NEWS
FOR RELEASE: 8:00 AM CT, Tuesday, August 2, 2005
CHARTER REPORTS SECOND QUARTER 2005
FINANCIAL AND OPERATING RESULTS
St. Louis, MO - Charter Communications, Inc. (Nasdaq: CHTR) (along with its subsidiaries, the "Company" or "Charter") today reported financial and operating results for the three and six months ended June 30, 2005. The Company also provided its year to date results compared to pro forma results for the same 2004 period reflecting the sales of certain cable systems in March and April 2004 as if these sales occurred on January 1, 2004. (See the Addendum of this news release for further details on pro forma information.)
Overview
"Our focus on disciplined operational improvement is gaining traction, and beginning to show positive results," said Charter Interim President and CEO Robert May. "While customer additions were impacted by competition in certain markets and seasonality characteristic of the second quarter, we are gaining ground in terms of customer retention and additions, a result of our targeted approach to customer growth. We are encouraged by these mid-year results, but realize there is more to be done."
During the second quarter of 2005 Charter:
| · | Expanded its segmented approach to selling its products, tailoring marketing messages to various consumer categories; |
| · | Increased average monthly total revenue per analog video customer 10% and increased high-speed Internet (HSI) revenue per HSI customer 5% compared to the second quarter of 2004; |
| · | Added a net 5,600 revenue generating units (RGUs), driven by the addition of 43,800 HSI customers and 12,500 telephone customers, offset by the loss of 9,000 digital video customers and 41,700 analog video customers; |
| · | Continued to invest in new product opportunities including telephone and advanced set-top terminals; and |
| · | Grew revenues 7% and adjusted EBITDA 4% compared to the second quarter of 2004. (Adjusted EBITDA is defined in the "Use of Non-GAAP Financial Metrics" section of this news release.) |
"In the near term, we are focused on improving the value proposition for our customers; developing more sophisticated customer care capabilities; executing growth strategies for new services; managing our operating costs; and identifying opportunities to continue to improve our balance sheet and liquidity," said Mr. May. "And I’m confident we have the personnel, the infrastructure, the products and the services necessary to achieve our goals and objectives."
Second Quarter Results
Second quarter 2005 revenues were $1.323 billion, an increase of $84 million, or 7%, over second quarter 2004 revenues of $1.239 billion. The increase in revenues was primarily driven by growth in HSI revenues and average revenue per customer.
For the three months ended June 30, 2005, HSI revenues increased $45 million, or 25%, reflecting 310,800 net additional HSI customers since June 30, 2004, as well as a 5% increase in average revenue per HSI customer in the second quarter of 2005 compared to the same 2004 period. Video revenues increased $15 million, or 2%, compared to the second quarter of 2004, primarily due to a 5% increase in average monthly video revenue per analog video customer and an increase in digital customers served, partially offset by the loss of analog video customers during the period. Commercial revenues increased $11 million, or 19%, and advertising sales revenues increased $3 million, or 4%, compared to the year ago quarter. Other revenue increased $10 million, or 12%, for the second quarter of 2005 compared to the second quarter of 2004, primarily due to increased telephone and franchise fee revenue.
Second quarter 2005 operating costs and expenses were $825 million, an increase of $66 million, or 9%, compared to the year ago quarter. The rise in second quarter 2005 operating costs and expenses over 2004 primarily resulted from a $32 million, or 20%, increase in service costs, a $22 million, or 7%, increase in programming costs, and a $17 million, or 8%, increase in general and administrative costs. Increased labor and maintenance costs to support our infrastructure, increased equipment maintenance, an increase in franchise fees as a result of increased revenues and higher fuel prices drove the rise in service costs. Programming costs grew as a result of price increases, particularly in sports programming, partially offset by a decrease in analog video customers and a reduction related to changes in estimates of programming related liabilities resulting from the renewal of programming contracts during the quarter. General and administrative costs increased due to increases in salaries and benefits, property taxes and professional fees, partially offset by a decrease in bad debt expense. These increases were partially offset by a $5 million, or 14%, decrease in marketing costs, as the Company exercised discipline in spending while continuing to develop its segmented marketing approach.
Charter reported income from operations of $110 million for the second quarter of 2005 compared to $15 million for the second quarter of 2004. The increase in income from operations was driven by variances discussed above, as well as a decrease of $89 million in special charges due to litigation costs recorded in the second quarter of 2004 related to the settlement of the securities class action lawsuits.
Net loss applicable to common stock and loss per common share for the second quarter of 2005 were $356 million and $1.18, respectively. For the second quarter of 2004, Charter reported net loss applicable to common stock and loss per common share of $416 million and $1.39, respectively. The $60 million decrease in net loss applicable to common stock for the second quarter of 2005 compared to the same year ago period is primarily the result of changes in revenues and expenses discussed above, as well as gains on equity investments and extinguishment of debt. These increases were partially offset by increased interest expense and a small net loss on derivative instruments and hedging activities, compared to the net gain recorded for the second quarter of 2004.
