc., dated as of August 1, 2007 (incorporated by reference to Exhibit 10.5 to the quarterly report on Form 10-Q of Charter Communications, Inc. filed on August 2, 2007 (File No. 000-27927)). |
12.1 | Charter Communications Holdings, LLC’s Computation of Ratio of Earnings to Fixed Charges |
12.2 | CCH II, LLC’s Computation of Ratio of Earnings to Fixed Charges |
12.3 | CCO Holdings, LLC’s Computation of Ratio of Earnings to Fixed Charges |
31.1 | Certificate of Chief Executive Officer of Charter Communications Holdings, LLC pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of 1934. |
31.2 | Certificate of Chief Financial Officer of Charter Communications Holdings, LLC pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of 1934. |
31.3 | Certificate of Chief Executive Officer of CCH II, LLC pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of 1934. |
31.4 | Certificate of Chief Financial Officer of CCH II, LLC pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of 1934. |
31.5 | Certificate of Chief Executive Officer of CCO Holdings, LLC pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of 1934. |
31.6 | Certificate of Chief Financial Officer of CCO Holdings, LLC pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of 1934. |
32.1 | Certification of Charter Communications Holdings, LLC pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer). |
32.2 | Certification of Charter Communications Holdings, LLC pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer). |
32.3 | Certification of CCH II, LLC pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer). |
32.4 | Certification of CCH II, LLC pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer). |
32.5 | Certification of CCO Holdings, LLC pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer). |
32.6 | Certification of CCO Holdings, LLC pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer). |
______________
| | |
+ | | Management compensatory plan or arrangement |
INDEX TO FINANCIAL STATEMENTS
| | Page |
| | |
Audited Financial Statements | | |
Reports of Independent Registered Public Accounting Firm | | F-2 |
| | |
Charter Communications Holdings, LLC | | |
Consolidated Balance Sheets as of December 31, 2007 and 2006 | | F-5 |
Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006, and 2005 | | F-6 |
Consolidated Statements of Changes in Member’s Deficit for the Years Ended December 31, 2007, 2006, and 2005 | | F-7 |
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005 | | F-8 |
| | |
CCH II, LLC | | |
Consolidated Balance Sheets as of December 31, 2007 and 2006 | | F-9 |
Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006, and 2005 | | F-10 |
Consolidated Statements of Changes in Member’s Equity (Deficit) for the Years Ended December 31, 2007, 2006, and 2005 | | F-11 |
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005 | | F-12 |
| | |
CCO Holdings, LLC | | |
Consolidated Balance Sheets as of December 31, 2007 and 2006 | | F-13 |
Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006, and 2005 | | F-14 |
Consolidated Statements of Changes in Member’s Equity for the Years Ended December 31, 2007, 2006, and 2005 | | F-15 |
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005 | | F-16 |
| | |
Combined Notes to Consolidated Financial Statements | | F-17 |
Report of Independent Registered Public Accounting Firm
The Manager and the Member
Charter Communications Holdings, LLC:
We have audited the accompanying consolidated balance sheets of Charter Communications Holdings, LLC and subsidiaries (the Company) as of December 31, 2007 and 2006, and the related consolidated statements of operations, changes in member’s deficit, and cash flows for each of the years in the three-year period ended December 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Charter Communications Holdings, LLC and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
St. Louis, Missouri
March 20, 2008
Report of Independent Registered Public Accounting Firm
The Manager and the Member
CCH II, LLC:
We have audited the accompanying consolidated balance sheets of CCH II, LLC and subsidiaries (the Company) as of December 31, 2007 and 2006, and the related consolidated statements of operations, changes in member’s equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CCH II, LLC and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
St. Louis, Missouri
March 20, 2008
Report of Independent Registered Public Accounting Firm
The Manager and the Member
CCO Holdings, LLC:
We have audited the accompanying consolidated balance sheets of CCO Holdings, LLC and subsidiaries (the Company) as of December 31, 2007 and 2006, and the related consolidated statements of operations, changes in member’s equity, and cash flows for each of the years in the three-year period ended December 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CCO Holdings, LLC and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
St. Louis, Missouri
March 20, 2008
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
| | December 31, | |
| | 2007 | | | 2006 | |
| | | | | | |
ASSETS | | | | | | |
| | | | | | |
CURRENT ASSETS: | | | | | | |
Cash and cash equivalents | | $ | 13 | | | $ | 38 | |
Accounts receivable, less allowance for doubtful accounts of | | | | | | | | |
$18 and $16, respectively | | | 220 | | | | 194 | |
Prepaid expenses and other current assets | | | 24 | | | | 23 | |
Total current assets | | | 257 | | | | 255 | |
| | | | | | | | |
INVESTMENT IN CABLE PROPERTIES: | | | | | | | | |
Property, plant and equipment, net of accumulated | | | | | | | | |
depreciation of $6,432 and $5,730, respectively | | | 5,072 | | | | 5,181 | |
Franchises, net | | | 8,942 | | | | 9,223 | |
Total investment in cable properties, net | | | 14,014 | | | | 14,404 | |
| | | | | | | | |
OTHER NONCURRENT ASSETS | | | 269 | | | | 275 | |
| | | | | | | | |
Total assets | | $ | 14,540 | | | $ | 14,934 | |
| | | | | | | | |
LIABILITIES AND MEMBER’S DEFICIT | | | | | | | | |
| | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | |
Accounts payable and accrued expenses | | $ | 1,212 | | | $ | 1,181 | |
Payables to related party | | | 168 | | | | 118 | |
Total current liabilities | | | 1,380 | | | | 1,299 | |
| | | | | | | | |
LONG-TERM DEBT | | | 19,506 | | | | 18,654 | |
LOANS PAYABLE – RELATED PARTY | | | 123 | | | | 3 | |
DEFERRED MANAGEMENT FEES – RELATED PARTY | | | 14 | | | | 14 | |
OTHER LONG-TERM LIABILITIES | | | 545 | | | | 362 | |
MINORITY INTEREST | | | 199 | | | | 192 | |
| | | | | | | | |
Member’s deficit | | | (7,104 | ) | | | (5,591 | ) |
Accumulated other comprehensive income (loss) | | | (123 | ) | | | 1 | |
| | | | | | | | |
Total member’s deficit | | | (7,227 | ) | | | (5,590 | ) |
| | | | | | | | |
Total liabilities and member’s deficit | | $ | 14,540 | | | $ | 14,934 | |
The accompanying notes are an integral part of these consolidated financial statements.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions)
| | Year Ended December 31, | |
| | 2007 | | | 2006 | | | 2005 | |
| | | | | | | | | |
REVENUES | | $ | 6,002 | | | $ | 5,504 | | | $ | 5,033 | |
| | | | | | | | | | | | |
COSTS AND EXPENSES: | | | | | | | | | | | | |
Operating (excluding depreciation and amortization) | | | 2,620 | | | | 2,438 | | | | 2,203 | |
Selling, general and administrative | | | 1,289 | | | | 1,165 | | | | 1,012 | |
Depreciation and amortization | | | 1,328 | | | | 1,354 | | | | 1,443 | |
Impairment of franchises | | | 178 | | | | -- | | | | -- | |
Asset impairment charges | | | 56 | | | | 159 | | | | 39 | |
Other operating (income) expenses, net | | | (17 | ) | | | 21 | | | | 32 | |
| | | | | | | | | | | | |
| | | 5,454 | | | | 5,137 | | | | 4,729 | |
| | | | | | | | | | | | |
Operating income from continuing operations | | | 548 | | | | 367 | | | | 304 | |
| | | | | | | | | | | | |
OTHER INCOME AND EXPENSES: | | | | | | | | | | | | |
Interest expense, net | | | (1,811 | ) | | | (1,811 | ) | | | (1,739 | ) |
Gain (loss) on extinguishment of debt | | | (35 | ) | | | 81 | | | | 494 | |
Other income (expense), net | | | (55 | ) | | | 17 | | | | 73 | |
| | | | | | | | | | | | |
| | | (1,901 | ) | | | (1,713 | ) | | | (1,172 | ) |
| | | | | | | | | | | | |
Loss from continuing operations before income taxes | | | (1,353 | ) | | | (1,346 | ) | | | (868 | ) |
| | | | | | | | | | | | |
INCOME TAX EXPENSE | | | (20 | ) | | | (7 | ) | | | (9 | ) |
| | | | | | | | | | | | |
Loss from continuing operations | | | (1,373 | ) | | | (1,353 | ) | | | (877 | ) |
| | | | | | | | | | | | |
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX | | | -- | | | | 238 | | | | 39 | |
| | | | | | | | | | | | |
Net loss | | $ | (1,373 | ) | | $ | (1,115 | ) | | $ | (838 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER’S DEFICIT
(dollars in millions)
| | | | | Accumulated | | | | |
| | | | | Other | | | Total | |
| | Member’s | | | Comprehensive | | | Member's | |
| | Deficit | | | Income (Loss) | | | Deficit | |
| | | | | | | | | |
BALANCE, December 31, 2004 | | $ | (3,698 | ) | | $ | (15 | ) | | $ | (3,713 | ) |
Distributions to parent company | | | (60 | ) | | | -- | | | | (60 | ) |
CC VIII, LLC settlement – exchange of interests | | | 466 | | | | -- | | | | 466 | |
Changes in fair value of interest rate agreements and other | | | -- | | | | 17 | | | | 17 | |
Net loss | | | (838 | ) | | | -- | | | | (838 | ) |
| | | | | | | | | | | | |
BALANCE, December 31, 2005 | | | (4,130 | ) | | | 2 | | | | (4,128 | ) |
Distributions to parent company | | | (346 | ) | | | -- | | | | (346 | ) |
Changes in fair value of interest rate agreements | | | -- | | | | (1 | ) | | | (1 | ) |
Net loss | | | (1,115 | ) | | | -- | | | | (1,115 | ) |
| | | | | | | | | | | | |
BALANCE, December 31, 2006 | | | (5,591 | ) | | | 1 | | | | (5,590 | ) |
Distributions to parent company | | | (127 | ) | | | -- | | | | (127 | ) |
Changes in fair value of interest rate agreements | | | -- | | | | (123 | ) | | | (123 | ) |
Other | | | (13 | ) | | | (1 | ) | | | (14 | ) |
Net loss | | | (1,373 | ) | | | -- | | | | (1,373 | ) |
| | | | | | | | | | | | |
BALANCE, December 31, 2007 | | $ | (7,104 | ) | | $ | (123 | ) | | $ | (7,227 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
| | Year Ended December 31, | |
| | 2007 | | | 2006 | | | 2005 | |
| | | | | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | |
Net loss | | $ | (1,373 | ) | | $ | (1,115 | ) | | $ | (838 | ) |
Adjustments to reconcile net loss to net cash flows from operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 1,328 | | | | 1,362 | | | | 1,499 | |
Impairment of franchises | | | 178 | | | | -- | | | | -- | |
Asset impairment charges | | | 56 | | | | 159 | | | | 39 | |
Noncash interest expense | | | 22 | | | | 102 | | | | 257 | |
Deferred income taxes | | | 12 | | | | -- | | | | 3 | |
Gain (loss) on sale of assets, net | | | (3 | ) | | | (192 | ) | | | 6 | |
(Gain) loss on extinguishment of debt | | | 23 | | | | (81 | ) | | | (501 | ) |
Other, net | | | 50 | | | | (3 | ) | | | (40 | ) |
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions: | | | | | | | | | | | | |
Accounts receivable | | | (33 | ) | | | 23 | | | | (31 | ) |
Prepaid expenses and other assets | | | (5 | ) | | | 1 | | | | (6 | ) |
Accounts payable, accrued expenses and other | | | 35 | | | | 27 | | | | (44 | ) |
Receivables from and payables to related party, including deferred management fees | | | 33 | | | | 24 | | | | (90 | ) |
| | | | | | | | | | | | |
Net cash flows from operating activities | | | 323 | | | | 307 | | | | 254 | |
| | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
Purchases of property, plant and equipment | | | (1,244 | ) | | | (1,103 | ) | | | (1,088 | ) |
Change in accrued expenses related to capital expenditures | | | (2 | ) | | | 24 | | | | 13 | |
Proceeds from sale of assets, including cable systems | | | 104 | | | | 1,020 | | | | 44 | |
Other, net | | | (31 | ) | | | (6 | ) | | | 13 | |
| | | | | | | | | | | | |
Net cash flows from investing activities | | | (1,173 | ) | | | (65 | ) | | | (1,018 | ) |
| | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
Borrowings of long-term debt | | | 7,877 | | | | 6,322 | | | | 1,207 | |
Borrowings from related parties | | | -- | | | | -- | | | | 140 | |
Repayments of long-term debt | | | (7,017 | ) | | | (6,918 | ) | | | (1,107 | ) |
Repayments to related parties | | | -- | | | | (20 | ) | | | (147 | ) |
Proceeds from issuance of debt | | | -- | | | | 440 | | | | 294 | |
Payments for debt issuance costs | | | (33 | ) | | | (39 | ) | | | (70 | ) |
Redemption of preferred interest | | | -- | | | | -- | | | | (25 | ) |
Contributions | | | 1 | | | | -- | | | | -- | |
Distributions | | | (8 | ) | | | (3 | ) | | | (60 | ) |
Other, net | | | 5 | | | | -- | | | | -- | |
| | | | | | | | | | | | |
Net cash flows from financing activities | | | 825 | | | | (218 | ) | | | 232 | |
| | | | | | | | | | | | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | (25 | ) | | | 24 | | | | (532 | ) |
CASH AND CASH EQUIVALENTS, beginning of period | | | 38 | | | | 14 | | | | 546 | |
| | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS, end of period | | $ | 13 | | | $ | 38 | | | $ | 14 | |
| | | | | | | | | | | | |
CASH PAID FOR INTEREST | | $ | 1,775 | | | $ | 1,638 | | | $ | 1,467 | |
| | | | | | | | | | | | |
NONCASH TRANSACTIONS: | | | | | | | | | | | | |
Distribution of intercompany note | | $ | (119 | ) | | $ | -- | | | $ | -- | |
Issuance of debt by CCH I Holdings, LLC | | $ | -- | | | $ | -- | | | $ | 2,423 | |
Issuance of debt by CCH I, LLC | | $ | -- | | | $ | 419 | | | $ | 3,686 | |
Issuance of debt by CCH II, LLC | | $ | -- | | | $ | 410 | | | $ | -- | |
Issuance of debt by Charter Communications Operating, LLC | | $ | -- | | | $ | 37 | | | $ | 333 | |
Retirement of Charter Communications Holdings, LLC debt | | $ | -- | | | $ | (796 | ) | | $ | (7,000 | ) |
Retirement of Renaissance Media Group LLC debt | | $ | -- | | | $ | (37 | ) | | $ | -- | |
Distribution of Charter Communications Inc. convertible notes and accrued interest | | $ | -- | | | $ | (343 | ) | | $ | -- | |
CC VIII, LLC Settlement – exchange of interests | | $ | -- | | | $ | -- | | | $ | 466 | |
Transfer of property, plant, and equipment from parent company | | $ | -- | | | $ | -- | | | $ | 139 | |
The accompanying notes are an integral part of these consolidated financial statements.
CCH II, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
| | December 31, | |
| | 2007 | | | 2006 | |
| | | | | | |
ASSETS | | | | | | |
| | | | | | |
CURRENT ASSETS: | | | | | | |
Cash and cash equivalents | | $ | 7 | | | $ | 32 | |
Accounts receivable, less allowance for doubtful accounts of | | | | | | | | |
$18 and $16, respectively | | | 220 | | | | 194 | |
Prepaid expenses and other current assets | | | 24 | | | | 23 | |
Total current assets | | | 251 | | | | 249 | |
| | | | | | | | |
INVESTMENT IN CABLE PROPERTIES: | | | | | | | | |
Property, plant and equipment, net of accumulated | | | | | | | | |
depreciation of $6,432 and $5,730, respectively | | | 5,072 | | | | 5,181 | |
Franchises, net | | | 8,942 | | | | 9,223 | |
Total investment in cable properties, net | | | 14,014 | | | | 14,404 | |
| | | | | | | | |
OTHER NONCURRENT ASSETS | | | 205 | | | | 201 | |
| | | | | | | | |
Total assets | | $ | 14,470 | | | $ | 14,854 | |
| | | | | | | | |
LIABILITIES AND MEMBER’S EQUITY (DEFICIT) | | | | | | | | |
| | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | |
Accounts payable and accrued expenses | | $ | 1,001 | | | $ | 975 | |
Payables to related party | | | 181 | | | | 139 | |
Total current liabilities | | | 1,182 | | | | 1,114 | |
| | | | | | | | |
LONG-TERM DEBT | | | 12,311 | | | | 11,062 | |
LOANS PAYABLE – RELATED PARTY | | | 123 | | | | 108 | |
DEFERRED MANAGEMENT FEES – RELATED PARTY | | | 14 | | | | 14 | |
OTHER LONG-TERM LIABILITIES | | | 545 | | | | 362 | |
MINORITY INTEREST | | | 663 | | | | 641 | |
| | | | | | | | |
Member’s equity (deficit) | | | (245 | ) | | | 1,552 | |
Accumulated other comprehensive income (loss) | | | (123 | ) | | | 1 | |
| | | | | | | | |
Total member’s equity (deficit) | | | (368 | ) | | | 1,553 | |
| | | | | | | | |
Total liabilities and member’s equity (deficit) | | $ | 14,470 | | | $ | 14,854 | |
The accompanying notes are an integral part of these consolidated financial statements.
CCH II, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions)
| | Year Ended December 31, | |
| | 2007 | | | 2006 | | | 2005 | |
| | | | | | | | | |
REVENUES | | $ | 6,002 | | | $ | 5,504 | | | $ | 5,033 | |
| | | | | | | | | | | | |
COSTS AND EXPENSES: | | | | | | | | | | | | |
Operating (excluding depreciation and amortization) | | | 2,620 | | | | 2,438 | | | | 2,203 | |
Selling, general and administrative | | | 1,289 | | | | 1,165 | | | | 1,012 | |
Depreciation and amortization | | | 1,328 | | | | 1,354 | | | | 1,443 | |
Impairment of franchises | | | 178 | | | | -- | | | | -- | |
Asset impairment charges | | | 56 | | | | 159 | | | | 39 | |
Other operating (income) expenses, net | | | (17 | ) | | | 21 | | | | 32 | |
| | | | | | | | | | | | |
| | | 5,454 | | | | 5,137 | | | | 4,729 | |
| | | | | | | | | | | | |
Operating income from continuing operations | | | 548 | | | | 367 | | | | 304 | |
| | | | | | | | | | | | |
OTHER INCOME AND EXPENSES: | | | | | | | | | | | | |
Interest expense, net | | | (1,014 | ) | | | (975 | ) | | | (858 | ) |
Loss on extinguishment of debt | | | (32 | ) | | | (27 | ) | | | (6 | ) |
Other income (expense), net | | | (70 | ) | | | 2 | | | | 105 | |
| | | | | | | | | | | | |
| | | (1,116 | ) | | | (1,000 | ) | | | (759 | ) |
| | | | | | | | | | | | |
Loss from continuing operations before income taxes | | | (568 | ) | | | (633 | ) | | | (455 | ) |
| | | | | | | | | | | | |
INCOME TAX EXPENSE | | | (20 | ) | | | (7 | ) | | | (9 | ) |
| | | | | | | | | | | | |
Loss from continuing operations | | | (588 | ) | | | (640 | ) | | | (464 | ) |
| | | | | | | | | | | | |
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX | | | -- | | | | 238 | | | | 39 | |
| | | | | | | | | | | | |
Net loss | | $ | (588 | ) | | $ | (402 | ) | | $ | (425 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
CCH II, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER’S EQUITY (DEFICIT)
(dollars in millions)
| | | | | Accumulated | | | | |
| | | | | Other | | | Total | |
| | Member’s | | | Comprehensive | | | Member's | |
| | Equity | | | Income (Loss) | | | Equity (Deficit) | |
| | | | | | | | | |
BALANCE, December 31, 2004 | | $ | 4,928 | | | $ | (15 | ) | | $ | 4,913 | |
Distributions to parent company | | | (1,103 | ) | | | -- | | | | (1,103 | ) |
Changes in fair value of interest rate agreements and other | | | -- | | | | 17 | | | | 17 | |
Net loss | | | (425 | ) | | | -- | | | | (425 | ) |
| | | | | | | | | | | | |
BALANCE, December 31, 2005 | | | 3,400 | | | | 2 | | | | 3,402 | |
Distributions to parent company | | | (1,446 | ) | | | -- | | | | (1,446 | ) |
Changes in fair value of interest rate agreements | | | -- | | | | (1 | ) | | | (1 | ) |
Net loss | | | (402 | ) | | | -- | | | | (402 | ) |
| | | | | | | | | | | | |
BALANCE, December 31, 2006 | | | 1,552 | | | | 1 | | | | 1,553 | |
Distributions to parent company | | | (1,195 | ) | | | -- | | | | (1,195 | ) |
Changes in fair value of interest rate agreements | | | -- | | | | (123 | ) | | | (123 | ) |
Other | | | (14 | ) | | | (1 | ) | | | (15 | ) |
Net loss | | | (588 | ) | | | -- | | | | (588 | ) |
| | | | | | | | | | | | |
BALANCE, December 31, 2007 | | $ | (245 | ) | | $ | (123 | ) | | $ | (368 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
CCH II, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
| | Year Ended December 31, | |
| | 2007 | | | 2006 | | | 2005 | |
| | | | | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | |
Net loss | | $ | (588 | ) | | $ | (402 | ) | | $ | (425 | ) |
Adjustments to reconcile net loss to net cash flows from operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 1,328 | | | | 1,362 | | | | 1,499 | |
Impairment of franchises | | | 178 | | | | -- | | | | -- | |
Asset impairment charges | | | 56 | | | | 159 | | | | 39 | |
Noncash interest expense | | | 23 | | | | 28 | | | | 31 | |
Deferred income taxes | | | 12 | | | | -- | | | | 3 | |
Gain (loss) on sale of assets, net | | | (3 | ) | | | (192 | ) | | | 6 | |
Loss on extinguishment of debt | | | 21 | | | | 27 | | | | -- | |
Other, net | | | 66 | | | | 11 | | | | (72 | ) |
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions: | | | | | | | | | | | | |
Accounts receivable | | | (33 | ) | | | 23 | | | | (41 | ) |
Prepaid expenses and other assets | | | (5 | ) | | | 1 | | | | (7 | ) |
Accounts payable, accrued expenses and other | | | 29 | | | | (15 | ) | | | (66 | ) |
Receivables from and payables to related party, including deferred management fees | | | 38 | | | | 27 | | | | (83 | ) |
| | | | | | | | | | | | |
Net cash flows from operating activities | | | 1,122 | | | | 1,029 | | | | 884 | |
| | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
Purchases of property, plant and equipment | | | (1,244 | ) | | | (1,103 | ) | | | (1,088 | ) |
Change in accrued expenses related to capital expenditures | | | (2 | ) | | | 24 | | | | 13 | |
Proceeds from sale of assets, including cable systems | | | 104 | | | | 1,020 | | | | 44 | |
Other, net | | | (31 | ) | | | (6 | ) | | | 13 | |
| | | | | | | | | | | | |
Net cash flows from investing activities | | | (1,173 | ) | | | (65 | ) | | | (1,018 | ) |
| | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
Borrowings of long-term debt | | | 7,877 | | | | 6,322 | | | | 1,207 | |
Borrowings from related parties | | | -- | | | | 105 | | | | 140 | |
Repayments of long-term debt | | | (6,628 | ) | | | (6,918 | ) | | | (1,107 | ) |
Repayments to related parties | | | -- | | | | (20 | ) | | | (147 | ) |
Proceeds from issuance of debt | | | -- | | | | 440 | | | | 294 | |
Payments for debt issuance costs | | | (33 | ) | | | (33 | ) | | | (11 | ) |
Redemption of preferred interest | | | -- | | | | -- | | | | (25 | ) |
Distributions | | | (1,195 | ) | | | (831 | ) | | | (760 | ) |
Other, net | | | 5 | | | | -- | | | | -- | |
| | | | | | | | | | | | |
Net cash flows from financing activities | | | 26 | | | | (935 | ) | | | (409 | ) |
| | | | | | | | | | | | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | (25 | ) | | | 29 | | | | (543 | ) |
CASH AND CASH EQUIVALENTS, beginning of period | | | 32 | | | | 3 | | | | 546 | |
| | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS, end of period | | $ | 7 | | | $ | 32 | | | $ | 3 | |
| | | | | | | | | | | | |
CASH PAID FOR INTEREST | | $ | 980 | | | $ | 911 | | | $ | 814 | |
| | | | | | | | | | | | |
NONCASH TRANSACTIONS: | | | | | | | | | | | | |
Issuance of debt by CCH II, LLC | | $ | -- | | | $ | 410 | | | $ | -- | |
Issuance of debt by Charter Communications Operating, LLC | | $ | -- | | | $ | 37 | | | $ | 333 | |
Retirement of Renaissance Media Group LLC debt | | $ | -- | | | $ | (37 | ) | | $ | -- | |
Distribution of Charter Communications Inc. convertible notes and accrued interest | | $ | -- | | | $ | (615 | ) | | $ | (343 | ) |
Transfer of property, plant, and equipment from parent company | | $ | -- | | | $ | -- | | | $ | 139 | |
The accompanying notes are an integral part of these consolidated financial statements.
CCO HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
| | December 31, | |
| | 2007 | | | 2006 | |
| | | | | | |
ASSETS | | | | | | |
| | | | | | |
CURRENT ASSETS: | | | | | | |
Cash and cash equivalents | | $ | 2 | | | $ | 28 | |
Accounts receivable, less allowance for doubtful accounts of | | | | | | | | |
$18 and $16, respectively | | | 220 | | | | 194 | |
Prepaid expenses and other current assets | | | 24 | | | | 23 | |
Total current assets | | | 246 | | | | 245 | |
| | | | | | | | |
INVESTMENT IN CABLE PROPERTIES: | | | | | | | | |
Property, plant and equipment, net of accumulated | | | | | | | | |
depreciation of $6,432 and $5,730, respectively | | | 5,072 | | | | 5,181 | |
Franchises, net | | | 8,942 | | | | 9,223 | |
Total investment in cable properties, net | | | 14,014 | | | | 14,404 | |
| | | | | | | | |
OTHER NONCURRENT ASSETS | | | 186 | | | | 176 | |
| | | | | | | | |
Total assets | | $ | 14,446 | | | $ | 14,825 | |
| | | | | | | | |
LIABILITIES AND MEMBER’S EQUITY | | | | | | | | |
| | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | |
Accounts payable and accrued expenses | | $ | 929 | | | $ | 901 | |
Payables to related party | | | 192 | | | | 147 | |
Total current liabilities | | | 1,121 | | | | 1,048 | |
| | | | | | | | |
LONG-TERM DEBT | | | 9,859 | | | | 8,610 | |
LOANS PAYABLE – RELATED PARTY | | | 332 | | | | 303 | |
DEFERRED MANAGEMENT FEES – RELATED PARTY | | | 14 | | | | 14 | |
OTHER LONG-TERM LIABILITIES | | | 545 | | | | 362 | |
MINORITY INTEREST | | | 663 | | | | 641 | |
| | | | | | | | |
Member’s equity | | | 2,035 | | | | 3,846 | |
Accumulated other comprehensive income (loss) | | | (123 | ) | | | 1 | |
| | | | | | | | |
Total member’s equity | | | 1,912 | | | | 3,847 | |
| | | | | | | | |
Total liabilities and member’s equity | | $ | 14,446 | | | $ | 14,825 | |
The accompanying notes are an integral part of these consolidated financial statements.
CCO HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions)
| | Year Ended December 31, | |
| | 2007 | | | 2006 | | | 2005 | |
| | | | | | | | | |
REVENUES | | $ | 6,002 | | | $ | 5,504 | | | $ | 5,033 | |
| | | | | | | | | | | | |
COSTS AND EXPENSES: | | | | | | | | | | | | |
Operating (excluding depreciation and amortization) | | | 2,620 | | | | 2,438 | | | | 2,203 | |
Selling, general and administrative | | | 1,289 | | | | 1,165 | | | | 1,012 | |
Depreciation and amortization | | | 1,328 | | | | 1,354 | | | | 1,443 | |
Impairment of franchises | | | 178 | | | | -- | | | | -- | |
Asset impairment charges | | | 56 | | | | 159 | | | | 39 | |
Other operating (income) expenses, net | | | (17 | ) | | | 21 | | | | 32 | |
| | | | | | | | | | | | |
| | | 5,454 | | | | 5,137 | | | | 4,729 | |
| | | | | | | | | | | | |
Operating income from continuing operations | | | 548 | | | | 367 | | | | 304 | |
| | | | | | | | | | | | |
OTHER INCOME AND EXPENSES: | | | | | | | | | | | | |
Interest expense, net | | | (776 | ) | | | (766 | ) | | | (691 | ) |
Loss on extinguishment of debt | | | (32 | ) | | | (27 | ) | | | (6 | ) |
Other income (expense), net | | | (70 | ) | | | 2 | | | | 105 | |
| | | | | | | | | | | | |
| | | (878 | ) | | | (791 | ) | | | (592 | ) |
| | | | | | | | | | | | |
Loss from continuing operations before income taxes | | | (330 | ) | | | (424 | ) | | | (288 | ) |
| | | | | | | | | | | | |
INCOME TAX EXPENSE | | | (20 | ) | | | (7 | ) | | | (9 | ) |
| | | | | | | | | | | | |
Loss from continuing operations | | | (350 | ) | | | (431 | ) | | | (297 | ) |
| | | | | | | | | | | | |
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX | | | -- | | | | 238 | | | | 39 | |
| | | | | | | | | | | | |
Net loss | | $ | (350 | ) | | $ | (193 | ) | | $ | (258 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
CCO HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER’S EQUITY
(dollars in millions)
| | | | | Accumulated | | | | |
| | | | | Other | | | Total | |
| | Member’s | | | Comprehensive | | | Member's | |
| | Equity | | | Income (Loss) | | | Equity | |
| | | | | | | | | |
BALANCE, December 31, 2004 | | $ | 6,568 | | | $ | (15 | ) | | $ | 6,553 | |
Distributions to parent company | | | (1,268 | ) | | | -- | | | | (1,268 | ) |
Changes in fair value of interest rate agreements and other | | | -- | | | | 17 | | | | 17 | |
Net loss | | | (258 | ) | | | -- | | | | (258 | ) |
| | | | | | | | | | | | |
BALANCE, December 31, 2005 | | | 5,042 | | | | 2 | | | | 5,044 | |
Contributions | | | 148 | | | | -- | | | | 148 | |
Distributions to parent company | | | (1,151 | ) | | | -- | | | | (1,151 | ) |
Changes in fair value of interest rate agreements | | | -- | | | | (1 | ) | | | (1 | ) |
Net loss | | | (193 | ) | | | -- | | | | (193 | ) |
| | | | | | | | | | | | |
BALANCE, December 31, 2006 | | | 3,846 | | | | 1 | | | | 3,847 | |
Distributions to parent company | | | (1,447 | ) | | | -- | | | | (1,447 | ) |
Changes in fair value of interest rate agreements | | | -- | | | | (123 | ) | | | (123 | ) |
Other | | | (14 | ) | | | (1 | ) | | | (15 | ) |
Net loss | | | (350 | ) | | | -- | | | | (350 | ) |
| | | | | | | | | | | | |
BALANCE, December 31, 2007 | | $ | 2,035 | | | $ | (123 | ) | | $ | 1,912 | |
The accompanying notes are an integral part of these consolidated financial statements.
CCO HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
| | Year Ended December 31, | |
| | 2007 | | | 2006 | | | 2005 | |
| | | | | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | |
Net loss | | $ | (350 | ) | | $ | (193 | ) | | $ | (258 | ) |
Adjustments to reconcile net loss to net cash flows from operating activities: | | | | | | | -- | | | | -- | |
Depreciation and amortization | | | 1,328 | | | | 1,362 | | | | 1,499 | |
Impairment of franchises | | | 178 | | | | | | | | | |
Asset impairment charges | | | 56 | | | | 159 | | | | 39 | |
Noncash interest expense | | | 17 | | | | 23 | | | | 29 | |
Deferred income taxes | | | 12 | | | | -- | | | | 3 | |
Gain (loss) on sale of assets, net | | | (3 | ) | | | (192 | ) | | | 6 | |
Loss on extinguishment of debt | | | 21 | | | | 27 | | | | -- | |
Other, net | | | 66 | | | | 10 | | | | (72 | ) |
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions: | | | | | | | | | | | | |
Accounts receivable | | | (33 | ) | | | 23 | | | | (41 | ) |
Prepaid expenses and other assets | | | (5 | ) | | | 1 | | | | (7 | ) |
Accounts payable, accrued expenses and other | | | 31 | | | | (23 | ) | | | (66 | ) |
Receivables from and payables to related party, including deferred management fees | | | 55 | | | | 41 | | | | (83 | ) |
| | | | | | | | | | | | |
Net cash flows from operating activities | | | 1,373 | | | | 1,238 | | | | 1,049 | |
| | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
Purchases of property, plant and equipment | | | (1,244 | ) | | | (1,103 | ) | | | (1,088 | ) |
Change in accrued expenses related to capital expenditures | | | (2 | ) | | | 24 | | | | 13 | |
Proceeds from sale of assets, including cable systems | | | 104 | | | | 1,020 | | | | 44 | |
Other, net | | | (31 | ) | | | (6 | ) | | | 13 | |
| | | | | | | | | | | | |
Net cash flows from investing activities | | | (1,173 | ) | | | (65 | ) | | | (1,018 | ) |
| | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
Borrowings of long-term debt | | | 7,877 | | | | 6,322 | | | | 1,207 | |
Borrowings from related parties | | | -- | | | | 300 | | | | 140 | |
Repayments of long-term debt | | | (6,628 | ) | | | (6,729 | ) | | | (1,107 | ) |
Repayments to related parties | | | -- | | | | (20 | ) | | | (147 | ) |
Proceeds from issuance of debt | | | -- | | | | -- | | | | 294 | |
Payments for debt issuance costs | | | (33 | ) | | | (18 | ) | | | (11 | ) |
Redemption of preferred interest | | | -- | | | | -- | | | | (25 | ) |
Contributions | | | -- | | | | 148 | | | | -- | |
Distributions | | | (1,447 | ) | | | (1,151 | ) | | | (925 | ) |
Other, net | | | 5 | | | | -- | | | | -- | |
| | | | | | | | | | | | |
Net cash flows from financing activities | | | (226 | ) | | | (1,148 | ) | | | (574 | ) |
| | | | | | | | | | | | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | (26 | ) | | | 25 | | | | (543 | ) |
CASH AND CASH EQUIVALENTS, beginning of period | | | 28 | | | | 3 | | | | 546 | |
| | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS, end of period | | $ | 2 | | | $ | 28 | | | $ | 3 | |
| | | | | | | | | | | | |
CASH PAID FOR INTEREST | | $ | 728 | | | $ | 718 | | | $ | 650 | |
| | | | | | | | | | | | |
NONCASH TRANSACTIONS: | | | | | | | | | | | | |
Issuance of debt by Charter Communications Operating, LLC | | $ | -- | | | $ | 37 | | | $ | 333 | |
Retirement of Renaissance Media Group LLC debt | | $ | -- | | | $ | (37 | ) | | $ | -- | |
Distribution of Charter Communications Holdings, LLC notes and accrued interest | | $ | -- | | | $ | -- | | | $ | (343 | ) |
Transfer of property, plant, and equipment from parent company | | $ | -- | | | $ | -- | | | $ | 139 | |
The accompanying notes are an integral part of these consolidated financial statements.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
1. | Organization and Basis of Presentation
|
Charter Communications Holdings, LLC (“Charter Holdings”) is a holding company whose principal assets at December 31, 2007 are the equity interests in its subsidiaries, which include CCH II, LLC (“CCH II”) and CCO Holdings, LLC (“CCO Holdings”). Charter Holdings, CCH II and CCO Holdings are indirect subsidiaries of Charter Communications Holding Company, LLC (“Charter Holdco”), which is a subsidiary of Charter Communications, Inc. (“Charter”). Each set of consolidated financial statements include the accounts of Charter Holdings, CCH II, and CCO Holdings, and all of their respective subsidiaries where the underlying operations reside, which are collectively referred to herein as the "Companies." All significant intercompany accounts and transactions among consolidated entities have been eliminated.
The Companies, through their operating subsidiary, Charter Communications Operating, LLC (“Charter Operating”), operate broadband communications businesses in the United States offering to residential and commercial customers traditional cable video programming (analog and digital video), high-speed Internet services, and telephone services, as well as advanced broadband services such as high definition television, Charter OnDemand™, and digital video recorder service. Cable video programming, high-speed Internet, telephone, and advanced broadband services are sold on a subscription basis. The Companies also sell local advertising on cable networks.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Areas involving significant judgments and estimates include capitalization of labor and overhead costs; depreciation and amortization costs; impairments of property, plant and equipment, franchises and goodwill; income taxes; and contingencies. Actual results could differ from those estimates.
Reclassifications. Certain prior year amounts have been reclassified to conform with the 2007 presentation.
2. | Liquidity and Capital Resources
|
Charter Holdings, CCH II, and CCO Holdings have each incurred net losses in 2007, 2006 and 2005 and expect to continue to incur net losses for the foreseeable future. In 2007, 2006 and 2005, Charter Holdings, CCH II, and CCO Holdings each generated cash flows from operating activities.
The Companies have significant amounts of debt. Charter Holdings’, CCH II’s, and CCO Holdings’ long-term debt as of December 31, 2007 totaled $19.5 billion, $12.3 billion, and $9.9 billion, respectively, consisting of $7.2 billion of credit facility debt and $12.3 billion, $5.1 billion, and $2.7 billion accreted value of high-yield notes, respectively. In 2008, $65 million of Charter Operating’s credit facility debt matures, and in 2009, an additional $188 million of Charter Holdings’ notes and $65 million of Charter Operating’s credit facility debt matures. In 2010 and beyond, significant additional amounts will become due under the Companies’ remaining long-term debt obligations.
The Companies require significant cash to fund debt service costs, capital expenditures and ongoing operations. The Companies have historically funded these requirements through cash flows from operating activities, borrowings under credit facilities, equity contributions from their respective parent companies, sales of assets, issuances of debt securities, and cash on hand. However, the mix of funding sources changes from period to period. For the year ended December 31, 2007, Charter Holdings, CCH II, and CCO Holdings generated $323 million, $1.1 billion, and $1.4 billion of net cash flows from operating activities, respectively, after paying cash interest of $1.8 billion, $980 million, and $728 million, respectively. In addition, the Companies used $1.2 billion for purchases of property, plant and equipment. Finally, Charter Holdings and CCH II had net cash flows provided by financing activities of $825 million and $26 million, respectively, and CCO Holdings had net cash flows used in financing activities of
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
$226 million. On a consolidated basis, the Companies’ parent companies have a significant level of debt, which totaled approximately $19.9 billion as of December 31, 2007.
