NEWS
FOR RELEASE: 7:00 a.m. CT, Tuesday, August 8, 2006
Charter Reports Second-Quarter 2006
Financial and Operating Results
St. Louis, MO - August 8, 2006 - Charter Communications, Inc. (Nasdaq: CHTR) (along with its subsidiaries, the “Company” or “Charter”) today reported its second-quarter 2006 financial results.
“We are pleased with the results for the second quarter, which reflect continued momentum and visible improvements in the operating metrics that drive our business,” said Neil Smit, president and chief executive officer. “We are keenly focused on disciplined, targeted marketing and operational execution aimed at delivering profitable revenue growth. While there is still a lot of work to be done, I believe that we’re building a solid foundation for growth,” Smit said.
Highlights
| · | Second-quarter revenues from continuing and discontinued operations grew 8.7% year over year. |
| · | Quarterly adjusted EBITDA from continuing and discontinued operations increased 4.2% compared to the second quarter of 2005. (Adjusted EBITDA is defined in the “Use of Non-GAAP Financial Metrics” section and is reconciled to net cash flows from operating activities in the addendum of this news release.) |
| · | Revenue generating units (RGUs) increased by 104,000, compared to the 5,600 RGUs added in the second quarter of 2005. |
| · | Net gains improved on all product lines compared to the second quarter of 2005, and total average monthly revenue per analog video customer increased 10.0% year over year. |
| · | Telephone customers climbed to 257,600 as of June 30, 2006, up 35% from March 31, 2006. Phone service availability grew to approximately 4.7 million homes as of June 30, 2006. |
| · | In July 2006, Charter completed the sale of certain geographically non-strategic systems for net proceeds of approximately $896 million. |
The operating results of certain systems sold in July 2006 have been removed from continuing operations and placed in discontinued operations. All customer metrics in this release include all systems owned during the period, including those accounted for as discontinued operations, unless otherwise stated. (See “Discontinued Operations” section for further information.)
Operating Results
Charter’s consistent focus on targeted marketing and improved service levels continued to drive RGU growth. Charter added a net 104,000 RGUs during the second quarter, a significant increase over second-quarter 2005 additions. Net gain improvements in every customer category contributed to overall RGU growth as compared to the year-ago quarter.
| § | Telephone customers increased by approximately 66,500, compared with a net gain of 12,500 customers in the year-ago quarter. |
| § | High-speed Internet (HSI) customers increased by approximately 52,700, compared with a net gain of 43,800 customers in the second quarter of 2005. |
| § | Digital video customers increased by approximately 22,600, compared with a net loss of 9,000 customers a year ago. |
| § | Analog video customers decreased by approximately 37,800, compared with a net loss of 41,700 customers in the second quarter of 2005. |
As of June 30, 2006, Charter served approximately 11,397,800 RGUs, comprised of 5,876,100 analog video, 2,889,000 digital video, 2,375,100 HSI, and 257,600 telephone customers.
Total average monthly revenue per analog video customer increased 10.0% for the second quarter of 2006, compared to the same period in 2005, and churn declined compared to the year ago quarter. Continued improvements in average revenue and churn resulted from Charter’s bundled offers and marketing efforts to add high-quality customers.
Strong telephone growth continued, with total customers increasing 35% since the first quarter of 2006. During the second quarter, Charter made telephone service available to nearly 750,000 additional homes, bringing total homes passed with telephone
service to approximately 4.7 million as of June 30, 2006. The Company remains on track to make the service available to between 6 million and 8 million homes by year-end 2006. In markets where telephone service is available, Charter continues to experience lower customer churn, increased revenue per analog video customer, and improved customer satisfaction, as customers take advantage of Charter’s bundled product offerings.
Second-Quarter Financial Results
Second-quarter 2006 revenues from continuing operations increased 9.2%, up $117 million year over year, to $1.383 billion, resulting from both a larger customer base versus prior year, and increases in average revenue per customer. High Speed Internet revenues increased 19.7%, up $43 million year over year, and telephone revenues more than tripled to $29 million from $8 million in the second quarter of 2005. Commercial revenues increased 15.2%, up $10 million year over year, and advertising sales revenues increased 8.2%, or $6 million, year over year. Video revenues increased 3.9%, up $32 million year over year.
