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Registration No. 333-128853
333-128853-01
• | This exchange offer expires at 5:00 p.m., New York City time, on March 8, 2006, unless extended. |
• | No public market currently exists for the original notes or the new notes. We do not intend to list the new notes on any securities exchange or to seek approval for quotation through any automated quotation system. |
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• | the availability, in general, of funds to meet interest payment obligations under our and our parent companies’ debt and to fund our operations and necessary capital expenditures, either through cash flows from operating activities, further borrowings or other sources and, in particular, our and our parents’ and subsidiaries’ ability to be able to provide under applicable debt instruments, such funds (by dividend, investment or otherwise) to the applicable obligor of such debt; | |
• | our ability to sustain and grow revenues and cash flows from operating activities by offering video, high-speed Internet, telephone and other services and to maintain and grow a stable customer base, particularly in the face of increasingly aggressive competition from other service providers; | |
• | our and our parent companies’ ability to comply with all covenants in our and our parent companies’ indentures, bridge loan and credit facilities, any violation of which would result in a violation of the applicable facility or indenture and could trigger a default of other obligations under cross-default provisions; | |
• | our and our parent companies’ ability to pay or refinance debt prior to or when it becomes due and/or to take advantage of market opportunities and market windows to refinance that debt in the capital markets, through new issuances, exchange offers or otherwise, including restructuring our and our parent companies’ balance sheet and leverage position; | |
• | our ability to obtain programming at reasonable prices or to pass programming cost increases on to our customers; | |
• | general business conditions, economic uncertainty or slowdown; and | |
• | the effects of governmental regulation, including but not limited to local franchise authorities, on our business. |
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• | improving the overall value to our customers of our service offerings, relative to pricing; | |
• | developing more sophisticated customer care capabilities through investment in our customer care and marketing infrastructure, including targeted marketing capabilities; |
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• | executing growth strategies for new services, including digital simulcast, VOD, telephone, and digital video recorder service (“DVR”); | |
• | managing our operating costs by exercising discipline in capital and operational spending; and | |
• | identifying opportunities to continue to improve our balance sheet and liquidity. |
• | the January 2006 sale by our parent companies, CCH II and CCH II Capital Corp., of an additional $450 million principal amount of their 10.250% senior notes due 2010; | |
• | the October 2005 entry by us into a $600 million senior bridge loan agreement with various lenders (which was reduced to $435 million as a result of the issuance of CCH II notes); | |
• | the September 2005 exchange by Charter Holdings, CCH I and CIH, our indirect parent companies, of approximately $6.8 billion in total principal amount of outstanding debt securities of Charter Holdings in a private placement for new debt securities; | |
• | the August 2005 sale by us of $300 million of original notes due 2013; | |
• | the March and June 2005 issuance of $333 million of Charter Communications Operating, LLC (“Charter Operating”) notes in exchange for $346 million of Charter Holdings notes; | |
• | the March and June 2005 repurchase of $131 million of Charter’s 4.75% convertible senior notes due 2006 leaving $25 million in principal amount outstanding; | |
• | the March 2005 redemption of all of CC V Holdings, LLC’s outstanding 11.875% senior discount notes due 2008 at a total cost of $122 million; | |
• | the December 2004 sale by us of $550 million of senior floating rate notes due 2010; | |
• | the November 2004 sale by Charter, our indirect parent company, of $862.5 million of 5.875% convertible senior notes due 2009 and the December 2004 redemption of all of Charter’s outstanding 5.75% convertible senior notes due 2005 ($588 million principal amount); | |
• | the April 2004 sale of $1.5 billion of senior second lien notes by our subsidiary, Charter Operating, together with the concurrent refinancing of its credit facilities; and | |
• | the sale in the first half of 2004 of non-core cable systems for a total of $735 million, the proceeds of which were used to reduce indebtedness. |
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• | fourth quarter 2005 net losses of analog video customers are approximately 21,800 compared to a pro forma net loss of approximately 82,600 in the fourth quarter of 2004; | |
• | fourth quarter 2005 net gains of digital video customers are approximately 47,200 compared to a pro forma net loss of approximately 14,400 in the fourth quarter of 2004; | |
• | fourth quarter 2005 net gains of high-speed Internet customers are approximately 76,400 compared to a pro forma net gain of approximately 64,500 in the fourth quarter of 2004; and | |
• | fourth quarter 2005 net gains of telephone customers are approximately 31,600 compared to a net gain of approximately 5,200 in the fourth quarter of 2004. |
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(1) | Charter acts as the sole manager of Charter Holdco and its direct and indirect limited liability company subsidiaries, including CCO Holdings. |
(2) | These membership units are held by CII and Vulcan Cable III Inc., each of which is 100% owned by Paul G. Allen, Charter’s Chairman and controlling shareholder. They are exchangeable at any time on a one-for-one basis for shares of Charter Class A common stock. |
(3) | The percentages shown in this table reflect the issuance of the 94.9 million shares of Class A common stock issued on July 29, 2005 and November 28, 2005 and the corresponding issuance of an equal number of mirror membership units by Charter Holdco to Charter. However, for accounting purposes, Charter’s common equity interest in Charter Holdco is 48%, and Paul G. Allen’s ownership of Charter Holdco is 52%. These percentages exclude the 94.9 million mirror membership units issued to Charter due to the required return of the issued mirror units upon return of the shares offered pursuant to the share lending agreement. |
(4) | Represents preferred membership interests in CC VIII, a subsidiary of CC V Holdings, LLC, and a subordinated accreting note issued by CCHC related to the settlement of the CC VIII dispute. See “Certain Relationships and Related Transactions — Transactions Arising Out of Our Organizational Structure and Mr. Allen’s Investment in Charter Communications, Inc. and Its Subsidiaries — Equity Put Rights — CC VIII.” |
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Original Notes | 83/4% Senior Notes due 2013, which we issued on August 17, 2005. | |
New Notes | 83/4% Senior Notes due 2013, the issuance of which will be (or will have been) registered under the Securities Act of 1933. | |
Exchange Offer | We are offering to exchange the new notes for the original notes. The original notes may only be exchanged in multiples of $1,000 principal amount. To be exchanged, an original note must be properly tendered and accepted. | |
Resales Without Further Registration | We believe that the new notes issued pursuant to the exchange offer may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act of 1933, as amended, provided that:. | |
• you are acquiring the new notes issued in the exchange offer in the ordinary course of your business; | ||
• you have not engaged in, do not intend to engage in, and have no arrangement or understanding with any person to participate in, the distribution of the new notes issued to you in the exchange offer, and; | ||
• you are not our “affiliate,” as defined under Rule 405 of the Securities Act of 1933. | ||
Each of the participating broker-dealers that receives new notes for its own account in exchange for original notes that were acquired by such broker or dealer as a result of market-making or other activities must acknowledge that it will deliver a prospectus in connection with the resale of the new notes. | ||
Expiration Date | 5:00 p.m., New York City time, on March 8, 2006 unless we extend the exchange offer. | |
Exchange and Registration Rights Agreement | You have the right to exchange the original notes that you hold for new notes with substantially identical terms pursuant to an exchange and registration rights agreement. This exchange offer is intended to satisfy these rights. Once the exchange offer is complete, you will no longer be entitled to any exchange or registration rights with respect to your original notes and the new notes will not provide for additional interest in connection with registration defaults. | |
Accrued Interest on the New Notes and Original Notes | The new notes will bear interest from November 15, 2005 (the date of the last interest payment in respect of the original notes). Holders of original notes that are accepted for exchange will be deemed to have waived the right to receive any payment in respect of interest on such original notes accrued to the date of issuance of the new notes. | |
Conditions to the Exchange Offer | The exchange offer is conditioned upon certain customary conditions which we may waive and upon compliance with securities laws. |
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Procedures for Tendering Original Notes | Each holder of original notes wishing to accept the exchange offer must: | |
• complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal; or | ||
• arrange for The Depository Trust Company to transmit certain required information to the exchange agent in connection with a book-entry transfer. | ||
You must mail or otherwise deliver such documentation together with the original notes to the exchange agent. | ||
Special Procedures for Beneficial Holders | If you beneficially own original notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your original notes in the exchange offer, you should contact such registered holder promptly and instruct them to tender on your behalf. If you wish to tender on your own behalf, you must, before completing and executing the letter of transmittal for the exchange offer and delivering your original notes, either arrange to have your original notes registered in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. | |
Guaranteed Delivery Procedures | You must comply with the applicable procedures for tendering if you wish to tender your original notes and: | |
• time will not permit your required documents to reach the exchange agent by the expiration date of the exchange offer; | ||
• you cannot complete the procedure for book-entry transfer on time; or | ||
• your original notes are not immediately available. | ||
Withdrawal Rights | You may withdraw your tender of original notes at any time prior to 5:00 p.m., New York City time, on the date the exchange offer expires. | |
Failure to Exchange Will Affect You Adversely | If you are eligible to participate in the exchange offer and you do not tender your original notes, you will not have further exchange or registration rights and your original notes will continue to be subject to some restrictions on transfer. Accordingly, the liquidity of your original notes will be adversely affected. | |
Certain Federal Income Tax Considerations | The exchange of outstanding notes for exchange notes in the exchange offer will not be a taxable event for United States federal income tax purposes. See “Important United States Federal Income Tax Considerations.” | |
Exchange Agent | Wells Fargo Bank, N.A. is serving as exchange agent. | |
Use of Proceeds | We will not receive any proceeds from the exchange offer. |
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Issuers | CCO Holdings and CCO Holdings Capital. | |
Notes Offered | $300 million aggregate principal amount of 83/4% Senior Notes due 2013. | |
Maturity | November 15, 2013. | |
Interest Payment Dates | May 15 and November 15 of each year, beginning on May 15, 2006. | |
Forms and Terms | The form and terms of the new notes will be the same as the form and terms of the original notes except that: | |
• the new notes will bear a different CUSIP number from the original notes, but will bear the same CUSIP number as our $500 million 83/4% Senior Notes due 2013 that were originally issued in November 2003; | ||
• the new notes have been registered under the Securities Act of 1933 and, therefore, will not bear legends restricting their transfer; and | ||
• you will not be entitled to any exchange or registration rights with respect to the new notes and the new notes will not provide for additional interest in connection with registration defaults. | ||
The new notes will evidence the same debt as the original notes. They will be entitled to the benefits of the indenture governing the original notes and will be treated under the indenture as a single class with the original notes. | ||
Ranking | The new notes will be: | |
• our senior unsecured securities; | ||
• effectively subordinated to any of our secured indebtedness, to the extent of the value of the assets securing such indebtedness; | ||
• equal in right of payment with all of our existing and future unsecured debt, including the outstanding $500 million 83/4% Senior Notes due 2013 and the outstanding $550 million Senior Floating Rate Notes due 2010; | ||
• senior in right of payment to all of our future subordinated debt; and | ||
• structurally subordinated to all indebtedness and other liabilities of our subsidiaries, including indebtedness under our subsidiaries’ notes and credit facilities as well as their trade debt. | ||
As of September 30, 2005, the indebtedness of CCO Holdings and its subsidiaries reflected on our consolidated balance sheet totaled approximately $8.8 billion, and the new notes are structurally subordinated to approximately $7.5 billion of that amount. | ||
Optional Redemption | The new notes may be redeemed in whole or in part at our option at any time on or after November 15, 2008 at the |
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redemption prices specified in this prospectus under “Description of the Notes — Optional Redemption.” | ||
At any time prior to November 15, 2006, we may redeem up to 35% of the new notes in an amount not to exceed the amount of proceeds of one or more public equity offerings at a price equal to 108.750% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date,providedthat at least 65% of the original aggregate principal amount of the original notes issued remains outstanding after the redemptions. | ||
Restrictive Covenants | The indenture governing the new notes will, among other things, restrict our ability and the ability of certain of our subsidiaries to: | |
• pay dividends on stock or repurchase stock; | ||
• make investments; | ||
• borrow money; | ||
• grant liens; | ||
• sell all or substantially all of our assets or merge with or into other companies; | ||
• use the proceeds from sales of assets and subsidiaries’ stock; | ||
• in the case of our restricted subsidiaries, create or permit to exist dividend or payment restrictions; and | ||
• engage in certain transactions with affiliates. | ||
These covenants are subject to important exceptions and qualifications as described under “Description of the Notes — Certain Covenants,” including provisions allowing us, as long as our leverage ratio is below 4.5 to 1.0, to make investments, including designating restricted subsidiaries as unrestricted subsidiaries or making investments in unrestricted subsidiaries. We are also permitted under these covenants, regardless of our leverage ratio, to provide funds to our parent companies to pay interest on, or, subject to meeting our leverage ratio test, retire or repurchase, their debt obligations. | ||
Change of Control | Following a Change of Control, as defined in “Description of the Notes — Certain Definitions,” we will be required to offer to purchase all of the new notes at a purchase price of 101% of their principal amount plus accrued and unpaid interest, if any, to the date of purchase thereof. | |
Absence of Established Markets for the Notes | The new notes are new issues of securities, and currently there are no markets for them. We do not intend to apply for the new notes to be listed on any securities exchange or to arrange for any quotation system to quote them. Accordingly, we cannot assure you that liquid markets will develop for the new notes. |
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(1) the disposition of certain assets in March and April 2004 for total proceeds of $735 million and the use of such proceeds in each case to pay down credit facilities; | |
(2) the issuance and sale of $550 million of CCO Holdings senior floating rate notes in December 2004 and $1.5 billion of Charter Operating senior second lien notes in April 2004; | |
(3) an increase in amounts outstanding under the Charter Operating credit facilities in April 2004 and the use of such funds, together with the proceeds from the sale of the Charter Operating senior second lien notes, to refinance amounts outstanding under the credit facilities of our subsidiaries, CC VI Operating Company, LLC, CC VIII Operating, LLC and Falcon Cable Communications, LLC; | |
(4) the repayment of $530 million of borrowings under the Charter Operating revolving credit facility with net proceeds from the issuance and sale of the CCO Holdings senior floating rate notes in December 2004, which were included in our cash balance at December 31, 2004; | |
(5) the redemption of all of CC V Holdings, LLC’s outstanding 11.875% senior discount notes due 2008 with cash on hand; and | |
(6) the issuance and sale of $300 million of original notes in August 2005 and the temporary investment of such proceeds. |
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Year Ended December 31, | Nine Months Ended September 30, | ||||||||||||||||||||||||||
2002 | 2003 | 2004 | 2004 | 2004 | 2005 | ||||||||||||||||||||||
Actual | Actual | Actual | Pro Forma(a) | Pro Forma(a) | Pro Forma(a) | ||||||||||||||||||||||
(dollars in millions) | |||||||||||||||||||||||||||
Statement of Operations Data: | |||||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||
Video | $ | 3,420 | $ | 3,461 | $ | 3,373 | $ | 3,352 | $ | 2,513 | $ | 2,551 | |||||||||||||||
High-speed Internet | 337 | 556 | 741 | 738 | 535 | 671 | |||||||||||||||||||||
Advertising sales | 302 | 263 | 289 | 288 | 204 | 214 | |||||||||||||||||||||
Commercial | 161 | 204 | 238 | 236 | 173 | 205 | |||||||||||||||||||||
Other | 346 | 335 | 336 | 334 | 247 | 271 | |||||||||||||||||||||
Total revenues | 4,566 | 4,819 | 4,977 | 4,948 | (b) | 3,672 | (b) | 3,912 | |||||||||||||||||||
Costs and Expenses: | |||||||||||||||||||||||||||
Operating (excluding depreciation and amortization) | 1,807 | 1,952 | 2,080 | 2,068 | 1,540 | 1,714 | |||||||||||||||||||||
Selling, general and administrative | 963 | 940 | 971 | 967 | 731 | 762 | |||||||||||||||||||||
Depreciation and amortization | 1,436 | 1,453 | 1,495 | 1,489 | 1,099 | 1,134 | |||||||||||||||||||||
Impairment of franchises | 4,638 | — | 2,433 | 2,433 | 2,433 | — | |||||||||||||||||||||
Asset impairment charges | — | — | — | — | — | 39 | |||||||||||||||||||||
(Gain) loss on sale of assets, net | 3 | 5 | (86 | ) | 20 | 2 | 5 | ||||||||||||||||||||
Option compensation expense, net | 5 | 4 | 31 | 31 | 34 | 11 | |||||||||||||||||||||
Hurricane asset retirement loss | — | — | — | — | — | 19 | |||||||||||||||||||||
Special charges, net | 36 | 21 | 104 | 104 | 100 | 4 | |||||||||||||||||||||
Unfavorable contracts and other settlements | — | (72 | ) | (5 | ) | (5 | ) | — | — | ||||||||||||||||||
Total costs and expenses | 8,888 | 4,303 | 7,023 | 7,107 | 5,939 | 3,688 | |||||||||||||||||||||
Income (loss) from operations | (4,322 | ) | 516 | (2,046 | ) | (2,159 | ) | (2,267 | ) | 224 | |||||||||||||||||
Interest expense, net | (512 | ) | (500 | ) | (560 | ) | (616 | ) | (460 | ) | (513 | ) | |||||||||||||||
Gain (loss) on derivative instruments and hedging activities, net | (115 | ) | 65 | 69 | 69 | 48 | 43 | ||||||||||||||||||||
Loss on extinguishment of debt | — | — | (21 | ) | — | — | (1 | ) | |||||||||||||||||||
Other, net | 3 | (9 | ) | 3 | 3 | — | 21 | ||||||||||||||||||||
Income (loss) before minority interest, income taxes and cumulative effect of accounting change | (4,946 | ) | 72 | (2,555 | ) | (2,703 | ) | (2,679 | ) | (226 | ) | ||||||||||||||||
Minority interest(c) | (16 | ) | (29 | ) | 20 | 20 | 25 | (9 | ) | ||||||||||||||||||
Income (loss) before income taxes and cumulative effect of accounting change | (4,962 | ) | 43 | (2,535 | ) | (2,683 | ) | (2,654 | ) | (235 | ) | ||||||||||||||||
Income tax benefit (expense) | 216 | (13 | ) | 35 | 36 | 42 | (10 | ) | |||||||||||||||||||
Income (loss) before cumulative effect of accounting change | $ | (4,746 | ) | $ | 30 | $ | (2,500 | ) | $ | (2,647 | ) | $ | (2,612 | ) | $ | (245 | ) | ||||||||||
Other Financial Data: | |||||||||||||||||||||||||||
Capital expenditures | $ | 2,095 | $ | 804 | $ | 893 | $ | 891 | $ | 616 | $ | 815 | |||||||||||||||
Ratio of earnings to cover fixed charges(d) | N/A | 1.14 | N/A | N/A | N/A | N/A | |||||||||||||||||||||
Deficiency of earnings to cover fixed charges(d) | $ | 4,946 | N/A | $ | 2,555 | $ | 2,703 | $ | 2,679 | $ | 226 |
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December 31, | September 30, | ||||||||||||||||||||
2003 | 2003 | 2004 | 2004 | 2005 | |||||||||||||||||
Actual | Pro Forma | Actual | Actual | Actual | |||||||||||||||||
Operating Data | |||||||||||||||||||||
(end of period)(e): | |||||||||||||||||||||
Analog video customers | 6,431,300 | 6,200,500 | 5,991,500 | 6,074,600 | 5,906,300 | ||||||||||||||||
Digital video customers | 2,671,900 | 2,588,600 | 2,674,700 | 2,688,900 | 2,749,400 | ||||||||||||||||
Residential high-speed Internet customers | 1,565,600 | 1,527,800 | 1,884,400 | 1,819,900 | 2,120,000 | ||||||||||||||||
Telephone customers | 24,900 | 24,900 | 45,400 | 40,200 | 89,900 |
Actual | ||||
As of September 30, | ||||
2005 | ||||
(dollars in millions) | ||||
Balance Sheet Data | ||||
(end of period): | ||||
Cash and cash equivalents | $ | 9 | ||
Total assets | 16,169 | |||
Long-term debt | 8,805 | |||
Loans payable-related party | 57 | |||
Minority interest(c) | 665 | |||
Member’s equity | 5,154 |
(a) | Actual revenues exceeded pro forma revenues for the year ended December 31, 2004 and the nine months ended September 30, 2004 and 2005 by $29 million, $29 million and $0, respectively. Pro forma loss before cumulative effect of accounting change exceeded actual loss before cumulative effect of accounting change by $147 million, $145 million and $6 million for the year ended December 31, 2004 and the nine months ended September 30, 2004 and 2005, respectively. The unaudited pro forma financial information required allocation of certain revenues and expenses and such information has been presented for comparative purposes and is not intended to provide any indication of what our results of operations would have been had the transactions described above been completed on the dates indicated or to project our results of operations for any future date. |
(b) | Pro forma 2004 revenue by quarter is as follows: |
2004 | ||||
Pro Forma | ||||
Revenue | ||||
(dollars in millions) | ||||
1st Quarter | $ | 1,185 | ||
2nd Quarter | 1,239 | |||
3rd Quarter | 1,248 | |||
4th Quarter | 1,276 | |||
Total pro forma revenue | $ | 4,948 | ||
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(c) | Minority interest represents the preferred membership interests in CC VIII. Paul G. Allen indirectly held the preferred membership units in CC VIII as a result of the exercise of a put right originally granted in connection with the Bresnan transaction in 2000. There was an issue regarding the ultimate ownership of the CC VIII membership interests following the consummation of the Bresnan put transaction on June 6, 2003. Effective January 1, 2005, we ceased recognizing minority interest in earnings or losses of CC VIII for financial reporting purposes until such time as the resolution of the issue was determinable or certain other events occurred. This dispute was settled October 31, 2005. We are currently determining the accounting impact of the settlement. See “Certain Relationships and Related Transactions — Transactions Arising Out of Our Organizational Structure and Mr. Allen’s Investment in Charter and Its Subsidiaries — Equity Put Rights — CC VIII.” |
(d) | Earnings include net loss plus fixed charges. Fixed charges consist of interest expense and an estimated interest component of rent expense. |
(e) | See “Business — Products and Services” for definitions of the terms contained in this section. |
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• | require us to dedicate a significant portion of our cash flow from operating activities to payments on our, our parent companies’ and our subsidiaries’ debt, which will reduce our funds available for working capital, capital expenditures and other general corporate expenses; | |
• | limit our flexibility in planning for, or reacting to, changes in our business, the cable and telecommunications industries and the economy at large; | |
• | place us at a disadvantage as compared to our competitors that have proportionately less debt; | |
• | make us vulnerable to interest rate increases, because a significant amount of our borrowings are, and will continue to be, at variable rates of interest; | |
• | expose us to increased interest expense as we refinance our existing lower interest rate instruments; | |
• | adversely affect our relationship with customers and suppliers; | |
• | limit our ability to borrow additional funds in the future, if we need them, due to applicable financial and restrictive covenants in our debt; and |