The Companies expect that cash on hand, cash flows from operating activities and the amounts available under the Charter Operating credit facilities will be adequate to meet their and their parent companies’ projected cash needs through the second or third quarter of 2009 and thereafter will not be sufficient to fund such needs. The Companies’ projected cash needs and projected sources of liquidity depend upon, among other things, the Companies’ actual results, the timing and amount of capital expenditures, and ongoing compliance with the Charter Operating credit facilities, including obtaining an unqualified audit opinion from its independent accountants. The Companies will therefore need to obtain additional sources of liquidity by early 2009. Although the Companies and their parent companies have been able to raise funds through issuances of debt in the past, they may not be able to access additional sources of liquidity on similar terms or pricing as those that are currently in place, or at all. A continuation of the recent turmoil in the credit markets and the general economic downturn could adversely impact the terms and/or pricing when the Companies need to raise additional liquidity. No assurances can be given that the Companies will not experience liquidity problems if they do not obtain sufficient additional financing on a timely basis as the Companies’ debt becomes due or because of adverse market conditions, increased competition, or other unfavorable events.
If, at any time, additional capital or borrowing capacity is required beyond amounts internally generated or available under the credit facilities, the Companies would consider issuing equity at the Charter or Charter Holdco level, issuing debt securities, further reducing expenses and capital expenditures, selling assets, or requesting waivers or amendments with respect to the Companies’ credit facilities.
If the above strategies were not successful, the Companies could be forced to restructure their obligations or seek protection under the bankruptcy laws. In addition, if the Companies find it necessary to engage in a recapitalization or other similar transaction, the Companies’ noteholders might not receive principal and interest payments to which they are contractually entitled.
Credit Facility Availability
The Companies’ ability to operate depends upon, among other things, their continued access to capital, including credit under the Charter Operating credit facilities. The Charter Operating credit facilities, along with the Companies’ indentures and the CCO Holdings credit facility, contain certain restrictive covenants, some of which require Charter Operating to maintain specified leverage ratios, meet financial tests, and provide annual audited financial statements with an unqualified opinion from the Companies’ independent accountants. As of December 31, 2007, the Companies were in compliance with the covenants under their indentures and credit facilities, and the Companies expect to remain in compliance with those covenants for the next twelve months. As of December 31, 2007, the Companies’ potential availability under Charter Operating’s revolving credit facility totaled approximately $1.0 billion, none of which was limited by covenant restrictions. Continued access to Charter Operating’s revolving credit facility is subject to the Companies remaining in compliance with these covenants, including covenants tied to Charter Operating’s leverage ratio and first lien leverage ratio. If any event of non-compliance were to occur, funding under the revolving credit facility may not be available and defaults on some or potentially all of the Companies’ debt obligations could occur. An event of default under any of the Companies’ debt instruments could result in the acceleration of their payment obligations under that debt and, under certain circumstances, in cross-defaults under their other debt obligations, which could have a material adverse effect on the Companies’ consolidated financial condition and results of operations.
Parent Company Debt Obligations
Any financial or liquidity problems of the Companies’ parent companies could cause serious disruption to the Companies’ business and have a material adverse effect on the Companies’ business and results of operations.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
A failure by Charter Holdings, CCH I Holdings, LLC (“CIH”), CCH I, LLC (“CCH I”), CCH II, or CCO Holdings to satisfy their debt payment obligations could, or a bankruptcy with respect to Charter Holdings, CIH, CCH I, CCH II, or CCO Holdings would, give the lenders under the Companies’ credit facilities the right to accelerate the payment obligations under these facilities. Any such acceleration would be a default under the indenture governing the Companies’ notes.
Limitations on Distributions
As long as Charter’s convertible senior notes remain outstanding and are not otherwise converted into shares of common stock, Charter must pay interest on the convertible senior notes and repay the principal amount. In October 2007, Charter Holdco completed an exchange offer, in which $364 million of Charter’s 5.875% convertible senior notes due November 2009 were exchanged for $479 million of Charter’s 6.50% convertible senior notes. Approximately $49 million of Charter’s 5.875% convertible senior notes remain outstanding. Charter’s ability to make interest payments on its convertible senior notes and to repay the outstanding principal of its convertible senior notes will depend on its ability to raise additional capital and/or on receipt of payments or distributions from Charter Holdco and its subsidiaries. As of December 31, 2007,2008, Charter Holdco was owed $123$13 million in intercompany loans from Charter Operating and had $62$1 million in cash, which amounts were available to pay interest and principal on Charter'sCharter’s convertible senior notes. notes to the extent not otherwise used, for example, to satisfy maturities at Charter Holdings. In addition, as long as Charter Holdco continues to hold the $137 million of Charter Holdings’ notes due 2009 and 2010 (as discussed further below), Charter Holdco will receive interest and principal payments from Charter Holdings to the extent Charter Holdings is able to make such payments. Such amounts may be available to pay interest and principal on Charter’s convertible senior notes, although Charter Holdco may use those amounts for other purposes.
Distributions by Charter’s subsidiaries to a parent company for payment of principal on parent company notes are restricted under the indentures governing the CIH notes, CCH I notes, CCH II notes, CCO Holdings notes, Charter Operatingour and our parent companies’ notes, and under the CCO Holdingsour credit facility, unless there is no default under the applicable indenture and credit facilities, and unless each applicable subsidiary’s leverage ratio test is met at the time of such distribution. For the quarter ended December 31, 2007,2008, there was no default under any of these indentures or credit facilities, and each subsidiary met itsfacilities. However, certain of Charter’s subsidiaries did not meet their applicable leverage ratio tests based on December 31, 20072008 financial results. SuchAs a result, distributions from certain of Charter’s subsidiaries to their parent companies would have been restricted at such time and will continue to be restricted however, if any such subsidiary fails to meet theseunless those tests at the time of the contemplated distribution. In the past, certain subsidiaries have from time to time failed to meet their leverage ratio test. There can be no assurance that they will satisfy these tests at the time of the contemplated distribution.are met. Distributions by Charter Operating for payment of principal on parent company notes are further restricted by the covenants in the Charter Operatingits credit facilities.
Distributions by CIH, CCH I, CCH II, CCO Holdings, and Charter Operating to a parent company for payment of parent company interest are permitted if there is no default under the aforementioned indentures and CCO Holdings credit facility.
The indentures governing the Charter Holdings notes permit Charter Holdings to make distributions to Charter Holdco for payment of interest or principal on Charter’s convertible senior notes, only if, after giving effect to the distribution, Charter Holdings can incur additional debt under the leverage ratio of 8.75 to 1.0, there is no default under Charter Holdings’ indentures, and other specified tests are met. For the quarter ended December 31, 2007,2008, there was no default under Charter Holdings’ indentures, the other specified tests were met, and Charter Holdings met its leverage ratio test based on December 31, 20072008 financial results. Such distributions would be restricted, however, if Charter Holdings fails to meet these tests at the time of the contemplated distribution. In the past, Charter Holdings has from time to time failed to meet this leverage ratio test. There can be no assurance that Charter Holdings will satisfy these tests at the time of the contemplated distribution. During periods in which distributions are restricted, the indentures governing the Charter Holdings notes permit Charter Holdings and its subsidiaries to make specified investments (that are not restricted payments) in Charter Holdco or Charter, up to an amount determined by a formula, as long as there is no default under the indentures.
In addition to the limitation on distributions under the various indentures discussed above, distributions by Charter’s subsidiaries, including us, may be limited by applicable law, including the Delaware Limited Liability Company Act, under which Charter’s subsidiaries may only make distributions if they have “surplus” as defined in the act. It is uncertain whether we will have sufficient surplus at the relevant subsidiaries to make distributions, including for payment of interest and principal on the debts of the parents of such entities. See “Part I. Item 1A. Risk Factors — Because of our holding company structure, our outstanding notes are structurally subordinated in right of payment to all liabilities of our subsidiaries. Restrictions in our subsidiary’s debt instruments and under applicable law limit their ability to provide funds to us or our various debt issuers.”
Historical Operating, Investing, and Financing Activities
Cash and Cash Equivalents. We held $948 million in cash and cash equivalents as of December 31, 2008 compared to $2 million as of December 31, 2007. The increase in cash was the result of a draw-down on our revolving credit facility.
Operating Activities. Net cash provided by operating activities increased $94 million from $1.4 billion for the year ended December 31, 2007 to $1.5 billion for the year ended December 31, 2008, primarily as a result of revenue growth from high-speed Internet and telephone driven by bundled services, as well as improved cost efficiencies, offset by an increase of $37 million in interest on cash pay obligations and changes in operating assets and liabilities that provided $37 million less cash during the same period.
Investing Activities. Net cash used in investing activities for each of the years ended December 31, 2008 and 2007 was $1.2 billion.
Financing Activities. Net cash provided by financing activities was $689 million for the year ended December 31, 2008 and net cash used in financing activities was $226 million for the year ended December 31, 2007. The increase in cash provided during the year ended December 31, 2008 compared to the corresponding period in 2007 was primarily the result of an increase in the amount by which borrowings exceeded repayments of long-term debt and a decrease in distributions.
Capital Expenditures
We have significant ongoing capital expenditure requirements. Capital expenditures were $1.2 billion in each of the years ended December 31, 2008 and 2007. See the table below for more details.
Our capital expenditures are funded primarily from cash flows from operating activities and the issuance of debt. In addition, our liabilities related to capital expenditures decreased by $39 million and $2 million for the years ended December 31, 2008 and 2007, respectively.
During 2009, we expect capital expenditures to be approximately $1.2 billion. We expect the nature of these expenditures will continue to be composed primarily of purchases of customer premise equipment related to telephone and other advanced services, support capital, and scalable infrastructure. The actual amount of our capital expenditures depends on the deployment of advanced broadband services and offerings. We may need additional capital if there is accelerated growth in high-speed Internet, telephone or digital customers or there is an increased need to respond to competitive pressures by expanding the delivery of other advanced services.
We have adopted capital expenditure disclosure guidance, which was developed by eleven then publicly traded cable system operators, including Charter, with the support of the NCTA. The disclosure is intended to provide more consistency in the reporting of capital expenditures among peer companies in the cable industry. These disclosure guidelines are not required disclosures under GAAP, nor do they impact our accounting for capital expenditures under GAAP.
The following table presents our major capital expenditures categories in accordance with NCTA disclosure guidelines for the years ended December 31, 2008 and 2007 (dollars in millions):
| | For the years ended December 31, | |
| | 2008 | | | 2007 | |
| | | | | | |
Customer premise equipment (a) | | $ | 595 | | | $ | 578 | |
Scalable infrastructure (b) | | | 251 | | | | 232 | |
Line extensions (c) | | | 80 | | | | 105 | |
Upgrade/rebuild (d) | | | 40 | | | | 52 | |
Support capital (e) | | | 236 | | | | 277 | |
| | | | | | | | |
Total capital expenditures | | $ | 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, Financial Reporting by Cable Television Companies, 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). |
Description of Our Outstanding Debt
Overview
As of December 31, 2008 and 2007, our total debt was approximately $11.8 billion and $9.9 billion, respectively. This debt was comprised of approximately $8.6 billion and $7.2 billion of credit facility debt and $3.2 billion and $2.7 billion accreted amount of high-yield notes at December 31, 2008 and 2007, respectively. See the organizational chart on page 5 and the first table under “— Liquidity and Capital Resources — Overview of Our Debt and Liquidity” for debt outstanding by issuer.
As of December 31, 2008 and 2007, the blended weighted average interest rate on our debt was 6.4% and 7.3%, respectively. The interest rate on approximately 64% and 68% of the total principal amount of our debt was effectively fixed, including the effects of our interest rate hedge agreements, as of December 31, 2008 and 2007, respectively. The fair value of our high-yield notes was $2.4 billion and $2.6 billion at December 31, 2008 and 2007, respectively. The fair value of our credit facilities was $6.2 billion and $6.7 billion at December 31, 2008 and 2007, respectively. The fair value of high-yield notes was based on quoted market prices, and the fair value of the credit facilities was based on dealer quotations.
The following description is a summary of certain provisions of our credit facilities and our notes (the “Debt Agreements”). The summary does not restate the terms of the Debt Agreements in their entirety, nor does it describe all terms of the Debt Agreements. The agreements and instruments governing each of the Debt Agreements are complicated and you should consult such agreements and instruments for more detailed information regarding the Debt Agreements.
Credit Facilities – General
Charter Operating Credit Facilities
Under the terms of the Proposed Restructuring, the Charter Operating credit facilities will remain outstanding although the revolving line of credit would no longer be available for new borrowings. The Charter Operating credit facilities provide borrowing availability of up to $8.0 billion as follows:
| • | a term loan with an initial total principal amount of $6.5 billion, which is repayable in equal quarterly installments, commencing March 31, 2008, and aggregating in each loan year to 1% of the original amount of the term loan, with the remaining balance due at final maturity on March 6, 2014; and |
| • | a revolving line of credit of $1.5 billion, with a maturity date on March 6, 2013. |
The Charter Operating credit facilities also allow us to enter into incremental term loans in the future with an aggregate amount of up to $1.0 billion, with amortization as set forth in the notices establishing such term loans, but with no amortization greater than 1% prior to the final maturity of the existing term loan. In March 2008, Charter Operating borrowed $500 million principal amount of incremental term loans (the “Incremental Term Loans”) under the Charter Operating credit facilities. The Incremental Term Loans have a final maturity of March 6, 2014 and prior to that date will amortize in quarterly principal installments totaling 1% annually beginning on June 30, 2008. The Incremental Term Loans bear interest at LIBOR plus 5.0%, with a LIBOR floor of 3.5%, and are otherwise governed by and subject to the existing terms of the Charter Operating credit facilities. Net proceeds from the Incremental Term Loans were used for general corporate purposes. Although the Charter Operating credit facilities allow for the incurrence of up to an additional $500 million in incremental term loans, no assurance can be given that we could obtain additional incremental term loans in the future if Charter Operating sought to do so especially after filing a Chapter 11 bankruptcy proceeding on March 27, 2009.
Amounts outstanding under the Charter Operating credit facilities bear interest, at Charter Operating’s election, at a base rate or the Eurodollar rate, as defined, plus a margin for Eurodollar loans of up to 2.00% for the revolving credit facility and 2.00% for the term loan, and quarterly commitment fees of 0.5% per annum is payable on the average daily unborrowed balance of the revolving credit facility. If an event of default were to occur, such as a bankruptcy filing, Charter Operating would not be able to elect the Eurodollar rate and would have to pay interest at the base rate plus the applicable margin.
The obligations of Charter Operating under the Charter Operating credit facilities (the “Obligations”) are guaranteed by Charter Operating’s immediate parent company, CCO Holdings, and subsidiaries of Charter Operating, except for certain subsidiaries, including immaterial subsidiaries and subsidiaries precluded from guaranteeing by reason of the provisions of other indebtedness to which they are subject (the “non-guarantor subsidiaries”). The Obligations are also secured by (i) a lien on substantially all of the assets of Charter Operating and its subsidiaries (other than assets of the non-guarantor subsidiaries), to the extent such lien can be perfected under the Uniform Commercial Code by the filing of a financing statement, and (ii) a pledge by CCO Holdings of the equity interests owned by it in Charter Operating or any of Charter Operating’s subsidiaries, as well as intercompany obligations owing to it by any of such entities.
CCO Holdings Credit Facility
In March 2007, CCO Holdings entered into a credit agreement (the “CCO Holdings credit facility”) which consists of a $350 million term loan facility. Under the terms of the Proposed Restructuring, the CCO Holdings credit facility will remain outstanding. The facility matures in September 2014. The CCO Holdings credit facility also allows us to enter into incremental term loans in the future, maturing on the dates set forth in the notices establishing such term loans, but no earlier than the maturity date of the existing term loans. However, no assurance can be given that such incremental term loans could be obtained if CCO Holdings sought to do so. Borrowings under the CCO Holdings credit facility bear interest at a variable interest rate based on either LIBOR or a base rate plus, in either case, an applicable margin. The applicable margin for LIBOR term loans, other than incremental loans, is 2.50% above LIBOR. If an event of default were to occur, such as a bankruptcy filing, CCO Holdings would not be able to elect the Eurodollar rate and would have to pay interest at the base rate plus the applicable margin. The applicable margin with respect to incremental loans is to be agreed upon by CCO Holdings and the lenders when the incremental loans are established. The CCO Holdings credit facility is secured by the equity interests of Charter Operating, and all proceeds thereof.
Credit Facilities — Restrictive Covenants
Charter Operating Credit Facilities
The Charter Operating credit facilities contain representations and warranties, and affirmative and negative covenants customary for financings of this type. The financial covenants measure performance against standards set for leverage to be tested as of the end of each quarter. Additionally, the Charter Operating credit facilities contain provisions requiring mandatory loan prepayments under specific circumstances, including in connection with certain sales of assets, so long as the proceeds have not been reinvested in the business.
The Charter Operating credit facilities permit Charter Operating and its subsidiaries to make distributions to pay interest on the Charter convertible notes, the CCHC notes, the Charter Holdings notes, the CIH notes, the CCH I notes, the CCH II notes, the CCO Holdings notes, the CCO Holdings credit facility, and the Charter Operating second-lien notes, provided that, among other things, no default has occurred and is continuing under the credit facilities. Conditions to future borrowings include absence of a default or an event of default under the credit facilities, and the continued accuracy in all material respects of the representations and warranties, including the absence since December 31, 2005 of any event, development, or circumstance that has had or could reasonably be expected to have a material adverse effect on our business.
The events of default under the Charter Operating credit facilities include among other things:
| • | the failure to make payments when due or within the applicable grace period; |
| • | the failure to comply with specified covenants, including, but not limited to, a covenant to deliver audited financial statements for Charter Operating with an unqualified opinion from our independent accountants and without a “going concern” or like qualification or exception; |
| • | the failure to pay or the occurrence of events that cause or permit the acceleration of other indebtedness owing by CCO Holdings, Charter Operating, or Charter Operating’s subsidiaries in amounts in excess of $100 million in aggregate principal amount; |
| • | the failure to pay or the occurrence of events that result in the acceleration of other indebtedness owing by certain of CCO Holdings’ direct and indirect parent companies in amounts in excess of $200 million in aggregate principal amount; |
| • | Paul Allen and/or certain of his family members and/or their exclusively owned entities (collectively, the “Paul Allen Group”) ceasing to have the power, directly or indirectly, to vote at least 35% of the ordinary voting power of Charter Operating; |
| • | the consummation of any transaction resulting in any person or group (other than the Paul Allen Group) having power, directly or indirectly, to vote more than 35% of the ordinary voting power of Charter Operating, unless the Paul Allen Group holds a greater share of ordinary voting power of Charter Operating; and |
| • | Charter Operating ceasing to be a wholly-owned direct subsidiary of CCO Holdings, except in certain very limited circumstances. |
CCO Holdings Credit Facility
The CCO Holdings credit facility contains covenants that are substantially similar to the restrictive covenants for the CCO Holdings notes except that the leverage ratio is 5.50 to 1.0. See “-Summary of Restricted Covenants of Our
High Yield Notes.” The CCO Holdings credit facility contains provisions requiring mandatory loan prepayments under specific circumstances, including in connection with certain sales of assets, so long as the proceeds have not been reinvested in the business. The CCO Holdings credit facility permits CCO Holdings and its subsidiaries to make distributions to pay interest on the Charter convertible senior notes, the CCHC notes, the Charter Holdings notes, the CIH notes, the CCH I notes, the CCH II notes, the CCO Holdings notes, and the Charter Operating second-lien notes, provided that, among other things, no default has occurred and is continuing under the CCO Holdings credit facility.
Outstanding Notes
CCO Holdings, LLC Notes
In November 2003 and August 2005, CCO Holdings and CCO Holdings Capital Corp. jointly issued $500 million and $300 million, respectively, total principal amount of 8¾% senior notes due 2013 (the “CCOH 2013 Notes”). The CCOH 2013 Notes are senior debt obligations of CCO Holdings and CCO Holdings Capital Corp. They rank equally with all other current and future unsecured, unsubordinated obligations of CCO Holdings and CCO Holdings Capital Corp., including the CCO Holdings credit facility. The CCOH 2013 Notes are structurally subordinated to all obligations of subsidiaries of CCO Holdings, including the Charter Operating notes and the Charter Operating credit facilities. Under the terms of the Proposed Restructuring, the CCO Holdings notes will remain outstanding.
Charter Communications Operating, LLC Notes
In April 2004, Charter Operating and Charter Communications Operating Capital Corp. jointly issued $1.1 billion of 8% senior second-lien notes due 2012 and $400 million of 8 3/8% senior second-lien notes due 2014. In March and June 2005, Charter Operating consummated exchange transactions with a small number of institutional holders of Charter Holdings 8.25% senior notes due 2007 pursuant to which Charter Operating issued, in private placement transactions, approximately $333 million principal amount of its 8 3/8% senior second-lien notes due 2014 in exchange for approximately $346 million of the Charter Holdings 8.25% senior notes due 2007. In March 2006, Charter Operating exchanged $37 million of Renaissance Media Group LLC 10% senior discount notes due 2008 for $37 million principal amount of Charter Operating 8 3/8% senior second-lien notes due 2014. In March 2008, Charter Operating issued $546 million principal amount of 10.875% senior second-lien notes due 2014, guaranteed by CCO Holdings and certain other subsidiaries of Charter Operating, in a private transaction. Net proceeds from the senior second-lien notes were used to reduce borrowings, but not commitments, under the revolving portion of the Charter Operating credit facilities.
Subject to specified limitations, CCO Holdings and those subsidiaries of Charter Operating that are guarantors of, or otherwise obligors with respect to, indebtedness under the Charter Operating credit facilities and related obligations are required to guarantee the Charter Operating notes. The note guarantee of each such guarantor is:
| · | a senior obligation of such guarantor; |
| · | structurally senior to the outstanding CCO Holdings notes (except in the case of CCO Holdings’ note guarantee, which is structurally pari passu with such senior notes), the outstanding CCH II notes, the outstanding CCH I notes, the outstanding CIH notes, the outstanding Charter Holdings notes and the outstanding Charter convertible senior notes; |
| · | senior in right of payment to any future subordinated indebtedness of such guarantor; and |
| · | effectively senior to the relevant subsidiary’s unsecured indebtedness, to the extent of the value of the collateral but subject to the prior lien of the credit facilities. |
The Charter Operating notes and related note guarantees are secured by a second-priority lien on all of Charter Operating’s and its subsidiaries’ assets that secure the obligations of Charter Operating or any subsidiary of Charter Operating with respect to the Charter Operating credit facilities and the related obligations. The collateral currently consists of the capital stock of Charter Operating held by CCO Holdings, all of the intercompany obligations owing to CCO Holdings by Charter Operating or any subsidiary of Charter Operating, and substantially all of Charter Operating’s and the guarantors’ assets (other than the assets of CCO Holdings) in which security interests may be perfected under the Uniform Commercial Code by filing a financing statement (including capital stock and intercompany obligations), including, but not limited to:
| · | with certain exceptions, all capital stock (limited in the case of capital stock of foreign subsidiaries, if any, to 66% of the capital stock of first tier foreign Subsidiaries) held by Charter Operating or any guarantor; and |
| · | with certain exceptions, all intercompany obligations owing to Charter Operating or any guarantor. |
In the event that additional liens are granted by Charter Operating or its subsidiaries to secure obligations under the Charter Operating credit facilities or the related obligations, second priority liens on the same assets will be granted to secure the Charter Operating notes, which liens will be subject to the provisions of an intercreditor agreement (to which none of Charter Operating or its affiliates are parties). Notwithstanding the foregoing sentence, no such second priority liens need be provided if the time such lien would otherwise be granted is not during a guarantee and pledge availability period (when the Leverage Condition is satisfied), but such second priority liens will be required to be provided in accordance with the foregoing sentence on or prior to the fifth business day of the commencement of the next succeeding guarantee and pledge availability period.
The Charter Operating notes are senior debt obligations of Charter Operating and Charter Communications Operating Capital Corp. To the extent of the value of the collateral (but subject to the prior lien of the credit facilities), they rank effectively senior to all of Charter Operating’s future unsecured senior indebtedness. Under the terms of the Proposed Restructuring, the Charter Operating notes will remain outstanding.
Redemption Provisions of Our High Yield Notes
The various notes issued by us and our subsidiaries included in the table may be redeemed in accordance with the following table or are not redeemable until maturity as indicated:
Note Series | | Redemption Dates | | Percentage of Principal |
| | | | | | |
CCO Holdings: | | | | | | |
8 3/4% senior notes due 2013 | | November 15, 2008 – November 14, 2009 | | | 104.375 | % |
| | November 15, 2009 – November 14, 2010 | | | 102.917 | % |
| | November 15, 2010 – November 14, 2011 | | | 101.458 | % |
| | Thereafter | | | 100.000 | % |
Charter Operating: | | | | | | |
8% senior second-lien notes due 2012 | | At any time | | | * | |
8 3/8% senior second-lien notes due 2014 | | April 30, 2009 – April 29, 2010 | | | 104.188 | % |
| | April 30, 2010 – April 29, 2011 | | | 102.792 | % |
| | April 30, 2011 – April 29, 2012 | | | 101.396 | % |
| | Thereafter | | | 100.000 | % |
10.875% senior second-lien notes due 2014 | | At any time | | | ** | |
| * | Charter Operating may, at any time and from time to time, at their option, redeem the outstanding 8% second lien notes due 2012, in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the redemption date, plus the Make-Whole Premium. The Make-Whole Premium is an amount equal to the excess of (a) the present value of the remaining interest and principal payments due on an 8% senior second-lien notes due 2012 to its final maturity date, computed using a discount rate equal to the Treasury Rate on such date plus 0.50%, over (b) the outstanding principal amount of such Note. |
| ** | Charter Operating may redeem the outstanding 10.875% second lien notes due 2014, at their option, on or after varying dates, in each case at a premium, plus the Make-Whole Premium. The Make-Whole Premium is an amount equal to the excess of (a) the present value of the remaining interest and principal payments due on a 10.875% senior second-lien note due 2014 to its final maturity date, computed using a discount rate equal to the Treasury Rate on such date plus 0.50%, over (b) the outstanding principal amount of such note. The Charter Operating 10.875% senior second-lien notes may be redeemed at any time on or after March 15, 2012 at specified prices. |
In the event that a specified change of control event occurs, each of the respective issuers of the notes must offer to repurchase any then outstanding notes at 101% of their principal amount or accrued value, as applicable, plus accrued and unpaid interest, if any.
Summary of Restrictive Covenants of Our High Yield Notes
The following description is a summary of certain restrictions of our Debt Agreements. The summary does not restate the terms of the Debt Agreements in their entirety, nor does it describe all restrictions of the Debt Agreements. The agreements and instruments governing each of the Debt Agreements are complicated and you should consult such agreements and instruments for more detailed information regarding the Debt Agreements.
The notes issued by CCO Holdings and Charter Operating (together, the “note issuers”) were issued pursuant to indentures that contain covenants that restrict the ability of the note issuers and their subsidiaries to, among other things:
· | pay dividends or make distributions in respect of capital stock and other restricted payments; |
· | consolidate, merge, or sell all or substantially all assets; |
· | enter into sale leaseback transactions; |
· | create restrictions on the ability of restricted subsidiaries to make certain payments; or |
· | enter into transactions with affiliates. |
However, such covenants are subject to a number of important qualifications and exceptions. Below we set forth a brief summary of certain of the restrictive covenants.
Restrictions on Additional Debt
The limitations on incurrence of debt and issuance of preferred stock contained in various indentures permit each of the respective notes issuers and its restricted subsidiaries to incur additional debt or issue preferred stock, so long as, after giving pro forma effect to the incurrence, the leverage ratio would be below a specified level for each of the note issuers as follows:
Issuer | | Leverage Ratio |
| | |
CCOH | | 4.5 to 1 |
CCO | | 4.25 to 1 |
In addition, regardless of whether the leverage ratio could be met, so long as no default exists or would result from the incurrence or issuance, each issuer and their restricted subsidiaries are permitted to issue among other permitted indebtedness:
| · | up to an amount of debt under credit facilities not otherwise allocated as indicated below: |
· | CCO Holdings: $9.75 billion |
· | Charter Operating: $6.8 billion |
| · | up to $75 million of debt incurred to finance the purchase or capital lease of new assets; |
| · | up to $300 million of additional debt for any purpose; and |
| · | other items of indebtedness for specific purposes such as intercompany debt, refinancing of existing debt, and interest rate swaps to provide protection against fluctuation in interest rates. |
Indebtedness under a single facility or agreement may be incurred in part under one of the categories listed above and in part under another, and generally may also later be reclassified into another category including as debt incurred under the leverage ratio. Accordingly, indebtedness under our credit facilities is incurred under a combination of the categories of permitted indebtedness listed above. The restricted subsidiaries of note issuers are generally not permitted to issue subordinated debt securities.
Restrictions on Distributions
Generally, under the various indentures each of the note issuers and their respective restricted subsidiaries are permitted to pay dividends on or repurchase equity interests, or make other specified restricted payments, only if the applicable issuer can incur $1.00 of new debt under the applicable leverage ratio test after giving effect to the transaction and if no default exists or would exist as a consequence of such incurrence. If those conditions are met, restricted payments may be made in a total amount of up to the following amounts for the applicable issuer as indicated below:
· | CCO Holdings: the sum of 100% of CCO Holdings’ Consolidated EBITDA, as defined, minus 1.3 times its Consolidated Interest Expense, as defined, plus 100% of new cash and appraised non-cash equity proceeds received by CCO Holdings and not allocated to certain investments, cumulatively from October 1, 2003, plus $100 million; and |
· | Charter Operating: the sum of 100% of Charter Operating’s Consolidated EBITDA, as defined, minus 1.3 times its Consolidated Interest Expense, as defined, plus 100% of new cash and appraised non-cash equity proceeds received by Charter Operating and not allocated to certain investments, cumulatively from April 1, 2004, plus $100 million. |
In addition, each of the note issuers may make distributions or restricted payments, so long as no default exists or would be caused by transactions among other distributions or restricted payments:
| · | to repurchase management equity interests in amounts not to exceed $10 million per fiscal year; |
| · | regardless of the existence of any default, to pay pass-through tax liabilities in respect of ownership of equity interests in the applicable issuer or its restricted subsidiaries; or |
| · | to make other specified restricted payments including merger fees up to 1.25% of the transaction value, repurchases using concurrent new issuances, and certain dividends on existing subsidiary preferred equity interests. |
Each of CCO Holdings and Charter Operating and their respective restricted subsidiaries may make distributions or restricted payments: (i) so long as certain defaults do not exist and even if the applicable leverage test referred to above is not met, to enable certain of its parents to pay interest on certain of their indebtedness or (ii) so long as the applicable issuer could incur $1.00 of indebtedness under the applicable leverage ratio test referred to above, to enable certain of its parents to purchase, redeem or refinance certain indebtedness.
Restrictions on Investments
Each of the note issuers and their respective restricted subsidiaries may not make investments except (i) permitted investments or (ii) if, after giving effect to the transaction, their leverage would be above the applicable leverage ratio.
Permitted investments include, among others:
· | investments in and generally among restricted subsidiaries or by restricted subsidiaries in the applicable issuer; |
· | For CCO Holdings: |
· | investments aggregating up to $750 million at any time outstanding; |
· | investments aggregating up to 100% of new cash equity proceeds received by CCO Holdings since November 10, 2003 to the extent the proceeds have not been allocated to the restricted payments covenant; |
· | investments aggregating up to $750 million at any time outstanding; |
· | investments aggregating up to 100% of new cash equity proceeds received by CCO Holdings since April 27, 2004 to the extent the proceeds have not been allocated to the restricted payments covenant. |
Restrictions on Liens
Charter Operating and its restricted subsidiaries are not permitted to grant liens senior to the liens securing the Charter Operating notes, other than permitted liens, on their assets to secure indebtedness or other obligations, if,
after giving effect to such incurrence, the senior secured leverage ratio (generally, the ratio of obligations secured by first priority liens to four times EBITDA, as defined, for the most recent fiscal quarter for which internal financial reports are available) would exceed 3.75 to 1.0. The restrictions on liens for each of the other note issuers only applies to liens on assets of the issuers themselves and does not restrict liens on assets of subsidiaries. With respect to all of the note issuers, permitted liens include liens securing indebtedness and other obligations under credit facilities (subject to specified limitations in the case of Charter Operating), liens securing the purchase price of financed new assets, liens securing indebtedness of up to $50 million and other specified liens.
Restrictions on the Sale of Assets; Mergers
The note issuers are generally not permitted to sell all or substantially all of their assets or merge with or into other companies unless their leverage ratio after any such transaction would be no greater than their leverage ratio immediately prior to the transaction, or unless after giving effect to the transaction, leverage would be below the applicable leverage ratio for the applicable issuer, no default exists, and the surviving entity is a U.S. entity that assumes the applicable notes.
The note issuers and their restricted subsidiaries may generally not otherwise sell assets or, in the case of restricted subsidiaries, issue equity interests, in excess of $100 million unless they receive consideration at least equal to the fair market value of the assets or equity interests, consisting of at least 75% in cash, assumption of liabilities, securities converted into cash within 60 days, or productive assets. The note issuers and their restricted subsidiaries are then required within 365 days after any asset sale either to use or commit to use the net cash proceeds over a specified threshold to acquire assets used or useful in their businesses or use the net cash proceeds to repay specified debt, or to offer to repurchase the issuer’s notes with any remaining proceeds.
Restrictions on Sale and Leaseback Transactions
The note issuers and their restricted subsidiaries may generally not engage in sale and leaseback transactions unless, at the time of the transaction, the applicable issuer could have incurred secured indebtedness under its leverage ratio test in an amount equal to the present value of the net rental payments to be made under the lease, and the sale of the assets and application of proceeds is permitted by the covenant restricting asset sales.
Prohibitions on Restricting Dividends
The note issuers’ restricted subsidiaries may generally not enter into arrangements involving restrictions on their ability to make dividends or distributions or transfer assets to the applicable note issuer unless those restrictions with respect to financing arrangements are on terms that are no more restrictive than those governing the credit facilities existing when they entered into the applicable indentures or are not materially more restrictive than customary terms in comparable financings and will not materially impair the applicable note issuers’ ability to make payments on the notes.
Affiliate Transactions
The indentures also restrict the ability of the note issuers and their restricted subsidiaries to enter into certain transactions with affiliates involving consideration in excess of $15 million without a determination by the board of directors of the applicable note issuer that the transaction complies with this covenant, or transactions with affiliates involving over $50 million without receiving an opinion as to the fairness to the holders of such transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing.
Cross Acceleration
Our indentures and those of certain of our parent companies and our subsidiaries include various events of default, including cross acceleration provisions. Under these provisions, a failure by any of the issuers or any of their restricted subsidiaries to pay at the final maturity thereof the principal amount of other indebtedness having a principal amount of $100 million or more (or any other default under any such indebtedness resulting in its acceleration) would result in an event of default under the indenture governing the applicable notes. As a result, an event of default related to the failure to repay principal at maturity or the acceleration of the indebtedness under the Charter Holdings notes, CIH notes, CCH I notes, CCH II notes, CCO Holdings notes, Charter Operating notes or the Charter Operating credit facilities could cause cross-defaults under our or our parent companies’ indentures.
Recently Issued Accounting Standards
In December 2007, the FASB issued SFAS No. 141R, Business Combinations: Applying the Acquisition Method, which provides guidance on the accounting and reporting for business combinations. SFAS No. 141R is effective for fiscal years beginning after December 15, 2008. We will adopt SFAS No. 141R effective January 1, 2009. We do not expect that the adoption of SFAS No. 141R will have a material impact on our financial statements.
In December 2007, the FASB issued SFAS No. 160, Consolidations, which provides guidance on the accounting and reporting for minority interests in consolidated financial statements. SFAS No. 160 requires losses to be allocated to non-controlling (minority) interests even when such amounts are deficits. As such, future losses will be allocated between Charter and the Charter Holdco non-controlling interest. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. We will adopt SFAS No. 160 effective January 1, 2009. We do not expect that the adoption of SFAS No. 160 will have a material impact on our financial statements.
In February 2008, the FASB issued FASB Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157, which deferred the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008 for nonfinancial assets and nonfinancial liabilities. We will apply SFAS No. 157 to nonfinancial assets and nonfinancial liabilities beginning January 1, 2009. We are in the process of assessing the impact of SFAS No. 157 on our financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133, which requires companies to disclose their objectives and strategies for using derivative instruments, whether or not designated as hedging instruments under SFAS No. 133. SFAS No. 161 is effective for interim periods and fiscal years beginning after November 15, 2008. We will adopt SFAS No. 161 effective January 1, 2009. We do not expect that the adoption of SFAS No. 161 will have a material impact on our financial statements.
In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets, which amends the factors to be considered in renewal or extension assumptions used to determine the useful life of a recognized intangible asset. FSP FAS 142-3 is effective for interim periods and fiscal years beginning after December 15, 2008. We will adopt FSP FAS 142-3 effective January 1, 2009. We do not expect that the adoption of FSP FAS 142-3 will have a material impact on our financial statements.
In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), which specifies that issuers of convertible debt instruments that may be settled in cash upon conversion should separately account for the liability and equity components in a manner reflecting their nonconvertible debt borrowing rate when interest costs are recognized in subsequent periods. FSP APB 14-1 is effective for interim periods and fiscal years beginning after December 15, 2008. We will adopt FSP APB 14-1 effective January 1, 2009. We do not expect that the adoption of FSP APB 14-1 will have a material impact on our financial statements.
We do not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on our accompanying financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
We are exposed to various market risks, including fluctuations in interest rates. We use interest rate swap agreements to manage our interest costs and reduce our exposure to increases in floating interest rates. Our policy is to manage our exposure to fluctuations in interest rates by maintaining a mix of fixed and variable rate debt within a targeted range. Using interest rate swap agreements, we agree to exchange, at specified intervals through 2013, the difference between fixed and variable interest amounts calculated by reference to agreed-upon notional principal amounts. At the banks’ option, certain interest rate swap agreements may be extended through 2014.
As of December 31, 2008 and 2007, our total debt was approximately $11.8 billion and $9.9 billion, respectively. As of December 31, 2008 and 2007, the weighted average interest rate on the credit facility debt was approximately 5.5% and 6.8%, respectively, and the weighted average interest rate on the high-yield notes was approximately 8.8% and 8.2%, respectively, resulting in a blended weighted average interest rate of 6.4% and 7.3%, respectively. The
interest rate on approximately 64% and 68% of the total principal amount of our debt was effectively fixed, including the effects of our interest rate hedge agreements, as of December 31, 2008 and 2007, respectively.
We do not hold or issue derivative instruments for trading purposes. We do, however, have certain interest rate derivative instruments that have been designated as cash flow hedging instruments. Such instruments effectively convert variable interest payments on certain debt instruments into fixed payments. For qualifying hedges, SFAS No. 133 allows derivative gains and losses to offset related results on hedged items in the consolidated statement of operations. We have formally documented, designated and assessed the effectiveness of transactions that receive hedge accounting. For the years ended December 31, 2008 and 2007, there was no cash flow hedge ineffectiveness on interest rate hedge agreements. This ineffectiveness arises from differences between critical terms of the agreements and the related hedged obligations.
Changes in the fair value of interest rate agreements that are designated as hedging instruments of the variability of cash flows associated with floating-rate debt obligations, and that meet the effectiveness criteria of SFAS No. 133 are reported in accumulated other comprehensive loss. For the years ended December 31, 2008 and 2007, losses of $180 million and $123 million, respectively, related to derivative instruments designated as cash flow hedges, were recorded in accumulated other comprehensive loss. The amounts are subsequently reclassified as an increase or decrease to interest expense in the same periods in which the related interest on the floating-rate debt obligations affects earnings (losses).