Second-quarter 2006 operating costs and expenses from continuing operations increased $95 million, or 12.0%, to $887 million, reflecting Charter’s expenditures to support higher rates of customer growth and retention, as well as added expenses arising from higher programming costs associated with annual rate increases and higher customer volumes.
Operating income from continuing operations increased by $46 million year over year, to $146 million for the second quarter of 2006. Revenue growth exceeded operating cost growth during the period by $22 million, and depreciation and amortization expenses declined by $24 million year over year.
Net loss applicable to common stock and loss per common share for the second quarter of 2006 were $382 million and $1.20, respectively. For the second quarter of 2005, Charter reported net loss applicable to common stock and loss per common share of $356 million and $1.17, respectively. The increase in net loss applicable to common stock was primarily due to a $27 million loss on extinguishment of debt related to the credit facility refinancing in April 2006, a $24 million increase in interest expense, and a
$27 million increase in income tax expense. These expense increases were partially offset by the $46 million increase in operating income from continuing operations.
Year to Date Financial Results
For the six months ended June 30, 2006, total revenues from continuing operations increased by 8.9%, up $222 million, to $2.703 billion, resulting from both a larger number of customers and higher average revenue per customer. HSI revenues increased 19.1%, up $81 million, and telephone revenues more than tripled to $49 million from $14 million in the year ago period. Commercial revenues increased 16.4%, up $21 million year over year, and advertising sales revenues increased 8.9%, up $12 million year over year. Video revenues increased 3.8%, up $61 million year over year.
Operating costs and expenses from continuing operations for the six months ended June 30, 2006 increased by 13.0%, or $203 million, to $1.759 billion, reflecting costs to serve a greater number of customers, expenditures on customer service enhancements, increased marketing spending, and annual programming rate increases.
Operating income from continuing operations decreased by 2.8%, or $4 million, to $138 million for the first six months of 2006. Revenue growth exceeded operating cost growth during the period by $19 million, and depreciation and amortization expenses declined by $40 million year over year. These benefits were offset by a $60 million increase in asset impairment charges related to Charter’s asset sales to NewWave Communications and subsidiaries of Orange BroadBand Holding Company, LLC, and an $8 million increase in special charges primarily related to severance associated with closing call centers and divisional restructuring.
Net loss applicable to common stock and loss per common share for the six months ended June 30, 2006, were $841 million and $2.65, respectively. For the first six months of 2005, Charter reported net loss applicable to common stock and loss per common share of $709 million and $2.34, respectively. The increase in net loss applicable to common stock was primarily due to a $72 million increase in interest expense and a $35 million increase in loss on extinguishment of debt, primarily related to the credit facility refinancing in April 2006, along with the $4 million decrease in operating income from continuing operations.
Asset Sales
In 2006, the Company signed three separate definitive agreements to sell certain geographically non-strategic cable television systems serving approximately 356,000 analog video customers for a total of approximately $971 million. In July 2006, Charter completed the sales of systems in West Virginia and Virginia, serving approximately 239,700 analog video customers, to Cebridge Acquisition Co., LLC (the “Cebridge transaction”) and systems in Illinois and Kentucky, serving approximately 73,300 analog video customers, to NewWave Communications (the “NewWave transaction”). The sale of systems in northern and southeastern Nevada, and in Colorado, New Mexico, and Utah, serving 43,000 analog video customers, to subsidiaries of Orange Broadband Holding Company, LLC (the “Orange transaction”) is scheduled to close in the third quarter of 2006.
Charter expects to record a gain on the sale related to the Cebridge transaction of approximately $200 million in the third quarter of 2006.
Assuming the sales of systems in July 2005, the Cebridge transaction, the New Wave transaction, the pending Orange sale, and the acquisition in January 2006 had occurred as of January 1, 2005, pro forma revenue and adjusted EBITDA growth for the second quarter of 2006 over the pro forma second quarter of 2005 would have been 9.1% and 4.7%, respectively. Pro forma for the three sales of systems announced in 2006, Charter served approximately 5,520,100 analog video, 2,730,000 digital video, 2,264,200 HSI, and 257,600 telephone customers as of June 30, 2006.