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• | make it more difficult for us to satisfy our obligations to the holders of our notes and for our subsidiaries to satisfy their obligations to their lenders under their credit facilities and to their noteholders as well as our parent companies’ ability to satisfy their obligations to their noteholders. |
• | incur additional debt; | |
• | repurchase or redeem equity interests and debt; | |
• | make certain investments or acquisitions; | |
• | pay dividends or make other distributions; |
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• | receive distributions from our subsidiaries; | |
• | dispose of assets or merge; | |
• | enter into related party transactions; | |
• | grant liens; and | |
• | pledge assets. |
• | our future operating performance; | |
• | the demand for our products and services; | |
• | general economic conditions and conditions affecting customer and advertiser spending; | |
• | competition and our ability to stabilize customer losses; and | |
• | legal and regulatory factors affecting our business. |
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• | the lenders under Charter Operating’s credit facilities and the holders of our subsidiaries’ other debt instruments will have the right to be paid in full before us from any of our subsidiaries’ assets; and | |
• | Paul G. Allen, as an indirect holder of preferred membership interests in our subsidiary, CC VIII, would have a claim on a portion of its assets that would reduce the amounts available for repayment to holders of the notes. See “Certain Relationships and Related Transactions — Transactions Arising Out of Our Organizational Structure and Mr. Allen’s Investment in Charter and Its Subsidiaries — Equity Put Rights — CC VIII.” |
• | received less than reasonably equivalent value or fair consideration for the notes; and | |
• | was insolvent or rendered insolvent by reason of the incurrence; | |
• | was engaged in a business or transaction for which its remaining assets constituted an unreasonably small capital; or | |
• | intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they became due. |
• | 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 became absolute and mature; or | |
• | it could not pay its debts as they became due. |
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• | rules governing the provision of cable equipment and compatibility with new digital technologies; | |
• | rules and regulations relating to subscriber privacy; | |
• | limited rate regulation; | |
• | requirements governing when a cable system must carry a particular broadcast station and when it must first obtain consent to carry a broadcast station; | |
• | rules for franchise renewals and transfers; and | |
• | other requirements covering a variety of operational areas such as equal employment opportunity, technical standards and customer service requirements. |
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As of | |||||||
September 30, | |||||||
2005 | |||||||
(dollars in | |||||||
millions, | |||||||
unaudited) | |||||||
Cash and cash equivalents | $ | 9 | |||||
Long-Term Debt: | |||||||
CCO Holdings: | |||||||
83/4% senior notes due 2013 | $ | 794 | |||||
Senior floating rate notes due 2010 | 550 | ||||||
Charter Operating: | |||||||
8.000% senior second lien notes due 2012 | 1,100 | ||||||
83/8% senior second lien notes due 2014 | 733 | ||||||
Renaissance: | |||||||
10.000% senior discount notes due 2008 | 115 | ||||||
Credit Facilities: | |||||||
Charter Operating(a) | 5,513 | ||||||
Total long-term debt | 8,805 | ||||||
Loan Payable — Related Party | 57 | ||||||
Minority Interest(b) | 665 | ||||||
Member’s Equity | 5,154 | ||||||
Total Capitalization | $ | 14,681 | |||||
(a) | Total potential borrowing availability under our credit facilities was $786 million as of September 30, 2005, although the actual availability at that time was only $648 million because of limits imposed by covenant restrictions. |
(b) | Minority interest consists of preferred membership interests in CC VIII. Paul G. Allen held preferred membership units in CC VIII as a result of the exercise of put rights originally granted in connection with the Bresnan transaction in 2000. There was an issue regarding the ultimate ownership of the CC VIII membership interests following the consummation of the Bresnan put transaction on June 6, 2003. This dispute was settled October 31, 2005. See “Certain Relationships and Related Transactions — Transactions Arising Out of Our Organizational Structure and Mr. Allen’s Investment in Charter and Its Subsidiaries — Equity Put Rights — CC VIII.” |
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Asset | Financing | |||||||||||||||||
Historical | Dispositions(a) | Transactions(b) | Pro Forma | |||||||||||||||
REVENUES: | ||||||||||||||||||
Video | $ | 2,534 | $ | (21 | ) | $ | — | $ | 2,513 | |||||||||
High-speed Internet | 538 | (3 | ) | — | 535 | |||||||||||||
Advertising sales | 205 | (1 | ) | — | 204 | |||||||||||||
Commercial | 175 | (2 | ) | — | 173 | |||||||||||||
Other | 249 | (2 | ) | — | 247 | |||||||||||||
Total revenues | 3,701 | (29 | ) | — | 3,672 | |||||||||||||
COSTS AND EXPENSES: | ||||||||||||||||||
Operating (excluding depreciation and amortization) | 1,552 | (12 | ) | — | 1,540 | |||||||||||||
Selling, general and administrative | 735 | (4 | ) | — | 731 | |||||||||||||
Depreciation and amortization | 1,105 | (6 | ) | — | 1,099 | |||||||||||||
Impairment of franchises | 2,433 | — | — | 2,433 | ||||||||||||||
(Gain) loss on sale of assets, net | (104 | ) | 106 | — | 2 | |||||||||||||
Option compensation expense, net | 34 | — | — | 34 | ||||||||||||||
Special charges, net | 100 | — | — | 100 | ||||||||||||||
5,855 | 84 | — | 5,939 | |||||||||||||||
Loss from operations | (2,154 | ) | (113 | ) | — | (2,267 | ) | |||||||||||
Interest expense, net | (406 | ) | 4 | (58 | ) | (460 | ) | |||||||||||
Gain on derivative instruments and hedging activities, net | 48 | — | — | 48 | ||||||||||||||
Loss on extinguishment of debt | (21 | ) | — | 21 | — | |||||||||||||
(379 | ) | 4 | (37 | ) | (412 | ) | ||||||||||||
Loss before minority interest, income taxes and cumulative effect of accounting change | (2,533 | ) | (109 | ) | (37 | ) | (2,679 | ) | ||||||||||
Minority interest | 25 | — | — | 25 | ||||||||||||||
Loss before income taxes and cumulative effect of accounting change | (2,508 | ) | (109 | ) | (37 | ) | (2,654 | ) | ||||||||||
Income tax benefit | 41 | 1 | — | 42 | ||||||||||||||
Loss before cumulative effect of accounting change | $ | (2,467 | ) | $ | (108 | ) | $ | (37 | ) | $ | (2,612 | ) | ||||||
(a) | Represents the elimination of operating results related to the disposition of certain assets in March and April 2004 and a reduction of interest expense related to the use of the net proceeds from such sales to repay a portion of our subsidiaries’ credit facilities. |
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(b) | Represents adjustment to interest expense associated with the completion of the financing transactions discussed in pro forma assumptions two through six (in millions): |
Interest on the Charter Operating senior second lien notes issued in April 2004 and the amended and restated Charter Operating credit facilities | $ | 114 | |||||||
Amortization of deferred financing costs | 8 | ||||||||
Less — Historical interest expense for Charter Operating credit facilities and on subsidiary credit facilities repaid | (83 | ) | |||||||
39 | |||||||||
Interest on $550 million of CCO Holdings senior floating rate notes issued in December 2004 | 27 | ||||||||
Amortization of deferred financing costs | 2 | ||||||||
Less — Historical interest expense for Charter Operating’s revolving credit facility repaid with cash on hand in February 2005 | (20 | ) | |||||||
Historical interest expense for the CC V Holdings, LLC 11.875% senior discount notes repaid with cash on hand in March 2005 | (10 | ) | |||||||
(1 | ) | ||||||||
Interest on $300 million of CCO Holdings 83/4% senior notes issued in August 2005 | 20 | ||||||||
Net increase in interest expense | $ | 58 | |||||||
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Asset | Financing | |||||||||||||||||
Historical | Dispositions(a) | Transactions(b) | Pro Forma | |||||||||||||||
REVENUES | ||||||||||||||||||
Video | $ | 3,373 | $ | (21 | ) | $ | — | $ | 3,352 | |||||||||
High-speed Internet | 741 | (3 | ) | — | 738 | |||||||||||||
Advertising sales | 289 | (1 | ) | — | 288 | |||||||||||||
Commercial | 238 | (2 | ) | — | 236 | |||||||||||||
Other | 336 | (2 | ) | — | 334 | |||||||||||||
Total | 4,977 | (29 | ) | — | 4,948 | |||||||||||||
COSTS AND EXPENSES | ||||||||||||||||||
Operating (excluding depreciation and amortization) | 2,080 | (12 | ) | — | 2,068 | |||||||||||||
Selling, general and administrative | 971 | (4 | ) | — | 967 | |||||||||||||
Depreciation and amortization | 1,495 | (6 | ) | — | 1,489 | |||||||||||||
Impairments of franchises | 2,433 | — | — | 2,433 | ||||||||||||||
Gain (loss) on sale of assets, net | (86 | ) | 106 | — | 20 | |||||||||||||
Option compensation expense, net | 31 | — | — | 31 | ||||||||||||||
Special charges, net | 104 | — | — | 104 | ||||||||||||||
Unfavorable contracts and other settlements | (5 | ) | — | — | (5 | ) | ||||||||||||
7,023 | 84 | — | 7,107 | |||||||||||||||
Loss from operations | (2,046 | ) | (113 | ) | — | (2,159 | ) | |||||||||||
Interest expense, net | (560 | ) | 4 | (60 | ) | (616 | ) | |||||||||||
Gain on derivative instruments and hedging activities, net | 69 | — | — | 69 | ||||||||||||||
Loss on extinguishment of debt | (21 | ) | — | 21 | — | |||||||||||||
Other, net | 3 | — | — | 3 | ||||||||||||||
(509 | ) | 4 | (39 | ) | (544 | ) | ||||||||||||
Loss before minority interest, income taxes, and cumulative effect of accounting change | (2,555 | ) | (109 | ) | (39 | ) | (2,703 | ) | ||||||||||
Minority interest | 20 | — | — | 20 | ||||||||||||||
Loss before income taxes and cumulative effect of accounting change | (2,535 | ) | (109 | ) | (39 | ) | (2,683 | ) | ||||||||||
Income tax benefit | 35 | 1 | — | 36 | ||||||||||||||
Loss before cumulative effect of accounting change | $ | (2,500 | ) | $ | (108 | ) | $ | (39 | ) | $ | (2,647 | ) | ||||||
(a) | Represents the elimination of operating results related to the disposition of certain assets in March and April 2004 and a reduction of interest expense related to the use of the net proceeds from such sales to repay a portion of our subsidiaries’ credit facilities. |
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(b) | Represents adjustment to interest expense associated with the completion of the financing transactions discussed in pro forma assumptions two through six (in millions): |
Interest on the Charter Operating senior second lien notes issued in April 2004 and the amended and restated Charter Operating credit facilities | $ | 114 | |||||||
Amortization of deferred financing costs | 8 | ||||||||
Less — Historical interest expense for Charter Operating credit facilities and on subsidiary credit facilities repaid | (83 | ) | |||||||
39 | |||||||||
Interest on $550 million of CCO Holdings senior floating rate notes issued in December 2004 | 35 | ||||||||
Amortization of deferred financing costs | 2 | ||||||||
Less — Historical interest expense for Charter Operating’s revolving credit facility repaid with cash on hand in February 2005 | (30 | ) | |||||||
Historical interest expense for the CC V Holdings, LLC 11.875% senior discount notes repaid with cash on hand in March 2005 | (13 | ) | |||||||
(6 | ) | ||||||||
Interest on $300 million of CCO Holdings 83/4% senior notes issued in August 2005 | 27 | ||||||||
Net increase in interest expense | $ | 60 | |||||||
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Financing | ||||||||||||||
Historical | Transactions(a) | Pro Forma | ||||||||||||
REVENUES: | ||||||||||||||
Video | $ | 2,551 | $ | — | $ | 2,551 | ||||||||
High-speed Internet | 671 | — | 671 | |||||||||||
Advertising sales | 214 | — | 214 | |||||||||||
Commercial | 205 | — | 205 | |||||||||||
Other | 271 | — | 271 | |||||||||||
Total revenues | 3,912 | — | 3,912 | |||||||||||
COSTS AND EXPENSES: | ||||||||||||||
Operating (excluding depreciation and amortization) | 1,714 | — | 1,714 | |||||||||||
Selling, general and administrative | 762 | — | 762 | |||||||||||
Depreciation and amortization | 1,134 | — | 1,134 | |||||||||||
Asset impairment charges | 39 | — | 39 | |||||||||||
Loss on sale of assets, net | 5 | — | 5 | |||||||||||
Option compensation expense, net | 11 | — | 11 | |||||||||||
Hurricane asset retirement loss | 19 | — | 19 | |||||||||||
Special charges, net | 4 | — | 4 | |||||||||||
3,688 | — | 3,688 | ||||||||||||
Income from operations | 224 | — | 224 | |||||||||||
Interest expense, net | (502 | ) | (11 | ) | (513 | ) | ||||||||
Gain on derivative instruments and hedging activities, net | 43 | — | 43 | |||||||||||
Loss on extinguishment of debt | (6 | ) | 5 | (1 | ) | |||||||||
Other, net | 21 | — | 21 | |||||||||||
(444 | ) | (6 | ) | (450 | ) | |||||||||
Loss before minority interest and income taxes | (220 | ) | (6 | ) | (226 | ) | ||||||||
Minority interest | (9 | ) | — | (9 | ) | |||||||||
Loss before income taxes | (229 | ) | (6 | ) | (235 | ) | ||||||||
Income tax expense | (10 | ) | — | (10 | ) | |||||||||
Loss before cumulative effect of accounting change | $ | (239 | ) | $ | (6 | ) | $ | (245 | ) | |||||
(a) | Represents adjustment to interest expense associated with the completion of the financing transactions discussed in pro forma assumptions four through six (in millions): |
Interest on CCO Holdings 83/4% senior notes | $ | 17 | |||
Less: | |||||
Historical interest expense for Charter Operating’s revolving credit facility repaid with cash on hand in February 2005 | (3 | ) | |||
Historical interest expense for the CC V Holdings, LLC 11.875% senior discount notes repaid with cash on hand in March 2005 | (3 | ) | |||
Net increase in interest expense for other financing transactions | $ | 11 | |||
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Nine Months | |||||||||||||||||||||||||||||
Ended | |||||||||||||||||||||||||||||
Year Ended December 31, | September 30, | ||||||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | 2004 | 2005 | |||||||||||||||||||||||
(dollars in millions) | (unaudited) | ||||||||||||||||||||||||||||
Statement of Operations Data: | |||||||||||||||||||||||||||||
Revenues | $ | 3,141 | $ | 3,807 | $ | 4,566 | $ | 4,819 | $ | 4,977 | $ | 3,701 | $ | 3,912 | |||||||||||||||
Costs and Expenses: | |||||||||||||||||||||||||||||
Operating (excluding depreciation and amortization) | 1,187 | 1,486 | 1,807 | 1,952 | 2,080 | 1,552 | 1,714 | ||||||||||||||||||||||
Selling, general and administrative | 606 | 826 | 963 | 940 | 971 | 735 | 762 | ||||||||||||||||||||||
Depreciation and amortization | 2,398 | 2,683 | 1,436 | 1,453 | 1,495 | 1,105 | 1,134 | ||||||||||||||||||||||
Impairment of franchises | — | — | 4,638 | — | 2,433 | 2,433 | — | ||||||||||||||||||||||
Asset impairment charges | — | — | — | — | — | — | 39 | ||||||||||||||||||||||
(Gain) loss on sale of assets, net | — | 10 | 3 | 5 | (86 | ) | (104 | ) | 5 | ||||||||||||||||||||
Option compensation expense (income), net | 38 | (5 | ) | 5 | 4 | 31 | 34 | 11 | |||||||||||||||||||||
Hurricane asset retirement loss | — | — | — | — | — | — | 19 | ||||||||||||||||||||||
Special charges, net | — | 18 | 36 | 21 | 104 | 100 | 4 | ||||||||||||||||||||||
Unfavorable contracts and other settlements | — | — | — | (72 | ) | (5 | ) | — | — | ||||||||||||||||||||
4,229 | 5,018 | 8,888 | 4,303 | 7,023 | 5,855 | 3,688 | |||||||||||||||||||||||
Income (loss) from operations | (1,088 | ) | (1,211 | ) | (4,322 | ) | 516 | (2,046 | ) | (2,154 | ) | 224 | |||||||||||||||||
Interest expense, net | (644 | ) | (525 | ) | (512 | ) | (500 | ) | (560 | ) | (406 | ) | (502 | ) | |||||||||||||||
Gain (loss) on derivative instruments and hedging activities, net | — | (50 | ) | (115 | ) | 65 | 69 | 48 | 43 | ||||||||||||||||||||
Loss on extinguishment of debt | — | — | — | — | (21 | ) | (21 | ) | (6 | ) | |||||||||||||||||||
Other, net | 5 | (52 | ) | 3 | (9 | ) | 3 | — | 21 | ||||||||||||||||||||
Income (loss) before minority interest, income taxes and cumulative effect of accounting change, net | (1,727 | ) | (1,838 | ) | (4,946 | ) | 72 | (2,555 | ) | (2,533 | ) | (220 | ) |
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Nine Months | |||||||||||||||||||||||||||||
Ended | |||||||||||||||||||||||||||||
Year Ended December 31, | September 30, | ||||||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | 2004 | 2005 | |||||||||||||||||||||||
(dollars in millions) | (unaudited) | ||||||||||||||||||||||||||||
Minority interest(a) | (13 | ) | (16 | ) | (16 | ) | (29 | ) | 20 | 25 | (9 | ) | |||||||||||||||||
Income (loss) before income taxes and cumulative effect of accounting change | (1,740 | ) | (1,854 | ) | (4,962 | ) | 43 | (2,535 | ) | (2,508 | ) | (229 | ) | ||||||||||||||||
Income tax benefit (expense) | 24 | 27 | 216 | (13 | ) | 35 | 41 | (10 | ) | ||||||||||||||||||||
Income (loss) before cumulative effect of accounting change | (1,716 | ) | (1,827 | ) | (4,746 | ) | 30 | (2,500 | ) | (2,467 | ) | (239 | ) | ||||||||||||||||
Cumulative effect of accounting change, net of tax | — | (24 | ) | (540 | ) | — | (840 | ) | (840 | ) | — | ||||||||||||||||||
Net income (loss) | $ | (1,716 | ) | $ | (1,851 | ) | $ | (5,286 | ) | $ | 30 | $ | (3,340 | ) | $ | (3,307 | ) | $ | (239 | ) | |||||||||
Other Data: | |||||||||||||||||||||||||||||
Ratio of earnings to cover fixed charges(b) | NA | �� | NA | NA | 1.14 | NA | NA | NA | |||||||||||||||||||||
Deficiencies of earnings to cover fixed charges(b) | $ | 1,727 | $ | 1,838 | $ | 4,946 | NA | $ | 2,555 | $ | 2,533 | $ | 220 | ||||||||||||||||
Balance Sheet Data (end of period): | |||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 122 | $ | — | $ | 310 | $ | 85 | $ | 546 | $ | 91 | $ | 9 | |||||||||||||||
Total assets | 24,235 | 26,091 | 21,984 | 20,994 | 16,964 | 16,628 | 16,169 | ||||||||||||||||||||||
Long-term debt | 7,531 | 6,961 | 8,066 | 7,956 | 8,294 | 7,622 | 8,805 | ||||||||||||||||||||||
Loans payable — related party | 446 | 366 | 133 | 37 | 29 | 39 | 57 | ||||||||||||||||||||||
Minority interest(a) | 666 | 680 | 693 | 719 | 656 | 650 | 665 | ||||||||||||||||||||||
Members’ equity | 13,493 | 15,940 | 11,040 | 10,585 | 6,553 | 6,848 | 5,154 |
(a) | Minority interest represents the preferred membership interests in CC VIII. Paul G. Allen indirectly held the preferred membership units in CC VIII as a result of the exercise of a put right originally granted in connection with the Bresnan transaction in 2000. There was an issue regarding the ultimate ownership of the CC VIII membership interest following consummation of the Bresnan put transaction on June 6, 2003. Effective January 1, 2005, we ceased recognizing minority interest in earnings and losses of CC VIII for financial reporting purposes until such time as the resolution of the issue was determinable or other events occurred. This dispute was settled October 31, 2005. We are currently determining the accounting impact of the settlement. See “Certain Relationships and Related Transactions — Transactions Arising Out of Our Organizational Structure and Mr. Allen’s Investment in Charter and Its Subsidiaries — Equity Put Rights — CC VIII.” | |
(b) | Earnings include net loss plus fixed charges. Fixed charges consist of interest expense and an estimated interest component of rent expense. |
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• | the January 2006 sale by our parent companies, CCH II and CCH II Capital Corp., of an additional $450 million principal amount of their 10.250% senior notes due 2010; | |
• | the October 2005 entry by us into a $600 million senior bridge loan agreement with various lenders (which was reduced to $435 million as a result of the issuance of CCH II notes); | |
• | the August 2005 sale by us of $300 million of 83/4% senior notes due 2013; | |
• | the March and June 2005 issuance of $333 million of Charter Operating notes in exchange for $346 million of Charter Holdings notes; | |
• | the March 2005 redemption of all of CC V Holdings, LLC’s outstanding 11.875% senior discount notes due 2008 at a total cost of $122 million; | |
• | the December 2004 sale by us of $550 million of senior floating rate notes due 2010; | |
• | the April 2004 sale of $1.5 billion of senior second-lien notes by our subsidiary, Charter Operating, together with the concurrent refinancing of its credit facilities; and | |
• | the sale in the first half of 2004 of non-core cable systems for a total of $735 million, the proceeds of which were used to reduce indebtedness; |
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Purchase Price | ||||||||||||||||||||||||||
Securities | ||||||||||||||||||||||||||
Acquisition | Cash | Assumed | Issued/Other | Total | Acquired | |||||||||||||||||||||
Date | Paid | Debt | Consideration | Price | Customers | |||||||||||||||||||||
(Dollars in Millions) | ||||||||||||||||||||||||||
Interlake | 1/00 | $ | 13 | $ | — | $ | — | $ | 13 | 6,000 | ||||||||||||||||
Bresnan | 2/00 | 1,100 | 963 | 1,014 | (a) | 3,077 | 695,800 | |||||||||||||||||||
Capital Cable | 4/00 | 60 | — | — | 60 | 23,200 | ||||||||||||||||||||
Farmington | 4/00 | 15 | — | — | 15 | 5,700 | ||||||||||||||||||||
Kalamazoo | 9/00 | — | — | 171 | (b) | 171 | 50,700 | |||||||||||||||||||
Total 2000 Acquisitions | $ | 1,188 | $ | 963 | $ | 1,185 | $ | 3,336 | 781,400 | |||||||||||||||||
AT&T Systems | 6/01 | $ | 1,711 | $ | — | $ | 25 | (c) | $ | 1,736 | (c) | 551,100 | ||||||||||||||
Cable USA | 8/01 | 45 | — | 55 | (d) | 100 | 30,600 | |||||||||||||||||||
Total 2001 Acquisitions | $ | 1,756 | $ | — | $ | 80 | $ | 1,836 | 581,700 | |||||||||||||||||
High Speed Access Corp. | 2/02 | $ | 78 | $ | — | $ | — | $ | 78 | N/A | ||||||||||||||||
Enstar Limited Partnership Systems | 4/02 | 48 | — | — | 48 | 21,600 | ||||||||||||||||||||
Enstar Income Program II-1, L.P. | 9/02 | 15 | — | — | 15 | 6,400 | ||||||||||||||||||||
Total 2002 Acquisitions | $ | 141 | $ | — | $ | — | $ | 141 | 28,000 | |||||||||||||||||
Total 2000-2002 Acquisitions | $ | 3,085 | $ | 963 | $ | 1,265 | $ | 5,313 | 1,391,100 | |||||||||||||||||
(a) | Comprised of $385 million in equity in Charter Holdco and $629 million of equity in CC VIII. | |
(b) | In connection with this transaction, we acquired all of the outstanding stock of Cablevision of Michigan in exchange for 11,173,376 shares of Charter Class A common stock. |
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(c) | Comprised of approximately $1.7 billion, as adjusted, in cash and a cable system located in Florida valued at approximately $25 million, as adjusted. | |
(d) | In connection with this transaction, at the closing we and Charter Holdco acquired all of the outstanding stock of Cable USA and the assets of related affiliates in exchange for cash and 505,664 shares of Charter Series A convertible redeemable preferred stock. In the first quarter of 2003, an additional $0.34 million in cash was paid and 39,595 additional shares of Charter Series A convertible redeemable preferred stock were issued to certain sellers. |
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• | Capitalization of labor and overhead costs; | |
• | Useful lives of property, plant and equipment; | |
• | Impairment of property, plant, and equipment, franchises, and goodwill; | |
• | Income taxes; and | |
• | Litigation. |
Capitalization of labor and overhead costs |
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• | Scheduling a “truck roll” to the customer’s dwelling for service connection; | |
• | Verification of serviceability to the customer’s dwelling (i.e., determining whether the customer’s dwelling is capable of receiving service by our cable network and/or receiving advanced or Internet services); | |
• | Customer premise activities performed by in-house field technicians and third-party contractors in connection with customer installations, installation of network equipment in connection with the installation of expanded services and equipment replacement and betterment; and | |
• | Verifying the integrity of the customer’s network connection by initiating test signals downstream from the headend to the customer’s digital set-top terminal. |
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Useful lives of property, plant and equipment |
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 and fixtures | 5 years |
Impairment of property, plant and equipment, franchises and goodwill |
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Percentage/ | ||||||||||||
Percentage Point | Impairment Charge | |||||||||||
Assumption | Change | Increase/(Decrease) | ||||||||||
(dollars in millions) | ||||||||||||
Annual Operating Cash Flow(1) | +/-5% | $ | (890)/ | $ | 921 | |||||||
Long-Term Growth Rate(2) | +/-1pts | (3) | (1,579)/ | 1,232 | ||||||||
Discount Rate | +/-0.5pts | (3) | 1,336/ | (1,528 | ) |
(1) | Operating Cash Flow is defined as revenues less operating expenses and selling general and administrative expenses. |
(2) | Long-Term Growth Rate is the rate of cash flow growth beyond year ten. |
(3) | A percentage point change of one point equates to 100 basis points. |
Income Taxes |
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Litigation |
Nine Months Ended September 30, | ||||||||||||||||||
2005 | 2004 | |||||||||||||||||
Revenues | $ | 3,912 | 100 | % | $ | 3,701 | 100 | % | ||||||||||
Costs and expenses: | ||||||||||||||||||
Operating (excluding depreciation and amortization) | 1,714 | 44 | % | 1,552 | 42 | % | ||||||||||||
Selling, general and administrative | 762 | 19 | % | 735 | 20 | % | ||||||||||||
Depreciation and amortization | 1,134 | 29 | % | 1,105 | 30 | % | ||||||||||||
Impairment of franchises | — | — | 2,433 | 66 | % | |||||||||||||
Asset impairment charges | 39 | 1 | % | — | — | |||||||||||||
(Gain) loss on sale of assets, net | 5 | — | (104 | ) | (3 | )% | ||||||||||||
Option compensation expense, net | 11 | — | 34 | 1 | % | |||||||||||||
Hurricane asset retirement loss | 19 | 1 | % | — | — | |||||||||||||
Special charges, net | 4 | — | 100 | 2 | % | |||||||||||||
3,688 | 94 | % | 5,855 | 158 | % | |||||||||||||