Certain interest rate derivative instruments are not designated as hedges as they do not meet the effectiveness criteria specified by SFAS No. 133. However, management believes such instruments are closely correlated with the respective debt, thus managing associated risk. Interest rate derivative instruments not designated as hedges are marked to fair value, with the impact recorded as a change in value of derivatives in our statements of operations. For the years ended December 31, 2008 and 2007, change in value of derivatives includes losses of $62 million and $46 million, respectively, resulting from interest rate derivative instruments not designated as hedges.
The table set forth below summarizes the fair values and contract terms of financial instruments subject to interest rate risk maintained by us as of December 31, 2008 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | Fair Value at December 31, 2008 | |
Debt | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed Rate | | $ | -- | | | $ | -- | | | $ | -- | | | $ | 1,100 | | | $ | 800 | | | $ | 1,316 | | | $ | 3,216 | | | $ | 2,428 | |
Average Interest Rate | | | -- | | | | -- | | | | -- | | | | 8.00 | % | | | 8.75 | % | | | 9.41 | % | | | 8.76 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Variable Rate | | $ | 70 | | | $ | 70 | | | $ | 70 | | | $ | 70 | | | $ | 1,385 | | | $ | 6,931 | | | $ | 8,596 | | | $ | 6,187 | |
Average Interest Rate | | | 4.20 | % | | | 3.52 | % | | | 4.59 | % | | | 4.87 | % | | | 4.76 | % | | | 4.87 | % | | | 4.83 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest Rate Instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Variable to Fixed Swaps | | $ | -- | | | $ | 500 | | | $ | 300 | | | $ | 2,500 | | | $ | 1,000 | | | $ | -- | | | $ | 4,300 | | | $ | (411 | ) |
Average Pay Rate | | | -- | | | | 6.99 | % | | | 7.16 | % | | | 7.13 | % | | | 7.12 | % | | | -- | | | | 7.11 | % | | | | |
Average Receive Rate | | | -- | | | | 2.82 | % | | | 3.41 | % | | | 4.86 | % | | | 4.86 | % | | | -- | | | | 4.52 | % | | | | |
The notional amounts of interest rate instruments do not represent amounts exchanged by the parties and, thus, are not a measure of our exposure to credit loss. The amounts exchanged are determined by reference to the notional amount and the other terms of the contracts. The estimated fair value approximates the costs (proceeds) to settle the outstanding contracts adjusted for Charter Operating’s credit risk. Interest rates on variable debt are estimated using the average implied forward LIBOR for the year of maturity based on the yield curve in effect at December 31, 2008 including applicable bank spread.
At December 31, 2008 and 2007, we had outstanding $4.3 billion and $4.3 billion, respectively, in notional amounts of interest rate swaps. The notional amounts of interest rate instruments do not represent amounts exchanged by the parties and, thus, are not a measure of exposure to credit loss. The amounts exchanged are determined by reference to the notional amount and the other terms of the contracts.
Our consolidated financial statements, the related notes thereto, and the reports of independent accountants are included in this annual report beginning on page F-1.
None.
Item 9A. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
As of the end of the period covered by this report, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures with respect to the information generated for use in this annual report. The evaluation was based in part upon reports and certifications provided by a number of executives. Based upon, and as of the date of that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to provide reasonable assurances that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon the above evaluation, we believe that our controls provide such reasonable assurances.
There was no change in our internal control over financial reporting during the fourth quarter of 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
The following information under “Management’s Report on Internal Control Over Financial Reporting” is not filed but is furnished pursuant to Reg S-K Item 308T, "Internal Control Over Financial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers and Newly Public Companies."
Charter’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control system was designed to provide reasonable assurance to Charter’s management and board of directors regarding the preparation and fair presentation of published financial statements.
Charter’s management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control — Integrated Framework. Based on management’s assessment utilizing these criteria we believe that, as of December 31, 2008, our internal control over financial reporting was effective.
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.
Item 9B. Other Information.
None.
PART III
Charter’s Audit Committee appoints, retains, compensates and oversees the independent registered public accounting firm (subject, if applicable, to board of director and/or stockholder ratification), and approves in advance all fees and terms for the audit engagement and non-audit engagements where non-audit services are not prohibited by Section 10A of the Securities Exchange Act of 1934, as amended with respect to independent registered public accounting firms. Pre-approvals of non-audit services are sometimes delegated to a single member of the Charter’s Audit Committee. However, any pre-approvals made by Charter’s Audit Committee’s designee are presented at the Charter’s Audit Committee’s next regularly scheduled meeting. Charter’s Audit Committee has an obligation to consult with management on these matters. Charter’s Audit Committee approved 100% of the KPMG fees for the years ended December 31, 2008 and 2007. Each year, including 2008, with respect to the proposed audit engagement, Charter’s Audit Committee reviews the proposed risk assessment process in establishing the scope of examination and the reports to be rendered.
In its capacity as a committee of Charter’s Board, Charter’s Audit Committee oversees the work of the independent registered public accounting firm (including resolution of disagreements between management and the public accounting firm regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services. The independent registered public accounting firm reports directly to Charter’s Audit Committee. In performing its functions, Charter’s Audit Committee undertakes those tasks and responsibilities that, in its judgment, most effectively contribute to and implement the purposes of Charter’s Audit Committee charter. For more detail of Charter’s Audit Committee’s authority and responsibilities, see the Charter’s Audit Committee charter on Charter’s website, www.charter.com.
Audit Fees
During the years ended December 31, 2008 and 2007, Charter incurred fees and related expenses for professional services rendered by KPMG for the audits of Charter and its subsidiaries’ financial statements (including one subsidiary in 2008 and three subsidiaries in 2007 that are also public registrants), for the review of Charter and its subsidiaries’ interim financial statements and two offering memorandums in each of 2008 and 2007 totaling approximately $3.9 million and $4.2 million, respectively.
Audit-Related Fees
Charter incurred audit-related fees to KPMG of approximately $0.1 million and $0.02 million during the years ended December 31, 2008 and 2007, respectively. These services were primarily related to certain agreed-upon procedures.
Tax Fees
None.
All Other Fees
None.
PART IV
(a) | The following documents are filed as part of this annual report: |
A listing of the financial statements, notes and reports of independent public accountants required by Item 8 begins on page F-1 of this annual report.
| (2) | Financial Statement Schedules. |
No financial statement schedules are required to be filed by Items 8 and 15(d) because they are not required or are not applicable, or the required information is set forth in the applicable financial statements or notes thereto.
| (3) | The index to the exhibits begins on page E-1 of this annual report. |
We agree to furnish to the SEC, upon request, copies of any long-term debt instruments that authorize an amount of securities constituting 10% or less of the total assets of Charter Holdings and its subsidiaries on a consolidated basis.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, CCO Holdings, LLC and CCO Holdings Capital Corp. Have duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | CCO HOLDINGS, LLC |
| | Registrant |
| | By: CHARTER COMMUNICATIONS, INC., Sole Manager |
| | By: | | |
| | | | Neil Smit |
| | | | President and Chief Executive Officer |
Date: March 31, 2009 | | | | |
| | CCO HOLDINGS CAPITAL CORP. |
| | Registrant |
| | By: | | |
| | | | Neil Smit |
| | | | President and Chief Executive Officer |
Date: March 31, 2009 | | | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Charter Communications, Inc., the sole manager of the Registrant, and in the capacities and on the dates indicated.
| | | | | |
| | | | | |
| | | Chairman of the Board of Directors | | March 31, 2009 |
| Paul G. Allen | | | | |
| | | | | |
| | | President, Chief Executive | | March 31, 2009 |
| Neil Smit | | Officer, Director (Principal Executive Officer) | | |
| | | CCO Holdings Capital Corp. | | |
| | | | | |
| /s/ Eloise E. Schmitz | | Chief Financial Officer | | March 31, 2009 |
| Eloise E. Schmitz | | (Principal Financial Officer) | | |
| | | | | |
| /s/ Kevin D. Howard | | Vice President, Controller and Chief Accounting Officer | | March 31, 2009 |
| Kevin D. Howard | | (Principal Accounting Officer) | | |
| | | | | |
| /s/ W. Lance Conn | | Director, Charter Communications, Inc. | | March 27, 2009 |
| W. Lance Conn | | | | |
| | | | | |
| /s/ Rajive Johri | | Director, Charter Communications, Inc. | | March 13, 2009 |
| Rajive Johri | | | | |
| | | | | |
| | | Director, Charter Communications, Inc. | | March 31, 2009 |
| Robert P. May | | | | |
| | | | | |
| | | Director, Charter Communications, Inc. | | March 31, 2009 |
| David C. Merritt | | | | |
| | | | | |
| | | Director, Charter Communications, Inc. | | March 31, 2009 |
| Jo Allen Patton | | | | |
| | | | | |
| | | Director, Charter Communications, Inc. | | March 31, 2009 |
| John H. Tory | | | | |
| | | | | |
| /s/ Larry W. Wangberg | | Director, Charter Communications, Inc. | | March 31, 2009 |
| Larry W. Wangberg | | | | |
Exhibits are listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation S-K).
Exhibit | Description |
| |
3.1(a) | Certificate of Formation of CCO Holdings, LLC (incorporated by reference to Exhibit 3.1 to the registration statement on Form S-4 of CCO Holdings, LLC and CCO Holdings Capital Corporation filed on February 6, 2004 (File No. 333-112593)). |
3.1(b) | Certificate of Correction of Certificate of Formation of CCO Holdings, LLC (incorporated by reference to Exhibit 3.2 to the registration statement on Form S-4 of CCO Holdings, LLC and CCO Holdings Capital Corporation filed on February 6, 2004 (File No. 333-112593)). |
3.2 | Amended and Restated Limited Liability Company Agreement of CCO Holdings, LLC, dated as of June 19, 2003 (incorporated by reference to Exhibit 3.3 to the registration statement on Form S-4 of CCO Holdings, LLC and CCO Holdings Capital Corporation filed on February 6, 2004 (File No. 333-112593)). |
3.3(a) | Certificate of Incorporation of CCO Holdings Capital Corp. (originally named CC Holdco I Capital Corp.) (incorporated by reference to Exhibit 3.4 to the registration statement on Form S-4 of CCO Holdings, LLC and CCO Holdings Capital Corporation filed on February 6, 2004 (File No. 333-112593)). |
3.3(b) | Certificate of Amendment of Certificate of Incorporation of CCO Holdings Capital Corp. (incorporated by reference to Exhibit 3.5 to the registration statement on Form S-4 of CCO Holdings, LLC and CCO Holdings Capital Corporation filed on February 6, 2004 (File No. 333-112593)). |
3.4 | Certificate of Formation of CCO Holdings, LLC (incorporated by reference to Exhibit 3.1 to the registration statement on Form S-4 of CCO Holdings, LLC and CCO Holdings Capital Corporation filed on February 6, 2004 (File No. 333-112593)). |
| Certain long-term debt instruments, none of which relates to authorized indebtedness that exceeds 10% of the consolidated assets of the Registrants have not been filed as exhibits to this Form 10-K. The Registrants agree to furnish to the Commission upon its request a copy of any instrument defining the rights of holders of long- term debt of the Company and its consolidated subsidiaries. |
4.1(a) | Indenture relating to the 9.920% Senior Discount Notes due 2011, dated as of March 17, 1999, among Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and Harris Trust and Savings Bank (incorporated by reference to Exhibit 4.3(a) to Amendment No. 2 to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on June 22, 1999 (File No. 333-77499)). |
4.1(b) | First Supplemental Indenture relating to the 9.920% Senior Discount Notes due 2011, dated as of September 28, 2005, among Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee (incorporated by reference to Exhibit 10.4 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
4.2(a) | Indenture relating to the 10.00% Senior Notes due 2009, dated as of January 12, 2000, between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and Harris Trust and Savings Bank (incorporated by reference to Exhibit 4.1(a) to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on January 25, 2000 (File No. 333-95351)). |
4.2(b) | First Supplemental Indenture relating to the 10.00% Senior Notes due 2009, dated as of September 28, 2005, between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee (incorporated by reference to Exhibit 10.5 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
4.3(a) | Indenture relating to the 10.25% Senior Notes due 2010, dated as of January 12, 2000, among Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and Harris Trust and Savings Bank (incorporated by reference to Exhibit 4.2(a) to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on January 25, 2000 (File No. 333-95351)). |
4.3(b) | First Supplemental Indenture relating to the 10.25% Senior Notes due 2010, dated as of September 28, 2005, among Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee (incorporated by reference to Exhibit 10.6 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
4.4(a) | Indenture relating to the 11.75% Senior Discount Notes due 2010, dated as of January 12, 2000, among Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and Harris Trust and Savings Bank (incorporated by reference to Exhibit 4.3(a) to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on January 25, 2000 (File No. 333-95351)). |
4.4(b) | First Supplemental Indenture relating to the 11.75% Senior Discount Notes due 2010, among Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee, dated as of September 28, 2005 (incorporated by reference to Exhibit 10.7 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
4.5(a) | Indenture dated as of January 10, 2001 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 10.750% senior notes due 2009 (incorporated by reference to Exhibit 4.2(a) to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on February 2, 2001 (File No. 333-54902)). |
4.5(b) | First Supplemental Indenture dated as of September 28, 2005 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 10.750% Senior Notes due 2009 (incorporated by reference to Exhibit 10.8 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
4.6(a) | Indenture dated as of January 10, 2001 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 11.125% senior notes due 2011 (incorporated by reference to Exhibit 4.2(b) to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on February 2, 2001 (File No. 333-54902)). |
4.6(b) | First Supplemental Indenture dated as of September 28, 2005, between Charter Communications Holdings, LLC, Charter Communications Capital Corporation and BNY Midwest Trust Company governing 11.125% Senior Notes due 2011 (incorporated by reference to Exhibit 10.9 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
4.7(a) | Indenture dated as of January 10, 2001 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 13.500% senior discount notes due 2011 (incorporated by reference to Exhibit 4.2(c) to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on February 2, 2001 (File No. 333-54902)). |
4.7(b) | First Supplemental Indenture dated as of September 28, 2005, between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 13.500% Senior Discount Notes due 2011 (incorporated by reference to Exhibit 10.10 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
4.8(a) | Indenture dated as of May 15, 2001 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 9.625% Senior Notes due 2009 (incorporated by reference to Exhibit 10.2(a) to the current report on Form 8-K filed by Charter Communications, Inc. on June 1, 2001 (File No. 000-27927)). |
4.8(b) | First Supplemental Indenture dated as of January 14, 2002 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 9.625% Senior Notes due 2009 (incorporated by reference to Exhibit 10.2(a) to the current report on Form 8-K filed by Charter Communications, Inc. on January 15, 2002 (File No. 000-27927)). |
4.8(c) | Second Supplemental Indenture dated as of June 25, 2002 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 9.625% Senior Notes due 2009 (incorporated by reference to Exhibit 4.1 to the quarterly report on Form 10-Q filed by Charter Communications, Inc. on August 6, 2002 (File No. 000-27927)). |
4.8(d) | Third Supplemental Indenture dated as of September 28, 2005 between Charter Communications Holdings, LLC, Charter Communications Capital Corporation and BNY Midwest Trust Company as Trustee governing 9.625% Senior Notes due 2009 (incorporated by reference to Exhibit 10.11 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
4.9(a) | Indenture dated as of May 15, 2001 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 10.000% Senior Notes due 2011 (incorporated by reference to Exhibit 10.3(a) to the current report on Form 8-K filed by Charter Communications, Inc. on June 1, 2001 (File No. 000-27927)). |
4.9(b) | First Supplemental Indenture dated as of January 14, 2002 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 10.000% Senior Notes due 2011 (incorporated by reference to Exhibit 10.3(a) to the current report on Form 8-K filed by Charter Communications, Inc. on January 15, 2002 (File No. 000-27927)). |
4.9(c) | Second Supplemental Indenture dated as of June 25, 2002 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 10.000% Senior Notes due 2011 (incorporated by reference to Exhibit 4.2 to the quarterly report on Form 10-Q filed by Charter Communications, Inc. on August 6, 2002 (File No. 000-27927)). |
4.9(d) | Third Supplemental Indenture dated as of September 28, 2005 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing the 10.000% Senior Notes due 2011 (incorporated by reference to Exhibit 10.12 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
4.10(a) | Indenture dated as of May 15, 2001 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 11.750% Senior Discount Notes due 2011 (incorporated by reference to Exhibit 10.4(a) to the current report on Form 8-K filed by Charter Communications, Inc. on June 1, 2001 (File No. 000-27927)). |
4.10(b) | First Supplemental Indenture dated as of September 28, 2005 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 11.750% Senior Discount Notes due 2011 (incorporated by reference to Exhibit 10.13 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
4.11(a) | Indenture dated as of January 14, 2002 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 12.125% Senior Discount Notes due 2012 (incorporated by reference to Exhibit 10.4(a) to the current report on Form 8-K filed by Charter Communications, Inc. on January 15, 2002 (File No. 000-27927)). |
4.11(b) | First Supplemental Indenture dated as of June 25, 2002 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 12.125% Senior Discount Notes due 2012 (incorporated by reference to Exhibit 4.3 to the quarterly report on Form 10-Q filed by Charter Communications, Inc. on August 6, 2002 (File No. 000-27927)). |
4.11(c) | Second Supplemental Indenture dated as of September 28, 2005 between Charter Communications Holdings, LLC, Charter Communications Holdings Capital Corporation and BNY Midwest Trust Company as Trustee governing 12.125% Senior Discount Notes due 2012 (incorporated by reference to Exhibit 10.14 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
10.1 | Form of Restructuring Agreement (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K of Charter Communications, Inc. filed on February 13, 2009 (File No. 000-27927)). |
10.2 | Form of Commitment Letter (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K of Charter Communications, Inc. filed on February 13, 2009 (File No. 000-27927)). |
10.3 | Term Sheet (incorporated by reference to Exhibit 10.3 to the current report on Form 8-K of Charter Communications, Inc. filed on February 13, 2009 (File No. 000-27927)). |
10.4 | Restructuring Agreement, dated as of February 11, 2009, by and among Paul G. Allen, Charter Investment, Inc. and Charter Communications, Inc. (incorporated by reference to Exhibit 10.4 to the current report on Form 8-K of Charter Communications, Inc. filed on February 13, 2009 (File No. 000-27927)). |
10.5 | Indenture dated as of September 28, 2005 among CCH I Holdings, LLC and CCH I Holdings Capital Corp., as Issuers and Charter Communications Holdings, LLC, as Parent Guarantor, and The Bank of New York Trust Company, NA, as Trustee, governing: 11.125% Senior Accreting Notes due 2014, 9.920% Senior Accreting Notes due 2014, 10.000% Senior Accreting Notes due 2014, 11.75% Senior Accreting Notes due 2014, 13.50% Senior Accreting Notes due 2014, 12.125% Senior Accreting Notes due 2015 (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
10.6(a) | Indenture dated as of September 28, 2005 among CCH I, LLC and CCH I Capital Corp., as Issuers, Charter Communications Holdings, LLC, as Parent Guarantor, and The Bank of New York Trust Company, NA, as Trustee, governing 11.00% Senior Secured Notes due 2015 (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
10.6(b) | First Supplemental Indenture relating to the 11.00% Senior Secured Notes due 2015, dated as of September 14, 2006, by and between CCH I, LLC, CCH I Capital Corp. as Issuers, Charter Communications Holdings, LLC as Parent Guarantor and The Bank of New York Trust Company, N.A. as trustee (incorporated by reference to Exhibit 10.4 to the current report on Form 8-K of Charter Communications, Inc. on September 19, 2006 (File No. 000-27927)). |
10.7 | Indenture relating to the 10.25% Senior Notes due 2010, dated as of September 23, 2003, among CCH II, LLC, CCH II Capital Corporation and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K of Charter Communications Inc. filed on September 26, 2003 (File No. 000-27927)). |
10.8 | Indenture relating to the 10.25% Senior Notes due 2013, dated as of September 14, 2006, by and between CCH II, LLC, CCH II Capital Corp. as Issuers, Charter Communications Holdings, LLC as Parent Guarantor and The Bank of New York Trust Company, N.A. as trustee (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K of Charter Communications, Inc. on September 19, 2006 (File No. 000-027927)). |
10.9 | First Supplemental Indenture relating to the 10.25% Senior Notes due 2013, dated as of July 2, 2008, by and between CCH II, LLC, CCH II Capital Corporation, as Issuers, Charter Communications Holdings, LLC as Parent Guarantor and The Bank of New York Mellon Trust Company, N.A. as trustee (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K of Charter Communications, Inc. on July 3, 2008 (File No. 000-027927)). |
10.10 | Exchange and Registration Rights Agreement relating to the issuance of the 10.25% Senior Notes due 2013, dated as of July 2, 2008, by and between CCH II, LLC, CCH II Capital Corporation, Charter Communications Holdings, LLC, Banc of America Securities LLC and Citigroup Global Markets, Inc. (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K of Charter Communications, Inc. on July 3, 2008 (File No. 000-027927)). |
10.11 | Indenture relating to the 8 3/4% Senior Notes due 2013, dated as of November 10, 2003, by and among CCO Holdings, LLC, CCO Holdings Capital Corp. and Wells Fargo Bank, N.A., as trustee (incorporated by reference to Exhibit 4.1 to Charter Communications, Inc.'s current report on Form 8-K filed on November 12, 2003 (File No. 000-27927)). |
10.12 | Indenture relating to the 8% senior second lien notes due 2012 and 8 3/8% senior second lien notes due 2014, dated as of April 27, 2004, by and among Charter Communications Operating, LLC, Charter Communications Operating Capital Corp. and Wells Fargo Bank, N.A. as trustee (incorporated by reference to Exhibit 10.32 to Amendment No. 2 to the registration statement on Form S-4 of CCH II, LLC filed on May 5, 2004 (File No. 333-111423)). |
10.13 | Indenture relating to the 10.875% senior second lien notes due 2014 dated as of March 19, 2008, by and among Charter Communications Operating, LLC, Charter Communications Operating Capital Corp. and Wilmington Trust Company, trustee (incorporated by reference to Exhibit 10.1 to the quarterly report filed on Form 10-Q of Charter Communications, Inc. filed on May 12, 2008 (File No. 000-027927)). |
10.14 | Collateral Agreement, dated as of March 19, 2008 by and among Charter Communications Operating, LLC, Charter Communications Operating Capital Corp., CCO Holdings, LLC and certain of its subsidiaries in favor of Wilmington Trust Company, as trustee (incorporated by reference to Exhibit 10.2 to the quarterly report filed on Form 10-Q of Charter Communications, Inc. filed on May 12, 2008 (File No. 000-027927)). |
10.15(a) | Pledge Agreement made by CCH I, LLC in favor of The Bank of New York Trust Company, NA, as Collateral Agent dated as of September 28, 2005 (incorporated by reference to Exhibit 10.15 to the current report on Form 8-K of Charter Communications, Inc. filed on October 4, 2005 (File No. 000-27927)). |
10.15(b) | Amendment to the Pledge Agreement between CCH I, LLC in favor of The Bank of New York Trust Company, N.A., as Collateral Agent, dated as of September 14, 2006 (incorporated by reference to Exhibit 10.3 to the current report on Form 8-K of Charter Communications, Inc. on September 19, 2006 (File No. 000-27927)). |
10.16 | Consulting Agreement, dated as of March 10, 1999, by and between Vulcan Northwest Inc., Charter Communications, Inc. (now called Charter Investment, Inc.) and Charter Communications Holdings, LLC (incorporated by reference to Exhibit 10.3 to Amendment No. 4 to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on July 22, 1999 (File No. 333-77499)). |
10.17 | Second Amended and Restated Mutual Services Agreement, dated as of June 19, 2003 between Charter Communications, Inc. and Charter Communications Holding Company, LLC (incorporated by reference to Exhibit 10.5(a) to the quarterly report on Form 10-Q filed by Charter Communications, Inc. on August 5, 2003 (File No. 000-27927)). |
10.18 | Third Amended and Restated Limited Liability Company Agreement for CC VIII, LLC, dated as of October 31, 2005 (incorporated by reference to Exhibit 10.20 to the quarterly report on Form 10-Q filed by Charter Communications, Inc. on November 2, 2005 (File No. 000-27927)). |
10.19(a) | Amended and Restated Limited Liability Company Agreement of Charter Communications Operating, LLC, dated as of June 19, 2003 (incorporated by reference to Exhibit No. 10.2 to the quarterly report on Form 10-Q filed by Charter Communications, Inc. on August 5, 2003 (File No. 000-27927)). |
10.19(b) | First Amendment to the Amended and Restated Limited Liability Company Agreement of Charter Communications Operating, LLC, adopted as of June 22, 2004 (incorporated by reference to Exhibit 10.16(b) to the annual report on Form 10-K filed by Charter Communications, Inc. on February 28, 2006 (File No. 000-27927)). |
10.20 | Amended and Restated Management Agreement, dated as of June 19, 2003, between Charter Communications Operating, LLC and Charter Communications, Inc. (incorporated by reference to Exhibit 10.4 to the quarterly report on Form 10-Q filed by Charter Communications, Inc. on August 5, 2003 (File No. 333-83887)). |
10.21(a) | Stipulation of Settlement, dated as of January 24, 2005, regarding settlement of Consolidated Federal Class Action entitled in Re Charter Communications, Inc. Securities Litigation. (incorporated by reference to Exhibit 10.48 to the Annual Report on Form 10-K filed by Charter Communications, Inc. on March 3, 2005 (File No. 000-27927)). |
10.21(b) | Amendment to Stipulation of Settlement, dated as of May 23, 2005, regarding settlement of Consolidated Federal Class Action entitled In Re Charter Communications, Inc. Securities Litigation (incorporated by reference to Exhibit 10.35(b) to Amendment No. 3 to the registration statement on Form S-1 filed by Charter Communications, Inc. on June 8, 2005 (File No. 333-121186)). |
10.22 | Settlement Agreement and Mutual Release, dated as of February 1, 2005, by and among Charter Communications, Inc. and certain other insureds, on the other hand, and Certain Underwriters at Lloyd's of London and certain subscribers, on the other hand. (incorporated by reference to Exhibit 10.49 to the annual report on Form 10-K filed by Charter Communications, Inc. on March 3, 2005 (File No. 000-27927)). |
10.23 | Stipulation of Settlement, dated as of January 24, 2005, regarding settlement of Federal Derivative Action, Arthur J. Cohn v. Ronald L. Nelson et al and Charter Communications, Inc. (incorporated by reference to Exhibit 10.50 to the annual report on Form 10-K filed by Charter Communications, Inc. on March 3, 2005 (File No. 000-27927)). |
10.24 | Settlement Agreement and Mutual Releases, dated as of October 31, 2005, by and among Charter Communications, Inc., Special Committee of the Board of Directors of Charter Communications, Inc., Charter Communications Holding Company, LLC, CCHC, LLC, CC VIII, LLC, CC V, LLC, Charter Investment, Inc., Vulcan Cable III, LLC and Paul G. Allen (incorporated by reference to Exhibit 10.17 to the quarterly report on Form 10-Q of Charter Communications, Inc. filed on November 2, 2005 (File No. 000-27927)). |
10.25 | Exchange Agreement, dated as of October 31, 2005, by and among Charter Communications Holding Company, LLC, Charter Investment, Inc. and Paul G. Allen (incorporated by reference to Exhibit 10.18 to the quarterly report on Form 10-Q of Charter Communications, Inc. filed on November 2, 2005 (File No. 000-27927)). |
10.26 | CCHC, LLC Subordinated and Accreting Note, dated as of October 31, 2005 (revised) (incorporated by reference to Exhibit 10.3 to the current report on Form 8-K of Charter Communications, Inc. filed on November 4, 2005 (File No. 000-27927)). |
10.27 | Amended and Restated Credit Agreement, dated as of March 6, 2007, among Charter Communications Operating, LLC, CCO Holdings, LLC, the lenders from time to time parties thereto and JPMorgan Chase Bank, N.A., as administrative agent (Incorporated by reference to Exhibit 10.1 to the current report on Form 8-K of Charter Communications, Inc. filed on March 9, 2007 (File No. 000-27927)). |
10.28 | Amended and Restated Guarantee and Collateral Agreement made by CCO Holdings, LLC, Charter Communications Operating, LLC and certain of its subsidiaries in favor of JPMorgan Chase Bank, N.A. ,as administrative agent, dated as of March 18, 1999, as amended and restated as of March 6, 2007 (Incorporated by reference to Exhibit 10.2 to the current report on Form 8-K of Charter Communications, Inc. filed on March 9, 2007 (File No. 000-27927)). |
10.29 | Credit Agreement, dated as of March 6, 2007, among CCO Holdings, LLC, the lenders from time to time parties thereto and Bank of America, N.A., as administrative agent (Incorporated by reference to Exhibit 10.3 to the current report on Form 8-K of Charter Communications, Inc. filed on March 9, 2007 (File No. 000-27927)). |
10.30 | Pledge Agreement made by CCO Holdings, LLC in favor of Bank of America, N.A., as Collateral Agent, dated as of March 6, 2007 (Incorporated by reference to Exhibit 10.4 to the current report on Form 8-K of Charter Communications, Inc. filed on March 9, 2007 (File No. 000-27927)). |
10.31(a)+ | Charter Communications Holdings, LLC 1999 Option Plan (incorporated by reference to Exhibit 10.4 to Amendment No. 4 to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on July 22, 1999 (File No. 333-77499)). |
10.31(b)+ | Assumption Agreement regarding Option Plan, dated as of May 25, 1999, by and between Charter Communications Holdings, LLC and Charter Communications Holding Company, LLC (incorporated by reference to Exhibit 10.13 to Amendment No. 6 to the registration statement on Form S-4 of Charter Communications Holdings, LLC and Charter Communications Holdings Capital Corporation filed on August 27, 1999 (File No. 333-77499)). |
10.31(c)+ | Form of Amendment No. 1 to the Charter Communications Holdings, LLC 1999 Option Plan (incorporated by reference to Exhibit 10.10(c) to Amendment No. 4 to the registration statement on Form S-1 of Charter Communications, Inc. filed on November 1, 1999 (File No. 333-83887)). |
10.31(d)+ | Amendment No. 2 to the Charter Communications Holdings, LLC 1999 Option Plan (incorporated by reference to Exhibit 10.4(c) to the annual report on Form 10-K filed by Charter Communications, Inc. on March 30, 2000 (File No. 000-27927)). |
10.31(e)+ | Amendment No. 3 to the Charter Communications 1999 Option Plan (incorporated by reference to Exhibit 10.14(e) to the annual report of Form 10-K of Charter Communications, Inc. filed on March 29, 2002 (File No. 000-27927)). |
10.31(f)+ | Amendment No. 4 to the Charter Communications 1999 Option Plan (incorporated by reference to Exhibit 10.10(f) to the annual report on Form 10-K of Charter Communications, Inc. filed on April 15, 2003 (File No. 000-27927)). |
10.32(a)+ | Charter Communications, Inc. 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.25 to the quarterly report on Form 10-Q filed by Charter Communications, Inc. on May 15, 2001 (File No. 000-27927)). |
10.32(b)+ | Amendment No. 1 to the Charter Communications, Inc. 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.11(b) to the annual report on Form 10-K of Charter Communications, Inc. filed on April 15, 2003 (File No. 000-27927)). |
10.32(c)+ | Amendment No. 2 to the Charter Communications, Inc. 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.10 to the quarterly report on Form 10-Q filed by Charter Communications, Inc. on November 14, 2001 (File No. 000-27927)). |
10.32(d)+ | Amendment No. 3 to the Charter Communications, Inc. 2001 Stock Incentive Plan effective January 2, 2002 (incorporated by reference to Exhibit 10.15(c) to the annual report of Form 10-K of Charter Communications, Inc. filed on March 29, 2002 (File No. 000-27927)). |
10.32(e)+ | Amendment No. 4 to the Charter Communications, Inc. 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.11(e) to the annual report on Form 10-K of Charter Communications, Inc. filed on April 15, 2003 (File No. 000-27927)). |
10.32(f)+ | Amendment No. 5 to the Charter Communications, Inc. 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.11(f) to the annual report on Form 10-K of Charter Communications, Inc. filed on April 15, 2003 (File No. 000-27927)). |
10.32(g)+ | Amendment No. 6 to the Charter Communications, Inc. 2001 Stock Incentive Plan effective December 23, 2004 (incorporated by reference to Exhibit 10.43(g) to the registration statement on Form S-1 of Charter Communications, Inc. filed on October 5, 2005 (File No. 333-128838)). |
10.32(h)+ | Amendment No. 7 to the Charter Communications, Inc. 2001 Stock Incentive Plan effective August 23, 2005 (incorporated by reference to Exhibit 10.43(h) to the registration statement on Form S-1 of Charter Communications, Inc. filed on October 5, 2005 (File No. 333-128838)). |
10.32(i)+ | Description of Long-Term Incentive Program to the Charter Communications, Inc. 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.18(g) to the annual report on Form 10-K filed by Charter Communications Holdings, LLC. on March 31, 2005 (File No. 333-77499)). |
10.33 | Description of 2008 Incentive Program to the Charter Communications, Inc. 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10,3 to the quarterly report on Form 10-Q filed by Charter Communications, Inc. on August 5, 2008 (File No. 000-27927)). |
10.34+ | Description of Charter Communications, Inc. 2006 Executive Bonus Plan (incorporated by reference to Exhibit 10.2 to the quarterly report on Form 10-Q filed by Charter Communications, Inc. on May 2, 2006 (File No. 000-27927)). |
10.35+ | Amended and Restated Executive Cash Award Plan (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K of Charter Communications, Inc. filed December 6, 2007 (File No. 000-27927)). |
10.36+ | Amended and Restated Employment Agreement, dated as of July 1, 2008, by and between Neil Smit and Charter Communications, Inc. (incorporated by reference to Exhibit 1010.1 to the current report on Form 8-K of Charter Communications, Inc. filed on September 30, 2008 (File No. 000-27927)). |
10.37(a)+ | Amended and Restated Employment Agreement between Jeffrey T. Fisher and Charter Communications, Inc., dated as of August 1, 2007 (incorporated by reference to Exhibit 10.2 to the quarterly report on Form 10-Q of Charter Communications, Inc. filed on August 2, 2007 (File No. 000-27927)). |
10.37(b)+ | Separation Agreement and Release between Jeffrey T. Fisher and Charter Communications, inc., dated as of April 4, 2008 (incorporated by reference to Exhibit 10.3 to the quarterly report on Form 10-Q of Charter Communications, Inc. filed on May 12, 2008 (File No. 000-27927)). |
| Amended and Restated Employment Agreement between Eloise E. Schmitz and Charter Communications, Inc., dated as of July 1, 2008 (incorporated by reference to Exhibit 10.4 to the quarterly report on Form 10-Q of Charter Communications, Inc. filed on August 5, 2008 (File No. 000-27927)). |
10.38(a)+ | Amended and Restated Employment Agreement between Michael J. Lovett and Charter Communications, Inc., dated as of August 1, 2007 (incorporated by reference to Exhibit 10.3 to the quarterly report on Form 10-Q of Charter Communications, Inc. filed on August 2, 2007 (File No. 000-27927)). |
10.38(b)+ | Amendment to the Amended and Restated Employment Agreement between Michael J. Lovett and Charter Communications, Inc., dated as of March 5, 2008 (incorporated by reference to Exhibit 10.5 to the quarterly report on Form 10-Q of Charter Communications, Inc., filed on May 12, 2008 (File No. 000-27927)). |
10.39(a)+ | Amended and Restated Employment Agreement between Grier C. Raclin and Charter Communications, Inc., dated as of August 1, 2007 (incorporated by reference to Exhibit 10.5 to the quarterly report on Form 10-Q of Charter Communications, Inc. filed on August 2, 2007 (File No. 000-27927)). |
10.39(b)+ | Amendment to the Amended and Restated Employment Agreement between Grier C. Raclin and Charter Communications, Inc., dated as of March 5, 2008 (incorporated by reference to Exhibit 10.6 to the quarterly report on Form 10-Q of Charter Communications, Inc. filed on May 12, 2008 (File No. 000-27927)). |
10.40(a)+ | Amended and Restated Employment Agreement between Marwan Fawaz and Charter Communications, Inc. dated August 1, 2007 (incorporated by reference to Exhibit 10.52(a) to the annual report on Form 10-K of Charter Communications, Inc. filed on March 16, 2009 (File No. 000-27927)). |
10.40(b)+ | Amendment to Amended and Restated Employment Agreement between Marwan Fawaz and Charter Communications, Inc. dated as of March 5, 2008 (incorporated by reference to Exhibit 10.52(b) to the annual report on Form 10-K of Charter Communications, Inc. filed on March 16, 2009 (File No. 000-27927)). |
12.1* | CCO Holdings, LLC’s Computation of Ratio of Earnings to Fixed Charges |
31.1* | Certificate of Chief Executive Officer of CCO Holdings, LLC pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of 1934. |
31.2* | Certificate of Chief Financial Officer of CCO Holdings, LLC pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of 1934. |
32.3* | Certification of CCO Holdings, LLC pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer). |
32.4* | Certification of CCO Holdings, LLC pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer). |
* | | Document attached. |
+ | | Management compensatory plan or arrangement |
INDEX TO FINANCIAL STATEMENTS
| | Page |
| | |
Audited Financial Statements | | |
Report of Independent Registered Public Accounting Firm | | F-2 |
Consolidated Balance Sheets as of December 31, 2008 and 2007 | | F-3 |
Consolidated Statements of Operations for the Years Ended December 31, 2008, 2007, and 2006 | | F-4 |
Consolidated Statements of Changes in Member’s Equity (Deficit) for the Years Ended December 31, 2008, 2007, and 2006 | | F-5 |
Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007, and 2006 | | F-6 |
Notes to Consolidated Financial Statements | | F-7 |
Report of Independent Registered Public Accounting Firm
The Manager and the Member of
CCO Holdings, LLC:
We have audited the accompanying consolidated balance sheets of CCO Holdings, LLC and subsidiaries (the Company) as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in member’s equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CCO Holdings, LLC and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that CCO Holdings, LLC will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, CCO Holdings, LLC’s ultimate parent, Charter Communications, Inc. and its subsidiaries, including CCO Holdings, LLC (collectively, Charter) have filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, primarily as a result of the following matters: (i) Charter’s significant indebtedness; (ii) Charter’s ability to raise additional capital given its current leverage; and (iii) the potential inability of certain of Charter’s subsidiaries to make distributions for payments of interest and principal on the debts of the parents of such subsidiaries due in 2009 based on the availability of funds and restrictions under Charter’s applicable debt instruments and under applicable law. These matters raise substantial doubt about CCO Holdings, LLC’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
St. Louis, Missouri
March 30, 2009
CCO HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
| | December 31, | |
| | 2008 | | | 2007 | |
| | | | | | |
ASSETS | | | | | | |
| | | | | | |
CURRENT ASSETS: | | | | | | |
Cash and cash equivalents | | $ | 948 | | | $ | 2 | |
Accounts receivable, less allowance for doubtful accounts of | | | | | | | | |
$18 and $18, respectively | | | 221 | | | | 220 | |
Prepaid expenses and other current assets | | | 23 | | | | 24 | |
Total current assets | | | 1,192 | | | | 246 | |
| | | | | | | | |
INVESTMENT IN CABLE PROPERTIES: | | | | | | | | |
Property, plant and equipment, net of accumulated | | | | | | | | |
depreciation of $7,191 and $6,432, respectively | | | 4,959 | | | | 5,072 | |
Franchises, net | | | 7,384 | | | | 8,942 | |
Total investment in cable properties, net | | | 12,343 | | | | 14,014 | |
| | | | | | | | |
OTHER NONCURRENT ASSETS | | | 211 | | | | 186 | |
| | | | | | | | |
Total assets | | $ | 13,746 | | | $ | 14,446 | |
| | | | | | | | |
LIABILITIES AND MEMBER’S EQUITY (DEFICIT) | | | | | | | | |
| | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | |
Accounts payable and accrued expenses | | $ | 909 | | | $ | 929 | |
Payables to related party | | | 236 | | | | 192 | |
Current portion of long-term debt | | | 70 | | | | -- | |
Total current liabilities | | | 1,215 | | | | 1,121 | |
| | | | | | | | |
LONG-TERM DEBT | | | 11,719 | | | | 9,859 | |
LOANS PAYABLE – RELATED PARTY | | | 240 | | | | 332 | |
DEFERRED MANAGEMENT FEES – RELATED PARTY | | | 14 | | | | 14 | |
OTHER LONG-TERM LIABILITIES | | | 695 | | | | 545 | |
MINORITY INTEREST | | | 676 | | | | 663 | |
| | | | | | | | |
Member’s equity (deficit) | | | (510 | ) | | | 2,035 | |
Accumulated other comprehensive loss | | | (303 | ) | | | (123 | ) |
| | | | | | | | |
Total member’s equity (deficit) | | | (813 | ) | | | 1,912 | |
| | | | | | | | |
Total liabilities and member’s equity (deficit) | | $ | 13,746 | | | $ | 14,446 | |
The accompanying notes are an integral part of these consolidated financial statements.