Discontinued Operations
The results of operations for the West Virginia and Virginia cable systems, which were sold to Cebridge in July 2006, have been presented as discontinued operations, net of tax, for the three and six months ended June 30, 2006 and 2005. Charter has determined that these systems comprise operations and cash flows that, for financial reporting purposes, meet the criteria for discontinued operations in accordance with Generally Accepted Accounting Principles (GAAP). Income from discontinued operations, net of tax, for the second quarter of 2006 and 2005, were $20 million and $4
million, respectively. Income from discontinued operations for the six months ended June 30, 2006 and 2005 were $34 million and $29 million, respectively.
Results for second quarter of 2006 versus 2005
Total revenues, including revenues from discontinued operations, were $1.438 billion, an 8.7% increase over second-quarter 2005 revenues of $1.323 billion. Adjusted EBITDA, including adjusted EBITDA from discontinued operations, for the second quarter of 2006 was $519 million, a 4.2% increase over second-quarter 2005 adjusted EBITDA of $498 million.
Results for six months ended June 30, 2006 and 2005
Total revenues for the six months ended June 30, 2006, including revenues from discontinued operations, were $2.812 billion, an 8.4% increase over revenue of $2.594 billion for the same year-ago period. Adjusted EBITDA, including adjusted EBITDA from discontinued operations, for the six months ended June 30, 2006 was $990 million, a 1.7% increase over adjusted EBITDA of $973 million for the same year-ago period.
Liquidity
The results presented in this section reflect the operation of all assets owned during the first six months of 2006, including the operations of West Virginia and Virginia cable systems.
Net cash flows used in operating activities for the second quarter of 2006 were $4 million, compared to net cash flows provided by operating activities of $28 million for the year-ago quarter. The change in net cash provided by operating activities is primarily the result of an increase in cash interest expense of $54 million, partially offset by the $21 million higher increase in revenue compared to the rise in operating costs and expenses.
Net cash flows provided by operating activities for the six months ended June 30, 2006 were $205 million, compared to $181 million for the year-ago period. The increase in net cash provided by operating activities is primarily the result of changes in operating assets and liabilities, which provided $107 million more cash in 2006 than in 2005, while revenue growth outpaced operating cost growth by $17 million. These variances were partially offset by an increase in cash interest expense of $99 million.
Adjusted EBITDA totaled $519 million for the second quarter of 2006, an increase of $21 million, or 4.2%, compared with the year-ago quarter. Adjusted EBITDA totaled $990 million for the six months ended June 30, 2006, an increase of $17 million, or 1.7%, compared with the year-ago period.
Expenditures for property, plant, and equipment for the second quarter of 2006 were $298 million, compared to second-quarter 2005 expenditures of $331 million. The decrease in capital expenditures reflects decreases in spending on support capital, line extensions, and customer premise equipment, partially offset by a year over year increase in spending for scalable infrastructure. For the six months ended June 30, 2006, capital expenditures were $539 million, compared to $542 million for the same year-ago period. Increases in spending on customer premise equipment and scalable infrastructure were offset by decreases in support capital and line extensions. During 2006, Charter expects capital expenditures to be approximately $1.0 billion - $1.1 billion.
Charter reported negative free cash flow of $219 million for the second quarter of 2006, flat with the same year-ago quarter. Growth in revenues in excess of operating costs and expenses, and decreased capital expenditures, were offset by increased interest on cash-pay obligations. For the six months ended June 30, 2006, Charter reported negative free cash flow of $405 million, compared to $326 million for the year-ago period. The increase was primarily driven by higher interest on cash-pay obligations, partially offset by revenue growth that exceeded growth in operating costs and expenses.
As of June 30, 2006, Charter had $19.860 billion in long-term debt and $56 million of cash on hand. Charter’s total potential availability under its credit facilities as of June 30, 2006 was approximately $900 million, none of which was limited by covenant restrictions. Pro forma for the asset sales that closed in July 2006,
availability as of June 30, 2006 was approximately $1.7 billion, which was limited to $1.3 billion by covenant restrictions.
Use of Non-GAAP Financial Metrics
The Company uses certain measures that are not defined by GAAP to evaluate various aspects of its business. Adjusted EBITDA, un-levered free cash flow, and free cash flow are non-GAAP financial measures and should be considered in addition to, not as a substitute for, net cash flows from operating activities reported in accordance with GAAP. These terms as defined by Charter may not be comparable to similarly titled measures used by other companies.