Income (loss) from operations | 224 | 6 | % | (2,154 | ) | (58 | )% | |||||||||||
Interest expense, net | (502 | ) | (406 | ) | ||||||||||||||
Gain on derivative instruments and hedging activities, net | 43 | 48 | ||||||||||||||||
Loss on extinguishment of debt | (6 | ) | (21 | ) | ||||||||||||||
Gain on investments | 21 | — | ||||||||||||||||
(444 | ) | (379 | ) | |||||||||||||||
Loss before minority interest, income taxes and cumulative effect of accounting change | (220 | ) | (2,533 | ) | ||||||||||||||
Minority interest | (9 | ) | 25 | |||||||||||||||
Loss before income taxes and cumulative effect of accounting change | (229 | ) | (2,508 | ) | ||||||||||||||
Income tax benefit (expense) | (10 | ) | 41 | |||||||||||||||
Loss before cumulative effect of accounting change | (239 | ) | (2,467 | ) | ||||||||||||||
Cumulative effect of accounting change, net of tax | — | (840 | ) | |||||||||||||||
Net loss | $ | (239 | ) | $ | (3,307 | ) | ||||||||||||
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Revenues |
Nine Months Ended September 30, | ||||||||||||||||||||||||
2005 | 2004 | 2005 over 2004 | ||||||||||||||||||||||
% of | % of | % | ||||||||||||||||||||||
Revenues | Revenues | Revenues | Revenues | Change | Change | |||||||||||||||||||
Video | $ | 2,551 | 65 | % | $ | 2,534 | 68 | % | $ | 17 | 1 | % | ||||||||||||
High-speed Internet | 671 | 17 | % | 538 | 14 | % | 133 | 25 | % | |||||||||||||||
Advertising sales | 214 | 6 | % | 205 | 6 | % | 9 | 4 | % | |||||||||||||||
Commercial | 205 | 5 | % | 175 | 5 | % | 30 | 17 | % | |||||||||||||||
Other | 271 | 7 | % | 249 | 7 | % | 22 | 9 | % | |||||||||||||||
$ | 3,912 | 100 | % | $ | 3,701 | 100 | % | $ | 211 | 6 | % | |||||||||||||
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Operating Expenses |
Nine Months Ended September 30, | ||||||||||||||||||||||||
2005 | 2004 | 2005 over 2004 | ||||||||||||||||||||||
% of | % of | % | ||||||||||||||||||||||
Expenses | Revenues | Expenses | Revenues | Change | Change | |||||||||||||||||||
Programming | $ | 1,066 | 27 | % | $ | 991 | 27 | % | $ | 75 | 8 | % | ||||||||||||
Service | 572 | 15 | % | 489 | 13 | % | 83 | 17 | % | |||||||||||||||
Advertising sales | 76 | 2 | % | 72 | 2 | % | 4 | 6 | % | |||||||||||||||
$ | 1,714 | 44 | % | $ | 1,552 | 42 | % | $ | 162 | 10 | % | |||||||||||||
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Selling, General and Administrative Expenses |
Nine Months Ended September 30, | ||||||||||||||||||||||||
2005 | 2004 | 2005 over 2004 | ||||||||||||||||||||||
% of | % of | % | ||||||||||||||||||||||
Expenses | Revenues | Expenses | Revenues | Change | Change | |||||||||||||||||||
General and administrative | $ | 658 | 17 | % | $ | 636 | 17 | % | $ | 22 | 3 | % | ||||||||||||
Marketing | 104 | 2 | % | 99 | 3 | % | 5 | 5 | % | |||||||||||||||
$ | 762 | 19 | % | $ | 735 | 20 | % | $ | 27 | 4 | % | |||||||||||||
Depreciation and Amortization |
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Impairment of Franchises |
Asset Impairment Charges |
(Gain) Loss on Sale of Assets, Net |
Option Compensation Expense, Net |
Hurricane Asset Retirement Loss |
Special Charges, Net |
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Interest Expense, Net |
Gain on Derivative Instruments and Hedging Activities, Net |
Loss on extinguishment of debt |
Gain on investments |
Minority Interest |
Income Tax Benefit (Expense) |
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Net Loss |
Year Ended December 31, | |||||||||||||||||||||||||
2004 | 2003 | 2002 | |||||||||||||||||||||||
Revenues | $ | 4,977 | 100 | % | $ | 4,819 | 100 | % | $ | 4,566 | 100 | % | |||||||||||||
Costs and Expenses: | |||||||||||||||||||||||||
Operating (excluding depreciation and amortization) | 2,080 | 42 | % | 1,952 | 40 | % | 1,807 | 40 | % | ||||||||||||||||
Selling, general and administrative | 971 | 19 | % | 940 | 20 | % | 963 | 21 | % | ||||||||||||||||
Depreciation and amortization | 1,495 | 30 | % | 1,453 | 30 | % | 1,436 | 31 | % | ||||||||||||||||
Impairment of franchises | 2,433 | 49 | % | — | — | 4,638 | 102 | % | |||||||||||||||||
(Gain) loss on sale of assets, net | (86 | ) | (2 | )% | 5 | — | 3 | — | |||||||||||||||||
Option compensation expense, net | 31 | 1 | % | 4 | — | 5 | — | ||||||||||||||||||
Special charges, net | 104 | 2 | % | 21 | — | 36 | 1 | % | |||||||||||||||||
Unfavorable contracts and other settlements | (5 | ) | — | (72 | ) | (1 | )% | — | — | ||||||||||||||||
7,023 | 141 | % | 4,303 | 89 | % | 8,888 | 195 | % | |||||||||||||||||
Income (loss) from operations | (2,046 | ) | (41 | )% | 516 | 11 | % | (4,322 | ) | (95 | )% | ||||||||||||||
Interest expense, net | (560 | ) | (500 | ) | (512 | ) | |||||||||||||||||||
Gain (loss) on derivative instruments and hedging activities, net | 69 | 65 | (115 | ) | |||||||||||||||||||||
Loss on extinguishment of debt | (21 | ) | — | — | |||||||||||||||||||||
Other, net | 3 | (9 | ) | 3 | |||||||||||||||||||||
Income (loss) before minority interest, income taxes and cumulative effect of accounting change | (2,555 | ) | 72 | (4,946 | ) | ||||||||||||||||||||
Minority interest | 20 | (29 | ) | (16 | ) | ||||||||||||||||||||
Income (loss) before income taxes and cumulative effect of accounting change | (2,535 | ) | 43 | (4,962 | ) | ||||||||||||||||||||
Income tax (expense) benefit | 35 | (13 | ) | 216 | |||||||||||||||||||||
Income (loss) before cumulative effect of accounting change | (2,500 | ) | 30 | (4,746 | ) | ||||||||||||||||||||
Cumulative effect of accounting change, net of tax | (840 | ) | — | (540 | ) | ||||||||||||||||||||
Net income (loss) | $ | 3,340 | $ | 30 | $ | (5,286 | ) | ||||||||||||||||||
Revenues |
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Year Ended December 31, | ||||||||||||||||||||||||
2004 | 2003 | 2004 over 2003 | ||||||||||||||||||||||
% of | % of | % | ||||||||||||||||||||||
Revenues | Revenues | Revenues | Revenues | Change | Change | |||||||||||||||||||
Video | $ | 3,373 | 68 | % | $ | 3,461 | 72 | % | $ | (88 | ) | (3 | )% | |||||||||||
High-speed Internet | 741 | 15 | % | 556 | 12 | % | 185 | 33 | % | |||||||||||||||
Advertising sales | 289 | 6 | % | 263 | 5 | % | 26 | 10 | % | |||||||||||||||
Commercial | 238 | 4 | % | 204 | 4 | % | 34 | 17 | % | |||||||||||||||
Other | 336 | 7 | % | 335 | 7 | % | 1 | — | ||||||||||||||||
$ | 4,977 | 100 | % | $ | 4,819 | 100 | % | $ | 158 | 3 | % | |||||||||||||
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Operating expenses |
Year Ended December 31, | ||||||||||||||||||||||||
2004 | 2003 | 2004 over 2003 | ||||||||||||||||||||||
% of | % of | % | ||||||||||||||||||||||
Expenses | Revenues | Expenses | Revenues | Change | Change | |||||||||||||||||||
Programming | $ | 1,319 | 27 | % | $ | 1,249 | 26 | % | $ | 70 | 6 | % | ||||||||||||
Advertising sales | 98 | 2 | % | 88 | 2 | % | 10 | 11 | % | |||||||||||||||
Service | 663 | 13 | % | 615 | 12 | % | 48 | 8 | % | |||||||||||||||
$ | 2,080 | 42 | % | $ | 1,952 | 40 | % | $ | 128 | 7 | % | |||||||||||||
Selling, general and administrative expenses |
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Year Ended December 31, | ||||||||||||||||||||||||
2004 | 2003 | 2004 over 2003 | ||||||||||||||||||||||
% of | % of | % | ||||||||||||||||||||||
Expenses | Revenues | Expenses | Revenues | Change | Change | |||||||||||||||||||
General and administrative | $ | 849 | 17 | % | $ | 833 | 18 | % | $ | 16 | 2 | % | ||||||||||||
Marketing | 122 | 2 | % | 107 | 2 | % | 15 | 14 | % | |||||||||||||||
$ | 971 | 19 | % | $ | 940 | 20 | % | $ | 31 | 3 | % | |||||||||||||
Depreciation and amortization |
Impairment of franchises |
(Gain) loss on sale of assets, net |
Option compensation expense, net |
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Special charges, net |
Unfavorable contracts and other settlements |
Interest expense, net |
Gain on derivative instruments and hedging activities, net |
Loss on extinguishment of debt |
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Other, net |
Minority interest |
Income tax benefit (expense) |
Cumulative effect of accounting change, net of tax |
Net income (loss) |
Revenues |
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Year Ended December 31, | ||||||||||||||||||||||||
2003 | 2002 | 2003 over 2002 | ||||||||||||||||||||||
% of | % of | % | ||||||||||||||||||||||
Revenues | Revenues | Revenues | Revenues | Change | Change | |||||||||||||||||||
Video | $ | 3,461 | 72 | % | $ | 3,420 | 75 | % | $ | 41 | 1 | % | ||||||||||||
High-speed Internet | 556 | 12 | % | 337 | 7 | % | 219 | 65 | % | |||||||||||||||
Advertising sales | 263 | 5 | % | 302 | 7 | % | (39 | ) | (13 | )% | ||||||||||||||
Commercial | 204 | 4 | % | 161 | 3 | % | 43 | 27 | % | |||||||||||||||
Other | 335 | 7 | % | 346 | 8 | % | (11 | ) | (3 | )% | ||||||||||||||
$ | 4,819 | 100 | % | $ | 4,566 | 100 | % | $ | 253 | 6 | % | |||||||||||||
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Operating Expenses |
Year Ended December 31, | ||||||||||||||||||||||||
2003 | 2002 | 2003 over 2002 | ||||||||||||||||||||||
% of | % of | % | ||||||||||||||||||||||
Expenses | Revenues | Expenses | Revenues | Change | Change | |||||||||||||||||||
Programming | $ | 1,249 | 26 | % | $ | 1,166 | 26 | % | $ | 83 | 7 | % | ||||||||||||
Advertising sales | 88 | 2 | % | 87 | 2 | % | 1 | 1 | % | |||||||||||||||
Service | 615 | 12 | % | 554 | 12 | % | 61 | 11 | % | |||||||||||||||
$ | 1,952 | 40 | % | $ | 1,807 | 40 | % | $ | 145 | 8 | % | |||||||||||||
Selling, General and Administrative Expenses |
Year Ended December 31, | ||||||||||||||||||||||||
2003 | 2002 | 2003 over 2002 | ||||||||||||||||||||||
% of | % of | % | ||||||||||||||||||||||
Expenses | Revenues | Expenses | Revenues | Change | Change | |||||||||||||||||||
General and administrative | $ | 833 | 18 | % | $ | 810 | 18 | % | $ | 23 | 3 | % | ||||||||||||
Marketing | 107 | 2 | % | 153 | 3 | % | (46 | ) | (30 | )% | ||||||||||||||
$ | 940 | 20 | % | $ | 963 | 21 | % | $ | (23 | ) | (2 | )% | ||||||||||||
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Depreciation and Amortization |
Impairment of Franchises |
Loss on Sale of Assets, Net |
Option Compensation Expense, Net |
Special Charges, Net |
Unfavorable Contracts and Other Settlements |
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Interest Expense, Net |
Gain (Loss) on Derivative Instruments and Hedging Activities, Net |
Other, Net |
Minority Interest |
Income Tax Benefit (Expense) |
Cumulative Effect of Accounting Change, Net of Tax |
Net Income (Loss) |
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Introduction |
Overview |
Credit Facilities and Covenants |
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Parent Company Debt Obligations |
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Specific Limitations at Charter Holdings |
• | issuing debt or equity at the parent companies’ 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; | |
• | selling assets; or | |
• | requesting waivers or amendments with respect to our credit facilities and bridge loan, the availability and terms of which would be subject to market conditions. |
Issuance of Charter Operating Notes in Exchange for Charter Holdings Notes |
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Sale of Assets |
Summary of Outstanding Contractual Obligations |
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) | $ | 8,292 | $ | 30 | $ | 310 | $ | 1,637 | $ | 6,315 | |||||||||||
Long-Term Debt Interest Payments(2) | 3,942 | 573 | 1,239 | 1,154 | 976 | ||||||||||||||||
Payments on Interest Rate Instruments(3) | 81 | 50 | 31 | — | — | ||||||||||||||||
Capital and Operating Lease Obligations(1) | 88 | 23 | 30 | 17 | 18 | ||||||||||||||||
Programming Minimum Commitments(4) | 1,579 | 318 | 719 | 542 | — | ||||||||||||||||
Other(5) | 272 | 62 | 97 | 46 | 67 | ||||||||||||||||
Total | $ | 14,254 | $ | 1,056 | $ | 2,426 | $ | 3,396 | $ | 7,376 | |||||||||||
(1) | The table presents maturities of long-term debt outstanding as of December 31, 2004 and does not reflect the effects of the March 2005 redemption of the CC V Holdings, LLC notes. Refer to “Description of Other Indebtedness” and Notes 9 and 20 to our December 31, 2004 consolidated financial statements included in this prospectus for a description of our long-term debt and other contractual obligations and commitments. |
(2) | Interest payments on variable debt are estimated using amounts outstanding at December 31, 2004 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, 2004. 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 hedge agreements estimated using the average implied forward LIBOR rates applicable for the quarter during the interest rate reset based on the yield curve in effect at December 31, 2004. |
(4) | We pay programming fees under multi-year contracts ranging generally from three to six 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 statements of operations were $1.3 billion, $1.2 billion and $1.2 billion for the years ended December 31, 2004, 2003 and 2002, respectively. 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. |
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(5) | “Other” represents other guaranteed minimum commitments, which consist primarily of commitments to our billing services vendors. |
• | We also 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 the years ended December 31, 2004, 2003 and 2002, was $43 million, $40 million and $41 million, respectively. | |
• | We pay franchise fees under multi-year franchise agreements based on a percentage of revenues earned 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 statements of operations were $164 million, $162 million and $160 million for the years ended December 31, 2004, 2003 and 2002, respectively. | |
• | We also have $166 million in letters of credit, primarily to our various worker’s compensation, property 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. |
Historical Operating, Financing and Investing Activities |
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Capital Expenditures |
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For the Nine | |||||||||||||||||||||
Months | |||||||||||||||||||||
Ended | For the Years Ended | ||||||||||||||||||||
September 30, | December 31, | ||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | |||||||||||||||||
Customer premise equipment(a) | $ | 322 | $ | 344 | $ | 451 | $ | 380 | $ | 740 | |||||||||||
Scalable infrastructure(b) | 138 | 54 | 108 | 66 | 259 | ||||||||||||||||
Line extensions(c) | 114 | 94 | 131 | 130 | 101 | ||||||||||||||||
Upgrade/ Rebuild(d) | 35 | 28 | 49 | 132 | 775 | ||||||||||||||||
Support capital(e) | 206 | 96 | 154 | 96 | 220 | ||||||||||||||||
Total capital expenditures(f) | $ | 815 | $ | 616 | $ | 893 | $ | 804 | $ | 2,095 | |||||||||||
(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 51 and customer premise equipment (e.g., set-top terminals 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). |
(f) | Represents all capital expenditures made during the nine months ended September 30, 2005 and 2004 and the years ended December 31, 2004, 2003 and 2002, respectively. |
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Fair Value at | ||||||||||||||||||||||||||||||||||
December 31, | ||||||||||||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | Thereafter | Total | 2004 | |||||||||||||||||||||||||||
Debt: | ||||||||||||||||||||||||||||||||||
Fixed Rate | $ | — | $ | — | $ | — | $ | 227 | $ | — | $ | 2,000 | $ | 2,227 | $ | 2,313 | ||||||||||||||||||
Average Interest Rate | — | — | — | 10.93 | % | — | 8.26 | % | 8.54 | % | ||||||||||||||||||||||||
Variable Rate | $ | 30 | $ | 30 | $ | 280 | $ | 630 | $ | 780 | $ | 4,315 | $ | 6,065 | $ | 6,052 | ||||||||||||||||||
Average Interest Rate | 6.47 | % | 7.08 | % | 7.17 | % | 7.45 | % | 7.73 | % | 8.40 | % | 8.14 | % | ||||||||||||||||||||
Interest Rate Instruments: | ||||||||||||||||||||||||||||||||||
Variable to Fixed Swaps | $ | 990 | $ | 873 | $ | 775 | $ | — | $ | — | $ | — | $ | 2,638 | $ | 69 | ||||||||||||||||||
Average Pay Rate | 7.94 | % | 8.23 | % | 8.04 | % | — | — | — | 8.07 | % | |||||||||||||||||||||||
Average Receive Rate | 6.36 | % | 7.08 | % | 7.20 | % | — | — | — | 6.85 | % |
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• | improving the overall value to our customers of our service offerings, relative to pricing; | |
• | developing more sophisticated customer care capabilities through investment in our customer care and marketing infrastructure, including targeted marketing capabilities; | |
• | executing growth strategies for new services, including digital simulcast, VOD, telephone, and digital video recorder service (“DVR”); | |
• | managing our operating costs by exercising discipline in capital and operational spending; and | |
• | identifying opportunities to continue to improve our balance sheet and liquidity. |
• | the January 2006 sale by our parent companies, CCH II and CCH II Capital Corp., of an additional $450 million principal amount of their 10.250% senior notes due 2010; | |
• | the October 2005 entry by us into a $600 million senior bridge loan agreement with various lenders (which was reduced to $435 million as a result of the issuance of CCH II notes); | |
• | the September 2005 exchange by Charter Holdings, CCH I and CIH, our indirect parent companies, of approximately $6.8 billion in total principal amount of outstanding debt securities of Charter Holdings in a private placement for new debt securities; | |
• | the August 2005 sale by us of $300 million of 83/4% senior notes due 2013; | |
• | the March and June 2005 issuance of $333 million of Charter Operating notes in exchange for $346 million of Charter Holdings notes; | |
• | the March and June 2005 repurchase of $131 million of Charter’s 4.75% convertible senior notes due 2006 leaving $25 million in principal amount outstanding; | |
• | the March 2005 redemption of all of CC V Holdings, LLC’s outstanding 11.875% senior discount notes due 2008 at a total cost of $122 million; | |
• | the December 2004 sale by us of $550 million of senior floating rate notes due 2010; | |
• | the November 2004 sale by Charter, our indirect parent company, of $862.5 million of 5.875% convertible senior notes due 2009 and the December 2004 redemption of all of Charter’s outstanding 5.75% convertible senior notes due 2005 ($588 million principal amount); |
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• | the April 2004 sale of $1.5 billion of senior second lien notes by our subsidiary, Charter Operating, together with the concurrent refinancing of its credit facilities; and | |
• | the sale in the first half of 2004 of non-core cable systems for $735 million, the proceeds of which were used to reduce indebtedness. |
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Approximate as of | |||||||||||
September 30, | September 30, | ||||||||||
2005(a) | 2004(a) | ||||||||||
Cable Video Services: | |||||||||||
Analog Video: | |||||||||||
Residential (non-bulk) analog video customers(b) | 5,636,100 | 5,825,000 | |||||||||
Multi-dwelling (bulk) and commercial unit customers(c) | 270,200 | 249,600 | |||||||||
Analog video customers(b)(c) | 5,906,300 | 6,074,600 | |||||||||
Digital Video: | |||||||||||
Digital video customers(d) | 2,749,400 | 2,688,900 | |||||||||
Non-Video Cable Services: | |||||||||||
Residential high-speed Internet customers(e) | 2,120,000 | 1,819,900 | |||||||||
Residential telephone customers(f) | 89,900 | 40,200 |
(a) | “Customers” include all persons our corporate billing records show as receiving service (regardless of their payment status), except for complimentary accounts (such as our employees). In addition, at September 30, 2005 and 2004, “customers” include approximately 44,400 and 46,000 persons whose accounts were over 60 days past due in payment, approximately 9,800 and 5,500 persons whose accounts were over 90 days past due in payment, and approximately 6,000 and 2,000 of which were over 120 days past due in payment, respectively. | |
(b) | “Residential (non-bulk) analog video customers” include all customers who receive video services, except for complimentary accounts (such as our employees). | |
(c) | Included within “video customers” are those in commercial and multi-dwelling structures, which are calculated on an equivalent bulk unit (“EBU”) basis. EBU is calculated for a system by dividing the bulk price charged to accounts in an area by the most prevalent price charged to non-bulk residential customers in that market for the comparable tier of service. The EBU method of estimating analog video customers is consistent with the methodology used in determining costs paid to programmers and has been consistently applied year over year. As we increase our effective analog prices to residential customers without a corresponding increase in the prices charged to commercial service or multi-dwelling customers, our EBU count will decline even if there is no real loss in commercial service or multi-dwelling customers. | |
(d) | “Digital video customers” include all households that have one or more digital set-top terminals. Included in “digital video customers” on September 30, 2005 and 2004 are approximately 8,900 and 10,700 customers, respectively, that receive digital video service directly through satellite transmission. | |
(e) | “Residential high-speed Internet customers” represent those customers who subscribe to our high-speed Internet service. At September 30, 2005 and 2004, approximately 1,876,000 and 1,614,400 of these high-speed Internet customers, respectively, also receive video services from us and are included within our video statistics above. | |
(f) | “Residential telephone customers” include all households receiving telephone service. |
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• | Basic Analog Video. All of our video customers receive a package of basic programming, which generally consists of local broadcast television, local community programming, including governmental and public access, and limited satellite-delivered or non-broadcast channels, such as weather, shopping and religious services. Our basic channelline-up generally has between 15 and 30 channels. | |
• | Expanded Basic Video. This expanded programming level includes a package of satellite-delivered or non-broadcast channels and generally has between 30 and 50 channels in addition to the basic channel line-up. | |
• | Premium Channels. These channels provide commercial-free movies, sports and other special event entertainment programming. Although we offer subscriptions to premium channels on an individual basis, we offer an increasing number of premium channel packages and we offer premium channels with our advanced services. | |
• | Pay-Per-View. These channels allow customers to pay on a per event basis to view a single showing of a recently released movie, a one-time special sporting event, music concert or similar event on a commercial-free basis. | |
• | Digital Video. We offer digital video service to our customers in several different service combination packages. All of our digital packages include a digital set-top terminal, an interactive electronic programming guide, an expanded menu of pay-per-view channels and the option to also receive digital packages which range from 4 to 30 additional video channels. We also offer our customers certain digital packages with one or more premium channels that give customers access to several different versions of the same premium channel. Some digital tier packages focus on the interests of a particular customer demographic and emphasize, for example, sports, movies, family or ethnic programming. In addition to video programming, digital video service enables customers to receive our advanced services such as VOD and high definition television. Other digital packages bundle digital television with our advanced services, such as high-speed Internet services. | |
• | Video On Demand and Subscription Video on Demand. We offer VOD service, which allows customers to access hundreds of movies and other programming at any time with digital picture quality. In some systems we also offer subscription VOD (SVOD) for a monthly fee or included in a digital tier premium channel subscription. | |
• | High Definition Television. High definition television offers our digital customers video programming at a higher resolution than the standard analog or digital video image. | |
• | Digital Video Recorder. DVR service enables customers to digitally record programming and to pause and rewind live programming. |
High-Speed Internet Services |
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Telephone Services |
Commercial Services |
Sale of Advertising |
Price Range as of | ||||
Service | September 30, 2005 | |||
Analog video packages | $ | 7.00 - $ 54.00 | ||
Premium channels | $ | 10.00 - $ 15.00 | ||
Pay-per-view events | $ | 2.99 - $179.00 | ||
Digital video packages (including high-speed Internet service for higher tiers) | $ | 34.00 - $113.00 | ||
High-speed Internet service | $ | 21.95 - $ 59.99 | ||
Video on demand (per selection) | $ | 0.99 - $ 29.99 | ||
High definition television | $ | 3.99 - $ 9.99 | ||
Digital video recorder | $ | 6.99 - $ 14.99 |
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550 Megahertz | ||||||||||||||||||||||
Less than | to | Two-way | Two-way | |||||||||||||||||||
550 Megahertz | 660 Megahertz | 750 Megahertz | 870 Megahertz | Capability | Enabled | |||||||||||||||||
8 | % | 5 | % | 42 | % | 45 | % | 92 | % | 87 | % |
• | increased bandwidth capacity, for more channels and other services; | |
• | dedicated bandwidth for two-way services, which avoids reverse signal interference problems that can occur with two-way communication capability; and | |
• | improved picture quality and service reliability. |
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• | Promote awareness and loyalty among existing customers and attract new customers; | |
• | Announce the availability of our advanced services as we roll them out in our systems; | |
• | Promote our advanced services (such as DVR, high definition television, telephone, VOD and SVOD) with the goal that our customers will view their cable connection as one-stop shopping for video, voice, high-speed Internet and interactive services; and | |