CCO HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions)
| | Year Ended December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | |
REVENUES | | $ | 6,479 | | | $ | 6,002 | | | $ | 5,504 | |
| | | | | | | | | | | | |
COSTS AND EXPENSES: | | | | | | | | | | | | |
Operating (excluding depreciation and amortization) | | | 2,792 | | | | 2,620 | | | | 2,438 | |
Selling, general and administrative | | | 1,401 | | | | 1,289 | | | | 1,165 | |
Depreciation and amortization | | | 1,310 | | | | 1,328 | | | | 1,354 | |
Impairment of franchises | | | 1,521 | | | | 178 | | | | -- | |
Asset impairment charges | | | -- | | | | 56 | | | | 159 | |
Other operating (income) expenses, net | | | 69 | | | | (17 | ) | | | 21 | |
| | | | | | | | | | | | |
| | | 7,093 | | | | 5,454 | | | | 5,137 | |
| | | | | | | | | | | | |
Operating income (loss) from continuing operations | | | (614 | ) | | | 548 | | | | 367 | |
| | | | | | | | | | | | |
OTHER INCOME AND EXPENSES: | | | | | | | | | | | | |
Interest expense, net | | | (818 | ) | | | (776 | ) | | | (766 | ) |
Change in value of derivatives | | | (62 | ) | | | (46 | ) | | | 6 | |
Loss on extinguishment of debt | | | -- | | | | (32 | ) | | | (27 | ) |
Other expense, net | | | (19 | ) | | | (24 | ) | | | (4 | ) |
| | | | | | | | | | | | |
| | | (899 | ) | | | (878 | ) | | | (791 | ) |
| | | | | | | | | | | | |
Loss from continuing operations, before income tax expense | | | (1,513 | ) | | | (330 | ) | | | (424 | ) |
| | | | | | | | | | | | |
INCOME TAX BENEFIT (EXPENSE) | | | 40 | | | | (20 | ) | | | (7 | ) |
| | | | | | | | | | | | |
Loss from continuing operations | | | (1,473 | ) | | | (350 | ) | | | (431 | ) |
| | | | | | | | | | | | |
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX | | | -- | | | | -- | | | | 238 | |
| | | | | | | | | | | | |
Net loss | | $ | (1,473 | ) | | $ | (350 | ) | | $ | (193 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
CCO HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER’S EQUITY (DEFICIT)
(dollars in millions)
| | | | | Accumulated | | | | |
| | | | | Other | | | Total | |
| | Member’s | | | Comprehensive | | | Member's | |
| | Equity (Deficit) | | | Income (Loss) | | | Equity (Deficit) | |
| | | | | | | | | |
BALANCE, December 31, 2005 | | $ | 5,042 | | | $ | 2 | | | $ | 5,044 | |
Contributions | | | 148 | | | | -- | | | | 148 | |
Distributions to parent company | | | (1,151 | ) | | | -- | | | | (1,151 | ) |
Changes in fair value of interest rate agreements | | | -- | | | | (1 | ) | | | (1 | ) |
Net loss | | | (193 | ) | | | -- | | | | (193 | ) |
| | | | | | | | | | | | |
BALANCE, December 31, 2006 | | | 3,846 | | | | 1 | | | | 3,847 | |
Distributions to parent company | | | (1,447 | ) | | | -- | | | | (1,447 | ) |
Changes in fair value of interest rate agreements | | | -- | | | | (123 | ) | | | (123 | ) |
Other | | | (14 | ) | | | (1 | ) | | | (15 | ) |
Net loss | | | (350 | ) | | | -- | | | | (350 | ) |
| | | | | | | | | | | | |
BALANCE, December 31, 2007 | | | 2,035 | | | | (123 | ) | | | 1,912 | |
Distributions to parent company | | | (1,072 | ) | | | -- | | | | (1,072 | ) |
Changes in fair value of interest rate agreements | | | -- | | | | (180 | ) | | | (180 | ) |
Net loss | | | (1,473 | ) | | | -- | | | | (1,473 | ) |
| | | | | | | | | | | | |
BALANCE, December 31, 2008 | | $ | (510 | ) | | $ | (303 | ) | | $ | (813 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
CCO HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
| | Year Ended December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | |
Net loss | | $ | (1,473 | ) | | $ | (350 | ) | | $ | (193 | ) |
Adjustments to reconcile net loss to net cash flows from operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 1,310 | | | | 1,328 | | | | 1,362 | |
Impairment of franchises | | | 1,521 | | | | 178 | | | | -- | |
Asset impairment charges | | | -- | | | | 56 | | | | 159 | |
Noncash interest expense | | | 22 | | | | 17 | | | | 23 | |
Change in value of derivatives | | | 62 | | | | 46 | | | | (6 | ) |
Deferred income taxes | | | (47 | ) | | | 12 | | | | -- | |
(Gain) loss on sale of assets, net | | | 13 | | | | (3 | ) | | | (192 | ) |
Loss on extinguishment of debt | | | -- | | | | 21 | | | | 27 | |
Other, net | | | 48 | | | | 20 | | | | 16 | |
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions: | | | | | | | | | | | | |
Accounts receivable | | | (1 | ) | | | (33 | ) | | | 23 | |
Prepaid expenses and other assets | | | -- | | | | (5 | ) | | | 1 | |
Accounts payable, accrued expenses and other | | | (21 | ) | | | 31 | | | | (23 | ) |
Receivables from and payables to related party, including deferred management fees | | | 33 | | | | 55 | | | | 41 | |
| | | | | | | | | | | | |
Net cash flows from operating activities | | | 1,467 | | | | 1,373 | | | | 1,238 | |
| | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
Purchases of property, plant and equipment | | | (1,202 | ) | | | (1,244 | ) | | | (1,103 | ) |
Change in accrued expenses related to capital expenditures | | | (39 | ) | | | (2 | ) | | | 24 | |
Proceeds from sale of assets, including cable systems | | | 43 | | | | 104 | | | | 1,020 | |
Other, net | | | (12 | ) | | | (31 | ) | | | (6 | ) |
| | | | | | | | | | | | |
Net cash flows from investing activities | | | (1,210 | ) | | | (1,173 | ) | | | (65 | ) |
| | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
Borrowings of long-term debt | | | 3,105 | | | | 7,877 | | | | 6,322 | |
Borrowings from related parties | | | -- | | | | -- | | | | 300 | |
Repayments of long-term debt | | | (1,179 | ) | | | (6,628 | ) | | | (6,729 | ) |
Repayments to related parties | | | (115 | ) | | | -- | | | | (20 | ) |
Payments for debt issuance costs | | | (38 | ) | | | (33 | ) | | | (18 | ) |
Contributions | | | -- | | | | -- | | | | 148 | |
Distributions | | | (1,072 | ) | | | (1,447 | ) | | | (1,151 | ) |
Other, net | | | (12 | ) | | | 5 | | | | -- | |
| | | | | | | | | | | | |
Net cash flows from financing activities | | | 689 | | | | (226 | ) | | | (1,148 | ) |
| | | | | | | | | | | | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | 946 | | | | (26 | ) | | | 25 | |
CASH AND CASH EQUIVALENTS, beginning of period | | | 2 | | | | 28 | | | | 3 | |
| | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS, end of period | | $ | 948 | | | $ | 2 | | | $ | 28 | |
| | | | | | | | | | | | |
CASH PAID FOR INTEREST | | $ | 774 | | | $ | 728 | | | $ | 718 | |
| | | | | | | | | | | | |
NONCASH TRANSACTIONS: | | | | | | | | | | | | |
Issuance of debt by Charter Communications Operating, LLC | | $ | -- | | | $ | -- | | | $ | 37 | |
Retirement of Renaissance Media Group LLC debt | | $ | -- | | | $ | -- | | | $ | (37 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
CHARTER COMMUNICATIONS, HOLDINGS, LLCINC. AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 2006 AND 20052006
(dollars in millions, except where indicated)
3. | Summary of Significant Accounting Policies
|
1. Organization and Basis of Presentation
Cash EquivalentsCCO Holdings, LLC (“CCO Holdings”) is a holding company whose principal assets at December 31, 2008 are the equity interests in its operating subsidiaries. CCO Holdings is a direct subsidiary of CCH II, LLC (“CCH II”), which is an indirect subsidiary of Charter Communications Holdings, LLC (“Charter Holdings”). Charter Holdings is an indirect subsidiary of Charter Communications, Inc. (“Charter”). The consolidated financial statements include the accounts of CCO Holdings and all of its subsidiaries where the underlying operations reside, which are collectively referred to herein as the "Company." All significant intercompany accounts and transactions among consolidated entities have been eliminated.
The Companies considerCompany is a broadband communications company operating in the United States. The Company offers to residential and commercial customers traditional cable video programming (basic and digital video), high-speed Internet services, and telephone services, as well as advanced broadband services such as high definition television, Charter OnDemand™, and digital video recorder (“DVR”) service. The Company sells its cable video programming, high-speed Internet, telephone, and advanced broadband services primarily on a subscription basis. The Company also sells local advertising on cable networks.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Areas involving significant judgments and estimates include capitalization of labor and overhead costs; depreciation and amortization costs; impairments of property, plant and equipment, franchises and goodwill; income taxes; and contingencies. Actual results could differ from those estimates.
Reclassifications. Certain prior year amounts have been reclassified to conform with the 2008 presentation.
2. Liquidity and Capital Resources
The Company’s consolidated financial statements have been prepared assuming that it will continue as a going concern. The conditions noted below raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
On February 12, 2009, Charter announced that it had reached agreements in principle with holders of certain of its subsidiaries’ senior notes (the “Noteholders”) holding approximately $4.1 billion in aggregate principal amount of notes issued by Charter’s subsidiaries, CCH I, LLC (“CCH I”) and CCH II, LLC (“CCH II”). Pursuant to separate restructuring agreements, dated February 11, 2009, entered into with each Noteholder (the “Restructuring Agreements”), on March 27, 2009, Charter and its subsidiaries, including CCO Holdings, filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code to implement a restructuring pursuant to a joint plan of reorganization (the “Plan”) aimed at improving their capital structure (the “Proposed Restructuring”). The filing of bankruptcy is an event of default under the Company’s indebtedness. Refer to discussion of subsequent events regarding the Proposed Restructuring in Note 25.
During the fourth quarter of 2008, Charter Operating drew down all except $27 million of amounts available under the revolving credit facility. During the first quarter of 2009, Charter Operating presented a qualifying draw notice to the banks under the revolving credit facility but was refused those funds. Additionally, upon filing bankruptcy, Charter Operating will no longer have access to the revolving credit facility and will rely on cash on hand and cash flows from operating activities to fund our projected cash needs. The Company’s and its parent companies’ projected cash needs and projected sources of liquidity depend upon, among other things, its actual results, the timing and amount of its expenditures, and the outcome of various matters in its Chapter 11 bankruptcy proceedings and financial restructuring. The outcome of the Proposed Restructuring is subject to substantial risks. See Note 25.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
The Company incurred net losses of $1.5 billion, $350 million, and $193 million in 2008, 2007, and 2006, respectively. The Company’s net cash flows from operating activities were $1.5 billion, $1.4 billion, and $1.2 billion for the years ending December 31, 2008, 2007, and 2006, respectively.
The Company's total debt as of December 31, 2008 was $11.8 billion, consisting of $8.6 billion of credit facility debt and $3.2 billion accreted value of high-yield notes. In each of 2009, 2010, and 2011, $70 million of the Company’s debt matures. In 2012 and beyond, significant additional amounts will become due under the Company’s remaining long-term debt obligations.
The Company requires significant cash to fund debt service costs, capital expenditures and ongoing operations. The Company has historically funded these requirements through cash flows from operating activities, borrowings under its credit facilities, equity contributions from its parent companies, proceeds from sales of assets, issuances of debt securities, and cash on hand. However, the mix of funding sources changes from period to period. For the year ended December 31, 2008, the Company generated $1.5 billion of net cash flows from operating activities, after paying cash interest of $774 million. In addition, the Company used $1.2 billion for purchases of property, plant and equipment. Finally, the Company generated net cash flows from financing activities of $689 million, as a result of financing transactions and credit facility borrowings completed during the year ended December 31, 2008. As of December 31, 2008, the Company had cash on hand of $948 million.
Although the Company has been able to refinance or otherwise fund the repayment of debt in the past, it may not be able to access additional sources of refinancing on similar terms or pricing as those that are currently in place, or at all, or otherwise obtain other sources of funding, especially given the recent volatility and disruption of the capital and credit markets and the deterioration of general economic conditions in recent months.
Limitations on Distributions
As long as Charter’s convertible senior notes remain outstanding and are not otherwise converted into shares of common stock, Charter must pay interest on the convertible senior notes and repay the principal amount. Charter’s ability to make interest payments on its convertible senior notes, and to repay the outstanding principal of its convertible senior notes will depend on its ability to raise additional capital and/or on receipt of payments or distributions from Charter Holdco and its subsidiaries. As of December 31, 2008, Charter Holdco was owed $13 million in intercompany loans from Charter Communications Operating, LLC (“Charter Operating”) and had $1 million in cash, which amounts were available to pay interest and principal on Charter's convertible senior notes to the extent not otherwise used, for example, to satisfy maturities at Charter Holdings. In addition, as long as Charter Holdco continues to hold the $137 million of Charter Holdings’ notes due 2009 and 2010 (as discussed further below), Charter Holdco will receive interest and principal payments from Charter Holdings to the extent Charter Holdings is able to make such payments. Such amounts may be available to pay interest and principal on Charter’s convertible senior notes, although Charter Holdco may use those amounts for other purposes.
Distributions by Charter’s subsidiaries to a parent company for payment of principal on parent company notes, are restricted under the indentures governing the Company’s and its parent companies’ notes, and under the CCO Holdings credit facility, unless there is no default under the applicable indenture and credit facilities, and unless each applicable subsidiary’s leverage ratio test is met at the time of such distribution. For the quarter ended December 31, 2008, there was no default under any of these indentures or credit facilities. However, certain of Charter’s subsidiaries did not meet their applicable leverage ratio tests based on December 31, 2008 financial results. As a result, distributions from certain of Charter’s subsidiaries to their parent companies would have been restricted at such time and will continue to be restricted unless those tests are met. Distributions by Charter Operating for payment of principal on parent company notes are further restricted by the covenants in its credit facilities.
Distributions by CIH, CCH I, CCH II, CCO Holdings, and Charter Operating to a parent company for payment of parent company interest are permitted if there is no default under the aforementioned indentures and CCO Holdings credit facility.
The indentures governing the Charter Holdings notes permit Charter Holdings to make distributions to Charter Holdco for payment of interest or principal on Charter’s convertible senior notes, only if, after giving effect to the
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
distribution, Charter Holdings can incur additional debt under the leverage ratio of 8.75 to 1.0, there is no default under Charter Holdings’ indentures, and other specified tests are met. For the quarter ended December 31, 2008, there was no default under Charter Holdings’ indentures, the other specified tests were met, and Charter Holdings met its leverage ratio test based on December 31, 2008 financial results. Such distributions would be restricted, however, if Charter Holdings fails to meet these tests at the time of the contemplated distribution. In the past, Charter Holdings has from time to time failed to meet this leverage ratio test. There can be no assurance that Charter Holdings will satisfy these tests at the time of the contemplated distribution. During periods in which distributions are restricted, the indentures governing the Charter Holdings notes permit Charter Holdings and its subsidiaries to make specified investments (that are not restricted payments) in Charter Holdco or Charter, up to an amount determined by a formula, as long as there is no default under the indentures.
In addition to the limitation on distributions under the various indentures discussed above, distributions by Charter’s subsidiaries, including the Company, may be limited by applicable law. Under the Delaware Limited Liability Company Act, Charter’s subsidiaries may only make distributions if they have “surplus” as defined in the act. Under fraudulent transfer laws, Charter’s subsidiaries may not pay dividends if they are insolvent or are rendered insolvent thereby. The measures of insolvency for purposes of these fraudulent transfer laws vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, an entity would be considered insolvent if:
· | the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all its assets; |
· | the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or |
· | it could not pay its debts as they became due. |
It is uncertain whether Charter’s subsidiaries, including the Company, will have, at the relevant times, sufficient surplus at the relevant subsidiaries to make distributions, including for payments of interest and principal on the debts of the parents of such entities, and there can otherwise be no assurance that Charter’s subsidiaries will not become insolvent or will be permitted to make distributions in the future in compliance with these restrictions in amounts needed to service parent company indebtedness.
3. Summary of Significant Accounting Policies
Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. These investments are carried at cost, which approximates market value. Cash and cash equivalents consist primarily of money market funds and commercial paper.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, including all material, labor and certain indirect costs associated with the construction of cable transmission and distribution facilities. While the Companies’Company’s capitalization is based on specific activities, once capitalized, costs are tracked by fixed asset category at the cable system level and not on a specific asset basis. For assets that are sold or retired, the estimated historical cost and related accumulated depreciation is removed. Costs associated with initial customer installations and the additions of network equipment necessary to enable advanced services are capitalized. Costs capitalized as part of initial customer installations include materials, labor, and certain indirect costs. Indirect costs are associated with the activities of the Companies’Company’s personnel who assist in connecting and activating the new service and consist of compensation and indirect costs associated with these support functions. Indirect costs primarily include employee benefits and payroll taxes, direct variable costs associated with capitalizable activities, consisting primarily of installation and construction vehicle costs, the cost of dispatch personnel and indirect costs directly attributable to capitalizable activities. The costs of disconnecting service at a customer’s dwelling or reconnecting service to a previously installed dwelling are charged to operating expense in the period incurred. Costs for repairs and maintenance are charged to operating expense as
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
incurred, while plant and equipment replacement and betterments, including replacement of cable drops from the pole to the dwelling, are capitalized.
Depreciation is recorded using the straight-line composite method over management’s estimate of the useful lives of the related assets as follows:
Cable distribution systems | | 7-20 years |
Customer equipment and installations | | 3-5 years |
Vehicles and equipment | | 1-5 years |
Buildings and leasehold improvements | | 5-15 years |
Furniture, fixtures and equipment | | 5 years |
Asset Retirement Obligations
Certain of the Companies’Company’s franchise agreements and leases contain provisions requiring the CompaniesCompany to restore facilities or remove equipment in the event that the franchise or lease agreement is not renewed. The Companies expectCompany expects to continually renew its franchise agreements and havehas concluded that substantially all of the related franchise rights are indefinite lived intangible assets. Accordingly, the possibility is remote that the CompaniesCompany would be required to incur significant restoration or removal costs related to these franchise agreements in the foreseeable future. Statement of Financial Accounting Standards (“SFAS”) No. 143, Accounting for Asset Retirement Obligations, as interpreted by FINFinancial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 47, Accounting for Conditional Asset Retirement Obligations – an Interpretation of FASB Statement No. 143, requires that a liability be recognized for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. The Companies haveCompany has not recorded an estimate for potential franchise related obligations but would record an estimated liability in the unlikely event a franchise agreement containing such a provision were no longer expected to be renewed. The CompaniesCompany also expectexpects to renew many of theirits lease agreements related to the continued operation of theirits cable business in the franchise areas. For the Companies’Company’s lease agreements, the estimated liabilities related to the removal provisions, where applicable, have been recorded and are not significant to the financial statements.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
Franchises
Franchise rights represent the value attributed to agreements with local authorities that allow access to homes in cable service areas acquired through the purchase of cable systems. Management estimates the fair value of franchise rights at the date of acquisition and determines if the franchise has a finite life or an indefinite-life as defined by SFAS No. 142, Goodwill and Other Intangible Assets. All franchises that qualify for indefinite-life treatment under SFAS No. 142 are no longer amortized against earnings but instead are tested for impairment annually as of October 1, or more frequently as warranted by events or changes in circumstances (see Note 7). The CompaniesCompany concluded that substantially all of theirits franchises qualify for indefinite-life treatment. Costs incurred in renewing cable franchises are deferred and amortized over 10 years.
Other Noncurrent Assets
Other noncurrent assets primarily include deferred financing costs, investments in equity securities and goodwill. Costs related to borrowings are deferred and amortized to interest expense over the terms of the related borrowings.
Investments in equity securities are accounted for at cost, under the equity method of accounting or in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. The Companies recognizeCompany recognizes losses for any decline in value considered to be other than temporary.
The following summarizes investment information as of December 31, 2007 and 2006 and for the years ended December 31, 2007, 2006, and 2005:
| | | | | Gain (Loss) for | |
| | Carrying Value at | | | the Years Ended | |
| | December 31, | | | December 31, | |
| | | | | | | | | | | | | | | |
| | 2007 | | | 2006 | | | 2007 | | | 2006 | | | 2005 | |
| | | | | | | | | | | | | | | |
Equity investments, under the cost method | | $ | -- | | | $ | 1 | | | $ | -- | | | $ | 12 | | | $ | -- | |
Equity investments, under the equity method | | | 9 | | | | 11 | | | | (2 | ) | | | 1 | | | | 22 | |
| | | | | | | | | | | | | | | | | | | | |
| | $ | 9 | | | $ | 12 | | | $ | (2 | ) | | $ | 13 | | | $ | 22 | |
The gain on equity investments, under the cost method for the year ended December 31, 2006 primarily represents gains realized on the sale of two investments. The gain on equity investments, under the equity method for the year ended December 31, 2005 primarily represents a gain realized on an exchange of an interest in an equity investee for an investment in a larger enterprise. Such amounts are included in other income (expense), net in the statements of operations.
Valuation of Property, Plant and Equipment
The Companies evaluateCompany evaluates the recoverability of long-lived assets to be held and used for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Such events or changes in circumstances could include such factors as impairment of the Companies’Company’s indefinite life franchise under
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
SFAS No. 142, changes in technological advances, fluctuations in the fair value of such assets, adverse changes in relationships with local franchise authorities, adverse changes in market conditions or a deterioration of operating results. If a review indicates that the carrying value of such asset is not recoverable from estimated undiscounted cash flows, the carrying value of such asset is reduced to its estimated fair value. While the Companies believeCompany believes that theirits estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect theirits evaluations of asset recoverability. No impairments of long-lived assets to be held and used were recorded in 2008, 2007, 2006, and 2005;2006; however, approximately $56 million and $159 million and $39 million of
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
impairment on assets held for sale was recorded for the years ended December 31, 2007 2006, and 2005,2006, respectively (see Note 4).
Derivative Financial Instruments
The Companies accountCompany accounts for derivative financial instruments in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. For those instruments which qualify as hedging activities, related gains or losses are recorded in accumulated other comprehensive income (loss). For all other derivative instruments, the related gains or losses are recorded in the income statement.statements of operations. The Companies use interest rate derivative instruments, such asCompany uses interest rate swap agreements and interest rate collar agreements (collectively referred to herein as interest rate agreements) to manage theirits interest costs and reduce the Companies’Company’s exposure to increases in floating interest rates. The Companies’Company’s policy is to manage theirits exposure to fluctuations in interest rates by maintaining a mix of fixed and variable rate debt within a targeted range. Using interest rate swap agreements, the Companies agreeCompany agrees to exchange, at specified intervals through 2013, the difference between fixed and variable interest amounts calculated by reference to agreed-upon notional principal amounts. Interest rate collar agreements are used to limit exposure to and benefits fromAt the banks’ option, certain interest rate fluctuations on variable rate debt to within a certain range of rates.swap agreements may be extended through 2014. The Companies doCompany does not hold or issue any derivative financial instruments for trading purposes.
Revenue Recognition
Revenues from residential and commercial video, high-speed Internet and telephone services are recognized when the related services are provided. Advertising sales are recognized at estimated realizable values in the period that the advertisements are broadcast. Franchise fees imposed by local governmental authorities are collected on a monthly basis from the Company’s customers and are periodically remitted to local franchise authorities. Franchise fees of $187 million, $177 million, $179 million, and $174$179 million for the years ended December 31, 2008, 2007, 2006, and 2005,2006, respectively, are reported asin other revenues, on a gross basis with a corresponding operating expense. Sales taxes collected and remitted to state and local authorities are recorded on a net basis.
RevenuesThe Company’s revenues by product line are as follows:
| | Year Ended December 31, | |
| | 2007 | | | 2006 | | | 2005 | |
| | | | | | | | | |
Video | | $ | 3,392 | | | $ | 3,349 | | | $ | 3,248 | |
High-speed Internet | | | 1,252 | | | | 1,051 | | | | 875 | |
Telephone | | | 343 | | | | 135 | | | | 36 | |
Advertising sales | | | 298 | | | | 319 | | | | 284 | |
Commercial | | | 341 | | | | 305 | | | | 266 | |
Other | | | 376 | | | | 345 | | | | 324 | |
| | | | | | | | | | | | |
| | $ | 6,002 | | | $ | 5,504 | | | $ | 5,033 | |
| | Year Ended December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | |
Video | | $ | 3,463 | | | $ | 3,392 | | | $ | 3,349 | |
High-speed Internet | | | 1,356 | | | | 1,243 | | | | 1,047 | |
Telephone | | | 555 | | | | 345 | | | | 137 | |
Commercial | | | 392 | | | | 341 | | | | 305 | |
Advertising sales | | | 308 | | | | 298 | | | | 319 | |
Other | | | 405 | | | | 383 | | | | 347 | |
| | | | | | | | | | | | |
| | $ | 6,479 | | | $ | 6,002 | | | $ | 5,504 | |
Programming Costs
The Companies haveCompany has various contracts to obtain analog,basic, digital and premium video programming from program suppliers whose compensation is typically based on a flat fee per customer. The cost of the right to exhibit network programming under such arrangements is recorded in operating expenses in the month the programming is available for exhibition. Programming costs are paid each month based on calculations performed by the CompaniesCompany and are subject to periodic audits performed by the programmers. Certain programming contracts contain launch incentives to be
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
paid by the programmers. The Companies receiveCompany receives these payments related to the activation of the programmer’s cable television channel and recognizerecognizes the launch incentives on a straight-line basis over the life of the programming agreement as a reduction of programming expense. This offset to programming expense was $22
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
$33 million, $32$25 million, and $41$32 million for the years ended December 31, 2008, 2007, and 2006, respectively. As of December 31, 2008 and 2005,2007, the deferred amounts of such economic consideration, included in other long-term liabilities, were $61 million and $90 million, respectively. Programming costs included in the accompanying statement of operations were $1.6 billion, $1.5$1.6 billion, and $1.4$1.5 billion for the years ended December 31, 2007, 2006, and 2005, respectively. As of December 31,2008, 2007, and 2006, the deferred amounts of launch incentives, included in other long-term liabilities, were $65 million and $67 million, respectively.
Advertising Costs
Advertising costs associated with marketing the Companies’Company’s products and services are generally expensed as costs are incurred. Such advertising expense was $229 million, $187 million, $131 million, and $94$131 million for the years ended December 31, 2008, 2007, 2006, and 2005,2006, respectively.
Multiple-elementMultiple-Element Transactions
In the normal course of business, the Companies enterCompany enters into multiple-element transactions where they areit is simultaneously both a customer and a vendor with the same counterparty or in which they purchaseit purchases multiple products and/or services, or settlesettles outstanding items contemporaneous with the purchase of a product or service from a single counterparty. Transactions, although negotiated contemporaneously, may be documented in one or more contracts. The Companies’Company’s policy for accounting for each transaction negotiated contemporaneously is to record each element of the transaction based on the respective estimated fair values of the products or services purchased and the products or services sold. In determining the fair value of the respective elements, the Companies referCompany refers to quoted market prices (where available), historical transactions or comparable cash transactions.
Stock-Based Compensation
On January 1, 2006, the Companies adoptedThe Company accounts for stock-based compensation in accordance with SFAS No. 123(R), Share – Based Payment, which addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for (a) equity instruments of that company or (b) liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. Because the Companies adopted the fair value recognition provisions of SFAS No. 123 on January 1, 2003, the revised standard did not have a material impact on their financial statements. The CompaniesCompany recorded $33 million, $18 million, $13 million, and $14$13 million of option compensation expense which is included in general and administrative expenses for the years ended December 31, 2008, 2007, 2006, and 2005,2006, respectively.
The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model. The following weighted average assumptions were used for grants during the years ended December 31, 2008, 2007, 2006, and 2005,2006, respectively; risk-free interest rates of 4.6%3.5%, 4.6%, and 4.0%4.6%; expected volatility of 70.3%88.1%, 87.3%70.3%, and 70.9%87.3% based on historical volatility; and expected lives of 6.3 years, 6.3 years, and 4.56.3 years, respectively. The valuations assume no dividends are paid.
Income Taxes
Charter Holdings, CCH II, and CCO Holdings areis a single member limited liability companiescompany not subject to income tax and holdtax. CCO Holdings holds all operations through indirect subsidiaries. The majority of these indirect subsidiaries are limited liability companies that are also not subject to income tax. However, certain of the limited liability companies are subject to state income tax. In addition, certain of Charter Holdings’, CCH II’s, and CCO Holdings’ indirect subsidiaries are corporations that are subject to income tax. The Companies recognizeCompany recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of these indirect corporate subsidiaries’ assets and liabilities and expected benefits of utilizing net operating loss carryforwards. The impact on deferred taxes of changes in tax rates and tax law, if any, applied to the years during which temporary differences are expected to be settled, are reflected in the consolidated financial statements in the period of enactment (see Note 19).
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 2006 AND 20052006
(dollars in millions, except where indicated)
Charter, our indirect parent company, is subject to income taxes. Accordingly, in addition to the Companies’Company’s deferred tax liabilities, Charter has recorded net deferred tax liabilities of approximately $439$379 million related to their approximate 52%53% investment in Charter Holdco which areis not reflected at the Companies.Company.
Segments
SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information, established standards for reporting information about operating segments in annual financial statements and in interim financial reports issued to shareholders. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance of the segment.
The Companies’Company’s operations are managed on the basis of geographic divisional operating segments. The Companies haveCompany has evaluated the criteria for aggregation of the geographic operating segments under paragraph 17 of SFAS No. 131 and believe they meetbelieves it meets each of the respective criteria set forth. The Companies deliverCompany delivers similar products and services within each of theirits geographic divisional operations. Each geographic and divisional service area utilizes similar means for delivering the programming of the Companies’Company’s services; hashave similarity in the type or class of customer receiving the products and services; distributes the Companies’Company’s services over a unified network; and operates within a consistent regulatory environment. In addition, each of the geographic divisional operating segments has similar economic characteristics. In light of the Companies’Company’s similar services, means for delivery, similarity in type of customers, the use of a unified network and other considerations across theirits geographic divisional operating structure, management has determined that the Companies haveCompany has one reportable segment, broadband services.
In 2006, the CompaniesCompany sold certain cable television systems serving approximately 356,000 video customers in 1) West Virginia and Virginia to Cebridge Connections, Inc. (the “Cebridge Transaction”); 2) Illinois and Kentucky to Telecommunications Management, LLC, doing business as New Wave Communications (the “New Wave Transaction”) and 3) Nevada, Colorado, New Mexico and Utah to Orange Broadband Holding Company, LLC (the “Orange Transaction”) for a total sales price of approximately $971 million. The CompaniesCompany used the net proceeds from the asset sales to reduce borrowings, but not commitments, under the revolving portion of the Charter OperatingCompany’s credit facilities. These cable systems met the criteria for assets held for sale. As such, the assets were written down to fair value less estimated costs to sell, resulting in asset impairment charges during the year ended December 31, 2006 of approximately $99 million related to the New Wave Transaction and the Orange Transaction. The CompaniesCompany determined that the West Virginia and Virginia cable systems comprise operations and cash flows that for financial reporting purposes meet the criteria for discontinued operations. Accordingly, the results of operations for the West Virginia and Virginia cable systems have been presented as discontinued operations, net of tax, for the year ended December 31, 2006, including a gain of $200 million on the sale of cable systems.
Summarized consolidated financial information for the years ended December 31, 2006 and 2005 for the West Virginia and Virginia cable systems is as follows:
| | Year Ended December 31, | |
| | 2006 | | | 2005 | |
| | | | | | |
Revenues | | $ | 109 | | | $ | 221 | |
Net income | | $ | 238 | | | $ | 39 | |
| | Year Ended December 31, 2006 | |
Revenues | | $ | 109 | |
Income before income taxes | | $ | 238 | |
Income tax expense | | $ | (22 | ) |
Net income | | $ | 216 | |
Earnings per common share, basic and diluted | | $ | 0.65 | |
In 2007 and 2006, and 2005, the CompaniesCompany recorded asset impairment charges of $56 million $60 million, and $39$60 million, respectively, related to other cable systems meeting the criteria of assets held for sale.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 2006 AND 20052006
(dollars in millions, except where indicated)
5. | 5. Allowance for Doubtful Accounts |
Activity in the allowance for doubtful accounts is summarized as follows for the years presented:
| | Year Ended December 31, | |
| | 2007 | | | 2006 | | | 2005 | |
| | | | | | | | | |
Balance, beginning of year | | $ | 16 | | | $ | 17 | | | $ | 15 | |
Charged to expense | | | 107 | | | | 89 | | | | 76 | |
Uncollected balances written off, net of recoveries | | | (105 | ) | | | (90 | ) | | | (74 | ) |
| | | | | | | | | | | | |
Balance, end of year | | $ | 18 | | | $ | 16 | | | $ | 17 | |
| | Year Ended December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | |
Balance, beginning of year | | $ | 18 | | | $ | 16 | | | $ | 17 | |
Charged to expense | | | 122 | | | | 107 | | | | 89 | |
Uncollected balances written off, net of recoveries | | | (122 | ) | | | (105 | ) | | | (90 | ) |
| | | | | | | | | | | | |
Balance, end of year | | $ | 18 | | | $ | 18 | | | $ | 16 | |
6. | 6. Property, Plant and Equipment |
Property, plant and equipment consists of the following as of December 31, 20072008 and 2006:2007:
| | 2007 | | | 2006 | |
| | | | | | |
Cable distribution systems | | $ | 6,697 | | | $ | 6,415 | |
Customer equipment and installations | | | 3,740 | | | | 3,428 | |
| | | 257 | | | | 243 | |
Buildings and leasehold improvements | | | 426 | | | | 438 | |
Furniture, fixtures and equipment | | | 384 | | | | 387 | |
| | | | | | | | |
| | | 11,504 | | | | 10,911 | |
Less: accumulated depreciation | | | (6,432) | | | | (5,730) | |
| | | | | | | | |
| | $ | 5,072 | | | $ | 5,181 | |
The Companies have adjusted the historical cost basis and related accumulated depreciation as of December 31, 2007 and 2006 to reflect estimated asset retirements through December 31, 2007 and 2006, respectively. No gain or loss was recorded on these retirements. | | 2008 | | | 2007 | |
| | | | | | |
Cable distribution systems | | $ | 7,008 | | | $ | 6,697 | |
Customer equipment and installations | | | 4,057 | | | | 3,740 | |
Vehicles and equipment | | | 256 | | | | 257 | |
Buildings and leasehold improvements | | | 439 | | | | 426 | |
Furniture, fixtures and equipment | | | 390 | | | | 384 | |
| | | | | | | | |
| | | 12,150 | | | | 11,504 | |
Less: accumulated depreciation | | | (7,191 | ) | | | (6,432 | ) |
| | | | | | | | |
| | $ | 4,959 | | | $ | 5,072 | |
The CompaniesCompany periodically evaluateevaluates the estimated useful lives used to depreciate its assets and the estimated amount of assets that will be abandoned or have minimal use in the future. A significant change in assumptions about the extent or timing of future asset retirements, or in the Companies’Company’s use of new technology and upgrade programs, could materially affect future depreciation expense. In 2007, the CompaniesCompany changed the useful lives of certain property, plant, and equipment based on technological changes. The change in useful lives reduced depreciation expense by approximately $81 million and $8 million during 2007.2008 and 2007, respectively.
Depreciation expense for each of the years ended December 31, 2008, 2007, 2006, and 20052006 was $1.3 billion, $1.3 billion, and $1.4 billion, respectively.billion.
7. Franchises, Goodwill and Other Intangible Assets
Franchise rights represent the value attributed to agreements or authorizations with local and state authorities that allow access to homes in cable service areas acquired through the purchase of cable systems.areas. Management estimates the fair value of franchise rights at the date of acquisition and determines if the franchise has a finite life or an indefinite-life as defined by SFAS No. 142, Goodwill and Other Intangible Assets.Assets. Franchises that qualify for indefinite-life treatment under SFAS No. 142 are tested for impairment annually, each October 1 based on valuations, or more frequently as warranted by events or changes in circumstances. The Companies’ impairment assessment as of
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
October 1, 2007 did not indicate impairment; however upon completion of the 2008 budgeting process in December 2007, the Companies determined that a triggering event requiring a reassessment of franchise values had occurred. Largely driven by increased competition being experienced by the Companies and peers, the Companies lowered projected revenue and expense growth rates and increased projected capital expenditures, and accordingly revised estimates of future cash flows as compared to those used in prior valuations. As a result, the Companies recorded $178 million of impairment for the year ended December 31, 2007. The valuations completed at October 1, 2006 and 2005 showed franchise values in excess of book value, and thus resulted in no impairments. Franchises are aggregated into essentially inseparable asset groupsunits of accounting to conduct the valuations. The asset groupsunits of accounting generally represent geographical clustering of the Companies’Company’s cable systems into groups by which such systems are managed. Management believes such grouping represents the highest and best use of those assets. The Company has historically assessed that its divisional operations were the appropriate level at which the Company’s franchises should be evaluated. Based on certain organizational changes in 2008, the Company determined that the appropriate units of accounting for franchises are now the individual market area, which is a level below the Company’s geographic divisional groupings previously used. The organizational change in 2008 consolidated the Company’s three divisions to two operating groups and put more management focus on the individual market areas. The
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
Company completed its impairment assessment as of December 31, 2008 upon completion of its 2009 budgeting process. Largely driven by the impact of the current economic downturn along with increased competition, the Company lowered its projected revenue and expense growth rates, and accordingly revised its estimates of future cash flows as compared to those used in prior valuations. As a result, the Company recorded $1.5 billion of impairment for the year ended December 31, 2008. The Company recorded $178 million of impairment for the year ended December 31, 2007. The valuation completed for 2006 showed franchise fair values in excess of book value, and thus resulted in no impairment.