Year to Date Results
Revenues for the six months ended June 30, 2005 were $2.594 billion, an increase of $170 million, or 7%, over pro forma revenues for the same 2004 period of $2.424 billion. For the six months ended June 30, 2005 operating costs and expenses were $1.621 billion, an increase of $127 million, or 9%, compared to the same pro forma year ago period. Service costs increased $56 million, or 18%, programming costs increased $55 million, or 8%, and general and administrative costs increased $15 million, or 4%, compared to the pro forma year ago period.
Charter reported income from operations of $161 million for the six months ended June 30, 2005 compared to $78 million for the same pro forma 2004 period. The increase in income from operations was driven by variances discussed above, as well as a decrease of $95 million in special charges primarily due to litigation costs recorded in the second quarter of 2004 related to the settlement of the securities class action lawsuits, partially offset by $39 million of impairment charges recorded during the first six months of 2005 and the $104 million gain on sale of assets primarily related to assets sales occurring in March and April 2004.
Net loss applicable to common stock and loss per common share for the six months ended June 30, 2005 were $709 million and $2.34, respectively. For the six months ended June 30, 2004, Charter reported pro forma net loss applicable to common stock and loss per common share of $804 million and $2.71, respectively.
Liquidity
Adjusted EBITDA totaled $498 million for the three months ended June 30, 2005, an increase of $18 million, or 4%, compared to the year ago period. Adjusted EBITDA for the six months ended June 30, 2005 was $973 million, an increase of 5% compared to pro forma adjusted EBITDA of $930 million for the six months ended June 30, 2004.
Net cash flows from operating activities for the six months ended June 30, 2005 were $181 million, compared to $168 million for the year ago period.
Expenditures for property, plant and equipment for the second quarter of 2005 were $331 million, compared to second quarter 2004 expenditures of $200 million. For the six months ended June 30, 2005 expenditures for property, plant and equipment were $542 million, while expenditures for the same 2004 period totaled $390 million. The increases were primarily driven by spending on scalable infrastructure related to telephone, video on demand and digital simulcast; support capital related to our investment in infrastructure and service improvements; and customer premise equipment primarily related to the continued demand for advanced digital set-tops.
Un-levered free cash flow for the second quarter of 2005 was $167 million compared to second quarter 2004 un-levered free cash flow of $280 million. For the six months ended June 30, 2005, un-levered free cash flow was $431 million, compared to $553 million for the year ago period. The increases in 2005 capital expenditures more than offset adjusted EBITDA growth, resulting in lower un-levered free cash flow during the 2005 periods.
Charter reported negative free cash flow of $219 million for the second quarter of 2005 compared to $60 million for the second quarter of 2004. Negative free cash flow for the six months ended June 30, 2005 was $326 million, compared to $87 million for the same 2004 period. Higher capital expenditures and interest on cash-pay obligations contributed to the increase in negative free cash flow.
As of June 30, 2005, Charter had $19.2 billion of outstanding indebtedness and $40 million of cash on hand. Net availability of funds under the Charter Communications Operating, LLC ("Charter Operating") credit facility was approximately $870 million. The Company believes cash on hand at June 30, 2005, cash flows from operating activities and the amounts available under its credit facilities will be sufficient to meet cash needs throughout 2005.
Operating Statistics
As of June 30, 2005, Charter served approximately 10,718,700 RGUs, a net increase of 5,600 RGUs during the second quarter. Seasonality impacted customer growth during the quarter resulting in a net gain of 43,800 residential HSI customers during the quarter, and net losses of 41,700 and 9,000 analog video and digital video customers, respectively. Charter added a net 12,500 telephone customers during the quarter.
As of June 30, 2005, Charter served approximately 5,943,100 analog video, 2,685,600 digital video, 2,022,200 residential high-speed Internet and 67,800 telephone customers.
Financing
As part of the Company’s previously announced ongoing efforts to improve liquidity and extend maturities, in June 2005, Charter Operating issued, in a private placement, approximately $62 million principal amount of new notes with terms identical to Charter Operating’s 8.375% Senior Second Lien Notes due 2014, in exchange for $62 million of Charter Communications Holdings, LLC 8.25% Senior Notes due 2007. During second quarter 2005, Charter also purchased, in private transactions, from a small number of institutional holders, a total of $97 million principal amount of the 4.75% convertible senior notes due 2006, leaving $25 million principal amount outstanding.
In July 2005, the Securities Exchange Commission declared effective the registration on Form S-1 covering both the convertible senior notes due 2009 and the related share lending agreement. On July 29, 2005 Charter completed the first issuance of Class A common stock under the share lending agreement. The Company issued 27.2 million shares of stock at $1.25 per share. Charter may offer up to an additional 122.8 million more in future offerings. Charter will not receive any of the proceeds from the sale of Class A common stock under the share lending agreement.