• | Promote our bundling of digital video and high-speed Internet services and pricing strategies. |
General |
Costs |
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Direct Broadcast Satellite |
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DSL and Other Broadband Services |
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Broadcast Television |
Traditional Overbuilds |
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Telephone Companies and Utilities |
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Securities Class Actions and Derivative Suits |
• | In re Charter Communications, Inc. Securities Litigation, MDL Docket No. 1506 (All Cases), StoneRidge Investments Partners, LLC, Individually and On Behalf of All Others Similarly Situated, v. Charter Communications, Inc., Paul Allen, Jerald L. Kent, Carl E. Vogel, Kent Kalkwarf, David G. Barford, Paul E. Martin, David L. McCall, Bill Shreffler, Chris Fenger, James H. Smith, III, Scientific-Atlanta, Inc., Motorola, Inc. and Arthur Andersen, LLP, Consolidated Case No. 4:02-CV-1186-CAS. |
• | Kenneth Stacey, Derivatively on behalf of Nominal Defendant Charter Communications, Inc., v. Ronald L. Nelson, Paul G. Allen, Marc B. Nathanson, Nancy B. Peretsman, William Savoy, John H. Tory, Carl E. Vogel, Larry W. Wangberg, Arthur Andersen, LLP and Charter Communications, Inc. |
• | Thomas Schimmel, Derivatively on behalf on Nominal Defendant Charter Communications, Inc., v. Ronald L. Nelson, Paul G. Allen, Marc B. Nathanson, Nancy B. Peretsman, William D. Savoy, John H. Tory, Carl E. Vogel, Larry W. Wangberg, and Arthur Andersen, LLP, and Charter Communications, Inc. |
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• | Arthur Cohn, Derivatively on behalf of Nominal Defendant Charter Communications, Inc., v. Ronald L. Nelson, Paul G. Allen, Marc B. Nathanson, Nancy B. Peretsman, William Savoy, John H. Tory, Carl E. Vogel, Larry W. Wangberg, and Charter Communications, Inc. |
Government Investigations |
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Indemnification |
Other Litigation |
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Cable Rate Regulation |
Must Carry/Retransmission Consent |
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Access Channels |
Access to Programming |
Ownership Restrictions |
Internet Service |
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Phone Service |
Pole Attachments |
Cable Equipment |
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Other Communications Act Provisions and FCC Regulatory Matters |
Copyright |
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Franchise Matters |
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Directors | Position(s) | |
Paul G. Allen | Chairman of the board of directors of Charter | |
W. Lance Conn | Director of Charter | |
Nathaniel A. Davis | Director of Charter | |
Jonathan L. Dolgen | Director of Charter | |
Robert P. May | Director of Charter | |
David C. Merritt | Director of Charter | |
Marc B. Nathanson | Director of Charter | |
Jo Allen Patton | Director of Charter | |
Neil Smit | Director of Charter and CCO Holdings Capital, President and Chief Executive Officer of Charter, Charter Holdco, CCO Holdings and CCO Holdings Capital | |
John H. Tory | Director of Charter | |
Larry W. Wangberg | Director of Charter |
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Executive Officers | Position | |
Paul G. Allen | Chairman of the Board of Directors of Charter | |
Neil Smit | Director of Charter and CCO Holdings Capital, President and Chief Executive Officer of Charter, Charter Holdco, CCO Holdings and CCO Holdings Capital | |
Wayne H. Davis | Executive Vice President and Chief Technical Officer | |
Jeffrey T. Fisher | Executive Vice President and Chief Financial Officer | |
Sue Ann R. Hamilton | Executive Vice President, Programming | |
Michael J. Lovett | Executive Vice President and Chief Operating Officer | |
Paul E. Martin | Senior Vice President, Principal Accounting Officer and Corporate Controller | |
Robert A. Quigley | Executive Vice President and Chief Marketing Officer | |
Grier C. Raclin | Executive Vice President, General Counsel and Corporate Secretary |
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Long-Term | |||||||||||||||||||||||||||||
Annual Compensation | Compensation Award | ||||||||||||||||||||||||||||
Restricted | Securities | ||||||||||||||||||||||||||||
Year | Other Annual | Stock | Underlying | All Other | |||||||||||||||||||||||||
Ended | Salary | Bonus | Compensation | Awards | Options | Compensation | |||||||||||||||||||||||
Name and Principal Position | Dec. 31 | ($) | ($)(1) | ($) | ($) | (#) | ($)(2) | ||||||||||||||||||||||
Neil Smit(3) | 2005 | 415,385 | 1,200,000 | (10) | — | 3,278,500 | (22) | 3,333,333 | 23,236 | (29) | |||||||||||||||||||
President and Chief | 2004 | — | — | — | — | — | — | ||||||||||||||||||||||
Executive Officer | 2003 | — | — | — | — | — | — | ||||||||||||||||||||||
Robert P. May(4) | 2005 | — | 750,000 | (11) | 1,360,239 | (17) | 180,000 | (23) | — | — | |||||||||||||||||||
Former Interim President | 2004 | — | — | 10,000 | (17) | 50,000 | (23) | — | — | ||||||||||||||||||||
and Chief Executive Officer | 2003 | — | — | — | — | — | — | ||||||||||||||||||||||
Carl E. Vogel(5) | 2005 | 115,385 | — | 1,428 | (18) | — | — | 1,697,451 | (30) | ||||||||||||||||||||
Former President and | 2004 | 1,038,462 | 500,000 | (12) | 38,977 | (18) | 4,729,400 | (24) | 580,000 | 3,239 | |||||||||||||||||||
Chief Executive Officer | 2003 | 1,000,000 | 150,000 | (13) | 40,345 | (18) | — | 750,000 | 3,239 | ||||||||||||||||||||
Michael J. Lovett(6) | 2005 | 516,153 | — | 14,898 | (19) | 265,980 | (25) | 216,000 | 59,013 | (31) | |||||||||||||||||||
Executive Vice President | 2004 | 291,346 | 241,888 | 7,797 | (19) | 355,710 | (25) | 172,000 | 6,994 | ||||||||||||||||||||
and Chief Operating Officer | 2003 | 81,731 | 60,000 | 2,400 | (19) | — | 100,000 | 1,592 | |||||||||||||||||||||
Paul E. Martin(7) | 2005 | 350,950 | 100,000 | (14) | — | 52,650 | (26) | 83,700 | 7,047 | ||||||||||||||||||||
Senior Vice President, | 2004 | 193,173 | 25,000 | (14) | — | 269,100 | (26) | 77,500 | 6,530 | ||||||||||||||||||||
Principal Accounting Officer and Corporate Controller | 2003 | 167,308 | 14,000 | — | — | — | 4,048 | ||||||||||||||||||||||
Wayne H. Davis(8) | 2005 | 409,615 | — | — | 108,810 | (27) | 145,800 | 3,527 | |||||||||||||||||||||
Executive Vice President | 2004 | 269,231 | 61,370 | (15) | — | 435,635 | (27) | 135,000 | 2,278 | ||||||||||||||||||||
and Chief Technical Officer | 2003 | 212,885 | 47,500 | 581 | (20) | — | 225,000 | 436 | |||||||||||||||||||||
Sue Ann R. Hamilton(9) | 2005 | 362,700 | — | — | 107,838 | (28) | 145,000 | 6,351 | |||||||||||||||||||||
Executive Vice | 2004 | 346,000 | 13,045 | — | 245,575 | (28) | 90,000 | 3,996 | |||||||||||||||||||||
President —Programming | 2003 | 225,000 | 231,250 | (16) | 4,444 | (21) | — | 200,000 | 1,710 |
(1) | Generally, bonus amounts for 2005 have not yet been determined by the Compensation Committee or Charter’s Board of Directors. | |
(2) | Except as noted in notes 29 through 31 below, respectively, these amounts consist of matching contributions under our 401(k) plan, premiums for supplemental life insurance available to executives, and long-term disability available to executives. | |
(3) | Mr. Smit joined Charter on August 22, 2005 in his current position. | |
(4) | Mr. May served as Interim President and Chief Executive Officer from January 2005 through August 2005. | |
(5) | Mr. Vogel resigned from all of his positions with Charter and its subsidiaries on January 17, 2005. | |
(6) | Mr. Lovett joined Charter in August 2003 and was promoted to his current position in April 2005. | |
(7) | Mr. Martin joined Charter in March 2000. He has served as Charter’s Interim Chief Financial Officer since August 2004 and continued to serve until February 6, 2006, upon appointment of Jeffrey Fisher as the new Chief Financial Officer. |
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(8) | Mr. Davis joined Charter in December 2001 and was promoted to his current position in June 2004. |
(9) | Ms. Hamilton joined Charter in March 2003 and was promoted to her current position in April 2005. |
(10) | Pursuant to his employment agreement, Mr. Smit will receive a minimum bonus of $1,200,000 for 2005. |
(11) | This bonus was paid in January 2006 pursuant to Mr. May’s Executive Services Agreement. See “Employment Arrangements.” |
(12) | Mr. Vogel’s 2004 bonus was a mid-year discretionary bonus. |
(13) | Mr. Vogel’s 2003 bonus was determined in accordance with the terms of his employment agreement. |
(14) | Includes (i) for 2005, a bonus of $50,000 for his services as Interim Co-Chief Financial Officer and a discretionary bonus of $50,000 and (ii) for 2004, a SOX implementation bonus of $25,000. |
(15) | Mr. Davis’ 2004 bonus included a $50,000 discretionary bonus. |
(16) | Ms. Hamilton’s 2003 bonus included a $150,000 signing bonus. |
(17) | Includes (i) for 2005, $1,177,885 as compensation for services as Interim President and Chief Executive Officer pursuant to his Executive Services Agreement (see “Employment Arrangements”), $67,000 as compensation for services as a director on Charter’s Board of Directors, $15,717 attributed to personal use of the corporate airplane and $99,637 for reimbursement for transportation and living expenses pursuant to his Executive Services Agreement, and (ii) for 2004, compensation for services as a director on Charter’s Board of Directors. |
(18) | Includes (i) for 2005, $1,428 attributed to personal use of the corporate airplane, (ii) for 2004, $28,977 attributed to personal use of the corporate airplane and $10,000 for tax advisory services, and (iii) for 2003, $30,345 attributed to personal use of the corporate airplane and $10,000 for tax advisory services. |
(19) | Includes (i) for 2005, $7,698 attributed to personal use of the corporate airplane and $7,200 for automobile allowance, (ii) for 2004, $597 attributed to personal use of the corporate airplane and $7,200 for automobile allowance and (iii) for 2003, $2,400 for automobile allowance. |
(20) | Amount attributed to personal use of the corporate airplane. |
(21) | Amount attributed to personal use of the corporate airplane. |
(22) | Pursuant to his employment agreement, Mr. Smit received 1,250,000 restricted shares in August 2005, which will vest on the third anniversary of the grant date and 1,562,500 restricted shares in August 2005, which will vest on the first anniversary of the grant date. See “Employment Arrangements.” At December 31, 2005, the value of all of the named officer’s unvested restricted stock holdings was $3,431,250, based on a per share market value (closing sale price) of $1.22 for Charter’s Class A common stock on December 31, 2005. |
(23) | Includes (i) for 2005, 100,000 restricted shares granted in April 2005 under our 2001 Stock Incentive Plan for Mr. May’s services as Interim President and Chief Executive Officer that vested upon his termination in that position in August 2005 and 40,650 restricted shares granted in October 2005 under our 2001 Stock Incentive Plan for Mr. May’s annual director grant which vests on the first anniversary of the grant date. At December 31, 2005, the value of all of the named officer’s unvested restricted stock holdings was $49,593, based on a per share market value (closing sale price) of $1.22 for Charter’s Class A common stock on December 31, 2005, and (ii) for 2004, 19,685 restricted shares granted in October 2004 under our 2001 Stock Incentive Plan for Mr. May’s annual director grant, which vested on its first anniversary of the grant date in October 2005. |
(24) | Includes 340,000 performance shares granted in January 2004 under our Long-Term Incentive Program that were to vest on the third anniversary of the grant date only if Charter meets certain performance criteria. Also includes 680,000 restricted shares issued in exchange for stock options held by the named officer pursuant to the February 2004 option exchange program described below, one half of which constituted performance shares which were to vest on the third anniversary of the grant date only if Charter meets certain performance criteria, and the other half of which were to vest over three years in equal one-third installments. Under the terms of the separation agreement described below in “Employment Arrangements,” his options and remaining restricted stock vested until |
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December 31, 2005, and all vested options are exercisable until sixty (60) days thereafter. All performance shares were forfeited upon termination of employment. All remaining unvested restricted stock and stock options were cancelled on December 31, 2005. Therefore, at December 31, 2005, the value of all of the named officer’s unvested restricted stock holdings was $0, based on a per share market value (closing sale price) of $1.22 for Charter’s Class A common stock on December 31, 2005. | |
(25) | Includes (i) for 2005, 129,600 performance shares granted in April 2005 under our Long-Term Incentive Program which will vest on the third anniversary of the grant date only if Charter meets certain performance criteria and 75,000 restricted shares granted in April 2005 under the 2001 Stock Incentive Plan that will vest on the third anniversary of the grant date, and (ii) for 2004, 88,000 performance shares granted under our Long-Term Incentive Program that will vest on the third anniversary of the grant date only if Charter meets certain performance criteria. At December 31, 2005, the value of all of the named officer’s unvested restricted stock holdings (including performance shares) was $356,972, based on a per share market value (closing sale price) of $1.22 for Charter’s Class A common stock on December 31, 2005. |
(26) | Includes (i) for 2005, 40,500 performance shares granted under our Long-Term Incentive Program that will vest on the third anniversary of the grant date only if Charter meets certain performance criteria, and (ii) for 2004, 37,500 performance shares granted in January 2004 under our Long-Term Incentive Program which will vest on the third anniversary of the grant date only if Charter meets certain performance criteria and 17,214 restricted shares issued in exchange for stock options held by the named officer pursuant to the February 2004 option exchange program described below, one half of which constituted performance shares which will vest on the third anniversary of the grant date only if Charter meets certain performance criteria, and the other half of which will vest over three years in equal one-third installments. At December 31, 2005, the value of all of the named officer’s unvested restricted stock holdings (including performance shares) was $112,661, based on a per share market value (closing sale price) of $1.22 for Charter’s Class A common stock on December 31, 2005. |
(27) | Includes (i) for 2005, 83,700 performance shares granted under our Long-Term Incentive Program that will vest on the third anniversary of the grant date only if Charter meets certain performance criteria, and (ii) for 2004, 77,500 performance shares granted in January 2004 under our Long-Term Incentive Program which will vest on the third anniversary of the grant date only if Charter meets certain performance criteria and 8,000 restricted shares issued in exchange for stock options held by the named officer pursuant to the February 2004 option exchange program described below, one half of which constituted performance shares which will vest on the third anniversary of the grant date only if Charter meets certain performance criteria, and the other half of which will vest over three years in equal one-third installments. At December 31, 2005, the value of all of the named officer’s unvested restricted stock holdings (including performance shares) was $204,797, based on a per share market value (closing sale price) of $1.22 for Charter’s Class A common stock on December 31, 2005. |
(28) | These restricted shares consist of 83,700 and 47,500 performance shares granted in 2005 and 2004, respectively, under our Long-Term Incentive Program that will vest on the third anniversary of the grant date only if Charter meets certain performance criteria. At December 31, 2005, the value of all of the named officer’s unvested restricted stock holdings (including performance shares) was $160,064 based on a per share market value (closing sale price) of $1.22 for Charter’s Class A common stock on December 31, 2005. |
(29) | In addition to items in Note 2 above, includes $19,697 attributed to reimbursement for taxes (on a “grossed up” basis) paid in respect of prior reimbursements for relocation expenses. |
(30) | In addition to items in Note 2 above, includes accrued vacation at time of termination and severance payments pursuant to Mr. Vogel’s separation agreement (see “Employment Arrangements”). |
(31) | In addition to items in Note 2 above, includes $51,223 attributed to reimbursement for taxes (on a “grossed up” basis) paid in respect of prior reimbursements for relocation expenses. |
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Number of | Potential Realizable Value at | |||||||||||||||||||||||
Securities | % of Total | Assumed Annual Rate of | ||||||||||||||||||||||
Underlying | Options | Stock Price Appreciation for | ||||||||||||||||||||||
Options | Granted to | Exercise | Option Term(2) | |||||||||||||||||||||
Granted | Employees | Price | Expiration | |||||||||||||||||||||
Name | (#)(1) | in 2005 | ($/Sh) | Date | 5%($) | 10%($) | ||||||||||||||||||
Neil Smit | 3,333,333 | 30.83 | % | $ | 1.18 | 8/22/2015 | $ | 2,465,267 | $ | 6,247,470 | ||||||||||||||
Robert P. May | — | — | — | — | — | — | ||||||||||||||||||
Carl E. Vogel | — | — | — | — | — | — | ||||||||||||||||||
Michael J. Lovett | 216,000 | 2.00 | % | 1.30 | 4/26/2015 | 175,914 | 445,802 | |||||||||||||||||
Paul E. Martin | 83,700 | 0.77 | % | 1.30 | 4/26/2015 | 68,430 | 173,415 | |||||||||||||||||
Wayne H. Davis | 145,800 | 1.35 | % | 1.30 | 4/26/2015 | 118,742 | 300,916 | |||||||||||||||||
Sue Ann R. Hamilton | 97,200 | 0.90 | % | 1.53 | 3/25/2015 | 93,221 | 236,240 | |||||||||||||||||
47,800 | 0.44 | % | 1.27 | 10/18/2015 | 38,208 | 96,826 |
(1) | Options are transferable under limited conditions, primarily to accommodate estate planning purposes. These options generally vest in four equal installments commencing on the first anniversary following the grant date. |
(2) | This column shows the hypothetical gains on the options granted based on assumed annual compound price appreciation of 5% and 10% over the full ten-year term of the options. The assumed rates of 5% and 10% appreciation are mandated by the SEC and do not represent our estimate or projection of future prices. |
2005 Aggregated Option Exercises and Option Value |
Number of | ||||||||||||||||||||||||
Securities Underlying | Value of Unexercised | |||||||||||||||||||||||
Shares | Unexercised Options at | In-the-Money Options at | ||||||||||||||||||||||
Acquired on | Value | December 31, 2005(#)(1) | December 31, 2005($)(2) | |||||||||||||||||||||
Exercise | Realized | |||||||||||||||||||||||
Name | (#) | ($) | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||||||||
Neil Smit | — | — | — | 3,333,333 | $ | — | $ | 133,333 | ||||||||||||||||
Robert P. May | — | — | — | — | — | — | ||||||||||||||||||
Carl E. Vogel(3) | — | — | 1,120,000 | — | — | — | ||||||||||||||||||
Michael J. Lovett | — | — | 93,000 | 395,000 | — | — | ||||||||||||||||||
Paul E. Martin | — | — | 143,125 | 193,075 | — | — | ||||||||||||||||||
Wayne H. Davis | — | — | 176,250 | 379,550 | — | — | ||||||||||||||||||
Sue Ann R. Hamilton | — | — | 122,500 | 312,500 | — | — |
(1) | Options granted prior to 2001 and under the 1999 Charter Communications Option Plan, when vested, are exercisable for membership units of Charter Holdco which are immediately exchanged on a one-for-one basis for shares of Charter’s Class A common stock upon exercise of the option. |
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Options granted under the 2001 Stock Incentive Plan and after 2000 are exercisable for shares of Charter’s Class A common stock. | |
(2) | Based on a per share market value (closing price) of $1.22 as of December 31, 2005 for Charter’s Class A common stock. |
(3) | Mr. Vogel’s employment terminated on January 17, 2005. Under the terms of the separation agreement, his options continued to vest until December 31, 2005, and all vested options are exercisable until sixty (60) days thereafter. |
Estimated Future Payouts Under | ||||||||||||||||||||
Non-Stock Price-Based Plans | ||||||||||||||||||||
Number of | ||||||||||||||||||||
Shares, Units or | Performance or Other Period | Threshold | Target | Maximum | ||||||||||||||||
Name | Other Rights(#) | Until Maturation or Payout | (#) | (#) | (#) | |||||||||||||||
Neil Smit | — | n/a | — | — | — | |||||||||||||||
Robert P. May | — | n/a | — | — | — | |||||||||||||||
Carl E. Vogel | — | n/a | — | — | — | |||||||||||||||
Michael J. Lovett | 129,600 | 1 year performance cycle | 90,720 | 129,600 | 259,200 | |||||||||||||||
3 year vesting | ||||||||||||||||||||
Paul E. Martin | 40,500 | 1 year performance cycle | 28,350 | 40,500 | 81,000 | |||||||||||||||
3 year vesting | ||||||||||||||||||||
Wayne H. Davis | 83,700 | 1 year performance cycle | 58,590 | 83,700 | 167,400 | |||||||||||||||
3 year vesting | ||||||||||||||||||||
Sue Ann R. Hamilton | 83,700 | 1 year performance cycle | 58,590 | 83,700 | 167,400 | |||||||||||||||
3 year vesting |
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Number of | |||||||||||||||||||||||||
Securities | Market Price of | New | Length of Original | ||||||||||||||||||||||
Underlying | Stock at Time | Exercise Price | Exercise | Option Term | |||||||||||||||||||||
Options | of Exchange | at Time of | Price | Remaining at | |||||||||||||||||||||
Name | Date | Exchanged | ($) | Exchange ($) | ($) | Date of Exchange | |||||||||||||||||||
Carl E. Vogel | 2/25/04 | 3,400,000 | 4.37 | 13.68 | (1 | ) | 7 years 7 months | ||||||||||||||||||
Former President and Chief Executive Officer | |||||||||||||||||||||||||
Paul E. Martin | 2/25/04 | 15,000 | 4.37 | 23.09 | (2 | ) | 7 years 0 months | ||||||||||||||||||
Senior Vice President, Interim | 50,000 | 4.37 | 11.99 | 7 years 7 months | |||||||||||||||||||||
Chief Financial Officer, | 40,000 | 4.37 | 15.03 | 6 years 2 months | |||||||||||||||||||||
Principal Accounting Officer | |||||||||||||||||||||||||
and Corporate Controller | |||||||||||||||||||||||||
Wayne H. Davis | 2/25/04 | 40,000 | 4.37 | 23.09 | (3 | ) | 7 years 0 months | ||||||||||||||||||
Executive Vice President and | 40,000 | 4.37 | 12.27 | 7 years 11 months | |||||||||||||||||||||
Chief Technical Officer |
(1) | On February 25, 2004, in exchange for 3,400,000 options tendered, 340,000 performance shares were granted with a three year performance cycle and three year vesting along with 340,000 restricted stock units with one-third of the shares vesting on each of the first three anniversaries of the grant date. On the grant date, the price of the Company’s common stock was $4.37. | |
(2) | On February 25, 2004, in exchange for 105,000 options tendered, 8,607 performance shares were granted with a three year performance cycle and three year vesting along with 8,607 restricted stock units with one-third of the shares vesting on each of the first three anniversaries of the grant date. On the grant date, the price of the Company’s common stock was $4.37. | |
(3) | On February 25, 2004, in exchange for 80,000 options tendered, 4,000 performance shares were granted with a three year performance cycle and three year vesting along with 4,000 restricted stock units with one-third of the shares vesting on each of the first three anniversaries of the grant date. On the grant date, the price of the Company’s common stock was $4.37. |
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(1) any breach of the director’s duty of loyalty to the corporation and its shareholders; | |
(2) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; | |
(3) unlawful payments of dividends or unlawful stock purchases or redemptions; or | |
(4) any transaction from which the director derived an improper personal benefit. |
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• | each current director of CCO Holdings or Charter; | |
• | the current chief executive officer and individuals named in the Summary Compensation Table; | |
• | all persons currently serving as directors and officers of CCO Holdings or Charter, as a group; and | |
• | each person known by us to own beneficially 5% or more of Charter’s outstanding Class A common stock as of December 31, 2005. |
• | each holder of Class A common stock is entitled to one vote per share; and | |
• | each holder of Charter’s Class B common stock (“Class B common stock”) is entitled to (i) ten votes per share of Class B common stock held by such holder and its affiliates and (ii) ten votes per share of Class B Common Stock for which membership units in Charter Holdco held by such holder and its affiliates are exchangeable. |
Class A | ||||||||||||||||||||||||||||
Shares | ||||||||||||||||||||||||||||
Unvested | Receivable | |||||||||||||||||||||||||||
Number of | Restricted | on Exercise | Class B | |||||||||||||||||||||||||
Class A | Class A | of Vested | Shares | % of Class A | ||||||||||||||||||||||||
Shares | Shares | Options or | Number of | Issuable upon | Shares | % of | ||||||||||||||||||||||
(Voting and | (Voting | Other | Class B | Exchange or | (Voting and | Voting | ||||||||||||||||||||||
Name and Address of | Investment | Power | Convertible | Shares | Conversion of | Investment | Power | |||||||||||||||||||||
Beneficial Owner | Power)(1) | Only)(2) | Securities(3) | Owned | Units(4) | Power)(4)(5) | (5)(6) | |||||||||||||||||||||
Paul G. Allen(7) | 29,126,463 | 39,063 | 10,000 | 50,000 | 363,794,364 | 50.38 | % | 90.45 | % | |||||||||||||||||||
Charter Investment, Inc.(8) | 247,481,191 | 37.29 | % | * | ||||||||||||||||||||||||
Vulcan Cable III Inc.(9) | 116,313,173 | 21.84 | % | * | ||||||||||||||||||||||||
Neil Smit | 2,812,500 | * | * | |||||||||||||||||||||||||
Robert P. May | 119,685 | 40,650 | * | * | ||||||||||||||||||||||||