The Companies’Company’s valuations, which are based on the present value of projected after tax cash flows, result in a value of property, plant and equipment, franchises, customer relationships, and its total entity value. The value of goodwill is the difference between the total entity value and amounts assigned to the other assets.
Franchises, for valuation purposes, are defined as the future economic benefits of the right to solicit and service potential customers (customer marketing rights), and the right to deploy and market new services, such as interactivity and telephone, to the potential customers (service marketing rights). Fair value is determined based on estimated discounted future cash flows using assumptions consistent with internal forecasts. The franchise after-tax cash flow is calculated as the after-tax cash flow generated by the potential customers obtained (less the anticipated customer churn), and the new services added to those customers in future periods. The sum of the present value of the franchises' after-tax cash flow in years 1 through 10 and the continuing value of the after-tax cash flow beyond year 10 yields the fair value of the franchise.
Customer relationships, for valuation purposes, represent the value of the business relationship with existing customers (less the anticipated customer churn), and are calculated by projecting future after-tax cash flows from these customers, including the right to deploy and market additional services to these customers. The present value of these after-tax cash flows yields the fair value of the customer relationships. Substantially all acquisitions occurred prior to January 1, 2002. The CompaniesCompany did not record any value associated with the customer relationship intangibles related to those acquisitions. For acquisitions subsequent to January 1, 2002, the CompaniesCompany did assign a value to the customer relationship intangible, which is amortized over theirits estimated useful life.
As of December 31, 20072008 and 2006,2007, indefinite-lived and finite-lived intangible assets are presented in the following table:
| | | December 31, |
| | | 2007 | | 2006 |
| | | Gross | | | | | | Net | | | Gross | | | | | | Net |
| | | Carrying | | | Accumulated | | | Carrying | | | Carrying | | | Accumulated | | | Carrying |
| | | Amount | | | Amortization | | | Amount | | | Amount | | | Amortization | | | Amount |
| | | | | | | | | | | | | | | | | | |
Indefinite-lived intangible assets: | | | | | | | | | | | | | | | | | | |
| Franchises with indefinite lives | | $ | 8,929 | | $ | -- | | $ | 8,929 | | $ | 9,207 | | $ | -- | | $ | 9,207 |
| Goodwill | | | 67 | | | -- | | | 67 | | | 61 | | | -- | | | 61 |
| | | | | | | | | | | | | | | | | | | |
| | $ | 8,996 | | $ | -- | | $ | 8,996 | | $ | 9,268 | | $ | -- | | $ | 9,268 |
| | | | | | | | | | | | | | | | | | | |
Finite-lived intangible assets: | | | | | | | | | | | | | | | | | | |
| Franchises with finite lives | | $ | 23 | | $ | 10 | | $ | 13 | | $ | 23 | | $ | 7 | | $ | 16 |
| | | December 31, |
| | | 2008 | | 2007 |
| | | Gross | | | | | | Net | | | Gross | | | | | | Net |
| | | Carrying | | | Accumulated | | | Carrying | | | Carrying | | | Accumulated | | | Carrying |
| | | Amount | | | Amortization | | | Amount | | | Amount | | | Amortization | | | Amount |
| | | | | | | | | | | | | | | | | | |
Indefinite-lived intangible assets: | | | | | | | | | | | | | | | | | | |
| Franchises with indefinite lives | | $ | 7,377 | | $ | -- | | $ | 7,377 | | $ | 8,929 | | $ | -- | | $ | 8,929 |
| Goodwill | | | 68 | | | -- | | | 68 | | | 67 | | | -- | | | 67 |
| | | | | | | | | | | | | | | | | | | |
| | $ | 7,445 | | $ | -- | | $ | 7,445 | | $ | 8,996 | | $ | -- | | $ | 8,996 |
| | | | | | | | | | | | | | | | | | | |
Finite-lived intangible assets: | | | | | | | | | | | | | | | | | | |
| Franchises with finite lives | | $ | 16 | | $ | 9 | | $ | 7 | | $ | 23 | | $ | 10 | | $ | 13 |
| Other intangible assets | | | 71 | | | 41 | | | 30 | | | 97 | | | 73 | | | 24 |
| | | $ | 87 | | $ | 50 | | $ | 37 | | $ | 120 | | $ | 83 | | $ | 37 |
Franchise amortization expense represents the amortization relating to franchises that did not qualify for indefinite-life treatment under SFAS No. 142, including costs associated with franchise renewals. During the year ended December 31, 2008, the net carrying amount of indefinite-lived franchises was reduced by $1.5 billion as a result of the impairment of franchises discussed above, $32 million related to cable asset sales completed in 2008, and $4 million as a result of the finalization of purchase accounting related to cable asset acquisitions. Additionally, during the year ended December 31, 2008, approximately $5 million of franchises that were previously classified as finite-lived were reclassified to indefinite-lived, based on management’s assessment when these franchises migrated to
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
state-wide franchising. For the year ended December 31, 2007, the net carrying amount of indefinite-lived franchises was reduced by $178 million as a result of the impairment of franchises discussed above, $77 million related to cable asset sales completed in 2007, and $56 million as a result of the asset impairment charges recorded related to these cable asset sales. These decreases were offset by $33 million of franchises added as a result of acquisitions of cable assets. For
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
the year ended December 31, 2006, the net carrying amount of indefinite-lived and finite-lived franchises was reduced by $452 million and $2 million, respectively, related to cable asset sales completed in 2006 and indefinite-lived franchises were further reduced by $147 million as a result of the asset impairment charges recorded related to these cable asset sales.
Franchise amortization expense represents the amortization relating to franchises that did not qualify for indefinite-life treatment under SFAS No. 142, including costs associated with franchise renewals. Franchise amortization expense for the years ended December 31, 2008, 2007, and 2006 and 2005 was $2 million, $3 million, and $2 million, respectively. During the year ended December 31, 2008, the net carrying amount of finite-lived franchises increased $1 million as a result of costs incurred associated with franchise renewals. Other intangible assets amortization expense for the years ended December 31, 2008, 2007 and 2006 was $5 million, $4 million, and $4 million, respectively. The Companies expectCompany expects that amortization expense on franchise assets and other intangible assets will be approximately $2$7 million annually for each of the next five years. Actual amortization expense in future periods could differ from these estimates as a result of new intangible asset acquisitions or divestitures, changes in useful lives and other relevant factors.
For the year ended December 31, 2007 and 2006, the net carrying amount of goodwill increased $6 million and $9 million, respectively, as a result of the Companies’ purchase of certain cable systems in 2007 and 2006.
8. | 8. Accounts Payable and Accrued Expenses |
Accounts payable and accrued expenses consist of the following as of December 31, 20072008 and 2006:
| | Charter Holdings | |
| | 2007 | | | 2006 | |
| | | | | | |
Accounts payable – trade | | $ | 116 | | | $ | 81 | |
Accrued capital expenditures | | | 95 | | | | 97 | |
Accrued expenses: | | | | | | | | |
Interest | | | 403 | | | | 395 | |
Programming costs | | | 273 | | | | 268 | |
Franchise related fees | | | 66 | | | | 68 | |
Compensation | | | 75 | | | | 74 | |
Other | | | 184 | | | | 198 | |
| | | | | | | | |
| | $ | 1,212 | | | $ | 1,181 | |
| | CCH II | |
| | 2007 | | | 2006 | |
| | | | | | |
Accounts payable – trade | | $ | 116 | | | $ | 79 | |
Accrued capital expenditures | | | 95 | | | | 97 | |
Accrued expenses: | | | | | | | | |
Interest | | | 192 | | | | 190 | |
Programming costs | | | 273 | | | | 268 | |
Franchise related fees | | | 66 | | | | 68 | |
Compensation | | | 75 | | | | 74 | |
Other | | | 184 | | | | 199 | |
| | | | | | | | |
| | $ | 1,001 | | | $ | 975 | |
2007:
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
| | 2008 | | | 2007 | |
| | | | | | |
Accounts payable – trade | | $ | 86 | | | $ | 116 | |
Accrued capital expenditures | | | 56 | | | | 95 | |
Accrued expenses: | | | | | | | | |
Interest | | | 122 | | | | 120 | |
Programming costs | | | 305 | | | | 273 | |
Franchise related fees | | | 60 | | | | 66 | |
Compensation | | | 80 | | | | 75 | |
Other | | | 200 | | | | 184 | |
| | | | | | | | |
| | $ | 909 | | | $ | 929 | |
| | CCO Holdings | |
| | 2007 | | | 2006 | |
| | | | | | |
Accounts payable – trade | | $ | 116 | | | $ | 79 | |
Accrued capital expenditures | | | 95 | | | | 97 | |
Accrued expenses: | | | | | | | | |
Interest | | | 120 | | | | 117 | |
Programming costs | | | 273 | | | | 268 | |
Franchise related fees | | | 66 | | | | 68 | |
Compensation | | | 75 | | | | 74 | |
Other | | | 184 | | | | 198 | |
| | | | | | | | |
| | $ | 929 | | | $ | 901 | |
Long-term debt consists of the following as of December 31, 20072008 and 2006:2007:
| | 2007 | | | 2006 | |
| | Principal | | | Accreted | | | Principal | | | Accreted | |
| | Amount | | | Value | | | Amount | | | Value | |
| | | | | | | | | | | | |
Long-Term Debt | | | | | | | | | | | | |
Charter Operating: | | | | | | | | | | | | |
8.000% senior second-lien notes due April 30, 2012 | | $ | 1,100 | | | $ | 1,100 | | | $ | 1,100 | | | $ | 1,100 | |
8 3/8% senior second-lien notes due April 30, 2014 | | | 770 | | | | 770 | | | | 770 | | | | 770 | |
Credit facilities | | | 6,844 | | | | 6,844 | | | | 5,395 | | | | 5,395 | |
CCO Holdings: | | | | | | | | | | | | | | | | |
Senior floating notes due December 15, 2010 | | | -- | | | | -- | | | | 550 | | | | 550 | |
8 3/4% senior notes due November 15, 2013 | | | 800 | | | | 795 | | | | 800 | | | | 795 | |
Credit facility | | | 350 | | | | 350 | | | | -- | | | | -- | |
Total CCO Holdings: | | | 9,864 | | | | 9,859 | | | | 8,615 | | | | 8,610 | |
| | | | | | | | | | | | | | | | |
CCH II: | | | | | | | | | | | | | | | | |
10.250% senior notes due September 15, 2010 | | | 2,198 | | | | 2,192 | | | | 2,198 | | | | 2,190 | |
10.250% senior notes due October 1, 2013 | | | 250 | | | | 260 | | | | 250 | | | | 262 | |
Total CCH II | | | 12,312 | | | | 12,311 | | | | 11,063 | | | | 11,062 | |
| | | | | | | | | | | | | | | | |
CCH I: | | | | | | | | | | | | | | | | |
11.000% senior notes due October 1, 2015 | | | 3,987 | | | | 4,083 | | | | 3,987 | | | | 4,092 | |
CIH: | | | | | | | | | | | | | | | | |
11.125% senior notes due January 15, 2014 | | | 151 | | | | 151 | | | | 151 | | | | 151 | |
13.500% senior discount notes due January 15, 2014 | | | 581 | | | | 581 | | | | 581 | | | | 581 | |
9.920% senior discount notes due April 1, 2014 | | | 471 | | | | 471 | | | | 471 | | | | 471 | |
10.000% senior notes due May 15, 2014 | | | 299 | | | | 299 | | | | 299 | | | | 299 | |
11.750% senior discount notes due May 15, 2014 | | | 815 | | | | 815 | | | | 815 | | | | 815 | |
12.125% senior discount notes due January 15, 2015 | | | 217 | | | | 217 | | | | 217 | | | | 216 | |
Charter Holdings: | | | | | | | | | | | | | | | | |
8.250% senior notes due April 1, 2007 | | | -- | | | | -- | | | | 105 | | | | 105 | |
8.625% senior notes due April 1, 2009 | | | -- | | | | -- | | | | 187 | | | | 187 | |
10.000% senior notes due April 1, 2009 | | | 88 | | | | 88 | | | | 105 | | | | 105 | |
F-28
| | 2008 | | | 2007 | |
| | Principal | | | Accreted | | | Principal | | | Accreted | |
| | Amount | | | Value | | | Amount | | | Value | |
CCO Holdings, LLC: | | | | | | | | | | | | |
8 3/4% senior notes due November 15, 2013 | | $ | 800 | | | $ | 796 | | | $ | 800 | | | $ | 795 | |
Credit facility | | | 350 | | | | 350 | | | | 350 | | | | 350 | |
Charter Communications Operating, LLC: | | | | | | | | | | | | | | | | |
8.000% senior second-lien notes due April 30, 2012 | | | 1,100 | | | | 1,100 | | | | 1,100 | | | | 1,100 | |
8 3/8% senior second-lien notes due April 30, 2014 | | | 770 | | | | 770 | | | | 770 | | | | 770 | |
10.875% senior second-lien notes due September 15, 2014 | | | 546 | | | | 527 | | | | -- | | | | -- | |
Credit facilities | | | 8,246 | | | | 8,246 | | | | 6,844 | | | | 6,844 | |
Total Debt | | $ | 11,812 | | | $ | 11,789 | | | $ | 9,864 | | | $ | 9,859 | |
Less: Current Portion | | | 70 | | | | 70 | | | | -- | | | | -- | |
Long-Term Debt | | $ | 11,742 | | | $ | 11,719 | | | $ | 9,864 | | | $ | 9,859 | |
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
10.750% senior notes due October 1, 2009 | | | 63 | | | | 63 | | | | 71 | | | | 71 | |
9.625% senior notes due November 15, 2009 | | | 37 | | | | 37 | | | | 52 | | | | 52 | |
10.250% senior notes due January 15, 2010 | | | 18 | | | | 18 | | | | 32 | | | | 32 | |
11.750% senior discount notes due January 15, 2010 | | | 16 | | | | 16 | | | | 21 | | | | 21 | |
11.125% senior notes due January 15, 2011 | | | 47 | | | | 47 | | | | 52 | | | | 52 | |
13.500% senior discount notes due January 15, 2011 | | | 60 | | | | 60 | | | | 62 | | | | 62 | |
9.920% senior discount notes due April 1, 2011 | | | 51 | | | | 51 | | | | 63 | | | | 63 | |
10.000% senior notes due May 15, 2011 | | | 69 | | | | 69 | | | | 71 | | | | 71 | |
11.750% senior discount notes due May 15, 2011 | | | 54 | | | | 54 | | | | 55 | | | | 55 | |
12.125% senior discount notes due January 15, 2012 | | | 75 | | | | 75 | | | | 91 | | | | 91 | |
Total Charter Holdings | | $ | 19,411 | | | $ | 19,506 | | | $ | 18,551 | | | $ | 18,654 | |
The accreted values presented above generally represent the principal amount of the notes less the original issue discount at the time of sale, plus the accretion to the balance sheet date. However, certain of the notes are recorded for financial reporting purposes at values different from the current accreted value for
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
legal purposes and notes indenture purposes (the amount that is currently payable if the debt becomes immediately due). As is equal to the principal amount of December 31, 2007,notes. See Note 25 related to the accreted valueProposed Restructuring.
CCO Holdings Notes
The CCO Holdings notes are senior debt obligations of CCO Holdings and CCO Holdings Capital Corp. They rank equally with all other current and future unsecured, unsubordinated obligations of CCO Holdings and CCO Holdings Capital Corp. The CCO Holdings notes are structurally subordinated to all obligations of subsidiaries of CCO Holdings, including the Charter Operating notes and the Charter Operating credit facilities.
On or after November 15, 2008, the issuers of the Charter Holdings’, CCH II’s,CCO Holdings 8 ¾% senior notes may redeem all or a part of the notes at a redemption price that declines ratably from the initial redemption price of 104.375% to a redemption price on or after November 15, 2011 of 100.0% of the principal amount of the CCO Holdings 8 ¾% senior notes redeemed, plus, in each case, any accrued and CCO Holdings’ debt for legal purposes and notes indenture purposes is $19.4 billion, $12.3 billion, and $9.9 billion, respectively.
unpaid interest.
In the event of specified change of control events, CCO Holdings must offer to purchase the outstanding CCO Holdings senior notes from the holders at a purchase price equal to 101% of the total principal amount of the notes, plus any accrued and unpaid interest.
Charter Operating Notes
The Charter Operating notes are senior debt obligations of Charter Operating and Charter Communications Operating Capital Corp. To the extent of the value of the collateral (but subject to the prior lien of the credit facilities), they rank effectively senior to all of Charter Operating’s future unsecured senior indebtedness. The collateral currently consists of the capital stock of Charter Operating held by CCO Holdings, all of the intercompany obligations owing to CCO Holdings by Charter Operating or any subsidiary of Charter Operating, and substantially all of Charter Operating’s and the guarantors’ assets (other than the assets of CCO Holdings). CCO Holdings and those subsidiaries of Charter Operating that are guarantors of, or otherwise obligors with respect to, indebtedness under the Charter Operating credit facilities and related obligations, guarantee the Charter Operating notes.
Charter Operating may, at any time and from time to time, at their option, redeem the outstanding 8% second lien notes due 2012, in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the redemption date, plus the Make-Whole Premium. The Make-Whole Premium is an amount equal to the excess of (a) the present value of the remaining interest and principal payments due on an 8% senior second-lien note due 2012 to its final maturity date, computed using a discount rate equal to the Treasury Rate on such date plus 0.50%, over (b) the outstanding principal amount of such Note.
On or after April 30, 2009, Charter Operating may redeem all or a part of the 8 3/8% senior second lien notes at a redemption price that declines ratably from the initial redemption price of 104.188% to a redemption price on or after April 30, 2012 of 100% of the principal amount of the 8 3/8% senior second lien notes redeemed plus in each case accrued and unpaid interest.
In March 2008, Charter Operating issued $546 million principal amount of 10.875% senior second-lien notes due 2014, guaranteed by CCO Holdings and certain other subsidiaries of Charter Operating, in a private transaction. Net proceeds from the senior second-lien notes were used to reduce borrowings, but not commitments, under the revolving portion of the Charter Operating credit facilities.
The Charter Operating 10.875% senior second-lien notes may be redeemed at the option of Charter Operating on or after varying dates, in each case at a premium, plus the Make-Whole Premium. The Make-Whole Premium is an amount equal to the excess of (a) the present value of the remaining interest and principal payments due on a 10.875% senior second-lien note due 2014 to its final maturity date, computed using a discount rate equal to the Treasury Rate on such date plus 0.50%, over (b) the outstanding principal amount of such note. The Charter Operating 10.875% senior second-lien notes may be redeemed at any time on or after March 15, 2012 at specified prices. In the event of specified change of control events, Charter Operating must offer to purchase the Charter
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
Operating 10.875% senior second-lien notes at a purchase price equal to 101% of the total principal amount of the Charter Operating notes repurchased plus any accrued and unpaid interest thereon.
CCO Holdings Notes
The CCO Holdings notes are senior debt obligations of CCO Holdings and CCO Holdings Capital Corp. They rank equally with all other current and future unsecured, unsubordinated obligations of CCO Holdings and CCO Holdings Capital Corp. The CCO Holdings notes are structurally subordinated to all obligations of subsidiaries of CCO Holdings, including the Charter Operating notes and the Charter Operating credit facilities.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
On or after November 15, 2008, the issuers of the CCO Holdings 8 ¾% senior notes may redeem all or a part of the notes at a redemption price that declines ratably from the initial redemption price of 104.375% to a redemption price on or after November 15, 2011 of 100.0% of the principal amount of the CCO Holdings 8 ¾% senior notes redeemed, plus, in each case, any accrued and unpaid interest.
Prior to their redemption in April 2007, interest on the CCO Holdings senior floating rate notes accrued at the LIBOR rate (5.36% as of December 31, 2006) plus 4.125% annually, from the date interest was most recently paid.
In the event of specified change of control events, CCO Holdings must offer to purchase the outstanding CCO Holdings senior notes from the holders at a purchase price equal to 101% of the total principal amount of the notes, plus any accrued and unpaid interest.
CCH II, LLC Notes
In September 2006, CCHC and CCH II completed the exchange of $450 million principal amount of Charter’s outstanding 5.875% senior convertible notes due 2009 for $188 million in cash, 45 million shares of Charter’s Class A common stock valued at $68 million and $146 million principal amount of 10.25% CCH II notes due 2010. In addition, in September 2006, CCH II issued $250 million principal amount of new 10.25% CCH II notes due 2013 for $270 million of Charter holdings notes.
The CCH II Notes are senior debt obligations of CCH II and CCH II Capital Corp. The CCH II Notes rank equally with all other current and future unsecured, unsubordinated obligations of CCH II and CCH II Capital Corp. The CCH II 2013 Notes are guaranteed on a senior unsecured basis by Charter Holdings. The CCH II notes are structurally subordinated to all obligations of subsidiaries of CCH II, including the CCO Holdings notes, the Charter Operating notes and the Charter Operating credit facilities.
On or after September 15, 2008, the issuers of the CCH II 2010 Notes may redeem all or a part of the notes at a redemption price that declines ratably from the initial redemption price of 105.125% to a redemption price on or after September 15, 2009 of 100.0% of the principal amount of the CCH II 2010 Notes redeemed, plus, in each case, any accrued and unpaid interest. On or after October 1, 2010, the issuers of the CCH II 2013 Notes may redeem all or a part of the notes at a redemption price that declines ratably from the initial redemption price of 105.125% to a redemption price on or after October 1, 2012 of 100.0% of the principal amount of the CCH II 2013 Notes redeemed, plus, in each case, any accrued and unpaid interest.
In the event of specified change of control events, CCH II must offer to purchase the outstanding CCH II notes from the holders at a purchase price equal to 101% of the total principal amount of the notes, plus any accrued and unpaid interest.
CCH I, LLC Notes
The CCH I notes are guaranteed on a senior unsecured basis by Charter Holdings and are secured by a pledge of 100% of the equity interest of CCH I’s wholly owned direct subsidiary, CCH II, and by a pledge of CCH I’s 70% interest in the 24,273,943 Class A preferred membership units of CC VIII (collectively, the "CC VIII interest"), and the proceeds thereof. Such pledges are subject to significant limitations as described in the related pledge agreement.
The CCH I notes are senior debt obligations of CCH I and CCH I Capital Corp. To the extent of the value of the collateral, they rank senior to all of CCH I’s future unsecured senior indebtedness. The CCH I notes are structurally subordinated to all obligations of subsidiaries of CCH I, including the CCH II notes, CCO Holdings notes, the Charter Operating notes and the Charter Operating credit facilities. As of December 31, 2007, there was $4.0 billion in accreted value for legal purposes and notes indentures purposes.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
CCH I and CCH I Capital Corp. may, prior to October 1, 2008 in the event of a qualified equity offering providing sufficient proceeds, redeem up to 35% of the aggregate principal amount of the CCH I notes at a redemption price of 111% of the principal amount plus accrued and unpaid interest. Aside from this provision, CCH I and CCH I Capital Corp. may not redeem at their option any of the notes prior to October 1, 2010. On or after October 1, 2010, CCH I and CCH I Capital Corp. may redeem, in whole or in part, CCH I notes at anytime, in each case at a premium. The optional redemption price declines to 100% of the principal amount, plus accrued and unpaid interest, on or after October 1, 2013.
If a change of control occurs, each holder of the CCH I notes will have the right to require the repurchase of all or any part of that holder’s CCH I notes at 101% of the principal amount plus accrued and unpaid interest.
CCH I Holdings, LLC Notes
The CIH notes are senior debt obligations of CIH and CCH I Holdings Capital Corp. They rank equally with all other current and future unsecured, unsubordinated obligations of CIH and CCH I Holdings Capital Corp. The CIH notes are structurally subordinated to all obligations of subsidiaries of CIH, including the CCH I notes, the CCH II notes, the CCO Holdings notes, the Charter Operating notes and the Charter Operating credit facilities. The CIH notes are guaranteed on a senior unsecured basis by Charter Holdings. As of December 31, 2007, there was $2.5 billion in accreted value for legal purposes and notes indentures purposes.
The CIH notes may be redeemed at any time at a premium. The optional redemption price declines to 100% of the respective series’ principal amount, plus accrued and unpaid interest, on or after varying dates generally in 2009 and 2010.
In the event that a specified change of control event happens, CIH and CCH I Holdings Capital Corp. must offer to repurchase any outstanding notes at a price equal to the sum of the accreted value of the notes plus accrued and unpaid interest plus a premium that varies over time.
Charter Holdings Notes
The Charter Holdings notes are senior debt obligations of Charter Holdings and Charter Communications Capital Corporation (“Charter Capital”). They rank equally with all other current and future unsecured, unsubordinated obligations of Charter Holdings and Charter Capital. They are structurally subordinated to the obligations of Charter Holdings’ subsidiaries, including the CIH notes, the CCH I notes, CCH II notes, the CCO Holdings notes, the Charter Operating notes, and the Charter Operating credit facilities.
Except for the 10.00% notes due April 1, 2009, the 10.75% notes due October 1, 2009 and the 9.625% notes due November 15, 2009 which notes may not be redeemed prior to their respective maturity dates, the Charter Holdings notes may be redeemed at the option of Charter Holdings on or after varying dates, in each case at a premium. The optional redemption price declines to 100% of the respective series’ principal amount, plus accrued and unpaid interest, on or after varying dates in 2008 through 2010.
In the event that a specified change of control event occurs, Charter Holdings and Charter Capital must offer to repurchase any then outstanding notes at 101% of their principal amount or accreted value, as applicable, plus accrued and unpaid interest, if any.
In September 2006, Charter Holdings, CCH I and CCH II, completed the exchange of approximately $797 million in total principal amount of outstanding debt securities of Charter Holdings for $250 million principal amount of new 10.25% CCH II notes due 2013 and $462 million principal amount of 11% CCH I notes due 2015. The Charter Holdings notes received in the exchange were thereafter distributed to Charter Holdings and cancelled. The exchange resulted in a gain on extinguishment of debt of approximately $108 million for the year ended December 31, 2006, included in gain (loss) on extinguishment of debt on Charter Holdings’ consolidated statements of operations.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
In April 2007, Charter Holdings completed a tender offer, in which $97 million of Charter Holdings’ notes were accepted in exchange for $100 million of total consideration, including premiums and accrued interest. In addition, Charter Holdings redeemed $187 million of its 8.625% senior notes due April 1, 2009 and CCO Holdings redeemed $550 million of its senior floating rate notes due December 15, 2010. These redemptions closed in April 2007. The Charter Holdings’ redemption and tender resulted in a loss on extinguishment of debt of approximately $3 million for the year ended December 31, 2007, included in gain (loss) on extinguishment of debt on Charter Holdings’ consolidated statements of operations. The CCO Holdings’ redemption resulted in a loss on extinguishment of debt of approximately $19 million for the year ended December 31, 2007, included in gain (loss) on extinguishment of debt on the Companies’ consolidated statements of operations.
On April 1, 2007, $105 million of Charter Holdings 8.25% notes matured and were paid off with proceeds from the CCO Holdings credit facility.
High-Yield Restrictive Covenants; Limitation on Indebtedness.
The indentures governing the Charter Holdings, CIH, CCH II, CCO Holdings and Charter Operating notes contain certain covenants that restrict the ability of Charter Holdings, Charter Capital, CIH, CIH Capital Corp., CCH I, CCH I Capital Corp., CCH II, CCH II Capital Corp., CCO Holdings, CCO Holdings Capital Corp., Charter Operating, Charter Communications Operating Capital Corp., and all of their restricted subsidiaries to:
| · | pay dividends on equity or repurchase equity; |
| · | sell all or substantially all of their assets or merge with or into other companies; |
| · | enter into sale-leasebacks; |
| · | in the case of restricted subsidiaries, create or permit to exist dividend or payment restrictions with respect to the bond issuers, guarantee their parent companies debt, or issue specified equity interests; |
| · | engage in certain transactions with affiliates; and |
Charter OperatingCCO Holdings Credit FacilitiesFacility
In March 2007, Charter Operating enteredThe CCO Holdings credit facility consists of a $350 million term loan. The term loan matures on September 6, 2014. The CCO Holdings credit facility also allows the Company to enter into incremental term loans in the Charter Operating credit facilities which provide for a $1.5 billion senior secured revolving line of credit, a continuationfuture, maturing on the dates set forth in the notices establishing such term loans, but no earlier than the maturity date of the existing $5.0 billion term loan facility (the “Existing Term Loan”), and a $1.5 billion newloans. However, no assurance can be given that the Company could obtain such incremental term loan facility (the “New Term Loan”), which was funded in March and April 2007. The refinancing resulted in a loss on extinguishment of debt for the year ended December 31, 2007 of approximately $13 million included in gain (loss) on extinguishment of debt on the Companies’ consolidated statements of operations.loans if CCO Holdings sought to do so. Borrowings under the Charter OperatingCCO Holdings credit facilitiesfacility bear interest at a variable interest rate based on either LIBOR or a base rate plus, in either case, an applicable margin. The applicable margin for LIBOR term loans, under the New Term Loan and revolvingother than incremental loans, is 2.00%2.50% above LIBOR. The revolving line of credit commitments terminate in March 2013. The Existing Term Loanapplicable margin with respect to the incremental loans is to be agreed upon by CCO Holdings and the New Term Loanlenders when the incremental loans are subject to amortization at 1%established. The CCO Holdings credit facility is secured by the equity interests of their initial principal amount per annum commencing on March 31, 2008 with the remaining principal amount of the New Term Loan due in March 2014. The Charter Operating, credit facilities also modified the quarterly consolidated leverage ratio to be less restrictive.and all proceeds thereof.
Charter Operating Credit Facilities
The Charter Operating credit facilities provide borrowing availability of up to $8.0 billion as follows:
· | a term loan with aan initial total principal amount of $6.5 billion, which is repayable in equal quarterly installments, commencing March 31, 2008, and aggregating in each loan year to 1% of the original amount of the term loan, with the remaining balance due at final maturity on March 6, 2014; and |
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
· | a revolving line of credit of $1.5 billion, with a maturity date on March 6, 2013. |
The Charter Operating credit facilities also allow the CompaniesCompany to enter into incremental term loans in the future with an aggregate amount of up to $1.0 billion, with amortization as set forth in the notices establishing such term loans, but with no amortization greater than 1% prior to the final maturity of the existing term loan. However,In March 2008, Charter Operating borrowed $500 million principal amount of incremental term loans (the “Incremental Term Loans”) under the Charter Operating credit facilities. The Incremental Term Loans have a final maturity of March 6, 2014 and prior to this date will amortize in quarterly principal installments totaling 1% annually beginning on June 30, 2008. The Incremental Term Loans bear interest at LIBOR plus 5.0%, with a LIBOR floor of 3.5%, and are otherwise governed by and subject to the existing terms of the Charter Operating credit facilities. Net proceeds from the Incremental Term Loans were used for general corporate purposes. Although the Charter Operating credit facilities allow for the incurrence of up to an additional $500 million in incremental term loans, no assurance can be given that suchadditional incremental term loans could be obtained in the future if Charter Operating sought to do so.so especially after filing a Chapter 11 bankruptcy proceeding on March 27, 2009. See Note 25.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
Amounts outstanding under the Charter Operating credit facilities bear interest, at Charter Operating’s election, at a base rate or the Eurodollar rate (4.87%(1.46% to 3.50% as of December 31, 2008 and 4.87% to 5.24% as of December 31, 2007 and 5.36% to 5.38% as of December 31, 2006)2007), as defined, plus a margin for Eurodollar loans of up to 2.00% for the revolving credit facility and 2.00% for the term loan, and quarterly commitment fee of 0.5% per annum is payable on the average daily unborrowed balance of the revolving credit facility.
The obligations of Charter Operating under the Charter Operating credit facilities (the “Obligations”) are guaranteed by Charter Operating’s immediate parent company, CCO Holdings, and the subsidiaries of Charter Operating, except for certain subsidiaries, including immaterial subsidiaries and subsidiaries precluded from guaranteeing by reason of provisions of other indebtedness to which they are subject (the “non-guarantor subsidiaries”). The Obligations are also secured by (i) a lien on substantially all of the assets of Charter Operating and its subsidiaries (other than assets of the non-guarantor subsidiaries), and (ii) a pledge by CCO Holdings of the equity interests owned by it in Charter Operating or any of Charter Operating’s subsidiaries, as well as intercompany obligations owing to it by any of such entities.
As of December 31, 2007,2008, outstanding borrowings under the Charter Operating credit facilities were approximately $6.8$8.2 billion and the unused total potential availability was approximately $1.0 billion, none of which was limited by covenant restrictions.
The Charter Operating refinancing in April 2006 resulted in a loss on extinguishment of debt for the year ended December 31, 2006 of approximately $24 million, included in loss on extinguishment of debt on the Companies’ consolidated statements of operations.
CCO Holdings Credit Facility
In March 2007, CCO Holdings entered into a credit agreement among CCO Holdings, the several lenders from time to time that are parties thereto, Bank of America, N.A., as administrative agent, and certain other agents (the “CCO Holdings credit facility”). The CCO Holdings credit facility consists of a $350 million term loan, which is fully drawn. The term loan matures on September 6, 2014. The CCO Holdings credit facility also allows the Companies to enter into incremental term loans in the future, maturing on the dates set forth in the notices establishing such loans, but no earlier than the maturity date of the existing term loans. However, no assurance can be given that such incremental term loans could be obtained if CCO Holdings sought to do so. Borrowings under the CCO Holdings credit facility bear interest at a variable interest rate based on either LIBOR or a base rate plus, in either case, an applicable margin. The applicable margin for LIBOR term loans, other than incremental loans, is 2.50% above LIBOR. The applicable margin with respect to the incremental loans is to be agreed upon by CCO Holdings and the lenders when the incremental loans are established. The CCO Holdings credit facility is secured by the equity interests of Charter Operating, and all proceeds thereof.$27 million.
Credit Facilities — Restrictive Covenants
Charter Operating Credit Facilities
The Charter Operating credit facilities contain representations and warranties, and affirmative and negative covenants customary for financings of this type. The financial covenants measure performance against standards set for leverage to be tested as of the end of each quarter. Additionally, the Charter Operating credit facilities contain
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
provisions requiring mandatory loan prepayments under specific circumstances, including in connection with certain sales of assets, so long as the proceeds have not been reinvested in the business.
The Charter Operating credit facilities permit Charter Operating and its subsidiaries to make distributions to pay interest on the Charter convertible notes, the Charter Holdings notes, the CIH notes, the CCH I notes, the CCH II notes, the CCO Holdings notes, the CCO Holdings credit facility, and the Charter Operating senior second-lien notes, provided that, among other things, no default has occurred and is continuing under the Charter Operating credit facilities. Conditions to future borrowings include absence of a default or an event of default under the Charter Operating credit facilities, and the continued accuracy in all material respects of the representations and warranties, including the absence since December 31, 2005 of any event, development, or circumstance that has had or could reasonably be expected to have a material adverse effect on the Companies’Company’s business.
The events of default under the Charter Operating credit facilities include, among other things:
| · | the failure to make payments when due or within the applicable grace period, |
| · | the failure to comply with specified covenants, including but not limited to a covenant to deliver audited financial statements for Charter Operating with an unqualified opinion from the Companies’Company’s independent accountants and without a “going concern” or like qualification or exception. |
| · | the failure to pay or the occurrence of events that cause or permit the acceleration of other indebtedness owing by CCO Holdings, Charter Operating, or Charter Operating’s subsidiaries in amounts in excess of $100 million in aggregate principal amount, |
| · | the failure to pay or the occurrence of events that result in the acceleration of other indebtedness owing by certain of CCO Holdings’ direct and indirect parent companies in amounts in excess of $200 million in aggregate principal amount, |
| · | Paul Allen and/or certain of his family members and/or their exclusively owned entities (collectively, the “Paul Allen Group”) ceasing to have the power, directly or indirectly, to vote at least 35% of the ordinary voting power of Charter Operating, |
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
| · | the consummation of any transaction resulting in any person or group (other than the Paul Allen Group) having power, directly or indirectly, to vote more than 35% of the ordinary voting power of Charter Operating, unless the Paul Allen Group holds a greater share of ordinary voting power of Charter Operating, and |
| · | Charter Operating ceasing to be a wholly-owned direct subsidiary of CCO Holdings, except in certain very limited circumstances. |
CCO Holdings Credit Facility
The CCO Holdings credit facility contains covenants that are substantially similar to the restrictive covenants for the CCO Holdings notes. The CCO Holdings credit facility contains provisions requiring mandatory loan prepayments under specific circumstances, including in connection with certain sales of assets, so long as the proceeds have not been reinvested in the business. The CCO Holdings credit facility permits CCO Holdings and its subsidiaries to make distributions to pay interest on the CCICharter convertible senior notes, the Charter Holdings notes, the CIH notes, the CCH I notes, the CCH II notes, the CCO Holdings notes, and the Charter Operating second-lien notes, provided that, among other things, no default has occurred and is continuing under the CCO Holdings credit facility.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
Based upon outstanding indebtedness as of December 31, 2007,2008, the amortization of term loans, scheduled reductions in available borrowings of the revolving credit facilities, and the maturity dates for all senior and subordinated notes and debentures, total future principal payments on the total borrowings under all debt agreements as of December 31, 2007,2008, are as follows:
Charter Holdings | | | |
Year | | Amount | |
| | | |
2008 | | $ | 65 | |
2009 | | | 253 | |
2010 | | | 2,297 | |
2011 | | | 346 | |
2012 | | | 1,240 | |
Thereafter | | | 15,210 | |
| | | | |
| | $ | 19,411 | |
CCH II | | | |
Year | | Amount | |
| | | |
2008 | | $ | 65 | |
2009 | | | 65 | |
2010 | | | 2,263 | |
2011 | | | 65 | |
2012 | | | 1,165 | |
Thereafter | | | 8,689 | |
| | | | |
| | $ | 12,312 | |
CCO Holdings | | | |
Year | | Amount | |
| | | |
2008 | | $ | 65 | |
2009 | | | 65 | |
2010 | | | 65 | |
2011 | | | 65 | |
2012 | | | 1,165 | |
Thereafter | | | 8,439 | |
| | | | |
| | $ | 9,864 | |
For the amounts of debt scheduled to mature during 2008, it is management’s intent to fund the repayments from borrowings on the Charter Operating revolving credit facility. The accompanying consolidated balance sheets reflect this intent by presenting all debt balances as long-term while the tables above reflect actual debt maturities as of the stated date.
Year | | Amount | |
| | | |
2009 | | $ | 70 | |
2010 | | | 70 | |
2011 | | | 70 | |
2012 | | | 1,170 | |
2013 | | | 2,185 | |
Thereafter | | | 8,247 | |
| | | | |
| | $ | 11,812 | |
10. Loans Payable - Related Party
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
10. | Loans Payable-Related Party |
Charter Holdings
On August 1, 2007, Charter Holdings distributed to Charter Holdco an intercompany note issued by Charter Operating with an outstanding balance, including accrued interest, of $119 million. As a result, loans payable-related party increased to $123 million as of December 31, 20072008 consists of loans from $3Charter Holdco and CCH II to the Company of $13 million as of December 31, 2006.
CCH II
and $227 million, respectively. Loans payable-related party as of December 31, 2007 consists of an intercompany note issued by Charter Operating and held by Charter Holdco of $123 million. Loans payable-related party as of December 31, 2006 consists of loans from Charter Holdco and Charter HoldingsCCH II to Charter Operating of $3 million and $105 million, respectively.