Adjusted EBITDA is defined as income from operations before special charges, non-cash depreciation and amortization, loss on sale of assets, asset impairment charges, and option compensation expense. As such, it eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of the Company’s businesses and intangible assets recognized in business combinations as well as other non-cash or non-recurring items, and is unaffected by the Company’s capital structure or investment activities. Adjusted EBITDA is a liquidity measure used by the Company management and its Board of Directors to measure the Company’s ability to fund operations and its financing obligations. For this reason, it is a significant component of Charter’s annual incentive compensation program. However, this measure is limited in that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues and the cash cost of financing for the Company. Company management evaluates these costs through other financial measures.
Un-levered free cash flow is defined as adjusted EBITDA less purchases of property, plant and equipment. The Company believes this is an important measure, as it takes into account the period costs associated with capital expenditures used to upgrade, extend and maintain Charter’s plant, without regard to the Company’s leverage structure.
Free cash flow is defined as un-levered free cash flow less interest on cash pay obligations. It can also be computed as net cash flows from operating activities, less capital expenditures and cash special charges, adjusted for the change in operating assets
and liabilities, net of dispositions. As such, it is unaffected by fluctuations in working capital levels from period to period.
The Company believes that adjusted EBITDA, un-levered free cash flow and free cash flow provide information useful to investors in assessing Charter’s ability to service its debt, fund operations, and make additional investments with internally generated funds. In addition, adjusted EBITDA generally correlates to the leverage ratio calculation under the Company’s credit facilities or outstanding notes to determine compliance with the covenants contained in the facilities and notes (all such documents have been previously filed with the United States Securities and Exchange Commission). Adjusted EBITDA, as presented, is reduced for management fees in the amounts of $30 million and $33 million for the three months ended June 30, 2006 and 2005, respectively, which amounts are added back for the purposes of calculating compliance with leverage covenants. As of June 30, 2006, Charter and its subsidiaries are in compliance with their debt covenants and expect to remain in compliance for the next 12 months.
Additional Information Available on Website
A reconciliation of results as reported to results including those reported as discontinued operations and to pro forma results can be found on the Investor Center of our website at www.charter.com in the “Other Financial Information” section. Pro forma income statements for the three and six months ended June 30, 2005 and 2006 and pro forma customer statistics are provided in the addendum of this news release.
Conference Call
The Company will host a conference call on Tuesday, August 8, 2006, at 9:00 a.m. Eastern Time (ET) related to the contents of this release.
The conference call will be webcast live via the Company’s website at www.charter.com. Access the webcast by clicking on “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 15, 2006. The passcode for the replay is 2366714.
About Charter Communications®
Charter Communications, Inc. is a leading broadband communications company and the third-largest publicly traded cable operator in the United States. Charter provides a full range of advanced broadband services, including advanced Charter Digital® video entertainment programming, Charter High-Speed™ Internet access service, and Charter Telephone™ services. Charter Business™ similarly provides scalable, tailored and cost-effective broadband communications solutions to business organizations, such as business-to-business Internet access, data networking, video and music entertainment services and business telephone. Charter’s advertising sales and production services are sold under the Charter Media® brand. More information about Charter can be found at www.charter.com.
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Contact:
Press: Analysts:
Anita Lamont Mary Jo Moehle
314/543-2215 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. The Company will not undertake to revise forward-looking projections to reflect events after this date. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Many of the forward-looking statements contained in this release may be identified by the use of forward-looking words such as “believe,” “expect,” “anticipate,” “should,” “planned,” “will,” “may,” “intend,” “estimated,” “aim,” “on track,” and “potential,” among others. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this release are set forth in reports or documents that we file from time to time with the SEC, and include, but are not limited to:
| § | the availability, in general, of funds to meet interest payment obligations under our debt and to fund our operations and necessary capital expenditures, either through cash flows from |
Addendum to Charter Communications, Inc. Second Quarter 2006 Earnings Release
Addendum to Charter Communications, Inc. Second Quarter 2006 Earnings Release
Addendum to Charter Communications, Inc. Second Quarter 2006 Earnings Release
Addendum to Charter Communications, Inc. Second Quarter 2006 Earnings Release
Addendum to Charter Communications, Inc. Second Quarter 2006 Earnings Release