W. Lance Conn | 19,231 | 32,072 | * | * | ||||||||||||||||||||||||
Nathaniel A. Davis | 43,215 | * | * | |||||||||||||||||||||||||
Jonathan L. Dolgen | 19,685 | 40,650 | * | * | ||||||||||||||||||||||||
David C. Merritt | 25,705 | 39,063 | * | * | ||||||||||||||||||||||||
Jo Allen Patton | 10,977 | 40,323 | * | * | ||||||||||||||||||||||||
Marc B. Nathanson | 425,705 | 39,063 | 50,000 | * | * | |||||||||||||||||||||||
John H. Tory | 30,005 | 39,063 | 40,000 | * | * | |||||||||||||||||||||||
Larry W. Wangberg | 28,705 | 39,063 | 40,000 | * | * | |||||||||||||||||||||||
Michael J. Lovett | 7,500 | 75,000 | 112,375 | * | * | |||||||||||||||||||||||
Wayne H. Davis | 2,667 | 1,332 | 210,000 | * | * | |||||||||||||||||||||||
Sue Ann Hamilton | 169,300 | * | * | |||||||||||||||||||||||||
Paul E. Martin | 11,738 | 2,869 | 162,500 | * | * | |||||||||||||||||||||||
All current directors and executive officers as a group (18 persons) | 29,828,066 | 3,383,926 | 794,175 | 50,000 | 363,794,364 | 50.95 | % | 90.56 | % | |||||||||||||||||||
Carl E. Vogel(10) | 113,334 | 1,265,000 | * | * | ||||||||||||||||||||||||
Scott A. Bommer(11) | 18,237,744 | 4.38 | % | * | ||||||||||||||||||||||||
Glenview Capital Management, LLC(12) | 19,903,500 | 4.78 | % | * | ||||||||||||||||||||||||
Glenview Capital GP, LLC(12) | 19,903,500 | 4.78 | % | * | ||||||||||||||||||||||||
Lawrence M. Robbins(12) | 19,903,500 | 4.78 | % | * | ||||||||||||||||||||||||
Steelhead Partners (13) | 30,284,630 | 7.28 | % | * |
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Class A | |||||||||||||||||||||||||||||
Shares | |||||||||||||||||||||||||||||
Unvested | Receivable | ||||||||||||||||||||||||||||
Number of | Restricted | on Exercise | Class B | ||||||||||||||||||||||||||
Class A | Class A | of Vested | Shares | % of Class A | |||||||||||||||||||||||||
Shares | Shares | Options or | Number of | Issuable upon | Shares | % of | |||||||||||||||||||||||
(Voting and | (Voting | Other | Class B | Exchange or | (Voting and | Voting | |||||||||||||||||||||||
Name and Address of | Investment | Power | Convertible | Shares | Conversion of | Investment | Power | ||||||||||||||||||||||
Beneficial Owner | Power)(1) | Only)(2) | Securities(3) | Owned | Units(4) | Power)(4)(5) | (5)(6) | ||||||||||||||||||||||
J-K Navigator Fund, L.P.(13) | 18,447,759 | 4.43 | % | * | |||||||||||||||||||||||||
James Michael Johnston(13) | 24,835,077 | 5.97 | % | * | |||||||||||||||||||||||||
Brian Katz Klein(13) | 24,835,077 | 5.97 | % | * | |||||||||||||||||||||||||
FMR Corp.(14) | 38,515,187 | 9.25 | % | 1.01 | % | ||||||||||||||||||||||||
Fidelity Management & Research Company(14) | 14,961,471 | 20,487,601 | 8.12 | % | * | ||||||||||||||||||||||||
Edward C. Johnson 3d(14) | 38,515,187 | 9.25 | % | 1.01 | % | ||||||||||||||||||||||||
Standard Pacific Capital LLC(15) | 21,804,756 | 5.24 | % | * | |||||||||||||||||||||||||
Kingdon Capital Management, LLC(16) | 24,236,312 | 5.82 | % | * | |||||||||||||||||||||||||
* Less than 1% |
(1) | Includes shares for which the named person has sole voting and investment power; or shared voting and investment power with a spouse. Does not include shares that may be acquired through exercise of options. | |
(2) | Includes unvested shares of restricted stock issued under the Charter Communications, Inc. 2001 Stock Incentive Plan (including those issued in the February 2004 option exchange for those eligible employees who elected to participate), as to which the applicable director or employee has sole voting power but not investment power. Excludes certain performance units granted under the Charter 2001 Stock Incentive Plan with respect to which shares will not be issued until the third anniversary of the grant date and then only if Charter meets certain performance criteria (and which consequently do not provide the holder with any voting rights). | |
(3) | Includes shares of Class A common stock issuable (a) upon exercise of options that have vested or will vest on or before March 1, 2006 under the 1999 Charter Communications Option Plan and the 2001 Stock Incentive Plan or (b) upon conversion of other convertible securities. | |
(4) | Beneficial ownership is determined in accordance with Rule 13d-3 under the Exchange Act. The beneficial owners at December 31, 2005 of Class B common stock, Charter Holdco membership units and convertible senior notes of Charter are deemed to be beneficial owners of an equal number of shares of Class A common stock because such holdings are either convertible into Class A shares (in the case of Class B shares and convertible senior notes) or exchangeable (directly or indirectly) for Class A shares (in the case of the membership units) on a one-for-one basis. Unless otherwise noted, the named holders have sole investment and voting power with respect to the shares listed as beneficially owned. As a result of the settlement of the CC VIII dispute, Mr. Allen received an accreting note exchangeable as of December 31, 2005 for 24,662,333 Charter Holdco units. See “Certain Relationships and Related Transactions — Transactions Arising Out of Our Organizational Structure and Mr. Allen’s Investment in Charter Communications, Inc. and Its Subsidiaries — Equity Put Rights — CC VIII.” | |
(5) | The calculation of this percentage assumes for each person that: |
• | 416,204,671 shares of Class A common stock are issued and outstanding as of December 31, 2005; | |
• | 50,000 shares of Class B common stock held by Mr. Allen have been converted into shares of Class A common stock; | |
• | the acquisition by such person of all shares of Class A common stock that such person or affiliates of such person has the right to acquire upon exchange of membership units in subsidiaries or conversion of Series A Convertible Redeemable Preferred Stock or 5.875% or 4.75% convertible senior notes; | |
• | the acquisition by such person of all shares that may be acquired upon exercise of options to purchase shares or exchangeable membership units that have vested or will vest by March 1, 2006; and |
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• | that none of the other listed persons or entities has received any shares of Class A common stock that are issuable to any of such persons pursuant to the exercise of options or otherwise. A person is deemed to have the right to acquire shares of Class A common stock with respect to options vested under the 1999 Charter Communications Option Plan. When vested, these options are exercisable for membership units of Charter Holdco, which are immediately exchanged on a one-for-one basis for shares of Class A common stock. A person is also deemed to have the right to acquire shares of Class A common stock issuable upon the exercise of vested options under the 2001 Stock Incentive Plan. |
(6) | The calculation of this percentage assumes that Mr. Allen’s equity interests are retained in the form that maximizes voting power (i.e., the 50,000 shares of Class B common stock held by Mr. Allen have not been converted into shares of Class A common stock; that the membership units of Charter Holdco owned by each of Vulcan Cable III Inc. and Charter Investment, Inc. have not been exchanged for shares of Class A common stock). |
(7) | The total listed includes: |
• | 247,481,191 membership units in Charter Holdco held by Charter Investment, Inc.; and | |
• | 116,313,173 membership units in Charter Holdco held by Vulcan Cable III Inc. The listed total includes 24,662,333 shares of Class A common stock issuable as of December 31, 2005 upon exchange of units of Charter Holdco, which are issuable to Charter Investment, Inc. (which is owned by Mr. Allen) as a consequence of the settlement of the CC VIII dispute. See “Certain Relationships and Related Transactions — Transactions Arising Out of Our Organizational Structure and Mr. Allen’s Investment in Charter Communications, Inc. and Its Subsidiaries — Equity Put Rights — CC VIII.” The address of this person is: 505 Fifth Avenue South, Suite 900, Seattle, WA 98104. |
(8) | Includes 247,481,191 membership units in Charter Holdco, which are exchangeable for shares of Class B common stock on a one-for-one basis, which are convertible to shares of Class A common stock on a one-for-one basis. The address of this person is: Charter Plaza, 12405 Powerscourt Drive, St. Louis, MO 63131. |
(9) | Includes 116,313,173 membership units in Charter Holdco, which are exchangeable for shares of Class B common stock on a one-for-one basis, which are convertible to shares of Class A common stock on a one-for-one basis. The address of this person is: 505 Fifth Avenue South, Suite 900, Seattle, WA 98104. |
(10) | Mr. Vogel terminated his employment effective on January 17, 2005. His stock options and restricted stock shown in this table continued to vest until December 31, 2005, and his options will be exercisable for another 60 days thereafter. |
(11) | The equity ownership reported in this table is based upon the holder’s Schedule 13G filed with the SEC March 28, 2005. The address of this person is 712 Fifth Avenue, 42nd Floor, New York, New York 10019. Mr. Bommer is the managing member of SAB Capital Advisors, L.L.C., which serves as general partner of SAB Capital Partners, L.P. and SAB Capital Partners II, L.P. (which in turn collectively hold 10,124,695 shares of Class A common stock). Mr. Bommer is also the managing member of SAB Capital Management, L.L.C., which serves as general partner of SAB Overseas Capital Management, L.P. (which in turn serves as investment manager to and has investment discretion over the securities held by a holder of 8,113,049 shares of Class A common stock). |
(12) | The equity ownership reported in this table is based upon the holder’s Schedule 13G filed with the SEC June 3, 2005. The address of the principal business office of the reporting person is: 399 Park Avenue, Floor 39, New York, New York 10022. The shares shown consist of: (A) 1,669,400 shares held for the account of Glenview Capital Partners; (B) 5,991,000 shares held for the account of Glenview Capital Master Fund; and (C) 12,243,100 shares held for the account of Glenview Institutional Partners. Glenview Capital Management serves as investment manager to each of Glenview Capital Partners, Glenview Institutional Partners, and Glenview Capital Master Fund. Glenview Capital GP is the general partner of Glenview Capital Partners and Glenview Institutional |
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Partners. Glenview Capital GP also serves as the sponsor of the Glenview Capital Master Fund. Mr. Robbins is the Chief Executive Officer of Glenview Capital Management and Glenview Capital GP. | |
(13) | The equity ownership reported in this table is based upon the holder’s Form 13F filed with the SEC January 25, 2006. The business address of the reporting person is: 1301 First Avenue, Suite 201, Seattle, WA 98101. Steelhead Partners, LLC acts as general partner of J-K Navigator Fund, L.P., and J. Michael Johnston and Brian K. Klein act as the member-managers of Steelhead Partners, LLC. Accordingly, shares shown as beneficially held by Steelhead Partners, LLC, Mr. Johnston and Mr. Klein include shares beneficially held by J-K Navigator Fund, L.P. |
(14) | The equity ownership reported in this table is based on the holder’s Schedule 13G filed with the SEC on September 12, 2005. The address of the person is: 82 Devonshire Street, Boston, Massachusetts 02109. Fidelity Management & Research Company is a wholly-owned subsidiary of FMR Corp. and is the beneficial owner of 35,449,072 shares as a result of acting as investment adviser to various investment companies and includes: 20,487,601 shares resulting from the assumed conversion of 5.875% senior notes. Edward C. Johnson 3d, chairman of FMR Corp., and FMR Corp. each has sole power to dispose of 38,515,187 shares. |
(15) | The equity ownership in this table is based upon the holder’s Schedule 13G filed with the SEC on November 9, 2005. The address of the reporting person is: 101 California Street, 36th Floor, San Francisco, CA 94111. |
(16) | The equity ownership in this table is based upon the holder’s Schedule 13G filed with the SEC on January 25, 2006. The address of the reporting person is: 152 West 57th Street, 50th Floor, New York, NY 10019. |
Weighted | ||||||||||||
Average Exercise | ||||||||||||
Number of Securities | Price of | Number of Securities | ||||||||||
to be Issued Upon | Outstanding | Remaining Available | ||||||||||
Exercise of | Options, | for Future Issuance | ||||||||||
Outstanding Options, | Warrants and | Under Equity | ||||||||||
Plan Category | Warrants and Rights | Rights | Compensation Plans | |||||||||
Equity compensation plans approved by security holders | 29,126,744 | (1) | $ | 4.47 | 42,758,409 | |||||||
Equity compensation plans not approved by security holders | 289,268 | (2) | $ | 3.91 | — | |||||||
TOTAL | 29,416,012 | $ | 4.46 | 42,758,409 | ||||||||
(1) | This total does not include 4,252,570 shares issued pursuant to restricted stock grants made under our 2001 Stock Incentive Plan, which were subject to vesting based on continued employment or 11,258,256 performance shares issued under our LTIP plan, which are subject to vesting based on continued employment and Charter’s achievement of certain performance criteria. |
(2) | Includes shares of Class A common stock to be issued upon exercise of options granted pursuant to an individual compensation agreement with a consultant. |
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• | Transactions in which Mr. Allen has an interest that arise directly out of Mr. Allen’s investment in Charter and Charter Holdco. A large number of the transactions described below arise out of Mr. Allen’s direct and indirect (through Charter Investment, Inc., or the Vulcan entities, each of which Mr. Allen controls) investment in Charter and its subsidiaries, as well as commitments made as consideration for the investments themselves. | |
• | Transactions with third party providers of products, services and content in which Mr. Allen has or had a material interest. Mr. Allen has had numerous investments in the areas of technology and media. We have a number of commercial relationships with third parties in which Mr. Allen has or had an interest. | |
• | Other Miscellaneous Transactions. We have a limited number of transactions in which certain of the officers, directors and principal shareholders of Charter and its subsidiaries, other than Mr. Allen, have an interest. |
Transaction | Interested Related Party | Description of Transaction | ||
Intercompany Management | ||||
Arrangements | Paul G. Allen | Subsidiaries of Charter Holdco paid Charter approximately $84 million, $90 million and $95 million for management services rendered in 2003 and 2004 and for the nine months ended September 30, 2005, respectively. | ||
Mutual Services Agreement | Paul G. Allen | Charter paid Charter Holdco approximately $73 million, $74 million and $64 million for services rendered in 2003 and 2004 and for the nine months ended September 30, 2005, respectively. | ||
Previous Management | ||||
Agreement | Paul G. Allen | No fees were paid in 2003, 2004 or 2005, although total management fees accrued and payable to Charter Investment, Inc., exclusive of interest, were approximately $14 million at December 31, 2003 and 2004 and September 30, 2005. |
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Transaction | Interested Related Party | Description of Transaction | ||
Channel Access Agreement | Paul G. Allen W. Lance Conn Jo Allen Patton | At Vulcan Ventures’ request, we will provide Vulcan Ventures with exclusive rights for carriage on eight of our digital cable channels as partial consideration for a 1999 capital contribution of approximately $1.3 billion. | ||
Equity Put Rights | Paul G. Allen | Certain sellers of cable systems that we acquired were granted, or previously had the right, as described below, to put to Paul Allen equity in us (in the case of Rifkin and Falcon), Charter Holdco (in the case of Rifkin) and CC VIII, LLC (in the case of Bresnan) and a preferred membership interest (in the case of Charter Helicon, LLC) issued to such sellers in connection with such acquisitions. | ||
Previous Funding Commitment of Vulcan Inc. | Paul G. Allen W. Lance Conn Jo Allen Patton | Pursuant to a commitment letter dated April 14, 2003, Vulcan Inc., which is an affiliate of Paul Allen, agreed to lend, under certain circumstances, or cause an affiliate to lend to Charter Holdings or any of its subsidiaries a total amount of up to $300 million, which amount included a subfacility of up to $100 million for the issuance of letters of credit. In November 2003, the commitment was terminated. We incurred expenses to Vulcan Inc. totaling $5 million in connection with the commitment prior to termination. | ||
TechTV Carriage Agreement | Paul G. Allen W. Lance Conn Jo Allen Patton Larry W. Wangberg | We recorded approximately $1 million, $5 million and $1 million from TechTV under the affiliation agreement in 2003 and 2004 and for the nine months ended September 30, 2005, respectively, related to launch incentives as a reduction of programming expense. We paid TechTV approximately $80,600, $2 million and $2 million in 2003 and 2004 and for the nine months ended September 30, 2005, respectively. | ||
Oxygen Media Corporation | ||||
Carriage Agreement | Paul G. Allen W. Lance Conn Jo Allen Patton | We paid Oxygen Media approximately $9 million, $13 million and $7 million under a carriage agreement in exchange for programming in 2003 and 2004 and for the nine months ended September 30, 2005, respectively. We recorded approximately $1 million, $1 million and $0.1 million in 2003 and 2004 and the nine months ended September 30, 2005, respectively, from Oxygen Media related to launch incentives as a reduction of programming expense. We received 1 million shares of Oxygen Preferred Stock with a liquidation preference of $33.10 per share in March 2005. We recognized approximately $9 million, $13 million and $2 million as a reduction of programming expense in 2003 and 2004 and for the nine months ended September 30, 2005, respectively, in recognition of the guaranteed value of the investment. |
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Transaction | Interested Related Party | Description of Transaction | ||
Portland Trail Blazers Carriage | ||||
Agreement | Paul G. Allen | We paid approximately $135,200, $96,100 and $116,500 for rights to carry the cable broadcast of certain Trail Blazers basketball games in 2003 and 2004 and for the nine months ended September 30, 2005, respectively. | ||
Digeo, Inc. Broadband Carriage | ||||
Agreement | Paul G. Allen Carl E. Vogel Jo Allen Patton W. Lance Conn Michael J. Lovett | We paid Digeo approximately $4 million, $3 million and $2 million for customized development of the i- channels and the local content tool kit in 2003 and 2004 and for the nine months ended September 30, 2005, respectively. We entered into a license agreement in 2004 for the Digeo software that runs DVR units purchased from a third party. We paid approximately $0.5 million and $1 million in license and maintenance fees in 2004 and for the nine months ended September 30, 2005, respectively. In 2004 we executed a purchase agreement for the purchase of up to 70,000 DVR units and a related software license agreement, both subject to satisfaction of certain conditions. We paid approximately $0 and $9 million in capital purchases in 2004 and the nine months ended September 30, 2005, respectively. | ||
Viacom Networks | Jonathan L. Dolgen | We are party to certain affiliation agreements with networks of New Viacom and CBS Corporation, pursuant to which they provide Charter with programming for distribution via our cable systems. For the years ended December 31, 2003 and 2004 and for the nine months ended September 30, 2005, Charter paid Old Viacom approximately $188 million, $194 million and $150 million, respectively, for programming, and Charter recorded as receivables approximately $5 million, $8 million and $15 million from Old Viacom for launch incentives and marketing support for the years ended December 31, 2003 and 2004 and for the nine months ended September 30, 2005, respectively. | ||
Payment for relatives’ services | Carl E. Vogel | Since June 2003, Mr. Vogel’s brother-in-law has been an employee of Charter Holdco and has received a salary commensurate with his position in the engineering department. | ||
Radio advertising | Marc B. Nathanson | We believe that, through a third party advertising agency, we have paid approximately $67,300, $49,300 and $55,500 in 2003 and 2004 and for the nine months ended September 30, 2005, respectively, to Mapleton Communications, an affiliate of Mapleton Investments, LLC. |
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Transaction | Interested Related Party | Description of Transaction | ||
Enstar Limited Partnership Systems Purchase and Management Services | Charter officers who were appointed by a Charter subsidiary (as general partner) to serve as officers of Enstar limited partnerships | Certain of our subsidiaries purchased certain assets of the Enstar Limited Partnerships for approximately $63 million in 2002. We also earned approximately $469,300, $0 and $0 in 2003 and 2004 and for the nine months ended September 30, 2005, respectively, by providing management services to the Enstar Limited Partnerships. | ||
Indemnification Advances | Directors and current and former officers named in certain legal proceedings | Charter reimbursed certain of its current and former directors and executive officers a total of approximately $8 million, $3 million and $15,700 for costs incurred in connection with litigation matters in 2003 and 2004 and for the nine months ended September 30, 2005, respectively. |
Intercompany Management Arrangements |
Mutual Services Agreement |
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Previous Management Agreement with Charter Investment, Inc. |
Vulcan Ventures Channel Access Agreement |
Equity Put Rights |
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Previous Funding Commitment of Vulcan Inc. |
Allocation of Business Opportunities with Mr. Allen |
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TechTV, Inc. |
Oxygen Media Corporation |
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Portland Trail Blazers |
Digeo, Inc. |
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Viacom Networks |
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Payments for Relatives’ Services |
Radio Advertising |
Purchase of Certain Enstar Limited Partnership Systems; Management Fees |
Indemnification Advances |
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Actual | Actual | Start Date for | |||||||||||||||||||||||||
September 30, 2005 | December 31, 2004 | Cash Interest | |||||||||||||||||||||||||
Interest | Payment on | ||||||||||||||||||||||||||
Principal | Accreted | Principal | Accreted | Payment | Discount | Maturity | |||||||||||||||||||||
Long-Term Debt(b) | Amount | Value(a) | Amount | Value(a) | Dates | Notes | Date(b) | ||||||||||||||||||||
Renaissance: | |||||||||||||||||||||||||||
10.000% senior discount notes due 2008 | $ | 114 | $ | 115 | $ | 114 | $ | 116 | 4/15 & 10/15 | 10/15/03 | 4/15/08 | ||||||||||||||||
CC V Holdings: | |||||||||||||||||||||||||||
11.875% senior discount notes due 2008(c) | — | — | 113 | 113 | 6/1 & 12/1 | 6/1/04 | 12/1/08 | ||||||||||||||||||||
Charter Operating: | |||||||||||||||||||||||||||
Credit facilities(d) | 5,513 | 5,513 | 5,515 | 5,515 | |||||||||||||||||||||||
8% senior second lien notes due 2012 | 1,100 | 1,100 | 1,100 | 1,100 | 4/30 & 10/30 | 4/30/12 | |||||||||||||||||||||
83/8% senior second lien notes due 2014 | 733 | 733 | 400 | 400 | 4/30 & 10/30 | 4/30/14 | |||||||||||||||||||||
CCO Holdings: | |||||||||||||||||||||||||||
8.750% senior notes due 2013 | 800 | 794 | 500 | 500 | 5/15 & 11/15 | 11/15/13 | |||||||||||||||||||||
Senior floating rate notes due | 3/15, 6/15, | ||||||||||||||||||||||||||
2010 | 550 | 550 | 550 | 550 | 9/15 & 12/15 | 12/15/10 | |||||||||||||||||||||
$ | 8,810 | $ | 8,805 | $ | 8,292 | $ | 8,294 | ||||||||||||||||||||
(a) | The accreted value presented above represents the principal amount of the notes less the original issue discount at the time of sale plus the accretion to the balance sheet date. | |
(b) | In general, the obligors have the right to redeem all of the notes set forth in the above table in whole or 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 our consolidated financial statements included elsewhere in this prospectus. | |
(c) | On March 14, 2005, CC V Holdings, LLC redeemed all of its outstanding notes, at 103.958% of principal amount, plus accrued and unpaid interest to the date of redemption. We are not required to redeem any of the other notes listed above prior to their stated maturity dates. | |
(d) | In January 2006, our parent company, CCH II and CCH II Capital Corp., issued $450 million principal amount of 10.250% senior notes due 2010, the proceeds of which were used to pay down credit facilities. |
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Charter Operating Credit Facilities — General |
• | provide borrowing availability of up to $6.5 billion; | |
• | provide for two term facilities: |
(i) | a Term A facility with a total principal amount of $2.0 billion, of which 12.5% matures in 2007, 30% matures in 2008, 37.5% matures in 2009 and 20% matures in 2010; and |
(ii) | a Term B facility with a total principal amount of $3.0 billion, which shall be repayable in 27 equal quarterly installments aggregating in each loan year to 1% of the original amount of the Term B facility, with the remaining balance due at final maturity in 2011; and |
• | provide for a revolving credit facility, in a total amount of $1.5 billion, with a maturity date in 2010. |
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Charter Operating Credit Facilities — Restrictive Covenants |
(i) the failure to make payments when due or within the applicable grace period, | |
(ii) the failure to comply with specified covenants, including but not limited to a covenant to deliver audited financial statements with an unqualified opinion from our independent auditors, | |