CCO Holdings
Loans payable-related party as of December 31, 2007 consists of intercompany notes issued by Charter Operating and held by Charter Holdco and CCH II of $123 million and $209 million, respectively. Loans payable-related party
11. Minority Interest
Minority interest on the Company’s consolidated balance sheets as of December 31, 2006 consists of loans from Charter Holdco, Charter Holdings2008 and CCH II to Charter Operating of $3 million, $105 million,2007 represents Mr. Paul G. Allen’s, Charter’s chairman and $195 million, respectively.
These loans are subject to certain limitations and may be repaid with borrowings under the Charter Operating revolving credit facility.
Minority interest on the Companies’ consolidated balance sheets of $199 million and $192 million for Charter Holdings, and $663 million and $641 million for each of CCH II and CCO Holdings as of December 31, 2007 and 2006, respectively, representscontrolling shareholder, 5.6% preferred membership interests in CC VIII, LLC (“CC VIII”), an indirect subsidiary of the Companies. Charter Investment, Inc. (“CII”)Company, of $676 million and $663 million, respectively. CII owns 30% of the CC VIII preferred membership interests. CCH I, the Company’s indirect subsidiary of Charter Holdings and the direct parent, of CCH II, directly owns the remaining 70% of these preferred interests. The common membership interests in CC VIII are indirectly owned by Charter Operating. As a result, minority interest at Charter Holdings represents 30% of the preferred membership interests whereas minority interest at CCH II and CCO Holdings represents 70%100% of the preferred membership interests. Minority interest in the accompanying consolidated statements of operations includes the 2% accretion of the preferred membership interests plus approximately 5.6% of CC VIII’s income, net of accretion for Charter Holdings and 18.6% of CC VIII’s income, net of accretion for each of CCH II and CCO Holdings.
accretion.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
12. Comprehensive Loss
The Companies reportCompany reports changes in the fair value of interest rate agreements designated as hedging the variability of cash flows associated with floating-rate debt obligations, that meet the effectiveness criteria of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, in accumulated other comprehensive income (loss). Charter Holdings had comprehensive lossesloss. Comprehensive loss for the years ended December 31, 2008, 2007, and 2006 and 2005 of $1.5was $1.7 billion, $1.1 billion, and $821 million, respectively. CCH II had comprehensive losses for the years ended December 31, 2007, 2006, and 2005 of $712 million, $403$474 million, and $408 million, respectively. CCO Holdings had comprehensive losses for the years ended December 31, 2007, 2006, and 2005 of $474 million, $194 million, and $241 million, respectively.
13. Accounting for Derivative Instruments and Hedging Activities
13. | Accounting for Derivative Instruments and Hedging Activities
|
The Companies use interest rate derivative instruments, including but not limited toCompany uses interest rate swap agreements and interest rate collar agreements (collectively referred to herein as interest rate agreements) to manage its interest
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
costs and reduce the Companies’Company’s exposure to increases in floating interest rates. The Companies’Company’s policy is to manage its exposure to fluctuations in interest rates by maintaining a mix of fixed and variable rate debt within a targeted range. Using interest rate swap agreements, the Companies agreeCompany agrees to exchange, at specified intervals through 2013, the difference between fixed and variable interest amounts calculated by reference to agreed-upon notional principal amounts. At the banks’ option, certain interest rate swap agreements may be extended through 2014.
The Companies’Company’s hedging policy does not permit themit to hold or issue derivative instruments for speculative trading purposes. The Companies do,Company does, however, have certain interest rate derivative instruments that have been designated as cash flow hedging instruments. Such instruments effectively convert variable interest payments on certain debt instruments into fixed payments. For qualifying hedges, SFAS No. 133 allows derivative gains and losses to offset related results on hedged items in the consolidated statement of operations. The Companies haveCompany has formally documented, designated and assessed the effectiveness of transactions that receive hedge accounting. For the years ended December 31, 2008, 2007, and 2006, and 2005, other income (expense), netchange in value of derivatives includes gains of $0, $2 million,$0, and $3$2 million, respectively, which represent cash flow hedge ineffectiveness on interest rate hedge agreements. This ineffectiveness arises from differences between critical terms of the agreements and the related hedged obligations.
Changes in the fair value of interest rate agreements that are designated as hedging instruments of the variability of cash flows associated with floating-rate debt obligations, and that meet the effectiveness criteria specified by SFAS No. 133 are reported in accumulated other comprehensive income (loss).loss. For the years ended December 31, 2008, 2007, 2006, and 2005,2006, losses of $180 million, $123 million and $1 million, and a gain of $16 million, respectively, related to derivative instruments designated as cash flow hedges, were recorded in accumulated other comprehensive income (loss).loss. The amounts are subsequently reclassified as an increase or decrease to interest expense in the same periods in which the related interest on the floating-rate debt obligations affects earnings (losses).
Certain interest rate derivative instruments are not designated as hedges as they do not meet the effectiveness criteria specified by SFAS No. 133. However, management believes such instruments are closely correlated with the respective debt, thus managing associated risk. Interest rate derivative instruments not designated as hedges are marked to fair value, with the impact recorded as other income (expense), net,a change in value of derivatives in the Company’s consolidated statements of operations. For the years ended December 31, 2008, 2007, and 2006, and 2005 other income (expense), netchange in value of derivatives includes losses of $62 million and $46 million and gains of $4 million, and $47 million, respectively, resulting from interest rate derivative instruments not designated as hedges.
As of December 31, 2008, 2007, and 2006, and 2005, the CompaniesCompany had outstanding $4.3 billion, $1.7$4.3 billion, and $1.8$1.7 billion, and $0, $0, and $20 million, respectively, in notional amounts of interest rate swaps and collars, respectively.outstanding. The notional amounts of interest rate instruments do not represent amounts exchanged by the parties and, thus, are not a measure of exposure to credit loss. The amounts exchanged are determined by reference to the notional amount and the other terms of the contracts.
14. | 14. Fair Value of Financial Instruments |
The Companies haveCompany has estimated the fair value of theirits financial instruments as of December 31, 20072008 and 20062007 using available market information or other appropriate valuation methodologies. Considerable judgment, however, is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented in the accompanying consolidated financial statements are not necessarily indicative of the amounts the CompaniesCompany would realize in a current market exchange.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
The carrying amounts of cash, receivables, payables and other current assets and liabilities approximate fair value because of the short maturity of those instruments. The Companies are exposed to market price risk volatility with respect to investments in publicly traded and privately held entities.
The fair value of interest rate agreements represents the estimated amount the CompaniesCompany would receive or pay upon termination of the agreements.agreements adjusted for Charter Operating’s credit risk. Management believes that the sellers of the interest rate agreements will be able to meet their obligations under the agreements. In addition, some of the interest rate agreements are with certain of the
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
participating banks under the Companies’Company’s credit facilities, thereby reducing the exposure to credit loss. The Companies haveCompany has policies regarding the financial stability and credit standing of major counterparties. Nonperformance by the counterparties is not anticipated nor would it have a material adverse effect on the Companies’Company’s consolidated financial condition or results of operations.
The estimated fair value of the Companies’Company’s notes and interest rate agreements at December 31, 20072008 and 20062007 are based on quoted market prices and the fair value of the credit facilities is based on dealer quotations.
A summary of the carrying value and fair value of the Companies’Company’s debt and related interest rate agreements at December 31, 20072008 and 20062007 is as follows:
| | 2007 | | 2006 |
| | Carrying | | Fair | | Carrying | | Fair |
| | Value | | Value | | Value | | Value |
Debt | | | | | | | | | | | | | | | |
Charter Holdings debt | | $ | 578 | | | $ | 471 | | | $ | 967 | | | $ | 932 |
CIH debt | | | 2,534 | | | | 1,627 | | | | 2,533 | | | | 2,294 |
CCH I debt | | | 4,083 | | | | 3,225 | | | | 4,092 | | | | 4,104 |
CCH II debt | | | 2,452 | | | | 2,390 | | | | 2,452 | | | | 2,575 |
CCO Holdings debt | | | 795 | | | | 761 | | | | 1,345 | | | | 1,391 |
Charter Operating debt | | | 1,870 | | | | 1,807 | | | | 1,870 | | | | 1,943 |
Credit facilities | | | 7,194 | | | | 6,723 | | | | 5,395 | | | | 5,418 |
Interest Rate Agreements | | | | | | | | | | | | | | | |
Assets (Liabilities) | | | | | | | | | | | | | | | |
Swaps | | | (169) | | | | (169) | | | | -- | | | | -- |
| | 2008 | | 2007 |
| | Carrying | | Fair | | Carrying | | Fair |
| | Value | | Value | | Value | | Value |
Debt | | | | | | | | | | | | | | | |
CCO Holdings debt | | $ | 796 | | | $ | 505 | | | $ | 795 | | | $ | 761 |
Charter Operating debt | | | 2,397 | | | | 1,923 | | | | 1,870 | | | | 1,807 |
Credit facilities | | | 8,596 | | | | 6,187 | | | | 7,194 | | | | 6,723 |
The Company adopted SFAS No. 157, Fair Value Measurements, on its financial assets and liabilities effective January 1, 2008, and has an established process for determining fair value. The Company has deferred adoption of SFAS No. 157 on its nonfinancial assets and liabilities including fair value measurements under SFAS No. 142 and SFAS No. 144 of franchises, goodwill, property, plant, and equipment, and other long-term assets until January 1, 2009 as permitted by FASB Staff Position (“FSP”) 157-2. Fair value is based upon quoted market prices, where available. If such valuation methods are not available, fair value is based on internally or externally developed models using market-based or independently-sourced market parameters, where available. Fair value may be subsequently adjusted to ensure that those assets and liabilities are recorded at fair value. The Company’s methodology may produce a fair value that may not be indicative of net realizable value or reflective of future fair values, but the Company believes its methods are appropriate and consistent with other market peers. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value estimate as of the Company’s reporting date.
SFAS No. 157 establishes a three-level hierarchy for disclosure of fair value measurements, based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date, as follows:
· | Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
· | Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
· | Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
Interest rate derivatives are valued using a present value calculation based on an implied forward LIBOR curve (adjusted for Charter Operating’s credit risk) and are classified within level 2 of the valuation hierarchy. The Company’s interest rate derivatives are accounted for at fair value on a recurring basis and totaled $411 million and
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
$169 million as of December 31, 2008 and 2007, respectively. The weighted average interest pay rate for the Companies’Company’s interest rate swap agreements was 4.93% and 4.87%4.93% at December 31, 2008 and 2007, and 2006, respectively.
15. | 15. Other Operating (Income) Expenses, Net |
Other operating (income) expenses, net consist of the following for the years presented:
| | Year Ended December 31, | |
| | 2007 | | | 2006 | | | 2005 | |
| | | | | | | | | |
(Gain) loss on sale of assets, net | | $ | (3 | ) | | $ | 8 | | | $ | 6 | |
Hurricane asset retirement loss | | | -- | | | | -- | | | | 19 | |
Special charges, net | | | (14 | ) | | | 13 | | | | 7 | |
| | | | | | | | | | | | |
| | $ | (17 | ) | | $ | 21 | | | $ | 32 | |
| | Year Ended December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | |
(Gain) loss on sale of assets, net | | $ | 13 | | | $ | (3 | ) | | $ | 8 | |
Special charges, net | | | 56 | | | | (14 | ) | | | 13 | |
| | | | | | | | | | | | |
| | $ | 69 | | | $ | (17 | ) | | $ | 21 | |
(Gain) loss on sale of assets, net
(Gain) loss on sale of assets represents the (gain) loss recognized on the sale of fixed assets and cable systems.
Hurricane asset retirement lossSpecial charges, net
ForSpecial charges, net for the year ended December 31, 2005,2008 includes severance charges and litigation related items, including settlement costs associated with the Sjoblom litigation (see Note 21), offset by favorable insurance settlements related to hurricane asset retirement loss represents the write off of $19 million of the Companies’ plants’ net book value as a result of significant plant damage suffered by certain of the Companies’ cable systems in Louisiana as a result of hurricanes Katrina and Rita.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
Special charges, net
claims. Special charges, net for the year ended December 31, 2007, primarily represents favorable legal settlements of approximately $20 million offset by severance associated with the closing of call centers and divisional restructuring. Special charges, net for the year ended December 31, 2006 primarily represent severance associated with the closing of call centers and divisional restructuring. Special charges, net
16. Loss on Extinguishment of Debt
| | Year Ended December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | |
CCO Holdings notes redemption | | $ | -- | | | $ | (19 | ) | | $ | -- | |
Charter Operating credit facilities refinancing | | | -- | | | | (13 | ) | | | (27 | ) |
| | | | | | | | | | | | |
| | $ | -- | | | $ | (32 | ) | | $ | (27 | ) |
In April 2007, CCO Holdings redeemed $550 million of its senior floating rate notes due December 15, 2010 resulting in a loss on extinguishment of debt of approximately $19 million for the year ended December 31, 2005 primarily represent severance costs as a result of reducing workforce, consolidating administrative offices and executive severance. For the year ended December 31, 2005, special charges, net were offset by approximately $2 million related to an agreed upon discount2007, included in respect of the portion of settlement consideration payable under the settlement terms of class action lawsuits.
16. | Gain (loss) on extinguishment of debt
|
| | Year Ended December 31, | |
| | 2007 | | | 2006 | | | 2005 | |
| | | | | | | | | |
CCO Holdings debt refinancings | | $ | (19 | ) | | $ | (3 | ) | | $ | -- | |
Charter Operating credit facilities refinancing | | | (13 | ) | | | (24 | ) | | | -- | |
CC V Holdings notes repurchase | | | -- | | | | -- | | | | (5 | ) |
Other | | | -- | | | | -- | | | | (1 | ) |
| | | | | | | | | | | | |
Gain (loss) on extinguishment of debt – CCH II and CCO Holdings | | | (32 | ) | | | (27 | ) | | | (6 | ) |
Charter Holdings debt exchanges and refinancings | | | (3 | ) | | | 108 | | | | 500 | |
| | | | | | | | | | | | |
Gain (loss) on extinguishment of debt – Charter Holdings | | $ | (35 | ) | | $ | 81 | | | $ | 494 | |
See Note 9 for discussion of 2007 and 2006 debt transactions.
In March and June 2005, Charter Operating consummated exchange transactions with a small number of institutional holders of Charter Holdings 8.25% senior notes due 2007 pursuant to which Charter Operating issued approximately $333 million principal amount of new notes with terms identical to Charter Operating's 8.375% senior second lien notes due 2014 in exchange for approximately $346 million of the Charter Holdings 8.25% senior notes due 2007. The Charter Holdings notes received in the exchange were thereafter distributed to Charter Holdings and cancelled. The exchanges resulted in a gainloss on extinguishment of debt of approximately $10 million recorded in Charter Holdings’on the Company’s consolidated statements of operations.
In March 2005, all of CC V Holdings, LLC’s (“CC V”) outstanding 11.875% senior discount notes due 2008 were redeemed at a total cost of $122 million,2007, Charter Operating refinanced its facilities resulting in a loss of extinguishment of debt of approximately $5 million.
In September 2005, Charter Holdings and its wholly owned subsidiaries, CCH I and CIH, completed the exchange of approximately $6.8 billion total principal amount of outstanding debt securities of Charter Holdings in a private placement for CCH I and CIH new debt securities. The Charter Holdings notes received in the exchange were thereafter distributed to Charter Holdings and cancelled. The exchanges resulted in a gain on extinguishment of debt for the year ended December 31, 2007 of approximately $490$13 million recordedincluded in Charter Holdings’loss on extinguishment of debt on the Company’s consolidated statements of operations.
In April 2006, Charter Operating completed a $6.85 billion refinancing of its credit facilities including a new $350 million revolving/term facility (which converts to a term loan no later than April 2007), a $5.0 billion term loan due in 2013 and certain amendments to the existing $1.5 billion revolving credit facility. In addition, the refinancing reduced margins on Eurodollar rate term loans to 2.625% from a weighted average of 3.15% previously and margins on base rate term loans to 1.625% from a weighted average of 2.15% previously. Concurrent with this refinancing, the CCO Holdings bridge loan was terminated. The refinancing resulted in a loss on extinguishment of debt for the year ended December 31, 2006 of approximately $27 million.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 2006 AND 20052006
(dollars in millions, except where indicated)
17. | Other Income (Expense), Net
|
17. Other Expense, Net
Other income (expense),expense, net consists of the following for years presented:
| | Charter Holdings | |
| | Year Ended December 31, | |
| | 2007 | | | 2006 | | | 2005 | |
| | | | | | | | | |
Gain (loss) on derivative instruments and hedging activities, net (Note 13) | | $ | (46 | ) | | $ | 6 | | | $ | 50 | |
Minority interest (Note 11) | | | (7 | ) | | | (4 | ) | | | 1 | |
Gain (loss) on investment (Note 3) | | | (2 | ) | | | 13 | | | | 22 | |
Other, net | | | -- | | | | 2 | | | | -- | |
| | | | | | | | | | | | |
| | $ | (55 | ) | | $ | 17 | | | $ | 73 | |
| | Year Ended December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | |
Minority interest (Note 11) | | $ | (13 | ) | | $ | (22 | ) | | $ | (20 | ) |
Gain (loss) on investment | | | (1 | ) | | | (2 | ) | | | 13 | |
Other, net | | | (5 | ) | | | -- | | | | 3 | |
| | | | | | | | | | | | |
| | $ | (19 | ) | | $ | (24 | ) | | $ | (4 | ) |
| | CCH II and CCO Holdings | |
| | Year Ended December 31, | |
| | 2007 | | | 2006 | | | 2005 | |
| | | | | | | | | |
Gain (loss) on derivative instruments and hedging activities, net (Note 13) | | $ | (46 | ) | | $ | 6 | | | $ | 50 | |
Minority interest (Note 11) | | | (22 | ) | | | (20 | ) | | | 33 | |
Gain (loss) on investment (Note 3) | | | (2 | ) | | | 13 | | | | 22 | |
Other, net | | | -- | | | | 3 | | | | -- | |
| | | | | | | | | | | | |
| | $ | (70 | ) | | $ | 2 | | | $ | 105 | |
Charter has stock compensation plans (the “Plans”) which provide for the grant of non-qualified stock options, stock appreciation rights, dividend equivalent rights, performance units and performance shares, share awards, phantom stock and/or shares of restricted stock (not(shares of restricted stock not to exceed 20.0 million shares of Charter Class A common stock), as each term is defined in the Plans. Employees, officers, consultants and directors of Charter and its subsidiaries and affiliates are eligible to receive grants under the Plans. Options granted generally vest over four years from the grant date, with 25% generally vesting on the anniversary of the grant date and ratably thereafter. Generally, options expire 10 years from the grant date. The 2001 Stock Incentive Plan allows for the issuance of up to a total of 90.0 million shares of Charter Class A common stock (or units convertible into Charter Class A common stock).
In the years ended December 31, 2007, 2006, and 2005, certain directors were awarded a total of 0.2 million, 0.6 million, and 0.5 million shares, respectively, of restricted Charter Class A common stock of which no shares had been cancelled as of December 31, 2007. The shares vest one year from the date of grant. In 2007, 2006, and 2005, in connection with new employment agreements, certain officers were awarded 2.3 million, 0.1 million, and 3.0 million shares, respectively, of restricted Charter Class A common stock of which no shares had been cancelled as of December 31, 2007. The shares vest annually over a one to three-year period beginning from the date of grant. As of December 31, 2007, deferred compensation remaining to be recognized in future periods totaled $8 million.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
A summary of the activity for Charter’s stock options, excluding granted shares of restricted Charter Class A common stock, for the years ended December 31, 2007, 2006, and 2005, is as follows (amounts in thousands, except per share data):
| | 2007 | | | 2006 | | | 2005 | |
| | | | | Weighted | | | | | | Weighted | | | | | | Weighted | |
| | | | | Average | | | | | | Average | | | | | | Average | |
| | | | | Exercise | | | | | | Exercise | | | | | | Exercise | |
| | Shares | | | Price | | | Shares | | | Price | | | Shares | | | Price | |
| | | | | | | | | | | | | | | | | | |
Options outstanding, beginning of period | | | 26,403 | | | $ | 3.88 | | | | 29,127 | | | $ | 4.47 | | | | 24,835 | | | $ | 6.57 | |
Granted | | | 4,549 | | | | 2.77 | | | | 6,065 | | | | 1.28 | | | | 10,810 | | | | 1.36 | |
Exercised | | | (2,759 | ) | | | 1.57 | | | | (1,049 | ) | | | 1.41 | | | | (17 | ) | | | 1.11 | |
Cancelled | | | (2,511 | ) | | | 2.98 | | | | (7,740 | ) | | | 4.39 | | | | (6,501 | ) | | | 7.40 | |
| | | | | | �� | | | | | | | | | | | | | | | | | | |
Options outstanding, end of period | | | 25,682 | | | $ | 4.02 | | | | 26,403 | | | $ | 3.88 | | | | 29,127 | | | $ | 4.47 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average remaining contractual life | | 7 years | | | | | | | 8 years | | | | | | | 8 years | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Options exercisable, end of period | | | 13,119 | | | $ | 5.88 | | | | 10,984 | | | $ | 6.62 | | | | 9,999 | | | $ | 7.80 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average fair value of options granted | | $ | 1.86 | | | | | | | $ | 0.96 | | | | | | | $ | 0.65 | | | | | |
The following table summarizes information about stock options outstanding and exercisable as of December 31, 2007 (amounts in thousands, except per share data):
| | Options Outstanding | | Options Exercisable |
| | | | Weighted- | | | | | | Weighted- | | |
| | | | Average | | Weighted- | | | | Average | | Weighted- |
| | | | Remaining | | Average | | | | Remaining | | Average |
Range of | | Number | | Contractual | | Exercise | | Number | | Contractual | | Exercise |
Exercise Prices | | Outstanding | | Life | | Price | | Exercisable | | Life | | Price |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
$ | 1.00 | | — | | $ | 1.36 | | 8,915 | | 8 years | | $ | 1.17 | | 3,097 | | 8 years | | $ | 1.17 |
$ | 1.53 | | — | | $ | 1.96 | | 3,270 | | 7 years | | | 1.55 | | 1,752 | | 7 years | | | 1.55 |
$ | 2.66 | | — | | $ | 3.35 | | 5,712 | | 8 years | | | 2.89 | | 1,372 | | 6 years | | | 2.93 |
$ | 4.30 | | — | | $ | 5.17 | | 4,684 | | 6 years | | | 5.00 | | 3,798 | | 6 years | | | 4.99 |
$ | 9.13 | | — | | $ | 12.27 | | 1,406 | | 4 years | | | 10.95 | | 1,406 | | 4 years | | | 10.95 |
$ | 13.96 | | — | | $ | 20.73 | | 1,433 | | 2 years | | | 18.49 | | 1,433 | | 2 years | | | 18.49 |
$ | 21.20 | | — | | $ | 23.09 | | 262 | | 3 years | | | 22.84 | | 262 | | 3 years | | | 22.84 |
In January 2004, the Compensation and Benefits Committee of the board of directors of Charter approvedUnder Charter's Long-Term Incentive Program (“LTIP”), which is a program administered under the 2001 Stock Incentive Plan. Under the LTIP,Plan, employees of Charter and its subsidiaries whose pay classifications exceedexceeded a certain level arewere eligible in 2006 and 2007 to receive stock options, and more senior level employees arewere eligible to receive stock options and performance units. The stock options vest 25% on each of the first four anniversaries of the date of grant. Generally, options expire 10 years from the grant date. The performance units becomebecame performance shares on or about the first anniversary of the grant date, conditional upon Charter's performance against financial performance measures established by Charter’s management and approved by its board of directors as of the time of the award. The performance shares become shares of Charter Class A common stock on the third anniversary of the grant date of the performance units. In March 2008, Charter granted 15.8 million and 12.2 millionadopted the 2008 incentive program to allow for the issuance of performance units inand restricted stock under the years2001 Stock Incentive Plan and for the issuance of performance cash. Under the 2008 incentive program, subject to meeting performance criteria, performance units and performance cash are deposited into a performance bank of which one-third of the balance is paid out each year. Restricted stock granted under this program vests annually over a three-year period beginning from the date of grant. During the year ended December 31, 20072008, Charter granted $8 million of performance cash under Charter’s 2008 incentive program and 2006, respectively, under this program, andrecognized $2 million of expense for the year ended December 31, 2008.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
A summary of the activity for Charter’s stock options for the years ended December 31, 2008, 2007, and 2006, is as follows (amounts in thousands, except per share data):
| | 2008 | | | 2007 | | | 2006 | |
| | | | | Weighted | | | | | | Weighted | | | | | | Weighted | |
| | | | | Average | | | | | | Average | | | | | | Average | |
| | | | | Exercise | | | | | | Exercise | | | | | | Exercise | |
| | Shares | | | Price | | | Shares | | | Price | | | Shares | | | Price | |
| | | | | | | | | | | | | | | | | | |
Outstanding, beginning of period | | | 25,682 | | | $ | 4.02 | | | | 26,403 | | | $ | 3.88 | | | | 29,127 | | | $ | 4.47 | |
Granted | | | 45 | | | | 1.19 | | | | 4,549 | | | | 2.77 | | | | 6,065 | | | | 1.28 | |
Exercised | | | (53 | ) | | | 1.18 | | | | (2,759 | ) | | | 1.57 | | | | (1,049 | ) | | | 1.41 | |
Cancelled | | | (3,630 | ) | | | 5.27 | | | | (2,511 | ) | | | 2.98 | | | | (7,740 | ) | | | 4.39 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Outstanding, end of period | | | 22,044 | | | $ | 3.82 | | | | 25,682 | | | $ | 4.02 | | | | 26,403 | | | $ | 3.88 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average remaining contractual life | | 6 years | | | | | | | 7 years | | | | | | | 8 years | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Options exercisable, end of period | | | 15,787 | | | $ | 4.53 | | | | 13,119 | | | $ | 5.88 | | | | 10,984 | | | $ | 6.62 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average fair value of options granted | | $ | 0.90 | | | | | | | $ | 1.86 | | | | | | | $ | 0.96 | | | | | |
The following table summarizes information about Charter’s stock options outstanding and exercisable as of December 31, 2008 (amounts in thousands, except per share data):
| | Options Outstanding | | Options Exercisable |
| | | | Weighted- | | | | | | Weighted- | | |
| | | | Average | | Weighted- | | | | Average | | Weighted- |
| | | | Remaining | | Average | | | | Remaining | | Average |
Range of | | Number | | Contractual | | Exercise | | Number | | Contractual | | Exercise |
Exercise Prices | | Outstanding | | Life | | Price | | Exercisable | | Life | | Price |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | $ | 1.00 | — | | $ | 1.36 | | 8,278 | | 7 years | | | 1.17 | | 5,528 | | 7 years | | 1.17 |
| | $ | 1.53 | — | | $ | 1.96 | | 2,821 | | 6 years | | | 1.55 | | 2,178 | | 6 years | | 1.55 |
| | $ | 2.66 | — | | $ | 3.35 | | 4,981 | | 7 years | | | 2.89 | | 2,229 | | 6 years | | 2.92 |
| | $ | 4.30 | — | | $ | 5.17 | | 3,566 | | 5 years | | | 5.00 | | 3,454 | | 5 years | | 5.02 |
| | $ | 9.13 | — | | $ | 12.27 | | 1,008 | | 3 years | | | 11.19 | | 1,008 | | 3 years | | 11.19 |
| | $ | 13.96 | — | | $ | 20.73 | | 1,168 | | 1 year | | | 18.41 | | 1,168 | | 1 year | | 18.41 |
| | $ | 21.20 | — | | $ | 23.09 | | 222 | | 2 years | | | 22.86 | | 222 | | 2 years | | 22.86 |
CCO HOLDINGS, LLC AND 2005SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
recognized expense
A summary of $10 millionthe activity for Charter’s restricted Class A common stock for the years ended December 31, 2008, 2007, and $4 million, respectively. In 2005, Charter granted 3.2 million2006, is as follows (amounts in thousands, except per share data):
| | 2008 | | 2007 | | 2006 |
| | | | Weighted | | | | Weighted | | | | Weighted |
| | | | Average | | | | Average | | | | Average |
| | | | Grant | | | | Grant | | | | Grant |
| | Shares | | Price | | Shares | | Price | | Shares | | Price |
| | | | | | | | | | | | | | | | | | |
Outstanding, beginning of period | | | 4,112 | | $ | 2.87 | | | 3,033 | | $ | 1.96 | | | 4,713 | | $ | 2.08 |
Granted | | | 10,761 | | | 0.85 | | | 2,753 | | | 3.64 | | | 906 | | | 1.28 |
Vested | | | (2,298) | | | 2.36 | | | (1,208) | | | 1.83 | | | (2,278) | | | 1.62 |
Cancelled | | | (566) | | | 1.57 | | | (466) | | | 4.37 | | | (308) | | | 4.37 |
| | | | | | | | | | | | | | | | | | |
Outstanding, end of period | | | 12,009 | | $ | 1.21 | | | 4,112 | | $ | 2.87 | | | 3,033 | | $ | 1.96 |
A summary of the activity for Charter’s performance units under this program but did not recognize any expense, based onand shares for the Companies’ assessmentyears ended December 31, 2008, 2007, and 2006, is as follows (amounts in thousands, except per share data):
| | 2008 | | 2007 | | 2006 |
| | | | Weighted | | | | Weighted | | | | Weighted |
| | | | Average | | | | Average | | | | Average |
| | | | Grant | | | | Grant | | | | Grant |
| | Shares | | Price | | Shares | | Price | | Shares | | Price |
| | | | | | | | | | | | | | | | | | |
Outstanding, beginning of period | | | 28,013 | | $ | 2.16 | | | 15,206 | | $ | 1.27 | | | 5,670 | | $ | 3.09 |
Granted | | | 10,137 | | | 0.84 | | | 14,797 | | | 2.95 | | | 13,745 | | | 1.22 |
Vested | | | (1,562) | | | 1.49 | | | (41) | | | 1.23 | | | -- | | | -- |
Cancelled | | | (3,551) | | | 2.08 | | | (1,949) | | | 1.51 | | | (4,209) | | | 3.58 |
| | | | | | | | | | | | | | | | | | |
Outstanding, end of period | | | 33,037 | | $ | 1.80 | | | 28,013 | | $ | 2.16 | | | 15,206 | | $ | 1.27 |
As of the probability of achieving the financial performance measures established by Charter and requiredDecember 31, 2008, deferred compensation remaining to be met forrecognized in future periods totaled $41 million.
In the first quarter of 2009, the majority of restricted stock and performance units to vest. In February 2006, the Compensation and Benefits Committee of Charter’s board of directors approved a modification to the financial performance measures under Charter's LTIP required to be met for the 2005 performance units to become performance shares which vest in March 2008. Such expense is being recognized overwere forfeited, and the remaining two year service period.will be cancelled in connection with the Proposed Restructuring. See Note 25.
Charter Holdings, CCH II and CCO Holdings areis a single member limited liability companiescompany not subject to income tax and holdtax. CCO Holdings holds all operations through indirect subsidiaries. The majority of these indirect subsidiaries are limited liability companies that are also not subject to income tax. However, certain of the limited liability companies are subject to state income tax. In addition, certain of the Companies’CCO Holdings’ indirect subsidiaries are corporations that are subject to income tax.
For the year ended December 31, 2008, the Company recorded income tax benefit related to decreases in deferred tax liabilities of certain of its indirect subsidiaries attributable to the write-down of franchise assets for financial statement purposes and not for tax purposes. For the years ended December 31, 2007 and 2006, and 2005, the CompaniesCompany recorded income tax expense related to increases in deferred tax liabilities and current federal and state income taxes primarily related to differences in accounting for franchises at our indirect corporate subsidiaries and limited liability companies that are subject to income tax. However, the actual tax provision calculations in future periods will be the result of current and future temporary differences, as well as future operating results.
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
Current and deferred income tax benefit (expense) is as follows:
| | December 31, | |
| | 2007 | | | 2006 | | | 2005 | |
Current expense: | | | | | | | | | |
Federal income taxes | | $ | (3 | ) | | $ | (3 | ) | | $ | (2 | ) |
State income taxes | | | (5 | ) | | | (4 | ) | | | (4 | ) |
| | | | | | | | | | | | |
Current income tax expense | | | (8 | ) | | | (7 | ) | | | (6 | ) |
| | | | | | | | | | | | |
Deferred expense: | | | | | | | | | | | | |
Federal income taxes | | | 4 | | | | -- | | | | (3 | ) |
State income taxes | | | (16 | ) | | | -- | | | | -- | |
| | | | | | | | | | | | |
Deferred income tax expense | | | (12 | ) | | | -- | | | | (3 | ) |
| | | | | | | | | | | | |
Total income expense | | $ | (20 | ) | | $ | (7 | ) | | $ | (9 | ) |
| | December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
Current expense: | | | | | | | | | |
Federal income taxes | | $ | (2 | ) | | $ | (3 | ) | | $ | (3 | ) |
State income taxes | | | (5 | ) | | | (5 | ) | | | (4 | ) |
| | | | | | | | | | | | |
Current income tax expense | | | (7 | ) | | | (8 | ) | | | (7 | ) |
| | | | | | | | | | | | |
Deferred benefit (expense): | | | | | | | | | | | | |
Federal income taxes | | | 28 | | | | 4 | | | | -- | |
State income taxes | | | 19 | | | | (16 | ) | | | -- | |
| | | | | | | | | | | | |
Deferred income tax benefit (expense) | | | 47 | | | | (12 | ) | | | -- | |
| | | | | | | | | | | | |
Total income benefit (expense) | | $ | 40 | | | $ | (20 | ) | | $ | (7 | ) |
Income tax benefit for the year ended December 31, 2008 included $32 million of deferred tax benefit related to the impairment of franchises. Income tax for the year ended December 31, 2007 includes $18 million of deferred income tax expense previously recorded at the Companies’Company’s indirect parent company. This adjustment should have been recorded by the CompaniesCompany in prior periods.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
The Companies’Company’s effective tax rate differs from that derived by applying the applicable federal income tax rate of 35%, and average state income tax rate of 2.3%, 2.9% for the year ended December 31, 2007, and 5% for the years ended December 31, 2008, 2007, and 2006, and 2005respectively, as follows:
| | Charter Holdings | |
| | December 31, | |
| | 2007 | | | 2006 | | | 2005 | |
| | | | | | | | | |
Statutory federal income taxes | | $ | 474 | | | $ | 471 | | | $ | 279 | |
Statutory state income taxes, net | | | 38 | | | | 67 | | | | 40 | |
Losses allocated to limited liability companies not subject to income taxes | | | (513 | ) | | | (533 | ) | | | (345 | ) |
Franchises | | | (12 | ) | | | -- | | | | (3 | ) |
Valuation allowance provided and other | | | (7 | ) | | | (12 | ) | | | 20 | |
| | | | | | | | | | | | |
Income tax expense | | $ | (20 | ) | | $ | (7 | ) | | $ | (9 | ) |
| | December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | |
Statutory federal income tax benefit | | $ | 530 | | | $ | 116 | | | $ | 149 | |
Statutory state income tax benefit, net | | | 35 | | | | 10 | | | | 21 | |
Losses allocated to limited liability companies not subject to income taxes | | | (565 | ) | | | (127 | ) | | | (165 | ) |
Franchises | | | 47 | | | | (12 | ) | | | -- | |
Valuation allowance provided and other | | | (7 | ) | | | (7 | ) | | | (12 | ) |
| | | | | | | | | | | | |
Income tax benefit (expense) | | $ | 40 | | | $ | (20 | ) | | $ | (7 | ) |
| | CCH II | |
| | December 31, | |
| | 2007 | | | 2006 | | | 2005 | |
| | | | | | | | | |
Statutory federal income taxes | | $ | 199 | | | $ | 222 | | | $ | 146 | |
Statutory state income taxes, net | | | 16 | | | | 32 | | | | 21 | |
Losses allocated to limited liability companies not subject to income taxes | | | (216 | ) | | | (249 | ) | | | (196 | ) |
Franchises | | | (12 | ) | | | -- | | | | (3 | ) |
Valuation allowance provided and other | | | (7 | ) | | | (12 | ) | | | 23 | |
| | | | | | | | | | | | |
Income tax expense | | $ | (20 | ) | | $ | (7 | ) | | $ | (9 | ) |
| | CCO Holdings | |
| | December 31, | |
| | 2007 | | | 2006 | | | 2005 | |
| | | | | | | | | |
Statutory federal income taxes | | $ | 116 | | | $ | 149 | | | $ | 87 | |
Statutory state income taxes, net | | | 10 | | | | 21 | | | | 12 | |
Losses allocated to limited liability companies not subject to income taxes | | | (127 | ) | | | (165 | ) | | | (128 | ) |
Franchises | | | (12 | ) | | | -- | | | | (3 | ) |
Valuation allowance provided and other | | | (7 | ) | | | (12 | ) | | | 23 | |
| | | | | | | | | | | | |
Income tax expense | | $ | (20 | ) | | $ | (7 | ) | | $ | (9 | ) |
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 2006 AND 20052006
(dollars in millions, except where indicated)
The tax effects of these temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2008 and 2007 and 2006for the indirect subsidiaries of the Company which are included in long-term liabilities are presented below.
| | December 31, | |
| | 2007 | | | 2006 | |
Deferred tax assets: | | | | | | |
Net operating loss carryforward | | $ | 111 | | | $ | 85 | |
Other | | | 8 | | | | 5 | |
| | | | | | | | |
Total gross deferred tax assets | | | 119 | | | | 90 | |
Less: valuation allowance | | | (70 | ) | | | (63 | ) |
| | | | | | | | |
Deferred tax assets | | $ | 49 | | | $ | 27 | |
| | | | | | | | |
Deferred tax liabilities: | | | | | | | | |
Property, plant & equipment | | | (37 | ) | | | (31 | ) |
Franchises | | | (238 | ) | | | (195 | ) |
| | | | | | | | |
Deferred tax liabilities | | | (275 | ) | | | (226 | ) |
| | | | | | | | |
Net deferred tax liabilities | | $ | (226 | ) | | $ | (199 | ) |
During the year ended December 31, 2007, the Companies recorded an additional $32 million of deferred tax liabilities previously recorded at the Companies’ indirect parent company, $14 million of which was recorded through member’s equity. | | December 31, | |
| | 2008 | | | 2007 | |
Deferred tax assets: | | | | | | |
Net operating loss carryforward | | $ | 97 | | | $ | 111 | |
Other | | | 2 | | | | 8 | |
| | | | | | | | |
Total gross deferred tax assets | | | 99 | | | | 119 | |
Less: valuation allowance | | | (60 | ) | | | (70 | ) |
| | | | | | | | |
Deferred tax assets | | $ | 39 | | | $ | 49 | |
| | | | | | | | |
Deferred tax liabilities: | | | | | | | | |
Property, plant & equipment | | $ | (36 | ) | | $ | (37 | ) |
Franchises | | | (182 | ) | | | (238 | ) |
| | | | | | | | |
Deferred tax liabilities | | | (218 | ) | | | (275 | ) |
| | | | | | | | |
Net deferred tax liabilities | | $ | (179 | ) | | $ | (226 | ) |
As of December 31, 2007,2008, the Companies haveCompany had deferred tax assets of $119$99 million, which primarily relate to net operating loss carryforwards of certain of its indirect corporate subsidiaries and limited liability companies subject to state income tax. These net operating loss carryforwards (generally expiring in years 20082009 through 2027)2028) are subject to certain return limitations. A valuation allowance of $70$60 million exists with respect to these carryforwardscarry forwards as of December 31, 2007.2008.