Use of Non-GAAP Financial Metrics
The Company uses certain measures that are not defined by GAAP (Generally Accepted Accounting Principles) to evaluate various aspects of its business. Adjusted EBITDA, un-levered free cash flow and free cash flow are non-GAAP financial measures and should be considered in addition to, not as a substitute for, net cash flows from operating activities reported in accordance with GAAP. These terms as defined by Charter may not be comparable to similarly titled measures used by other companies.
Adjusted EBITDA is defined as income from operations before special charges, non-cash depreciation and amortization, gain/loss on sale of assets, asset impairment charges, and option compensation expense. As such, it eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of our businesses and intangible assets recognized in business combinations as well as other non-cash or non-recurring items, and is unaffected by our capital structure or investment activities. Adjusted EBITDA is a liquidity measure used by Company management and the Board of Directors to measure our ability to fund operations and our financing obligations. For this reason, it is a significant component of Charter’s annual incentive compensation program. However, this measure is limited in that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues and the cash cost of financing for the Company. Company management evaluates these costs through other financial measures.
Un-levered free cash flow is defined as adjusted EBITDA less purchases of property, plant and equipment. The Company believes this is an important measure as it takes into account the period costs associated with capital expenditures used to upgrade, extend and maintain our plant without regard to the Company’s leverage structure.
Free cash flow is defined as un-levered free cash flow less interest on cash pay obligations. It can also be computed as net cash flows from operating activities, less capital expenditures and cash special charges, adjusted for the change in operating assets and liabilities, net of dispositions. As such, it is unaffected by fluctuations in working capital levels from period to period.
The Company believes that adjusted EBITDA, un-levered free cash flow and free cash flow provide information useful to investors in assessing our ability to service our debt, fund operations, and make additional investments with internally generated funds. In addition, adjusted EBITDA generally correlates to the leverage ratio calculation under the Company’s credit facilities or outstanding notes to determine compliance with the covenants contained in the facilities and notes (all such documents have been previously filed with the United States Securities and Exchange Commission). Adjusted EBITDA, as presented, is reduced for management fees in the amounts of $33 million and $21 million for the three months ended June 30, 2005 and 2004, respectively, which amounts are added back for the purposes of calculating compliance with leverage covenants. As of June 30, 2005, Charter and its subsidiaries were in compliance with their debt covenants.
Conference Call
The Company will host a Conference Call on Tuesday, August 2, 2005 at 11:00 AM Eastern Time (ET) related to the contents of this release.
The Conference Call will be webcast live via the Company’s website at www.charter.com. Access the webcast by clicking on "About Us" at the top right of the page, then again on "Investor Center." Participants should go to the call link at least 10 minutes prior to the start time to register. The call will be archived on the website beginning two hours after its completion.
Those participating via telephone should dial 888-233-1576. International participants should dial 706-643-3458.
A replay will be available at 800-642-1687 or 706-645-9291 beginning two hours after completion of the call through midnight August 9, 2005. The passcode for the replay is 7161574.
About Charter Communications
Charter Communications, Inc., a broadband communications company, provides a full range of advanced broadband services to the home, including cable television on an advanced digital video programming platform via Charter Digital™, Charter High-Speed™ Internet service and Charter Telephone™. Charter Business™ provides scalable, tailored and cost-effective broadband communications solutions to organizations of all sizes through business-to-business Internet, data networking, video and music services. Advertising sales and production services are sold under the Charter Media® brand. More information about Charter can be found at www.charter.com <<http://www.charter.com>>.
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Contact:
Press: Analysts:
David Andersen Mary Jo Moehle
314/543-2213 314/543-2397
Cautionary Statement Regarding Forward-Looking Statements:
This release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), regarding, among other things, our plans, strategies and prospects, both business and financial. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Many of the forward-looking statements contained in this release may be identified by the use of forward-looking words such as "believe," "expect," "anticipate," "should," "planned," "will," "may," "intend," "estimated" and "potential," among others. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this release are set forth in reports or documents that we file from time to time with the SEC, and include, but are not limited to:
| · | the availability of funds to meet interest payment obligations under our debt and to fund our operations and necessary capital expenditures, either through cash flows from operating activities, further borrowings or other sources; |
| · | our ability to sustain and grow revenues and cash flows from operating activities by offering video, high-speed Internet, telephone and other services and to maintain a stable customer base, particularly in the face of increasingly aggressive competition from other service providers; |
| · | our ability to comply with all covenants in our indentures and credit facilities, any violation of which would result in a violation of the applicable facility or indenture and could trigger a default of other obligations under cross-default provisions; |
| · | our ability to repay or refinance debt as it becomes due; |
| · | our ability to obtain programming at reasonable prices or to pass cost increases on to our customers; |
| · | general business conditions, economic uncertainty or slowdown; and |
| · | the effects of governmental regulation, including but not limited to local franchise taxing authorities, on our business. |
All forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by this cautionary statement. We are under no duty or obligation to update any of the forward-looking statements after the date of this release.