(iii) 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 $50 million in aggregate principal amount, | |
(iv) 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, | |
(v) 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, | |
(vi) 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, | |
(vii) certain of Charter Operating’s indirect or direct parent companies having indebtedness in excess of $500 million aggregate principal amount which remains undefeased three months prior to the final maturity of such indebtedness, and | |
(viii) Charter Operating ceasing to be a wholly-owned direct subsidiary of CCO Holdings, except in certain very limited circumstances. |
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Original Notes |
Previously Issued 83/4% Senior Notes Due 2013 |
Senior Floating Rate Notes Due 2010 |
Additional Terms of the CCO Holdings Senior Notes and Senior Floating Rate Notes |
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• | up to $9.75 billion of debt under credit facilities, including debt under credit facilities outstanding on the issue date of the CCO Holdings senior notes; | |
• | 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. |
• | CCO Holdings and its restricted subsidiaries are permitted to pay dividends on equity interests, repurchase interests, or make other specified restricted payments only if CCO Holdings can incur $1.00 of new debt under the leverage ratio test, which requires that CCO Holdings meet a 4.5 to 1.0 leverage ratio 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 are permitted in a total amount of up to 100% of CCO Holdings’ consolidated EBITDA, as defined, minus 1.3 times its consolidated interest expense, plus 100% of new cash and appraised non-cash equity proceeds received by CCO Holdings and not allocated to the debt incurrence covenant, all cumulatively from the fiscal quarter commenced on October 1, 2003, plus $100 million. |
• | to repurchase management equity interests in amounts not to exceed $10 million per fiscal year; | |
• | to pay, regardless of the existence of any default, pass-through tax liabilities in respect of ownership of equity interests in Charter Holdings or its restricted subsidiaries; | |
• | to pay, regardless of the existence of any default, interest when due on Charter Holdings notes and our notes; | |
• | to pay, so long as there is no default, interest on the Charter convertible notes; | |
• | to purchase, redeem or refinance Charter Holdings notes, CCH II notes, Charter notes, and other direct or indirect parent company notes, so long as CCO Holdings could incur $1.00 of indebtedness under the 4.5 to 1.0 leverage ratio test referred to above and there is no default; or |
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• | 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. |
• | investments by CCO Holdings and its restricted subsidiaries in CCO Holdings and in other restricted subsidiaries, or entities that become restricted subsidiaries as a result of the investment, | |
• | 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 described above, | |
• | other investments up to $750 million outstanding at any time, and | |
• | certain specified additional investments, such as investments in customers and suppliers in the ordinary course of business and investments received in connection with permitted asset sales. |
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Bridge Loan |
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Charter Communications Operating, LLC Notes |
• | a senior obligation of such guarantor; | |
• | structurally senior to the outstanding senior notes of CCO Holdings and CCO Holdings Capital Corp. (except in the case of CCO Holdings’ note guarantee, which is structurallypari passuwith such senior notes), the outstanding senior notes of CCH II and CCH II Capital Corp., the outstanding senior notes and senior discount notes of Charter Holdings, the outstanding convertible senior notes of Charter and any future indebtedness of parent companies of CCO Holdings (but subject to provisions in the Charter Operating indenture that permit interest and, subject to meeting the 4.25 to 1.0 leverage ratio test, principal payments to be made thereon); and | |
• | senior in right of payment to any future subordinated indebtedness of such guarantor. |
• | up to $6.5 billion of debt under credit facilities (but such incurrence is permitted only by Charter Operating and its restricted subsidiaries that are guarantors of the Charter Operating notes, so long |
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as there are such guarantors), including debt under credit facilities outstanding on the issue date of the Charter Operating notes; | ||
• | up to $75 million of debt incurred to finance the purchase or capital lease of assets; | |
• | up to $300 million of additional debt for any purpose, and | |
• | other items of indebtedness for specific purposes such as refinancing of existing debt and interest rate swaps to provide protection against fluctuation in interest rates and, subject to meeting the leverage ratio test, debt existing at the time of acquisition of a restricted subsidiary. |
• | 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 Charter Operating or its restricted subsidiaries; | |
• | to pay, regardless of the existence of any default, interest when due on the Charter Holdings notes, the CCH II notes and the CCO Holdings notes; | |
• | to pay, so long as there is no default, interest on the Charter convertible notes; | |
• | to purchase, redeem or refinance the Charter Holdings notes, CCH II notes, the CCO Holdings notes, the Charter notes, and other direct or indirect parent company notes, so long as Charter Operating could incur $1.00 of indebtedness under the 4.25 to 1.0 leverage ratio test referred to above and there is no default, 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. |
• | investments by Charter Operating and its restricted subsidiaries in Charter Operating and in other restricted subsidiaries, or entities that become restricted subsidiaries as a result of the investment, |
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• | 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 described above, | |
• | other investments up to $750 million outstanding at any time, and | |
• | certain specified additional investments, such as investments in customers and suppliers in the ordinary course of business and investments received in connection with permitted asset sales. |
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• | 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. |
CC V Holdings, LLC Notes |
Renaissance Media Notes |
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• | if, after giving effect to the incurrence, Renaissance Media Group could meet a leverage ratio (ratio of consolidated debt to four times consolidated EBITDA, as defined, from the most recent quarter) of 6.75 to 1.0, and, regardless of whether the leverage ratio could be met, | |
• | up to the greater of $200 million or 4.5 times Renaissance Media Group’s consolidated annualized EBITDA, as defined, | |
• | up to an amount equal to 5% of Renaissance Media Group’s consolidated total assets to finance the purchase of new assets, | |
• | up to two times the sum of (a) the net cash proceeds of new equity issuances and capital contributions, and (b) 80% of the fair market value of property received by Renaissance Media Group or an issuer as a capital contribution, in each case received after the issue date of the Renaissance notes and not allocated to make restricted payments, 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. |
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Actual | Actual | ||||||||||||||||||||||||||||
September 30, 2005 | December 31, 2004 | Start date for | |||||||||||||||||||||||||||
cash interest | |||||||||||||||||||||||||||||
Principal | Accreted | Principal | Accreted | Interest payment | payment on | Maturity | |||||||||||||||||||||||
Amount | value(a) | Amount | value(a) | dates | discount notes | date(b) | |||||||||||||||||||||||
Charter Communications, Inc.: | |||||||||||||||||||||||||||||
4.750% convertible senior notes due 2006(c) | $ | 25 | $ | 25 | $ | 156 | $ | 156 | 12/1 & 6/1 | 6/1/06 | |||||||||||||||||||
5.875% convertible senior notes due 2009(c) | 863 | 841 | 863 | 834 | 5/16 & 11/16 | 11/16/09 | |||||||||||||||||||||||
Charter Holdings: | |||||||||||||||||||||||||||||
8.250% senior notes due 2007 | 105 | 105 | 451 | 451 | 4/1 & 10/1 | 4/1/07 | |||||||||||||||||||||||
8.625% senior notes due 2009 | 292 | 292 | 1,244 | 1,243 | 4/1 & 10/1 | 4/1/09 | |||||||||||||||||||||||
9.920% senior discount notes due 2011 | 198 | 198 | 1,108 | 1,108 | 4/1 & 10/1 | 10/1/04 | 4/1/11 | ||||||||||||||||||||||
10.000% senior notes due 2009 | 154 | 154 | 640 | 640 | 4/1 & 10/1 | 4/1/09 | |||||||||||||||||||||||
10.250% senior notes due 2010 | 49 | 49 | 318 | 318 | 1/15 & 7/15 | 1/15/10 | |||||||||||||||||||||||
11.750% senior discount notes due 2010 | 43 | 43 | 450 | 448 | 1/15 & 7/15 | 7/15/05 | 1/15/10 | ||||||||||||||||||||||
10.750% senior notes due 2009 | 131 | 131 | 874 | 874 | 4/1 & 10/1 | 10/1/09 | |||||||||||||||||||||||
11.125% senior notes due 2011 | 217 | 217 | 500 | 500 | 1/15 & 7/15 | 1/15/11 | |||||||||||||||||||||||
13.500% senior discount notes due 2011 | 94 | 91 | 675 | 589 | 1/15 & 7/15 | 7/15/06 | 1/15/11 | ||||||||||||||||||||||
9.625% senior notes due 2009 | 107 | 107 | 640 | 638 | 5/15 & 11/15 | 11/15/09 | |||||||||||||||||||||||
10.000% senior notes due 2011 | 137 | 136 | 710 | 708 | 5/15 & 11/15 | 5/15/11 | |||||||||||||||||||||||
11.750% senior discount notes due 2011 | 125 | 116 | 939 | 803 | 5/15 & 11/15 | 11/15/06 | 5/15/11 | ||||||||||||||||||||||
12.125% senior discount notes due 2012 | 113 | 97 | 330 | 259 | 1/15 & 7/15 | 7/15/07 | 1/15/12 | ||||||||||||||||||||||
CIH(a): | |||||||||||||||||||||||||||||
11.125% senior notes due 2014 | 151 | 151 | — | — | 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 | 759 | — | — | 5/15 & 11/15 | 11/15/06 | 5/15/14 | ||||||||||||||||||||||
13.500% senior discount notes due 2014 | 581 | 559 | — | — | 1/15 & 7/15 | 7/15/06 | 1/15/14 | ||||||||||||||||||||||
12.125% senior discount notes due 2015 | 217 | 187 | — | — | 1/15 & 7/15 | 7/15/07 | 1/15/15 | ||||||||||||||||||||||
CCH I(a): | |||||||||||||||||||||||||||||
11.00% senior notes due 2015 | 3,525 | 3,686 | — | — | 4/1 & 10/1 | 10/1/15 | |||||||||||||||||||||||
CCH II: | |||||||||||||||||||||||||||||
10.250% senior notes due 2010(d) | 1,601 | 1,601 | 1,601 | 1,601 | 3/15 & 9/15 | 9/15/10 | |||||||||||||||||||||||
$ | 10,313 | $ | 10,315 | $ | 11,499 | $ | 11,170 | ||||||||||||||||||||||
(a) | The accreted value presented above represents the principal amount of the notes less the original issue discount at the time of sale plus the accretion to the balance sheet date. The accreted value of CIH notes and CCH I notes issued in exchange for Charter Holdings notes are recorded in accordance with GAAP. GAAP requires that the CIH notes issued in exchange for Charter Holdings notes and the CCH I notes issued in exchange for the 8.625% Charter Holdings notes due 2009 be recorded at the historical book values of the Charter Holdings notes as opposed to the current accreted value for |
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legal purposes and notes indenture purposes (which, for both purposes, is the amount that would become payable if the debt becomes immediately due). As of September 30, 2005, the accreted value of our parent companies’ debt for legal purposes and notes and indentures purposes is $9.8 billion. | ||
(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 5.875% convertible senior notes due 2009 and the Charter Holdings notes with terms of eight years) in whole or 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. The 5.875% convertible senior notes are redeemable if the closing price of Charter’s Class A common stock exceeds the conversion price by certain percentages as described below. | |
(c) | The 5.875% convertible senior notes and the 4.75% convertible senior notes are convertible at the option of the holder into shares of Charter Class A common stock at an initial conversion rate of 413.2231 and 38.0952 shares, respectively, per $1,000 principal amount of notes, which is equivalent to a price of $2.42 and $26.25 per share, respectively. Certain anti-dilutive provisions cause adjustments to occur automatically upon the occurrence of specified events. Additionally, the conversion ratio may be adjusted by Charter when deemed appropriate. | |
(d) | In January 2006, our parent company, CCH II and CCH II Capital Corp., issued $450 million principal amount of 10.250% senior notes due 2010, the proceeds of which were used to pay down credit facilities. |
Charter Communications, Inc. Notes |
4.75% Convertible Senior Notes Due 2006 |
Charter 5.875% Convertible Senior Notes due 2009 |
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CCHC, LLC Note |
Charter Communications Holdings, LLC Notes |
March 1999 Charter Holdings Notes |
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January 2000 Charter Holdings Notes |
January 2001 Charter Holdings Notes |
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May 2001 Charter Holdings Notes |
January 2002 Charter Holdings Notes |
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Summary of Restrictive Covenants Under the Charter Holdings High-Yield Notes |
• | up to $3.5 billion of debt under credit facilities, | |
• | 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, | |
• | additional debt in an amount equal to 200% of new cash equity proceeds received by Charter Holdings and its restricted subsidiaries since March 1999, the date of its first indenture, and not allocated for restricted payments or permitted investments, 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. |
• | Charter Holdings and its restricted subsidiaries are generally permitted to pay dividends on equity interests, repurchase interests, or make other specified restricted payments only if, after giving pro forma effect to the transaction, the Charter Holdings Leverage Ratio would be below 8.75 to 1.0 and if no default exists or would exist as a consequence of such incurrence. If those conditions are met, restricted payments in a total amount of up to 100% of Charter Holdings’ consolidated |
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EBITDA, as defined, minus 1.2 times its consolidated interest expense, plus 100% of new cash and 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, plus $100 million. |
• | 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 Charter Holdings 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. |
• | investments by Charter Holdings in restricted subsidiaries or by restricted subsidiaries in Charter Holdings, | |
• | investments in productive assets (including through equity investments) aggregating up to $150 million since March 1999, | |
• | 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, and | |
• | other investments aggregating up to $50 million since March 1999. |
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CCH I Holdings, LLC Notes |
Note Series | Redemption Dates | Percentage of Principal | ||||||
11.125% | September 30, 2007 - January 14, 2008 | 103.708 | % | |||||
January 15, 2008 - January 14, 2009 | 101.854 | % | ||||||
Thereafter | 100.0% | |||||||
9.92% | September 30, 2007 - Thereafter | 100.0% | ||||||
10.0% | September 30, 2007 - May 14, 2008 | 103.333 | % | |||||
May 15, 2008 - May 14, 2009 | 101.667 | % | ||||||
Thereafter | 100.0% | |||||||
11.75% | September 30, 2007 - May 14, 2008 | 103.917 | % | |||||
May 15, 2008 - May 14, 2009 | 101.958 | % | ||||||
Thereafter | 100.0% | |||||||
13.5% | September 30, 2007 - January 14, 2008 | 104.5% | ||||||
January 15, 2008 - January 14, 2009 | 102.25% | |||||||
Thereafter | 100.0% | |||||||
12.125% | September 30, 2007 - January 14, 2008 | 106.063 | % | |||||
January 15, 2008 - January 14, 2009 | 104.042 | % | ||||||
January 15, 2009 - January 14, 2010 | 102.021 | % | ||||||
Thereafter | 100.0% |
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• | The debt incurrence covenant permits up to 9.75 billion (rather than 3.5 billion) of debt under credit facilities (less the amount of net proceeds of asset sales applied to repay such debt as required by the asset sale covenant). | |
• | CIH and its restricted subsidiaries are generally permitted to pay dividends on equity interests, repurchase interests, or make other specified restricted payments only if, after giving pro forma effect to the transaction, the CIH Leverage Ratio would be below 8.75 to 1.0 and if no default exists or would exist as a consequence of such transaction. If those conditions are met, restricted payments in a total amount of up to the sum of (1) the greater of (a) $500 million or (b) 100% of CIH’s consolidated EBITDA, as defined, minus 1.2 times its consolidated interest expense each for the period from September 28, 2005 to the end of CIH’s most recently ended full fiscal quarter for which internal financial statements are available, plus (2) 100% of new cash and non-cash equity proceeds received by CIH 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. | |
• | Instead of the $150 million and $50 million permitted investment baskets described above, there is a $750 million permitted investment basket. |
CCH I, LLC Notes |
Year | Percentage | |||
2010 | 105.5% | |||
2011 | 102.75% | |||
2012 | 101.375% | |||
2013 and thereafter | 100.0% |
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• | up to $9.75 billion of debt under credit facilities (less the amount of net proceeds of asset sales applied to repay such debt as required by the asset sale covenant); | |
• | 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. |
• | CCH I and its restricted subsidiaries are permitted to pay dividends on equity interests, repurchase interests, or make other specified restricted payments only if CCH I can incur $1.00 of new debt under the leverage ratio test, which requires that CCH I meet a 7.5 to 1.0 leverage ratio 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 are permitted in a total amount of up to 100% of CCH I’s consolidated EBITDA, as defined, for the period from September 28, 2005 to the end of CCH I’s most recently ended full fiscal quarter for which financial statements are available minus 1.3 times its consolidated interest expense for such period, plus 100% of new cash and appraised non-cash equity proceeds received by CCH I and not allocated to certain investments, from and after September 28, 2005, plus $100 million. |
• | to repurchase management equity interests in amounts not to exceed $10 million per fiscal year; | |
• | to pay, regardless of the existence of any default, pass-through tax liabilities in respect of ownership of equity interests in CCH I or its restricted subsidiaries; | |
• | to enable certain of its parents to pay interest on certain of their indebtedness; | |
• | to enable certain of its parents to purchase, redeem or refinance certain indebtedness, so long as CCH I could incur $1.00 of indebtedness under the 7.5 to 1.0 leverage ratio test referred to above; or |
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• | 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. |
• | investments by CCH I and its restricted subsidiaries in CCH I and in other restricted subsidiaries, or entities that become restricted subsidiaries as a result of the investment, | |
• | 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 described above, | |
• | other investments up to $750 million outstanding at any time, and | |
• | certain specified additional investments, such as investments in customers and suppliers in the ordinary course of business and investments received in connection with permitted asset sales. |
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• | up to $9.75 billion of debt under credit facilities, including debt under credit facilities outstanding on the issue date of the CCH II notes, | |
• | 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. |
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• | 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 CCH II or its restricted subsidiaries; | |
• | regardless of the existence of any default, to pay interest when due on Charter Holdings notes, to pay, so long as there is no default, interest on the convertible senior notes of Charter, to purchase, redeem or refinance, so long as CCH II could incur $1.00 of indebtedness under the 5.5 to 1.0 leverage ratio test referred to above and there is no default, Charter Holdings notes, Charter notes, and other direct or indirect parent company notes (including the CCH II notes); | |
• | to make distributions in connection with the private exchanges pursuant to which the CCH II notes were issued; and | |
• | 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. |
• | investments by CCH II and its restricted subsidiaries in CCH II and in other restricted subsidiaries, or entities that become restricted subsidiaries as a result of the investment; | |
• | investments aggregating up to 100% of new cash equity proceeds received by CCH II since September 23, 2003 to the extent the proceeds have not been allocated to the restricted payments covenant described above; | |
• | investments resulting from the private exchanges pursuant to which the CCH II notes were issued; | |
• | other investments up to $750 million outstanding at any time; and | |
• | certain specified additional investments, such as investments in customers and suppliers in the ordinary course of business and investments received in connection with permitted asset sales. |
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(1) such holder is not eligible to participate in the exchange offer, or | |
(2) such holder participates in the exchange offer and does not receive freely transferable new notes in exchange for tendered original notes, or |
• | file a shelf registration statement covering resales of the original notes, | |
• | use our reasonable best efforts to cause the shelf registration statement to be declared effective under the Securities Act of 1933 at the earliest possible time, but no later than 90 days after the time such obligation to file arises, and | |
• | use our reasonable best efforts to keep effective the shelf registration statement until the earlier of two years after the date as of which the Securities and Exchange Commission declares such shelf registration statement effective or the shelf registration otherwise becomes effective, or the time when all of the applicable original notes are no longer outstanding. |
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(1) The tender is made through an eligible institution; | |
(2) prior to the expiration date, the exchange agent receives from such eligible institution a properly completed and duly executed Notice of Guaranteed Delivery, by facsimile transmission, mail or hand delivery, setting forth the name and address of the holder of the original notes, the certificate number or numbers of such original notes and the principal amount of original notes tendered, stating that the tender is being made thereby, and guaranteeing that, within three business days after the expiration date, the letter of transmittal, or facsimile thereof or agent’s message in lieu of the letter of transmittal, together with the certificate(s) representing the original notes to be tendered in proper form for transfer and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent; and | |
(3) such properly completed and executed letter of transmittal (or facsimile thereof) together with the certificate(s) representing all tendered original notes in proper form for transfer and all other documents required by the letter of transmittal are received by the exchange agent within three business days after the expiration date. |
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By Regular Mail or Overnight Courier: Wells Fargo Bank, N.A. MAC #N9303-121 Corporate Trust Operations 6th and Marquette Avenue Minneapolis, MN 55479 | By Hand: Wells Fargo Bank, N.A. 608 Second Avenue South Corporate Operations, 12th floor Minneapolis, MN 55402 |
• | to us, upon redemption of these notes or otherwise, | |
• | so long as the original notes are eligible for resale pursuant to Rule 144A under the Securities Act of 1933, to a person inside the United States whom the seller reasonably believes is a qualified |
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institutional buyer within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A, | ||
• | in accordance with Rule 144 under the Securities Act of 1933, or under another exemption from the registration requirements of the Securities Act of 1933, and based upon an opinion of counsel reasonably acceptable to us, | |
• | outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act of 1933, or | |
• | under an effective registration statement under the Securities Act of 1933, |
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• | general unsecured obligations of the Issuers; | |
• | effectively subordinated in right of payment to any future secured Indebtedness of the Issuers, to the extent of the value of the assets securing such Indebtedness; | |
• | equal in right of payment to our existing senior notes and any future unsubordinated, unsecured Indebtedness of the Issuers; | |
• | structurally senior to the outstanding senior notes and senior discount notes of Charter Holdings, the outstanding senior notes of CCH II, LLC and CCH II Capital Corp. and the outstanding convertible senior notes of Charter Communications, Inc.; | |
• | senior in right of payment to any future subordinated Indebtedness of the Issuers; and | |
• | structurally subordinated to all indebtedness and other liabilities (including trade payables) of the Issuers’ subsidiaries, including indebtedness under the Charter Operating credit facilities and senior second lien notes. |
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Year | Percentage | |||
2008 | 104.375% | |||
2009 | 102.917% | |||
2010 | 101.458% | |||
2011 and thereafter | 100.000% |
Change of Control |
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• | “— Repurchase at the Option of Holders — Asset Sales,” | |