In assessing the realizability of deferredNo tax assets, management considers whether it is more likely than not that some portionyears for Charter or all of the deferred tax assets will be realized. Because of the uncertainties in projecting future taxable income of Charter Holdco, valuation allowances have been established except for deferred benefits available to offset certain deferred tax liabilities that will reverse over time.
Charter and Charter Holdco, our indirect parent companies, are currently under examination by the Internal Revenue Service for the taxService. Tax years ending December 31, 20042006, 2007 and 2005. Management does not expect the results of these examinations2008 remain subject to have a material adverse effect on the Companies’ consolidated financial condition or results of operations.examination.
In January 2007, the CompaniesCompany adopted FIN 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109, which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits. The Companies haveCompany does not believe it has taken any significant positions that they believe would not meet the “more likely than not” criteria and require disclosure.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
20. | Related Party Transactions |
The following sets forth certain transactions in which the CompaniesCompany and the directors, executive officers, and affiliates of the CompaniesCompany are involved. Unless otherwise disclosed, management believes that each of the transactions described below was on terms no less favorable to the CompaniesCompany than could have been obtained from independent third parties.
Charter is a party to management arrangements with Charter Holdco and certain of its subsidiaries. Under these agreements, Charter and Charter Holdco provide management services for the cable systems owned or operated by their subsidiaries. The management services include such services as centralized customer billing services, data processing and related support, benefits administration and coordination of insurance coverage and self-insurance programs for medical, dental and workers’ compensation claims. Costs associated with providing these services are charged directly to the Companies’Company’s operating subsidiaries and are included within operating costs in the accompanying consolidated statements of operations. Such costs totaled $213 million, $231$213 million, and $205$231 million for the years ended December 31, 2008, 2007, 2006, and 2005,2006, respectively. All other costs incurred on behalf of Charter’s operating subsidiaries are considered a part of the management fee and are recorded as a component of
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
selling, general and administrative expense, in the accompanying consolidated financial statements. For the years ended December 31, 2008, 2007, 2006, and 2005,2006, the management fee charged to the Companies’Company’s operating subsidiaries approximated the expenses incurred by Charter Holdco and Charter on behalf of the Companies’Company’s operating subsidiaries. The Companies’Company’s previous credit facilities prohibitprohibited payments of management fees in excess of 3.5% of revenues until repayment of the outstanding indebtedness. In the event any portion of the management fee due and payable iswas not paid, it iswould be deferred by Charter and accrued as a liability of such subsidiaries. Any deferred amount of the management fee willwould bear interest at the rate of 10% per year, compounded annually, from the date it was due and payable until the date it is paid.
Mr. Allen, the controlling shareholder of Charter, and a number of his affiliates have interests in various entities that provide services or programming to Charter’s subsidiaries. Given the diverse nature of Mr. Allen’s investment activities and interests, and to avoid the possibility of future disputes as to potential business, Charter and Charter Holdco, under the terms of their respective organizational documents, may not, and may not allow their subsidiaries to engage in any business transaction outside the cable transmission business except for certain existing approved investments. Charter or Charter Holdco or any of their subsidiaries may not pursue, or allow their subsidiaries to pursue, a business transaction outside of this scope, unless Mr. Allen consents to Charter or its subsidiaries engaging in the business transaction. The cable transmission business means the business of transmitting video, audio, including telephone, and data over cable systems owned, operated or managed by Charter, Charter Holdco or any of their subsidiaries from time to time.
Mr. Allen or his affiliates own or have owned equity interests or warrants to purchase equity interests in various entities with which the Companies doCompany does business or which provide themprovides it with products, services or programming. Among these entities are Oxygen Media Corporation (“Oxygen Media”), Digeo, Inc. (“Digeo”), Click2learn, Inc., Trail Blazer Inc., Action Sports Cable Network (“Action Sports”) and Microsoft Corporation. Mr. Allen owns 100% of the equity of Vulcan Ventures Incorporated (“Vulcan Ventures”) and Vulcan Inc. and is the president of Vulcan Ventures. Ms. Jo Allen Patton is a director of Charterthe Company and the President and Chief Executive Officer of Vulcan Inc. and is a director and Vice President of Vulcan Ventures. Mr. Lance Conn is a director of Charterthe Company and is Executive Vice President of Vulcan Inc. and Vulcan Ventures. The various cable, media, Internet and telephone companies in which Mr. Allen has invested may mutually benefit one another. The CompaniesCompany can give no assurance, nor should you expect, that any of these business relationships will be successful, that the CompaniesCompany will realize any benefits from these relationships or that the CompaniesCompany will enter into any business relationships in the future with Mr. Allen’s affiliated companies.
Mr. Allen and his affiliates have made, and in the future likely will make, numerous investments outside of the CompaniesCompany and theirits business. The CompaniesCompany cannot provide any assurance that, in the event that the CompaniesCompany or any of theirits subsidiaries enter into transactions in the future with any affiliate of Mr. Allen, such transactions will be on terms as favorable to the CompaniesCompany as terms it might have obtained from an unrelated third party. Also,
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
conflicts could arise with respect to the allocation of corporate opportunities between the CompaniesCompany and Mr. Allen and his affiliates. The Companies haveCompany has not instituted any formal plan or arrangement to address potential conflicts of interest.
The Companies received or receive programming for broadcast via its cable systems from Oxygen Media and Trail BlazersIn 2009, pursuant to indemnification provisions in the October 2005 settlement with Mr. Allen regarding the CC VIII interest, the Company reimbursed Vulcan Inc. The Companies pay a fee for the programming service generally based on the number of customers receiving the service. Such fees for the years ended December 31, 2007, 2006, and 2005 were each less than 1% of total operatingapproximately $3 million in legal expenses.
Oxygen. Oxygen Media LLC ("Oxygen") provides programming content to the CompaniesCompany pursuant to a carriage agreement. Under the carriage agreement, the CompaniesCompany paid Oxygen approximately $8$6 million, $8 million, and $9$8 million for the years ended December 31, 2008, 2007, 2006, and 2005,2006, respectively.
In 2005, pursuant to an amended equity issuance agreement, Oxygen Media delivered 1 million shares of Oxygen Preferred Stock with a liquidation preference of $33.10 per share plus accrued dividends to Charter Holdco. In November 2007, Oxygen was sold to an unrelated third party and Charter Holdco received approximately $35 million representing its liquidation preference on its preferred stock. Mr. Allen and his affiliates also no longer have an interest in Oxygen.
The Companies recognized the guaranteed value of the investment over the life of the initial carriage agreement (which expired February 1, 2005) as a reduction of programming expense. For the year ended December 31, 2005, the Companies recorded approximately $2 million as a reduction of programming expense.
Digeo, Inc. In March 2001, Charter Ventures and Vulcan Ventures Incorporated formed DBroadband Holdings, LLC for the sole purpose of purchasing equity interests in Digeo. In connection with the execution of the broadband carriage agreement, DBroadband Holdings, LLC purchased an equity interest in Digeo funded by contributions from
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
Vulcan Ventures Incorporated. At that time, the equity interest was subject to a priority return of capital to Vulcan Ventures up to the amount contributed by Vulcan Ventures on Charter Ventures’ behalf. After Vulcan Ventures recovered its amount contributed (the “Priority Return”), Charter Ventures should have had a 100% profit interest in DBroadband Holdings, LLC. Charter Ventures was not required to make any capital contributions, including capital calls to DBroadband Holdings, LLC. DBroadband Holdings, LLC therefore was not included in the Companies’Company’s consolidated financial statements. Pursuant to an amended version of this arrangement, in 2003, Vulcan Ventures contributed a total of $29 million to Digeo, $7 million of which was contributed on Charter Ventures’ behalf, subject to Vulcan Ventures’ aforementioned priority return. Since the formation of DBroadband Holdings, LLC, Vulcan Ventures has contributed approximately $56 million on Charter Ventures’ behalf. On October 3, 2006, Vulcan Ventures and Digeo recapitalized Digeo. In connection with such recapitalization, DBroadband Holdings, LLC consented to the conversion of its preferred stock holdings in Digeo to common stock, and Vulcan Ventures surrendered its Priority Return to Charter Ventures. As a result, DBroadband Holdings, LLC is now included in the Companies’Company’s consolidated financial statements. Such amounts are immaterial. After the recapitalization, DBroadband Holdings, LLC owns 1.8% of Digeo, Inc’s common stock. Digeo, Inc. is therefore not included in the Companies’Company’s consolidated financial statements. In December 2007, the Digeo, Inc. common stock was transferred to Charter Operating, and DBroadband Holdings, LLC was dissolved.
The CompaniesCompany paid Digeo Interactive approximately $0, $2 million,$0, and $3$2 million for the years ended December 31, 2008, 2007, 2006, and 2005,2006, respectively, for customized development of the i-channels and the local content tool kit.
On June 30, 2003, Charter Holdco entered into an agreement with Motorola, Inc. for the purchase of 100,000 digital video recorder (“DVR”)DVR units. The software for these DVR units is being supplied by Digeo Interactive, LLC under a license agreement entered into in April 2004. Pursuant to a software license agreement with Digeo Interactive for the right to use Digeo's proprietary software for DVR units, the CompaniesCompany paid approximately $1 million, $2 million, $3 million, and $1$3 million in license and maintenance fees in 2008, 2007, 2006, and 2005,2006, respectively.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
The CompaniesCompany paid approximately $1 million, $10 million, $11 million, and $10$11 million for the years ended December 31, 2008, 2007, 2006, and 2005,2006, respectively, in capital purchases under an agreement with Digeo Interactive for the development, testing and purchase of 70,000 Digeo PowerKey DVR units. Total purchase price and license and maintenance fees during the term of the definitive agreements are expected to be approximately $41 million. The definitive agreements are terminable at no penalty to Charter in certain circumstances.
CC VIII. As partIn May 2008, Charter Operating entered into an agreement with Digeo Interactive, LLC, a subsidiary of Digeo, Inc., for the acquisitionminimum purchase of high-definition DVR units for approximately $21 million. This minimum purchase commitment is subject to reduction as a result of certain specified events such as the cable systems owned by Bresnan Communications Company Limited Partnership in February 2000, CC VIII,failure to deliver units timely and catastrophic failure. The software for these units is being supplied under a software license agreement with Digeo Interactive, LLC; the Companies’ indirect limited liability company subsidiary, issued, after adjustments,cost of which is expected to be approximately $2 million for the CC VIII interest with an initial valuelicenses and an initial capital accounton-going maintenance fees of approximately $630$0.3 million to certain sellers affiliated with AT&T Broadband, subsequently owned by Comcast Corporation (the "Comcast sellers"). Mr. Allen granted the Comcast sellers the right to sell to him the CC VIII interest for approximately $630 million plus 4.5% interest annually, from February 2000 (the "Comcast put right"). In April 2002, the Comcast sellers exercised the Comcast put right in full, and this transaction was consummated on June 6, 2003. Accordingly, Mr. Allen became the holder of the CC VIII interest, indirectly through an affiliate.
At such time through 2005, such interest was held at CC VIII and was subject to a dispute between Mr. Allen and the Companies asreduction to the ultimate ownership of the CC VIII interest. In 2005, Mr. Allen, a Special Committee of independent directors, Charter, Charter Holdco and certain of their affiliates, agreed to settle a dispute related to the CC VIII interest. Pursuant to the settlement, CII has retained 30% of its CC VIII interest (the "Remaining Interests"). The Remaining Interests are subject to certain transfer restrictions, including requirements that the Remaining Interests participate in a salecoincide with other holders or that allow other holders to participate in a sale of the Remaining Interests, as detailedany reduction in the revised CC VIII Limited Liability Company Agreement. CII transferredminimum purchase commitment. For the other 70%year ended December 31, 2008, Charter has purchased approximately $1 million of the CC VIII interest directly and indirectly, through Charter Holdco to CCHC. Of the 70% of the CC VIII interest, 7.4% has been transferred by CII to CCHC for the CCHC note. The remaining 62.6% has been transferred by CII to Charter Holdco, in accordance with the terms of the settlement for no additional monetary consideration. Charter Holdco contributed the 62.6% interest to CCHC.
As part of the Settlement, CC VIII issued approximately 49 million additional Class BDVR units to CC V in consideration for prior capital contributions to CC VIII by CC V, with respect to transactions that were unrelated to the dispute in connection with CII’s membership units in CC VIII. As a result, Mr. Allen’s pro rata share of the profits and losses of CC VIII attributable to the Remaining Interests is approximately 5.6%.
As part of the debt exchange in September 2006 described in Note 9, CCHC contributed the CC VIII interest in the Class A preferred equity interests of CC VIII to CCH I. The CC VIII interest was pledged as security for all CCH I notes. The CC VIII preferred interests are entitled to a 2% accreting priority return on the priority capital.from Digeo Interactive, LLC under these agreements.
Certain related parties, including members of the board of directors, hold interests in Charter Holdings’ and its subsidiaries’ senior notes and discount notes of approximately $203 million of face value at December 31, 2007.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 2006 AND 20052006
(dollars in millions, except where indicated)
21. | 21. Commitments and Contingencies |
Commitments
The following table summarizes the Companies’Company’s payment obligations as of December 31, 20072008 for its contractual obligations.
| | Total | | | 2008 | | | 2009 | | | 2010 | | | 2011 | | | 2012 | | | Thereafter | |
| | | | | | | | | | | | | | | | | | | | | |
Contractual Obligations | | | | | | | | | | | | | | | | | | | | | |
Capital and Operating Lease Obligations (1) | | $ | 91 | | | $ | 21 | | | $ | 17 | | | $ | 15 | | | $ | 11 | | | $ | 8 | | | $ | 19 | |
Programming Minimum Commitments (2) | | | 1,020 | | | | 331 | | | | 316 | | | | 102 | | | | 105 | | | | 110 | | | | 56 | |
Other (3) | | | 475 | | | | 374 | | | | 65 | | | | 34 | | | | 2 | | | | -- | | | | -- | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 1,586 | | | $ | 726 | | | $ | 398 | | | $ | 151 | | | $ | 118 | | | $ | 118 | | | $ | 75 | |
| | Total | | | 2009 | | | 2010 | | | 2011 | | | 2012 | | | 2013 | | | Thereafter | |
| | | | | | | | | | | | | | | | | | | | | |
Contractual Obligations | | | | | | | | | | | | | | | | | | | | | |
Capital and Operating Lease Obligations (1) | | $ | 96 | | | $ | 22 | | | $ | 20 | | | $ | 15 | | | $ | 12 | | | $ | 9 | | | $ | 18 | |
Programming Minimum Commitments (2) | | | 687 | | | | 315 | | | | 101 | | | | 105 | | | | 110 | | | | 56 | | | | -- | |
Other (3) | | | 475 | | | | 368 | | | | 66 | | | | 22 | | | | 19 | | | | -- | | | | -- | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 1,258 | | | $ | 705 | | | $ | 187 | | | $ | 142 | | | $ | 141 | | | $ | 65 | | | $ | 18 | |
(1) | (1) The Companies leaseCompany leases certain facilities and equipment under noncancelable operating leases. Leases and rental costs charged to expense for the years ended December 31, 2008, 2007, and 2006, and 2005, were $23$24 million, $23 million, and $22$23 million, respectively. |
(2) | (2) The Companies payCompany pays programming fees under multi-year contracts ranging from three to ten years, typically based on a flat fee per customer, which may be fixed for the term, or may in some cases escalate over the term. Programming costs included in the accompanying statement of operations were $1.6 billion, $1.5$1.6 billion, and $1.4$1.5 billion, for the years ended December 31, 2008, 2007, 2006, and 2005,2006, respectively. Certain of the Companies’Company’s programming agreements are based on a flat fee per month or have guaranteed minimum payments. The table sets forth the aggregate guaranteed minimum commitments under the Companies’Company’s programming contracts. |
(3) | “Other”(3) “Other” represents other guaranteed minimum commitments, which consist primarily of commitments to the Companies’Company’s billing services vendors. |
The following items are not included in the contractual obligation table due to various factors discussed below. However, the Companies incurCompany incurs these costs as part of theirits operations:
| · | The CompaniesCompany also rentrents utility poles used in its operations. Generally, pole rentals are cancelable on short notice, but the Companies anticipateCompany anticipates that such rentals will recur. Rent expense incurred for pole rental attachments for the years ended December 31, 2008, 2007, 2006, and 2005,2006, was $47 million, $44$47 million, and $44 million, respectively. |
| · | The Companies payCompany pays franchise fees under multi-year franchise agreements based on a percentage of revenues generated from video service per year. The CompaniesCompany also paypays other franchise related costs, such as public education grants, under multi-year agreements. Franchise fees and other franchise-related costs included in the accompanying statementsstatement of operations were $179 million, $172 million, $175 million, and $165$175 million for the years ended December 31, 2008, 2007, 2006, and 2005,2006, respectively. |
| · | The CompaniesCompany also have $136has $158 million in letters of credit, primarily to theirits various worker’s compensation, property and casualty, and general liability carriers, as collateral for reimbursement of claims. These letters of credit reduce the amount the CompaniesCompany may borrow under the Charter Operatingits credit facilities. |
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 2006 AND 20052006
(dollars in millions, except where indicated)
Litigation
The CompaniesCompany and theirits parent companies are defendants or co-defendants in several unrelated lawsuits claiming infringement of various patents relating to various aspects of theirits businesses. Other industry participants are also defendants in certain of these cases, and, in many cases, the Companies expectCompany expects that any potential liability would be the responsibility of theirits equipment vendors pursuant to applicable contractual indemnification provisions. In the event that a court ultimately determines that the Companies infringeCompany infringes on any intellectual property rights, theyit may be subject to substantial damages and/or an injunction that could require the CompaniesCompany or theirits vendors to modify certain products and services the Companies offerCompany offers to theirits subscribers. While the Companies believeCompany believes the lawsuits are without merit and intendintends to defend the actions vigorously, the lawsuits could be material to the Companies’Company’s consolidated results of operations of any one period, and no assurance can be given that any adverse outcome would not be material to the Companies’Company’s consolidated financial condition, results of operations or liquidity.
In the ordinary course of business, the Company and its parent companies may face employment law claims, including claims under the Fair Labor Standards Act and wage and hour laws of the states in which we operate. On August 15, 2007, a complaint was filed, on behalf of both nationwide and state of Wisconsin classes of certain categories of current and former Charter technicians, against Charter in the United States District Court for the Western District of Wisconsin (Sjoblom v. Charter Communications, LLC and Charter Communications, Inc.), alleging that Charter violated the Fair Labor Standards Act and Wisconsin wage and hour laws by failing to pay technicians for certain hours claimed to have been worked. While the Company believes it has substantial factual and legal defenses to the claims at issue, in order to avoid the cost and distraction of continuing to litigate the case, the Company reached a settlement with the plaintiffs, which received final approval from the court on January 26, 2009. The CompaniesCompany has accrued settlement costs associated with the Sjoblom case. The Company has been subjected, in the normal course of business, to the assertion of other similar claims and theircould be subjected to additional such claims. The Company can not predict the ultimate outcome of any such claims.
The Company and its parent companies are party to lawsuits and claims that arise in the ordinary course of conducting theirits business. The ultimate outcome of these other legal matters pending against the CompaniesCompany or theirits subsidiaries cannot be predicted, and although such lawsuits and claims are not expected individually to have a material adverse effect on the Companies’Company’s consolidated financial condition, results of operations or liquidity, such lawsuits could have, in the aggregate, a material adverse effect on the Companies’Company’s consolidated financial condition, results of operations or liquidity.
Regulation in the Cable Industry
The operation of a cable system is extensively regulated by the Federal Communications Commission (“FCC”), some state governments and most local governments. The FCC has the authority to enforce its regulations through the imposition of substantial fines, the issuance of cease and desist orders and/or the imposition of other administrative sanctions, such as the revocation of FCC licenses needed to operate certain transmission facilities used in connection with cable operations. The 1996 Telecom Act altered the regulatory structure governing the nation’s communications providers. It removed barriers to competition in both the cable television market and the telephone market. Among other things, it reduced the scope of cable rate regulation and encouraged additional competition in the video programming industry by allowing telephone companies to provide video programming in their own telephone service areas.
Future legislative and regulatory changes could adversely affect the Companies’Company’s operations, including, without limitation, additional regulatory requirements the CompaniesCompany may be required to comply with as they offerit offers new services such as telephone.
The Companies’Company’s employees may participate in the Charter Communications, Inc. 401(k) Plan. Employees that qualify for participation can contribute up to 50% of their salary, on a pre-tax basis, subject to a maximum contribution limit as determined by the Internal Revenue Service. The Companies matchFor each payroll period, the Company will contribute to the 401(k) Plan (a) the total amount of the salary reduction the employee elects to defer between 1%
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
and 50% and (b) a matching contribution equal to 50% of the firstamount of the salary reduction the participant elects to defer (up to 5% of participantthe participant’s payroll compensation), excluding any catch-up contributions. The CompaniesCompany made contributions to the 401(k) plan totaling $8 million, $7 million, $8 million, and $6$8 million for the years ended December 31, 2008, 2007, 2006, and 2005,2006, respectively.
23. | 23. Recently Issued Accounting Standards |
In September 2006,December 2007, the FASB issued SFAS 157,No. 141R, Fair Value MeasurementsBusiness Combinations: Applying the Acquisition Method, which establishes a frameworkprovides guidance on the accounting and reporting for measuring fair value and expands disclosures about fair value measurements.business combinations. SFAS 157No. 141R is effective for fiscal years beginning after NovemberDecember 15, 2007 and interim periods within those fiscal years.2008. The CompaniesCompany will adopt SFAS 157No. 141R effective January 1, 2009. We do not expect that the adoption of SFAS No. 141R will have a material impact on the Company’s financial statements.
In December 2007, the FASB issued SFAS No. 160, Consolidations, which provides guidance on the accounting and reporting for minority interests in consolidated financial statements. SFAS No. 160 requires losses to be allocated to non-controlling (minority) interests even when such amounts are deficits. As such, future losses will be allocated between Charter and the Charter Holdco non-controlling interest. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. The Company will adopt SFAS No. 160 effective January 1, 2009. The Company does not expect that the adoption of SFAS No. 160 will have a material impact on its financial statements.
In February 2008, the FASB issued FASB Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157, which deferred the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008 for nonfinancial assets and nonfinancial liabilities. The Companies doCompany will apply SFAS No. 157 to nonfinancial assets and nonfinancial liabilities beginning January 1, 2009. The Company is in the process of assessing the impact of SFAS No. 157 on its financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133, which requires companies to disclose their objectives and strategies for using derivative instruments, whether or not designated as hedging instruments under SFAS No. 133. SFAS No. 161 is effective for interim periods and fiscal years beginning after November 15, 2008. The Company will adopt SFAS No. 161 effective January 1, 2009. The Company does not expect that the adoption of SFAS 157No. 161 will have a material impact on their financial statements.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115, which allows measurement at fair value of eligible financial assets and liabilities that are not otherwise measured at fair value. If the fair value option for an eligible item is elected, unrealized gains and losses for that item shall be reported in current earnings at each subsequent reporting date. SFAS 159 also establishes presentation and disclosure requirements designed to draw comparison between the different measurement attributes the company elects for similar types of assets and liabilities. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Companies do not expect that the adoption of SFAS 159 will have a material impact on theirits financial statements.
In December 2007,April 2008, the FASB issued SFAS 141R, Business Combinations: ApplyingFSP FAS 142-3, Determination of the Acquisition Method, and SFAS 160, Consolidations,Useful Life of Intangible Assets, which provide guidance onamends the accounting and reporting for business combinations and minority interestsfactors to be considered in consolidated financial statements. SFAS 141R and SFAS 160 arerenewal or extension assumptions used to determine the useful life of a recognized intangible asset. FSP FAS 142-3 is effective for interim periods and fiscal years beginning after December 15, 2008. EarlyThe Company will adopt FSP FAS 142-3 effective January 1, 2009. The Company does not expect that the adoption is prohibited. The Companies are currently assessing theof FSP FAS 142-3 will have a material impact of SFAS 141R and SFAS 160 on theirits financial statements.
In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), which specifies that issuers of convertible debt instruments that may be settled in cash upon conversion should separately account for the liability and equity components in a manner reflecting their nonconvertible debt borrowing rate when interest costs are recognized in subsequent periods. FSP APB 14-1 is effective for interim periods and fiscal years beginning after December 15, 2008. The Company will adopt FSP APB 14-1 effective January 1, 2009. The Company does not expect that the adoption of FSP APB 14-1 will have a material impact on its financial statements.
The Companies doCompany does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the Companies’its accompanying financial statements.
24. | Parent Company Only Financial Statements
|
F-33
CCO HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006
(dollars in millions, except where indicated)
24. Parent Company Only Financial Statements
As the result of limitations on, and prohibitions of, distributions, substantially all of the net assets of the consolidated subsidiaries are restricted from distribution to CCO Holdings, the parent company. The following condensed parent-only financial statements of Charter Holdings, CCH II, and CCO Holdings account for the investment in its subsidiaries under the equity method of accounting. The financial statements should be read in conjunction with the consolidated financial statements of the CompaniesCompany and notes thereto.
Charter Communications Holdings, LLC (Parent Company Only)
Condensed Balance Sheets
| | December 31, | |
| | 2007 | | | 2006 | |
ASSETS | | | | | | |
Receivable – related party | | $ | 19 | | | $ | 28 | |
Loans receivable – subsidiaries | | | -- | | | | 105 | |
Other assets | | | 3 | | | | 6 | |
| | | | | | | | |
Total assets | | $ | 22 | | | $ | 139 | |
| | | | | | | | |
LIABILITIES AND MEMBER’S DEFICIT | | | | | | | | |
Current liabilities | | $ | 19 | | | $ | 25 | |
Long-term debt | | | 578 | | | | 967 | |
Losses in excess of investment in subsidiaries | | | 6,652 | | | | 4,737 | |
Member’s deficit | | | (7,227 | ) | | | (5,590 | ) |
| | | | | | | | |
Total liabilities and member’s deficit | | $ | 22 | | | $ | 139 | |
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
Charter Communications Holdings, LLC (Parent Company Only)
Condensed Statements of Operations
| | Year Ended December 31, | |
| | 2007 | | | 2006 | | | 2005 | |
| | | | | | | | | |
Interest expense | | $ | (68 | ) | | $ | (151 | ) | | $ | (711 | ) |
Gain (loss) on extinguishment of debt | | | (3 | ) | | | 108 | | | | 520 | |
Equity in losses of subsidiaries | | | (1,302 | ) | | | (1,072 | ) | | | (647 | ) |
| | | | | | | | | | | | |
Net loss | | $ | (1,373 | ) | | $ | (1,115 | ) | | $ | (838 | ) |
Charter Communications Holdings, LLC (Parent Company Only)
Condensed Statements of Cash Flows
| | Year Ended December 31, | |
| | 2007 | | | 2006 | | | 2005 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | |
Net loss | | $ | (1,373 | ) | | $ | (1,115 | ) | | $ | (838 | ) |
Noncash interest expense | | | 2 | | | | 20 | | | | 179 | |
Equity in losses of subsidiaries | | | 1,302 | | | | 1,072 | | | | 647 | |
(Gain) loss on extinguishment of debt | | | 1 | | | | (108 | ) | | | (521 | ) |
Changes in operating assets and liabilities | | | (10 | ) | | | 5 | | | | (111 | ) |
| | | | | | | | | | | | |
Net cash flows from operating activities | | | (78 | ) | | | (126 | ) | | | (644 | ) |
| | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | | | | |
Distributions from subsidiaries | | | 467 | | | | 233 | | | | 644 | |
| | | | | | | | | | | | |
Net cash flows from investing activities | | | 467 | | | | 233 | | | | 644 | |
| | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | |
Repayments of long-term debt | | | (389 | ) | | | -- | | | | -- | |
Loan to subsidiary | | | -- | | | | (105 | ) | | | -- | |
Payments for debt issuance costs | | | -- | | | | (2 | ) | | | -- | |
| | | | | | | | | | | | |
Net cash flows from financing activities | | | (389 | ) | | | (107 | ) | | | -- | |
| | | | | | | | | | | | |
NET INCREASE IN CASH AND CASH EQUIVALENTS | | | -- | | | | -- | | | | -- | |
CASH AND CASH EQUIVALENTS, beginning of year | | | -- | | | | -- | | | | -- | |
| | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS, end of year | | $ | -- | | | $ | -- | | | $ | -- | |
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
CCH II, LLC (Parent Company Only)
Condensed Balance Sheets
| | December 31, | |
| | 2007 | | | 2006 | |
ASSETS | | | | | | |
Cash and cash equivalents | | $ | 5 | | | $ | 4 | |
Receivable – related party | | | 11 | | | | 8 | |
Investment in subsidiaries | | | 1,912 | | | | 3,847 | |
Loans receivable – subsidiaries | | | 209 | | | | 195 | |
Other assets | | | 19 | | | | 25 | |
| | | | | | | | |
Total assets | | $ | 2,156 | | | $ | 4,079 | |
| | | | | | | | |
LIABILITIES AND MEMBER’S EQUITY (DEFICIT) | | | | | | | | |
Current liabilities | | $ | 72 | | | $ | 74 | |
Long-term debt | | | 2,452 | | | | 2,452 | |
Member’s equity (deficit) | | | (368 | ) | | | 1,553 | |
| | | | | | | | |
Total liabilities and member’s equity (deficit) | | $ | 2,156 | | | $ | 4,079 | |
CCH II, LLC (Parent Company Only)
Condensed Statements of Operations
| | Year Ended December 31, | |
| | 2007 | | | 2006 | | | 2005 | |
| | | | | | | | | |
Interest expense | | $ | (238 | ) | | $ | (209 | ) | | $ | (167 | ) |
Equity in losses of subsidiaries | | | (350 | ) | | | (193 | ) | | | (258 | ) |
| | | | | | | | | | | | |
Net loss | | $ | (588 | ) | | $ | (402 | ) | | $ | (425 | ) |
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
CCH II, LLC (Parent Company Only)
Condensed Statements of Cash Flows
| | Year Ended December 31, | |
| | 2007 | | | 2006 | | | 2005 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | |
Net loss | | $ | (588 | ) | | $ | (402 | ) | | $ | (425 | ) |
Noncash interest expense | | | 6 | | | | 5 | | | | 2 | |
Equity in losses of subsidiaries | | | 350 | | | | 193 | | | | 258 | |
Changes in operating assets and liabilities | | | (19 | ) | | | (5 | ) | | | -- | |
| | | | | | | | | | | | |
Net cash flows from operating activities | | | (251 | ) | | | (209 | ) | | | (165 | ) |
| | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | | | | |
Distributions from subsidiaries | | | 1,447 | | | | 1,151 | | | | 925 | |
Investment in subsidiaries | | | -- | | | | (148 | ) | | | -- | |
Loan to subsidiary | | | -- | | | | (195 | ) | | | -- | |
| | | | | | | | | | | | |
Net cash flows from investing activities | | | 1,447 | | | | 808 | | | | 925 | |
| | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | |
Proceeds from debt issuance | | | -- | | | | 440 | | | | -- | |
Repayments of long-term debt | | | -- | | | | (189 | ) | | | -- | |
Distributions to parent companies | | | (1,195 | ) | | | (831 | ) | | | (760 | ) |
Payments for debt issuance costs | | | -- | | | | (15 | ) | | | -- | |
| | | | | | | | | | | | |
Net cash flows from financing activities | | | (1,195 | ) | | | (595 | ) | | | (760 | ) |
| | | | | | | | | | | | |
NET INCREASE IN CASH AND CASH EQUIVALENTS | | | 1 | | | | 4 | | | | -- | |
CASH AND CASH EQUIVALENTS, beginning of year | | | 4 | | | | -- | | | | -- | |
| | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS, end of year | | $ | 5 | | | $ | 4 | | | $ | -- | |
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
CCO Holdings, LLC (Parent Company Only)
Condensed Balance Sheets
| | December 31, | |
| | 2007 | | | 2006 | |
ASSETS | | | | | | |
Cash and cash equivalents | | $ | 2 | | | $ | 2 | |
Receivable – related party | | | 18 | | | | 15 | |
Investment in subsidiaries | | | 2,760 | | | | 4,912 | |
Loans receivable – subsidiaries | | | 275 | | | | 255 | |
Other assets | | | 11 | | | | 18 | |
| | | | | | | | |
Total assets | | $ | 3,066 | | | $ | 5,202 | |
| | | | | | | | |
LIABILITIES AND MEMBER’S EQUITY | | | | | | | | |
Current liabilities | | $ | 9 | | | $ | 10 | |
Long-term debt | | | 1,145 | | | | 1,345 | |
Member’s equity | | | 1,912 | | | | 3,847 | |
| | | | | | | | |
Total liabilities and member’s equity | | $ | 3,066 | | | $ | 5,202 | |
Sheet
CCO Holdings, LLC (Parent Company Only) | | December 31, | |
| | 2008 | | | 2007 | |
ASSETS | | | | | | |
Cash and cash equivalents | | $ | 2 | | | $ | 2 | |
Receivable – related party | | | 15 | | | | 18 | |
Investment in subsidiaries | | | 18 | | | | 2,760 | |
Loans receivable - subsidiaries | | | 297 | | | | 275 | |
Other assets | | | 9 | | | | 11 | |
| | | | | | | | |
Total assets | | $ | 341 | | | $ | 3,066 | |
| | | | | | | | |
LIABILITIES AND MEMBER’S EQUITY(DEFICIT) | | | | | | | | |
Current liabilities | | $ | 8 | | | $ | 9 | |
Long-term debt | | | 1,146 | | | | 1,145 | |
Member’s equity (deficit) | | | (813 | ) | | | 1,912 | |
| | | | | | | | |
Total liabilities and member’s equity (deficit) | | $ | 341 | | | $ | 3,066 | |
Condensed StatementsStatement of Operations
| | Year Ended December 31, | |
| | 2007 | | | 2006 | | | 2005 | |
| | | | | | | | | |
Interest expense | | $ | (84 | ) | | $ | (108 | ) | | $ | (92 | ) |
Other expense | | | (19 | ) | | | (3 | ) | | | (1 | ) |
Equity in losses of subsidiaries | | | (247 | ) | | | (82 | ) | | | (165 | ) |
| | | | | | | | | | | | |
Net loss | | $ | (350 | ) | | $ | (193 | ) | | $ | (258 | ) |
| | Year Ended December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | |
Interest expense | | $ | (74 | ) | | $ | (84 | ) | | $ | (108 | ) |
Other expense | | | -- | | | | (19 | ) | | | (3 | ) |
Equity in losses of subsidiaries | | | (1,399 | ) | | | (247 | ) | | | (82 | ) |
| | | | | | | | | | | | |
Net loss | | $ | (1,473 | ) | | $ | (350 | ) | | $ | (193 | ) |
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 2006 AND 20052006
(dollars in millions, except where indicated)
CCO Holdings, LLC (Parent Company Only)
Condensed Statements of Cash Flows
| | Year Ended December 31, | |
| | 2007 | | | 2006 | | | 2005 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | |
Net loss | | $ | (350 | ) | | $ | (193 | ) | | $ | (258 | ) |
Noncash interest expense | | | 2 | | | | 5 | | | | 4 | |
Equity in losses of subsidiaries | | | 247 | | | | 82 | | | | 165 | |
Loss on extinguishment of debt | | | 8 | | | | 3 | | | | -- | |
Changes in operating assets and liabilities | | | (25 | ) | | | (19 | ) | | | 2 | |
| | | | | | | | | | | | |
Net cash flows from operating activities | | | (118 | ) | | | (122 | ) | | | (87 | ) |
| | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | | | | |
Investment in subsidiaries | | | -- | | | | -- | | | | (500 | ) |
Distributions from subsidiaries | | | 1,767 | | | | 1,274 | | | | 792 | |
Loan to subsidiary | | | -- | | | | (148 | ) | | | (105 | ) |
| | | | | | | | | | | | |
Net cash flows from investing activities | | | 1,767 | | | | 1,126 | | | | 187 | |
| | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | |
Proceeds from debt issuance | | | 350 | | | | -- | | | | 294 | |
Repayments of long-term debt | | | (550 | ) | | | -- | | | | -- | |
Contributions from parent companies | | | -- | | | | 148 | | | | -- | |
Distributions to parent companies | | | (1,447 | ) | | | (1,151 | ) | | | (925 | ) |
Payments for debt issuance costs | | | (2 | ) | | | -- | | | | (9 | ) |
| | | | | | | | | | | | |
Net cash flows from financing activities | | | (1,649 | ) | | | (1,003 | ) | | | (640 | ) |
| | | | | | | | | | | | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | -- | | | | 1 | | | | (540 | ) |
CASH AND CASH EQUIVALENTS, beginning of year | | | 2 | | | | 1 | | | | 541 | |
| | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS, end of year | | $ | 2 | | | $ | 2 | | | $ | 1 | |
| | Year Ended December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | |
Net loss | | $ | (1,473 | ) | | $ | (350 | ) | | $ | (193 | ) |
Noncash interest expense | | | 3 | | | | 2 | | | | 5 | |
Equity in losses of subsidiaries | | | 1,399 | | | | 247 | | | | 82 | |
Loss on extinguishment of debt | | | -- | | | | 8 | | | | 3 | |
Changes in operating assets and liabilities | | | (20 | ) | | | (25 | ) | | | (19 | ) |
| | | | | | | | | | | | |
Net cash flows from operating activities | | | (91 | ) | | | (118 | ) | | | (122 | ) |
| | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | |
Distributions from subsidiaries | | | 1,163 | | | | 1,767 | | | | 1,274 | |
Loan to subsidiary | | | -- | | | | -- | | | | (148 | ) |
| | | | | | | | | | | | |
Net cash flows from investing activities | | | 1,163 | | | | 1,767 | | | | 1,126 | |
| | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | |
Proceeds from debt issuance | | | -- | | | | 350 | | | | -- | |
Repayments of long-term debt | | | -- | | | | (550 | ) | | | -- | |
Contributions from parent companies | | | -- | | | | -- | | | | 148 | |
Distributions to parent companies | | | (1,072 | ) | | | (1,447 | ) | | | (1,151 | ) |
Payments for debt issuance costs | | | -- | | | | (2 | ) | | | -- | |
| | | | | | | | | | | | |
Net cash flows from financing activities | | | (1,072 | ) | | | (1,649 | ) | | | (1,003 | ) |
| | | | | | | | | | | | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | -- | | | | -- | | | | 1 | |
CASH AND CASH EQUIVALENTS, beginning of year | | | 2 | | | | 2 | | | | 1 | |
| | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS, end of year | | $ | 2 | | | $ | 2 | | | $ | 2 | |
25. Consolidating SchedulesSubsequent Events (unaudited)
Proposed Restructuring
The Proposed Restructuring is expected to be funded with cash from operations, an exchange of debt of CCH II for other debt at CCH II, the issuance of $267 million of additional debt and estimated proceeds of $1.6 billion of an equity rights offering for which Charter has received a back-stop commitment from certain Noteholders. In addition to the Restructuring Agreements, the Noteholders have entered into commitment letters with Charter pursuant to which they have agreed to exchange and/or purchase, as applicable, certain securities of Charter.