• | “— Restricted Payments,” | |
• | “— Investments,” | |
• | “— Incurrence of Indebtedness and Issuance of Preferred Stock,” | |
• | “— Dividend and Other Payment Restrictions Affecting Subsidiaries,” | |
• | clause (D) of the first paragraph of “— Merger, Consolidation, or Sale of Assets,” | |
• | “— Transactions with Affiliates” and | |
• | “— Sale and Leaseback Transactions.” |
Restricted Payments |
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(a) an amount equal to 100% of the Consolidated EBITDA of CCO Holdings for the period beginning on the first day of the fiscal quarter commencing October 1, 2003 to the end of CCO Holdings’ most recently ended full fiscal quarter for which internal financial statements are available, taken as a single accounting period, less the product of 1.3 times the Consolidated Interest Expense of CCO Holdings for such period, plus | |
(b) an amount equal to 100% of Capital Stock Sale Proceeds less any amount of such Capital Stock Sale Proceeds used in connection with an Investment made on or after the Issue Date pursuant to clause (5) of the definition of “Permitted Investments,” plus | |
(c) $100 million. |
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(a) no Default or Event of Default under the Indenture shall have occurred and be continuing or would occur as a consequence thereof; and | |
(b) CCO Holdings would, at the time of, and after giving effect to, such Restricted Investment or such designation of a Restricted Subsidiary as an Unrestricted Subsidiary, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the applicable Leverage Ratio test set forth in the first paragraph of the covenant described below under the caption “— Incurrence of Indebtedness and Issuance of Preferred Stock.” |
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(a) if CCO Holdings is the obligor on such Indebtedness, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all obligations with respect to the Notes; and | |
(b) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than CCO Holdings or a Restricted Subsidiary of CCO Holdings and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either CCO Holdings or a Restricted Subsidiary of CCO Holdings, shall be deemed, in each case, to constitute an incurrence of such Indebtedness that was not permitted by this clause (6); |
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(a) any Indebtedness or Preferred Stock of any Person existing at the time such Person is merged with or into or becomes a Subsidiary of CCO Holdings;providedthat such Indebtedness or Preferred Stock was not incurred or issued in connection with, or in contemplation of, such Person merging with or into, or becoming a Subsidiary of, CCO Holdings, and | |
(b) any Indebtedness or Preferred Stock of a Restricted Subsidiary issued in connection with, and as part of the consideration for, an acquisition, whether by stock purchase, asset sale, merger or otherwise, in each case involving such Restricted Subsidiary, which Indebtedness or Preferred Stock is issued to the seller or sellers of such stock or assets;providedthat such Restricted Subsidiary is not obligated to register such Indebtedness or Preferred Stock under the Securities Act or obligated to provide information pursuant to Rule 144A under the Securities Act. |
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(i) such Issuer is the surviving Person; or | |
(ii) the Person formed by or surviving any such consolidation or merger (if other than such Issuer) or to which such sale, assignment, transfer, conveyance or other disposition shall have been made is a Person organized or existing under the laws of the United States, any state thereof or the District of Columbia,providedthat if the Person formed by or surviving any such consolidation or merger with such Issuer is a limited liability company or a Person other than a corporation, a corporate co-issuer shall also be an obligor with respect to the Notes; |
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(x) be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Leverage Ratio test set forth in the first paragraph of the covenant described above under the caption “— Incurrence of Indebtedness and Issuance of Preferred Stock;” or | |
(y) have a Leverage Ratio immediately after giving effect to such consolidation or merger no greater than the Leverage Ratio immediately prior to such consolidation or merger. |
(a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration given or received by CCO Holdings or any such Restricted Subsidiary in excess of $15 million, a resolution of the Board of Directors of CCO Holdings or CCI set forth in an officers’ certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the members of such Board of Directors; and | |
(b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration given or received by CCO Holdings or any such Restricted Subsidiary in excess of $50 million, an opinion as to the fairness to the holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. |
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(a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction under the Leverage Ratio test in the first paragraph of the covenant described above under the caption “— Incurrence of Additional Indebtedness and Issuance of Preferred Stock”; and | |
(b) incurred a Lien to secure such Indebtedness pursuant to the covenant described above under the caption “— Liens” or the definition of “Permitted Liens”; and |
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(a) is caused by a failure to pay at final stated maturity the principal amount on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a “Payment Default”); or | |
(b) results in the acceleration of such Indebtedness prior to its express maturity, |
(a) commences a voluntary case, | |
(b) consents to the entry of an order for relief against it in an involuntary case, | |
(c) consents to the appointment of a custodian of it or for all or substantially all of its property, or | |
(d) makes a general assignment for the benefit of its creditors; or |
(a) is for relief against CCO Holdings or any of its Significant Subsidiaries in an involuntary case; | |
(b) appoints a custodian of CCO Holdings or any of its Significant Subsidiaries or for all or substantially all of the property of CCO Holdings or any of its Significant Subsidiaries; or | |
(c) orders the liquidation of CCO Holdings or any of its Significant Subsidiaries; |
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(a) the Issuers have received from, or there has been published by, the Internal Revenue Service a ruling or | |
(b) since the Issue Date, there has been a change in the applicable federal income tax law, |
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(a) on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit); or | |
(b) insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; |
(a) have become due and payable or | |
(b) will become due and payable on the maturity date within one year under arrangements satisfactory to the trustee for the giving of notice of redemption by the trustee in the name, and at the expense, of the Issuers. |
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(a) involves assets having a fair market value of less than $100 million; or | |
(b) results in net proceeds to CCO Holdings and its Restricted Subsidiaries of less than $100 million; |
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(i) with respect to net income, to the extent of the amount of dividends or other distributions actually paid to such Person or any of its Restricted Subsidiaries by such Other Person during such period; and | |
(ii) with respect to net losses, to the extent of the amount of investments made by such Person or any Restricted Subsidiary of such Person in such Other Person during such period; |
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(a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness); |
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(b) is directly or indirectly liable as a guarantor or otherwise; or | |
(c) constitutes the lender; |
(a) such Person becomes a Restricted Subsidiary of CCO Holdings; or | |
(b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, CCO Holdings or a Restricted Subsidiary of CCO Holdings; |
(A) generate accounts receivable, or | |
(B) are accepted in settlement of bona fide disputes. |
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(a) such mortgage or lien does not extend to or cover any of the assets of CCO Holdings, except the asset so developed, constructed, or acquired, and directly related assets such as enhancements and modifications thereto, substitutions, replacements, proceeds (including insurance proceeds), products, rents and profits thereof, and | |
(b) such mortgage or lien secures the obligation to pay all or a portion of the purchase price of such asset, interest thereon and other charges, costs and expenses (including, without limitation, the cost of design, development, construction, acquisition, transportation, installation, improvement, and migration) and is incurred in connection therewith (or the obligation under such Capitalized Lease Obligation) only; |
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(a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person, or | |
(b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). |
(a) to subscribe for additional Equity Interests or | |
(b) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results; |
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(a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by | |
(b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by |
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Exchange Offer |
(1) no gain or loss will be realized by a U.S. Holder upon receipt of a new note, | |
(2) the holding period of the new note will include the holding period of the original note exchanged therefor, | |
(3) the adjusted tax basis of the new notes will be the same as the adjusted tax basis of the original notes exchanged at the time of the exchange, and |
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(4) the U.S. Holder will continue to take into account income in respect of the new note in the same manner as before the exchange. |
Payments of Interest on the New Notes |
Sale, Redemption, Retirement or Other Taxable Disposition of the New Notes |
Market Discount |
Amortizable Bond Premium |
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Information Reporting and Backup Withholding |
Exchange Offer |
Payments of Interest |
(1) the interest is not effectively connected with the conduct of a trade or business in the United States; | |
(2) theNon-U.S. Holder (A) does not actually or constructively own 10 percent or more of the combined voting power of all classes of stock of CCO Holdings Capital entitled to vote nor 10 percent or more of the capital or profits interests of Charter Communications Holding Company, LLC and (B) is neither a controlled foreign corporation that is related to us through stock ownership within the meaning of the Code, nor a bank that received the new notes on an extension of credit in the ordinary course of its trade or business; and | |
(3) either (A) the beneficial owner of the new notes certifies to us or our paying agent, under penalties of perjury, that it is not a U.S. Holder and provides its name and address on Internal Revenue Service Form W-8BEN (or a suitable substitute form) or (B) a securities clearing organization, bank or other financial institution that holds the new notes on behalf of suchNon-U.S. Holder in the ordinary course of its trade or business (a “financial institution”) certifies |
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under penalties of perjury that such an Internal Revenue Service Form W-8BEN or W-8IMY (or suitable substitute form) has been received from the beneficial owner by it or by a financial institution between it and the beneficial owner and, in case of a non-qualified intermediary, furnishes the payor with a copy thereof. |
Sale, Redemption, Retirement or Other Taxable Disposition of New Notes |
(1) such gain is effectively connected with the conduct by such holder of a trade or business in the United States, and, where an income tax treaty applies, the gain is attributable to a permanent establishment maintained in the United States or, in the case of an individual, a fixed base in the United States, or | |
(2) in the case of gains derived by an individual, such individual is present in the United States for 183 days or more in the taxable year of the disposition and certain other conditions are met. |
Information Reporting and Backup Withholding |
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Page | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
Unaudited Financial Statements: | ||||
F-48 | ||||
F-49 | ||||
F-50 | ||||
F-51 |
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December 31, | |||||||||||
2004 | 2003 | ||||||||||
(dollars in millions) | |||||||||||
ASSETS | |||||||||||
CURRENT ASSETS: | |||||||||||
Cash and cash equivalents | $ | 546 | $ | 85 | |||||||
Accounts receivable, less allowance for doubtful accounts of $15 and $17, respectively | 175 | 178 | |||||||||
Receivables from related party | — | 60 | |||||||||
Prepaid expenses and other current assets | 20 | 21 | |||||||||
Total current assets | 741 | 344 | |||||||||
INVESTMENT IN CABLE PROPERTIES: | |||||||||||
Property, plant and equipment, net of accumulated depreciation of $5,142 and $3,834, respectively | 6,110 | 6,808 | |||||||||
Franchises | 9,878 | 13,680 | |||||||||
Total investment in cable properties, net | 15,988 | 20,488 | |||||||||
OTHER NONCURRENT ASSETS | 235 | 162 | |||||||||
Total assets | $ | 16,964 | $ | 20,994 | |||||||
LIABILITIES AND MEMBER’S EQUITY | |||||||||||
CURRENT LIABILITIES: | |||||||||||
Accounts payable and accrued expenses | $ | 901 | $ | 996 | |||||||
Payables to related party | 24 | — | |||||||||
Total current liabilities | 925 | 996 | |||||||||
LONG-TERM DEBT | 8,294 | 7,956 | |||||||||
LOANS PAYABLE — RELATED PARTY | 29 | 37 | |||||||||
DEFERRED MANAGEMENT FEES — RELATED PARTY | 14 | 14 | |||||||||
OTHER LONG-TERM LIABILITIES | 493 | 687 | |||||||||
MINORITY INTEREST | 656 | 719 | |||||||||
MEMBER’S EQUITY: | |||||||||||
Member’s equity | 6,568 | 10,642 | |||||||||
Accumulated other comprehensive loss | (15 | ) | (57 | ) | |||||||
Total member’s equity | 6,553 | 10,585 | |||||||||
Total liabilities and member’s equity | $ | 16,964 | $ | 20,994 | |||||||
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Year Ended December 31, | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
(dollars in millions) | ||||||||||||||
REVENUES | $ | 4,977 | $ | 4,819 | $ | 4,566 | ||||||||
COSTS AND EXPENSES: | ||||||||||||||
Operating (excluding depreciation and amortization) | 2,080 | 1,952 | 1,807 | |||||||||||
Selling, general and administrative | 971 | 940 | 963 | |||||||||||
Depreciation and amortization | 1,495 | 1,453 | 1,436 | |||||||||||
Impairment of franchises | 2,433 | — | 4,638 | |||||||||||
(Gain) loss on sale of fixed assets | (86 | ) | 5 | 3 | ||||||||||
Option compensation expense, net | 31 | 4 | 5 | |||||||||||
Special charges, net | 104 | 21 | 36 | |||||||||||
Unfavorable contracts and other settlements | (5 | ) | (72 | ) | — | |||||||||
7,023 | 4,303 | 8,888 | ||||||||||||
Income (loss) from operations | (2,046 | ) | 516 | (4,322 | ) | |||||||||
OTHER INCOME AND EXPENSES: | ||||||||||||||
Interest expense, net | (560 | ) | (500 | ) | (512 | ) | ||||||||
Gain (loss) on derivative instruments and hedging activities, net | 69 | 65 | (115 | ) | ||||||||||
Loss on extinguishment of debt | (21 | ) | — | — | ||||||||||
Other, net | 3 | (9 | ) | 3 | ||||||||||
(509 | ) | (444 | ) | (624 | ) | |||||||||
Income (loss) before minority interest, income taxes and cumulative effect of accounting change | (2,555 | ) | 72 | (4,946 | ) | |||||||||
MINORITY INTEREST | 20 | (29 | ) | (16 | ) | |||||||||
Income (loss) before income taxes and cumulative effect of accounting change | (2,535 | ) | 43 | (4,962 | ) | |||||||||
INCOME TAX BENEFIT (EXPENSE) | 35 | (13 | ) | 216 | ||||||||||
Income (loss) before cumulative effect of accounting change | (2,500 | ) | 30 | (4,746 | ) | |||||||||
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX | (840 | ) | — | (540 | ) | |||||||||
Net income (loss) | $ | (3,340 | ) | $ | 30 | $ | (5,286 | ) | ||||||
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Accumulated | |||||||||||||
Other | Total | ||||||||||||
Member’s | Comprehensive | Member’s | |||||||||||
Equity | Income (Loss) | Equity | |||||||||||
(dollars in millions) | |||||||||||||
BALANCE, December 31, 2001 | $ | 15,980 | $ | (40 | ) | $ | 15,940 | ||||||
Capital contribution | 859 | — | 859 | ||||||||||
Distributions to parent company | (413 | ) | — | (413 | ) | ||||||||
Changes in fair value of interest rate agreements | — | (65 | ) | (65 | ) | ||||||||
Other, net | 5 | — | 5 | ||||||||||
Net loss | (5,286 | ) | — | (5,286 | ) | ||||||||
BALANCE, December 31, 2002 | 11,145 | (105 | ) | 11,040 | |||||||||
Capital contribution | 10 | — | 10 | ||||||||||
Distributions to parent company | (545 | ) | — | (545 | ) | ||||||||
Changes in fair value of interest rate agreements | — | 48 | 48 | ||||||||||
Other, net | 2 | — | 2 | ||||||||||
Net income | 30 | — | 30 | ||||||||||
BALANCE, December 31, 2003 | 10,642 | (57 | ) | 10,585 | |||||||||
Distributions to parent company | (738 | ) | — | (738 | ) | ||||||||
Changes in fair value of interest rate agreements | — | 42 | 42 | ||||||||||
Other, net | 4 | — | 4 | ||||||||||
Net loss | (3,340 | ) | — | (3,340 | ) | ||||||||
BALANCE, December 31, 2004 | $ | 6,568 | $ | (15 | ) | $ | 6,553 | ||||||
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Year Ended December 31, | |||||||||||||||
2004 | 2003 | 2002 | |||||||||||||
(dollars in millions) | |||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||||||
Net income (loss) | $ | (3,340 | ) | $ | 30 | $ | (5,286 | ) | |||||||
Adjustments to reconcile net income (loss) to net cash flows from operating activities: | |||||||||||||||
Minority interest | (20 | ) | 29 | 16 | |||||||||||
Depreciation and amortization | 1,495 | 1,453 | 1,436 | ||||||||||||
Impairment of franchises | 2,433 | — | 4,638 | ||||||||||||
Option compensation expense, net | 27 | 4 | 5 | ||||||||||||
Special charges, net | 85 | — | — | ||||||||||||
Noncash interest expense | 25 | 38 | 38 | ||||||||||||
(Gain) loss on derivative instruments and hedging activities, net | (69 | ) | (65 | ) | 115 | ||||||||||
(Gain) loss on sale of fixed assets | (86 | ) | 5 | 3 | |||||||||||
Loss on extinguishment of debt | 18 | — | — | ||||||||||||
Deferred income taxes | (42 | ) | 13 | (216 | ) | ||||||||||
Cumulative effect of accounting change, net | 840 | — | 540 | ||||||||||||
Unfavorable contracts and other settlements | (5 | ) | (72 | ) | — | ||||||||||
Other, net | (5 | ) | — | — | |||||||||||
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions: | |||||||||||||||
Accounts receivable | (4 | ) | 69 | 21 | |||||||||||
Prepaid expenses and other assets | (4 | ) | 10 | 18 | |||||||||||
Accounts payable, accrued expenses and other | (106 | ) | (148 | ) | 39 | ||||||||||
Receivables from and payables to related party, including deferred management fees | (75 | ) | (50 | ) | (42 | ) | |||||||||
Net cash flows from operating activities | 1,167 | 1,316 | 1,325 | ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||||||
Purchases of property, plant and equipment | (893 | ) | (804 | ) | (2,095 | ) | |||||||||
Change in accrued expenses related to capital expenditures | (33 | ) | (41 | ) | (49 | ) | |||||||||
Proceeds from sale of systems | 744 | 91 | — | ||||||||||||
Payments for acquisitions, net of cash acquired | — | — | (139 | ) | |||||||||||
Purchases of investments | (6 | ) | — | (3 | ) | ||||||||||
Other, net | (3 | ) | (3 | ) | 1 | ||||||||||
Net cash flows from investing activities | (191 | ) | (757 | ) | (2,285 | ) | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||||||
Borrowings of long-term debt | 3,147 | 739 | 3,213 | ||||||||||||
Repayments of long-term debt | (4,861 | ) | (1,368 | ) | (2,135 | ) | |||||||||
Repayments to parent companies | (8 | ) | (96 | ) | (233 | ) | |||||||||
Proceeds from issuance of long-term debt | 2,050 | 500 | — | ||||||||||||
Payments for debt issuance costs | (105 | ) | (24 | ) | (21 | ) | |||||||||
Capital contributions | — | 10 | 859 | ||||||||||||
Distributions | (738 | ) | (545 | ) | (413 | ) | |||||||||
Net cash flows from financing activities | (515 | ) | (784 | ) | 1,270 | ||||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 461 | (225 | ) | 310 | |||||||||||
CASH AND CASH EQUIVALENTS, beginning of period | 85 | 310 | — | ||||||||||||
CASH AND CASH EQUIVALENTS, end of period | $ | 546 | $ | 85 | $ | 310 | |||||||||
CASH PAID FOR INTEREST | $ | 532 | $ | 459 | $ | 485 | |||||||||
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1. | Organization and Basis of Presentation |
Reclassifications |
2. | Liquidity and Capital Resources |
F-7
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Credit Facilities and Covenants |
F-8
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Parent Company Debt Obligations |
F-9
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Specific Limitations at Charter Holdings |
Sale of Assets |
3. | Summary of Significant Accounting Policies |
Cash Equivalents |
Property, Plant and Equipment |
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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 and fixtures | 5 years |
Franchises |
Other Noncurrent Assets |
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Carrying | Gain (loss) For the | |||||||||||||||||||
Value at | Years Ended | |||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||
2004 | 2003 | 2004 | 2003 | 2002 | ||||||||||||||||
Equity investments, under the cost method | $ | 8 | $ | 11 | $ | (3 | ) | $ | (2 | ) | $ | — | ||||||||
Equity investments, under the equity method | 24 | 10 | 6 | 2 | (2 | ) | ||||||||||||||
Marketable securities, at market value | — | — | — | — | 2 | |||||||||||||||
$ | 32 | $ | 21 | $ | 3 | $ | — | $ | — | |||||||||||
Valuation of Property, Plant and Equipment |
Derivative Financial Instruments |
Revenue Recognition |
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Programming Costs |
Advertising Costs |
Stock-Based Compensation |
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Year Ended December 31, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
Net income (loss) | $ | (3,340 | ) | $ | 30 | $ | (5,286 | ) | |||||
Add back stock-based compensation expense related to stock options included in reported net loss | 31 | 4 | 5 | ||||||||||
Less employee stock-based compensation expense determined under fair value based method for all employee stock option awards | (33 | ) | (30 | ) | (105 | ) | |||||||
Effects of unvested options in stock option exchange (see Note 16) | 48 | — | — | ||||||||||
Pro forma | $ | (3,294 | ) | $ | 4 | $ | (5,386 | ) | |||||
Unfavorable Contracts and Other Settlements |
Income Taxes |
Minority Interest |
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Segments |
4. | Acquisitions |
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5. | Allowance for Doubtful Accounts |
Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Balance, beginning of year | $ | 17 | $ | 19 | $ | 33 | ||||||
Charged to expense | 92 | 79 | 108 | |||||||||
Uncollected balances written off, net of recoveries | (94 | ) | (81 | ) | (122 | ) | ||||||
Balance, end of year | $ | 15 | $ | 17 | $ | 19 | ||||||
6. | Property, Plant and Equipment |
2004 | 2003 | |||||||
Cable distribution systems | $ | 6,555 | $ | 6,304 | ||||
Customer equipment and installations | 3,497 | 3,157 | ||||||
Vehicles and equipment | 419 | 415 | ||||||
Buildings and leasehold improvements | 518 | 524 | ||||||
Furniture and fixtures | 263 | 242 | ||||||
11,252 | 10,642 | |||||||
Less: accumulated depreciation | (5,142 | ) | (3,834 | ) | ||||
$ | 6,110 | $ | 6,808 | |||||
7. | Franchises and Goodwill |
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December 31, | |||||||||||||||||||||||||
2004 | 2003 | ||||||||||||||||||||||||
Gross | Net | Gross | Net | ||||||||||||||||||||||
Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | ||||||||||||||||||||
Amount | Amortization | Amount | Amount | Amortization | Amount | ||||||||||||||||||||
Indefinite-lived intangible assets: | |||||||||||||||||||||||||
Franchises with indefinite lives | $ | 9,845 | $ | — | $ | 9,845 | $ | 13,606 | $ | — | $ | 13,606 | |||||||||||||
Goodwill | 52 | — | 52 | 52 | — | 52 | |||||||||||||||||||
$ | 9,897 | $ | — | $ | 9,897 | $ | 13,658 | $ | — | $ | 13,658 | ||||||||||||||
Finite-lived intangible assets: | |||||||||||||||||||||||||
Franchises with finite lives | $ | 37 | $ | 4 | $ | 33 | $ | 107 | $ | 33 | $ | 74 | |||||||||||||
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8. | Accounts Payable and Accrued Expenses |
2004 | 2003 | ||||||||
Accounts payable — trade | $ | 138 | $ | 144 | |||||
Accrued capital expenditures | 60 | 93 | |||||||
Accrued expenses: | |||||||||
Interest | 101 | 97 | |||||||
Programming costs | 278 | 319 | |||||||
Franchise related fees | 67 | 70 | |||||||
State sales tax | 47 | 61 | |||||||
Other | 210 | 212 | |||||||
$ | 901 | $ | 996 | ||||||
9. | Long-Term Debt |
2004 | 2003 | ||||||||||||||||
Face | Accreted | Face | Accreted | ||||||||||||||
Value | Value | Value | Value | ||||||||||||||
Long-Term Debt | |||||||||||||||||
CCO Holdings, LLC: | |||||||||||||||||
83/4% senior notes due 2013 | $ | 500 | $ | 500 | $ | 500 | $ | 500 | |||||||||
Senior floating rate notes due 2010 | 550 | 550 | — | — | |||||||||||||
Charter Operating: | |||||||||||||||||
8% senior second-lien notes due 2012 | 1,100 | 1,100 | — | — | |||||||||||||
83/8% senior second-lien notes due 2014 | 400 | 400 | — | — | |||||||||||||
Renaissance Media Group LLC: | |||||||||||||||||
10.000% senior discount notes due 2008 | 114 | 116 | 114 | 116 | |||||||||||||
CC V Holdings, LLC: | |||||||||||||||||
11.875% senior discount notes due 2008 | 113 | 113 | 113 | 113 | |||||||||||||
Credit Facilities | |||||||||||||||||
Charter Operating | 5,515 | 5,515 | 4,459 | 4,459 | |||||||||||||