The Restructuring Agreements further contemplate that upon consummation of the Plan (i) the notes and bank debt of Charter’s subsidiaries, Charter Operating and CCO Holdings will remain outstanding, (ii) holders of notes issued by CCH II will receive new CCH II notes andand/or cash, (iii) holders of notes issued by CCH I will receive shares of Charter’s new Class A Common Stock, (iv) holders of notes issued by CIH will receive warrants to purchase shares of common stock in Charter, (v) holders of notes of Charter Holdings will receive warrants to purchase shares of Charter’s new Class A Common Stock, (vi) holders of convertible notes issued by Charter will receive cash and preferred stock issued by Charter, (vii) holders of common stock will not receive any amounts on account of their common stock, which will be cancelled, and (viii) trade creditors will be paid in full. In addition, as part of the September 2006 exchange offer, and the CIH notes andProposed Restructuring, it is expected that consideration will be paid by holders of CCH I notes issued as part of the September 2005 exchange offer, are obligations of CIH, CCH I and CCH II, however, they are also jointly, severally, fully and unconditionally guaranteed on an unsecured senior basis by Charter Holdings.
The accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10, Financial Statements of Guarantors and Affiliates Whose Securities Collateralize an Issue Registered or Being Registered. This information is not intended to presentother entities participating in the financial position, results of operations and cash flows of the individual companies or groups of companies in accordance with generally accepted accounting principles.
As part of the September 2006 exchange of Charter Holdings notes for CCH I notes, CCHC contributed its 70% interest in the Class A preferred equity interests of CC VIII to CCH I. The contribution of the CC VIII interest wasrestructuring.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 2006 AND 2005
(dollars in millions, except where indicated)
accounted for as a transaction among entities under common control, and accordingly financial statements of Charter Holdings reflect the contribution as if it had occurred on the date of the settlement with Paul Allen.
Condensed consolidating financial statements as of December 31, 2007 and 2006 and for the years ended December 31, 2007, 2006 and 2005 follow.
Charter Holdings | |
Condensed Consolidating Balance Sheet | |
As of December 31, 2007 | |
| | | | | | | | | | | | | | | | | | | | | |
| | Charter Holdings | | | CIH | | | CCH I | | | CCH II | | | All Other Subsidiaries | | | Eliminations | | | Charter Holdings Consolidated | |
| | | | | | | | | | | | | | | | | | | | | |
ASSETS | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
CURRENT ASSETS: | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | -- | | | $ | 2 | | | $ | 4 | | | $ | 5 | | | $ | 2 | | | $ | -- | | | $ | 13 | |
Accounts receivable, net | | | -- | | | | -- | | | | -- | | | | -- | | | | 220 | | | | -- | | | | 220 | |
Receivables from related party | | | 19 | | | | -- | | | | -- | | | | 11 | | | | -- | | | | (30 | ) | | | -- | |
Prepaid expenses and other current assets | | | -- | | | | -- | | | | -- | | | | -- | | | | 24 | | | | -- | | | | 24 | |
Total current assets | | | 19 | | | | 2 | | | | 4 | | | | 16 | | | | 246 | | | | (30 | ) | | | 257 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
INVESTMENT IN CABLE PROPERTIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property, plant and equipment, net | | | -- | | | | -- | | | | -- | | | | -- | | | | 5,072 | | | | -- | | | | 5,072 | |
Franchises, net | | | -- | | | | -- | | | | -- | | | | -- | | | | 8,942 | | | | -- | | | | 8,942 | |
Total investment in cable properties, net | | | -- | | | | -- | | | | -- | | | | -- | | | | 14,014 | | | | -- | | | | 14,014 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
INVESTMENT IN SUBSIDIARIES | | | -- | | | | -- | | | | -- | | | | 1,912 | | | | -- | | | | (1,912 | ) | | | -- | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
OTHER NONCURRENT ASSETS | | | 3 | | | | 17 | | | | 44 | | | | 19 | | | | 186 | | | | -- | | | | 269 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 22 | | | $ | 19 | | | $ | 48 | | | $ | 1,947 | | | $ | 14,446 | | | $ | (1,942 | ) | | $ | 14,540 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
LIABILITIES AND MEMBER’S EQUITY (DEFICIT) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts payable and accrued expenses | | $ | 19 | | | $ | 83 | | | $ | 109 | | | $ | 72 | | | $ | 929 | | | $ | -- | | | $ | 1,212 | |
Payables to related party | | | -- | | | | 1 | | | | 5 | | | | -- | | | | 192 | | | | (30 | ) | | | 168 | |
Total current liabilities | | | 19 | | | | 84 | | | | 114 | | | | 72 | | | | 1,121 | | | | (30 | ) | | | 1,380 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
LONG-TERM DEBT | | | 578 | | | | 2,534 | | | | 4,083 | | | | 2,452 | | | | 9,859 | | | | -- | | | | 19,506 | |
LOANS PAYABLE (RECEIVABLE) – RELATED PARTY | | | -- | | | | -- | | | | -- | | | | (209 | ) | | | 332 | | | | -- | | | | 123 | |
DEFERRED MANAGEMENT FEES – RELATED PARTY | | | -- | | | | -- | | | | -- | | | | -- | | | | 14 | | | | -- | | | | 14 | |
OTHER LONG-TERM LIABILITIES | | | -- | | | | -- | | | | -- | | | | -- | | | | 545 | | | | -- | | | | 545 | |
MINORITY INTEREST | | | -- | | | | -- | | | | (464 | ) | | | -- | | | | 663 | | | | -- | | | | 199 | |
LOSSES IN EXCESS OF INVESTMENT | | | 6,652 | | | | 4,053 | | | | 368 | | | | -- | | | | -- | | | | (11,073 | ) | | | -- | |
MEMBER’S EQUITY (DEFICIT) | | | (7,227 | ) | | | (6,652 | ) | | | (4,053 | ) | | | (368 | ) | | | 1,912 | | | | 9,161 | | | | (7,227 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities and member’s equity (deficit) | | $ | 22 | | | $ | 19 | | | $ | 48 | | | $ | 1,947 | | | $ | 14,446 | | | $ | (1,.942 | ) | | $ | 14,540 | |
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
Charter Holdings | |
Condensed Consolidating Balance Sheet | |
As of December 31, 2006 | |
| | | | | | | | | | | | | | | | | | | | | |
| | Charter Holdings | | | CIH | | | CCH I | | | CCH II | | | All Other Subsidiaries | | | Eliminations | | | Charter Holdings Consolidated | |
| | | | | | | | | | | | | | | | | | | | | |
ASSETS | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
CURRENT ASSETS: | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | -- | | | $ | 3 | | | $ | 3 | | | $ | 4 | | | $ | 28 | | | $ | -- | | | $ | 38 | |
Accounts receivable, net | | | -- | | | | -- | | | | -- | | | | -- | | | | 194 | | | | -- | | | | 194 | |
Receivables from related party | | | 28 | | | | -- | | | | -- | | | | 8 | | | | -- | | | | (36 | ) | | | -- | |
Prepaid expenses and other current assets | | | -- | | | | -- | | | | -- | | | | -- | | | | 23 | | | | -- | | | | 23 | |
Total current assets | | | 28 | | | | 3 | | | | 3 | | | | 12 | | | | 245 | | | | (36 | ) | | | 255 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
INVESTMENT IN CABLE PROPERTIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property, plant and equipment, net | | | -- | | | | -- | | | | -- | | | | -- | | | | 5,181 | | | | -- | | | | 5,181 | |
Franchises, net | | | -- | | | | -- | | | | -- | | | | -- | | | | 9,223 | | | | -- | | | | 9,223 | |
Total investment in cable properties, net | | | -- | | | | -- | | | | -- | | | | -- | | | | 14,404 | | | | -- | | | | 14,404 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
INVESTMENT IN SUBSIDIARIES | | | -- | | | | -- | | | | 1,553 | | | | 3,847 | | | | -- | | | | (5,400 | ) | | | -- | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
OTHER NONCURRENT ASSETS | | | 6 | | | | 20 | | | | 48 | | | | 25 | | | | 176 | | | | -- | | | | 275 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 34 | | | $ | 23 | | | $ | 1,604 | | | $ | 3,884 | | | $ | 14,825 | | | $ | (5,436 | ) | | $ | 14,934 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
LIABILITIES AND MEMBER’S EQUITY (DEFICIT) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts payable and accrued expenses | | $ | 25 | | | $ | 71 | | | $ | 110 | | | $ | 74 | | | $ | 901 | | | $ | -- | | | $ | 1,181 | |
Payables to related party | | | -- | | | | 3 | | | | 4 | | | | -- | | | | 147 | | | | (36 | ) | | | 118 | |
Total current liabilities | | | 25 | | | | 74 | | | | 114 | | | | 74 | | | | 1,048 | | | | (36 | ) | | | 1,299 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
LONG-TERM DEBT | | | 967 | | | | 2,533 | | | | 4,092 | | | | 2,452 | | | | 8,610 | | | | -- | | | | 18,654 | |
LOANS PAYABLE (RECEIVABLE) – RELATED PARTY | | | (105 | ) | | | -- | | | | -- | | | | (195 | ) | | | 303 | | | | -- | | | | 3 | |
DEFERRED MANAGEMENT FEES – RELATED PARTY | | | -- | | | | -- | | | | -- | | | | -- | | | | 14 | | | | -- | | | | 14 | |
OTHER LONG-TERM LIABILITIES | | | -- | | | | -- | | | | -- | | | | -- | | | | 362 | | | | -- | | | | 362 | |
MINORITY INTEREST | | | -- | | | | -- | | | | (449 | ) | | | -- | | | | 641 | | | | -- | | | | 192 | |
LOSSES IN EXCESS OF INVESTMENT | | | 4,737 | | | | 2,153 | | | | -- | | | | -- | | | | -- | | | | (6,890 | ) | | | -- | |
MEMBER’S EQUITY (DEFICIT) | | | (5,590 | ) | | | (4,737 | ) | | | (2,153 | ) | | | 1,553 | | | | 3,847 | | | | 1,490 | | | | (5,590 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total liabilities and member’s equity (deficit) | | $ | 34 | | | $ | 23 | | | $ | 1,604 | | | $ | 3,884 | | | $ | 14,825 | | | $ | (5,436 | ) | | $ | 14,934 | |
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
Charter Holdings | |
Condensed Consolidating Statement of Operations | |
For the year ended December 31, 2007 | |
| |
| | | | | | | | | | | | | | | | | | | | | |
| | Charter Holdings | | | CIH | | | CCH I | | | CCH II | | | All Other Subsidiaries | | | Eliminations | | | Charter Holdings Consolidated | |
| | | | | | | | | | | | | | | | | | | | | |
REVENUES | | $ | -- | | | $ | -- | | | $ | -- | | | $ | -- | | | $ | 6,002 | | | $ | -- | | | $ | 6,002 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
COSTS AND EXPENSES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating (excluding depreciation and amortization) | | | -- | | | | -- | | | | -- | | | | -- | | | | 2,620 | | | | -- | | | | 2,620 | |
Selling, general and administrative | | | -- | | | | -- | | | | -- | | | | -- | | | | 1,289 | | | | -- | | | | 1,289 | |
Depreciation and amortization | | | -- | | | | -- | | | | -- | | | | -- | | | | 1,328 | | | | -- | | | | 1,328 | |
Impairment of franchises | | | -- | | | | -- | | | | -- | | | | -- | | | | 178 | | | | -- | | | | 178 | |
Asset impairment charges | | | -- | | | | -- | | | | -- | | | | -- | | | | 56 | | | | -- | | | | 56 | |
Other operating income, net | | | -- | | | | -- | | | | -- | | | | -- | | | | (17 | ) | | | -- | | | | (17 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | -- | | | | -- | | | | -- | | | | -- | | | | 5,454 | | | | -- | | | | 5,454 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating income | | | -- | | | | -- | | | | -- | | | | -- | | | | 548 | | | | -- | | | | 548 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
OTHER INCOME AND (EXPENSES): | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | (68 | ) | | | (295 | ) | | | (434 | ) | | | (238 | ) | | | (776 | ) | | | -- | | | | (1,811 | ) |
Other income (expense), net | | | (3 | ) | | | -- | | | | 15 | | | | -- | | | | (102 | ) | | | -- | | | | (90 | ) |
Equity in losses of subsidiaries | | | (1,302 | ) | | | (1,007 | ) | | | (588 | ) | | | (350 | ) | | | -- | | | | 3,247 | | | | -- | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (1,373 | ) | | | (1,302 | ) | | | (1,007 | ) | | | (588 | ) | | | (878 | ) | | | 3,247 | | | | (1,901 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loss before income taxes | | | (1,373 | ) | | | (1,302 | ) | | | (1,007 | ) | | | (588 | ) | | | (330 | ) | | | 3,247 | | | | (1,353 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
INCOME TAX EXPENSE | | | -- | | | | -- | | | | -- | | | | -- | | | | (20 | ) | | | -- | | | | (20 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | $ | (1,373 | ) | | $ | (1,302 | ) | | $ | (1,007 | ) | | $ | (588 | ) | | $ | (350 | ) | | $ | 3,247 | | | $ | (1,373 | ) |
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
Charter Holdings | |
Condensed Consolidating Statement of Operations | |
For the year ended December 31, 2006 | |
| | | | | | | | | | | | | | | | | | | | | |
| | Charter Holdings | | | CIH | | | CCH I | | | CCH II | | | All Other Subsidiaries | | | Eliminations | | | Charter Holdings Consolidated | |
| | | | | | | | | | | | | | | | | | | | | |
REVENUES | | $ | -- | | | $ | -- | | | $ | -- | | | $ | -- | | | $ | 5,504 | | | $ | -- | | | $ | 5,504 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
COSTS AND EXPENSES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating (excluding depreciation and amortization) | | | -- | | | | -- | | | | -- | | | | -- | | | | 2,438 | | | | -- | | | | 2,438 | |
Selling, general and administrative | | | -- | | | | -- | | | | -- | | | | -- | | | | 1,165 | | | | -- | | | | 1,165 | |
Depreciation and amortization | | | -- | | | | -- | | | | -- | | | | -- | | | | 1,354 | | | | -- | | | | 1,354 | |
Asset impairment charges | | | -- | | | | -- | | | | -- | | | | -- | | | | 159 | | | | -- | | | | 159 | |
Other operating expenses, net | | | -- | | | | -- | | | | -- | | | | -- | | | | 21 | | | | -- | | | | 21 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | -- | | | | -- | | | | -- | | | | -- | | | | 5,137 | | | | -- | | | | 5,137 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating income from continuing operations | | | -- | | | | -- | | | | -- | | | | -- | | | | 367 | | | | -- | | | | 367 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
OTHER INCOME AND EXPENSES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | (151 | ) | | | (290 | ) | | | (395 | ) | | | (209 | ) | | | (766 | ) | | | -- | | | | (1,811 | ) |
Other income (expense), net | | | 108 | | | | -- | | | | 15 | | | | -- | | | | (25 | ) | | | -- | | | | 98 | |
Equity in losses of subsidiaries | | | (1,072 | ) | | | (782 | ) | | | (402 | ) | | | (193 | ) | | | -- | | | | 2,449 | | | | -- | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (1,115 | ) | | | (1,072 | ) | | | (782 | ) | | | (402 | ) | | | (791 | ) | | | 2,449 | | | | (1,713 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loss from continuing operations before income taxes | | | (1,115 | ) | | | (1,072 | ) | | | (782 | ) | | | (402 | ) | | | (424 | ) | | | 2,449 | | | | (1,346 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
INCOME TAX EXPENSE | | | -- | | | | -- | | | | -- | | | | -- | | | | (7 | ) | | | -- | | | | (7 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loss from continuing operations | | | (1,115 | ) | | | (1,072 | ) | | | (782 | ) | | | (402 | ) | | | (431 | ) | | | 2,449 | | | | (1,353 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX | | | -- | | | | -- | | | | -- | | | | -- | | | | 238 | | | | -- | | | | 238 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | $ | (1,115 | ) | | $ | (1,072 | ) | | $ | (782 | ) | | $ | (402 | ) | | $ | (193 | ) | | $ | 2,449 | | | $ | (1,115 | ) |
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
Charter Holdings | |
Condensed Consolidating Statement of Operations | |
For the year ended December 31, 2005 | |
| | | | | | | | | | | | | | | | | | | | | |
| | Charter Holdings | | | CIH | | | CCH I | | | CCH II | | | All Other Subsidiaries | | | Eliminations | | | Charter Holdings Consolidated | |
| | | | | | | | | | | | | | | | | | | | | |
REVENUES | | $ | -- | | | $ | -- | | | $ | -- | | | $ | -- | | | $ | 5,033 | | | $ | -- | | | $ | 5,033 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
COSTS AND EXPENSES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating (excluding depreciation and amortization) | | | -- | | | | -- | | | | -- | | | | -- | | | | 2,203 | | | | -- | | | | 2,203 | |
Selling, general and administrative | | | -- | | | | -- | | | | -- | | | | -- | | | | 1,012 | | | | -- | | | | 1,012 | |
Depreciation and amortization | | | -- | | | | -- | | | | -- | | | | -- | | | | 1,443 | | | | -- | | | | 1,443 | |
Asset impairment charges | | | -- | | | | -- | | | | -- | | | | -- | | | | 39 | | | | -- | | | | 39 | |
Other operating expenses, net | | | -- | | | | -- | | | | -- | | | | -- | | | | 32 | | | | -- | | | | 32 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | -- | | | | -- | | | | -- | | | | -- | | | | 4,729 | | | | -- | | | | 4,729 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating income from continuing operations | | | -- | | | | -- | | | | -- | | | | -- | | | | 304 | | | | -- | | | | 304 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
OTHER INCOME AND EXPENSES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | (711 | ) | | | (72 | ) | | | (98 | ) | | | (167 | ) | | | (691 | ) | | | -- | | | | (1,739 | ) |
Gain (loss) on extinguishment of debt | | | 520 | | | | (8 | ) | | | (12 | ) | | | -- | | | | (6 | ) | | | -- | | | | 494 | |
Other income, net | | | -- | | | | -- | | | | (32 | ) | | | -- | | | | 105 | | | | -- | | | | 73 | |
Equity in income (loss) of subsidiaries | | | (647 | ) | | | (567 | ) | | | (425 | ) | | | (258 | ) | | | -- | | | | 1,897 | | | | -- | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (838 | ) | | | (647 | ) | | | (567 | ) | | | (425 | ) | | | (592 | ) | | | 1,897 | | | | (1,172 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loss from continuing operations before income taxes | | | (838 | ) | | | (647 | ) | | | (567 | ) | | | (425 | ) | | | (288 | ) | | | 1,897 | | | | (868 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
INCOME TAX EXPENSE | | | -- | | | | -- | | | | -- | | | | -- | | | | (9 | ) | | | -- | | | | (9 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loss from continuing operations | | | (838 | ) | | | (647 | ) | | | (567 | ) | | | (425 | ) | | | (297 | ) | | | 1,897 | | | | (877 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX | | | -- | | | | -- | | | | -- | | | | -- | | | | 39 | | | | -- | | | | 39 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net loss | | $ | (838 | ) | | $ | (647 | ) | | $ | (567 | ) | | $ | (425 | ) | | $ | (258 | ) | | $ | 1,897 | | | $ | (838 | ) |
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
Charter Holdings | |
Condensed Consolidating Statement of Cash Flows | |
For the year ended December 31, 2007 | |
| | | | | | | | | | | | | | | | | | | | | |
| | Charter Holdings | | | CIH | | | CCH I | | | CCH II | | | All Other Subsidiaries | | | Eliminations | | | Charter Holdings Consolidated | |
| | | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | |
Net loss | | $ | (1,373 | ) | | $ | (1,302 | ) | | $ | (1,007 | ) | | $ | (588 | ) | | $ | (350 | ) | | $ | 3,247 | | | $ | (1,373 | ) |
Adjustments to reconcile net loss to net cash flows from operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | -- | | | | -- | | | | -- | | | | -- | | | | 1,328 | | | | -- | | | | 1,328 | |
Impairment of franchises | | | -- | | | | -- | | | | -- | | | | -- | | | | 178 | | | | -- | | | | 178 | |
Asset impairment charges | | | -- | | | | -- | | | | -- | | | | -- | | | | 56 | | | | -- | | | | 56 | |
Noncash interest expense | | | 2 | | | | 3 | | | | (6 | ) | | | 6 | | | | 17 | | | | -- | | | | 22 | |
Deferred income taxes | | | -- | | | | -- | | | | -- | | | | -- | | | | 12 | | | | -- | | | | 12 | |
Equity in losses of subsidiaries | | | 1,302 | | | | 1,007 | | | | 588 | | | | 350 | | | | -- | | | | (3,247 | ) | | | -- | |
Other, net | | | 1 | | | | -- | | | | (15 | ) | | | -- | | | | 84 | | | | -- | | | | 70 | |
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts receivable | | | -- | | | | -- | | | | -- | | | | -- | | | | (33 | ) | | | -- | | | | (33 | ) |
Prepaid expenses and other assets | | | -- | | | | -- | | | | -- | | | | -- | | | | (5 | ) | | | -- | | | | (5 | ) |
Accounts payable, accrued expenses and other | | | (5 | ) | | | 10 | | | | 1 | | | | (2 | ) | | | 31 | | | | -- | | | | 35 | |
Receivables from and payables to related party, including deferred management fees | | | (5 | ) | | | -- | | | | -- | | | | (17 | ) | | | 55 | | | | -- | | | | 33 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net cash flows from operating activities | | | (78 | ) | | | (282 | ) | | | (439 | ) | | | (251 | ) | | | 1,373 | | | | -- | | | | 323 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchases of property, plant and equipment | | | -- | | | | -- | | | | -- | | | | -- | | | | (1,244 | ) | | | -- | | | | (1,244 | ) |
Change in accrued expenses related to capital expenditures | | | -- | | | | -- | | | | -- | | | | -- | | | | (2 | ) | | | -- | | | | (2 | ) |
Proceeds from sale of assets, including cable systems | | | -- | | | | -- | | | | -- | | | | -- | | | | 104 | | | | -- | | | | 104 | |
Other, net | | | -- | | | | -- | | | | -- | | | | -- | | | | (31 | ) | | | -- | | | | (31 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net cash flows from investing activities | | | -- | | | | -- | | | | -- | | | | -- | | | | (1,173 | ) | | | -- | | | | (1,173 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Borrowings of long-term debt | | | -- | | | | -- | | | | -- | | | | -- | | | | 7,877 | | | | -- | | | | 7,877 | |
Repayments of long-term debt | | | (389 | ) | | | -- | | | | -- | | | | -- | | | | (6,628 | ) | | | -- | | | | (7,017 | ) |
Payments for debt issuance costs | | | -- | | | | -- | | | | -- | | | | -- | | | | (33 | ) | | | -- | | | | (33 | ) |
Net contributions (distributions) | | | 467 | | | | 281 | | | | 440 | | | | 252 | | | | (1,447 | ) | | | -- | | | | (7 | ) |
Other, net | | | -- | | | | -- | | | | -- | | | | -- | | | | 5 | | | | -- | | | | 5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net cash flows from financing activities | | | 78 | | | | 281 | | | | 440 | | | | 252 | | | | (226 | ) | | | -- | | | | 825 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | -- | | | | (1 | ) | | | 1 | | | | 1 | | | | (26 | ) | | | -- | | | | (25 | ) |
CASH AND CASH EQUIVALENTS, beginning of period | | | -- | | | | 3 | | | | 3 | | | | 4 | | | | 28 | | | | -- | | | | 38 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS, end of period | | $ | -- | | | $ | 2 | | | $ | 4 | | | $ | 5 | | | $ | 2 | | | $ | -- | | | $ | 13 | |
Pursuant to a separate restructuring agreement among Charter, Mr. Allen, and an entity controlled by Mr. Allen (the “Allen Agreement”), in settlement of their rights, claims and remedies against Charter and its subsidiaries, and in addition to any amounts received by virtue of their holding any claims of the type set forth above, upon consummation of the Plan, Mr. Allen or his affiliates will be issued a number of shares of the new Class B Common Stock of Charter such that the aggregate voting power of such shares of new Class B Common Stock shall be equal to 35% of the total voting power of all new capital stock of Charter. Each share of new Class B Common Stock will be convertible, at the option of the holder, into one share of new Class A Common Stock, and will be subject to significant restrictions on transfer. Certain holders of new Class A Common Stock and new Class B Common Stock will receive certain customary registration rights with respect to their shares. Upon consummation of the Plan, Mr. Allen or his affiliates will also receive (i) warrants to purchase shares of new Class A common stock of Charter in an aggregate amount equal to 4% of the equity value of reorganized Charter, after giving effect to the rights offering, but prior to the issuance of warrants and equity-based awards provided for by the Plan, (ii) $85 million principal amount of new CCH II notes, (iii) $25 million in cash for amounts owing to CII under a management agreement, (iv) up to $20 million in cash for reimbursement of fees and expenses in connection with the Proposed Restructuring, and (v) an additional $150 million in cash. The warrants described above shall have an exercise price per share based on a total equity value equal to the sum of the equity value of reorganized Charter, plus the gross proceeds of the rights offering, and shall expire seven years after the date of issuance. In addition, on the effective date of the Plan, CII will retain a 1% equity interest in reorganized Charter Holdco and a right to exchange such interest into new Class A common stock of Charter.
The Allen Agreement contains similar provisions to those provisions of the Restructuring Agreements. There is no assurance that the treatment of creditors outlined above will not change significantly. For example, because the Proposed Restructuring is contingent on reinstatement of the Company’s credit facilities and notes, failure to reinstate such debt would require Charter to revise the Proposed Restructuring. Moreover, if reinstatement does not occur and current capital market conditions persist, the Company and its parent companies may not be able to secure adequate new financing and the cost of new financing would likely be materially higher. The Proposed Restructuring would result in the reduction of Charter’s debt by approximately $8 billion.
Interest Payments
Two of the Company’s parent companies, CIH and Charter Holdings, did not make scheduled payments of interest due on January 15, 2009 on certain of their outstanding senior notes (the “Overdue Payment Notes”). Each of the respective governing indentures (the “Indentures”) for the Overdue Payment Notes permits a 30-day grace period for such interest payments through (and including) February 15, 2009. On February 13, 2009, Charter paid the full amount of the January interest payment to the paying agent for the members of the ad-hoc committee of holders of the Overdue Payment Notes, which constitutes payment under the Indentures.
One of the Company’s parent companies, CCH II, did 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 Charter and its subsidiaries, including CCH II, filed voluntary Chapter 11 Bankruptcy prior to the expiration of the grace period.
Charter Operating Credit Facility
On February 3, 2009, Charter Operating made a request to the administrative agent under the Charter Operating credit facilities credit agreement (the “Credit Agreement”), to borrow additional revolving loans under the Credit Agreement. Such borrowing request complied with the provisions of the Credit Agreement including section 2.2 (“Procedure for Borrowing”) thereof. Subsequently, Charter received a notice from the administrative agent asserting that one or more Events of Default (as defined in the Credit Agreement) had occurred and was continuing under the Credit Agreement. In response, Charter sent a letter to the administrative agent, among other things, stating that no Event of Default under the Credit Agreement occurred or was continuing and requesting the administrative agent to rescind its notice of default and fund Charter Operating’s borrowing request. The administrative agent subsequently sent a letter stating that it continues to believe that one or more events of default occurred and was continuing. As a result, with the exception of one lender who funded approximately $0.4 million, the lenders under the Credit Agreement have failed to fund Charter Operating’s borrowing request.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 2006 AND 20052006
(dollars in millions, except where indicated)
Charter Holdings | |
Condensed Consolidating Statement of Cash Flows | |
For the year ended December 31, 2006 | |
| | | | | | | | | | | | | | | | | | | | | |
| | Charter Holdings | | | CIH | | | CCH I | | | CCH II | | | All Other Subsidiaries | | | Eliminations | | | Charter Holdings Consolidated | |
| | | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | |
Net loss | | $ | (1,115 | ) | | $ | (1,072 | ) | | $ | (782 | ) | | $ | (402 | ) | | $ | (193 | ) | | $ | 2,449 | | | $ | (1,115 | ) |
Adjustments to reconcile net loss to net cash flows from operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | -- | | | | -- | | | | -- | | | | -- | | | | 1,362 | | | | -- | | | | 1,362 | |
Asset impairment charges | | | -- | | | | -- | | | | -- | | | | -- | | | | 159 | | | | -- | | | | 159 | |
Noncash interest expense | | | 20 | | | | 63 | | | | (9 | ) | | | 5 | | | | 23 | | | | -- | | | | 102 | |
Equity in losses of subsidiaries | | | 1,072 | | | | 782 | | | | 402 | | | | 193 | | | | -- | | | | (2,449 | ) | | | -- | |
Other, net | | | (108 | ) | | | (1 | ) | | | (13 | ) | | | 1 | | | | (155 | ) | | | -- | | | | (276 | ) |
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts receivable | | | -- | | | | -- | | | | -- | | | | -- | | | | 23 | | | | -- | | | | 23 | |
Prepaid expenses and other assets | | | -- | | | | -- | | | | -- | | | | -- | | | | 1 | | | | -- | | | | 1 | |
Accounts payable, accrued expenses and other | | | 10 | | | | 43 | | | | (11 | ) | | | 8 | | | | (23 | ) | | | -- | | | | 27 | |
Receivables from and payables to related party, including deferred management fees | | | (5 | ) | | | 2 | | | | -- | | | | (14 | ) | | | 41 | | | | -- | | | | 24 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net cash flows from operating activities | | | (126 | ) | | | (183 | ) | | | (413 | ) | | | (209 | ) | | | 1,238 | | | | -- | | | | 307 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchases of property, plant and equipment | | | -- | | | | -- | | | | -- | | | | -- | | | | (1,103 | ) | | | -- | | | | (1,103 | ) |
Change in accrued expenses related to capital expenditures | | | -- | | | | -- | | | | -- | | | | -- | | | | 24 | | | | -- | | | | 24 | |
Proceeds from sale of assets | | | -- | | | | -- | | | | -- | | | | -- | | | | 1,020 | | | | -- | | | | 1,020 | |
Other, net | | | -- | | | | -- | | | | -- | | | | -- | | | | (6 | ) | | | -- | | | | (6 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net cash flows from investing activities | | | -- | | | | -- | | | | -- | | | | -- | | | | (65 | ) | | | -- | | | | (65 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Borrowings of long-term debt | | | -- | | | | -- | | | | -- | | | | -- | | | | 6,322 | | | | -- | | | | 6,322 | |
Borrowings (loans) from related parties | | | (105 | ) | | | -- | | | | -- | | | | (195 | ) | | | 300 | | | | -- | | | | -- | |
Repayments of long-term debt | | | -- | | | | -- | | | | -- | | | | (189 | ) | | | (6,729 | ) | | | -- | | | | (6,918 | ) |
Repayments to related parties | | | -- | | | | -- | | | | -- | | | | -- | | | | (20 | ) | | | -- | | | | (20 | ) |
Proceeds from issuance of debt | | | -- | | | | -- | | | | -- | | | | 440 | | | | -- | | | | -- | | | | 440 | |
Payments for debt issuance costs | | | (2 | ) | | | -- | | | | (4 | ) | | | (15 | ) | | | (18 | ) | | | -- | | | | (39 | ) |
Net contributions (distributions) | | | 233 | | | | 183 | | | | 412 | | | | 172 | | | | (1,003 | ) | | | -- | | | | (3 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net cash flows from financing activities | | | 126 | | | | 183 | | | | 408 | | | | 213 | | | | (1,148 | ) | | | -- | | | | (218 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | -- | | | | -- | | | | (5 | ) | | | 4 | | | | 25 | | | | -- | | | | 24 | |
CASH AND CASH EQUIVALENTS, beginning of period | | | -- | | | | 3 | | | | 8 | | | | -- | | | | 3 | | | | -- | | | | 14 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS, end of period | | $ | -- | | | $ | 3 | | | $ | 3 | | | $ | 4 | | | $ | 28 | | | $ | -- | | | $ | 38 | |
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollarsOn March 27, 2009, Charter, Charter Holdings, and all other Charter entities filed a petition for relief under Chapter 11 of the United States Bankruptcy Code in millions, except where indicated)
Charter Holdings | |
Condensed Consolidating Statement of Cash Flows | |
For the year ended December 31, 2005 | |
| | | | | | | | | | | | | | | | | | | | | |
| | Charter Holdings | | | CIH | | | CCH I | | | CCH II | | | All Other Subsidiaries | | | Eliminations | | | Charter Holdings Consolidated | |
| | | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | |
Net loss | | $ | (838 | ) | | $ | (647 | ) | | $ | (567 | ) | | $ | (425 | ) | | $ | (258 | ) | | $ | 1,897 | | | $ | (838 | ) |
Adjustments to reconcile net loss to net cash flows from operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | -- | | | | -- | | | | -- | | | | -- | | | | 1,499 | | | | -- | | | | 1,499 | |
Asset impairment charges | | | -- | | | | -- | | | | -- | | | | -- | | | | 39 | | | | -- | | | | 39 | |
Noncash interest expense | | | 179 | | | | 49 | | | | (2 | ) | | | 2 | | | | 29 | | | | -- | | | | 257 | |
(Gain) loss on extinguishment of debt | | | (521 | ) | | | 8 | | | | 12 | | | | -- | | | | -- | | | | -- | | | | (501 | ) |
Equity in losses of subsidiaries | | | 647 | | | | 567 | | | | 425 | | | | 258 | | | | -- | | | | (1,897 | ) | | | -- | |
Other, net | | | -- | | | | -- | | | | 32 | | | | -- | | | | (63 | ) | | | -- | | | | (31 | ) |
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts receivable | | | 10 | | | | -- | | | | -- | | | | -- | | | | (41 | ) | | | -- | | | | (31 | ) |
Prepaid expenses and other assets | | | 1 | | | | -- | | | | -- | | | | -- | | | | (7 | ) | | | -- | | | | (6 | ) |
Accounts payable, accrued expenses and other | | | (110 | ) | | | 25 | | | | 107 | | | | -- | | | | (66 | ) | | | -- | | | | (44 | ) |
Receivables from and payables to related party, including deferred management fees | | | (12 | ) | | | 2 | | | | 3 | | | | -- | | | | (83 | ) | | | -- | | | | (90 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net cash flows from operating activities | | | (644 | ) | | | 4 | | | | 10 | | | | (165 | ) | | | 1,049 | | | | -- | | | | 254 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchases of property, plant and equipment | | | -- | | | | -- | | | | -- | | | | -- | | | | (1,088 | ) | | | -- | | | | (1,088 | ) |
Change in accrued expenses related to capital expenditures | | | -- | | | | -- | | | | -- | | | | -- | | | | 13 | | | | -- | | | | 13 | |
Proceeds from sale of assets | | | -- | | | | -- | | | | -- | | | | -- | | | | 44 | | | | -- | | | | 44 | |
Other, net | | | -- | | | | -- | | | | -- | | | | -- | | | | 13 | | | | -- | | | | 13 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net cash flows from investing activities | | | -- | | | | -- | | | | -- | | | | -- | | | | (1,018 | ) | | | -- | | | | (1,018 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Borrowings of long-term debt | | | -- | | | | -- | | | | -- | | | | -- | | | | 1,207 | | | | -- | | | | 1,207 | |
Borrowings from related parties | | | -- | | | | -- | | | | -- | | | | -- | | | | 140 | | | | -- | | | | 140 | |
Repayments of long-term debt | | | -- | | | | -- | | | | -- | | | | -- | | | | (1,107 | ) | | | -- | | | | (1,107 | ) |
Repayments to related parties | | | -- | | | | -- | | | | -- | | | | -- | | | | (147 | ) | | | -- | | | | (147 | ) |
Proceeds from issuance of debt | | | -- | | | | -- | | | | -- | | | | -- | | | | 294 | | | | -- | | | | 294 | |
Payments for debt issuance costs | | | -- | | | | (8 | ) | | | (51 | ) | | | -- | | | | (11 | ) | | | -- | | | | (70 | ) |
Redemption of preferred interest | | | -- | | | | -- | | | | -- | | | | -- | | | | (25 | ) | | | -- | | | | (25 | ) |
Net contributions (distributions) | | | 644 | | | | 7 | | | | 49 | | | | 165 | | | | (925 | ) | | | -- | | | | (60 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net cash flows from financing activities | | | 644 | | | | (1 | ) | | | (2 | ) | | | 165 | | | | (574 | ) | | | -- | | | | 232 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | -- | | | | 3 | | | | 8 | | | | -- | | | | (543 | ) | | | -- | | | | (532 | ) |
CASH AND CASH EQUIVALENTS, beginning of period | | | -- | | | | -- | | | | -- | | | | -- | | | | 546 | | | | -- | | | | 546 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS, end of period | | $ | -- | | | $ | 3 | | | $ | 8 | | | $ | -- | | | $ | 3 | | | $ | -- | | | $ | 14 | |
26. Subsequent Events
Inthe United States Bankruptcy Court for the Southern District of New York. Later on March 2008,27, 2009, JPMorgan Chase Bank, N. A., as Administrative Agent under the Credit Agreement, filed an adversary proceeding in bankruptcy court against Charter Operating issued $546 million principal amount of 10.875% senior second-lien notes due 2014 ("the Notes"), guaranteed byand CCO Holdings and certain subsidiariesseeking a declaration that there have been events of default under the Credit Agreement. Such a judgment would prevent Charter Operating in a private transaction and borrowed $500 million principal amount of incremental term loans (the "Incremental Term Loans") underCCO Holdings from reinstating the Charter Operating credit facilities. The Incremental Term Loans have a final maturity of March 6, 2014terms and prior to this date will amortize in quarterly principal installments totaling 1% annually beginning on June 30, 2008. The Incremental Term Loans bear interest at LIBOR plus 5.0%, with a LIBOR floor of 3.5%, and are otherwise governed by and subject to the existing termsprovisions of the Credit Agreement through the bankruptcy proceeding. Although it has not yet answered the complaint, Charter Operating credit facilities. The net proceeds ofdenies the two transactions will be usedallegations made by JP Morgan and intends to reduce borrowings, but not commitments, under the revolving portion of the Charter Operating credit facilities and for general corporate purposes. vigorously contest this matter.
CHARTER COMMUNICATIONS HOLDINGS, LLC AND SUBSIDIARIES
CCH II, LLC AND SUBSIDIARIES
CCO HOLDINGS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
(dollars in millions, except where indicated)
After the receipt in March 2008 of net proceeds from the Charter Operating 10.875% 2nd lien notes due 2014 and the Incremental Term Loans, the Companies expect that cash on hand, cash flows from operating activities, and the amounts available under Charter Operating’s credit facilities will be adequate to fund its and their parent companies’ projected cash needs, including scheduled maturities, through 2009. The Companies believe that cash flows from operating activities, and the amounts available under its credit facilities will not be sufficient to fund its and their parent companies’ projected cash needs in 2010 (primarily as a result of the CCH II $2.2 billion of senior notes maturing in September 2010 ) and thereafter. The Companies’ projected cash needs and projected sources of liquidity depend upon, among other things, its actual results, the timing and amount of its capital expenditures, and ongoing compliance with the Charter Operating credit facilities, including obtaining an unqualified audit opinion from our independent accountants. Although the Companies and their parent companies have been able to refinance or otherwise fund the repayment of debt in the past, the Companies and their parent companies may not be able to access additional sources of refinancing on similar terms or pricing as those that are currently in place, or at all, or otherwise obtain other sources of funding. A continuation of the recent turmoil in the credit markets and the general economic downturn could adversely impact the terms and/or pricing when the Companies need to raise additional liquidity. No assurances can be given that the Companies will not experience liquidity problems if they do not obtain sufficient additional financing on a timely basis as the Companies’ debt becomes due or because of adverse market conditions, increased competition, or other unfavorable events.