CC VI Operating | — | — | 868 | 868 | |||||||||||||
Falcon Cable | — | — | 856 | 856 | |||||||||||||
CC VIII Operating | — | — | 1,044 | 1,044 | |||||||||||||
$ | 8,292 | $ | 8,294 | $ | 7,954 | $ | 7,956 | ||||||||||
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83/4% Senior Notes due 2013 |
Senior Floating Rate Notes Due 2010 |
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• | a senior obligation of such guarantor; | |
• | structurally senior to the outstanding senior notes of CCO Holdings and CCO Holdings Capital Corp. (except in the case of CCO Holdings’ note guarantee, which ranks equally with such senior notes), the outstanding senior notes of CCH II and CCH II Capital Corp., the outstanding senior notes and senior discount notes of Charter Holdings, the outstanding convertible senior notes of Charter and any future indebtedness of parent companies of CCO Holdings (but subject to provisions in the Charter Operating indenture that permit interest and, subject to meeting the 4.25 to 1.0 leverage ratio test, principal payments to be made thereon); and | |
• | senior in right of payment to any future subordinated indebtedness of such guarantor. |
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• | incur additional debt; | |
• | pay dividends on equity or repurchase equity; | |
• | make investments; | |
• | sell all or substantially all of their assets or merge with or into other companies; | |
• | sell assets; | |
• | 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 | |
• | grant liens. |
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• | 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 with an unqualified opinion from the Company’s independent auditors, | |
• | 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 $50 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, |
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• | 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, | |
• | certain of Charter Operating’s indirect or direct parent companies having indebtedness in excess of $500 million aggregate principal amount which remains undefeased three months prior to the final maturity of such indebtedness, and | |
• | Charter Operating ceasing to be a wholly-owned direct subsidiary of CCO Holdings, except in certain very limited circumstances. |
Year | Amount | |||
2005 | $ | 30 | ||
2006 | 30 | |||
2007 | 280 | |||
2008 | 857 | |||
2009 | 780 | |||
Thereafter | 6,315 | |||
$ | 8,292 | |||
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10. | Comprehensive Income (Loss) |
11. | Accounting for Derivative Instruments and Hedging Activities |
F-26
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12. | Fair Value of Financial Instruments |
2004 | 2003 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Value | Value | Value | Value | |||||||||||||
Debt | ||||||||||||||||
CCO Holdings debt | $ | 1,050 | $ | 1,064 | $ | 500 | $ | 510 | ||||||||
Charter Operating debt | 1,500 | 1,563 | — | — | ||||||||||||
Credit facilities | 5,515 | 5,502 | 7,227 | 6,949 | ||||||||||||
Other | 229 | 236 | 229 | 238 | ||||||||||||
Interest Rate Agreements | ||||||||||||||||
Liabilities | ||||||||||||||||
Swaps | 69 | 69 | 171 | 171 | ||||||||||||
Collars | 1 | 1 | 8 | 8 |
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13. | Revenues |
Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Video | $ | 3,373 | $ | 3,461 | $ | 3,420 | ||||||
High-speed data | 741 | 556 | 337 | |||||||||
Advertising sales | 289 | 263 | 302 | |||||||||
Commercial | 238 | 204 | 161 | |||||||||
Other | 336 | 335 | 346 | |||||||||
$ | 4,977 | $ | 4,819 | $ | 4,566 | |||||||
14. | Operating Expenses |
Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Programming | $ | 1,319 | $ | 1,249 | $ | 1,166 | ||||||
Advertising sales | 98 | 88 | 87 | |||||||||
Service | 663 | 615 | 554 | |||||||||
$ | 2,080 | $ | 1,952 | $ | 1,807 | |||||||
15. | Selling, General and Administrative Expenses |
Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
General and administrative | $ | 849 | $ | 833 | $ | 810 | ||||||
Marketing | 122 | 107 | 153 | |||||||||
$ | 971 | $ | 940 | $ | 963 | |||||||
16. | Stock Compensation Plans |
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Table of Contents
2004 | 2003 | 2002 | ||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||
Exercise | Exercise | Exercise | ||||||||||||||||||||||
Shares | Price | Shares | Price | Shares | Price | |||||||||||||||||||
Options outstanding, beginning of period | 47,882 | $ | 12.48 | 53,632 | $ | 14.22 | 46,558 | $ | 17.10 | |||||||||||||||
Granted | 9,405 | 4.88 | 7,983 | 3.53 | 13,122 | 4.88 | ||||||||||||||||||
Exercised | (839 | ) | 2.02 | (165 | ) | 3.96 | — | — | ||||||||||||||||
Cancelled | (31,613 | ) | 15.16 | (13,568 | ) | 14.10 | (6,048 | ) | 16.32 | |||||||||||||||
Options outstanding, end of period | 24,835 | $ | 6.57 | 47,882 | $ | 12.48 | 53,632 | $ | 14.22 | |||||||||||||||
Weighted average remaining contractual life | 8 years | 8 years | 8 years | |||||||||||||||||||||
Options exercisable, end of period | 7,731 | $ | 10.77 | 22,861 | $ | 16.36 | 17,844 | $ | 17.93 | |||||||||||||||
Weighted average fair value of options granted | $ | 3.71 | $ | 2.71 | $ | 2.89 | ||||||||||||||||||
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Table of Contents
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 | ||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
$ 1.11-$ 1.60 | 3,144 | 8 years | $ | 1.52 | 782 | 8 years | $ | 1.45 | ||||||||||||||||
$ 2.85-$ 4.56 | 7,408 | 8 years | 3.45 | 2,080 | 8 years | 3.28 | ||||||||||||||||||
$ 5.06-$ 5.17 | 8,857 | 9 years | 5.14 | 533 | 9 years | 5.06 | ||||||||||||||||||
$ 9.13-$13.68 | 2,264 | 7 years | 11.08 | 1,481 | 7 years | 11.28 | ||||||||||||||||||
$13.96-$23.09 | 3,162 | 5 years | 19.63 | 2,855 | 5 years | 19.59 |
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Table of Contents
17. | Special Charges |
Total | |||||||||||||||||
Severance/ | Special | ||||||||||||||||
Leases | Litigation | Other | Charge | ||||||||||||||
Special Charges | $ | 31 | $ | — | $ | 5 | $ | 36 | |||||||||
Balance at December 31, 2002 | 31 | ||||||||||||||||
Special Charges | 26 | $ | — | $ | (5 | ) | $ | 21 | |||||||||
Payments | (43 | ) | |||||||||||||||
Balance at December 31, 2003 | 14 | ||||||||||||||||
Special Charges | 12 | $ | 92 | $ | — | $ | 104 | ||||||||||
Payments | (20 | ) | |||||||||||||||
Balance at December 31, 2004 | $ | 6 | |||||||||||||||
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Table of Contents
18. | Income Taxes |
December 31, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
Current expense: | |||||||||||||
Federal income taxes | $ | 2 | $ | 1 | $ | — | |||||||
State income taxes | 4 | 1 | 2 | ||||||||||
Current income tax expense | 6 | 2 | 2 | ||||||||||
Deferred benefit: | |||||||||||||
Federal income taxes | (50 | ) | 10 | (219 | ) | ||||||||
State income taxes | (7 | ) | 1 | (31 | ) | ||||||||
Deferred income tax (benefit) expense: | (57 | ) | 11 | (250 | ) | ||||||||
Total income (benefit) expense | $ | (51 | ) | $ | 13 | $ | (248 | ) | |||||
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December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
Statutory federal income taxes | $ | (887 | ) | $ | 15 | $ | (1,737 | ) | ||||
State income taxes, net of federal benefit | (127 | ) | 2 | (248 | ) | |||||||
Losses allocated to limited liability companies not subject to income taxes | 943 | (30 | ) | 1,740 | ||||||||
Valuation allowance provided | 20 | 26 | (3 | ) | ||||||||
Income tax (benefit) expense | (51 | ) | 13 | (248 | ) | |||||||
Less: cumulative effect of accounting change | 16 | — | 32 | |||||||||
Income tax (benefit) expense | $ | (35 | ) | $ | 13 | $ | (216 | ) | ||||
December 31, | |||||||||
2004 | 2003 | ||||||||
Deferred tax assets: | |||||||||
Net operating loss carryforward | $ | 95 | $ | 80 | |||||
Other | 8 | 6 | |||||||
Total gross deferred tax assets | 103 | 86 | |||||||
Less: valuation allowance | (71 | ) | (51 | ) | |||||
Net deferred tax assets | $ | 32 | $ | 35 | |||||
Deferred tax liabilities: | |||||||||
Property, plant & equipment | $ | (39 | ) | $ | (42 | ) | |||
Franchises | (201 | ) | (260 | ) | |||||
Gross deferred tax liabilities | (240 | ) | (302 | ) | |||||
Net deferred tax liabilities | $ | (208 | ) | $ | (267 | ) | |||
F-33
Table of Contents
19. | Related Party Transactions |
F-34
Table of Contents
F-35
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F-36
Table of Contents
F-37
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F-38
Table of Contents
F-39
Table of Contents
20. | Commitments and Contingencies |
Commitments |
Total | 2005 | 2006 | 2007 | 2008 | 2009 | Thereafter | |||||||||||||||||||||||
Contractual Obligations | |||||||||||||||||||||||||||||
Operating and Capital Lease Obligations(1) | $ | 88 | $ | 23 | $ | 17 | $ | 13 | $ | 10 | $ | 7 | $ | 18 | |||||||||||||||
Programming Minimum Commitments(2) | 1,579 | 318 | 344 | 375 | 308 | 234 | — | ||||||||||||||||||||||
Other(3) | 272 | 62 | 50 | 47 | 25 | 21 | 67 | ||||||||||||||||||||||
Total | $ | 1,939 | $ | 403 | $ | 411 | $ | 435 | $ | 343 | $ | 262 | $ | 85 | |||||||||||||||
(1) | The Company leases certain facilities and equipment under noncancellable operating leases. Leases and rental costs charged to expense for the years ended December 31, 2004, 2003 and 2002, were $23 million, $30 million and $31 million, respectively. |
(2) | The Company pays programming fees under multi-year contracts ranging from three to six 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 $1.3 billion, $1.2 billion and $1.2 billion for the years ended December 31, 2004, 2003 and 2002, respectively. Certain of the 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 Company’s programming contracts. |
(3) | “Other” represents other guaranteed minimum commitments, which consist primarily of commitments to the Company’s billing services vendors. |
• | The Company also rents utility poles used in its operations. Generally, pole rentals are cancelable on short notice, but the Company anticipates that such rentals will recur. Rent expense incurred for pole rental attachments for the years ended December 31, 2004, 2003 and 2002, was $43 million, $40 million and $41 million, respectively. | |
• | The Company pays franchise fees under multi-year franchise agreements based on a percentage of revenues earned from video service per year. The Company also pays other franchise related costs, |
F-40
Table of Contents
such as public education grants under multi-year agreements. Franchise fees and other franchise-related costs included in the accompanying statement of operations were $164 million, $162 million and $160��million for the years ended December 31, 2004, 2003 and 2002, respectively. | ||
• | The Company also has $166 million in letters of credit, primarily to its various worker’s compensation, property casualty and general liability carriers as collateral for reimbursement of claims. These letters of credit reduce the amount the Company may borrow under its credit facilities. |
Litigation |
F-41
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F-42
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F-43
Table of Contents
Regulation in the Cable Industry |
F-44
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21. | Employee Benefit Plan |
22. | Recently Issued Accounting Standards |
23. | Parent Company Only Financial Statements |
F-45
Table of Contents
December 31, | ||||||||
2004 | 2003 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 541 | $ | — | ||||
Receivables from related party | 16 | 5 | ||||||
Loans receivables from related party | 361 | 361 | ||||||
Other assets | 22 | 9 | ||||||
Investment in subsidiaries | 6,673 | 10,722 | ||||||
$ | 7,613 | $ | 11,097 | |||||
LIABILITIES AND MEMBER’S EQUITY | ||||||||
Current liabilities | $ | 10 | $ | 8 | ||||
Long-term debt | 1,050 | 500 | ||||||
Other long-term liabilities | — | 4 | ||||||
Member’s equity | 6,553 | 10,585 | ||||||
Total liabilities and member’s equity | $ | 7,613 | $ | 11,097 | ||||
Year Ended December 31, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
Interest expense, net | $ | (31 | ) | $ | (5 | ) | $ | — | |||||
Equity in income (losses) of subsidiaries | (3,309 | ) | 40 | (5,286 | ) | ||||||||
Other expense | — | (5 | ) | — | |||||||||
Net loss | $ | (3,340 | ) | $ | 30 | $ | (5,286 | ) | |||||
F-46
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Year Ended December 31, | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||
Net income (loss) | $ | (3,340 | ) | $ | 30 | $ | (5,286 | ) | ||||||
Equity in income (losses) of subsidiaries | 3,309 | (40 | ) | 5,286 | ||||||||||
Noncash interest expense | 7 | — | — | |||||||||||
Changes in operating assets and liabilities | (17 | ) | 5 | — | ||||||||||
Net cash flows from operating activities | (41 | ) | (5 | ) | — | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||
Investment in subsidiaries | — | (135 | ) | (859 | ) | |||||||||
Distributions from subsidiaries | 784 | 545 | 413 | |||||||||||
Net cash flows from investing activities | 784 | 410 | (446 | ) | ||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||
Proceeds from issuance of debt | 550 | 500 | — | |||||||||||
Capital contributions | — | 10 | 859 | |||||||||||
Distributions to parent companies | (738 | ) | (545 | ) | (413 | ) | ||||||||
Loans to related party | — | (361 | ) | — | ||||||||||
Payments for debt issuance costs | (14 | ) | (9 | ) | — | |||||||||
Net cash flows from financing activities | (202 | ) | (405 | ) | 446 | |||||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 541 | — | — | |||||||||||
CASH AND CASH EQUIVALENTS, beginning of year | — | — | — | |||||||||||
CASH AND CASH EQUIVALENTS, end of year | $ | 541 | $ | — | $ | — | ||||||||
F-47
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September 30, | December 31, | |||||||||
2005 | 2004 | |||||||||
(unaudited) | ||||||||||
ASSETS | ||||||||||
CURRENT ASSETS: | ||||||||||
Cash and cash equivalents | $ | 9 | $ | 546 | ||||||
Accounts receivable, less allowance for doubtful accounts of $15 and $15, respectively | 185 | 175 | ||||||||
Prepaid expenses and other current assets | 23 | 20 | ||||||||
Total current assets | 217 | 741 | ||||||||
INVESTMENT IN CABLE PROPERTIES: | ||||||||||
Property, plant and equipment, net of accumulated depreciation of $6,357 and $5,142, respectively | 5,895 | 6,110 | ||||||||
Franchises, net | 9,830 | 9,878 | ||||||||
Total investment in cable properties, net | 15,725 | 15,988 | ||||||||
OTHER NONCURRENT ASSETS | 227 | 235 | ||||||||
Total assets | $ | 16,169 | $ | 16,964 | ||||||
LIABILITIES AND MEMBER’S EQUITY | ||||||||||
CURRENT LIABILITIES: | ||||||||||
Accounts payable and accrued expenses | $ | 933 | $ | 901 | ||||||
Payables to related party | 107 | 24 | ||||||||
Total current liabilities | 1,040 | 925 | ||||||||
LONG-TERM DEBT | 8,805 | 8,294 | ||||||||
LOANS PAYABLE — RELATED PARTY | 57 | 29 | ||||||||
DEFERRED MANAGEMENT FEES — RELATED PARTY | 14 | 14 | ||||||||
OTHER LONG-TERM LIABILITIES | 434 | 493 | ||||||||
MINORITY INTEREST | 665 | 656 | ||||||||
MEMBER’S EQUITY: | ||||||||||
Member’s equity | 5,154 | 6,568 | ||||||||
Accumulated other comprehensive loss | — | (15 | ) | |||||||
Total member’s equity | 5,154 | 6,553 | ||||||||
Total liabilities and member’s equity | $ | 16,169 | $ | 16,964 | ||||||
F-48
Table of Contents
Three Months Ended | Nine Months Ended | |||||||||||||||||
September 30, | September 30, | |||||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||||
REVENUES | $ | 1,318 | $ | 1,248 | $ | 3,912 | $ | 3,701 | ||||||||||
COSTS AND EXPENSES: | ||||||||||||||||||
Operating (excluding depreciation and amortization) | 586 | 525 | 1,714 | 1,552 | ||||||||||||||
Selling, general and administrative | 269 | 252 | 762 | 735 | ||||||||||||||
Depreciation and amortization | 375 | 371 | 1,134 | 1,105 | ||||||||||||||
Impairment of franchises | — | 2,433 | — | 2,433 | ||||||||||||||
Asset impairment charges | — | — | 39 | — | ||||||||||||||
(Gain) loss on sale of assets, net | 1 | — | 5 | (104 | ) | |||||||||||||
Option compensation expense, net | 3 | 8 | 11 | 34 | ||||||||||||||
Hurricane asset retirement loss | 19 | — | 19 | — | ||||||||||||||
Special charges, net | 2 | 3 | 4 | 100 | ||||||||||||||
1,255 | 3,592 | 3,688 | 5,855 | |||||||||||||||
Income (loss) from operations | 63 | (2,344 | ) | 224 | (2,154 | ) | ||||||||||||
OTHER INCOME AND EXPENSES: | ||||||||||||||||||
Interest expense, net | (178 | ) | (148 | ) | (502 | ) | (406 | ) | ||||||||||
Gain (loss) on derivative instruments and hedging activities, net | 17 | (8 | ) | 43 | 48 | |||||||||||||
Loss on extinguishment of debt | — | — | (6 | ) | (21 | ) | ||||||||||||
Gain on investments | — | — | 21 | — | ||||||||||||||
(161 | ) | (156 | ) | (444 | ) | (379 | ) | |||||||||||
Loss before minority interest, income taxes and cumulative effect of accounting change | (98 | ) | (2,500 | ) | (220 | ) | (2,533 | ) | ||||||||||
MINORITY INTEREST | (3 | ) | 34 | (9 | ) | 25 | ||||||||||||
Loss before income taxes and cumulative effect of accounting change | (101 | ) | (2,466 | ) | (229 | ) | (2,508 | ) | ||||||||||
INCOME TAX BENEFIT (EXPENSE) | (2 | ) | 45 | (10 | ) | 41 | ||||||||||||
Loss before cumulative effect of accounting change | (103 | ) | (2,421 | ) | (239 | ) | (2,467 | ) | ||||||||||
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX | — | (840 | ) | — | (840 | ) | ||||||||||||
Net loss | $ | (103 | ) | $ | (3,261 | ) | $ | (239 | ) | $ | (3,307 | ) | ||||||
F-49
Table of Contents
Nine Months Ended | |||||||||||
September 30, | |||||||||||
2005 | 2004 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
Net loss | $ | (239 | ) | $ | (3,307 | ) | |||||
Adjustments to reconcile net loss to net cash flows from operating activities: | |||||||||||
Minority interest | 9 | (25 | ) | ||||||||
Depreciation and amortization | 1,134 | 1,105 | |||||||||
Asset impairment charges | 39 | — | |||||||||
Impairment of franchises | — | 2,433 | |||||||||
Option compensation expense, net | 11 | 25 | |||||||||
Hurricane asset retirement loss | 19 | — | |||||||||
Special charges, net | — | 85 | |||||||||
Noncash interest expense | 21 | 15 | |||||||||
Gain on derivative instruments and hedging activities, net | (43 | ) | (48 | ) | |||||||
(Gain) loss on sale of assets, net | 5 | (104 | ) | ||||||||
Loss on extinguishment of debt | — | 18 | |||||||||
Gain on investments | (21 | ) | — | ||||||||
Deferred income taxes | 6 | (44 | ) | ||||||||
Cumulative effect of accounting change, net of tax | — | 840 | |||||||||
Other, net | — | (1 | ) | ||||||||
Changes in operating assets and liabilities, net of effects from dispositions: | |||||||||||
Accounts receivable | (15 | ) | (1 | ) | |||||||
Prepaid expenses and other assets | (7 | ) | (1 | ) | |||||||
Accounts payable, accrued expenses and other | (28 | ) | (113 | ) | |||||||
Receivables from and payables to related party, including deferred management fees | (68 | ) | (68 | ) | |||||||
Net cash flows from operating activities | 823 | 809 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
Purchases of property, plant and equipment | (815 | ) | (616 | ) | |||||||
Change in accrued expenses related to capital expenditures | 39 | (11 | ) | ||||||||
Proceeds from sale of assets | 38 | 727 | |||||||||
Purchases of investments | (1 | ) | (4 | ) | |||||||
Proceeds from investments | 16 | — | |||||||||
Other, net | (2 | ) | (2 | ) | |||||||
Net cash flows from investing activities | (725 | ) | 94 | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
Borrowings of long-term debt | 897 | 2,873 | |||||||||
Borrowings from related parties | 140 | — | |||||||||
Repayments of long-term debt | (1,014 | ) | (4,707 | ) | |||||||
Repayments to related parties | (112 | ) | — | ||||||||
Proceeds from issuance of debt | 294 | 1,500 | |||||||||
Payments for debt issuance costs | (8 | ) | (97 | ) | |||||||
Distributions | (832 | ) | (466 | ) | |||||||
Net cash flows from financing activities | (635 | ) | (897 | ) | |||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (537 | ) | 6 | ||||||||
CASH AND CASH EQUIVALENTS, beginning of period | 546 | 85 | |||||||||
CASH AND CASH EQUIVALENTS, end of period | $ | 9 | $ | 91 | |||||||
CASH PAID FOR INTEREST | $ | 415 | $ | 339 | |||||||
NONCASH TRANSACTIONS: | |||||||||||
Issuance of debt by Charter Communications Operating, LLC | $ | 333 | $ | — | |||||||
Distribution of Charter Communications Holdings, LLC notes and accrued interest | $ | (343 | ) | $ | — | ||||||
Transfer of property, plant and equipment from parent company | $ | 139 | $ | — | |||||||
F-50
Table of Contents
1. | Organization and Basis of Presentation |
Reclassifications |
2. | Liquidity and Capital Resources |
F-51
Table of Contents
Credit Facilities and Covenants |
F-52
Table of Contents
Parent Company Debt Obligations |
F-53
Table of Contents
Specific Limitations at Charter Holdings |
3. | Sale of Assets |
F-54
Table of Contents
4. | Franchises and Goodwill |
F-55
Table of Contents
September 30, 2005 | December 31, 2004 | ||||||||||||||||||||||||
Gross | Net | Gross | Net | ||||||||||||||||||||||
Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | ||||||||||||||||||||
Amount | Amortization | Amount | Amount | Amortization | Amount | ||||||||||||||||||||
Indefinite-lived intangible assets: | |||||||||||||||||||||||||
Franchises with indefinite lives | $ | 9,797 | $ | — | $ | 9,797 | $ | 9,845 | $ | — | $ | 9,845 | |||||||||||||
Goodwill | 52 | — | 52 | 52 | — | 52 | |||||||||||||||||||
$ | 9,849 | $ | — | $ | 9,849 | $ | 9,897 | $ | — | $ | 9,897 | ||||||||||||||
Finite-lived intangible assets: | |||||||||||||||||||||||||
Franchises with finite lives | $ | 40 | $ | 7 | $ | 33 | $ | 37 | $ | 4 | $ | 33 | |||||||||||||
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5. | Accounts Payable and Accrued Expenses |
September 30, | December 31, | ||||||||
2005 | 2004 | ||||||||
Accounts payable — trade | $ | 62 | $ | 138 | |||||
Accrued capital expenditures | 99 | 60 | |||||||
Accrued expenses: | |||||||||
Interest | 172 | 101 | |||||||
Programming costs | 287 | 278 | |||||||
Franchise-related fees | 56 | 67 | |||||||
Compensation | 57 | 47 | |||||||
Other | 200 | 210 | |||||||
$ | 933 | $ | 901 | ||||||
6. | Long-Term Debt |
September 30, 2005 | December 31, 2004 | |||||||||||||||||
Principal | Accreted | Principal | Accreted | |||||||||||||||
Amount | Value | Amount | Value | |||||||||||||||
Long-Term Debt | ||||||||||||||||||
CCO Holdings, LLC: | ||||||||||||||||||
83/4% senior notes due 2013 | $ | 800 | $ | 794 | $ | 500 | $ | 500 | ||||||||||
Senior floating rate notes due 2010 | 550 | 550 | 550 | 550 | ||||||||||||||
Charter Communications Operating, LLC: | ||||||||||||||||||
8% senior second lien notes due 2012 | 1,100 | 1,100 | 1,100 | 1,100 | ||||||||||||||
83/8% senior second lien notes due 2014 | 733 | 733 | 400 | 400 | ||||||||||||||
Renaissance Media Group LLC: | ||||||||||||||||||
10.000% senior discount notes due 2008 | 114 | 115 | 114 | 116 | ||||||||||||||
CC V Holdings, LLC: | ||||||||||||||||||
11.875% senior discount notes due 2008 | — | — | 113 | 113 | ||||||||||||||
Credit Facilities | ||||||||||||||||||
Charter Operating | 5,513 | 5,513 | 5,515 | 5,515 | ||||||||||||||
$ | 8,810 | $ | 8,805 | $ | 8,292 | $ | 8,294 | |||||||||||
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Table of Contents
Loss on extinguishment of debt |
7. | Minority Interest |
F-58
Table of Contents
8. | Comprehensive Loss |
9. | Accounting for Derivative Instruments and Hedging Activities |
F-59
Table of Contents
10. | Revenues |
Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Video | $ | 848 | $ | 839 | $ | 2,551 | $ | 2,534 | ||||||||
High-speed Internet | 230 | 189 | 671 | 538 | ||||||||||||
Advertising sales | 74 | 73 | 214 | 205 | ||||||||||||
Commercial | 71 | 61 | 205 | 175 | ||||||||||||
Other | 95 | 86 | 271 | 249 | ||||||||||||
$ | 1,318 | $ | 1,248 | $ | 3,912 | $ | 3,701 | |||||||||
11. | Operating Expenses |
Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Programming | $ | 357 | $ | 328 | $ | 1,066 | $ | 991 | ||||||||
Service | 203 | 173 | 572 | 489 | ||||||||||||
Advertising sales | 26 | 24 | 76 | 72 | ||||||||||||
$ | 586 | $ | 525 | $ | 1,714 | $ | 1,552 | |||||||||
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Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
General and administrative | $ | 231 | $ | 220 | $ | 658 | $ | 636 | ||||||||
Marketing | 38 | 32 | 104 | 99 | ||||||||||||
$ | 269 | $ | 252 | $ | 762 | $ | 735 | |||||||||
13. | Hurricane Asset Retirement Loss |
14. | Special Charges |
Three Months | Nine Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Beginning Balance | $ | 4 | $ | 6 | $ | 6 | $ | 14 | ||||||||
Special Charges | 1 | 6 | 5 | 9 | ||||||||||||
Payments | (1 | ) | (3 | ) | (7 | ) | (14 | ) | ||||||||
Balance at September 30, | $ | 4 | $ | 9 | $ | 4 | $ | 9 | ||||||||
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15. | Income Taxes |
16. | Contingencies |
Securities Class Actions and Derivative Suits |
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Government Investigations |
Indemnification |
Other Litigation |
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17. | Stock Compensation Plans |
Three Months | |||||||||||||||||
Ended | Nine Months Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2005 | 2004 | 2005 | 2004 | ||||||||||||||
Net loss | $ | (103 | ) | $ | (3,261 | ) | $ | (239 | ) | $ | (3,307 | ) | |||||
Add back stock-based compensation expense related to stock options included in reported net loss | 3 | 8 | 11 | 34 | |||||||||||||
Less employee stock-based compensation expense determined under fair value based method for all employee stock option awards | (3 | ) | (6 | ) | (11 | ) | (37 | ) | |||||||||
Effects of unvested options in stock option exchange | — | — | — | 48 | |||||||||||||
Pro forma | $ | (103 | ) | $ | (3,259 | ) | $ | (239 | ) | $ | (3,262 | ) | |||||
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18. | Related Party Transactions |
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TechTV, Inc. |
Digeo, Inc. |
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Oxygen Media LLC |
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Helicon |
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